ACIT, CIRCLE-33(1) vs. ALPS INTERNATIONAL,,

Before us, the Ld. DR supporting the order of the Assessing Officer submitted that in absence of any stock register maintained by the assessee for inward and outward of goods, there was no option with the Assessing Officer except preparing of monthly trading account wherein negative stock balance was noticed. She submitted that the fact of negative stock balance has been confirmed by the assessee itself when it submitted list of 31 bills and claimed that goods corresponding to those bills were supplied in the month of July, 2000 to November, 2000. She submitted that the assessee as well as the supplier parties failed to substantiate with documentary evidences that those goods were supplied during the period from July, 2000 to November, 2000. She also drawn our attention to the statements of the Sh. Mohd. Suleh Prop. M/s PAN Indian Enterprises, wherein he stated that bills were raised within 15 to 20 days. She also referred to statement of Sri Devi Dyal Singhal Partner Jariwal Devidayal & Sons, wherein he stated that bills were raised at the time of delivery of the goods. She drawn our attention towards the analyses of the statements of the supplier parties made by the Assessing Officer. She submitted that there was no requirement of making more than one bill by those suppliers in the month of December, 2000 to March, 2001, when the goods were claimed to be supplied in the month of July or August 2000 and making of a composite bill would have served the purpose. She submitted 7 that pattern of the payments made shows that the payments have been made corresponding to each sale bill and not made at the time of supply of the goods as stated by the assessee. According to her, it was confirmed that the goods corresponding to these bills were not received by the assessee in the month of July, 2000 to November, 2000 and the goods were purchased by the assessee from undisclosed sources and must have been paid in cash and thus the Assessing Officer is justified in making the addition for unexplained investment of Rs.77,44,468/-. On the issue of the addition made on the protective basis, she submitted that only amount was subject to change, pending the working out of the peak undisclosed investment in assessment 1999-2000. She also supported the finding of the Assessing Officer in respect of the addition of Rs.15,48,894/-and Rs.7,74,446/-respectively.’ 4. On the contrary, the Ld. counsel of the assessee referred to paper book filed by the assessee on 11/06/2007 containing pages 1 to 163 and made detailed arguments supporting the order of the Ld. CIT(A). The Ld. counsel filed also written submissions, which are reproduced as under: “Arguments: It is the respectful submission of the assessee that there is no error in the order of the CIT(A) deleting the additions, inter alia, on the following grounds: a) The assessment order is based on fundamentally erroneous premise/ assumptions and self-contradictory findings; (b) The finding of the assessing officer regarding deficit stock in certain months, is erroneous; (c) Reliance placed by the assessing officer on ex-parte statements, without any opportunity of cross-examination to the assessee is erroneous; (d) Protective assessment, without any prior substantive addition/ assessment, is erroneous and have no legs to stand; (e) No addition, without prejudice, warranted on facts. The aforesaid grounds/ arguments are briefly elaborated hereunder:

We have heard submission of the rival parties and perused the relevant material including the order of the lower authorities and paper book filed by the assessee. In the instant case the assessee was not maintaining stock inventory in respect of the goods received physically and goods exported physically. Thus. for working out availability of goods with the assessee for export of the same, the only option with the Assessing Officer was to work out the stock as per books on the basis of monthly trading accounts calculated on the basis of average gross profit rate. The Ld. CIT(A) has held this approach of the Assessing Officer as erroneous. The Ld. counsel of the assessee has also supported this finding of the Ld. CIT(A) and argued that preparation of the monthly trading account is against the very fundamental concept of the accounting since trading account is always prepared at the end of the relevant financial period and not on monthly basis or 12 middle of the year. The Ld. counsel has also submitted that no business can have static monthly GP rate. However, we are not convinced with the above arguments of the Ld. counsel in view of the facts that the preparation of the monthly trading account triggered the assessee to come forward and state that goods corresponding to 31 bills issued in period December, 2000 to March 2001, were received during July, 2000 to Nov., 2000. In our opinion, when the assessee itself has accepted the fact that sales were made without corresponding purchase bills, then whether preparing of the monthly trading account applying average or static gross profit( GP) rate was against the accounting principles or not, is not relevant in the case and thus we are not discussing the decisions relied upon by the assessee to support this contention. The issue which arises in the facts and circumstances of the case are whether the goods corresponding to those 31 bills were received by the assessee in the month of July, 2000 to November, 2000. The assessee itself identified 31 bills received from following parties and claimed that those purchase bills were received after a few months from receipt of goods: - M/s. Damodar Dass Saraf & Co.; - M/s. Deepak Trading Co.; - M/s. Chaturbhai J. Jariwala; - M/s. Gem Impex; - M/s. N.D. Traders; - M/s. N.K. Enterprises; - M/s. Safar Sons; - M/s. PAN Indian Enterprises; and - M/s. Jariwala Devidayal & Sons.

