Income Tax Appellate Tribunal - Ahmedabad
Shri Kunal D. Sanghvi,, Ahmedabad vs The Dy.Cit, Central Circle-2(4),, ... on 5 September, 2018
आयकर अपील य अ धकरण, अहमदाबाद यायपीठ ''सी'' अहमदाबाद।
IN THE INCOME TAX APPELLATE TRIBUNAL
"C" BENCH, AHMEDABAD
BEFORE SHRI WASEEM AHMED, ACCOUNTANT MEMBER
AND MS. MADHUMITA ROY, JUDICIAL MEMBER
IT(SS)A No. 45/Ahd/2015
नधा रण वष /Assessment Year: 2011-12
Shri Kunal D. Sanghvi, Vs. Dy. Commissioner of Income-tax,
A/14, Thirthbhoomi Central Circle-2(4),
Apartment, Nr. Law Garden, Ahmedabad
Ellisbridge, Ahmedabad-06
PAN : ATEPS 3679 L
अपीलाथ / (Appellant) यथ / (Respondent)
Assessee by : Shri P.M. Mehta, AR
Revenue by : Smt. Aparna M. Agrawal, CIT-DR
सु न वाई क! तार ख/ Date of Hearing : 27.06.2018
घोषणा क तार ख / Date of Pronouncement : 05.09.2018
आदे श/O R D E R
PER WASEEM AHMED, ACCOUNTANT MEMBER :
The captioned appeal has been filed at the instance of the assessee against the appellate order of the learned Commissioner of Income-Tax (Appeals)-12, Ahmedabad ["CIT(A)" in short] vide appeal No.CIT(A)-12/37/ACIT/CC- 2(4)/13-14 dated 16.12.2014 arising out of assessment order passed under Section 143(3) r.w.s. 153B(1)(b) of the Income-tax Act, 1961 (hereinafter referred to as "the Act") dated 31.03.2013 relevant to Assessment Year 2011-12.
2. Assessee has raised following grounds of appeal:-
"1. On law and in facts and circumstances of the appellant's case, the Ld. CIT(A) has erred in upholding addition of Rs.26,05,224/- for excess physical value of stock found during the course of survey when no such addition is called for.2
IT(SS)A No. 45/Ahd/2015 Shri Kunal D Sanghvi Vs. DCIT AY : 2011-12
2. The appellant craves leave to add to, alter, amend and/or withdraw any ground or grounds of appeal either before or during the course of hearing of the appeal."
3. The solitary issue raised by assessee is that learned CIT-A erred in confirming the addition of Rs. 26,05,224.00 on account of excess physical value of the stock.
4. Briefly stated facts are that the assessee is an individual and engaged in the trading business of Sarees and dress material. The assessee is carrying on its business activity under the name and style of M/s Aishwarya at Ratanpole and Ghatlodiya Ahmedabad.
There was a search and seizure operation under section 132 of the Act in the Sanghvi group of cases dated 9th March 2011. Similarly there was also a survey operation under section 133A of the Act at the business of premises of the assessee.
During the survey operation the Revenue valued the closing stock at the market price at Rs. 1,25,43,114 only. From such closing stock a difference of excess stock for 46,05,224.00 was determined as under :
Particulars Amount Amount Value of Physical Stock as on 9-3-11 1 25 43 114 Less: Margin Computed @ 18.67% 23 41 799 3 IT(SS)A No. 45/Ahd/2015 Shri Kunal D Sanghvi Vs. DCIT AY : 2011-12 Cost of Physical goods 1 02 01 315 Less: Stock pertaining to Aishwarya - 2 28 08 449 Balance Stock pertaining to Aishwarya Ratanpole 73 92 866 Less:
Book Stock of Aishwarya Ratanpole as on 9-3-2011 as per statement of Prakash Shah on the date of survey 27 87 642 Excess Physical stock 46 05 224 The AO worked out the excess physical stock by observing as under:
1. The gross profit rate 18.67% was the average gross profit rate pertaining to the assessment years 2009-10, 2010-11 & 2011-12.
2. Stock pertaining to the Aishwarya-2 Ghatlodiya office of the assessee for Rs. 28,08,449/- was of the correct value. Thus the same was reduced in determining the excess closing stock.
