ITO WD-41(3), KOLKATA,KOLKATA vs TIKAM CHAND, NAHATA, KOLKATA

Income Tax Appellate Tribunal, KOLKATA ‘A’ BENCH, KOLKATA

Before: Shri P.M. Jagtap & Shri S.S. Vishwanethra Ravi

Date of concluding the hearing : July 14, 2016 Date of pronouncing the order : September 7th, 2016

O R D E R Per Shri P.M. Jagtap, A.M.: These two appeals filed by the Revenue are directed against two separate orders passed by the ld. Commissioner of Income Tax (Appeals)-XII, Kolkata, both dated 18.07.2012 and since the issues involved therein are inter-linked, the same have been heard together and are being disposed of by this consolidated order.

First we take up the appeal of the Revenue being Grounds No. 1 & 2 of which involve a common issue relating to the deletion by the ld. CIT(Appeals) of the addition of Rs.3,57,89,651/- made by the Assessing Officer on account of difference in closing stock. The said grounds read as under:- (1) The ld. CIT(A)-XII, Kolkata has erred in law as well as on fact in deleting the addition of Rs.3,57,89,651/- on account & 1598/KOL./2012 Assessment year: 2009-2010 Page 2 of 10

of closing stock by admitting fresh evidence in violation of Rule 46A.

(2) The ld. CIT(A)-XII, Kolkata has erred in law as well as on fact in deleting the addition of Rs.3,57,89,651/- account of closing stock without appreciating the facts on record that the sales and purchase, other items and closing stocks were taken from the same computerized books of the assessee and addition were made to the extent discrepancy in closing stock remained unexplained.

The assessee in the present case is an individual, who is engaged in the business of trading in electrical goods. The return of income for the year under consideration was filed by him on 28.09.2009 declaring total income of Rs.5,94,090/-. A survey under section 133A was carried out in the case of the assessee on 04.09.2009. As found during the course of the survey, computerized stock record was maintained by the assessee and the printout taken of such record revealed that the closing stock as on 31.03.2009 was Rs.4,07,48,440/-. In the final accounts filed along with the return of income, the assessee, however, had shown the closing stock of Rs.49,58,789/- as on 31.03.2009. The assessee, therefore, was called upon by the Assessing Officer to explain the difference in the closing stock as reflected in the computerized stock record and as shown in the books of account. In reply, it was submitted by the assessee that the computer data relating to stock was corrupted and this fact was brought to the notice of the survey team even at the time of survey. In order to substantiate this stand, it was pointed out by the assessee that the stock as per the computerized record as on 01.04.2004 was shown at Rs.3,46,58,517/-, whereas his business was actually started only on 11.10.2004. It was submitted that there was thus no stock as on 01.04.2004 as reflected in the computerized stock record and this fact itself was sufficient to show that the computerized stock record was corrupted and was not reliable. This explanation of the assessee was not found acceptable by the Assessing Officer for the following reasons given in his impugned order:- & 1598/KOL./2012 Assessment year: 2009-2010 Page 3 of 10

“(1) The assesese has failed to produce trade license to substantiate their claim of starting of business on 11.10.2004. The assessee has only filed a copy of the telephone bill which cannot be considered as a valid evidence of starting of business in ground situation that (a) telephone from BSNL can be installed after starting of business and (b) the assessee may have telephone connection of other service provider for operating the business.

(2) As and when the assessee is maintaining his books of accounts in computer, it is hard to believe that the assessee is doing business, even as on 31.07.2009, with a corrupted software”.

For the reasons given above, the contention raised by the assessee while explaining the difference in stock relating to the corruptness of computer data was not accepted by the Assessing Officer and the difference of Rs.3,57,89,651/- in stock was added by him to the total income of the assessee in the assessment completed under section 143(3) vide an order dated 29.12.2011.

