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Income Tax Appellate Tribunal, “C” BENCH, MUMBAI
Before: SHRI SANJAY GARG & SHRI RAMIT KOCHAR
सुनवाई क� तार�ख /Date of Hearing : 30-03-2016 घोषणा क� तार�ख /Date of Pronouncement : 05-07-2016 आदेश / O R D E R PER RAMIT KOCHAR, Accountant Member
This appeal, filed by the assessee, being 31-12-2013 passed by learned Commissioner of Income Tax (Appeals)- 22, Mumbai (hereinafter called “the CIT(A)”), for the assessment year 2009-10, the appellate proceedings before the learned CIT(A) arising from the assessment order dated 30.12.2011 passed by the learned Assessing Officer (hereinafter called “the AO”) u/s 143(3) of the Income Tax Act,1961 (Hereinafter called “the Act”).
ITA 3181/Mum/2014 2
The grounds of appeal raised by the assessee in the memo of appeal filed with the Income Tax Appellate Tribunal, Mumbai (hereinafter called “the Tribunal”) read as under:-
“Under the facts and circumstances of the case and in law:
Addition of Rs.3, 18,374/- to gross profit on basis of ad hoc estimation of gross profit rate.
1. The CIT(A) erred in sustaining addition of Rs.3,18,374/- to gross profit on basis of ad hoc estimation of gross profit rate by enhancing value of closing stock as on 31.03.2009 by that amount.
2. The CIT(A) erred in sustaining the said addition even though the Assessing Officer (AO) has given a categorical finding that for the post survey period from 28.02.2009 to 31.03.2009 the figures of opening stock, purchases and sales are genuine on the basis of purchase invoices and sales bills produced before him and verified by him.
The CIT(A) erred in failing to appreciate that gross profit rate for the year under consideration was comparable with gross profit rate for the immediately preceding three years.
4. Without prejudice to the aforesaid, the CIT(A) erred in failing to direct the AO to enhance the value of opening stock of the subsequent year so as to make it identical to closing stock of the year under consideration .
Addition of Rs.2,84,689/- under section 69A of the Income-tax Act, 1961 (the Act) being alleged unaccounted cash.
5. The CIT(A) erred in upholding addition of Rs.2,84,689/- under section 69A of the Act being alleged unaccounted cash.
6. The CIT(A) erred in failing to appreciate that for the period commencing from 28.02.2009 to 31.03.2009, opening cash balance of Rs.2,84,689/- has been accepted by the AO and hence there cannot be any addition under section 69A of the Act on the ground that the same is unexplained.
7. The CIT(A) erred in failing to appreciate that no addition can be made solely on the basis of statement made during course of survey without bringing on record any supporting material.
8. The CIT(A) erred in failing to appreciate that cash found during survey was on account of realization of sales which were duly entered ITA 3181/Mum/2014 3
in the books of account and did not remain on accounted and as such no addition on that account could be made under section 69A of the Act.”
3. At the outset, we find that this appeal is delayed by 55 days in filing of the appeal by the assessee before the Tribunal as per the time limit for filing the appeal before the Tribunal as stipulated u/s 253(3) of the Act. The assessee vide his letter dated 5th May, 2014 along with affidavit dated 5th May, 2014 submitted that the last date of filing the appeal was 11-03-2014 but due to the change in the constitution of firm of Chartered Accountants M/s A M Solanki & Associates who were handling the case of the assessee, the appeal was filed late. The said firm was split and this splitting of the said firm of CA resulted in disruption of the work of the CA firm and delay on their part to divide the professional firm among the splitting partners, which resulted in delay of 55 days in filing of this appeal before the Tribunal. In this connection, the assessee has filed affidavit dated 5th May, 2014 for condonation of the delay of 55 days in filing of the appeal with the Tribunal, whereby the assessee prayed for the condonation of delay of 55 days. The assessee submitted that the delay was not intentional and the delay occurred solely due to the reason beyond her control and the assessee prayed for condonation of delay in filing of the appeal before the Tribunal by 55 days. The assessee submitted that it had a good case on merits and it was prayed that delay be condoned and the appeal be heard of merits.
