ACIT, CIRCLE - 50, KOLKATA, KOLKATA vs M/S. BENUD BEHARI DUTTA, KOLKATA

Income Tax Appellate Tribunal, “B” BENCH, KOLKATA

Before: Shri N.V. Vasudevan, & Shri M. Balaganesh

For the Appellant/department: Shri Rajat Kumar Kureel, JCIT, ld.Sr.DR For the Respondent/assessee: Shri A.K.Tibrewal, FCA, ld.AR Date of Hearing: 06-04-2016 Date of Pronouncement: 13 - 4 -2016 ORDER SHRI M.BALAGANESH, AM

This appeal of the revenue arises out of the order of the Learned CIT(A), XXXII, Kolkata in Appeal No. 123/CIT(A)-XXXII/09-10/Cir-50/Kol dated 28-09- 2010 against the order of assessment framed by the Learned AO for the Asst Year 2007-08 u/s. 143(3) of the Income Tax Act, 1961 (hereinafter referred to as the ‘Act’).

The only issue to be decided in this appeal is as to whether a sum of Rs. 83,45,740/- which according to Learned AO is an undisclosed stock found during survey u/s 133A of the Act could be added in Asst Year 2007-08 in the facts and circumstances of the case.

The brief facts of this issue are that assessee is a partnership-firm running a jewellery shop at the Salt Lake City, Kolkata. The assessee maintained regular Books of Account, including the Stock Book, under Mercantile System of Accounting, which were audited u/s 44AB of the Act. We find that before proceeding to deal with the grounds taken in the appeal for Asst Year 2007-08, it would be useful to refer to some facts in the succeeding Financial Year 2007-08 ( relevant to assessment year 2008-09 ), as the same have close bearing to the issues involved in the instant appeal. In the succeeding Financial Year 2007-08, Survey u/s.133-A of the I. T. Act was carried out on 18-03-2008 at the assessee's shop at Salt Lake. In course of the said Survey, some Exercise Books and Computer Printouts were impounded and inventorised as twelve items marked with Identification Nos. BBD-1 to BBD-12 respectively. Such impounded books and records inter alia included one Bound Register marked as BBD- 2 which became the central point of controversy in the assessment for the assessment year 2007-08 which is now under appeal. In the course of the said survey u/s.133-A on 18-03-2008, the statement of Sri Kanak Dutt, Partner, was recorded, purportedly on oath, and in course of the said statement, Sri Kanak Dutt voluntarily disclosed undisclosed trading stock of the assessee firm. In the Return for the succeeding assessment year 2008-09, filed u/s.139(1) on 28-09-2008, the assessee offered its undisclosed investment in stock for taxation, and thus declared Total Income of Rs.1,80,27,100/- after payment of Advance-tax of Rs.53,80,000/- and self-assessment tax of Rs.9,49,782/- . Coming back to the assessment year 2007-08 now under appeal, the assessee states that the Return u/s.139(1) for this assessment year was filed electronically within time on 08-10-2007, declaring Total Income of Rs.5,76,027/- . Alongwith the said Return, Tax-audit Report was also electronically furnished and the Hard-copy of the same was filed in course of scrutiny assessment proceeding. In assessment u/s. 143(3) the Learned AO wrongly and arbitrarily alleged that one Bound Register marked as BBD-2 which had been impounded by the Department in course of Survey u/s.133-A on l8-03-2008, as stated hereinabove, bore evidence of investment in undisclosed stock and thus added an amount of Rs.83,45,740/- to the Total Income of the assessee.

The said Books of Account and other records as produced before the Learned AO, were examined by him and it is borne out by the assessment order that no defect whatsoever was found on such examination. The relevant lines from the impugned assessment order are quoted herein below:

“ During the course of hearing, the books of A/cs for the A. Y. 2007-08 were produced by the A/R of the assessee and those were examined and tallied with the impounded books of a/cs. and documents .... " However, the Learned AO called for the Books of Account for the succeeding Financial Year 2007-08 and obtained from the assessee, the xerox copies of all Sale Memos for the Financial Years 2006-07 ( under appeal) and 2007-08 respectively. At the hearing on 13-11-2009, the Learned AO examined all such impounded books or records with reference to the Books of Account etc. for the year under appeal, and the Authorised Representative was asked to explain the contents of the following Exercise Books/records:

(i) Alleged “ Gold Ornaments Stock Book 11 marked as BBD - 2 ; (ii) Red Cover Exercise Book marked as BBD - 5 ; and (iii) Bunch of Computer Printouts for the Financial Year 2006-07, collectively marked as BBD-10.

