Income Tax Appellate Tribunal - Amritsar
Subhash Chander Aggarwal , Jalandhar vs Assessee on 20 May, 2014
IN THE INCOME TAX APPELLATE TRIBUNAL
AMRITSAR BENCH; AMRITSAR.
BEFORE SH. H.S. SIDHU, JUDICIAL MEMBER
AND SH. B.P. JAIN, ACCOUNTANT MEMBER
I.T.A. No. 120(Asr)/2012
Assessment Year: 2008-09
PAN: AAKPA7004L
Subhash Chander Aggarwal, Vs. Deputy Commissioner of
Prop. M/s Prabh Dayal, Om Income Tax, Range-III, Jalandhar
Prakash Bazar Nauhrian, Jalandhar
(Appellant) (Respondent)
Appellant by: None
Respondent by: Sh. Mahavir Singh, Sr DR
Date of hearing: 20.05.2014
Date of pronouncement: 23.05.2014
ORDER
PER BENCH
1. Assessee has filed the present appeal against the impugned order dated 29.02.2012 passed by learned CIT(A), Jalandhar, for the assessment year 2008-09.
2. The assessee has filed the present appeal on 09.04.2012 and first time it came up for hearing before the Bench on 10.07.2012. Sh. J.S. Bhasin, Advocate filed an application dated 09.07.2012 requesting for adjournment on the ground that he would be away to High Court at Chandigarh on 10.07.2012 and it would not be possible to make appearance before the Bench at Amritsar. But he has not filed any power 2 I.T.A. No. 120(Asr)/2012 Assessment Year: 2008-09 of attorney on 10.07.2012 and requested for adjournment without any authorization. However, in the interest of justice, the Bench adjourned the case for 04.09.2012 and asked the assessee's counsel to file authorization on or before the next date of hearing i.e. 04.09.2012. On 04.09.2012, again Sh. J.S. Bhasin, Advocate, filed the application dated 04.09.2012 and requested for adjournment on the ground that he could not file the paper book. The Bench accepted the request of Sh. J.S. Bhasin and adjourned the matter for 20.09.2012. On 20.09.2012, Sh. J.S. Bhasin again filed an application dated 19.08.2012 and requested for adjournment. Sh. Padam Bahl, CA, appeared for Mr. J.S. Bhasin who was not authorized by the assessee, however, in the interest of justice, the case was adjourned for 06.12.2012. On 06.12.2012, on the request of learned DR, the case was adjourned for 21.01.2013 because the assessee's counsel Mr. J.S. Bhasin had to file the paper book within one week before the date of hearing. He has filed the paper book on 03.12.2012 and the case was adjourned for 04.03.2013 on the request of learned DR and the Bench directed DR to produce the assessment record. On 04.03.2013, again the case was adjourned on the request of learned DR for 15.04.2013 for producing the assessment record. On 15.04.2013, the Bench did not function and the registry adjourned the matter for 23.07.2013. On 23.07.2013, on the written request dated 18.07.2013 of 3 I.T.A. No. 120(Asr)/2012 Assessment Year: 2008-09 Mr. J.S. Bhasin, the case was adjourned for 10.09.2013. Again on 10.09.2013, on the written request dated 09.09.2013 in which he has stated that due to his pre-occupation with some important family affairs on 10th and 11th, September, 2013, he shall not be in a position to make appearance before this Bench and requested for adjournment and bench accepted the request of the assessee's counsel and adjourned the matter for 19.11.2013. On 19.11.2013, again Mr. J.S. Bhasin filed an application dated 17.11.2013 requesting for adjournment on the ground that he would be away to Shimla to make appearance before the High Court of Himachal Pradesh and requested for adjournment and the Bench adjourned the matter for 7th January, 2014. Again on 7th January, 2014, Mr. J.S. Bhasin, Advocate, filed an application dated 06.01.2014 and requested for adjournment on the ground that he had to attend the Kirtan Sammellan at Jalandhar and requested for adjournment and this Bench adjourned the matter for 18.02.2014. On 18.02.2014, the Bench did not function and the registry adjourned the matter for 04.03.2014. On 04.03.2014 on the request of learned DR, the case was adjourned for 07.04.2014 and on 07.04.2014, due to non-function of Bench, the case was adjourned for 23.04.2014. On 23.04.2014, Sh. J.S. Bhasin filed an application dated 21.04.2014 and requested for adjournment. For the sake 4 I.T.A. No. 120(Asr)/2012 Assessment Year: 2008-09 of convenience, the contention raised by the assessee in the application dated 21.04.2014 is reproduced as under:
"Before the Income Tax Appellate Tribunal, Amritsar Subhash Chander Aggarwal Vs. DCIT, R-II, Jalandhar Jalandhar (Appellant) (Respondent) ITA No. 120/Asr/12 for A.Y. :2008-09 Subject: Request for adjournment Respectfully submitted:
That the above appeal of assessee is fixed for hearing before the Hon'ble Bench on 23.04.2014. Since however, I have already approached the Hon'ble President I.T.A.T. Bombay, vide letter dated 04.04.2014, with a copy endorsed to this Bench, for transfer of my cases to some other Bench, it is requested that the above appeals be kindly adjourned and kept on hold, till my request with the Hon'ble President is decided.
Sd/./-
(J.S. Bhasin) Advocate."