3. The book value of the closing stock as on the date of survey i.e. 9th March, 2011 was taken as per the statement of Shri Prakash Shah an employee of the assessee.
However the assessee during the assessment proceedings contended that;
i) The GP rate for the year under consideration was declared by the assessee 25.23%. This fact was also recorded in the statement taken from Shri Prakash Shah an employee of the assessee in question number 14 of the statement. It was clearly submitted that the profit margin of the assessee is 20 to 30% of the purchase value. Therefore it was submitted that the gross profit at the rate of 25.23% should be reduced from the market value of the closing stock.
4IT(SS)A No. 45/Ahd/2015 Shri Kunal D Sanghvi Vs. DCIT AY : 2011-12
ii) The book value of the stock on the date of survey for Rs.
27,87,642.00 was taken only on the basis of the statement of Shri Prakash Shah an employee of the assessee. As per the assessee the statement recorded under section 133A has no evidentiary value in view of the judgment of Hon'ble Supreme Court in the case of CIT versus S. Khader Khan Son reported 25 taxmann.com 413.
iii) The assessee also submitted that there were certain entries for the purchases as well as for sales which were not entered in the books of accounts as on the date of survey. Therefore the correct figures of the closing stock as per the books can be determined after recording the pending entries on the date of survey.
iv) The assessee also submitted that the accounts were duly audited and no defect of whatsoever was pointed out in the audited books of accounts by the AO during the assessment proceedings.
v) The assessee also made a reconciliation statement of the stock between the valuation of stock on the date of survey and books of accounts justifying the difference as observed by the AO.
vi) The assessee also submitted that shri Dhirajlal V. Sanghvi has made disclosure of Rs. 10.66 crores during the search proceedings. Therefore the benefit of telescoping for the addition in the hands of the assessee should be given.
vii) The assessee during the survey proceedings also made disclosure of Rs. 20 Lacs representing variation in the stock as well as other discrepancies. The assessee accordingly requested that the benefit of telescoping should be given on account of the income disclosed during the survey proceedings.
5IT(SS)A No. 45/Ahd/2015 Shri Kunal D Sanghvi Vs. DCIT AY : 2011-12 However the AO disagreed with the submission of the assessee and made the addition of Rs. 26,05,224.00 after giving effect to the disclosure made by the assessee during the survey proceedings for Rs. 20 lacs and added to the total income of the assessee.
5. Aggrieved assessee preferred an appeal to learned CIT-A. The assessee, before the ld. CIT(A), submitted that there were many purchase bills and sales bills which were not entered in the books of accounts as on the date of survey. Therefore, the value of the stock based on the statement of Mr. Prakash B. Shah as on the date of survey for Rs.27,87,642/- cannot be relied upon. The assessee before the ld. CIT(A) furnished the summary of the stock including pending purchase bills and sales bills as on the date of survey which is summarized as under:-
PARTICULARS QUANTITY AMOUNT Exhibit OPENING STOCK as on 1-4-2010 1 5975 45 89 605 A Total Purchase up to date of search 2 14074 14242324 B Which includes pending purchases 3 843 18 14 390 C Sales recorded upto date of search 4 12039 14414499 D Pending Sales to be recorded 5 2797 1014330 E TOTAL SALES 6 14336 1 54 28 829 Estimated Profit on Sales @ 17.5K 7*17.5% 2707 759 Cost of Goods Sold (Pl Refer point 5 of 8=7-6 12721070 submission) Cost of Good as on the date of search 9=1+2-8 6110859 6 IT(SS)A No. 45/Ahd/2015 Shri Kunal D Sanghvi Vs. DCIT AY : 2011-12
Thus, the assessee claimed that the value as on the date of survey comes to Rs.61,10,859/-only. The statement furnished at the time of survey by Mr. Prakash B. Shah being an employee of the assessee cannot be relied upon as he was not aware of the accounts of the assessee. The assessee further claimed that Mr. Prakash B. Shah was studied only up-to 8th Standard and his job was confined to segregation of sarees, dress materials, readymade dresses etc.; and, therefore, the statement of Mr. Prakash B. Shah cannot be relied upon.