At the hearing on 27-11-2009, the Authorised Representative explained the contents of the aforesaid Exhibits. In regard to the alleged Gold Ornaments Stock Book, marked as BBD - 2, it was inter alia explained that the said Book was started for keeping control over the stock displayed in the show-case at the assessee's show-room at Salt Lake. The idea for maintaining the said Book was mooted for exercising better control over the goods displayed in the show-case, as the same used to be under control of the salesmen during business hours. This Book was thus designed to serve as a memoranda record for internal control purposes only. On the final date of hearing on 14-12-2009, the Authorised Representative of the assessee appeared and furnished some details of revenue expenses as called for by the Learned AO. At this hearing, the Authorised Representative filed a letter dated 08-12-2009, inter alia, reiterating that as no question had been put by the Survey Party to Sri Kanak Dutt, Partner, about the contents of any of the Exhibits, including BBD-2, there was no occasion for the assessee to comment on the Book BBD-2 in course of recording his statement u/s.133- A of the Act.

The Learned AO not satisfied with the replies and explanations of the assessee, sought to make an addition of Rs. 83,45,740/- towards undisclosed closing stock based on entries found in BBD -2.

Before the Learned CIT(A) , the assessee assailed each and every point of contentions of the Learned AO in the following manner :-

4.1 Version of Learned AO - The entries in the exercise book marked as BBD-2 at pages 1 to 119, excluding three pages bearing Nos. 89,90 & 99 , related to the stock for the Financial Year 2006-07 and those were not included in the Stock Register for the assessment year 2007-08 which was produced during the course of hearing.

This is the main allegation of the Learned AO. It has two limbs, namely, that the exercise book BBD-2 bore evidence of undisclosed stock, and that the entries therein, excluding on three pages 89,90 & 99, related to the Financial Year 2006-07. In reply to the first limb, the assessee submits that it has been explained althroughout that the Book BBD-2 was started for keeping control over the stock displayed in the show-case at the shop. This Book was for memoranda purposes only, which would become manifest on a bare look at it. It would be kindly found from the said Book that it was neither systematically nor regularly maintained and the entries were made in a casual manner, as in too many cases some columns had been left blank. On a probative examination of the entries in the said Book BBO-2, it would be kindly found that many of the items recorded in this Book were sold within the Financial Year 2006-07 itself, as evidenced by the Sale Memos issued by the assessee and thus entered in the regular stock Book for the financial Year 2006-07 . For proving this fact beyond doubt, the assessee prepared a statement giving details of some of the items recorded in the Book BBD-2 which were sold within the relevant Financial Year and duly recorded in the regular Books of Account. The said Statement was enclosed as Annexure “A” to the written submission.

For the reply to the other limb of the allegation that the entries in BBD-2, excluding on three pages, related to the Financial Year 2006-07, it was stated that reference may kindly be made to what has been submitted under next point hereinafter.

4.2. Version of the Learned AO - All the entries in the register excluding those at pages 89,90 & 99 , show that the entry dates are relevant to the Financial Year 2006- 07.

It was argued that as has been stated hereinbefore, the Learned AO made extensive examination of the impounded books and records, including the Book BBD-2. On such examination , the Learned AO inter alia alleged that all the entries in the said Book, excluding those on pages 89, 90 & 99, related to the Financial Year 2006-07. For driving home this allegation, he has noted the contents of the said Book BBD-2 on pages 2, 3, 4 & 5 of the impugned assessment order. The assessee proceeds to deal with the said notings in the following lines.

The Book BBD-2, with written pages from 1 to 119, has four columns, namely, “Entry Date” , “ Item code” , “ Weight” and “Date of Delivery”.