The learned D.R., on the other hand, opposed the condonation of delay application in filing of the appeal by the assessee late by 55 days.
We have considered the submissions of the assessee as made vide application praying for condonation of delay and affidavit both dated 05-05- 2014 as well the contentions of the learned DR. We have observed from the assessee’s application for condonation of delay and affidavit both dated 5th ITA 3181/Mum/2014 4 May, 2014 that the assessee was prevented by sufficient cause in filing her appeal before the Tribunal within the time stipulated under the provisions of Section 253(3) of the Act whereby the filing of appeal is delayed by 55 days. In our considered view, there appears to be no deliberate delay on the part of the assessee in filing of this appeal late by 55 days and the assessee did had a sufficient cause for not filing appeal within time limit prescribed u/s 253(3) of the Act. In view of the reasons submitted by the assessee vide affidavit dated 5-5-2014 and in the light of the decision of Hon’ble Supreme Court in the case of Collector of Land Acquisition v. Mst. Katiz and Others, (1987)167 ITR 471(SC), we deem it fit and proper to condone the delay of 55 days in filing this appeal by the assessee before the Tribunal as the assessee in our considered view was prevented by a sufficient cause in filing this appeal late by 55 days with the Tribunal as claimed by the assessee and accordingly we condone the same and admit this appeal.
The brief facts of the case are that the assessee is proprietor of M/s Premsons and has business income, income from other sources and loss from house property during the previous year relevant to the instant assessment year 2009-10 under appeal. A survey was conducted by the Revenue and during the course of survey, books of account, bills vouchers and loose papers pertaining to M/s Premsons have been impounded by the Revenue. During the survey, discrepancy in stock of Rs. 7,15,311/- along with difference in the cash of Rs. 2,84,689/- were found in the premises of the assessee. During assessment proceedings u/s 143(3) of the Act read with Section 143(2) of the Act, the assessee was asked to file trading account for the pre-survey period i.e. 1-4-2008 to 27-02-2009 and post survey period from 28-02-2009 to 31-03-2009 which was filed by the assessee which are as under:-
Exhibit IV: Trading Account (after adjustment of stock) 01-04-2008 to 27-02-2009 ITA 3181/Mum/2014 5 To Opening stock 3,595,300.00 By Sales 9,531,610.00 To Purchases By closing stock (without addition of the (Value of stock as Additional stock declared) determined by the 9,112,253.13 Department as on (115.223,94) 8,997,029.19 Less discount 27.02.2009 as mentioned In the statement recorded Dated 28.3.2009 page 2 To Purchase Clause (9). 715,311.00 (value of stock declared) 5,296,373.00 Add:stock declared 715,311.00 6,011,684.00 To Gross Profit C/d 2,235,653.81 ------------------ 15,543,294.00 15,543,294.00 =========== Exhibit V: trading Account (after adjustment of stock) from 28.2.2009 to 31-03-2009 To opening stock 6,011,684.00 By sales 634,561.00 To purchases 633,697.90 By closing stock (value of stock as per the Assessee’s balance sheet As on 31-03-2009 5,810,593.00 To gross profit C/d (200,227.90) ………………. ----------------- 6,445,154.00 6,445,154.00 =========== ========== It was observed by the A.O. from the above trading account submitted by the assessee that the assessee added stock of Rs. 7,15,311/- in the closing stock and the same stock had been taken under purchase of the other side of the P&L account and the impact of these entries was nil. It was observed by the A.O. that the assessee has taken these declared stock in the credit side of the P&L account as indirect income and as per the trading account – exhibit IV there is a gross profit of Rs. 22,35,653.81 and as per trading account-exhibit V, there is a gross loss of Rs. 2,00,227.90. These two combined figures have been carried to P&L account –exhibit VI to determine the net profit for the entire year. It was observed by the AO that the GP/sale ratio for the pre- survey period comes to 23.45% , whereas the same is negative in the post survey period, and the GP ratio of the trading account pertaining to the post ITA 3181/Mum/2014 6 survey period should also be applied @ 23.45% which represented the average gross profit ratio of pre-survey period of 11 months of the assessee’s business. By applying the same ratio in the post survey period, gross profit comes to Rs. 1,48,837.26 as against loss of Rs. 2,00,227.90 claimed by the assessee. This fact was confronted to the assessee and the assessee explained that this has happened due to existence of slow moving or dead stock in the stock held at year end which has been stated by the assessee to have been determined on physical verification of inventory of goods held as stock and was valued at cost or net realizable value whichever is less which was arrived at Rs. 58,10,593/- as per normal method followed for valuation of closing stock at year end. It was submitted that the dead or slow moving stock cannot be compared with the stock that may be arrived at considering the assessee’s normal gross margin.
