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Income Tax Appellate Tribunal, VISAKHAPATNAM BENCH, VISAKHAPATNAM
Before: SHRI V. DURGA RAO& SHRI D.S. SUNDER SINGH
आदेश /O R D E R PER D.S. SUNDER SINGH, Accountant Member: This appeal is filed by the assessee against the order of the Commissioner of Income-Tax (Appeals)[CIT(A)], Guntur vide ITANo.769/CIT(A)/GNT/11-12 dated 30.08.2013 for the assessment year 2009-10.
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Ground No.1 and 7 are general in nature which does not require specific adjudication.
Ground Nos. 2 to 4 are related to the addition made by the Assessing Officer(AO) on account of valuation of the closing stock. The assessee filed return of income on 30.09.2009 admitting taxable income of Rs.2,03,960/-. A survey u/s 133A was conducted in this case on 18.02.2009 and the case was converted to scrutiny. During the course of survey, the assessee has accepted the additional income of Rs.20,00,000/-. The AO not being satisfied with the additional income offered by the assessee worked out the difference in book stock as well as physical stock as on the date of survey and arrived at the difference of Rs.16,10,560/- in the case of gold ornaments, Rs.10,33,607/- in the case of silver and Rs.1,31,403/- in the case of cloth business. After adjustment of entries for making gold ornaments etc. which are not recorded in the books of accounts, the total value of the excess stock worked out to Rs.28,26,294/- and the same was brought to tax. In addition to the excess stock, the AO also made the addition of Rs.4,44,169/- on account of sundry creditors.
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Aggrieved by the order of the AO, the assessee went on appeal before the CIT(A) and the Ld.CIT(A) confirmed the additions made by the AO. Aggrieved by the order of the CIT(A), the assessee is in appeal before us.
During the appeal hearing, the Ld.AR argued that a survey was conducted u/s 133A in this case. During the course of survey, Physical inventory was taken and the physical stock available was 9.142 Kgs and silver was 116.127 Kgs. As per the physical inventory there was no difference in the stock. The assessee has furnished quantitative reconciliation statement of physical stock found as on the date of survey and the stocks as per the books of accounts and there was a marginal difference of 0.036 gms in the case of gold and 0.027 gms. in the case of silver which is very negligible in this line of trade. Ld AR argued that the assessee has maintained the regular books of accounts, since there was no difference in stock no addition required on account of excess stock. The assessee furnished reconciliation of gold and silver as follows : Quantitative Reconciliation of Gold : Particulars Details Quantity in Gms. Physical Inventory taken at the time of survey on 9142.290 18.2.2099 Stock as per the stock records as on 12.2.2009 since 8848.336
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records are updated upto 12.2.2009 Add : Purchases J.R. Jewellers, Vza(Inv.No.:1192 dt.2.2.09, payment 77.650 made on 28.01.2009 through Ch.No.126223 drawn on HDFC Bank, Tanuku J.R.Jewellers, Vza (Inv.No.1217 dt.14.2.09, payment 380.800 made on 16.02.2009 through Ch.No.126224 drawn on HDFC Bank, Tanuku Ornaments received from Smiths (against gold 56.10 given and which were duly entered in the impounded stock register at the time of handing over to the smith which were also entered in ‘smith stock register’ we are herewith producing the smith stock register for your kind perusal, which was duly verified and initialed by your officials at the time of survey 9362.886 Less : Sales made from 13.02.2009 to 18.02.2009 220.560 9142.326 Difference 0.036 Quantitative Reconciliation of Silver Particulars Details Quantity in Gms. Physical Inventory taken at the time of survey on 116.270 18.2.2009 Stock as per the stock records as on 31.1.2009 since 90.278 records are updated upto 31.1.2009 Add : Purchases Geeta Silver Works, Tenali (Inv.No.14 dt.1.12.2008 77.650 payment made on 15.02.2009 through Ch.No.126211 drawn on HDFC Bank, Tanuku Mahaveer Silver Palace, Vijayawada (Inv.No.11 9.897 dt.9.2.09, payment made on 03.01.2009 through Ch.No.126217 drawn on HDFC Bank, Tanuku Pavan Krishna Jewelers, Nellore (Inv.No.46 dt.2.2.09, 10.606 payment made in advance 126.58 Less : Sales made from 01.02.2009 to 18.02.2009 10.582 115.998 Difference 0.272
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5.1. The Ld.AR argued that though there is no difference in physical stock available in the books of accounts, the AO valued the stock adopting the gross profit basis which is incorrect method of valuation of stock and gives distorting picture. When there are stock records, the AO should arrive at the stock difference as per the books of accounts and the physical stock available as on the date of survey and difference if any found should be valued as per the method of accounting followed by the assessee. The assessee further stated that the entire sales bills, purchase bills were made available to the AO to arrive at the physical stock. However, the AO chose to arrive at the value of closing stock difference by adopting the gross profit method which is incorrect approach for arriving the difference in stock. Though the AO raised the issue with regard to Sri Geetha Silver Works, the same was accounted in the stock books which can be verified from the books of accounts. The AO found that the said bill was not recorded on 01.12.2008. The AR explained that in this case the stocks were received but the bill was received late, hence could not make the entry in the books. In case of suspicion, the AO should have verified from the vendor. The Ld.AR also argued that the assessee is consistently following the average purchase price method for valuing the closing stock. Since the assessee has followed the method consistently, there is no reason to disturb the method followed
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by the assessee. In case the AO is not satisfied with the method followed by the assessee, the Ld.AR argued that the same method should be adopted for opening stock and closing stock of the earlier year since the assessee is following one of the accepted methods consistently and due credit should be given for difference if any for arriving the value in stock difference. The Ld.AR further submitted that the assessee has accepted additional income of Rs.20,00,000/- though the difference in stock was marginal in quantitative terms with respect to gold, silver and stock of cloth to purchase peace with the department. Hence submitted that the additional income offered by the assessee is fair and reasonable, no further addition is called for.