The assessee in respect of pending purchase bills submitted that the payment to the creditors were made through A/c. Payee cheques and the necessary supporting evidences were filed before the Assessing Officer at the time of assessment proceedings, but the Assessing Officer did not point out any defect in such details.
No addition can be made merely on the basis of statement obtained under Section 133A of the Act until and unless it is supported with corroborative evidences.
The Assessing Officer has duly accepted the books of accounts which were prepared after including the pending purchase and sales bills as on the date of survey. Once the Assessing Officer has accepted the books of accounts as the same was not rejected; therefore, the profit shown in the books of accounts should have been accepted by the Assessing Officer. However, ld. CIT(A) disregarded the contentions of the assessee and confirmed the order of the Assessing Officer by observing as under:-
"7. I have carefully considered the assessment order, submissions of the appellant and material available on record. It is observed that the appellant was searched along various other person of Sanghvi group on 09.03.2011, He is 7 IT(SS)A No. 45/Ahd/2015 Shri Kunal D Sanghvi Vs. DCIT AY : 2011-12 proprietor of Aishwarya Sarees which is engaged in retail sates of sarees, dress materials, readymade dresses etc. A Survey action under section 133A of the Act was also carried out by the department at the business premises of Aiahwarya sarees at Ratanpole, Ahmedabad on 6th March, 2011. During the course of survey, the departmental authorities had found stock of sarees, dress material etc. which was valued at Rs.1,25,43,114/- by multiplying the rates mentioned on the tag price of individual items. The physical market value of inventory arrived on cost was compared with the book value of Inventory by the Assessing Officer in which it was observed that there was an excess physical stock of the inventory of Rs.26,05,224/. Physical value of inventory taken by the department on market rate was arrived at cost by deducting an estimated margin @18.67% which was the average margin of the financial year 2008-09 to 2010-11. The physical stock of Rs. 73,92,866 (supra) was compared with the book value of inventory of 27,87,642 as recorded in the statement of one employee Sh. Prakash Shah at the time of survey.
8. The Assessing Officer relied upon the statement of Mr. Prakash Shah that there are no pending entries to be made except for certain transactions which could at the most be Rs.50,000/-. The AO in para 5 of the assessment order observed and specifically mentioned that -
"the assessee failed to prove with cogent documentary evidence that there existed a pending purchase and sales as on the date of survey. There is no reference in the seized material the pending bills for purchase and sales transaction."
9. However neither in the ground of appeal nor in the written submission, the appellant objected that the above Finding of the AO is wrong and without any basis. Even in the appellate proceeding no such evidence was produced to prove that there were pending bills at the time of survey and the same could not be entered in the books of accounts. It is established from the facts discussed above that no such bills were pending at the time of survey. Therefore the submission of the appellant that there is no adverse Inference or remark made by the Assessing Officer in her assessment order regarding the genuineness of the details submitted, is factually wrong.
10. The appellant submitted that the reliance so placed by the AO on the statement of Prakash Shah is also void for the reason that the appellant had never endorsed what has been stated by Shri Prakash shah and on the contrary, it was communicated to the Investigation Wing that there existed certain pending purchase and sales entries. The appellant also refers to the decision of on the Hon'ble Supreme Court in the case of CIT v/s S. Kadar Khan & Sons reported at 8 IT(SS)A No. 45/Ahd/2015 Shri Kunal D Sanghvi Vs. DCIT AY : 2011-12 25 Taxmann 413 (2012) in which the Hon'ble Supreme Court has held as follows:
"Section 133A of the Income Act, 1961 - Survey - Whether Section 133A does not empower any ITO to examine any person on oath; so statement recorded under section 133A has no evidentiary value and any admission made during such statement cannot be made basis of addition - Held, yes (in favour of assessee)"
Accordingly, the sole reliance p/aced by the Assessing Officer in making the impugned addition by considering the book value of inventory at Rs. 27,87,642 as against Rs. 61,20,859 is void and bad in law. The Assessing Officer ought to have considered the decision of the Hon'ble Supreme Court in the present case since the statement of Prakash Shah was recorded u/s 133A of the Act which is having no evidentiary value.