The A.O. examined the post trading account and the sales figure of Rs. 6,34,561/- which was duly verified and tallied with the sales bills pertaining to the period 28-2-2009 to 31-3-2009. Similarly the A.O. verified the purchases of Rs. 6,33,697.90 and cross checked with the purchase invoices and found the same to be genuine. In the pre-survey period i.e. 1-4-2008 to 27.2.2009 the average G.P. to sales ratio was 23.45%. The A.O. came to the conclusion that the average ratio of 23.45% is applicable for the assessee’s business throughout the year including small period from 28.2.2009 to 31.3.2009. Applying the same average rate on the post survey period the GP comes to Rs. 1,48,804.5 as against the gross loss shown by the assessee of Rs. 2,00,227.90 which shows that the closing stock of Rs. 58,10,593/- shown in the exhibit V may not be genuine and correct. On the other hand the assessee submitted that closing stock of Rs. 58,10,593/- was physically verified and inventory was valued at cost or net realizable value whichever is lower which is as per the normal method followed for valuation of closing stock at the year end. The stock valued as on 31st March, 2009 had been ITA 3181/Mum/2014 7 credited to arrive at the resultant gross loss of Rs. 2,00,227.90. The assessee submitted that the reason for the loss had been attributed to existence of slow moving or dead stock in the stock held at the year end which had been valued at net realizable value and could not be compared with the stock that may be arrived at considering the assessee’s normal gross margin. The explanation of the assessee was rejected by the A.O. and it was observed that the average ratio of G.P. to sale will remain the same for any part of the year in the normal circumstances in the same line of business and the assessee followed the same line of business from the same place in the post survey period. It was observed by the A.O. that the closing stock of post survey period cannot be verified and hence it was correctly casted by the A.O. which are as under:-
Exhibit IV: Trading Account (after adjustment of stock) 01-04-2008 to 27-02- 2009) To Opening stock 3,595,300.00 By sales 9,531,610.00 To purchases By closing stock (without addition of The additional Stock declared) (value of stock as determined by the Department as on 27.2.2009 as Mentioned in the statement recorded dated 28.3.2009(page 2 Clause (9). 9,112,2533.13 Less discount (115,223.94) 8,997,029.19 5,296,373.00 Add: stock declared 715,311,.00 6,011,684.00 To purchase (value of stock declared) 715,311.00 To Gross profit C/d 2,235,653.81 ………………… ………………… 15,543,294.00 15,543,294.00 ============ =========== Exhibit V: Trading Account (after adjustment of stock from 28.2.2009 to 31- 03-2009 To opening stock 6,011,684.00 By sales 634,561.00 To purchases 633,697.90 By closing stock 6159624.83 To gross profit C/d 148804.50 ITA 3181/Mum/2014 8
…………… ……………… 6794185.83 6794185.83 ========== ========== Profit and Loss account from 1-4-2008 to 31-3-2009 To Expenditure 1,124,314.00 By gross profit b/d(exh.IV) 2,235,653.81 By gross profit b/d(exh.V) 148,804.50 By value of short stock Determined declared as Income by assessee 715,311.00 To net profits 1,975,455.31 ----------------- 3,099,769.31 3,099,769.31 =========== ========== Hence net profit comes to Rs. 19,75,455.31.’ Hence, as per the A.O. the net profit comes to Rs. 19,75,455.31.
