SRI SURAJ KUMAR KANODIA,HOWRAH vs. ITO, WARD-47(3), KOLKATA

This appeal by the assessee is directed against the order of Commissioner of Income Tax (Appeals)-14, Kolkata dated 30.05.2016. Assessment was framed by ITO Ward-46(4), Kolkata u/s 143(3) of the Income Tax Act, 1961 (hereinafter referred to as ‘the Act’) vide his order dated 31.12.2010 for assessment year 2008-09. Shri Manish Tiwari, Ld. Authorized Representative appeared on behalf of assessee and Shri S.M. Das, Ld. Departmental Representative represented on behalf of Revenue.

First issue raised by assessee in ground No.1 is that Ld. CIT(A) erred in confirming the order of Assessing Officer by sustaining the disallowance of ₹3,03,532/- on account of suppressed sale as well as gross profit.

Briefly stated facts are that assessee in the present case is an individual and engaged in trading of Sarees. A survey was conducted at the premises of assessee u/s. Sri Suraj Kr Kanodia Vs. ITO Wd-47(3), Kol. Page 2 133A of the Act on 20.02.2008. During the course of assessment proceedings, AO found mismatch in the value of closing stock as on 31.03.2008 which was worked out at ₹2,72,961/-. As per the AO, closing stock of the assessee should have been at ₹52,17,893/- but assessee has shown closing stock at ₹49,44,932/- only. Accordingly, AO was of the view that assessee has made undisclosed sale of ₹2,72,961/-. Besides the above, AO found gross profit shown by assessee is at 11.20% which works out on the undisclosed sale at ₹30,571/-. Accordingly, AO treated a sum of ₹3,03,532/- (2,72,961/- + 30,571) as undisclosed income of assessee and added to the total income of assessee.

Aggrieved, assessee preferred an appeal before Ld. CIT(A). The assessee before Ld. CIT(A) submitted that valuation was made by the AO at the time of survey on the basis of market value whereas the assessee has been maintaining closing stock on cost or market value whichever is less. Thus the aforesaid difference needs to be deleted. However, Ld. CIT(A) disregarded the contention of the assessee and confirmed the order of AO by observing as under:- “I have examined the issue carefully and find that there is little merit in the appellant’s contention that the method of inventory taking on the date of survey as wrong. It is amply clear that the valuation of stock as on that date was done in consultation and in concurrence with the appellant himself. On the other hand during assessment proceedings, the appellant has tried to change his method of valuation and tried to base it upon as average cost method - as pointed out in the assessment ordered. An assessee cannot be allowed to change his method of accounting as when it suits his convenience. As far as the year-end sale is concerned, based upon which the appellant contends that the AO had erred in applying an average rate of gross profit, the appellant has not produced any evidence in support of his submission. in view of this, the contention of the appellant cannot be accepted. The action of the AO is therefore, confirmed.” Being aggrieved assessee is now in further appeal before us on the following ground:- “1. (i) That on the fact and in the circumstances of the case, Ld. CIT(A) is wrong in confirming the action of Assessing Officer who added Rs.3,03,532/- towards suppressed sales as well as gross profit thereon by recasting trading account for the post survey period. (ii) That on the facts and in the circumstances of the case, Ld. CIT(A) has erred in confirming the addition of Rs.3,03,532/- without adjudicating the alternative plea of the appellant that only the element of gross profit involved on undisclosed sale requires addition and not the entire difference in stock.”

We have heard the rival contentions of both the parties and perused the materials available on record. At the outset, it was observed that no mismatch in the quantity of the closing stock on the date of survey was pointed out by Authorities Below. Thus, the dispute in the instant case is limited to the valuation of closing stock made by the AO as well as made by Revenue. The lower authority has treated the difference as undisclosed sale of the assessee and added the entire amount as income. However on perusal of the orders of lower authorities we find that there is no evidence brought on record suggesting that the sale was made without recording in the books of accounts. No defect in the purchases and sales and stock has been pointed out at the time of assessment. In the case on hand, we find that there was no difference in the quantity of closing stock. The provisions of section 145A of the Act require the assessee to value the inventory according to the method regularly employed. The necessary extract of the provisions reads as under : 145A. Notwithstanding anything to the contrary contained in section 145,— (a) the valuation of purchase and sale of goods and inventory for the purposes of determining the income chargeable under the head “Profits and gains of business or profession” shall be— (i) in accordance with the method of accounting regularly employed by the assessee; and (ii) further adjusted to include the amount of any tax, duty, cess or fee (by whatever name called) actually paid or incurred by the assessee to bring the goods to the place of its location and condition as on the date of valuation.

Next issue raised by assessee in Ground No.2 in this appeal is that Ld. CIT(A) erred in upholding the order of AO by considering the cash receipt of ₹2.25 lakh as undisclosed income of assessee.

Aggrieved, assessee preferred an appeal before Ld. CIT(A). The assessee before Ld. CIT(A) submitted that the addition has been made by the AO on the basis of loose sheets impounded at the time of survey. The assessee also submitted that the loose sheet represents the cash received from M/s Pitambari Saree Bangalore, which, in fact, was represented as the sales made to the concerned party. The amount of sale has been duly accounted for in the books of account of assessee and Further, addition of ₹ 2.25 lakh will amount to double addition. The assessee also submitted that the addition cannot be made without making the enquiry from the concerned party. However, Ld. CIT(A) disregarded the contention of the assessee and confirmed the order of AO by observing as under:- “I have examined the entire issue and find that the fact that the appellant himself has admitted, when confronted with this series of facts, that the said amount had not been recorded in his books of account. The appellant has not come up with a plausible explanation for this categorical admission by the appellant, while in full awareness of all the facts. In view of this the contention of the appellant can hardly be accepted. The addition on this count is therefore confirmed.”