It was argued that the Entry Date column of the Register has been filled up at page nos. 1, 2, 3, 5,39, 42, 43, 44, 55, 77, 78,89,90, 99, 103, 104, 115 & 116 against the respective items i.e. at eighteen places only; and all other places have been left blank. It was argued that inspite of observing as above, he has alleged, in the same breath, that all the entries in the Register excluding those on pages 89, 90 & 99, related to Financial Year 2006-07. It was respectfully submitted that such allegation, contrary to record, was made for arriving at the premeditated conclusion against the assessee. On a close look into the aforesaid allegation, it would be kindly envisaged that in making such unfounded allegation, the Learned AO in fact has treated the entries bearing no dates at all, as relating to Financial Year 2006-07. It was further submitted that any attempt to read the said undated entries as relating to the Financial Year 2006-07 is wholly unwarranted as only 14 entries bore dates falling within the Financial Year 2006-07. In this context , the assessee drew the attention of the Learned CITA to the provisions of Sec. 292C of the Act, wherein, it has been, inter alia, provided that the contents of any Books of Account found in course of Survey u/s.133-A may be presumed to be true. Therefore, the entries bearing no date shall be read as undated entries and there is no room for any intendment in this behalf. The Learned AO cannot read those entries as relating to any year to suit his convenience.

Coming to the Delivery Date column , it was argued that it has been noted by the Learned AO that some of the items bear the Delivery Date as falling in the succeeding Financial Year 2007-08. It has also been found by him that as many as 59 items were delivered before the date of Survey, obviously in the Financial Year 2007-08. It has been further found that two Delivery Dates were noted as 21-12-2008 and 16-04-2008 i.e. falling in the Financial Year 2008-09. It was argued that the aforesaid observation of the Learned AO also goes against his allegation that all the entries in the Book BBD-2 ( excluding a few) related to Financial Year 2006-07. Inspite of the aforesaid observations of the Learned AO, he insisted on his prefixed allegation and for this purpose he strenuously tried to gain advantage from the noting on the cover page of the Book BBD-2, which reads as under:

Stock Book of 2006-07 with Retain pages Serially no. 1 to 119 " .

Sd/- D.C.I.T Sd/- K.Dutt 18-03-08 18-03-08 Circle-50, Kol. Benud Behari Dutt.

In reply, the assessee submitted that the said noting on the cover page of the Book BBD-2 was made in course of the Survey on 18-03-2008, at the insistence of the then Learned AO as would be envisaged on a bare look at it. It was explained that had the said Register been for the financial year 2006-07 alone, there could not have been any entry of dates falling in the Financial Year 2007-08 and 2008-09 as admitted by the Learned AO in the impugned order, and pointed out herein before. The attention of the Learned CITA was also drawn to the entries at Pages 1, 2, 14, 16, 19, 21, 22, 31, 32, 34, 53, 54, 55, 89, 90, 99, of the said Stock Book, where the entries in BBD-2 do not bear any date whatsoever (i.e. dates left blank), it cannot be conclusively inferred by any stretch of imagination that those entries related to the Financial Year 2006-07 alone. Unfortunately the Learned AO drew this unwarranted inference for making an arbitrary addition of Rs. 83,45,740/- to Assessee's total income, allegedly on account of undisclosed stock for the Financial Year 2006-07.

4.3. Version of the Learned AO - The delivery date column shows prospective dates. Some of the items show the delivery dates falling in the Financial Year 2007-08.

It was explained that this point has already been dealt hereinabove in the preceding paragraphs.

4.4 Version of the Learned AO - In as much as the assessee accepted the fourteen items, against which dates had been mentioned in the proper column of the register, as undisclosed stock and paid taxes on the value of the same, it signified that the assessee conceded the fact that the entries in the register were of undisclosed stock.

The assessee drew the attention of the Learned CITA to para 4.7 page 3 of his written explanations dated 30.11.2009 filed before the Learned AO, wherein, it would be kindly found, that, without prejudice to the explanations offered or contentions raised by the assessee, it preferred to offer suo motu the value of the said fourteen items, bearing dates falling within the Financial Year 2006-07, as its income for that year and paid tax on it. This was done for buying peace and proving bonafides of the assessee. On these facts, it has been alleged by the Learned AO that the assessee conceded that the entries in the Book BBD-2 were of undisclosed stock. It was argued that while making the aforesaid allegation, the Learned AO failed to take note of the assessee's contention that the aforesaid offer was made without prejudice to the legal position and for the purpose of buying peace and proving bonafides. It was further submitted that such action of the assessee is very common in Income-tax proceedings and in this context reference was invited to the decision of the Hon’ble Supreme Court in the case of CIT Vs Suresh Chandra Mittal reported in (2001) 251 ITR 9(SC).