During the course of survey, the assessee could not reconcile the cash difference of Rs. 2,84,689/- found at the survey premises of the assessee. During the course of survey, the statement of the assessee was recorded and assessee stated to reconcile cash later. In the statement recorded on 26th March, 2009 it was stated that the assessee could not reconcile the difference of Rs. 2,84,689/- and the difference in cash at M/s Premsons might also be out of books with regard to cash sales and the same has not been entered in the books of accounts. However , the assessee in order to buy peace offered the same for taxation in the statement recorded on 26.03.2009. Thus, it was observed that the assessee could not reconcile the difference of cash found in the premises even after opportunity was given to her. The assessee was asked to explain the reason of not declaring the difference in cash found during the course of survey in the return of income filed with the Revenue. Even during the course of assessment proceedings , no such disclosure of cash is made in the re-casted profit and loss account for the post survey ITA 3181/Mum/2014 9 period. In reply, the assessee explained that at the time of survey on 27th February, 2009 an amount of Rs. 5,66,250/- in cash was found at the premises of M/s Premsons . The assessee was asked to explain the difference. The assessee while recording statement on 26-03-2009 stated that this difference in cash at Premsons might be with regards to cash sales effected at the shop i.e. cash received towards goods sold to retail customers. The assessee stated that the collections towards the sales are in the form of cash or credit card and rarely in the form of cheque which can be verified from the sales invoice books. The accounts were maintained by part time accountant engaged by the assessee who visits the shop once in 15 days and thus the transactions of sales, purchase and bank and cash etc. were recorded fortnightly. Books of account were incomplete when the survey action took place. The assessee stated that due to impounding of all documentary evidences, books of account could not be updated. When the accounting was completed, it was found that the cash book actually reflected a cash balance of Rs. 5,66,250/- which was found at the time of survey. There is no other source other than cash sales. The income from such sales has already been booked by passing entry and the same had been credited to P&L account as income and offered for taxation. The AO considered the submission of the assessee and observed that the statement made by the assessee appears to be a cover up and any prudent businessman though may not be knowing the accounting procedures but is always aware and alert about the position of money when and on what account generated in his business. The submission of the assessee distorts the general belief of the business parlance. The AO observed that after the demise of Shri Damji Shah, his wife Smt. Parvatiben D Shah(the assessee), became the legal heir and owns the business. Since Smt. Parvatiben D Shah is a lady, her son Shri Manish D. Shah was handling the business on behalf of his mother and the statement of Shri Manish D. Shah is taken as the statement of the assessee. In the first statement recorded on 27/02/2009 , Sh. Manish D. Shah took time to explain the difference in cash ITA 3181/Mum/2014 10 of Rs. 2,84,689/- found during the survey on 27-02-2009 from the business premises of the assessee . In the second statement recorded on 26.03.2009 , almost after one month, no explanation was given by him and he has offered the same as income for taxation. The submission of the assessee was rejected by the AO as an afterthought and accordingly the difference of cash found of Rs. 2,84,689/- was added to the total income of the assessee by the AO vide assessment order dated 30.12.2011 passed u/s 143(3) of the Act.
Aggrieved by the assessment order dated 30.12.2011 passed by the A.O. u/s 143(3) of the Act, the assessee filed her first appeal before the learned CIT(A).