3. After going through the contention raised by Mr. J.S. Bhasin, Advocate, in the application dated 21.04.2014, this Bench has passed the following order:
"I.T.A. No. 120(Asr)/2012 Assessment Year: 2008-09 23.04.2014 : Present for the Assessee:- None Present for the Revenue:- Sh. Mahavir Singh, Sr. DR Sh. J.S. Bhasin, Advocate, counsel for the assessee filed an application dated 21.04.2014 requesting for adjournment for keeping 5 I.T.A. No. 120(Asr)/2012 Assessment Year: 2008-09 the matter pending till the decision of President on his letter of request 04.04.2014.
We have not received any communication till date on the letter of request dated 04.04.2014 made by the assessee's counsel to the President for transfer of his cases to some other Bench. We are of the view that merely filing an application before the President for transfer of all the cases to some other Bench does not mean that the cases represented by Sh. J.S. Bhasin, Advocate, should be adjourned sine die. It will affect the disposal of this Bench. Therefore, the grounds taken by the learned counsel for the assessee, seeking the adjournment, are rejected. But, in the interest of justice, the present case is adjourned for 20th May, 2014 for final argument because the appeal i.e. ITA No. 120(Asr)/2012 for the assessment year 2008-09 is very old matter. Last opportunity is given to the parties for final arguments.
Registry is directed to issue notice to the parties by RPAD for th 20 May, 2014 Sd/- Sd/-
(B.P. Jain) (H.S. Sidhu)
23.04.2014 23.04.2014"
4. In compliance of the aforesaid order dated 23.04.2014 passed by this Bench, Registry issued notice by RPAD to the assessee in which the Registry has clearly indicated that "last opportunity for final arguments being old matter" which the assessee has received and again Sh. J.S. Bhasin filed an application dated 16.05.2014 raising exactly similar contentions as raised in the application dated 21.04.2014. For the sake of convenience, the contention raised by the assessee in the application dated 16.05.2014 is reproduced as under:
"Before the Income Tax Appellate Tribunal, Amritsar Subhash Chander Aggarwal Vs. ACIT, R-II, 6 I.T.A. No. 120(Asr)/2012 Assessment Year: 2008-09 Jalandhar Jalandhar (Appellant) (Respondent) ITA No. 120/Asr/12 for A.Y. :2008-09 Subject: Request for adjournment Respectfully showeth::
That the above appeals of assessee is fixed for hearing before the Bench on 20.05.2014. Since however, I have already moved a petition before the Hon'ble President I.T.A.T. Bombayon 04.04.2014 for transfer of my cases to some other Bench, I request my above matter to be adjourned till such time my application is decided by the Hon'ble President.
Sd/./-
(J.S. Bhasin) Advocate."
5. Keeping in view the facts and circumstances explained above, we are of the view that this Bench, vide order dated 23.04.2014 has already rejected the grounds taken by Sh. J.S. Bhasin in his application dated 21.04.2014 and again he filed the application dated 16.05.2014 raising similar ground for adjournment as raised in the application dated 21.04.2014. Therefore, the grounds seeking adjournment are rejected.
6. As we have stated above that the assessee filed the present appeal on 09.04.2012 which came up for hearing before the Bench on 10.07.2012. The present appeal adjourned by the Bench for twelve times on the request of Sh. J.S. Bhasin as well as learned DR. As per record, nine times the Bench accepted the request of Sh. J.S. Bhasin and adjourned the matter for argument and three times Bench adjourned the matter on the request of learned DR. Sh. J.S. Bhasin again filed an 7 I.T.A. No. 120(Asr)/2012 Assessment Year: 2008-09 application dated 16.05.2014 i.e. the 10th application requesting for adjournment on exactly the same ground which we have already rejected on 23.04.2014.
7. We failed to understand that why Mr. J.S. Bhasin has been seeking adjournment time and again since 10th of July, 2012. The present appeal is of 2012 and is very old matter because the Registry immediately fix the appeals before the Bench which the parties have filed in 2014, meaning thereby, this Bench is deciding the appeals filed by the parties in 2014. Therefore, the present appeal is very old and it should not be kept pending for a long time.
8. In view of the above discussion, we are of the view that Sh. J.S. Bhasin is not interested to argue the matter in spite of the fact that this Bench has given him last opportunity on 20th May, 2014 for final argument. Sh. J.S. Bhasin has been filing applications for adjournment time and again on one and another pretext only with a motive to delay the matter for the reasons best known to him.
9. Keeping in view the facts and circumstances explained above, we are not inclined to adjourn the matter anymore. Therefore, the request of assessee's counsel for adjournment is rejected and keeping in view the issues in dispute, we proceed to decide the appeal ex-parte assessee after hearing learned DR.
8
I.T.A. No. 120(Asr)/2012 Assessment Year: 2008-09
10. The facts relating to the issue in dispute are that the assessee filed his return of income for the assessment year 2008-09 on 26.09.2008 declaring total income of Rs. 79,93,396/- which was processed under Section 143(1) of the Income-tax Act, 1961 (in short "the Act"). The case was selected for scrutiny and statutory notice u/s 143(2) of the Act was issued by the ACIT, Range-III, Jalandhar on 14.09.2009 and served upon the assessee on 18.09.2009. The notice was also sent through speed post on 14.09.2009. Subsequently, the case was taken up for scrutiny by the Addl. CIT, Range-III, Jalandhar and fresh notices u/s 143(2) and 142(1) of the Act along with questionnaire were issued on 24.12.2009 and served upon the assessee on 30.12.2009. In response to the said notice, the authorized representative of the assessee attended the assessment proceeding from time to time and submitted the requisite information and the books of account, sale/purchase bills, and bills/vouchers for expenses claimed, which were examined by the Assessing Officer.
