ACIT, Chandigarh v. Smt. Santosh Verma L/H Sh. Sudershan Lal Verma, Ropar

ITA 1023/CHANDI/2010 | 2007-2008
Pronouncement Date: 27-07-2012 | Result: Partly Allowed

Appeal Details

RSA Number 102321514 RSA 2010
Assessee PAN AAEPL7472P
Bench Chandigarh
Appeal Number ITA 1023/CHANDI/2010
Duration Of Justice 2 year(s) 8 day(s)
Appellant ACIT, Chandigarh
Respondent Smt. Santosh Verma L/H Sh. Sudershan Lal Verma, Ropar
Appeal Type Income Tax Appeal
Pronouncement Date 27-07-2012
Appeal Filed By Department
Order Result Partly Allowed
Bench Allotted B
Tribunal Order Date 27-07-2012
Date Of Final Hearing 24-07-2012
Next Hearing Date 24-07-2012
Assessment Year 2007-2008
Appeal Filed On 19-07-2010
Judgment Text
IN THE INCOME TAX APPELLATE TRIBUNAL CHANDIGARH BENCH B CHANDIGARH BEFORE SHRI T.R. SOOD A.M AND MS. SUSHMA CHOWLA J M ITA NO. 1023/CHD/2010 ASSESSMENT YEAR : 2007-08 A.C.I.T. CIRCLE 2(1) V. SMT. SANTOSH VERMA CHANDIGARH L/H SHRI SUDERSHAN LAL VERMA PROP. BELA ORNAMENTS ROPAR AAEPL 7472 P (APPELLANT) (RESPONDENT) APPELLANT BY : SMT.JAISHREE SHARMA RESPONDENT BY : SHRI B.M. KHANNA DATE OF HEARING : 24.07.2012 DATE OF PRONOUNCEMENT : 27.07.2012 O R D E R PER T.R.SOOD A.M IN THIS APPEAL THE REVENUE HAS RAISED FOLLOWING EFF ECTIVE GROUNDS OF APPEAL:- 1 THE LD. CIT(A) HAS ERRED IN THE DELETING THE AD DITION OF RS. 2 33 941/- ON ACCOUNT OF LABOUR CHARGES. 2. THE LD. CIT(A) HAS ERRED IN DELETING THE ADDITIO N OF RS. 80 000/- ON ACCOUNT OF REVALUATION OF CLOSING STOCK OF GOLD. 3. THE LD. CIT(A) HAS ERRED IN DELETING THE ADDITIO N OF RS. 1 57 999/- ON ACCOUNT OF REVALUATION OF CLOSIN G STOCK. 4. THE LD. CIT(A) HAS ERRED IN DELETING THE ADDITIO N OF RS. 76 000/-MADE U/S 40A(3) OF THE ACT. 2. THIS APPEAL WAS ORIGINALLY DISPOSED OFF BY THE O RDER OF THE TRIBUNAL DATED 26.8.2011 THROUGH WHICH REVENUES AP PEAL WAS DISMISSED IN LIMINE AS THE TAX EFFECT WAS FOUND TO BE LESS THAN RS. 2.00 LAKHS. LATER ON THE REVENUE MOVED A MISC. APPLICATION THAT TAX EFFECT IS MORE THAN RS. 2.00 L AKHS BECAUSE IN GROUND NO. 2 THE AMOUNT MENTIONED AT RS. 80 000/ - SHOULD HAVE BEEN READ AS RS. 3 80 000/-. THE TRIBUNAL VID E ORDER IN MISC. APPLICATION NO. 65/CHD/2011 DATED 9.5.2012 RE CALLED THE 2 EARLIER ORDER AND DIRECTED THE REVENUE TO FILE REVI SED GROUNDS WHICH ARE AS UNDER:- THAT THE LD. ACIT HAS FAILED TO APPRECIATE THE FAC TS AND CIRCUMSTANCES OF THE CASE AND HAS THEREBY ERRED IN MAKING ABSURD ADDITION UNSUSTAINABLE ON FACTS IN LA W. THE ADDITIONS HAVE BEEN MADE ON IMAGINATION OF THE ASSESSING OFFICER AND THE BASIC PRINCIPLES OF ACCOU NTANCY HAVE BEEN IGNORED. THE ACIT HAS ERRED IN MAKING TH E FOLLOWING ADDITIONS: 1 ADDITION OF RS. 2 33 941/-: ON ACCOUNT OF LABOU R CHARGES ON THE GROUND THAT SALES HAVE INCREASED AS COMPARED TO THE PREVIOUS YEAR BUT LABOUR CHARGES HA VE NOT. 2 ADDITION OF RS. 3 80 000/-: ON ACCOUNT OF RE- CALCULATION IF QUANTITY OF CLOSING STOCK BY INTRODU CING A NEW AND NOVEL METHOD OF ACCOUNTING. THE ADDITION I S MADE TWICE AS THE AMOUNT ALREADY BEEN STANDS INCORPORATED IN THE GROSS PROFIT. 