Against the order passed by the Assessing Officer under section 143(3), an appeal was preferred by the assessee before the ld. CIT(Appeals) disputing, inter alia, the addition of Rs.3,57,89,651/- made by the Assessing Officer on account of the alleged difference in closing stock. During the course of appellate proceedings before the ld. CIT(Appeals), the stand taken before the Assessing Officer while explaining the difference in stock was reiterated by the assessee and keeping in view the same as well as the material brought on record by the assessee in support, the ld. CIT(Appeals) deleted the addition made by the Assessing Officer on this issue for the following reasons given in his impugned order:- “During the course of hearing the AR. has filed a copy of the trade license no. 380 certificate no. B/1280 dt. 08-11-2004 issued by the Executive Officer, Baranagar Municipal Office, 87, Desbandhu Rd. (East), Kol-35. In the certificate M/s. Multi Channel Electronics (North), Prop. Tikam Chand Nahata of 13, B.T. Rd., Kol-50 has been authorized to run of shop of electronic goods for one year w.e.f. 8.11.2004 to 7.11.2005 at 13, B.T. Road, Kolkata-50. The A.R. had further submitted a copy of bank & 1598/KOL./2012 Assessment year: 2009-2010 Page 4 of 10

account no. 050902000010359 in the Indian Overseas Bank at Goal Park, Kolkata in the name of Multi Channel Electronics (North) at 13, B.T. Road, Kol-50. This account was opened on 11- 10-2004 by depositing cash of Rs.1,100/-. The AR. has submitted that this was the first bank account opened by the assessee for the business of its electronic shop.

From the certificate issued by the Executive Officer, Baranagar Municipal Office, 87, Desbandhu Rd. (East), Kol-35 and the bank statement which shows that the account was opened in the name of the M/s. Multi Channel Electronics(North) on 11-10-2004 it is clear that the business of the assessee was started w.e.f. 11-10-2004. Thus, the computer data showing opening stock as on 01-04-2004 has got no value, because on that day the business of the assessee was not in existence. Therefore, assessee's contention that the data available in the computer was corrupted one, seems to be correct. The AR has further submitted that during the survey a stock found was duly inventorized by the survey party at Rs.4331315/- which was the same as per the regular books of accounts and, therefore, there was no discrepancy found by the survey party except the print out of corrupted data from the computer.

I have considered the finding of the A.O. rejecting the claim of the assessee that a copy of trade license and other relevant prove were not produced at the time of assessment showing the start of business w.e.f. 11-10-2004. The AR. has submitted a copy of the trade license as well as the bank account of the assessee showing that the business commenced on 11-10- 2004. Further, since no discrepancy of the actual stock inventorized at the time of survey and the physical stock register produced by the assessee at the time of survey as been pointed out or brought out by the AO. Therefore, the assessee's claim that the data of opening stock as on 01-04-2004 found in the computer was corrupted one seems to be correct. The books of account impounded at the time of survey operation was not rejected by the AO during the assessment proceedings. The impounded books also included the stock register which tallied all the stocks found at the time of the survey operation. Since AO. has accepted purchases, sales and expenditure and other items of the same books of accounts which included the stock register also. Therefore, on the one hand, the AO accepted books of accounts and stock register and on the other made addition on the basis of corrupted data found during the survey operation. Both these things cannot go together. Thus, addition made on the basis of corrupted data of Rs.35789651/- is deleted. Assessee's s appeal on ground no. 2 and 3 are allowed”.

The ld. D.R. contended that the explanation offered by the assessee while explaining the difference in closing stock as reflected in the & 1598/KOL./2012 Assessment year: 2009-2010 Page 5 of 10 computerized stock record and as shown by the assessee in his books of account based on his claim of corruption of relevant computer data was not properly supported and substantiated before the Assessing Officer. He contended that if there was some problem with the computerized stock record right from F.Y. 2004-05 as claimed by the assessee, it is beyond comprehension as to how and why the assessee did not rectify the same and still continued to maintain the computerized stock record. He submitted that even the claim of the assessee of having commenced the business on 11.10.2004 was not supported by any evidence filed before the Assessing Officer and the copy of the relevant trade licence to substantiate the said claim was filed by the assessee for the first time before the ld. CIT(Appeals). He contended that the ld. CIT(Appeals), however, did not give any opportunity to the Assessing Officer to verify the same before accepting the claim of the assessee by relying on the said additional evidence, which is in clear violation of Rule 46A of the Income Tax Rules.