Before the learned CIT(A), the assessee reiterated the submissions what has been made before the A.O. and submitted that the assessee has already offered to tax the value of differential amount of Rs. 7,15,311/- which was the difference between the value of stock held as on 27th February, 2009 as per the incomplete records of the assessee amounting to Rs. 52,96,373/- and the value as determined by the Revenue on the date of survey of Rs. 60,11,684/- arrived at, by reduction of gross margin on sales estimated @ 20% from the MRP value of the stock determined at Rs. 75,14,604/-. The assessee submitted the details as per exhibit IV & V which are as under:-
Exhibit IV: Trading Profit for the period 01-04-2008 to 27-02-2009 To Opening stock 3,595,300.00 By Sales 9,531,610.00 To Purchases By closing stock (without addition of the (Value of stock as Additional stock declared) determined by the Department as on 27.02.2009 as mentioned In the statement recorded Dated 28.3.2009 page 2 Clause (9). 9,112,253.13 Less discount (115.223,94) 8,997,029.19 5,296,373.00 ITA 3181/Mum/2014 11
Add:shortage 715,311.00 6,011,684.00 To Purchase (value of stock declared) 715,311.00 To Gross Profit C/d 2,235,653.81 ------------------ 15,543,294.00 15,543,294.00 =========== Exhibit V: trading Account (after adjustment of stock) from 28.2.2009 to 31-03-2009 To opening stock 6,011,684.00 By sales 634,561.00 To purchases 633,697.90 By closing stock (value of stock as per the Assessee’s balance sheet As on 31-03-2009 5,810,593.00 To gross profit C/d (200,227.90) ………………. 6,445,154.00 6,445,154.00 =========== ========== Exhibit VI To Administrative Exp. 994,610.33 By gross profit period 1 2,235,653.81 To Finance expense 63,531.00 Gross profit period II (200,227.90) To depreciation 66,173.00 By Value of stock deficit Treated as income 715,311.00 To Net profit before tax 1,626,422.58 ………………. 2,750,736.91 2,750,736.91 =========== =========== It was submitted that the closing stock of Rs. 60,11,684/- is the stock value arrived at by the Income Tax authorities at the time of survey whereby the MRP value determined to be Rs. 75,14,604/- and 20% GP margin was reduced to arrive at cost. It was observed that based upon the same the GP rate of 23.46% which is much higher than the normal GP declared by the assessee in the preceding years , for which the details of GP margin for the current and past years was submitted as follows:-
Year 2005-06 2006-07 2007-08 2008-09 Particulars Rs. Rs. Rs. Rs. ITA 3181/Mum/2014 12 Sales 9,426,802.00 10,654,348.00 11,005,595.00 10,166,171.00 Gross profit 1,724,515.00 1,884,129.00 2,061,607.82 2,035,425.91 % of GP 18.29% 17.68% 18.73% 20.02% It was submitted that the above figures are audited figures and the GP arrived at has been within the range of 17.68% to 18.73%. It was submitted that the GP ratio accepted by the department to value the stock at the time of survey was 20%. The overall GP margin of the assessee considering both pre-survey and post-survey period comes to 20.02% which is reasonable and GP at 23.46% is highly excessive and the unaudited stock figure of Rs. 52,96,373/- presented by the assessee at the time of recording of the statement was also excessive and overstated. The assessee has accepted the same without any retraction and credited to the P&L account as income. The books of accounts have not been rejected by the Revenue but only the closing stock as per audited books of accounts has been disregarded by the AO , which is not correct. The assessee submitted that the A.O. has failed to consider the GP margin of 20% on sales considered for valuation of stock at the time of survey and the overall GP margin of the assessee for the year was 20.02% as per audited financial statements which is reasonable. The stock has been physically verified as on 31st March, 2009 which was valued at cost or net realizable value to arrive at value of Rs. 58,10,593/-. Thus it was submitted that the closing stock as per exhibit IV valued by the Revenue during survey has not been valued on the basis of cost or net realizable value as the same had not suffered diminution in value of the goods being non-moving or slow moving stocks included in the entire lot of goods held and thus reflected a high GP of 23.45%. Thus it was submitted that gross profit rate of 23.45% for the previous year cannot be directly applied to the subsequent period and the A.O. erred in rejecting the valuation of stock made by the assessee and incrementing the income by estimating the value of stock at year end and applied ad-hoc rate of gross profit of 23.45%.
ITA 3181/Mum/2014 13 The learned CIT(A) after considering the submission of the assessee and the assessment order held that as per the A.O. with respect to the trading account prepared for the post survey period, the figures are verifiable as the bills and vouchers were available with the assessee, however, the A.O. also held that the closing stock arrived at by the assessee is not verifiable for the post survey period. The learned CIT(A) considered the GP ratio of last three years and the average GP ratio works out to 20.73% and the learned CIT(A) gave part relief to the assessee by directing the A.O. to adopt GP of Rs. 1,31,544/- instead of GP of Rs. 1,48,804/- as computed by the AO, as against the loss of Rs. 2,00,227.90 computed by the assessee as per audited financial statements from 28-02-2009 to 31-03-2009 .
