Income Tax Appellate Tribunal - Bangalore
M/S Yepiyes Fashion Paradise , Kollegal vs The Income Tax Officer Ward-1, ... on 17 August, 2018
IN THE INCOME TAX APPELLATE TRIBUNAL
"SMC - C" BENCH : BANGALORE
BEFORE SHRI N.V. VASUDEVAN, JUDICIAL MEMBER
ITA No.1776/Bang/2018
Assessment year : 2013-14
M/s. Yepiyes Fashion Paradise, Vs. The Income Tax Officer,
Dr. Ambedkar Road, Ward 1,
Kollegal - 571 440. Chamarajanagara.
PAN: AABFY 1039Q
APPELLANT RESPONDENT
Appellant by : Shri V. Srinivasan, Advocate
Respondent by : Shri K. Dhandapani, Jt.CIT(DR)(ITAT), Bengaluru.
Date of hearing : 18.07.2018
Date of Pronouncement : 17.08.2018
ORDER
This is an appeal by the assessee against the order dated 28.02.2018 of the CIT(Appeals), Mysore relating to assessment year 2013-14.
2. The only issue that arises for consideration in this appeal is as to whether the revenue authorities were justified in making an addition of Rs.40 lakhs to the total income of the assessee. The assessee is a partnership firm engaged in the business of retail trading in textiles and garments. For the AY 2013-14, the assessee filed a return of income on 29.9.2013 declaring a total income of Rs.9,11,310.
3. There was a survey carried out u/s. 133A of the Income-Tax Act, 1961 ["the Act"] in the business premises of the assessee on 12.02.2013.
ITA No. 1776/Bang/2018 Page 2 of 6According to the revenue, at the time of survey statement of Shri A.D. Shivaprakash, M.D. of the assessee was recorded and in his statement, he had agreed to declare income of Rs.40 lakhs in the hands of the firm for AY 2013-14. In the return of income filed by the assessee for AY 2013-14, there was no declaration of income of Rs.40 lakhs. The AO called upon the assessee to explain as to why the income declared at the time of survey was not offered to tax in the return of income. In reply, the assessee submitted that at the time of survey, the value of stock was determined by taking the tag price as given in the garments found in the assessee's business premises. From the value of the stock, only a sum of Rs.2 lakhs was given as deduction on account of direct expenses, whereas the actual direct expenses incurred by the assessee was Rs.8,90,529. The assessee further submitted that his profit margin on the tag price was 23% and if this is reduced, the value of stock at the time of survey would be further reduced by Rs.58.19 lakhs. The assessee specifically pointed out that in the statement recorded at the time of survey, the assessee agreed to declare profit after verification. The assessee submitted that after verification, it was of the view that the financial statements and the financial results taken by the assessee in the return of income disclosed the correct state of affairs and therefore declaration of income of Rs.40 lakhs in the statement made at the time of survey was incorrect. The assessee specifically pointed out that in the statement recorded at the time of survey, there was no admission that Rs.40 lakhs will be offered to tax. In this regard, the assessee pointed out to the following question & answer, recorded by the AO at the time of survey:-
"7. As per the tally accounts maintained by you the net profit as on date of survey was Rs.1.16 crores do you agree?ITA No. 1776/Bang/2018 Page 3 of 6
Ans: Some of the expenditures have not been debited and there are certain errors in closing stock entered in tally package the net profit for the period from April till the date of survey is around 40 lakhs. This will be offered as the income for the current financial year."
4. The AO, however, rejected the plea of assessee and made an addition of Rs.40 lakhs for the following reasons:-
" The contention put forth by the AR was considered. Considering the facts and circumstances of the case, it is apparently clear that the contention of the AR is only an after- thought and hence, the same is rejected for the reason that the managing partner himself had admitted Rs.40 lakhs during the course of survey proceedings. In this regard, the question no.15 and its reply given by Sri A D Shivaprakash, in the statement recorded on the date of survey i.e. 12/02/2013 is re-produced below:
Q.15. In that case, would you agree to the adopting of gross profit method for quantifying the income for the current year?
