Income Tax Appellate Tribunal - Jaipur
Deputy Commissioner Of Income Tax vs Suprint Textiles on 25 April, 2005
Equivalent citations: (2006)100TTJ(JP)352
ORDER
Satish Chandra, J.M.
1. Both these cross-appeals filed by the Department as well as by the assessee against the order of the CIT(A) dt. 1st Sept., 2000, for the asst. yr. 1997-98, are disposed by a common order for the sake of convenience.
2. The assessee derives income from trading of made up cloths, textile made up in local market, by SFT sales and by exports. A survey was conducted by the Department on 4th March, 1997 at the two business outlets of the assessee located at Shyam Nagar and Amer Road at Jaipur. During the survey, the Department inventorized the stock available at Shyam Nagar at "Cost Price" whereas the stock lying at Amer Road was inventorized at "Tag Price". The stock of Shyam Nagar was valued at Rs. 17,41,412 and the stock of Amer Road estimated at cost by deducting rebate on account of bargaining and dead stock at 11 per cent and rebate on account of gross profit at 27.80 per cent. The cost of stock lying at Amer Road was estimated at Rs. 70,77,645. In this way, the total stock estimated by the Department was Rs. 88,19,057. Book stock was worked out at Rs. 77,76,591. The difference of Rs. 10,42,466 was treated as excess stock of the assessee. Further, during the course of survey, excess cash was found at Rs. 38,421 and excess credit cards of Rs. 35,708 were also found. So finally, the AO made additions of Rs. 11,16,595. However, the CIT(A) has restricted the addition of Rs. 1,50,000 by giving the relief of the balance amount of Rs. 9,66,595. Being aggrieved, both the parties are before us.
3. With this background, the learned Departmental Representative submitted that the Department has accepted the gross profit rate shown by the assessee @ 27.80 per cent. So, there is no dispute about the gross profit. About the stock at Shyam Nagar, there is no dispute as the inventory was made on the cost price. The sole dispute is regarding the 'bargaining discount' given to the buyers, who are foreigners. The damage of stock value of 5 per cent was also claimed by the assessee. Thus, assessee has claimed by bargaining discount and damage @ 20 per cent + 5 per cent = 25 per cent of the stock lying at Amer Road, which was inventorized at tag price. Further, the assessee has revised it to 15 per cent. However, the Department has accepted the bargaining discount and dead stock at 11 per cent. The learned Departmental Representative further submitted that the assessee has offered to surrender Rs. 7,24,368 by calculating the rebate at 15 per cent. For this purpose, he has drawn our attention to the order sheet dt. 20th Jan., 2000 (Departmental paper book page No. 6) where, it was mentioned that the assessee has agreed for the addition of Rs. 7,24,368. Later, the assessee has retracted from this addition before the CIT(A). He further submitted that the assessee is not involved in paying any commission to the agent, broker or tourists guide. So, no commission has been paid by the assessee to anyone. The bargaining price shown by the assessee is not on higher side. The CIT(A) has wrongly restricted the addition to Rs. 1,50,000 to cover possible leakage of revenue and discrepancies. He further submitted that the principle of taxing the excess stock under Section 69 has been upheld by the Hon'ble jurisdictional High Court in the case of Radhakishan Ramnimnjan v. CIT . He further submitted that the assessee has admitted the excess stock and he cannot go back on admission. The admission was made voluntarily and there was no coercion or pressure. For this purpose, he relied on the following decisions :
(a) Greenview Restaurant v. Asstt. CIT .
(b) V. Kunhambu & Sons v. CIT .
(c) Dhaiamdas Agrawal v. CIT . Lastly, he justified the order of the AO.
4. On the other hand, the learned Authorised Representative submitted that the assessee-firm is dealing in the items made up of textile, specially the cushion cover, sofa cover and quilts, etc., which are changing fast trend in the fashion market. The stocks exhibited to various customers get dusted and become spoiled. The assessee-firm is not paying any commission to the tourists guide. Most of the customers are the foreigners and come after reading the guide book of India. He, further, submitted that when the stock gets spoiled, it will have to be disposed by way of "sale" but assessee has not conducted any "sale". It proves that assessee was having accumulated spoiled and obsolete stock at the time of survey. All the books of account were available but later they got destroyed in fire. Immediately, the AO was informed accordingly. When the books got destroyed in fire, the assessee made a conditional surrender of Rs. 7,24,386 vide its letter dt. 20th Jan., 2000. In its letter, it was written that no penalty proceedings will be initiated by the Department. Further, in point No. (e), it was mentioned :
The recalculation of the valuation is made under the purchase peace and without conceding to the excess stock at the time of the search.