It is evident that no stock inventory was maintained by the assessee, which could substantiate receipt of goods in the month 13 of July, 2000 to November, 2000. The Assessing Officer asked the assessee to substantiate the claim that goods corresponding to 31 bills were received in the month of July, 2000 to November, 2000 but the assessee failed to submit any evidence in this regard including copy of challans issued by the parties or evidence of any freight payment etc or produce the parties before the Assessing Officer. The Assessing Officer issued summons to those parties and recorded the statements of following parties: a) Smt. Sanju Lata, w/o- Sh. Naval Kishore Priprietor of M/s Deepak Trading Co., statement recorded on 28.02.2003, (b) Sh. Ajay Safar, Partner of Damodar Saraf & Co., statement record on 03.03.2003 (c) Sh. Mohd. Sualeh, Prop. of Pan Indian Enterprises, statement recorded on 27.02.2003. (d) Sh. Devi Dayal Singhal, S/o- Sh. Kashmiri Lal Partner of Jariwala Devi Dayal & Sons, statement recorded on 03.03.2003 7. One of the supplier, namely, Sh Mohd. Sulah Prop. Of M/s PAN Indian Enterprises submitted that he lost books of accounts but confirmed the transaction of raising bills of Rs.30,000/- on 01/01/2001, Rs. 30,000/- on 08/01/2001; Rs.30,000/- on 20/01/2001; Rs. 26,000/- on 25/01/2001, on the basis of ledger accounts provided by the assessee. He submitted that bills were raised by him within 15 to 20 days of supply of goods and in no case the delay in raising the bills was more than that. The Assessing Officer also observed from the detail of payments made to the party that the assessee was paying money to the supplier as soon as the bills were drawn and thus it cannot be accepted that goods were received 6 months prior to the raising of bills. Another supplier, namely, Smt Sanju Lata Prop. Of M/s Deepak trading company stated that sales of Rs.3,43,900/- and Rs.2,83,500/- were made to the assessee on 21/12/2002 and 14 ITA No. 4709/Del/2003 22/12/2002 respectively. She submitted that bills were raised on the date of the delivery of the goods itself. This statement contradicts the claim of the assessee that goods corresponding to the bills were received in the month of July to Nov., 2000. The assessee has claimed to have received following bills from M/s Jariwala Devidyal and sons: Bill date Amount(Rs.) 01.01.2001 52,169/- 11.01.2001 1,42,669/- 16.01.2001 1,11,151/- 12.02.2001 1,07,789/- 16.02.2001 72,203/- 12.03.2001 1,14,453/- 15.03.2001 1,13,832/-

According to the assessee goods corresponding to these bills were received in the month of August, 2000, but in the statement recorded on 03/03/2003, Sh Devidayal Singhal Partner of M/s Jariwal Devidayal and sons stated that bills were raised at the time of the delivery of the goods though the payments might even received after 10 to 15 days. This statement of Sh. Devidayal Singhal contradicted the contention of the assessee that goods corresponding to these bills were received in the month of August 2000. On perusal of copy of bills issued by M/s PAN Indian enterprise which are available on page 39, 41, 43, 45 and 47 of the paper book, we find that bills have been issued in seriatim from number 445 to 449 from 01/01/2001 to 24/01/2001 respectively. All the bills are in respect of single item “Brass Knots”. Similarly, copy of bills issued by M/s Deepak Trading Company are available on page 36 and 37 of the paper book. On perusal of the those bills, which are dated 21/12/2000 and 15 22/12/2000, we find that in both the cases, bills raised are in respect of the same items. If the claim of the assessee that those goods were already supplied to it, then we do not understand as why more than one bills were raised subsequently. We agree with the observation of the Assessing Officer that if the goods were received in the month of August, 2000, then there was no logic for preparing separate bills from January to March, 2001. In view of the above statements and other evidences of the case, it is evident that there were no purchase in books before export of the goods in the month of July 2000 to November 2000 to the extent of deficiency of Rs.77,44,468/- pointed out by the Assessing Officer and assessee has attempted to justify availability of goods by way of purchase bills raised in the month of December, 2000 to March, 2001. The contention of the assessee that goods corresponding to those bills were received in the month of July, 2000 to November 2000 but the bills were received in the month of December, 2000 to March, 2001. Thus, the burden of proof was on the assessee to substantiate that corresponding goods were received in the month of July, 2000 to November, 2000. But the assessee has miserably failed to discharge its burden of proof. The assessee neither produced any stock register nor produced any challans or proof of payment for freight of the goods stated to have been received. The statement made by the supplier parties also do not support the contention the assessee. The fact of the export of the goods is not in dispute and it is impossible to make export without having goods in possession of the assessee. In such circumstances, only probability could be that the assessee purchased goods from unexplained sources and fulfilled the exports as without availability of the goods export was not 16 possible at the end of the assessee. We also noted that similar negative stock has been observed in AY 1999-2000 and the assessee could not substantiate the unexplained investment in that year also. It was claimed by the assessee that books of accounts were stolen and thus the assessee agreed for making addition of Rs. 25 lakh against the discrepancy of negative stock.