4.5. Version of the Learned AO – The assessee’s claim that the entries against which no dates were given, did not relate to Financial Year 2006-07, had no basis.

This point has been dealt with in the preceding paragraphs.

4.6. Version of the Learned AO – The circumstantial evidences suggest that the Book BBD-2 was for the Financial Year 2006-07 and entries in three pages related to Financial Year 2007-08. It was impounded as register for the Financial Year 2006-07 when the assessee did not raise any objection.

It was explained that the Learned AO had relied on the circumstantial evidences to support his allegation that the Book BBD-2 ( excepting three pages ) was for the Financial Year 2006-07 and in this regard he has cited the noting on the cover page of the said Book as the circumstantial evidence. It was explained that the noting on the cover page of the Book BBD-2 has no evidentiary value whatsoever as it was not originally there, and was so made at the instance of the then Learned AO. This matter has been dealt with in detail in the preceding paragraphs hereinbefore.

It was further submitted that the circumstances prevailing at all material times were that during the Survey on 18-03-2008, full inventory of stock was prepared by the Survey Party with the help of a Registered Valuer and the excess stock, not recorded in the regular Books of Account, was declared by the assessee as representing his income for the assessment year 2008-09. It was further submitted that on weighing the aforesaid circumstantial evidences in their proper perspective, it would be kindly appreciated that after offering the undisclosed trading stock for taxation for the immediately succeeding assessment year 2008-09 and paying tax on it, there could not have been any further undisclosed stock left with the assessee, which was liable to be taxed for the immediately preceding assessment year 2007-08 under appeal.

4.7 It was argued that as has been stated hereinbefore, the purported sworn statement of the Partner of the assessee firm was recorded at the time of Survey on 18- 03-2008, and the Survey Party made physical inspection of all stock found at the shop premises, which were inventorised and valued by a Registered Valuer of the Department. The assessee drew the attention of the Learned CITA to Question - 14 of the said sworn statement of the Partner, wherein it could be found that the Survey Party made comparison of the stock physically found and those as recorded in the Stock Book and noted the difference. It was argued that from the said noting, it would be seen that the difference in case of one item alone i.e. Gold Ornaments (22Ct.) was 15333.612 gms. It was further argued that from page 5 of the assessment order, it would be kindly found that the total weight of gold jewellery, as per the Book BBD-2, was 8779.003 gms only which is much less than the difference as noted hereinabove . At the cost of repetition, it was stated that the assessee declared all such excess stock, as found by the Survey Party, for taxation for the immediately succeeding assessment year 2008- 09 and this was done well before the commencement of the assessment proceeding. Accordingly it was submitted that on the aforesaid admitted facts borne out by record, if the Learned AO proceeds again to tax the assessee in respect of a part of the same undisclosed stock for the immediately preceding assessment year 2007- 08, then it would be a case of double taxation of the same income which in any event is not sustainable in law.

The Learned CIT(A) appreciating the aforesaid contentions, deleted the addition made by the Learned AO. Aggrieved, the revenue is in appeal before us on the following ground :-

1) Ld. CIT(A) has erred in facts as well as law in deleting the addition of Rs.83,45,740/- on account of undisclosed stock found during the course of survey u/s. 133A.”

The Learned AR largely reiterated the submissions made before the Learned CIT(A) as detailed hereinabove. Without prejudice to his earlier arguments, he stated that the undated entries in the impounded document BBD /2 could at best be treated as transactions pertaining to the year of survey i.e Asst Year 2008-09 , for which year, the assessee had made offered a sum of Rs. 1.80 crores at the time of survey followed by filing of return and paid taxes thereon. Hence there cannot be any separate addition based on the document BBD /2 either in Asst Year 2007-08 or in Asst Year 2008-09 as it is already part and parcel of disclosure made in the sum of Rs. 1.80 crores. In response to this, the Learned DR vehemently supported the order of the Learned AO by referring to relevant pages of the assessment order and with reference to the impounded document BBD /2 .

