Income Tax Appellate Tribunal - Agra
Maheshwari Book Shopee vs Addl. Cit on 24 October, 2005
Equivalent citations: [2006]6SOT425(AGRA)
ORDER
This is an appeal filed by the assessee against the order dated 30-9-2004 of Commissioner (Appeals)-I, Agra pertaining to 2001-02 assessment year.
2. The grounds, raised by the assessee read as under:-
" 1. Because the authorities below have erred on facts and in law in making/ sustaining an addition of Rs. 2,87,289 under the head'un-explained stock'. The addition was not, at all, warranted and is liable to be deleted."
2. Because the learned assessing officer had not found any anomaly in either purchases or sales which were fully proved with reference to the purchases and sales invoices produced before him and the audited accounts filed with the return of income for the assessment year 2000-0 1.
3. Because the addition of Rs. 2,47,747 in respect of alleged un-explained purchases for the earlier financial year 1999-2000 is illegal and based on presumptions.
4. Because the learned assessing officer was notjustified in reducing the alleged un-explained purchases for the earlier financial year 1999-2000 from the working of stock at the time of survey during financial year 2000-01 relevant to the year under appeal which is based on fully explained verified and accepted purchases and sales for the period up to the date of survey."
3. The relevant facts of the case, as are culled out from the impugned order are that at the business premises of the assessee, survey under section 133A was carried out on 23-6-2000. During the survey, stock of 7,76,357 was found at the shop. At the time of survey, the value of the stock at the residence was estimated at Rs. 7,50,000. Subsequently, the valuation of stock at the residence was carried out and it was worked out at Rs. 9,68,043. Accordingly, the total value of the stock came to Rs. 17,44,400. On 27-6-2000, the books of account and certain other documents were impounded under section 131 of the Income Tax Act. The assessing officer required the assessee to explain the source of stock found at the time of survey. In response to this, the assessee filed a letter dated 16-2-2004 showing that the stock available as per its books of account was Rs. 12,88,016. It was also submitted that the stock was inventorised at the sale price. The assessing officer accordingly, estimated the stock by reducing the same by G.P. of 15%, The assessee further submitted that the stock so calculated was consisting of old Edition books and books worth Rs. 8,879 were specimen copies not meant for sale, in which no investment had been made by the assessee. A perusal of the assessment order shows that as per the return filed for 2000-01 assessment year, the opening stock shown by the assessee was of Rs. 6,41,500 whereas as per the books of account impounded, there were certain discrepancies. The assessing officer was of the view that the assessec with a view to create explanation of stock found during the survey and impounded loose papers and documents etc. had inflated the stock and changed other figures for 2000-01 assessment year, which had a direct effect on the year under consideration i.e., 2001-02. The explanation of the assessee dated 16-2-2004 is reproduced at page 2 para 6 of the assessment order. It was pointed out that the inventory of stock made during the survey was incorrect on account of the fact that MRP mentioned in the books has been taken for valuation purposes. The objection was to the effect that in the said MRP, profit is also included. Accordingly, it was contended that once the stock taken as Rs. 15,26,357 noted by the Survey Party is reduced by 15%, being the G.P. shown in the immediately preceding assessment year, the balance would work out to Rs. 12,97,403 and there would be only a small difference of Rs. 9,387, which should be ignored, as the Survey Party has included even the specimen copies, in which the assessee makes no investment at all. A perusal of the same further shows that it was submitted that in the immediately preceding assessment year, the return of income filed showed an opening stock of 6,41,500. In support of the said submission, Annexure-C showing a closing stock of Rs. 8,72,500 was filed in the said year. It was further submitted that large-scale purchases had been made in the month of March 2000 as the assessee's season starts in April. The purchases so made in March, 2000 remained in assessee's closing stock and this among other stock forms part of the closing stock as on 31-3-2000 and as such, would become the opening stock for the year under consideration.
4. On 17-2-2004, the statement of Shri Ajay Maheshwari partner was also recorded, who further explained the details submitted vide letter dated 16-2-2004. It was submitted that the purchases recorded for 1998-99 were taken into account to work out the closing stock for 31-3-1999 and thus, this became the opening stock of 2000-01 assessment year (1999-2000 F.Y.). It was clarified that these purchases related to F.Y. 1998-99, but were wrongly entered in F.Y. 1999-2000 by the Accountant. It was stated that the purchases were largely made from S. Chand & Co. New Delhi amounting to Rs. 1,22,485 and other renowned Publishers. However, since they were not found entered in the ledger, the assessee was required to explain the same. Thereafter, the assessee vide another letter dated 25-2-2004 and statement of the said partner was again recorded.