The next issue is with regard to the cash found during the course of survey on 27-02-2009 from business premises at Premsons amounting to Rs. 5,66,250/- , whereas as per the books of account the cash balance was Rs. 2,81,561/- at the time of survey on 27-02-2009. The assessee reiterated the submissions what has been made before the A.O. and submitted that the assessee is engaged in the business of retail trade of readymade garments, other wearing apparel and accessories from a shop situated at Vile Parle named ‘Premsons’ and the sale consideration is primarily collected in cash or by way of credit card payment. A survey was conducted at the shop premises on 27-02-2009 and cash was found amounting to Rs. 5,66,250/- kept in the cash counter of the shop. Books of account and other records were impounded by the Revenue authorities and statements were recorded. The legal representative of the assessee accepted the possession of cash and the excess stock found . The Revenue recorded the statement of the legal representative on 27th February, 2009 and on 26th March, 2009. The assessee during the statement recorded on 26th March, 2009 surrendered an amount of Rs. 2,84,689/- being difference in cash found during survey on 27- ITA 3181/Mum/2014 14 02-2009 which was not entered in the books of account , in order to buy peace. The assessee submitted that she was having part time accountant and the Books of Accounts were impounded by the Revenue during course of survey, hence, the incomplete books of accounts available during the survey should not be considered as conclusive evidence for the purpose of assessment. The assessee submitted that at the time of recording of statement on 26th March, 2009, the relevant documentary evidences in respect of the sale, purchase, bank, cash transactions etc remained impounded and the books of accounts continued to be impounded by the Revenue till recording of the second statement on 26-03-2009 and hence the assessee was not able to reconcile the cash but at the same time had asserted that the difference in cash at Premsons might be with regard to Cash sales. The assessee submitted that there is no specialized accounting department for handling the inventory, cash and accounts maintenance. Thus, the assessee submitted that the books of account when updated reflected a cash balance of Rs. 5,66,250/- as on 27-02-2009 which was found during survey, no further addition to income towards unexplained cash is warranted. The books of accounts were duly audited which are not been rejected by the A.O. The documentary evidences in support of the cash sales have been verified and accepted by the AO. The sales, purchase, cash, bank, expenses have been verified and accepted. It was submitted that the financial results declared by the assessee arrived at after considering the sales which earlier remained unrecorded at the time of survey have also been accepted. It was submitted that statement recorded during the survey operations has no evidentiary value and the matter cannot be decided merely on the basis of statement recorded during survey operations unless there is conclusive evidence . The AO has only relied on the statement and has disregarded the conclusive evidence produced before the AO in the form of audited books of accounts including cash book maintained and other documentary evidences in support of transaction.
ITA 3181/Mum/2014 15 The learned CIT(A) considered the submissions of the assessee and the assessment order. The learned CIT(A) observed that the assessee has relied on only a portion of her statements to the answer to question No. 1 to 4. The learned CIT(A) referred to question 3,4,5 and 11 of the statements recorded during survey on 27.02.2009. Specific question was asked about the availability of cash against which the assessee mentioned that manual cash book is not maintained and there is cash book maintained on computer by the accountant and the same could be produced on Monday i.e. On 2-3-2009. Another statement was recorded on 26th March, 2009 almost after a month after the survey on 27-02-2009 wherein again there was non-reconciliation of the cash found of Rs. 5,66,250/- with the books of account and at that time also the assessee could have reconciled the said cash but failed to do was the observation of the learned CIT(A). The onus is on the assessee to prove such claim. Huge cash was found and the assessee has agreed to offer the same for taxation. Since the assessee had agreed that cash sales were outside the books of account and may not have been entered in books of accounts, the same was offered for taxation, the A.O. was prevented from making further inquiry/investigations in this regard. The reason raised by the assessee that books of account had been impounded by the A.O. and hence there was delay in updating the records could not be a valid reason. It was also held by the learned CIT(A) that the plea of the assessee that books of accounts were impounded and hence there was a delay in updating records cannot be accepted. The assessee could have taken copies of impounded documents and reconciled the books of accounts was the observations of the learned CIT(A). The plea of the assessee that the cash sales were duly recorded in the computerized books of accounts while updating records tantamount to retraction which cannot be accepted as the assessee had ample time after survey till the time second statement was recorded on 26-03-2009 to reconcile cash in the books of accounts. It was held by the AO that no ITA 3181/Mum/2014 16 material is brought on record to prove that the admission made was not correct. The ld. CIT(A) relied on the following decisions:-
Pullamcode Rubber Co. Ltd. , 91 ITR 18 (SC) 2. Vinod Solanki v. UOI Civil Appeal No. 7407 of 2008 arising out of SLP (C) No. 3537 of 2008 dated 18th December, 2008 (UOI (233) ELT 157 (SC). 3. CIT v. Uttamchand Jain (Bom) IT Appeal No. 634 of 2009. 4. Abdul Qaymme v. CIT (1990) 184 ITR 404 5. ITAT Bangalore Bench decision in the case of Carpenters Classics (Exim) (p) Ltd. v. DCIT 108 ITD 142. 6. Surendra Kumar Charanjeet Kumar Singh v. CIT 282 ITR 78 (P&H HC) 7. Bacchitarsingh v. CIT 328 ITR 400(P&H HC).