It Is also submitted that the books of accounts for the present assessment year has been accepted by the assessing Officer, thereby accepting the purchase and soles recorded upto the date of survey. Though the Assessing Officer has erred in not accepting the pending purchase and safes entries, she also has erred in not considering the purchase and sates recorded till the date of survey which according to the Assessing Officer herself is true and correct. Accordingly, once the books of accounts ore accepted and the appellant having submitted all the evidences for all the pending entries, which has not been disputed by the Assessing Officer, there is no justification in making the impugned addition of to Rs. 26,05,224/-."
11. I have carefully analyzed the contention of the above order of Hon'ble Apex court and found that the facts of the case relied upon by the appellants are different from the appeal under consideration. In the above case the assesses submitted evidence for all the pending entries and AO accepted the same however in the appeal under consideration It is seen that the AO has specifically noted that, the appellant could not produce any evidence or documentary proof in support of the claim that there were pending dills as on the date of search and found strength from the statement of Sh. Prakash Shah who stated that there are no pending bills except Rs. 50,000/- at the time of survey. The AO has also noted that there is no reference in the .seized material which suggest that some bills are pending for entry in the books of accounts.
12. In view of the above I hold that the AO has rightly valued excess physical stock found over and above the stock shown in the books of accounts after giving 9 IT(SS)A No. 45/Ahd/2015 Shri Kunal D Sanghvi Vs. DCIT AY : 2011-12 the credit of physical stock and rightly valued excess stock of Rs.26,05,224/- hence addition made is sustained. Thus the ground of appeal is dismissed."
Being aggrieved by the order of the learned CIT(A) the assessee is in appeal before us.
Learned Authorized Representative before us filed a paper-book running from page 1-181 and drew our attention on the purchases which were not entered in the books of accounts as on the date of survey which is placed on page nos. 94 to 109 of the paper-book. The assessee also filed the bank statement evidencing payment to the creditors which are placed on page no.59 to 65 of the paper- book. Learned Authorized Representative also drew our attention on the reconciliation of stock statement furnished during the course of assessment proceedings which is placed on page no. 71 of the paper-book. The learned Authorized Representative also drew our attention on the affidavit dated 14.03.2011 filed by Mr. Prakash B. Shah stating that he was not aware about the accounts of the assessee. Similarly, he had no information about the closing stock as on the date of survey. The copy of the affidavit is enclosed at page nos. 66 - 70 of the paper-book.
Similarly, the Authorized Representative also drew our attention on the details of pending sales bills as on the date of survey which are placed on pages nos. 95 to 150 of the paper-book.
On the other hand, learned Departmental Representative submitted that Mr. Prakash B. Shah is an employee of the assessee and he is well aware about the business affairs of the assessee; therefore, the statement recorded at the time of survey cannot be just brushed aside. The ld. DR further submitted that no retraction of Mr. Prakash B. Shah was filed during the assessment proceedings.
10IT(SS)A No. 45/Ahd/2015 Shri Kunal D Sanghvi Vs. DCIT AY : 2011-12 Ld. DR also submitted that the pending purchase entries are not supported on the basis of the bills. He also submitted that if there is no undisclosed income on account of undisclosed closing stock, then the assessee should not have admitted undisclosed income amounting to Rs.20 lacs. Learned Departmental Representative vehemently supported the orders of the authorities below.
6. We have heard the rival contentions and perused the materials available on record. The issue in the present case relates to the addition made by the Assessing Officer on account of mismatch between the physical stock and book stock as on the date of survey. Therefore, such difference was added by the Assessing Officer to the total income of the assessee. The view taken by the Assessing Officer was subsequently confirmed by the ld. CIT(A).
The book value of the stock was taken by the Assessing Officer for Rs.27,87,642/-. This book value was taken on the basis of the statement of Mr. Prakash B. Shah during the survey proceedings under Section 133A of the Act. We note that the Assessing Officer has nowhere mentioned/referred to the closing stock shown in the books of accounts as on the date of survey. In our view, the stock shown in the books of accounts is more reliable/ authentic than the statement furnished by Mr. Prakash B. Shah.