We have heard the rival submissions and perused the materials available on record including the impounded document BBD /2 enclosed in the paper book filed by the assessee. It is not in dispute that the said document contained certain dates pertaining to financial year 2006-07 and 2007-08. The assessment year under appeal is Asst Year 2007-08. It is not in dispute that the assessee having stated that the said document is memoranda register had come forward to offer a sum of Rs. 2,12,400/- for the Asst Year 2007-08 based on dates found in the entries pertaining to financial year 2006-07. Apart from this, it is not in dispute that the assessee had already offered a sum of Rs. 1.80 crores for the Asst year 2008-09 towards difference in book stock and physical stock found during the course of survey on 18.3.2008.

6.1. It is not in dispute that the said impounded document did contain various entries which were undated. The Learned AO had reckoned the same as relatable to Asst Year 2007-08 which is disputed by the assessee. We find that the date of survey is 18.3.2008 (Asst Year 2008-09) and it is well settled that the presumption u/s 292C of the Act would go against the assessee and accordingly the contents of the impounded document BBD /2 wherever undated, would have to be treated as relatable to the year of survey i.e Asst Year 2008-09. It does not matter that the assessee had come forward to offer some items for the Asst Year 2007-08 in the sum of Rs. 2,12,400/- based on the same impounded document BBD/2. Based on this alone, it would be unfair to ask the assessee to explain the contents of the document which are undated. However, we find that the assessee had tried to explain that the said document is only memoranda register maintained by the salesman in order to have better control of the stocks available in the showcase. We find from the perusal of the impounded document BBD/2 (pages 1 to 119 – which is part of pages 68 -187 of assessee’s paper book), it is perceived that this is not a stock register because there are no columns for opening balances, purchases, sales and closing balances etc and also balancing has not been made anywhere in the said document. These pages contain mainly the names of items, item code, weight etc in columnar format. On certain pages, entry dates and delivery dates have also been mentioned on irregular basis. It has been observed that on certain pages, delivery dates are subsequent to the date of survey. We find that the assessee had stated that the stock register is maintained in computer and the survey party also had given cognizance to this fact by questioning the assessee only for the stock difference found between the physical stock and the stocks as per computer. Hence the contention that the impounded document is a memoranda register maintained by the salesman for better control of stocks in showcase appears to be logical. But we cannot simply brush aside the fact that the assessee had indeed offered a sum of Rs. 1.80 crores on the date of survey towards difference in physical stock and book stock when he was confronted with the difference in grams of jewellery by the survey party. We find that the survey party had prepared the following documents as Inventory of books of accounts on the date of survey on 18.3.2008:-

ANNEXURE-‘A’

Inventory of books of accounts Inventory of books of accounts found from the premises of M/s.Benud Behari Dutta of B.E 103, Sector-I, Salt Lake City, Kolkata-700 064 during survey operation U/s. 133A of Income Tax Act 1961 on 18-03-08 and are impounded/not impounded Sl.No. Description Identification mark 1. Green Covered Exercise book BBD-1 2. one binding Register of Gold ornaments BBD-2 Stock Book 3. one exercise book BBD-3 4. one black cover exercise book BBD-4 5. one Binding Red cover Exercise book BBD-5 6. one black cover exercise book BBD-6 7. one exercise book BBD-7 8. Bunch of loose sheet BBD-8 9. Bunch of loose Sheet for F/y 2007-08 BBD-9 Computer Print out 10. Bunch of Computer Print out for the F/y 2006-07 BBD-10

11.