The learned CIT(A) observed that the contention of the assessee that statement recorded during the course of survey was not voluntary and is not supported by any documentary evidence, the learned CIT(A) observed that the assessee failed to demonstrate and satisfy the A.O. with corroborative evidences that cash sales were genuinely accounted in the cash book. Thus, the learned CIT(A) sustained the additions made by the A.O. , vide appellate orders dated 31.12.2013.
Aggrieved by the appellate orders dated 31.12.2013 passed by the learned CIT(A), the assessee is in second appeal before the Tribunal.
The ld. Counsel for the assessee submitted that there was a survey action conducted at the shop of the assessee ‘Premsons’ on 27th February, 2009. It was observed that Shri Manish D Shah, son of the proprietor was operating the business on behalf of his mother. There was a deduction of gross margin on sales estimated @ 20% from the MRP value of the stock determined at Rs. 75,14,604/- while making physical inventory of stock at the time of survey on 27-02-2009. The ld. Counsel submitted that the closing ITA 3181/Mum/2014 17 stock of Rs. 60,11,684/- is the stock value arrived at by the Income Tax authorities at the time of survey whereby the MRP value determined to be Rs. 75,14,604/- and 20% GP margin was reduced from MRP to arrive at cost. The assessee has already offered to tax the value of differential amount of Rs. 7,15,311/- which was the difference between the value of stock held as on 27th February, 2009 as per the incomplete records of the assessee amounting to Rs. 52,96,373/- and the value of inventory as determined by the Revenue of Rs. 60,11,684/-. The assessee offered the same for taxation to buy peace in the second statement recorded on 27-02-2009. There was no retraction of the statement recorded during the course of survey proceedings. The assessee drew our attention to the question no 9 and 10 of statement recorded of Mr. Manish D Shah on 26-03-2009 which is placed in paper book page 1-4. The assessee also drew our attention to the audited financial statement whereby the said amount of Rs.7,15,311/- stood credited, which is placed at paper book 26. The assessee drew our attention to the pre-survey accounts and post-survey accounts which are placed at page 38-42 of paper book. The ld. Counsel submitted that the authorities below applied 23.45% GP ratio which is not correct. Earlier the GP rate was around 18.1%. It was submitted that the GP ratio is 20.02% as per the audited books of accounts for the entire financial year which should be accepted.
Similarly, the ld. Counsel contended that the updated cash book was duly produced before the Revenue authorities during assessment proceedings and the cash was duly reconciled. It was submitted that books of accounts were not complete at the time of survey whereby the same was completed before filing return of income and all cash sales which were not recorded prior to the survey was incorporated in the cash book. The assessee has duly declared the cash from the cash counter sale in the books of accounts and cash duly tallied with the cash found during the course of survey. The cash book was duly produced in the paper book page 73-87.
ITA 3181/Mum/2014 18
The ld. D.R., on the other hand, relied on the orders of the learned CIT(A).
