Income Tax Appellate Tribunal - Delhi
Deepsons Southend,, vs Acit, Central Circle-10,, on 3 April, 2017
INCOME TAX APPELLATE TRIBUNAL
DELHI BENCH "G": NEW DELHI
BEFORE SHRI H.S.SIDHU, JUDICIAL MEMBER
AND
SHRI PRASHANT MAHARISHI, ACCOUNTANT MEMBER
IT(SS) No. 122/Del/2005
(Assessment Year: 01.04.1995 to 26.02.2002)
Deep sons Southend, Vs. ACIT,
M-10, NDSE, Part-II, Central Circle-10, New Delhi.
New Delhi 110049.
(Appellant) (Respondent)
IT(SS) No. 131/Del/2005
(Assessment Year: 01.04.1995 to 26.02.2002)
ACIT, Vs. Deep sons Southend,
Central Circle-10, New Delhi. M-10, NDSE, Part-II,
New Delhi 110049
(Appellant) (Respondent)
Assessee by : Sh. SD Kapila, Adv
Smt. Shashim Kapila, Adv
Sh. Sanjay Kumar, Adv
Revenue by: Sh. SS Rana, CIT DR
Date of Hearing 17/01/2017
Date of pronouncement 03/04/2017
ORDER
PER PRASHANT MAHARISHI, A. M.
1. These are the cross appeals filed by the revenue and assessee against the order of the ld CIT(A)- New Delhi dated 24.12.2004 for the block period 01.04.1995 to 26.02.2002.
2. The assessee has raised the following grounds:-
"1. That the order of the ld CIT(A) is against facts of law.
2. That the ld CIT(A) is not justified in confirming the addition of Rs.
3519810/- being alleged gross profit on sales outside the books of account.
3. That the ld CIT(A) is not justified in confirming the action of the Assessing Officer in holding that interest is paid outside the books of account and determining Rs. 45000/- as unexplained expenditure."
3. The revenue has raised a solitary ground of appeal which is as under:-
Page 2 of 9"1. On the facts and in the circumstances of the case, the ld CIT(A) has erred in deleting the addition to Rs. 90400000/- and Rs. 656104/- made on account of unexplained investment for purchase of plot and cost of super structure respectively in respect of Plot No. M-10m NDSE Part-II, new Delhi as the assessee has failed to rebut the findings given in the valuation report."
4. The brief facts of the case is that the assessee is a partnership firm consisting of Hariyani Group on which search and seizure operation were conducted on 26.02.2002. Notice u/s 158BC was served upon the assessee on 09.04.2003 and the assessee filed its return of income on 24.04.2003 at Nil income. During the assessment proceedings a sum of Rs. 3519810/- was added to the income of the assessee on account of alleged sale of stock of Rs. 10413641/- on account of gross profit worked out @33.8% related to new departmental store which showed lesser gross profit compared to existing store. A further addition of Rs. 90400000/- was also made on account of the valuation report of DVO with respect to value of land at Rs. 11.49 crores compared to sale consideration shown by the assessee of Rs. 2.25 crores. The difference in super structure of Rs. 656104/- was also added as unexplained investment based on the report of DVO. Consequently the assessment was framed at Rs. 94620914/- u/s 158BC vide order dated 27.02.2004 which was challenged before the ld CIT(A), who vide order dated 24.12.2004 deleted the addition of Rs. 9.04 crores and Rs. 6561041/- but confirmed the addition of Rs. 3519810/-. Therefore, both the parties are in appeal before us.
5. We first take up the appeal of the revenue wherein the deletion the addition of Rs. 9.04 crores and Rs. 6.56 lakhs is challenged. The assessee has shown total investment in property situated at M-10, NDSE, Part-II, New Delhi at Rs. 2.42 cores being the cost of value of land and Rs. 2.16 crores for super structure. The matter was referred to valuation cell by the ld AO and DVO has valued the land at Rs. 11.49 corres and super structure at Rs. 2.25 crores. Therefore, the difference was added as unexplained investment. The ld CIT(A) has deleted the addition in absence of any evidence except the DVOs report.