3 ADDITION OF RS. 1 57 999/-: ON ACCOUNT OF REVALUATION OF CLOSING STOCK BY TREATING THE CLOSIN G STOCK AS THAT PURCHASED DURING THE YEAR AND THAT NOT FORM ING PART OF OPENING STOCK QUANTITY. 4 ADDITION OF RS. 76 000/-: BY HYPOTHETICALLY TREAT ING A SUM OF RS. 3 80 000/- AS CASH PURCHASES AND BRINING IT WITHIN PREVIEW OF SECTION 40A(3). THE ADDITIONS HAVE BEEN MADE JUST FOR ADDITION SAKE AND WITHOUT ANY BASIC THE ORDER OF THE ASSESSING OFFIC ER IS VOID AB-INITIO AS THE ASSESSMENT HAS BEEN COMPLETED ON THE APPELLANT WHO IS DAD AND NOT ON HIS LEGAL HEIR DESPITE HAVING PRIOR KNOWLEDGE ABOUT THIS FACT. IT IS THEREFORE PRAYED THAT EH ADDITIONS MADE MAY KINDLY BE DELETED OR SUCH OTHER RELIEF BE GRANTED AS IS DE EMED FIT. 3 GROUND NO. 1 AFTER HEARING BOTH THE PARTIES WE FIND THAT SURVEY WAS CONDUCTED IN THE PREMISES OF THE ASSESSE E IN WHICH CERTAIN DOCUMENTS WERE FOUND AND ULTIMATELY THE ASS ESSEE SURRENDERED A SUM OF RS. 4.00 LAKHS AS GROSS PROFI T OUTSIDE THE BOOKS. DURING ASSESSMENT PROCEEDINGS THE ASSESS ING OFFICER NOTICED THAT COMPARATIVE STUDY OF ACCOUNTS OF THE ASSESSEE FOR FINANCIAL YEAR 2005-06 AND FINANCIAL Y EAR 2006- 07 REVEAL THAT LABOUR CHARGES SHOWN BY THE ASSESSEE HAS GONE DOWN. LABOUR CHARGES DURING FINANCIAL YEAR 2006-07 RELATING 3 TO ASSESSMENT YEAR 2007-08 ON SALE OF GOLD OF RS. 4 5 28 132/- HAD BEEN SHOWN AT RS. 2 59 625/- WHICH COMES TO 5.7 3% OF THE GOLD SALE WHEREAS IN THE EARLIER YEAR ON THE GOLD S ALE OF RS. 22 13 862/- LABOUR CHARGES WERE SHOWN AT RS. 2 42 425/- WHICH WAS ABOUT 10.9% OF THE GOLD SALE. THE ASSESS EE WAS ASKED TO EXPLAIN THE DECLINE IN LABOUR CHARGES. IN RESPONSE IT WAS STATED THAT LABOUR INCOME SHOWN WAS NOT ON SALE OF JEWELLERY BUT LABOUR INCOME REPRESENTED PETTY REPAI R JOBS FROM CUSTOMERS DONE BY THE EMPLOYEES. DURING THE HEARIN G IN ASSESSMENT PROCEEDINGS THE ACCOUNTANT WAS AGAIN AS KED TO EXPLAIN THE REASONS FOR DECLINE AND IT WAS STATED T HAT TRADING ACCOUNT DOES NOT INCLUDE LABOUR CHARGES AND GROSS P ROFIT IS ON ACCOUNT OF DIFFERENCE IN PURCHASE AND SALE OF THE GOLD. HOWEVER NO EVIDENCE WAS FILED AND ACCORDINGLY THE ASSESSING OFFICER ESTIMATED THE LABOUR CHARGES AT 10.9% AND D IFFERENCE OF RS. 2 33 941/- WAS ADDED TO THE INCOME OF THE ASSES SEE. 4 ON APPEAL BEFORE THE LD. CIT(A) THE SUBMISSIONS MADE BEFORE THE ASSESSING OFFICER WERE REITERATED. THE LD. CIT(A) AGREED WITH THE SUBMISSIONS AND OBSERVED THAT THE A DDITION HAS BEEN MADE ON HYPOTHETICAL BASIS WITHOUT BRINGING AN Y EVIDENCE ON RECORD AND DELETED THE ADDITION. 