The learned Authorised Representative further submitted that without conceding to the excess stock this was the primary condition before the AO, but the AO has not accepted the offer made by the assessee. In the said letter, the assessee specifically mentioned that surrender will be for buying the peace and get immunity from the penalty but it will not have anything regarding the valuation of the excess stock. The assessee has accepted the bargaining discount and sale price @ 15 per cent in the surrender only to purchase peace but AO has not accepted this surrender and made the addition. So, the assessee retracted it before the first appellate authority and the same has rightly been done by the assessee.
5. The learned Authorised Representative further submitted that the CIT(A) made the comparison of some items of stock lying at Shyam Nagar and Amer Road and found that the difference between the cost and tag prices was upto 300 per cent. This finding is at p. 7 of the order of the CIT(A). So, he justified partial order of the CIT(A). He also relied upon the decision in the case of Banarasi Das Departmental Store v. ACIT 24 Tax World 499.
6. We have heard the rival submissions and gone through the material available on record. In the instant case, the surrender was made conditional which was not accepted by the AO who made the addition. In its letter dt. 20th Jan., 2000, it was clearly mentioned that it has nothing to do with the valuation of the excess stock. The offer was made to get the immunity from the penal proceedings and to buy peace and finish the litigation but the AO did not accept it and made the addition, started the penal proceedings resulting into prolonged litigation. In these circumstances, the assessee appears to be justified to retract from the said conditional surrender. Needless to mention that by that time the books of account were destroyed in fire and this was the compelling factor to offer the surrender.
7. In the assessee's case, there were the two outlets where the different methods were adopted for valuation of the excess stock. In Amer Road, the prices were taken at tag price after decoding the words "Come & Buy". The buyers of the goods are the foreigners. We have seen the guide book of India (p. 7 of the paper book). The said book is published by the Lonely Planet Publication, London. In this book, a warning is mentioned that the bargaining price at Jaipur will be about 50 per cent or higher. In the instant case, the assessee has claimed only 20 per cent bargaining discount which appears reasonable in the facts and circumstances of the case specially by looking to the nature of the business. The claim of 5 per cent discount for the obsolete stock also appears reasonable. How much discount is given to the tourists is a question of fact and depends upon individual case to individual case. Thus, the total discount @ 25 per cent for bargaining price appears reasonable when the Department has accepted the gross profit rate shown by the assessee, No defect was pointed out by the Department in books of account even when the survey has been conducted.
8. Further, regarding the excess credit cards found at the time of survey, it is also noted that no foreign currency was found. The credit cards of foreign currency found related to foreign banks. These cards were in the name of the foreigners. The AO made the addition but CIT(A) observed that these credit cards were available with the assessee only for preparation of SFT (counter sale) vouchers and recording of sales as the foreign tourists and customers would not like to wait and would prefer utilizing time to visit other places in the town. So, they left credit cards, etc., for preparation and packing of goods. When they return from other places of the town by the time the goods in the packed form stands delivered to the foreigners. Without repeating, we uphold the order of the CIT(A) along with the reasons mentioned therein. The excess cash found also stands fully covered with the addition sustained by the GIT(A) for Rs. 1,50,000. Hence the ground Nos. 1 and 2 of the Department and Ground No. 1 of the assessee are dismissed.
9. Ground No. 3 of Departmental appeal and ground Nos, 2 and 3 of assessee's appeal relate to deduction under Section 80HHC.