6. The ld DR quoted extensively page No. 6 to 8 of the assessment order and submitted that the addition has been rightly made by the AO. He submitted that it is well known fact that consideration of property is shown at lesser Page 3 of 9 amount in convenience with buyer to avoid stamp duty and further the DVO has correctly come out with the right price.
7. The ld AR relied upon the order of the ld CIT(A) at para 2.1 to 2.3 and submitted that there is no incriminating material found pertaining to this property. He further submitted that merely on the basis of valuation report the addition has been made.
8. We have carefully considered the rival contentions. The ld CIT(A) has deleted the addition as under:-
"2.1 Ground No.2 & 4: Relate to addition made with respect to investment made in the property bearing No. M-10, NDSE Part-II, New Delhi. As these grounds of appeal are interlinked, therefore, are being taken up together. As per the A.O., according to balance sheet as on 31.3.2001, the assessee had shown total investment in the property No. M-10, NDSE Part-11, New Delhi at Rs. 5,39,49,448/-, the breakup of which is given on page 6 of the order. The matter was referred by the A.O. to the DVO and he determined the value of land at Rs. 11,49,00,0007- and cost of super structure at Rs. 2,22,64,1047-as against the value of Rs. 2,25,00,0007- and Rs. 2,16,08,0007-respectively declared by the assessee. Copy of the DVO's report was given to the assessee by the A.O. It was contended by the assessee before the A.O. relying on the judgement of Hon'ble Supreme Court in the case of Amiya Bala Paul Vs. CIT 130 Taxman 511(SC) that in this case it has been held that section 5SA of the Act cannot be supposed to be a reference u/s 131 of the Act and as such the reference to the Valuation Cell is illegal. As per the A.O., according to this judgement of the Hon'ble Supreme Court it has been held that reference u/s 55A of the I.T. Act cannot be made for the purposes of determining cost of construction for the purposes of working out the capital gains. According to the A.O., the Court has no where held that the A.O. cannot make reference u/s 131(l)(d) for determining the valuation of plot of land. With reference to the contention of the assessee that the firm has purchased plot in Nov/Dec. 199$ whereas the DVO has relied on the sale instance effected in April,1998, as per the A.O., the DVO has not relied on the sale instance which is affected after the purchase made by the assessee but had relied on a sale instance which is effected much earlier. According to him, it is well known fact that the prices of lands normally go up and never go down. With reference to the objection of the assessee on the DVO's report that the area of plot which has been compared is 380 sq.yds. against the area of 114.50sq.yds. in the case of assessee, as per the A.O., the bigger commercial plots fetch more price as compared to smaller plot as the same have higher potential for opening big or multistoried showroom/offices etc. Dismissing the objections raised by the appellant, the A.O. made addition of Rs. 9,04,00,000/- i.e. the difference between the value as given by the DVO and as reflected Page 4 of 9 by the assessee in its accounts towards investment in purchase of plot. Similarly, the addition of Rs. 6,56,104/- has been made by the A.O. on account of unexplained investment in the construction of super structure.
2.2 According to the Ld. AR, the whole exercise done by the Ld. AO for the purpose of evaluation of land in question with a view to make the addition by way of undisclosed income is beyond the scope of Chapter XIVB of the Act. It is evident that the five partners of the firm purchased the different portions of the property bearing number M-10, NDSE Part-II, New Delhi vide separate Reg. sale deed executed in their favour. According to the Ld. AR, the sale deed fully showed the sale consideration, stamp duty and Corpn. tax. The property having been purchased by the partners of the firm by Regd. sale deed was brought into the books of the firm and shown in the balance sheet filed with the Income-tax Department in the year ending 31.3.2000. The total value of the land excluding expenses on account of stamp duty being Rs. 2,43,00,0007- financed by the five partners as per the details contained in the balance sheet and the same formed part of the return filed on 29.7.2000 for the A.Y. 2000-01 and the same is on record. As per the Ld. AR this fact coupled with the construction carried out on the said plot was again brought to the notice of the revenue by filing return for the year ending 31-3-2001 alongwith the tax audit report which, inter alia, included the balance sheet. Therefore, according to the Ld. AR the factum of purchase of the property and the expenses incurred on building the super structure were within the knowledge of the Department and as such cannot be said to come within the expression "undisclosed income" as per section 158B(b) of the Act. It was further argued by the Ld. AR that the scope and ambit of Chapter XIVB is limited to the material found during the course of search. In the appellant's case the impugned assessment order is silent as to any material found during search conducted u/s 132 which could show the value of the land more than one shown by the assessee. There is a conspicuous absence of any such material found at search which could prove the higher price of the land or building paid by the assessee to purchase the same and was more than what was shown by the assessee in the books of account available to the department. Mere fact that the DVO estimated the value of land/building at a higher figure by itself was not the material which could be said to have been found on search conducted on the assessee u/sec. 132(2) of the Income Tax Act. To substitute the opinion of DVO for the actual price of the property for which it was purchased and recorded in the books of account of the assessee supported by the registered Sale deeds, the revenue not only exceeded its jurisdiction to proceed against the assessee u/s!32 but also went further wrong in applying the provisions contained in Chapter XIV -B as per the Ld. AR. The Ld. AR to support his contentions also relied on many judicial pronouncement including the case of Amiya Bala Vs. CIT.