We have considered the rival contentions and perused the material available on record. We have observed that the assessee is operating a proprietary concern having shop named ‘Premsons’ at Vile Parle and engaged in the business of sale of garments. A survey was conducted at the premises of the assessee u/s 133A of the Act on 27th February, 2009. Books of account were not complete at the time of survey. The physical stock inventory was taken by the Revenue and the GP of 20% was applied to MRP to arrive at the cost price. There was a difference of Rs. 7.15 lacs which was difference in the stock as per books of the assessee and the physical stock of the assessee taken by the Revenue at the time of survey operations , which was later surrendered by the assessee vide second statement recorded on 26-03-2009. The books of accounts and other records were impounded by the Revenue. The audited accounts were produced before the authorities below during the course of assessment proceedings. The contention of the assessee was that there are certain non-moving and slow moving stocks included in the entire lot of goods physically held and thus non-consideration of the same by the Revenue team while drawing physical inventory on 27-02-2009 reflected in higher GP ratio of 23.45% during pre-survey period of the financial year 01- 04-2008 to 27-02-2009. The AO applied the same GP ratio of 23.45% to post survey period from 28-02-2009 to 31-03-2009. The CIT(A) accepted the pre- survey results but applied average rate of GP margin of 20.7% of the earlier years and gave part relief. The assessee is contending that its audited results have reflected GP ratio of 20.02% which should be accepted. It was submitted that there are dead and slow moving stock which are now reflected while computing physical inventory as at 31-3-2009 at net realizable value which was lower than cost price and the same was not considered by Revenue team ITA 3181/Mum/2014 19 during survey operations on 27-02-2009 which led to the computation of higher GP ratio of 23.45% and which is now corrected while preparing inventory valuation as at 31-03-2009. In our considered view, now a fair estimate is required to be done to compute income of the assessee. We have observed that the assessee has submitted GP chart of the assessee whereby the average GP of last three years was 18.1% with GP ratio of assessment year 2008-09 was 18.32% , while average GP ratio of succeeding two years was 19.3% , while GP ratio of assessment year 2010-11 was 19.54%. The assessee has reflected GP ratio of 20.02% for the instant assessment year under appeal as per audited financial statements. In any case, the closing inventory of the instant assessment year is opening inventory of immediately succeeding assessment year and revenue impact is tax neutral. The said GP ratio of 20.02% as declared by the assessee needs to be accepted keeping in view peculiar facts and circumstances of the case subject to the limited directions to the AO to verify the details of physical inventory both quantitative and its valuation being prepared by the assessee as at closing on 31-03-2009 to ensure that the same is prepared correctly and bona-fidely by the assessee with no intent to defraud revenue. We order accordingly.
The cash difference of Rs.2,84,689/- was found at the time of survey on 27- 02-2009 between physical cash and the cash balance as per books of accounts, the assessee could not reconcile the same during survey as well during recording of second statement on 26-03-2009 . The assessee surrendered the said difference of cash of Rs.2,84,689/- as her income while recording statement on 26-03-2009 but stated that it could be out of cash sales which are not recorded in the books of accounts. It is submitted that the books of accounts were not complete at the time of survey on 27-02-2009. The assessee records were impounded during course of survey on 27-02-2009 which continued till the recording of second statement on 26-03-2009 . The assessee came forward with the books of account which were duly updated ITA 3181/Mum/2014 20 and audited whereby the assessee is contending that the cash is duly reconciled and tallied. The assessee has claimed that the assessee is in a position to reconcile the difference in cash as the cash sales which were not recorded prior to survey were later on incorporated while updating books of accounts which were audited. In our considered view, the interest of the justice will be best served, if the issue is restored to the file of the AO with directions to verify the contentions of the assessee that the cash sales which were not recorded prior to survey on 27-2-2009 were duly recorded in the books of accounts while updating the books of accounts with the impounded cash book and other records to ensure that all such cash sales have now been included in the books of accounts and has suffered due taxation. The A.O. is directed to examine the books of account in context of above directions to ensure that the entire cash sales not recorded in books of accounts prior to survey on 27-02-2009 are now duly included in the books of accounts. The assessee may be given proper and sufficient opportunity of being heard. We order accordingly.
In the result, the appeal filed by the assessee company in ITA N0. 3181/Mum/2014 for the assessment year 2009-10 is allowed as indicated above , for statistical purposes.
Order pronounced in the open court on 5th July , 2016. आदेश क� घोषणा खुले �यायालय म� �दनांकः 05-07-2016 को क� गई ।