10. The ground No. 3 in the Departmental appeal is against the allowing of deduction under Section 80HHC for SFT sales.
11. The brief facts of the case are that the assessee has two divisions, Export Division and Local Division. In Export Division, there is direct export sales to foreign buyers situated in foreign countries. In Local Division, the counter sales are mainly to the foreign tourists against foreign currency, called as 'SFT sales'. The assessee maintains separate books of account and bank account for each Division. While filing the return, the assessee claimed under Section 80HHC deduction of Rs. 28,72,005 on the basis of certificate issued by the chartered accountant. The deduction, under Section 80HHC in the return filed by the assessee was claimed on the basis of turnover and profit disclosed in the books of account of Export Division and turnover and profits of the Local Division were ignored for this purpose, The AO rejected certificate issued by the chartered accountant of the assessee and recalculated the deduction under Section 80HHC at Rs. 14,06,0833 (sic) as against Rs. 28,72,005 claimed by the assessee. The AO recalculated the deduction under Section 88HHC by taking consolidated figure of sales and profit of export division and local division. The AO recalculated under Section 88HHC deduction on the amount which bears to the consolidated profit of both the Divisions, the same proportion as the turnover of Export Division bears the consolidated turnover of both the Divisions. Further, the profit computed by the AO was not further increased by 90 per cent of export incentives. In other words, the turnover of the Local Division included the sales of foreign tourists against foreign currency (SFT sales), but the AO treated the same as local turnover for calculating the deduction under Section, 80HHC. Before the CIT(A), the assessee claimed that the assessee maintains separate books of account for Export Division and Local Division and, therefore, the claim under Section 80HHC should be allowed on the basis of separate books of account maintained by the assessee for Export Division. The CIT(A) rejected this plea of the assessee. The assessee also lodged an additional claim before the CIT(A) that SFT sales should be treated as export turnover and deduction under Section 80HHC should be allowed on SFT sales. The learned CIT(A) allowed the additional claim of the assessee and directed the AO to treat the SFT sales as part of export turnover. The Department is in appeal against this direction of the CIT(A) and assessee has taken the ground Nos. 2 and 3 as alternative grounds to the ground No. 3 of the Departmental appeal.
12. The learned Departmental Representative submitted that the assessee has not made any claim before the AO allowing the deduction under Section 80HHC on SFT sales, therefore, such claim cannot be entertained by the CIT(A). The learned Departmental Representative submitted that because of the direction of the CIT(A), the assessed income after appeal effect comes to Rs. 5,86,950, which is less than the returned income of Rs. 8,89,120. The learned Departmental Representative further submitted that the AO issued notices under Section 143(2) only in order to ensure that the assess has not understated the income or has not computed excessive loss or has not underpaid the tax in any manner. Since, the AO has no power to assessee the income below the returned income, the CIT(A) has also no power to assess the income below the returned income. The learned Departmental Representative further submitted that when no addition has been made by the AO or no claim has been rejected by the AO, the assessment order was not appealable. The learned Departmental Representative relied on the following case laws:
(a) CIT v. Stepwell Industries Ltd .
(b) Addl. CIT v. Gurjargravures (P) Ltd. .
(c) CIT v. Shelly Products and Anr. .
13. On the other hand, the learned Authorised Representative submitted that the AO has rejected the certificate under Section 80HHC issued by the chartered accountant and recalculated the allowable export profit. The AO is duty-bound to calculate the export profit as per the law as available and further as per the settled judgments of the jurisdictional appellate authorities. Since, it is a settled issue that the counter sale to the foreign tourists against the foreign currency is an export turnover, the AO cannot treat the same as local turnover. The learned Authorised Representative submitted that the assessee made sales to the foreign tourist against foreign currency and these sales were made by issuing the separate sales invoices, which were specifically printed for such sales only, i.e., for sale to foreign tourists against foreign currency. The learned Authorised Representative drew our attention towards the copy of the invoices placed at paper book pp. 11 to 15. The learned Authorised Representative submitted that there is a condition stipulated on the invoices, which reads as "articles purchased under this voucher are totally prohibited for being sold, gifted or otherwise disposed off within the territory of India to any person." The learned Authorised Representative submitted that the signature of buyer accepting the terms mentioned on the invoices, clearly means that the buyer has agreed to such conditions. The learned Authorised Representative further submitted that the facts of the assessee's case are similar to the case of ITO v. Vaibhav Textiles (2002) 177 CTR (Raj) 593 : 29 Tax World 147, wherein the jurisdictional High Court had held that the sales to the foreign tourists against the foreign currency should be treated as export sales and deduction under Section 80HHC should be allowed. The learned Authorised Representative further submitted that whether the SFT sales are export sales or not is a pure question of law, therefore, the learned CIT(A) has rightly admitted the additional claim of the assessee and rightly directed to allow deduction under Section 80HHC against the sales to foreign tourist against foreign currency. Reliance has been placed on the following case laws :
(a) National Thermal Power Co. Ltd. v. CIT
(b) ITO v. Dr. V. Ramalinghaswami (1983) 6 ITD 491 (Del)
(c) CIT v. Kanpur Coal Syndicate The learned Authorised Representative further submitted with equal vehemence that the IT Authorities are quasi-judicial authorities and drew our attention to the decision of the Hon'ble apex Court in the case of CIT v. Simon Carves Ltd. where it has been observed that the taxing authorities exercise quasi-judicial powers and in doing so they must act in a fair and non-partisan manner. Although, it is part of their duty to ensure that not tax which is legitimately due from an assessee should remain unrecovered but they must also at the same time should not act in a manner which might indicate that scales are weighted against the assessee.