2.3 I have gone through the assessment order and the submissions made by the Ld. AR. It is a fact that the impugned property was shown in the balance sheet Hied with the return of income of earlier years i.e. Page 5 of 9 prior to date of search. Also, there is no incriminating material found during the course of search relating to the above property which could suggest that any undisclosed investment has been made by the appellant in acquiring the property or in constructing the super structure thereon. Also, it is a fact that there is no evidence with the A.O. except the DVO's report that the appellant had not purchased the impugned property at the consideration mentioned in the purchase deed and shown in the return of income. Any addition to be made under chapter XIVB of ct must be relateable to the material unearthed during the course of search. The A.O. was not justified in making the reference to the Valuation Officer in view of the various judgments and thereafter making the addition u/s 69 purely on the basis of DO's report. It is clear from the assessment order that no evidence has been brought on record to justify the addition of Rs.9,04,00,000/- on account of investment in property. I am also in agreement with the Ld. AR's contention that since during the search operation no evidence or incriminating material was found which could have suggested that undisclosed investment had been made in the property, this matter could not be considered in the block assessment proceedings. In view of this, the addition made by the A.O. is deleted."
9. On perusal of the order of the ld CIT(A) it is apparent that the addition is deleted for the reason that there is no incriminating material found during the course of search and merely for the reason of the valuation report the addition has been made. The addition in block assessment cannot be made without any evidence unearthing during the search proceedings. The ld DR could not point out any evidence found with respect to above property during the search and none could be gathered from the order of the ld AO. In view of this we do not find any infirmity in the order of ld CIT(A) in deleting the addition of Rs. 9.04 cores and Rs. 6.56 lakhs with respect to difference in valuation of property. In the result the solitary ground of appeal of revenue is dismissed.
10. Now we come to the appeal of the assessee.
11. The ld AR submitted at the outset that ground No. 3 of the appeal is not pressed and ground No. 1 of the appeal is general in nature therefore, ground No. 1 and 3 of the appeal of the assessee are dismissed. this leaves us to ground No. 2 of the appeal of the assessee which relates to addition of Rs. 3519810/- on account of gross profit on sales outside the book. During the course of search and seizure it was found that stock of Rs. 10413614/- is short based on trading account for the period 01.04.2001 to 26.02.2002. According Page 6 of 9 to the trading account the closing stock should have been Rs. 21079094/- whereas as per the physical verification it was found at Rs. 16110956/- and therefore, a difference of Rs. 10413641/- was short. The statement of one of the partner was also recorded who confirmed with the valuation and stated that the physical inventory of the stock was also taken in the right manner. The ld Assessing Officer adopted the 33.8% of the gross profit and thereafter add the addition of Rs. 3519810/- which has been confirmed by the ld CIT(A).