Ld. counsel for the assessee, on the other hand, submitted that the stock of the assessee at the time of survey was physically verified by the Survey Team and the same was found to be tallied with the books of account regularly maintained by the assessee. He submitted that the computerized stock record maintained by the assessee was corrupted as claimed by the assessee at the time of survey itself and this position was duly substantiated by the fact that the stock as on 01.04.2004 as per the computerized record was shown at Rs.3,46,58,517/- while the business of the assessee had not even commenced on that date. He contended that this anomaly was brought to the notice of the Assessing Officer by the assessee and evidence in the form of telephone bill was also filed by the assessee to show that his business was commenced only on 11.10.2004. He contended that the Assessing Officer, however, did not find the said evidence to be reliable to accept the claim of the assessee and rejected the same by observing that there was failure on the part of the assessee to produce the relevant trade licence to substantiate his claim of having & 1598/KOL./2012 Assessment year: 2009-2010 Page 6 of 10 starting the business on 11.10.2004. He contended that the assessee, therefore, filed the copy of the trade licence before the ld. CIT(Appeals) in order to further corroborate his claim of having started the business on 11.10.2004 before the ld. CIT(Appeals) and the action of the ld. CIT(Appeals) in allowing the relief to the assessee by relying on the said evidence, which was filed to corroborate the stand taken by the assessee before the Assessing Officer, cannot be said to be in violation of Rule 46A of Income Tax Rules.

We have considered the rival submissions and also perused the relevant material available on record. It is observed that the stock available in the premises of the assessee at the time of survey carried out on 04.09.2009 was physically verified by the survey team and the same was found to be tallied with the books of account of the assessee. The computerized stock record maintained by the assessee, however, displayed the value of stock as on 31.03.2009 at Rs.4,07,48,440/- as found by the survey team and since the stock as on 31.03.2009 was shown at Rs.49,58,789/- as per the books of account of the assessee, the assessee was called upon to explain and reconcile the said difference. In this regard, the explanation offered by the assessee right during the course of survey was that the computerized data relating to stock record had been corrupted and the same, therefore, was not reliable. In order to support and substantiate this explanation, a specific discrepancy as appearing in the computerized stock record was pointed out by the assessee by showing that the stock as on 01.04.2004 was shown in the computerized record at Rs.3,46,58,517/-, while the business of the assessee had not even commenced on the said date and it was commenced only on 11.10.2004. In this regard, evidence in the form of telephone bill was also produced by the assessee in support of his claim of having started the business actually on 11.10.2004. The Assessing Officer, however, did not find the said evidence to be reliable on a very flimsy ground and did not accept the very patent and glaring mistake pointed out by the assessee in the computerized stock record which by itself was & 1598/KOL./2012 Assessment year: 2009-2010 Page 7 of 10 sufficient to explain the difference in stock substantially. While doing so, the Assessing Officer observed that there was failure on the part of the assessee to produce the relevant trade licence to substantiate his claim of having started the business on 11.10.2004. As submitted by the ld. counsel for the assessee before us, no opportunity in this regard was afforded by the Assessing Officer to the assessee to produce such trade licence and, therefore, the assessee could produce the same only before the ld. CIT(Appeals) in order to corroborate his stand already taken before the Assessing Officer of having commenced the business on 11.10.2004. Moreover, a perusal of the relevant portion of the impugned order of the ld. CIT(Appeals), which is reproduced hereinabove clearly shows that the relief on this issue has been allowed by him not only on the basis of the copy of relevant trade licence filed by the assessee but mainly on the basis that the addition made by the Assessing Officer on the basis of corrupted computerized data without rejecting the books of account regularly maintained by the assessee was not sustainable. We, therefore, find no infirmity in the impugned order of the ld. CIT(Appeals) allowing the relief to the assessee on this issue and upholding the same, we dismiss Grounds No. 1 & 2 of the Revenue’s appeal.

In Ground No. 3, the Revenue has challenged the action of the ld. CIT(Appeals) in deleting the addition of Rs.3,29,740/- made by the Assessing Officer on account of discount allowed to customers.