We also note that the assessee has duly furnished the purchase bills and sales bills which were pending for the recording in the books of accounts, but the Assessing Officer, without adducing any defect in such purchases and sales bills, has not taken into consideration the same while calculating the closing stock as on the date of survey. There were addresses of the parties who supplied goods to the assessee which were in the knowledge of the Assessing Officer. In case of any doubt about the purchases, the Assessing Officer was 11 IT(SS)A No. 45/Ahd/2015 Shri Kunal D Sanghvi Vs. DCIT AY : 2011-12 empowered to find out the truth by exercising the powers granted under the statute. The Assessing Officer could have confirmed from the parties about such purchases by issuing notice under Section 133(6)/131 of the Act, but the Assessing Officer failed to do so.
The addition on account of undisclosed stock is made merely on the basis of statement and no corroborative evidence was brought on record by the lower authorities. We also note that CBDT has discouraged its officers to make the addition on the basis of disclosure statement which is based without any corroborative evidence. The relevant extract of CBDT instructions issued vide F. No. 286/98/2013-IT(Inv.II) dated 18th of December 2014 reads as under:-
"Instances/complaints of undue influence/coercion have come to notice of the CBDT that some assessees were coerced to admit undisclosed income during Searches/Surveys conducted by the Department. It is also seen that many such admissions are retracted in the subsequent proceedings since the same are not backed by credible evidence. Such actions defeat the very purpose of Search/Survey operations as they fail to bring the undisclosed income to tax in a sustainable manner leave alone levy of penalty or launching of prosecution. Further, such actions show the Department as a whole and officers concerned in poor light.
2. I am further directed to invite your attention to the Instructions/Guidelines issued by CBDT from time to time, as referred above, through which the Boards has emphasized upon the need to focus on gathering evidences during Search/Survey and to strictly avoid obtaining admission of undisclosed income under coercion/undue influence.
3. In view of the above, while reiterating the aforesaid guidelines of the Board, I am directed to convey that any instance of undue influence/coercion in the recording of the statement during Search/Survey/Other proceeding under the IT Act, 1961 and/or recording a disclosure of undisclosed income under undue pressure/coercion shall be viewed by the Board adversely."
We also note that the books of accounts of the assessee were duly audited which were filed during the assessment proceedings and no defect whatsoever was pointed out by the Assessing Officer in such books of accounts. On one 12 IT(SS)A No. 45/Ahd/2015 Shri Kunal D Sanghvi Vs. DCIT AY : 2011-12 hand the Assessing Officer has accepted the books of account and, on the other hand, he is making the addition merely on the basis of the statement obtained under Section 133A of the Act which was immediately retracted after the date of survey. In such facts and circumstances, the Assessing Officer should have rejected the books of account under Section 145(3) of the Act as he disbelieved the purchase bills and sales bills which were not entered in the books of accounts of the assessee as on the date of survey. But, the Assessing Officer has not done so; which implies that the Assessing Officer has accepted the books of accounts and financial statement of the assessee. In view of the above, we are not inclined to uphold the addition made by the lower authorities. Accordingly, we set aside the order of the ld. CIT(A) and direct the Assessing Officer to delete the addition made by him. Thus, the ground of appeal of the assessee is allowed.
7. In the result, the appeal of the assessee is allowed.
Order pronounced in the Court on 5th September, 2018 at Ahmedabad.
Sd/- Sd/-
(MS. MADHUMITA ROY) (WASEEM AHMED)
JUDICIAL MEMBER ACCOUNTANT MEMBER
Ahmedabad; Dated __05_/09/2018
Priti Yadav, Sr.PS
13
IT(SS)A No. 45/Ahd/2015
Shri Kunal D Sanghvi Vs. DCIT
AY : 2011-12
आदे श क! &त'ल(प अ)े(षत/Copy of the Order forwarded to :
1. अपीलाथ / The Appellant
2. यथ / The Respondent.
3. संबं धत आयकर आय, ु त / Concerned CIT
4. आयकर आय, ु त (अपील)/ The CIT(A)-12
5. (वभागीय &त&न ध,आयकर अपील य अ धकरण ,राजोकट/DR,ITAT, Ahmedabad,
6. गाड5 फाईल /Guard file.
आदे शानस ु ार/ BY ORDER, TRUE COPY सहायक पंजीकार (Asstt. Registrar) आयकर अपील य अ धकरण ITAT, Ahmedabad True copy