11. The assessee is doing business of trading in two items i.e. Pipes and Pumps. Separate trading accounts of these two items have been filed, which are later merged in a common P&L A/c. A survey was conducted on the business premises of the assessee on 22.02.2008, during the course of which, a number of discrepancies were found, on the basis of which, the assessee voluntarily made a surrender of Rs. one crore. This 9 I.T.A. No. 120(Asr)/2012 Assessment Year: 2008-09 surrender has been credited to the Profit & Loss account as miscellaneous Income. The Assessing Officer examined all the documentary evidences and was of the view that even after crediting this miscellaneous income of Rs. 1 crore, the net profit has been returned at Rs. 67,76,153/- only, which means, that if the survey disclosure is excluded, the assessee has in fact returned a loss from its business operations during the year under consideration, whereas a net profit of 0.86% had been returned during the immediate preceding year. The Assessing Officer asked the assessee to explain the reasons for the fall in the net profit returned vide order sheet noting dated 09.11.2010. In reply to the same, the assessee's counsel filed his written submission dated 24.11.2010 which was duly considered by the Assessing Officer. After examining the written submission along with all the documentary evidences filed by the assessee, the Assessing Officer vide order dated 20.12.2010 passed under Section 143(3) of the Act made the addition of Rs. 20,81,520/- in the trading account of Pumps, Rs. 5 lacs due to non-maintenance of stock records of pipes, Rs. 2,28,000/- on account of disallowance of interest free advances, Rs. 1,20,000/- on account of disallowance of higher charges paid and Rs. 2,50,000/- on account of staff welfare, travelling and office/shop expenses.
10
I.T.A. No. 120(Asr)/2012 Assessment Year: 2008-09
12. After considering the evidences filed by the assessee, the Assessing Officer was not satisfied about the correctness and completeness of the accounts of the assessee and she rejected the same as per the provisions of Section 145(3) of the Act and applied the G.P. rate in the case of assessee from the sale of pumps by estimating at 9%, which commensurate with the G.P. % returned by the assessee himself during the preceding two assessment years. The G.P. of the assessee from the sale of pumps during the year under consideration, works out to Rs. 4,63,052/- (9% of Rs. 51,45,028/-) as against the loss of 13,27,780/- returned by the assessee. Since this loss has been set-off against the G.P. from the sale of pipes, the net addition to the G.P. returned would be to the tune of Rs. 17,90,832/-. The Assessing Officer also held that the assessee has shown this loss deliberately to reduce the taxable income and penalty proceeding under Section 271(1)(c) of the Act for furnishing inaccurate particulars of income as well as concealing the particulars of income would be separately initiated. The Assessing Officer made the aforesaid additions by completing the assessment under Section 143(3) of the Act on 20.12.2010.
13. Aggrieved with the assessment order dated 20.12.2010, the assessee filed an appeal before the learned first appellate authority, who vide impugned order dated 29.02.2012 partly allowed the appeal of the 11 I.T.A. No. 120(Asr)/2012 Assessment Year: 2008-09 assessee by giving some relief on estimation basis. Now, the assessee, being aggrieved with the impugned order dated 29.02.2012, filed the present appeal.
14. As per record, learned counsel for the assessee filed a small paper book dated 03.12.2012, containing pages from 1 to 44, in which he has attached Assessee's written submissions (page 1-10); Assessee's reply dt. 24.11.2010 (page 11-15); Assessment order for A.Y. 2007-08 (page 16-17); Confirmation of Gurmeet Singh with his copy of A/c (page 18-19); Confirmation of Mohinder Pal Singh with his copy of A/c (page 20-21); Trading a/c for 31.03.2008 with comparative chart of expenses ( page 22-23); Assessee's Capital a/c for year ending 31.03.2003 to 31.03.2008 (page 24-27); A.O.'s comments dt. 28.11.11 (page 28-29); Assessee's reply to above (page 30-33); Stock tally of Pumps on 31.03.2007 & 31.03.2008 (page no. 34-41); Calculation of various ratios for 5 years (page 42-42); and Surrender letter given after survey u/s 133A (page 43-44).
15. At the time of hearing, learned DR relied upon the impugned order passed by learned first appellate authority and stated that the learned first appellate authority has passed a well reasoned order on the basis of documentary evidence filed by the assessee before him as well as the case-laws relied upon by the assessee. He further stated neither the 12 I.T.A. No. 120(Asr)/2012 Assessment Year: 2008-09 assessee nor his authorized representative is interested to prosecute the matter in dispute, in spite of the fact that this Bench has given sufficient opportunity to the assessee and his counsel to finally argue the matter on 20.05.2014. He further stated that the assessee has also not filed sufficient evidence before the Assessing Officer as well as before the learned first appellate authority for substantiating his claim. Therefore, the learned first appellate authority has rightly allowed the appeal partly filed by the assessee and has given sufficient relief to the assessee on the basis of evidence filed by the assessee. Therefore, he requested that the appeal filed by the assessee may be dismissed.
