Loading judgment…
No AI summary yet for this case.
Income Tax Appellate Tribunal, DELHI BENCH ‘E’ : NEW DELHI
Before: SHRI KULDIP SINGH & SHRI PRASHANT MAHARISHI
PER KULDIP SINGH, JUDICIAL MEMBER : Appellant, DCIT, Circle 24 (1), New Delhi (hereinafter referred to as the ‘Revenue’) by filing the present appeal sought to set aside the impugned order dated 13.03.2013 passed by the Commissioner of Income - tax (Appeals)-XXIII, New Delhi qua the assessment year 2008-09 on the grounds inter alia that :- “1. On the facts and circumstances of the case, the Ld CIT(A) has erred in accepting the additional evidence in violation of Rule 46A of the Income Tax Act.
2. On the facts and circumstances of the case, the Ld CIT(A) has erred in deleting the addition of Rs.89,49,546/- on account of value of closing stock.
3. On the facts and circumstances of the case, the Ld CIT(A) has erred in deleting the addition of Rs.12,95,076/- on account of expenses on samples.
4. On the facts and circumstances of the case. the Ld CIT(A) has erred in deleting the addition of Rs.52,26,696/- on account of expenses on consumables.”
Briefly stated the facts necessary for adjudication of the issue at hand are : Assessee is an individual, carrying on manufacturing and export business of leather garments in the name and style of M/s. Incas International, a proprietorship concern. Assessee declared taxable income under the head ‘Profit & Gains from Business & Profession, ‘Income from house property’, ‘Income form capital gains’ and ‘Income from other sources’ during the year under assessment. Assessing Officer (AO), after pointing out various discrepancies in the working result shown and the gross profit rate declared, made disallowance of Rs.89,49,546/- on account of valuation of closing stock on the ground that the assessee has shown incorrect closing stock figure reported to the Department as well as to the bank because assessee has admitted that he has not maintained monthly stock details nor he has physically verified the closing stock, thus provided ad hoc results to the bank. AO also made addition of Rs.12,95,076/- and Rs.52,26,696/- on account of expenses on samples and on account of expenses on consumables respectively and thereby assessed the total income at Rs.2,45,49,460/-.
Assessee carried the matter by way of an appeal before the ld. CIT (A) who has deleted the additions by allowing the appeal. Feeling aggrieved, the Revenue has come up before the Tribunal by way of filing the present appeal.
We have heard the ld. Authorized Representatives of the parties to the appeal, gone through the documents relied upon and orders passed by the revenue authorities below in the light of the facts and circumstances of the case.
GROUND NO.1 5. So far as first ground raised by the Revenue is that the ld. CIT (A) has erred in, “not accepting the additional evidence in violation of Rule 46A of the Act” is concerned, the Bench has passed an order dated 14.06.2018 directing the ld. DR to file a proper paper book giving detail of the papers filed by the assessee before AO as well as ld. CIT (A) so as to make out as to which of the evidence has been entertained by the ld. CIT (A) in violation of Rule 46A of the Income-tax Rules. Ld. DR has not placed on file any such paper book. Even perusal of the impugned order passed by the ld. CIT (A) apparently shows that no such additional evidence as alleged by the Revenue in grounds of appeal has been entertained. So, the Revenue has no case on ground no.1, hence the same is determined against the Revenue.
GROUND NO.2 6. Major issue raised by the Revenue in this case is that the ld. CIT (A) has erred in deleting the addition of Rs.89,49,546/- on account of value of closing stock. Ld. DR for the Revenue challenging the impugned order drew our attention towards remand report filed by the AO, extracted at page 20 of the impugned order, and then findings written by ld. CIT (A) at para 5 on page 25 of the impugned order qua issue in question.
No doubt, the assessee has filed necessary recast accounts to support his contention. Assessee has also filed books of account along with invoices and AO proceeded to conclude as under :- “The contention of the assessee is not acceptable as the assessee could have produced / filed the necessary evidence at the time of hearing, the facts now produced are an after thought, and are almost repeated excuses which are not convincing. The assessee should have placed its version at the time of the assessment proceedings to satisfy the AO with regard to the contention, which he could not do so. The assessee could not produce anything new, these facts are the same as per assessee's contention in his submissions made before the CIT(A), and nothing new has been stated by the assessee in his support before the AO. Thus worthy CIT(A) may decide the case accordingly.”