On the other hand, Ld.DR vehemently supported the orders of the lower authorities.
We have heard both the parties, perused the material placed on record and gone through the orders of AO as well as Ld.CIT(A). A survey u/s 133A was conducted in the case of assessee and during the course of survey, the AO has taken physical stock and the assessee also maintained stock record on computer which is evident from the assessment order.
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Except not making the entry of bill relating to Sri Geetha Silver Works, the AO did not pin point any difference in physical stock or any of the discrepancy. Though Sri Geetha Silver Works bill No.14 was not entered in the stock record the purchase bill is available at the time of survey and assessee stated the reason for not making the entry was late receipt of the bill. Since the receipt is available same can be considered for arriving at the stock. And there is no problem. Further though AO raised the issue of not making the entry in respect of Sri Geetha Silver Works, the AO did not make any addition and also no enquiry was conducted with Sri Geetha Silver Works. Though the AO did not find any difference in the physical inventory of gold and silver, but arrived the difference in valuation of stock adopting the gross profit method and valued the stocks at cost or market price whichever is lower against the average purchase price adopted by the assessee. From the assessment order while revaluing the physical stock, no other difference was found by the AO. When stock books are available and the entire purchase and sales are available, there is no reason to work out the stock difference by adopting the gross profit method. The AO should arrive at the difference in physical stock with the book stock and difference if any has to be valued as per the system of accounting followed by the assessee or the cost of market price whichever is lower. In the instant case
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the assessee is following the average price method and the AO adopted the method of cost of market price whichever is lower without finding any mistake in the method followed by the assessee. The AO has gone ahead with arriving the value of closing stock by adopting the cost of market price whichever is lower by adopting the gross profit rate 15% which is incorrect. The assessee has furnished the reconciliation of stocks found at the time of survey and the actual stock difference was 0.036 gms in respect of gold and 0.027 gms. in respect of silver and with regard to the cloth business, it was Rs.1,31,403/-. Considering the deficiencies found during the course of survey and the explanation offered by the assessee at the time of hearing and the fact that the AO did not make out a case for excess stock of Rs.28.26 lakhs with the quantitative differences, we hold that the additional income admitted by the assessee amounting to Rs.20,00,000/- in respect of stock difference is reasonable and accordingly we confirm the addition of Rs.20,00,000/- and delete the balance. The appeal of the assessee on this ground is partly allowed.
Ground No. 5 and 6 are related to the addition of Rs.4,44,169/- representing unsecured creditors. During the assessment proceedings, the assessee failed to submit the confirmation letters from the sundry creditors
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for an amount of Rs.4,44,169/-. Therefore, the AO made the addition of Rs.4,44,169/- holding that the outstanding balance of sundry creditors is not genuine. On appeal, the Ld.CIT(A) upheld the addition.
Aggrieved by the order of the CIT(A), the assessee is in appeal before this Tribunal. During the appeal hearing, the Ld.AR submitted that in the assessment proceedings, the AO has called for the confirmations and the assessee has furnished the details to the AO. The AO issued enquiry letters to the creditors and called for the confirmations. During the pendency of assessment proceedings, the AO has not received replies, hence the addition was made however, subsequent to completion of the assessment, creditors have replied to the AO confirming the credit balances in respect of JT Jewellery, Nellore for Rs.2,49,998/-and V.Srinivasa Rao, Velpur Road, Tanuku for an amount of Rs.46,283/-. Therefore, requested to delete the addition. On the other hand, the Ld.DR supported the orders of the lower authorities.
We have heard both the parties and perused the material placed on record. During the pendency of assessment proceedings, the assessee furnished the details and the AO caused the enquiries with the respective
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creditors. During the pendency of proceedings the replies were not received from the creditors. However, it was submitted by the Ld.AR that subsequently the creditors have submitted replies to the AO and the copies of the same were obtained and placed at paper book at page No.34 and 35. We have verified the creditors confirmation letters received by the AO subsequently and the same required to be considered. Therefore, we are of the view that in the interest of justice, the issue should be remitted back to the file of the AO to decide the issue afresh on merits. Accordingly, we direct the AO to verify the confirmations and decide the issue afresh on merits. The assessee’s appeal on this ground is partly allowed.
In the result, appeal of the assessee is partly allowed.
The above order was pronounced in the open court on 4th May, 2018.
Sd/- Sd/- (िी.दुगाा राि) (धड.एस. सुन्दर ससह) (V. DURGA RAO) (D.S. SUNDER SINGH) न्याधयक सदस्य/JUDICIAL MEMBER लेखा सदस्य/ACCOUNTANT MEMBER धिशाखापटणम /Visakhapatnam ददनांक /Dated : 04.05.2018 L.Rama, SPS
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आदेश की प्रधतधलधप अग्रेधर्त/Copy of the order forwarded to:- 1. अपीलाथी / The Appellant- M/s A.N.R.Shopping Mall, D.No.32-11-32,Velpur Road, Tanuku, West Godavari Dist 2. प्रत्याथी / ITO, Ward-2, Tanuku 3. The Commissioner of Income Tax, Rajahmundry 4. The Commissioner of Income-Tax(Appeals)-2, Guntur 5. धिभागीयप्रधतधनधध, आयकरअपीलीयअधधकरण, धिशाखापटणम /DR, ITAT, Visakhapatnam 6.गाडाफ़ाईल / Guard file आदेशानुसार / BY ORDER // True Copy //
Sr. Private Secretary ITAT, VISAKHAPATNAM