16. We have heard learned DR and perused the orders passed by the revenue authorities along with the documentary evidence filed by the assessee in the shape of paper book containing pages from 1 to 44 in which he has attached various documentary evidences supporting his claim. The assessee has denied the service of notice under Section 143(2) of the Act upon him. Secondly, the assessee has also raised objection that the case of the assessee was selected for scrutiny in violation of CBDT instructions and the additions/disallowances made by the Assessing Officer and confirmed by the learned first appellate authority is against the principles of natural justice. The assessee has also challenged the addition of Rs. 20,81,520/- made by the Assessing Officer in the trading 13 I.T.A. No. 120(Asr)/2012 Assessment Year: 2008-09 a/c of the pumps and confirmed by the learned first appellate authority. The assessee has also challenged another two additions of Rs. 85,500/- out of Rs. 2,28,000/- on account of interest free advances and Rs. 50,000/- out of Rs. 2,50,000/- on account of expenses under the head staff welfare, travelling expenses and office/shops expenses.
17. In the written submission filed by the assessee before learned CIT(A), the assessee stated that the Assessing Officer completed the assessment in most arbitrary, unjust and unreasonable manner. Had she patiently, judicially and objectively addressed this primary issue raked up by her, further proceedings would have, probably become otiose in view of CBDT directions in vogue not to select survey cases, for scrutiny. The assessee also stated in his written submission that the Assessing Officer completed the assessment on 20.12.2010 and assessed the income at an exorbitant figure of Rs. 1,16,74,728/- against income returned at Rs. 79,93,396/-, not only by making G.P. addition after resort to section 145(3) of the Act, but also by making several other additions here and there, by way of further disallowances etc. The assessee has also shown net profit as per P/L account for two years i.e. 2007-08 at 0.86% and for 2008-09 at 1.06 %. The ground of appeal raised in the present appeal regarding non-service of statutory notice under Section 143(2) of the Act upon the assessee, within the period stipulated under the law, the assessee 14 I.T.A. No. 120(Asr)/2012 Assessment Year: 2008-09 has raised this objection during the assessment proceeding, though it was taken a little late. But a belated objection is no bar to raise it when taken before the close of assessment. The Assessing Office had held that the notice dated 11.09.2009, signed by ACIT, R-III, Jalandahar on 14.09.2009 was served upon the assessee on 18.09.2009 by Sh. Ram Bahadur. Notice server, whose report is also claimed to be on record. She further claims the notice to have been sent by speed post also on 14.09.2009, which having not been received back, was presumed to have been served. She also observed that numerous notices served thereafter have not evoked any objection from assessee and the belated objection is only an attempt to digress and divert the assessment proceedings, which was going to be completed nearby.
18. Learned counsel for the assessee stated that for want of timely service of statutory notice on the assessee, the assessment order is without jurisdiction. The learned first appellate authority has forwarded the written submission filed by the assessee to the Assessing Officer but learned first appellate authority in the impugned order has held that the case of the assessee had been selected through CASS which was evident from the notice under Section 143(2) of the Act which has been generated by the system and the fact that the case had been selected through CASS was mentioned on the notice itself. The contention raised 15 I.T.A. No. 120(Asr)/2012 Assessment Year: 2008-09 by the assessee before the learned first appellate authority as well as before us in ground nos. 1 and 2 is devoid of merit because the Assessing Officer has not selected the case of the assessee for scrutiny manually but had been selected under CASS and the notice dated 11.09.2009 generated through computer was issued on 14.09.2009 and copy of the same was sent through the speed post vide dispatch no. 4066 dated 14.09.2009 and one copy got served through Notice Server on 18.09.2009. Even otherwise, the learned counsel for the assessee has not produced any instruction of CBDT debarring the Assessing Officer to select the survey case for scrutiny, if surrendered income was offered to tax. A return may be selected for scrutiny through a computerized process called CASS, based on certain criteria which are not disclosed. Such selection is independent of the other selection guidelines issued by CBDT.
19. Secondly, as regards to the notice under Section 143(2) of the Act served upon the assessee, the assessee has raised the objection contrary to the records. As per record, it was examined by the learned first appellate authority that the Assessing Officer has sent this notice by speed post on 14.09.2009 and this notice was served through the Notice Server on 18.09.2009 whose report of service was also placed on record. Learned first appellate authority has rightly held that the assessee had not sought to cross-examine the Notice Server even though his report of 16 I.T.A. No. 120(Asr)/2012 Assessment Year: 2008-09 service is placed in the assessment record. We are of the considered view that the issues raised by the assessee in ground nos. 1, 2 & 3 are without any basis and contrary to the record. We have to believe on the assessment record and on the findings of the learned first appellate authority which are on the basis of documentary evidence and she held that notice dated 11.09.2009 generated through computer was issued on 14.09.2009 and copy of the same was sent through the speed post vide dispatch no. 4066 dated 14.09.2009 and one copy got served through Notice Server on 18.09.2009. Thus, there is no force in the argument advanced by the assessee in the written submission and the issues raised in ground nos. 1 to 3 are dismissed.
