Income Tax Appellate Tribunal - Mumbai
Jain Trading Co. vs Income Tax Officer on 30 October, 2006
ORDER
S.C. Tiwari, Accountant Member
1. This appeal has been filed by the assessee on 5-11 -2002 against the order of the learned Commissioner (Appeals)-XIII, Mumbai dated 13-9-2002 in the case of the assessee in relation to assessment order under Section 143(3) for assessment year 1999-2000.
2. In this appeal the assessee has disputed assessment of a sum of Rs. 25lakhs on the ground that it was an additional income declared by the assessee himself during the survey proceedings under Section 133 A of the Act conducted on 30-3-1999.
3. Facts of the case leading to this dispute briefly are that there was a survey under Section 133A at the premises of the assessee on 30-3-1999.During the course of survey an inventory of stock as found was physically taken. Based on that inventory relying upon the f act that in the case of the assessee average rate of gross profit was 7.26 per cent the survey authorities concluded that there was under-statement of closing stock. Confronted by this question the assessee offered an additional income of Rs. 25 lakhs for financial year 1998-99 relevant to assessment year 1999-2000. However, in the return of income filed the assessee disclosed no such income. The Assessing Officer did not accept various explanations of the assessee and held that after having admitted suppression of business income to the extent of Rs. 25 lakhs it was not open to the assessee to resile from additional income declared during the survey proceedings. He therefore added an income of Rs. 25 lakhs to the income as declared by the assessee in the return of income filed by it. On assessee's appeal the learned Commissioner (Appeals) upheld the reasoning of the assessing officer. Still aggrieved the assessee is in appeal before us.
4. It would be appropriate to begin with the relevant question and answer during the course of survey proceedings that are as follows:
Q. 4 On the basis of the figures of sales and purchase opening stock and applying the G.P. rate of 7.26 per cent a trading account as on 30-3-1999 was drawn. This exercise resulted in the derivation of closing stock as per books at Rs. 14,28,952 as per Annexure-A. Today the inventory of physical stock purported to be lying in the hired godown of M/s. Ladhoo Devraj & Co. at 51 -D, Dockyard Road, Mazgaon, Mumbai - 400 010 was taken and which has been duly endorsed by you. This inventory of Stock reflects the value of closing stock at Rs. 69,439. Please explain the discrepancy?
Ans 4 The closing stock as per books has been worked out at on the basis of the higher G.P. than my regular business turns out normally. You have showed me the basis of computation of the G.P. as being rondom sales and purchase bills. True, that in respect of certain commodities which forms a good part of the commodities sold by me during the year vis-a-vis the business of the firm, yet I state that at the end of the year the G.P. may not work out as much list as done today by you. However, I would like to put on end to this controversy and to avoid litigation. I would like to make a disclosure of Rs. 25,00,000 as additional income which hopefully shall take care of stock discrepancy as well as the above stated cash discrepancies in the event of my not being able to explain away such discrepancies to demonstrate my good intention I present you with a cheque for Rs. 6,00,000 (Rs. six lakhs only) which is a part of my liability of income-tax on the above disclosure of Rs. 25,00,000 (Rs. twenty five lakhs only) offered as additional income for the financial year 1998-99 pertaining to assessment year 1999-2000.
5. During the course of hearing before us the learned Counsel argued that there was only a conditional offer made by the assessee during the course of survey proceedings i.e., in the event of the assessee not being able to explain away any discrepancy in the books of account. During the course of assessment proceedings the assessee furnished complete particulars of its business transactions. The assessee demonstrated that the very premise that there was average gross profit of 7.26 per cent of the survey authorities was totally incorrect and there was wide fluctuation from time to time in the margin of profit earned by the assessee as was obvious from the detailed factual statements filed during the course of assessment proceedings. The authorities below were totally unjustified in ignoring the voluminous data filed by the assessee during the course of assessment proceedings and not to buzz from the so-called additional income offered by the assessee during the course of survey proceedings. In support of the contentions the learned Counsel relied upon the judgment Paul Mathews & Sons v. CIT .
6. The learned CIT, DR strongly argued that the assessee could not blow hot and learned The offer of additional income was made by the assessee when he was confronted with the conclusions drawn on the basis of an elaborate enquiry made by the survey party. As the assessee had no proper answer to the case made out by survey party at that point of time he made a disclosure of Rs. 25 lakhs. On these circumstances the assessee was not entitled to resile from that offer after a long gap of time. Retraction of statement on the part of the assessee was not bona fide and was merely an afterthought. The learned CIT, DR especially relied upon the observation of the learned Commissioner (Appeals) in para 2.2 of the impugned order.
7. We have carefully considered the rival submissions. On perusal of therelevant question and answer as quoted by us in the f oregoing para we donot entirely agree with the contention of the learned Counsel for the assessee that offer of additional income as made by the assessee at the time of survey was conditional and contingent upon the assessee not being above to answer various discrepanties in due course of time. There is an offer of additional income of Rs. 25 lakhs. At the same time the fact remains that while making this offer of additional income the assessee clearly protested that the working of value of closing stock as made by the survey party was not proper and a much higher gross profit rate had been adopted for deriving the value of closing stock. The offer as made by the assessee is not because of any admission of undisclosed income but on the ground that the assessee would like to put an end to the controversy and avoid litigation.
8. The legal position regarding whether or not an assessee who makes an offer of additional income during the course of an enquiry by income-tax authorities is entitled to retract from that offer subsequently has been subject-matter of a plethora of Tribunal decisions and court pronounce-ents. For the purpose of this order it is not necessary for us to enter into a treatise on the subject-matter. The correct legal position emerging from various decisions and judgments is that it is not correct to state that an assessee is bound by his offer of additional income for all time to come. But ait the same time the burden cast upon an assessee who chooses to retract his earlier statement is very heavy. As far as the case before us is concerned during the course of assessment proceedings the assessee has compiletely explained entire business trans actions leading up to the date of survey. The assessee has given during the course of assessment proceedings the details of his trading activity which are placed at pages 40 to 63 of the paper book. From those particulars we find that the assessee has demonstrated that the rate of gross profit varied from item to item and transaction to transaction and by no means any particular rate of gross profit can be correctly applied so as to work out the value of closing stock at any given date. What is more important is that in his account statements the assessee has collated each item of purchase with corresponding item of sale. Once every purchase is collated with the sale thereof in terms of quantum as well as value, no further burden remains to be discharged by the assessee unless any discrepancy or falsity is pointed out in such collation. The assessing officer has not raised even a finger of doubt at this account statement furnished by the assessee during the course of assessment proceedings. That being so the only course open to the assessing officer was to accept the disclosed trading results. We are therefore satisfied that in the instant case the assessee has been able to discharge the heavy burden that rested upon him while retracting from offer of additional income at the time of survey. As we have pointed out earlier even at that stage the case of the assessee was that the offer was made to buy peace and not because of any concealment of income or discrepancy in accounts detected by survey authorities.
9. In view of the discussion in the foregoing paragraphs we delete the addition of Rs. 25 lakhs as made by the assessing officer and upheld by the learned Commissioner (Appeals).
10. In the result, this appeal is allowed.