5 BEFORE US THE LD. DR FOR THE REVENUE SUBMITTED T HAT GENERALLY PEOPLE BUY GOLD JEWELLERY AND NOT GOLD IN THE RAW FORM. IT IS COMMON KNOWLEDGE THAT JEWELERS CHARGE SEPARATE LABOUR CHARGES. SINCE THE ASSESSEE HAD DECLARED HIG HER INCOME BECAUSE OF THE SURVEY AND THE SAME HAS BEEN REDUCED BY SHOWING LESSER LABOUR CHARGES. FURTHER THE ASSE SSEE HAS NOT PRODUCED ANY EVIDENCE THAT THE ASSESSEE WAS SEL LING READYMADE JEWELLERY. 4 6 ON THE OTHER HAND THE LD. COUNSEL OF THE ASSESSE E SUBMITTED THAT THE ASSESSEE WAS BUYING READYMADE JE WELLERY FROM DELHI AND OTHER MARKETS AND SELLING THE SAME A ND NO SEPARATE LABOUR CHARGES ARE BEING CHARGED. IN FACT LABOUR CHARGES REPRESENTS ONLY CHARGES ON ACCOUNT OF MINOR REPAIR WHICH VARIES FROM YEAR TO YEAR. 7 WE HAVE HEARD THE RIVAL SUBMISSIONS CAREFULLY AND FIND THAT NO EVIDENCE WAS PRODUCED BEFORE THE ASSESSING OFFICER TO SHOW THAT THE ASSESSEE WAS SELLING READYMADE JEWELL ERY. EVEN BEFORE US NO EVIDENCE HAS BEEN PRODUCED TO SHOW THA T THE ASSESSEE WAS SELLING ONLY READYMADE JEWELLERY. IT IS COMMON KNOWLEDGE THAT WHENEVER JEWELLERY ITEM IS BOUGHT FR OM A JEWELER SEPARATE MAKING CHARGES ARE CHARGED. AT T HE SAME TIME IT IS NOT NECESSARY THAT IN EVERY YEAR THE LAB OUR CHARGES PROPORTION WOULD REMAIN SAME. THEREFORE CONSIDERI NG OVERALL FACTS OF THE CASE WE RESTRICT THE ADDITION ON ACCOU NT OF LABOUR CHARGES TO RS. 1.00 LAKH. 8 GROUND NO. 2 AFTER HEARING BOTH THE PARTIES WE FIND THAT DURING ASSESSMENT PROCEEDINGS THE ASSESSING OFFICER OBSERVED THAT THE ASSESSEE HAD SURRENDERED A SUM OF RS. 4.00 LAKHS DURING SURVEY OUT OF WHICH RS. 3 80 000/- WAS ON GO LD ACCOUNT. HOWEVER THE PERUSAL OF GOLD ACCOUNT SHOWS THAT A S UM OF RS. 3 80 000/- HAS BEEN TAKEN IN ACCOUNT BY ADOPTING TH E SAME AS PURCHASE OF GOLD BUT THE SAME HAS NOT BEEN ADDED TO THE CLOSING STOCK AND ACCORDINGLY A SUM OF RS. 3 80 000 /- WAS ADDED TO THE INCOME OF THE ASSESSEE. 9 ON APPEAL IT WAS SUBMITTED BEFORE THE LD. CIT(A) THAT OUT OF THE SURRENDERED AMOUNT OF RS. 4.00 LAKHS RS. 3 8 0 000/- WAS ON ACCOUNT OF GOLD SALES OUTSIDE THE BOOKS. IT W AS SUBMITTED THAT SALES HAVE ALREADY BEEN INCORPORATED IN THE BO OKS 5 THEREFORE BY AGAIN ADDING A SUM OF RS. 3 80 000/- DOUBLE ADDITION HAS BEEN MADE. THE LD. CIT(A) AGREED WITH THE SUBMISSIONS AND DELETED THE ADDITION. 10 BEFORE US THE LD. DR FOR THE REVENUE RELIED ON THE ORDER OF THE ASSESSING OFFICER. ON THE OTHER HAND THE LD. COUNSEL OF THE ASSESSEE STRONGLY SUPPORTED THE IMPUGNED ORDER. 