In the case of Sumati Dayal Vs CIT 214 ITR 801 (SC), The assessee was engaged in the business as a dealer in art pieces, antiques and curious at Bangalore. The assessee shown income from winnings in Jackpots and Treble events in horses races. The said amount was shown by the assessee in the capital account in the books. The ITO made an assessment order and held that the sum is not winnings in races and he treated the said receipts as income from undisclosed sources. The matter went before the before the Settlement Commission. The majority member of the settlement commission decided against the assessee. In the facts of the case the Hon’ble Supreme Court observed as under:

In the instant case before us also, it is not possible for the Assessing Officer to show as how the goods have been acquired by the assessee for fulfilling the export made, but it is certain that goods claimed to have been purchase through 31 bills, were not available at the time of export and thus keeping surrounding circumstances and human probability, we can logically infer that the assessee acquired those goods from unexplained sources in cash. How and to whom that cash has been paid and when that cash has been paid is known to the assessee and it is for the assessee to explain the same. If the assessee fails in doing so, “Amount of investments, etc., not fully disclosed in books of account. 69B. Where in any financial year the assessee has made investments or is found to be the owner of any bullion, jewellery or other valuable article, and the Assessing Officer finds that the amount expended on making such investments or in acquiring such bullion, jewellery or other valuable article exceeds the amount recorded in this behalf in the books of account maintained by the assessee for any source of income, and the assessee offers no explanation about such excess amount or the explanation offered by him is not, in the opinion of the Assessing Officer, satisfactory, the excess amount may be deemed to be the income of the assessee for such financial year.”

In view of aforesaid discussion, we reject the contention of the Ld. counsel that addition has been made without any material or evidence to support that cash purchases were made outside books of accounts. In our opinion, the Assessing Officer is justified in making addition for unexplained investment in goods consumed for fulfilling the export, when no goods were available with the assessee as per books of accounts maintained by the assessee.

As far as the issue of addition on protective basis is concerned, we find that similar issue of negative stock was observed by the Assessing Officer in assessment year 1999-2000 and he reopened the assessment for that year. As the working of peak of negative stock for the assessment year 1999-2000 was pending on the date of passing the assessment order for the year under consideration, the Assessing Officer thought of making the amount of addition as provisional till the pending of the working 20 out of the peak undisclosed investment in assessment year 1999- 2000. In view of the Assessing Officer, the amount of addition might require changes in view of the finding of peak undisclosed investment in assessment year 99-2000. Thus, in our opinion, in substance, the addition made by the Assessing Officer is not on protective basis. In view of the aforesaid, the decisions relied upon by the Ld. counsel that no addition can be made on protective basis without any prior substantive addition, are not relevant. 12. Before us, the Ld. counsel of the assessee submitted that benefit of the addition of Rs. 25 lakh made in assessment year 1999-2000 should be granted to the assessee. On perusal of the assessment order dated 29/03/2005 for assessment year 1999- 2000 under section 143(3) read with section 148 of the Act, which is available on page 160 to 161 of the paper book, we find that shortage of stock worth Rs. 62.86 lakh as observed by the Assessing Officer in the month of April 1998, which was not accepted by the assessee. On being asked by the Assessing Officer to produce books of accounts and vouchers to support its claim, the assessee contended that books of accounts were stolen while being carried in a car and thus unable to reconcile the discrepancy. The assessee agreed for making addition of Rs. 25 lakhs. The Ld. counsel of the assessee has asked for reducing this addition of Rs.25.00 lakhs from the addition made on account of peak amount of negative stock in the year under consideration. We are not convinced with the argument of the Ld. counsel in this regard. There is no connection between the addition of Rs. 25 lakh made on agreed basis in the assessment year 1999-2000 and the addition made in the year under consideration. The 21 benefit of peak of negative stock can be given if the stock statement is prepared for the entire period beginning from assessment year 1999-2000 till the assessment year under consideration, but addition in assessment year 1999-2000 has not been made on the basis of such statement and thus, we are unable to understand on what basis the benefit of the agreed adition of Rs. 25 lakh can be allowed to the assessee. Accordingly, we reject the contention of the Ld. counsel of the assessee.