5. However, the assessing officer was of the view that the assessee has prepared fresh books of account in the preceding assessment year, which were different from the books of account impounded under section 131 and the details submitted by the assessee were based on these fresh books of account.
6. The assessee again reiterated that the stock was inventorised at sale price and in support of the said claim various text books were produced. However, the assessing officer was convinced that the books of account were prepared after the survey were not the books of account maintained in the regular course of business and as such, cannot be relied upon. The plea of the assessee that the mistake occurred to the accountant should be ignored was also not accepted. The assessing officer was of the view that these pleas cannot be accepted-
"because so many mistakes occurred at so many places and continuing for such a long-time, cannot be un-noticed."
Accordingly, on comparison of books of account, the assessing officer was of the view that the assessee has introduced purchases of Rs. 3,31,221, sales of Rs. 93,656, payment of Rs. 3,67,745, receipt of Rs. 25,855 and purchase return of Rs. 83,474. All these entries are in cash only. After considering all these facts, the assessing officer was of the view that the purchases of Rs. 3,31,221 less purchase return of Rs. 83,474 i.e., Rs. 2,47,747 were unaccounted and they were later on entered in the fresh books prepared by the assessee to create explanation for the stock found at the time of survey and further, as these purchases are unaccounted, the expenditure on the same has to be added under section 69C of the Income Tax Act in the relevant year. As this expenditure is unexplained, the same cannot be allowed as deduction directly or indirectly in view of Explanation to section 69C. Accordingly, the assessing officer observed that the assessee's purchases should be reduced by Rs. 2,47,747. He laid emphasis on the fact that the assessee has claimed purchases of Rs. 1,22,485 from S. Chand & Co. New Delhi which although have been entered in the fresh books of account, however, it were not mentioned in the impounded books, as such, it could not be given much credence. Aggrieved by this, the assessee went in appeal before the Commissioner (Appeals).
7. In appeal before the first appellate authority, the submissions made before the assessing officer were reiterated. The background of the case, as brought before the Commissioner (Appeals) is found at page 3 of the impugned order, which reads as under :
"The assessee is a partnership concern carrying on the retail business of purchase and sale of books and stationery. The firm consists of two partners namely :-
1. Sh. Ajay Maheshwari.
2. Shri Amit Maheshwari.
There were survey proceedings at the business premises of assessee on 23-6-2000. During the course of survey the stocks were inventorised and statement of Shri Bankey Behari Maheshwari, father of the partners was recorded and certain incomplete books of account and other documents were impounded.
During the course of survey stock of Rs. 7,76,357 (calculated at printed MRP) was found and the stock lying at the residence of Shri Bankey Behari Maheshwari were also inventorised which was estimated at Rs. 7,50,000. Subsequently, this stock was valued at Rs. 9,68,043 and as such the total stock at shop and residence aggregated to Rs. 17,44,400 which has wrongly been stated by the assessing officer as Rs. 17,47,400 at page 4 of the order, which working unexplained stock.
Further in the impounded books the assessing officer identified an entry of Rs. 50,000 stated to be the opening stock generated by credit to the account of Shri Bankey Behari Maheshwari. The assessing officer has further stated that as per return filed by the assessee for financial year 1999-2000 (Assessment year 2000-01) the opening stock was Rs. 6,41,500 from this, the assessing officer has inferred that the assessee with a view to create explanation of stock found during survey and impounded loose papers and documents etc. had inflated the stock and changed other figures for financial year 1999-2000.
The learned Addl. Commissioner has ignored the fact that the entry of Rs. 50,000 appearing in the books of account as per statement of Shri Bankey Behari Maheshwari recorded at the time of survey represents stock received by Shri Bankey Behari Maheshwari, received by him at the time of his separation from the firm M/s. Maheshwari Book Depot. This does not represent the only opening stock of the firm which came into existence on 12-2-1999.
The learned Commissioner has completely ignored the fact that the assessee being retail business has opted for the provisions of section 44AF and filed the incometax return accordingly."