11 AFTER HEARING BOTH THE PARTIES WE FIND THAT THE LD. CIT(A) HAS DECIDED THIS ISSUE VIDE PARA 10 & 11 WHICH ARE AS UNDER:- AFTER CONSIDERING THE RIVAL SUBMISSIONS I FIND TH AT THE ASSESSING OFFICER FAILED TO NOTE THE FACT THAT IN T HE TRADING ACCOUNT THE APPELLANT HAS SHOWN GROSS PRO FIT OF RS. 11 41 316/- BUT WHEN HE TOOK THIS FIGURE TO THE PROFIT AND LOSS ACCOUNT HE INCREASED THE GROSS PROFIT BY 3 80 000/- AND SHOWED IT AS RS. 15 21 316/-. SAME TREATMENT WAS GIVEN TO GROSS PROFIT RELATING TO S ILVER. WITHOUT TAKING THIS FACT INTO ACCOUNT THE ASSESSIN G OFFICER INCREASED THE CLOSING STOCK BY RS. 3 80 000 /- WHICH WOULD RESULT IN NOTHING BUT TAXING THE SAME I NCOME TWICE. IF THE ASSESSING OFFICERS VERSION IS ACCEP TED AND APPLIED THE RECASTED TRADING ACCOUNT WILL BE AS UN DER: PARTICULARS QUANTITY AMOUNT (RS.) PARTICULARS QUANTITY AMOUNT (RS.) TO OPENING STOCK 4504.134 2342149.68 BY SALES OUTSIDE THE BOOKS. BY SALES IN THE BOOKS 1708407.99 2819724.38 TO PURCHASE 2243.020 1784031 5084.004 4528132.37 TO OFFER FOR ASSESSMENT 380000.00 LESS VAT 44840.00 T O GROSS PROFIT 1521316.32 NET SALES 4483292.37 BY CLOSING STOCK (AS PER A.OS ORDER) 1663.15 1544205.00 TOTAL 6774.154 6027497.00 6027497.00 FROM THE ABOVE IT IS CLEAR INFERRED THAT BY INCREA SING THE VALUE OF CLOSING STOCK THE GROSS PROFIT WOULD INC REASE FROM 1141316.69 TO RS. 1521316.32 WHICH THE APPELLA NT HAD ALREADY SHOWN IN THE PROFIT AND LOSS ACCOUNT. THUS BY INCREASING THE VALUATION OF CLOSING STOCK THE ASSESSING OFFICER HAS BROUGHT THE SAME INCREASE TWI CE UNDER THE AMBIT OF TAX. 12 FROM ABOVE IT IS CLEAR THAT THE ASSESSEE HAS ALR EADY REFLECTED UNDISCLOSED SALES. IN FACT GROSS PROFIT COMES TO RS. 11 41 316/- BUT THE SAME WAS DONE AS RS. 15 21 316/ - IN PROFIT 6 AND LOSS ACCOUNT. THIS AMOUNT HAS BEEN REFLECTED A ND FURTHER ADDITION HAS BEEN RIGHTLY DELETED BY THE LD. CIT(A) OTHERWISE THIS WOULD MEAN DOUBLE ADDITION. THEREFORE THERE IS NOTHING WRONG WITH THE ORDER OF THE LD. CIT(A) AND WE CONFI RM THE SAME. 13 GROUND NO. 3 AFTER HEARING BOTH THE PARTIES WE FIND THAT DURING ASSESSMENT PROCEEDINGS THE ASSESSING OFFICE R NOTICED THAT THE ASSESSEE WAS PURCHASING GOLD FROM LOCAL PA RTIES THEREFORE THE ASSESSING OFFICER WAS OF THE VIEW T HAT THE ASSESSEE MUST BE SELLING GOODS IMMEDIATELY AFTER PU RCHASE BECAUSE ONLY LOCAL PURCHASES ARE BEING MADE THEREF ORE VALUATION OF CLOSING STOCK BY FIFO METHOD SHOULD HA VE BEEN ADOPTED. ACCORDINGLY CLOSING STOCK WAS VALUED AT RS. 795/- PER GM. 14 BEFORE THE LD. CIT(A) IT WAS SUBMITTED THAT THE ASSESSEE HAD VALUED CLOSING STOCK AT RS. 700 PER GM WHICH WA S AVERAGE RATE. THE OPENING STOCK WAS VALUED AT RS. 520 PER GM AND THE ASSESSEE HAD PURCHASED 2243.02 GMS AT RS. 795 PER G M AND THEREFORE CLOSING STOCK WAS VALUED AT THIS RATE. SINCE THE RATE OF GOLD FLUCTUATES ON DAILY BASIS THEREFORE VALUA TION ON AVERAGE RATE WAS CORRECT. 15 THE LD. CIT(A) FOUND FORCE IN THESE SUBMISSIONS AND DELETED THE ADDITION. 16 BEFORE US THE LD. DR FOR THE REVENUE SUBMITTED THAT STOCK CAN BE VALUED AT COST OF MARKET VALUE WHICH EVER IS LOWER AND THEREFORE THE ASSESSEE WAS BOUND TO VALUE THE STOC K ON THIS METHOD. 