The Ld. counsel also contended that purchase of Rs.24.46 Lakhs were made from the firms of Mr. Ajay Saraf, who categorically stated having supplied goods earlier and bill later, and thus requested that the amount of Rs. 24.46 Lacs should be subtracted from the addition. A copy of statement of Sh Ajay Saraf is available on page 92 to100 of the paper book. On perusal of the statement, we find that Sh. Ajay Saraf admitted that no specific purchase order was received. He admitted that goods were sent sometime on challan but the assessee failed to produce any challan to support its contention that goods were received prior to receipt of bills. On being asked by the Assessing Officer as how the items were delivered to the assessee and when the bills were raised, Sh Ajay Saraf stated that he did not remember. The relevant question to Sh Ajay Saraf and his answer are reproduced here for ready reference: Q. No. 13- Please state how the items to M/s. Alps International Exports were delivered and when the bills were raised? Ans. – I do not remember as this is a matter of last 2 years.

In question No. 15, Sh. Saraf was asked about mode of transportation of the goods, but he did not submit any response on the mode of transportation of goods.

In view of the above statement of Sh Saraf , it is evident that he has not provided any evidence regarding date of supply of goods to the assessee and the bills raised by his firms. Accordingly, we reject the contention of the Ld. counsel to subtract the purchase bills worth Rs. 24.46 Lakhs from the addition on account of negative stock. 16. The Ld. counsel also submitted that in respect of the balance parties from whom purchases aggregating to Rs.7,78,600/- were made, no statement of the said person were recorded and thus no adverse inference can be drawn in respect of such purchases. In our opinion, the onus was on the assessee to substantiate that goods corresponding to bills raised from those parties were received in the month of July, 2000 to Nov. 2000. But the assessee has neither produced those parties nor furnished any other evidence to support its claim of receipt of goods prior to the raising of bills by those parties thus, the Assessing Officer cannot be faulted. We, accordingly, reject the contention of the Ld. counsel of the assessee. 17. The Ld. counsel of the assessee further submitted that the total 31 purchases bills were aggregating to Rs.46,57,455/-and not Rs.77,44,468. We find that the Assessing Officer computed negative peak stock of Rs.77,44,468/- in the month of August, 2000 and it is assessee who came forward with the list of 31 bills raised in the month of December, 2000 to March, 2001 and claimed that goods corresponding to those bills were received in the month of July, 2000 to Nov., 2000. It is not clear from the 23 orders of the lower authorities as how the assessee identified that goods in respect of only 31 bills were received prior to raising of bills by the suppliers. As no doubts have been raised on the quantum of goods received prior to issue of bills, which were identified and computed by the assessee either in the assessment proceeding or in the first appellate stage, we accept the contention of the assessee for restricting the addition to the aggregate amount of purchases reflected in 31 bills which amounted to Rs.46,57,455/- subject to verification by the Assessing Officer. Accordingly, the ground No. 1 of the appeal is partly allowed for statistical purposes.

On the issue of disallowance of Rs.15,48,894/- which was made by the Assessing Officer under section 40A(3) of the Act, is concerned, we are of the opinion that this addition is not justified as the entire unexplained purchase has already been added. The disallowance under section 40A(3) could be made in respect of the expenditure made in cash and found to be recorded in books of accounts. Making such a disallowance in respect of unexplained expenditure would amount to double disallowance, which cannot be permitted in law. Accordingly, the action of the Ld. CIT(A) in deleting the addition is upheld. The ground No. 2 of the appeal of the Revenue is, accordingly, dismissed.

On the issue of addition of Rs.7,74,447/-made by the Assessing Officer considering 10% gross profit on the purchases sold in the market without recording sales in books of accounts, is concerned we are of the opinion that when the goods corresponding to the exports in the month of July to Nov., 2000 have been held to be obtained from unexplained sources, then the goods corresponding to the bills raised from 31 parties should 24 ITA No. 4709/Del/2003 have been reflected in the closing stock. The onus is on the assessee to explain as why those goods were not considered as part of the closing stock. Since these goods are not appearing in the closing stock, the logical inference is that the goods have been sold in open market without recording the sales in the books of accounts. In our opinion, the action of the Ld. Assessing Officer in making the addition is justified however the amount of disallowance is restricted to the 10% of Rs.46,57,455/-, i.e., the amount of unexplained stock , which works out to Rs.4,65,745/-. Accordingly, the ground No. 3 of the appeal is partly allowed.

In the result, the appeal of the Revenue is partly allowed for statistical purposes.