12. The ld AR submitted that gross profit ration in the sister concern was only 17.5% but the ld Assessing Officer has assumed gross profit rate of 33.8%. He further submitted that though the show room was new such a high rate of gross profit it cannot earn and therefore, the addition made by ld AO is incorrect. He further submitted that the ld CIT(A) has erred in confirming the addition without any basis. He further referred to his submission made before the ld CIT(A) vide para No. 3.1 of the appellate order. He vehemently submitted that such addition is not sustainable.
13. Ld DR relied upon the orders of the lower authorities and submitted that there is no reason to deviate from the same as valuation and working of the stock has been confirmed by the partner in his statement. He further submitted that the assessee could not show anything by which his gross profit ration can be assumed at lesser rate.
14. We have carefully considered the rival contentions. The ld CIT(A) has confirmed the above addition vide para No. 3 of his order as under:-
"3.1 Ground No.3: As per this ground of appeal, the appellant is aggrieved against the addition of Rs. 35,19,810/- being alleged gross profit on sales outside the books. As per the A.O., the assessee firm started its business activities in the F.Year 2000-01 relevant to A.Y. 2001- 02 wherein G.P. rate of 33.79% was shown. During the course of search, stock inventory was taken and on the basis of which by applying the earlier years G.P. rate the trading account was cast as under:
Op.stock 1,45,20,637 Sales 3,00,04,059
Purchases 2,64,21,144 Closing stock 2,10,72,094
GP 33.8% 1,01,41,372
5,10,83,153 5,10,83,153
As per physical verification the value of closing stock by applying MRP rate worked out at Rs. 1,61,10,956/- and reducing therefrom the gross Page 7 of 9 profit @ 33.8% (as shown by the assessee for the asstt,.year 2001-02) the cost price of the stock found worked out at Rs.1,06,65,453/-. Thus as per trading account prepared as against the closing stock to be available with the firm of Rs.2,10,79,094/-, stock to the tune of Rs.1,06,65,453/- was found resulting in shortage of stock by Rs.1,04,13,641/-. The assessee was asked to explain this discrepancy in the stock. The assessee furnished its explanation before the A.O. as under:-
1. That the g.p. rate of 33.8% adopted was not correct as the store has worked ; for about seven months during financial year 2000-01.
2. That during the financial year 2001-02 there was general ' recession in the trade which was due to 9th Sept.,2001 USA blast and earth quake in Gujrat in January, 2002. It is further stated that this has resulted in lower sales and margin and it was not possible to maintain the above said g.p. rate. Further heavy discount on sales were given and clearance sale from July to August, 2001 and again from 25tfa Dec., 2001 to 28th Feb.,2002 was made which resulted into disposal of stock at heavy discount and even at a loss to clear the stock and as such g.p. rate dropped substantially.
The assessee accordingly contended that it is not possible to maintain the g.p. rate @ 33.8%.
As per the A.O. the assessee's contention that there was recession in the market due to various factors is without any merits. According to the A.O. the sales of the assessee are better than earlier year and the total sales as on the date of search i.e. (as on 26-2-2002). for 11 months were to the tune of Rs.3,00,04,059/-. The physical stock inventory was taken in the presence of the assessee and two witness and value thereof was worked out on the basis of MRP marked on the tags less g.p. of 33.8%. There was no mention of any discount on the tags. On the day of search, one of the partners, Sh.Anil Haryani was confronted with the valuation of closing stock made on the basis of physical inventory. In reply he stated that the valuation has been done at MRP (-) 33.8% g.p. and he agreed with the valuation. He has further stated that trading results prepared from the books of account were correct and the physical inventory of the stock was done in the right manner and the valuation at MRP was alsfc correct Also, as per the A.O, the assessee has not furnished evidence regarding purchase/sales bills and expenses relating to overhead to justify drop in g.p. rate. The assessee has also not furnished any evidence to show that heavy discounts have been allowed on various items. The g.p. rate shown in the sister concern i.e M/s Deepsons Deptt. Store was 17.05%. Considering the fact that the assessee has opened Departmental Store see at NDSE Part-II which is a new showroom and situated in one of the Posh Colonies of South Delhi and enjoys better facilities as compared to showroom at