Ans: Yes, I do agree and herein furnish the trail balance, sales and purchase figures for the same, which are as under:-
Opening Stock Nil Sales Rs.2.63 Crs Purchases Rs.3.54 Crs Closing stock (As per physical Direct expenses Rs.0.02 Crs inventory taken) Rs.2.53 Crs Gross Profit Rs.1.60 Crs Total Rs.5.16 Crs Rs.5.16 Crs
On the above gross profit arrived, the expenses debited as per the trial balance amounting to Rs.28 lakhs is set off resulting in a net profit of Rs.1.31 Crores, which will be income of the firm for the current year which will be declared after due reconciliation, I offered to pay the advance tax applicable before due date.
However, after reconciliation and verification of books of account and other documents, the AO had quantified Rs.40 lakhs as addl. Income in the hands of M/s. Yepiyes Fashion Paradise. In this regard, the sworn statement u/s. 131 recorded from Sri A D Shivaprakash on 19/03/2013 is reproduced below:-ITA No. 1776/Bang/2018 Page 4 of 6
"7. As per the tally accounts maintained by you the net profit as on date of survey was Rs.1.16 crores do you agree?
Ans: Some of the expenditures have not been debited and there are certain errors in closing stock entered in tally package the net profit for the period from April till the date of survey is around 40 lakhs. This will be offered as the income for the current financial year."
It is also seen from the statement dated 28/02/2013, Sri A D Shivaprakash himself had agreed to declared Rs.1.40 crores as addl. Income which is inclusive of Rs.40 lakhs. In view of the above, it is crystal clear that there is a failure on the part of the assessee to declare the income of Rs.40 lakhs, as admitted at the time of survey in the return of income filed. In the circumstances, the sum of Rs.40 Lakhs is brought to tax."
5. On appeal by the assessee, the CIT(Appeals) confirmed the order of AO. Hence this appeal by the assessee before the Tribunal.
6. I have heard the rival submissions. The ld. DR placed reliance on the order of AO. The ld. counsel for the assessee submitted that there cannot be any addition made on the basis of admission which is not supported by any evidence found at the time of survey. The addition cannot be made purely on the basis of statement recoded at the time of survey u/s. 133A of the Act. In this regard, reference was made to the decision of the Hon'ble Madras High Court in the case of CIT v. S. Khader Khan Son, 300 ITR 507 (Mad), which decision is confirmed by the Hon'ble Supreme Court. It was submitted that there was no basis for the sum of Rs.40 lakhs arrived at by the AO or by the assessee in the statement u/s. 133A of the Act. In such circumstances, the addition made should be deleted.
ITA No. 1776/Bang/2018 Page 5 of 67. I have given a careful consideration to the rival submissions and I am of the view that the statement recorded u/s. 133A of the Act de hors incriminating material found at the time of survey cannot be the basis to make any addition. In other words, there should have been evidence found which can lead to the conclusion that assessee has suppressed income. In the present case, no such exercise has been carried out by the AO or the CIT(Appeals). In the course of survey u/s. 133A of the Act, the inventory has to be compared with the stock as per the books of account. While arriving at the value of inventory, the cost price has to be determined and due deduction given towards direct expenses. In other words, if the stock found at the time of survey carries a tag of sale price, then to arrive at the purchase price of the assessee, gross profit margin as declared in the relevant assessment year and direct expenses have to be reduced. Only then the value of inventory at the time of survey can be ascertained. Thereafter, the value of inventory has to be compared with the value of inventory as recorded by the assessee in the books of account. If the inventory is more than the value as recorded in the books of account, then addition u/s. 69 as unexplained investment in stock has to be made. If there is a shortfall, then the presumption is that the assessee has sold goods outside the books of account and then appropriate profit margin has to be added to the total income. Without following the aforesaid procedure which is normally adopted in the case of a survey, the AO has proceeded to make an addition of Rs.40 lakhs on the basis of statement recoded at the time of survey. I am of the view that such an approach is not in accordance with the law. I therefore set aside the order of CIT(Appeals) and remand the issue to the AO for consideration afresh in the light of the above observations made in this order.
ITA No. 1776/Bang/2018 Page 6 of 68. For statistical purposes, the appeal of assessee is treated as allowed.
Pronounced in the open court on this 17th day of August, 2018.
Sd/-
( N.V. VASUDEVAN ) Judicial Member Bangalore, Dated, the 17th August, 2018.
/ Desai Smurthy / Copy to:
1. Appellant
2. Respondent
3. CIT
4. CIT(A)
5. DR, ITAT, Bangalore.
6. Guard file By order Senior Private Secretary ITAT, Bangalore.