Ld. CIT (A), after entertaining the rejoinder filed by the assessee to the remand report, proceeded to hold as under :-
“5.2 The Assessing Officer has not pointed out any specific defect in the books of account. The appellant has produced the invoices in support of purchases, consumables and samples before the Assessing Officer during the remand proceedings, and the Assessing Officer has stated that the invoices tally with the books of account. The addition made in the assessment order of suppression/under valuation of closing stock at Rs.89,49,546/- is based on stock statements provided to the bank, and the preponderance of judicial pronouncements is that the statement given to a bank cannot be made the sole foundation for a finding that the stock had been suppressed or undervalued. It is also evident that the show cause notice was issued to the appellant, requiring him to explain the monthwise discrepancies, on 13.12.2010, on the basis of figures submitted by the appellant on 20.07.2010. Moreover, the explanations filed by the appellant before the Assessing Officer have not been dealt with in the assessment order, apart from stating that "the assessee is not able' to explain the abnormal increase in closing stock for the first month of accounting period .... this fact proves that the assessee used to suppress/under value his stock in the month of March to minimise his profit and show the same as actual in the month of April."
During the assessment proceedings, a detailed questionnaire was issued to the assessee to reply with, which is extracted as under :-
“3.5 The above discrepancy was pointed out vide questionnaire dated 13.12.2010 and assessee was required as under :- i) In the month of April 2008 amount of sale is Rs.45,41,875/- against which gross profit has been shown at Rs.1,12,29,963/- showing gross profit rate of 247% which is not possible in the normal course of business. Please explain and justify the inflation reflected in closing stock. Inflation in stock reflected in the first month of the financial year under consideration shows that the closing stock of immediate preceding year has been suppressed 1 undervalued while finalizing the balance sheet of immediate preceding year and in the first month of the year under reference actual stock has been shown. In view of the above facts, please show cause as to why your case for F.Y. 2006-07 relevant to A.Y. 2007-08 may not be reopened u/s 147 of the I.T. Act, 1961. ii) In the month of August, October, November, February & March of the financial year under reference, gross profit has been shown at negative figure which is also not possible in normal course of business. Please explain & justify the negative gross profit for each month separately. iii) In the last month of the accounting period under reference, gross profit has been shown at negative figure of Rs.84,44,216/- giving gross profit rate of (-) 167% which is not only impossible in normal course of business but also creates doubt about the correctness of the books of accounts. An analysis of gross profit rate of the first month and last month of the accounting period shows that the you have suppressed / undervalued the closing stock at the end of the year and inflated the same in the first month of the next financial year. Please explain & justify the discrepancies as pointed out above.”
When we examine the assessment order as well as order passed by the ld. CIT (A) in the light of the remand report submitted by the AO, aforesaid queries raised by the AO have never been replied with. In the remand report, no doubt, the assessee has filed recast accounts in support of his contention, also filed books of accounts along with invoices but the query raised by the AO that neither monthly stock details are maintained nor closing stock is physically verified and the closing stock figures supplied by the department differs from figures supplied to the bank. The ld. AR for the assessee contended that the assessee is having audited accounts which cannot be disputed by the AO. But, during the course of arguments, it was candidly admitted by the ld. AR for the assessee that audited accounts have never been produced before the AO.
The next contention raised by the ld. AR for the assessee that if no adverse comments have been given by the AO in the remand report, the appeal of the Revenue is liable to be dismissed. But we are constrained to disagree with this contention because assessee cannot be allowed to take benefit of its own wrong as he has not replied with the queries raised by the AO nor ld. CIT (A). In these circumstances, the ld. CIT (A) has erred in reaching the conclusion that the AO has made assessment of the assessee on account of closing stocks in arbitrary and fanciful manner and cannot be said to be based on relevant material.
When the assessee himself has not come up with explanation to explain the various discrepancies pointed out by the AO so as to justify the accounting results on the basis of which gross profit has been declared nor the assessee has produced audited books of account, we are of the considered view that to meet with the ends of justice, the order passed by the ld. CIT (A) is not sustainable and is ordered to be set aside.
Hence, case is remanded back to the AO to decide afresh after providing an opportunity of being heard to the assessee so as to explain/reconcile valuation of closing stock and also to produce on record the audited accounts of the assessee. Consequently, ground no.2 is determined in favour of the Revenue for statistical purposes.
GROUNDS NO.3 & 4 12. Since addition of Rs.12,95,076/- and Rs.52,26,696/- on account of expenses on samples and on account of expenses on consumables respectively are inter-connected with Ground No.2 and are required to be decided after correct appreciation of the valuation of the stock, both these issues are also ordered to be decided by the AO afresh after deciding the issues as to the correct value of the closing stock. Hence, grounds no.3 & 4 are also remanded back to the AO to decide afresh after providing adequate opportunity of being heard to the assessee. Consequently, grounds no.3 & 4 are determined in favour of the Revenue for statistical purposes.
Resultantly, the appeal filed by the Revenue is partly allowed for statistical purposes. Order pronounced in open court on this 13th day of September, 2019.