8. The Commissioner (Appeals) was noted convinced by the arguments advanced by the assessee which had already advanced before the assessing officer. The arguments advanced on behalf of the assessee that impounded books were not relevant, as the assessee had been declaring income under the provisions of section 44AF was also not accepted. He was of the view that if any books are to be relied, it was the books that were impounded and not books which were prepared after the survey under section 133A. The fact that the return for the assessment year 2000-01 was filed was also taken to be a situation, which rendered no help to the assessee in view of the fact that the said return was filed after the date of survey and also after due date for filing the return. The arguments that on account of purchases made on earlier years, no addition should be made in the year under consideration was also rejected by the Commissioner (Appeals) since he was of the view that the assessing officer has not made any addition in respect of unaccounted purchases has made the addition on account of unexplained stock. The arguments of the assessee that the assessing officer has wrongly mentioned the figure of value of stock at Rs. 14,47,400 instead of Rs. 17,44,400, however, was accepted, as it was considered to have been occasioned on account of typographical error. Accordingly, the action of the assessing officer was upheld by the Commissioner (Appeals).
9. Still aggrieved, the asscssee is in appeal before the Tribunal.
10. The learned authorised representative appearing on behalf of the assessee reiterated at length the submissions made before the assessing officer and the Commissioner (Appeals). Attention was invited to letter-dated 16-2-2004 addressed to the assessing officer placed at the paper book, wherein at para 2, background of the case was addressed by the assessee. For ready reference, the same is being reproduced :-
"That at the outset it is brought to your notice that assessee was advised not to maintain books of account and to file return of income availing provisions of section 44AF of the Act. That it was advised after careful thought and after perusal of accounts prepared up to few days of May, 2000 which contains certain mistakes on part of the accountant who use to prepare the accounts."
11. Inviting attention to page 2 para 5 of the said detailed explanation, before the assessing officer, it was emphasized that the fact of purchase in the month of March, 2000 in view of the assessee's season starting from April, had also been brought to the notice of the assessing officer. For ready reference, the same is being reproduced here under:
"In reply to your honour's query Nos. 2 & 4, it is submitted that for assessment year 2000-01 return of income stands filed showing opening Stock at Rs. 6,41,500 (through Ann. C) and closing stock at Rs. 8,72,500. That large scale purchases have been made in the month of March 2000 as assessee's season's starts in April, the purchases so made in March 2000 remained in assessee's closing stock and this among other stock forms part of C/stock as on 31-3-2000. Needless to mention this C/Stock as on 31-3-2000 became O/Stock for the year under review."
12. It was emphasized that the assessee received certain professional advice and its accountant was not competent and did not record the transactions over a period properly and the assessee was advised to file its return of income availing the provisions of section 44AF. The books of account were hap-hazardously prepared in which certain mistakes on the part of the accountant were noticed. However, the transactions, it was submitted, are supported by documents and purchase bills of the renowned publishers and companies and thus, purely on account of mistakes of the accountant and confused advice received by the assessee, it was argued, correct and true facts cannot and should not be ignored. It was emphasized that during the survey, MRP mentioned in the books had wrongly been taken and after it is reduced by the profit i.e., G.P. rate of 15% shown in the immediately preceding year and further reduced by the value of specimen copies for which the assessee makes no investment, there is hardly any difference. It was also emphasized that the return for the immediately preceding year had also been filed and accepted, wherein, the closing stock of Rs. 8,72,500 has been shown. It was also submitted that in the nature of assessee's business, the season starts from April, as such, necessarily in March, heavy purchases are made and this is the standard practice in this line of business. Accordingly, there is no reason as to why the necessary bills and documents pertaining to these should not have been considered by the department. It was argued that accordingly, the closing stock for 2000-01 assessment year would automatically become the opening stock for the year under consideration. As such, the addition made in the year under consideration of Rs. 2,87,289 is based on no material and fact and the arguments of the assessee by the assessing officer and the Commissioner (Appeals), have been rejected simply on account of the fact that there were certain mistakes committed by the accountant, It was reiterated that the fact that necessary document in support of the purchases in the earlier year were available before the department have been given no credence. For the said contention letter dated 16-2-2004 before the assessing officer wherein the Bills, copies of accounts in the books of the publishers and assessee's books were again emphasized.
