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Income Tax Appellate Tribunal, “B”, BENCH KOLKATA
Before: SHRI S. S. GODARA, JM &DR. A.L.SAINI, AM
Per Dr. A. L. Saini: The captioned appeal filed by theassessee, pertaining to Assessment Year 2010-11, is directed against an order passed by the Ld. Commissioner of Income Tax (Appeals)-5, Kolkata in appeal No.107/CIT(A)-5/Wd-13(1)/13- 14/14-15, dated 29.03.2016, which in turn arises out of an assessment order passed by the Assessing Officer u/s 143(3) of the Income Tax Act, 1961 (hereinafter referred to as ‘the Act’), dated 30.03.2013.
The grievances raised by the assessee are as follows:
“1. That on the facts and circumstances of the case and in law, the Appellate Order, passed by the Ld. CIT(A), upholding the addition of Rs.43,45,125/- and Rs.4,81,600/- on account of stock discrepancy and the estimated profit on sale thereof, for being founded on fallacious, prejudiced and arbitrary reading of the evidence, deserves to be cancelled, reversed and rendered ineffective.
2. That on the facts and circumstances of the case and in law, the Ld. CIT (A), while alleging and, thereupon ,arriving at a stock shortage of Rs.43,45,125/- at the year end, ought to have interpreted the same as arising from unrecorded sale and therefore, restricted the addition to the profit amount of Rs. 4,81,600/-.
Diamond Scaffolding Co. Pvt. Ltd. Assessment Year: 2010-11 3. That on the facts and circumstances of the case and in law, the ld. CIT (A) has grossly erred in unreasonably upholding the separate addition of Rs.43,45,125/-, viewed as unrecorded sale, despite the addition of Rs. 4,81,600/- on account of estimated profit attributable thereto.
4. Even otherwise, the Ld. CIT(A) , ought to have appreciated that the Undisclosed Sale of Rs.30,00,000/-, noticed during Survey, and the alleged stock shortage of Rs.43,45,125/- for being interlinked, and given the separate assessment of Profit element of the latter amount, of Rs.4,81,600/- the further addition of Rs.43,45,125/- would be excessive and superfluous.
5. The Appellant craves leave to modify, supplement, withdraw, any of the foregoing grounds and also go for additional grounds, before or during the appeal hearing.”
3.The brief facts qua the issue are that during the assessment year 2010-11, the assessee was engaged in the business of manufacturing and trading of scaffolding materials. A survey operations u/s 133A of the Act was conducted at the business premises of the assessee company on 17.02.2010.On examination of documents impounded u/s 133A(3), depositions, other details and documents, it was detected that on the day of survey on 17.02.2010, the stock of business materials found at the premises situated at BiradingiHowrah, was valued by the survey personnel in presence of and with assistance of knowledgeable and responsible persons of the company and the value of that stock was aggregated to Rs.1,48,34,231/-, which was not disputed and was admitted by Shri Subrata Das, director of the company. Such admittance was recorded in the answer to Question No.21 of the deposition dated 17/02/2010. The closing stock was disclosed for Rs.85,02,126/- in the return of income. The discrepancies in regard to understatement of such stock, was noted to the tune of Rs.43,45,125/-. The computation of such understatement was as under:
Discrepancies in closing stock (A) Sale as on 31/03/2010 Rs.6,50,75,514/- ………… (i) Ref: Profit & Loss Account Sale as on 17/02/2010 Rs.5,04,03,360/- …………(ii) (Date of Survey Ref: DSCPL, Page-77) Sale in between period Rs.1,46,72,154/- …….. (i) minus (ii)
Diamond Scaffolding Co. Pvt. Ltd. Assessment Year: 2010-11 (B) Purchase as on 31/03/2010 Rs.5,31,30,082/- ………….(iii) Ref: Profit & Loss Account Purchase as on 17/02/2010 Rs.4,04,44,908/-……………(iv) (Date of Survey Ref: DSCPL, Page-77 Purchase in between period minus (iv) Rs.1,26,85,174/- ……….(iii) Sale made out of existing stock Rs.19,86,980/- ……………….(v)
Spot valuation of stock on the date of survey (17/02/2010) Rs.1,48,34,231/- Less: Sale out of existing stock ………(v) above Rs.19,86,980/- ---------------------- Closing stock as per facts and figures above Rs.1,28,47,251/- Less: Closing stock reflected in return Rs. 85,02,126/- --------------------- Understatement of closing stock Rs. 43,45,125/-
A show cause notice dated 13.03.2013 was issued to the assessee to explain why the stock was reduced and was asked why Rs.43,45,125/- would not be added to total income for understating the closing stock. In response, it was submitted by the assessee that the said discrepancies were caused due to undercast of sales to the tune of Rs.73,45,125/-, which was relating to cash sales and was not disclosed in the return. Assessee divided the said cash sales in twocomponents. One of Rs.30,00,000/- related to pre survey period and Rs.43,45,125/- related to post survey period up to 31.03.2010, thus aggregating Rs.73,45,125/- ( Rs.30,00,000 + Rs.43,45,125). It was relied upon the answer to Question No.20 of the deposition of Shri Subrata Das, director that was administered on 17.02.2010. In that answer it was recorded as follows: “As per my estimate, during the current financial year there was a total cash transaction of an approximate amount of Rs.30,00,000/- which has not yet been declared in the regular books of account of different business concerns under our control and management. We like to offer the said amount of Rs.30,00,000/- as sale proceeds of the current year in the names of different concerns under our control. The detail working will be done shortly and accordingly on the additional income disclosed will be taken into account for payment of advance tax during the current year.”