20. As regards to the issues raised in ground nos. 4, 4.1 & 4.2 on the addition of Rs. 20,81,850/- in the gross profit in trading account of pumps, we are of the view that this addition has been made by the revenue authority on suppression of G.P. on sale of pumps. The Assessing Officer having taken note of the fact that while on sale of pumps in earlier two years, the G.P. shown was 10.20% and 9.02%. In the year under consideration, a loss of Rs. 13,27,780/- has been declared. This was taken as a starting point to probe the causes leading to this loss. The explanation of the assessee was called by the Assessing Officer and in response to the same, vide reply dated 24.08.2010, the assessee 17 I.T.A. No. 120(Asr)/2012 Assessment Year: 2008-09 justified his claim by stating that the trading of ACL Pumps was introduced in May, 2002 and purchases was made in accounting years 2002-03 and 2003-04. But the quality of pumps being not upto the market, and in response from the market on its acceptability being lukewarm, the purchases had to be discontinued after F.Y. 2003-04. However, to liquidate the stocks since purchases, the sale rate had to be compromised. Still however, complete stock register was maintained and all purchases and sales were duly vouch saved. The reply of the assessee was considered by the Assessing Officer and the Assessing Officer finally held that plea of the assessee regarding pumps which were purchased in the accounting years 2002-03 and 2003-04 could not be sold because of poor quality, on the other hand, it was observed that a number of pumps, having the same quantity and description, were valued at different rates in the opening and closing stock. Bill and vouchers produced by the assessee in support of valuation of closing stock pertained to the year 2003 or 2004, it was obvious that the same item must have been there in the opening stock also, since as per the assessee's own submissions, there were no purchases of these items thereafter. The Assessing Officer is of the view that there is no justification at all as to why the same items should be valued at a higher rate in the opening stock and at a lower rate in the closing stock. This 18 I.T.A. No. 120(Asr)/2012 Assessment Year: 2008-09 had clearly been done with an intention to undervalue the closing stock and reduce the gross profit. This was duly confronted to the assessee's authorized representative vide order sheet noting dated 13.12.2010. But the assessee has not given any justification with any documentary evidence to establish that all the pumps have been sold at loss. The Assessing Officer examined the record and found that there were number of items which had been sold at a profit. In reply to the same, the assessee has not given any plausible explanation and finally the Assessing Officer has given his finding in para nos. 4.2 & 4.3 (page 5 &
6) of the assessment order, the same are reproduced as under:
"4.2 From the perusal of the reply of the assessee's AR reproduced above, it can be seen that the assessee's AR has himself accepted that the items lying in closing stock on 31.03.2008 were the same which were lying in the stock as on 31.03.2007. He has also again reiterated that the assessee is following the system of valuation at cost price. Having admitted this, now his contention is that the items were over-valued in the opening stock and not undervalued in the closing stock. However, while giving this argument, he has conveniently forgotten that over- valuation of opening stock or under-valuation of closing stock has the same effect i.e. reducing the gross profit returned. The contention of the assessee's AR on this issue, therefore, does not hold any water. The assessee has in fact shown lesser value of almost all the items in the closing stock, which clearly amounts to furnishing inaccurate particulars of income and concealing of income, because the assessee himself has stated that the stock is valued at cost, and as such, under valuation of closing stock has obviously been done to reduce the gross profit and thereby, the taxable income. In fact, the assessee's AR has himself stated in the reply reproduced above that higher valuation of the opening stock was done " by following some other method of valuation", which is clearly not allowable, since as per the basic tenets of Accounting Standards, the same method has to be 19 I.T.A. No. 120(Asr)/2012 Assessment Year: 2008-09 followed for valuation of opening and closing stock. The assessee cannot change the method at his own sweet will. Also, as pointed out in the order sheet reproduced above, a number of items were found to have been sold at a profit, regarding which the assessee's AR has simply stated that there are certain other items which have been sold at a loss also. However, this does not in any way justify the gross loss returned by the assessee during the years under consideration. Also, nothing has been brought on record to show that there was a different in the sale rates of the items sold in the preceding year as compared to the year under consideration. Therefore, the assessee has not been able to justify as to why the sale of the same items resulted in a G.P. of 10.2 % and 9.02% in the preceding assessment years, and the same items resulted in a loss during the year under consideration. The loss returned has clearly resulted from the under-valuation of the closing stock, which has been purposely done so as to reduce the taxable income.
4.3 In view of the above facts, circumstances, evidences and observations, being not satisfied about the correctness and completeness of the accounts of the assessee, I reject the same as per the provisions of section 145(3) of the Income-tax Act, 1961. The G.P. rate of the assessee from the sale of pumps is estimated at 9%, which is commensurate with the G.P. % returned by the assessee himself during the preceding two assessment years. The G.P. of the assessee from the sale of pumps during the year under consideration, therefore, works out to Rs. 4,63,052/- (9% of Rs. 51, 45, 028/-), as against the loss of Rs. 13,27,780/- returned by the assessee. Since this loss has been set-off against the G.P. from the sale of pipes, the net addition to the G.P. returned would be to the tune of Rs. 17,90,832/-. Since the loss had been deliberately shown to reduce the taxable income, penalty proceedings u/s 271(1)(c) of the Income-tax Act, 1961 for furnishing inaccurate particulars of income as well as concealing the particulars of income in this regard are separately initiated."
21. Keeping in view the above findings given by the Assessing Officer, learned first appellate authority has also given its findings in para nos. 4.4 to 4.11 (page nos. 14 to 16), the same are reproduced as under:
"4.4 I have considered the rival submissions carefully. The matter leading to the dispute is quite clear, i.e. that the assessee had valued 20 I.T.A. No. 120(Asr)/2012 Assessment Year: 2008-09 certain items in its closing stock at values lower than the value of those items in the opening stock, and the value taken in the opening stock could not be explained or justified by the assessee. As per the assessee, the closing stock had been valued at cost, though it is admitted that the opening stock had been valued at higher rates than the cost. The A.O. has not seriously disputed the assessee's contention that the closing stock was valued at cost, though she does not appear to be entirely convinced by this claim. However, she was of the view that the change in the method of valuation of stock has resulted in the profit being shown at a much lower figure than the general profit obtained from the sale of pumps by the assessee, and that this was not acceptable.