13. Referring to Annexure-C page 5 of the reply given to the assessing officer, in the course of the assessment proceedings, it was submitted that the assessee had submitted that credit purchases from 8-3-1999 to 31-31999 had been made by the assessee since the season of selling books to the students starts from April onward and these purchases are supported by their bills, bill Nos., the dates and exact amount, wherein even the specific names of the text books etc, are found mentioned. Inviting attention to the same it was submitted that the books worth Rs. 6,91,394 had been purchased on credit from renowned publication houses, i.e., Bharti Bhawan, New Delhi, Frank Brother's & Co. New Delhi, Modem publications, New Delhi, Oxford University Press, New Delhi, S. Chand & Co. New Delhi, Selina Publisher's, New Delhi. It was submitted that supporting bills as well as the statement of accounts appearing in the books of assessee as well as in the publishers' books had also been placed before the assessing officer by the assessee, which are appearing from pages 6 to 3 1. The fact that these pertained to the credit purchases made in the earlier assessment year, return of which had been filed, the closing stock from the said assessment year would necessarily form the opening stock of the year under consideration has completely been disregarded by the tax authorities and for no reason, good evidence has been considered to be no evidence on account of whims and fancies. The fact that these publishers were completely unconnected, unrelated renowned publishers have been ignored. No reason have been given to show as to how the opening stock for the assessment year under consideration can be fiddled with without touching the closing stock of the earlier assessment year. The accounts of the immediately preceding year, it was submitted were audited accounts and in the year under consideration, they cannot be fiddled without giving any reason, purely based on whims and fancies. Inviting attention to Annexure-A, being the statement of purchase as on 1-4-2000 to 26-2-2000 ie., date of survey and Annexure-B as statement of sales as on 1-4-2000 up to the date of survey and the credit purchases made of Rs. 6,84,851 from 8-3-1999 to 31-3-1999 since the text books are required to be purchased immediately before the new academic session, which fact is supported by Annexure-C. Thus, the closing stock in the immediately preceding year became the opening stock of the next assessment year, it was submitted, requires no authority. Thus, once the purchase and sales have been accepted in the immediately preceding year then as far as the year under consideration is concerned, the same have to be accepted as the opening stock. In the context of the arguments, which may be advanced for the revenue that in the immediately preceding assessment year, the return was filed after the date of survey. It was argued that the statute permits the assessee by virtue of section 139(4) to file the return of income before the expiry of one year from the end of the relevant assessment year or before completion of the assessment. As such, the return filed on 30-3-2002, it was submitted, was a valid return and no reason for ignoring the same has been given by the department. Reliance placed upon the books of account on the date of survey, wherein admittedly, a lot of entries were not made and therein various mistakes were committed by the Accountant, was assailed receipt of advice by the assessee that it could file the return under section 44AF, the department, it was argued yet again, has given no reason to reject the evidence placed of credit purchase etc. from outside unconnected publishing houses, which are supported by documentation not only of the assessee but also the dates, bill numbers, factum of credit purchases wherein complete details of number of text books, their cost etc. are given. Thus, the challenge was posed to the fact that in the year under consideration, the tax authorities were not justified in fidgeting with the closing stock of the earlier assessment year, in respect of which, the return had been filed.
14. The learned Departmental Representative on the other hand, relied upon the orders of the tax authorities. It was his submission that in the facts of the case, the books of account relied upon by the assessee subsequent to the survey should not be relied upon. As such, the addition has been rightly made relying upon the books of account found recorded up to the date of survey.
15. Having heard the rival submissions and perused the material available on record, it is seen that admittedly, the assessee up to the date of survey has not recorded his transactions correctly and completely. This fact is owned by the assessee itself. However, what operates in favour of the assessee is the fact of mistake by the accountant which was brought to the notice of the assessing officer by the assessee itself and the fact of credit purchases made in the earlier assessment year, which no doubt, was not found recorded in the books of account maintained hap-hazardously by the assessee. The fact remains that the department has not thought fit to comment upon this unconnected outside evidence relied upon by the assessee right from the stage of assessment. No arguments have been advanced by the learned Departmental Representative or found discussed in the orders of the tax authorities as to suggest how and why the evidence of credit purchase made in the immediately preceding assessment year from renowned publishers completely unconnected or related with the assessee in any manner should not be believed. A perusal of the same shows that not only the assessee has filed the statement of account appearing in its books of account, but the assessee has also filed right from the assessment stage the statement of accounts appearing in the books of account of those publishers namely, Bharti Bhawan, New Delhi, Frank Brother's & Co. New Delhi, Modem Publications, New Delhi, Oxford University Press, New Delhi, S. Chand & Co. New Delhi, Selina Publisher's, New Delhi. Complete details including dates, bill numbers, number and names of the textbooks alongwith purchase price are given there. Simply because the accountant was careless in recording the books of account of the assessee is no reason to reject this unaccounted outside evidence. Once the closing stock of the immediately preceding assessment year is taken into consideration, which is supported by way of documentation there is no reason as to why the same should not be taken as a opening stock in the year under consideration. Accordingly, after a careful consideration of the entire facts and circumstances of the case as well as the settled legal position with regard to closing stock of the preceding assessment year to be taken as the opening stock of the subsequent assessment year, I am of the view that the ground raised by the assessee deserves to be allowed.
16. In the result, the appeal filed by the assessee is allowed.