In the Profit & Loss Account filed along with the return of income, a sum of Rs.10,94,947/- was debited by the assessee on account of discount allowed to customers against purchase of different items. In this regard, the Assessing Officer noted that the entire discount received by the assessee from his suppliers was passed over to the customers. He, therefore, held that the discount allowed by the assessee to the customers was excessive and disallowed the same to the extent of Rs.3,29,740/- being 0.4% of the sales. & 1598/KOL./2012 Assessment year: 2009-2010 Page 8 of 10

10.

On appeal, the ld. CIT(Appeals) deleted the said disallowance holding that it was done by the Assessing Officer purely on estimate basis without bringing any evidence to support and substantiate the same.

11.

We have heard the arguments of both the sides and also perused the relevant material available on record. As rightly held by the ld. CIT(Appeals), the impugned disallowance out of discount offered to the customers was made by the Assessing Officer purely on estimate basis without bringing any evidence to support and substantiate the same and this position clearly evident from the order of the Assessing Officer has not been rebutted or controverted even by the ld. D.R. We, therefore, find no justifiable reason to interfere with the impugned order of the ld. CIT(Appeals) giving relief to the assessee on this issue and dismiss Ground No. 3 of the Revenue’s appeal.

12.

Now we take up the appeal of the Revenue being , which is directed against the order of the ld. CIT(Appeals)-XII dated 18.07.2012, whereby he deleted the enhanced addition of Rs.3,64,56,910/- instead of Rs.3,57,89,651/- on account of difference in stock as made by the Assessing Officer by way of rectification order passed under section 154.

13.

After having made an addition of Rs.3,57,89,651/- to the total income of the assessee on account of difference in closing stock in the assessment completed under section 143(3) vide an order dated 29.12.2011, the Assessing Officer realized that the actual addition liable to be made to the total income of the assessee on this issue was Rs.3,64,56,910/-. He, therefore, passed an order dated 19.01.2012 under section 154 rectifying this mistake. Against the order passed by the Assessing Officer under section 154, an appeal was preferred by the assessee before the ld. CIT(Appeals) and keeping in view that the addition made by the Assessing Officer on account of difference in stock in the assessment completed under section 143(3) was already deleted by & 1598/KOL./2012 Assessment year: 2009-2010 Page 9 of 10 him holding the same to be unsustainable by a separate appellate order passed while disposing of the appeal of the assessee filed against the order passed by the Assessing Officer under section 143(3), the ld. CIT(Appeals) held that the further increase in the said addition as made by the Assessing Officer by way of rectification under section 154 was liable to be deleted. He accordingly allowed the appeal of the assessee filed against the order of the Assessing Officer passed under section 154 and aggrieved by the same, the revenue has preferred this appeal before the Tribunal.

14.

We have heard the arguments of both the sides and also perused the relevant material available on record. Since we have already upheld the order of the ld. CIT(Appeals) deleting the addition made by the Assessing Officer on account of difference in stock in the assessment completed under section 143(3) holding the same to be unsustainable, the increase in the said addition as made by the Assessing Officer by way of rectification under section 154 is liable to be deleted as a necessary corollary. We, therefore, uphold the impugned order of the ld. CIT(Appeals) on this issue and dismiss the appeal of the Revenue being .

15.

In the result, both the appeals of the Revenue are dismissed. Order pronounced in the open Court on September 7th, 2016. Sd/- Sd/- (S.S. Vishwanethra Ravi) (P.M. Jagtap) Judicial Member Accountant Member Kolkata, the 7th day of September, 2016 Order Pronounced by Sd/- Sd/- (J.M.) (A.M.) S.S.V.R. W.A. Copies to : (1) Income Tax Officer, Ward-41(3), Kolkata, Poddar Court, 18, Rabindra Sarani, Kolkata-700 001 (2) Tikam Chand Nahata, 13, B.T. Road, Kolkata-700 050 & 1598/KOL./2012 Assessment year: 2009-2010 Page 10 of 10

ITO WD-41(3), KOLKATA,KOLKATA vs. TIKAM CHAND, NAHATA, KOLKATA