Diamond Scaffolding Co. Pvt. Ltd. Assessment Year: 2010-11 From the above deposition it was pointed out that the undisclosed cash sale of Rs.30,00,000/- was deposed to have been taken into account and it was believed that the said cash sale of Rs.30,00,000/- was taken into account in the process of preparing the final account as on 31.03.2010. So, the explanation was not found acceptable. Similarly, the disclosures of Rs.43,45,125/- as undisclosed cash sale for post survey period upto 31.03.2010, was absolutely an afterthought and also not be accepted as it was unreasonable. The assessee had also argued with reference to a number of case laws that the issue of undercast of sales would be adjudged and added to the total income on Turnover/Gross Profit Ratio that had also been calculated by them as 11.82%.
The ld AO noted that the assessee preferred undisclosed cash sale of Rs.73,45,125/-(Rs.30,00,000 +Rs.43,45,125), to understatement of closing stock of Rs.43,45,125/- for having lesser tax burden. Therefore, the ld AO noted that since the assessee has not disputed the valuation of stock of Rs.1,48,34,231/- on the day of survey in deposition as well as in the reply to said show cause notice and assessee’s plea of undisclosed cash sales resulting in undercast of sales of Rs.73,45,125/- in the final accounts as on 31.03.2010 was not satisfactory and thereby not acceptable and hence Rs.43,45,125/- was added to the total income of the assessee as understatement of closing stock that resulted in reduction of income.
The ld AO noted that Pe-survey periodassessee accepted Rs.30,00,000/-, as it was utilized for various cash payments for expenses towards labour charges etc. and assessee admitted that it was not accounted for. The Post survey, the amount of Rs.43,00,000/-, rounded off(Rs.43,45,125), which has not been accounted for and admitted by theassessee. The ld AO noted that had these sales been accounted for by the assessee, there would have been no difference for closing stock as shown in the accounts and has calculated in the show cause notice. The assessee’s contention that only G.P rate is required to be applied, the undisclosed sale is not at all reasonable because this is not a case where corresponding purchases are also not accounted for. The excess stock has been admitted and as such the corresponding Page | 4
Diamond Scaffolding Co. Pvt. Ltd. Assessment Year: 2010-11 purchases were undisclosed and made out of undisclosed income. There is no evidence to show that corresponding purchases were made on credit and no payments were made tillthe receipts of cash sale process. The ld AO rejected the assessee’s contentions and held that the entire cash sales which was admitted by not accounted for added to the income of the assessee. Post survey cash sales should also include gross profit. Therefore, Gross Profit Rs.4,81,600/-(@11.2% of Rs.43,00,000/- ) was also added back to the total income of the assessee.
Aggrieved bythe stand so taken by the Assessing Officer, the assessee carried the matter in appeal before the Ld. CIT(A) but without any success.The ld CIT(A) observed that the implication of showing Rs.85,02,126/- as book stock as on 31.03.2010,was that the appellant in the final accounts owned up only Rs.85,02,126/- of stock whereas the Assessing Officer’s projection suggest that the appellant should have in its possession on 31.03.2010,worth Rs.1,28,47,251/- of closing stock. The Assessing Officer therefore,rightly concluded that the difference of Rs.43,45,125/- (Rs.1,28,47,251 – Rs.85,02,126) represents understatement of closing stock.As regards estimation of profit on sales of undisclosed stock, theld CIT(A) noted that assessing officer had reasonably assumed that the said stock was sold and the sale consideration was not recorded in the books of accounts therefore, the working of gross profit @ 11.2%, to the tune of Rs.4,81,600/-was, therefore, confirmed.
Aggrieved by the order of the ld. CIT(A), the assessee is in further appeal before us.