Connaught Place, the g.p. rate of 33.8% adopted in the case of assessee firm is reasonable, Page 8 of 9 accordingly, the A.O. held that it is quite clear that the assessee has sold stock outside the books to the tune of Rs.1,04,13,641/-. As the stock to the tune of Rs.1,04,13,641/- is sold outside the books, the gross profit @ 33.8% thereon i.e. 35,19,8107-which is earned by the assessee on such sales has not been disclosed in the books of account Accordingly, the sum of Rs.35,19,810/- was treated as unexplained income of the assessee by the A.O. 3.2 As per the Ld. AR addition made by the A.O. by applying G.P. rate of 33.8% to work out the alleged short stock of over a crore of rupee is only an arithmetical calculation based on irrelevant material. According to him it was explained before the A.O. that G.P. of 33.8% was on sales of Rs. 215.84 lacs and was only for a period of six months when the store was newly opened and the average sale per month worked out @ Rs.35.97 Lacs, but now with full working of the store for whole of the year when Sales are Rs. 315.79 Lacs the average sales per month comes to Rs.26.31 lacs with the gross profit rate of 11.81%. Moreover, there is absolutely no material on record to show that the sales of over a crore of rupees were made by the assessee as assumed by the learned AO. The assumption that the assessee sold stock worth Rs. 1,04,13,6417- being unsupported by any material or evidence, found during the course of search proceedings, there was absolutely no justification on the part of the learned AO to make addition of Rs. 35,19,8107- merely by permuation and combination. According to the Ld. AR, different Benches of the Tribunal and also the High Courts have held that section 145 cannot be applied for the purpose of working out the undisclosed income within the meaning of Chapter XIVB of the I.T.Act. The exercise done by the learned AO to estimate the income' outside the books is purely a matter of conjecture.
3.3 I have gone through the assessment order and the written submissions made by the Ld. AR. It is seen from the records that the firm was constituted in the year 1999-2000 relevant to A.Y. 2000-01. It is also a matter of record that for A.Y. 2000-01 the firm carried on business for nearly eight months as the firm was constituted on 2.7.99. The G.P. declared by the firm for this year i.e. 2000-01 was 33.8%. The assessee firm is not maintaining any stock register, therefore, to work out the stock position as on the date of search the G.P. rate of immediately preceding year has been rightly applied.
The position worked out on that basis gives a less stock of Rs. 1,04,13,641/-. The A.O. has rightly held that to that extent the stock found was less and has been sold outside the books of account. Also, I agree with the A.O. that the reasons stated by the appellant before the A.O. and reiterated before me for low G.P. are very general in nature and cannot be accepted. Therefore, I am of the opinion that the action of the A.O. in making this addition of Rs.35,19,810/-is quite justified and does not call for any interference. The addition made ' by the A.O. is confirmed and the ground of appeal is dismissed."
Page 9 of 915. It is an undisputed fact that the value of the shortage of the stock has been determined and confirmed by the partner of the assessee. In this confirmation there was a positive affirmation that the rate of the stock as well as the value derived on physical verification of the stock is correct. Therefore there is a shortage of stock of Rs. 1 041 3641/- compared to the stock lying in the books of the assessee. There was no exploration by the assessee about the shortage in the stock therefore the only plausible assumption that can be drawn is that these stock has been sold outside the books of account. Now after the sale of the stock assumed to be out of the books then only plausible way of determining income thereon is applying the rate of gross profit earned by the assessee on that sale. Naturally the Ld. assessing officer has perused the past history of the assessee and thereafter adopted that rate of 33.8% for working out profit. We do not find any infirmity in the order of the Ld. CIT appeal in confirming the above addition of Rs. 3 519810/- on account of gross profit on sales not recorded in books of account. In the result ground No. 2 of the appeal of the assessee is dismissed.
16. In the result appeal of the assessee is dismissed.
Order pronounced in the open court on 03/04/2017.
-Sd/- -Sd/-
(H.S.SIDHU) (PRASHANT MAHARISHI)
JUDICIAL MEMBER ACCOUNTANT MEMBER
Dated: 03 /04/2017
A K Keot
Copy forwarded to
1. Applicant
2. Respondent
3. CIT
4. CIT (A)
5. DR:ITAT
ASSISTANT REGISTRAR
ITAT, New Delhi