Bunch of Computer print out BBD-11 12. Bunch of Computer Print out BBD-12 6.2. We also find that the survey party had recorded a sworn statement from the partner of the firm Sri Kanak Dutt wherein vide questions 13 and 14 , he had replied as under :-

Question:13. During the course of survey operation in your business premise, valuation of stock has been determined as per Departmental approved Valuer as per his Report dated 18.3.2008 containing SL No. 1 to 27 in 4 pages to the value shown as Rs.3,21,59,196/- as well as net weight 20166.000 gms. Diamond ct. 115.520ct. Please explain the source of investment on the said stock. Ans. The rate adopted by the valuer is not accepted at present because the rate mentioned in the valuation Report is not tallied in the valuation item-wise. However, I have no dispute about quantitative details of ornaments. The rate mentioned in the valuer’s report of Shri Biswanath Basak dt. 18.3.08 indicates valuation of gold is much higher than the Market price.”

Question 14. During the course of survey stock of different items found as under as per valuers’s Report. A comparative chart is also reproduced on the basis of stock found as per your book’s of A/cs: ------------------------------------------------------------------------------------------- Item Stock found Stock as per books Discrepancies As per valuer’s Report ------------------------------------------------------------------------------------------ Gold net wt(22ct) 19314.000gms 3980.358 gms 15333.612gms Gold net wt(18ct) 700.000 “ 10.044 “ 689.956 “

Gold (24 CT) NIL 765.490 “ (-)765.490 ” Diamond 115.520 ct 21.700 ct 93. 82ct Gold ornaments 152.000 gms NIL 152.000 gms ------------------------------------------------------------------------------------------- Please explain why the above discrepancies will not be treated as undisclosed investment in stock. Ans: The above mentioned difference in weight is our undisclosed income of current Accounting Year 2007-08 which I have voluntarily disclosed before you on your arrival on which I am ready to pay advance tax on or before 31.3.2008.

6.3. We find that pursuant to reply given to Question No. 14, the assessee had offered the difference in stocks of jewellery to the tune of Rs. 1.80 crores in Asst Year 2008- 09 and had proved his bonafide by offering the same in the return filed for Asst Year 2008-09 without retracting the statement and paid taxes thereon.

6.4. In view of the aforesaid facts and circumstances, we find that the stock difference is duly explained by the assessee by offering the sum of Rs. 1.80 crores in Asst Year 2008-09 which would offset all the discrepancies found during the course of survey and there is no scope for making further addition towards discrepancies in stock of jewelleries either in Asst Year 2007-08 or in Asst Year 2008-09. Hence we hold that the Learned CIT(A) had rightly deleted the addition made by the Learned AO. Accordingly, the ground raised by the revenue is dismissed.

The Learned AR stated that the issue involved in this appeal is addition made towards closing stock of jewellery amounting to Rs. 83,45,740/- which in turn would automatically become the opening stock of next financial year and hence it is revenue neutral and there is no tax effect on the same. Hence he pleaded that the tax effect is Nil which should be construed as less than Rs 10 lakhs and accordingly Circular No. 21/2015 dated 10.12.2015 would be squarely applicable to the facts of the instant case.

According to Learned AR, the Circular No. 21/2015 dated 10.12.2015 vide para 4 had defined the expression ‘tax effect’ , wherein it has used the tax effect on the ‘issue’ against which appeal is intended to be filed (hereinafter referred to as ‘disputed issues’). Hence the issue is only the addition made towards closing stock which becomes opening stock of next year and hence there is effectively no tax effect on the ‘issue’ involved. Accordingly, he pleaded that the revenue appeal is to be dismissed as not maintainable. He placed reliance on certain decisions in support of his proposition. But since the assessee is granted relief on merits of the addition, we feel that this aspect does not require any adjudication.

In the result, the appeal of the revenue is dismissed.

ORDER PRONOUNCED IN THE OPEN COURT ON 13 -4- 2016 Sd/- Sd/- ( N.V. Vasudevan, Judicial Member ) (M. Balaganesh, Accountant Member) Date 13 -4 -2016 Copy of the order forwarded to:- 1.. The Appellant/department: The ACIT, Cir-50, Kolkata Uttarpan Shopping complex, Manictola Civic Centre, Ultadanga, Kol-54. 2 The Respondent/assessee: Sri Benud Behari Dutt, BE-103, Block-BE, Sector-I, Kolkata-64. 3 /The CIT, 4.The CIT(A)

ACIT, CIRCLE - 50, KOLKATA, KOLKATA vs. M/S. BENUD BEHARI DUTTA, KOLKATA