4.5 The A.O. seems to have a reasonable ground for not accepting the appellant's submissions on this issue. Though the goods in the closing stock are stated to have been purchased in the financial years 2002-03 and 2003-04, it is not known as to why the assessee chose to value the closing stock as on 31.03.2007 at rates higher that the cost of purchase or the market price, whoever was lower. It would appear that the basis of valuing the opening and closing stock was almost the same in the financial years 2005-06 and 2006-07, since the GP rate in both these years was reasonable at around 9% to 10%. If the issue was only of the valuation of stock as on 31.03.2007, and not of the stock as on 31.03.2006, the G.P. rate for the financial year 2006-07 should have been significantly higher than that for the financial year 2005-06, since the cost of the goods is claimed to be lower than the value at which the stock has been taken as on 31.03.2007. However, this is not so : indicating that the assessee has been consistently following a different method of accounting of the stock of pumps than the accepted method of cost or market price, whoever is lower. It also follows, as a corollary, that the sale price in the financial years 2005-06 and 2006-07 was higher than even the inflated value of the goods claimed, since profit was being returned on the sales at the gross level.
4.6 The accepted method of valuation of stock is cost price, which is for the reason that it cancels out the cost of purchase in the trading account of the unsold goods, and leaves behind only the profit or the loss from the goods sold. One cannot make profit with oneself, which would be the case if the closing stock were valued at a price higher than the cost price, as has been observed by the Hon'ble Supreme Court in the case of Sanjeev Woollen Mills Vs. CIT 279 ITR 434 (SC). The accepted and customary exception to this rule is when the market price of the produce falls below the cost price, in which case the assessee is allowed to value 21 I.T.A. No. 120(Asr)/2012 Assessment Year: 2008-09 the stock at market price. In the case of Sanjeev Woollen Mills Vs. CIT (supra), the Hon'ble Supreme Court have also held that the assessee should follow a consistent method of accounting, otherwise the provisions of Section 145 of the Act may be attracted. The observations of the Hon'ble Supreme Court in this regard are as under:-
"The assessee may employ whoever basis of valuation of stock in hand, but it must adhere to that consistently year after year. Casual departure of valuation of trading stock in hand at cost or market value is not permissible. The method adopted of maintaining the accounts should be definite method of valuation which is carried by the assessee from year to year. To attract the provision of section 145 of the Act the consistent method of maintaining account books is a first condition thereafter the Assessing Officer should be of the view that the accounts are correct and complete but the method employed is such that in the opinion of the Assessing Officer the income cannot properly be deducted therefrom. The choice of method of accounting regularly employed by the assessee lies with the assessee but the assessee would be required to show that he has followed the chosen method regularly......."
4.7 In the present case the position as it appears is that the assessee has followed a wrong method of accounting of the opening stock, while it has claimed to have valued the closing stock at cost. Presuming that the goods found both in the opening stock and in the closing stock were that purchased in the financial year 2002-03 and 2003-04, as is claimed by the appellant, the mood question is whether the profit of the assessee can be determined correctly due to such a significant change in the method of value of stock. A mistake should not be allowed to be perpetuated, but a relevant issued is whether the assessee should be allowed the benefit of choosing the method of valuation of stock as per its own liking and to change it when it suits him to do so. In the case of Sanjeev Woollen Mills Vs. CIT (supra), the Hon'ble Supreme Court have frowned upon this practice. In the case of CIT vs Improvement Trust [2010] 2 DTLONLINE 329 (P&H), IT Appeal No. 703 of 2008 dated 22.12.2008, the Hon'ble Jurisdictional High Court have held that the A.O. was not justified in rejecting the revised return of income in which the assessee had valued its closing stock at cost price as against market price shown by the assessee in the original return of income. The Hon'ble High Court noted that the assessee had been valuing its stock consistently at cost, and that the closing stock was sought to be valued at cost on which basis the opening stock had been valued, so that the correct profits could be 22 I.T.A. No. 120(Asr)/2012 Assessment Year: 2008-09 arrived at. Thus, a consistent method of valuation of stock is also necessary to determine the correct profits of the business. In case a regular and consistent method of valuation of stock is not being followed, the A.O. would be entitled to invoke the provisions of section 145(3) of the Act and to determine the income accordingly.