The ld. Counsel for the assessee begins by pointing that on account of stock difference of Rs.43,45,125/-, the addition made by the Assessing Officer are on two counts viz. (i) he made the addition of the entire excess stock to the tune of Rs.43,45,125/- and, (ii) estimated the profit on sale of undisclosed Page | 5
Diamond Scaffolding Co. Pvt. Ltd. Assessment Year: 2010-11 stock at the rate of 11.2%. Therefore, the counsel pointed out that only one addition should be made, that is, either treating the said value as undisclosed income under section 69A or estimated the profit on sale of undisclosed stock at the rate of 11.2%. The request of the ld. Counsel for the assessee to the Bench, was that only gross profit at rate of 11.2% should be confirmed and the addition on account of undisclosed income on account of excess stock should be deleted.
On the other hand, the ld. DR for the Revenue submitted that both the additions should be sustained. As the assessee suppressed the facts therefore, the addition on account of excess stock of Rs.43,45,125/-, as undisclosed income of the assessee and the profit on sale of undisclosed stock at the rate of 11.2% should be confirmed.
We have given a careful consideration to the rival submissions and perused the materials available on record, we note that ground No.1 to 3 raised by the assessee relate to addition of Rs.43,45,125/- on account of discrepancy in stock and estimation of profit on sale of stock @ 11.20% of Rs. 4,81,600/- (Approx)( that is, Rs.43,45,125 x 11.20%). In ground No.4 the grievance of the assessee is that undisclosed sale of Rs.30,00,000/- is interlinked with the alleged stock discrepancy of Rs.43,45,125/-. Since all the grounds raised by the assessee are common and interlinked, challenging the discrepancy in stock, which are dealt together as under.
We note that as per the calculation on the date of survey the amount worth Rs.1,48,34,231/- of stock was physically found and the said value was accepted by the Director of the assessee-company. If the purchases and sales as recorded in the books of accounts are considered along with the physical stock as detected, then the value of stock on the closing date of the financial year should have been Rs.1,28,47,251/- whereas the assessee showed in the final accounts only book stock of Rs.85,02,126/-, as on 31.03.2010. Thus, discrepancy found by ld AO is Rs.43,45,125/- (Rs.1,28,47,251 - Rs.85,02,126). The value of physical stock was not disputed by the assessee and the same as on the date of survey was Page | 6
Diamond Scaffolding Co. Pvt. Ltd. Assessment Year: 2010-11 Rs.1,48,34,231/-. The implication of showing Rs.85,02,126/- as book stock as on 31.03.2010 is that the assessee in the final accounts owned up only worth Rs.85,02,126/- of stock whereas the Assessing Officer’s projection suggests that the assessee should have in its possession on 31.03.2010 worth Rs.1,28,47,251/- of closing stock. Working backward the assesssee`s director seems to have admitted that Rs.30 lakhs was utilized for various cash payments for expenses towards labour charges etc, and assessee admitted that it was not accounted for. These expenses paid out of unaccounted sale of Rs.30 lakhs.Irrespective of the admission, the fact is that the assessee was in possession of excess stock of Rs.43,45,125/- which could not be supported by book entries or other documents which could explain the source of such stock. The Assessing Officer treated the said difference as understatement of closing stock and treated the said value as undisclosed income.
We note that assessing officer on the said undisclosed stockdid estimation of profitassuming that the said stock was sold and the sale consideration was not recorded in the books of accounts. The estimation of profit on sales of undisclosed stock, was made by ld AO@ 11.20%, which comes to Rs. 4,81,600/- (Approx) ( Rs.43,45,125 x 11.20%).
Considering the principle of natural justice in mind, we are of the view that one particular income should not suffer tax twice, that is, making addition of Rs.43,45,125/- on account of undisclosed income of the assessee under section 69A of the Act and on the same undisclosed income which is being suffered tax under section 69A on account of alleged stock discrepancy, the profit is also being estimatedby ld AO of Rs. 4,81,600/-(@ 11.2%, on the said undisclosed income of Rs.43,45,125/-), which is not justifiable.
We are of the view that both the additions should not be made.Either it should be treated as undisclosed income under section 69 of the Act or the profit on sale of undisclosed stock at the rate of 11.2%. By no stretch of imagination this particular addition can suffer taxation twice. The taxation law and taxation policy in India does not suggest that a particular receipt or amount should be taxable twice.We note that assessee’s gross profit rate was 11.2% and Page | 7
Diamond Scaffolding Co. Pvt. Ltd. Assessment Year: 2010-11 therefore we deem it fit and proper to confirm the addition @11.2%, that is, estimated profit on sale of stock at Rs.4,81,600/-. Hence, we delete the addition made by the Assessing Officer on account of undisclosed income of stock to the tune of Rs.43,45,125/- and confirmed the addition @11.2% being gross profit of Rs. 4,81,600/- on sale of excess stock.
In the result, the appeal of the assessee is partly allowed.
Order is pronounced in the open court on 03.08.2018.