14. We have heard the rival submissions and perused the material available on record. The issue involves three questions. Whether, the counter sales to the foreign tourists against foreign currency should be treated as part of export turnover ? Whether, the CIT(A) is empowered to admit the additional claim ? and whether, the assessed income after the order of the CIT(A) can be less than the returned income ? The first issue is covered by the decision of jurisdictional High Court in the case of ITO v. Vaibhav Textiles (supra), wherein the Hon'ble Rajasthan High Court has held that the sales to the foreign tourists against foreign currency should be treated as export sales and deduction under s, 80HHC should be allowed. We follow the decision of the jurisdictional High Court and hold that the counter sales to the foreign tourist against foreign currency should be treated as part of export sales and there is no infirmity in the decision of the CIT(A), wherein the CIT(A) has directed to treat the SFT sales as part of export turnover. Now, the second question though academic in nature involves whether, the CIT(A) is empowered to admit the additional claim or not ? The additional claim is in respect of treating the counter sale to the foreign tourists as export turnover. The issue involves a pure question of law and the assessee can raise a question of law at any stage of appeal. The Hon'ble Supreme Court in the case of National Thermal Power Co. Ltd. v. CIT (supra) has held that where a question of law arose (although not raised before the authorities below) having a bearing on the assessee's tax liability, the Tribunal had jurisdiction to examine the same. The Department cannot take the benefit of ignorance of the assessee as per Circular No. 14 (XL-35)/1955 dt. 11th April, 1955', issued by the CBDT. Therefore, if the assessee is legally entitled for a rebate or relief, it cannot be deprived from the benefit solely on the ground that it was not claimed before the AO. Therefore, we hold that the CIT(A) has committed no error in admitting the additional claim of the assessee in respect of treating the counter sale to the foreign tourists as export turnover. Now, the third question involves the issue whether, the assessed income after the order of the CIT(A) can be less than the returned income or not ? This issue is neither emerging from the order of the CIT(A) nor from the ground of appeal of the Department. However on merits, it may be mentioned that it, is well settled principles of law that a person cannot be charged even a paisa more than what is due. The procedural provisions of Section 143(2) are applicable for AO and not on appellate authorities. The powers of CIT(A) are contained under Section 251 of the IT Act, 1961. Clause (a) of Sub-section (1) of Section 251 empowers the CIT(A) to confirm, reduce, enhance or annul the assessment. The CIT(A) has power to reduce the assessed income and this power of reduction is not restricted to the returned income. The plea of the learned Departmental Representative that the assessment order is not appealable as it does not fall in any of the conditions prescribed under Section 246(1)(a), is also not acceptable. The AO has made the additions and recalculated the 80HHC deduction at lower figure, therefore, the assessee is aggrieved from the order of the AO and it can file an appeal before the CIT(A). The case laws relied upon by the learned Departmental Representative are distinguishable on the facts and not applicable to the case before us. In the case law (supra), the claim under s, 35B was made for the first time before the Tribunal, It was held that since the claim was not made before the ITO or the AAC, the Tribunal was wrong in allowing the claim of the assessee. In the case law (supra), the claim under Section 84 was made without having any material and on mere act that such claim was allowed in subsequent years, In the case of the present assessee, the direction of CIT(A) to treat the SFT sales as part of export turnover is based on the decision of jurisdictional Tribunal. From the letter of AO dt. 29th Sept., 2000 (APB 30) it appears that the quantum of deduction under Section 80HHC on SFT sales was determined after verification of SFT sales by the AO. Hence, ground No. 3 of the Departmental' appeal is dismissed. The ground Nos. 2 and 3 of the assessee's appeal have also become infructuous and, therefore, dismissed.
15. In the result, both the appeals filed by the Department as well as by the assessee are partly allowed for statistical purposes as stated above and announced in the open Court.