4.8 In view of the fact situation that the assessee was not following a consistent method of accounting and that at least the method of valuation of its opening stock was inconsistent with the accepted method of valuation of stock and did not have any basis altogether, I am of the view that the provisions of section 145(3) of the Act are attracted in the present case and that, therefore, the A.O. was justified in rejecting the book results and in estimating the income of the business of dale of pumps at the G.P. rate of 9%. The decision in the case of DCIT Vs. Upper Rajasthan Sales & Services P. Ltd. (supra) is not applicable to the facts of the present case because in the cited decision there was a finding that the assessee had been following a consistent method of valuing it is stock, year after year, which is not so in the present case. 4.9 On may look at this issue from another angle. If the basis of valuation of closing stock is changed, Courts have held that the basis of the valuation of opening stock should also be amended to be consistent with the basis of valuation of the closing stock so as to determine the correct income. Reference may be made in this regard to the judgment of the Hon'ble Bombay High Court in the case of CIT Vs. Mahalaxmi Glass Works (P.) Ltd., 318 ITR 116 (Bom.), in which the Hon'ble High Court have held as much, following the decision of the Hon'ble Delhi High Court in the case of CIT Vs. Mahavir Aluminum Ltd. [2008] 297 ITR 77(Delhi) on this issue. The Hon'ble Delhi High court, in the cited judgment, have relied upon the following observations in the judgment of the Hon'ble Privy Council in the case of CIT Vs. Ahmedabad New Cotton Mills Co. Ltd. reported in AIR 1930 PC 56:
"If the method of altering both valuation is not adopted it is perfectly plain that the profit which is brought forward is not the real one. It may be more or it may be less, but it has no relation to the true profit if the stock is valued on one basis when it goes out without considering the value of the stock when it comes in. When, therefore, there is undervaluation at one end, the effect is to cause both a smaller debit in respect of the stock introduced into the next account and a larger sum for profits realized by the sale, change in market value being immediately reflected in the price obtained for the goods 23 I.T.A. No. 120(Asr)/2012 Assessment Year: 2008-09 that are sold; in these circumstances to contend that there should be undervaluation at one end and not at the other is to raise an argument which their Lordships cannot accept."
4.10 Thus, if the opening stock is also valued at cost, it will result in profit at or about the G.P. rate estimated by the A.O. So will be the situation when the closing stock is valued from the same basis the rate at which the opening stock has been valued.
4.11 The alternative contention of the appellant is that the A.O. was not justified in not allowing the benefit of carrying forward of stock by making an addition to the value of the closing stock. The appellant's contention does appear to carry weight. However, accepting this contention may lead to another anomaly, inasmuch if the appellant's closing stock will be valued at a price higher than the cost price, which will be against the accepted principles of accounting and against the judgment of the Hon'ble Supreme Court in the case of Sanjeev Woollen Mills vs. CIT (supra). Hence, this contention of the appellant is rejected. Ground number 3 of the appeal is rejected. "
22. We have considered the written submission filed by the assessee in the shape of paper book and perused the orders passed by the revenue authority, especially the impugned order on the issue in dispute, and we are of the view that the main issue involved in the ground no. 4 to 4.2 is regarding that the assessee has valued certain items in its closing stock and that value is lesser than those items in the opening stock. After going through the order passed by the revenue authority, we are of the view that the assessee is unable to substantiate the averment made by the assessee in his reply dated 24.08.2010, which is reproduced as under:
"Trading of ACL pumps was introduced in May, 2002. The pumps were purchased in acc year 2002-03 and 2003-04. But since quality of the pumps was very poor, it was not possible to make the sale. We stopped the purchase after 2003-04. We were feeling great difficulty 24 I.T.A. No. 120(Asr)/2012 Assessment Year: 2008-09 due to poor and defective pumps, we had to sell by lowering the sale prices whatever rate it could sell...... We have maintained complete stock register of pumps. Secondly, all the sales and purchase are fully vouched."
23. Again the Assessing Officer vide order-sheet entry dated 13.12.2010, asked the assessee to produce the stock register of complete purchase and sale bills and the bills in support of valuation of opening and closing stock for verification. The Assessing Officer is also of the view that in respect of trading of pumps, stock register which the assessee has produced seems to be freshly made, since it is written in the same hand-writing, and all the entries seem to have been made in the said register by the same person on the same date.
24. Keeping in view the orders passed by the revenue authority on the basis of documentary evidence filed by the assessee as well as the written submission, we are of the view that the claim of the assessee regarding the purchase of pumps in the accounting years 2002-03 and 2003-04 which could not be sold because of poor quality, the assessee has failed to establish before the revenue authority with support of any plausible explanation and evidence. In contrary, the number of pumps having the same quality and description, were valued at different rates in the opening and closing stock had been sold at a profit. According to the observation of the Assessing Officer in para no. 4.1 (page no. 4) of the assessment order on the this account, the Assessing officer has given an 25 I.T.A. No. 120(Asr)/2012 Assessment Year: 2008-09 opportunity to the assessee to clear the aforesaid doubt but the assessee has not produced any documentary evidence contrary to the notice dated 14.12.2010 and admitted that the sale price of many items is more than the purchase price by giving some example which is reproduced at page 5 of the assessment order.
25. Keeping in view the aforesaid findings given by the learned first appellate authority, we are of the view that the method adopted by the assessee for valuation of the opening stock and closing stock is wrong method of accounting and the assessee should not be allowed the benefit of choosing the method of valuation of stock as per its own liking and to change it when it suits him to do so. A consistent method of valuation of stock is also necessary to determine the correct profits of the business. In our view, if the assessee is not adopting the consistent method of valuation of closing stock, then the Assessing Officer would be entitled to invoke the provisions of section 145(3) of the Act in the case of the assessee. The learned first appellate authority has rightly upheld the findings of the Assessing Officer and finally estimated income of business of sale of pumps at the G.P. rate of 9%.
26. Keeping in view the facts and circumstances of the present case and the findings given by learned first appellate authority on the basis of various decisions rendered by the Hon'ble Courts and the documentary 26 I.T.A. No. 120(Asr)/2012 Assessment Year: 2008-09 evidence filed by the assessee in the shape of paper book, we find no infirmity in the findings given by the learned first appellate authority on the issues involved in ground nos. 4 to 4.2 and accordingly, the same are rejected.
27. As regards to the addition of Rs. 85,500/- out of Rs. 2,28,000/-;
the Assessing Officer made the addition after perusing the balance-sheet and profit and loss account of the assessee for the year under consideration in which the unsecured loan was shown to be Rs. 1,24,19,102/-, on which, the interest paid has been debited at Rs. 8,21,950/-. As against this, the assessee has given advance of Rs. 21,91,941/-, on which no interest has been charged. The details of the advance has been given to the assessee and the Assessing Officer after perusing the same called for reply from the assessee in which the assessee has stated that these advances were trade advances, except Rs. 16,00,000/- for the purchase of land. The Assessing Officer after discussing the explanation filed by the assessee as well as the various decisions rendered by the Hon'ble Courts, finally held that the binding decisions of the courts, including jurisdictional High Court, proportionate interest @ 12% i.e. the rate at which interest has been paid to depositors, on the advances given of Rs. 19,00,000/-, is being disallowed from the total interest payment claimed by the assessee. The said amount works 27 I.T.A. No. 120(Asr)/2012 Assessment Year: 2008-09 out to Rs. 2,28,000/- and this amount is added back to the assessee's returned income. In the appeal filed by the assessee before the learned first appellate authority, the learned first appellate authority on the basis of additional evidence filed by the assessee supporting his claim finally held that since the advance of Rs. 19,00,000/- have been held not to be for the purpose of assessee business, and the assessee had incurred interest expenditure on the loans taken by him, the disallowance of interest in respect of these advances is upheld. However, the disallowance out of the interest is directed to be deleted and thus given a relief to the assessee and upheld the addition of Rs. 85,500/- out of Rs. 2,28,000/-
28. Keeping in view the order passed by the revenue authority on the basis of documentary evidence filed by the assessee as well as the additional evidence of the assessee, we are of the view that sufficient relief has been given to the assessee by the learned first appellate authority and the assessee is not entitled for any further relief. Accordingly, we uphold the findings given by the learned first appellate authority on the issue involved in ground no. 5.
29. The last ground raised by the assessee in the present appeal is regarding challenging the addition of Rs. 50,000/- out of Rs. 2,50,000/- 28
I.T.A. No. 120(Asr)/2012 Assessment Year: 2008-09 on account of expenses under the head staff welfare, travelling expenses and office/shop expenses.
30. After hearing learned DR and perusing the relevant records available with us, especially the documentary evidence filed by the assessee in the shape of paper book, we are of the view that the Assessing Officer made the addition of Rs. 2,50,000/- by disallowing the expenses claimed by the assessee on estimation approximately 1/5th of the total expenses so claimed i.e. Rs. 12,37,886/- The Assessing Officer is of the view that no details of purpose, destination etc. have been given on the vouchers, and moreover, they are not supported by any bills, cash memos, etc. and are therefore unverifiable. The Assessing Officer is also of the view that in number of cases, the vouchers have not even been signed by the recipients and moreover, the similar disallowances have also been made in the case of the assessee during the preceding year also, which have not even been contested by the assessee in appeal. In the appeal filed against the assessment order on the issue in dispute, the learned first appellate authority on the basis of comparative chart of the sale for the assessment years 2007-08 and 2008-09 has held that the expenditure on the staff welfare has been increased and the expenditure on the office expenses has reduced slightly whereas the expenditure on the car has increased and he is of the view that 1/5th expenses disallowed 29 I.T.A. No. 120(Asr)/2012 Assessment Year: 2008-09 by the Assessing Officer is on the higher side and disallowance of Rs. 50,000/- out the total expenses will meet the ends of justice and learned first appellate authority has given a relief of Rs. 2 lakhs to the assessee.
31. After going through the orders passed by the revenue authority as well as the documentary evidence filed by the assessee in the shape of paper book, we are of the view that sufficient relief has been given by the learned first appellate authority to the assessee in spite of the fact that the documentary evidence filed by the assessee in support of his claim is not verifiable. Therefore, we uphold the impugned order by dismissing the issue involved in ground no. 6.
32. No other ground has been raised by the assessee in the present appeal.
33. Keeping in view the facts and circumstances explained above as well as the orders passed by the revenue authority, especially the impugned order along with the documentary evidence filed in the shape of paper book, we are of the considered view that no interference is called for in the well reasoned order passed by the learned first appellate authority. Accordingly, we uphold the impugned order dated 29.02.2012 passed by learned CIT(A), Jalandhar, by dismissing the appeal filed by the assessee.
30
I.T.A. No. 120(Asr)/2012 Assessment Year: 2008-09
34. In the result, the appeal filed by the assessee is dismissed.
Order pronounced in the open court on 23rd May, 2014 Sd/./- Sd/./-
(B.P. JAIN) (H.S. SIDHU) ACCOUNTANT MEMBER JUDICIAL MEMBER Dated: 23rd May, 2014 /RK/ Copy of the order forwarded to:
1. The Assessee: Subhash Chander Aggarwal, Prop. M/s Prabh Dayal, Om Prakash Bazar Nauhrian, Jalandhar
2. Deputy Commissioner of Income Tax, Range-III, Jalandhar
3. The CIT(A),
4. The CIT,
5. The SR DR, I.T.A.T., True copy By order (Assistant Registrar) Income Tax Appellate Tribunal, Amritsar Bench: Amritsar.