17 ON THE OTHER HAND THE LD. COUNSEL OF THE ASSESS EE SUBMITTED THAT THE ASSESSEE HAS ALREADY ADOPTED AVE RAGE RATE WHICH WAS EQUIVALENT TO THE PURCHASE RATE AND THERE FORE VALUATION WAS CORRECT. 7 18 AFTER HEARING BOTH THE PARTIES WE FIND THAT IT I S A SETTLED PRINCIPLE OF LAW THAT FOR DETERMINATION OF CORRECT PROFIT THE CLOSING STOCK HAS TO BE VALUED PROPERLY. THERE ARE VARIOUS METHODS FOR VALUATION OF CLOSING STOCK AND ONE OF T HE POPULAR METHOD IS COST OR MARKET VALUE WHICHEVER IS LOWER B UT THE QUESTION ARISES WHAT IS MEANING OF COST. THE COST CAN BE DETERMINED ON FIFO BASIS I.E. FIRST IN FIRST OUT AN D ONLY VALUE OF THE LAST ITEMS WHICH REMAINS IN STOCK HAS TO BE CON SIDERED. SIMILAR IT CAN BE LIFO I.E. LAST IN FIRST OUT BUT I N CASE OF JEWELER IT IS NOT NECESSARY THAT FIRST ITEMS SHOULD MOVE OU T FIRST. THEREFORE THE AVERAGE RATE METHOD IS PROPER. HOWE VER SUCH AVERAGE HAS TO BE CALCULATED ON WEIGHTED RATE I.E. TOTAL COST DIVIDED BY TOTAL QUANTITY PURCHASED. SINCE THE ASS ESSING OFFICER HAS ADOPTED FIFO METHOD WHEREAS THE CLAIM B EFORE THE LD. CIT(A) WAS THAT STOCK HAS BEEN VALUED AT AVERAG E RATE WHEN IT IS NOT CLEAR WHETHER WEIGHTED AVERAGE WAS TAKEN OR NOT AND THEREFORE WE SET ASIDE THE ORDER OF LD. CIT(A) AN D REMIT THE MATTER BACK TO THE FILE OF ASSESSING OFFICER WITH A DIRECTION TO VALUE THE CLOSING STOCK ON WEIGHTED AVERAGE AFTER VERIFICATION OF THE SAME. 19 GROUND NO. 4 AFTER HEARING BOTH THE PARTIES WE FIND THAT DURING ASSESSMENT PROCEEDINGS THE ASSESSING OFFICER NOTICED THAT OUT OF SURRENDERED INCOME OF RS. 4.00 LAKHS A SUM OF RS. 3 80 000/- WAS SHOWN AS GOLD PURCHASE OUT OF BOOKS AND RS.20 000/- AS SILVER PURCHASED OUT OF BOOKS. THE ASSESSING OFFICER WAS OF THE VIEW THAT THIS AMOUNT MUST HAVE BEEN SPENT IN CASH EXCEEDING RS. 20 000/- THEREFORE SECTION 40A(3) WAS INVOKED AND 20% OF GOLD PURCHASED AMOUNTING TO RS. 3 80 000/- WAS ADDED TO THE INCOME OF THE ASSESSEE. 20 BEFORE THE LD. CIT(A) IT WAS SUBMITTED AS UNDER: - 8 THE ASSESSING OFFICER HAS MADE THIS ADDITION ON A NOVEL METHOD OF TREATING THE AMOUNT OF GROSS PROFIT SURR ENDERED ON SALES OUTSIDE BOOKS OF UNACCOUNTED PURCHASED IN CASH AND THEREBY APPLYING THE PROVISIONS OF SECTION 40A( 3). THE ASSESSING OFFICER HAS TO CONDUCT ASSESSMENT PROCEEDINGS WITHIN THE FRAME WORK OF LAW AND NOT CR OSS THE LIMITS LAID DOWN UNDER LAW. THE ASSESSING OFFI CER CANNOT ON HER OWN IMAGINATION GIVE A TREATMENT OF UNACCOUNTED PURCHASES AND CASH PURCHASES WHEN NO SU CH TRANSACTIONS ARE REFLECTED IN THE BOOKS AND ALSO WH EN NO SUCH TRANSACTIONS WERE DISCOVERED DURING THE COURSE OF SURVEY U/S 133A OF THE INCOME-TAX ACT. THE ASSESSIN G OFFICER HAS SIMPLY EXCEEDED HER BOUNDARIES IN MAKIN G THE ABOVE ADDITION WHICH IS BASELESS AND ILLOGICAL AND DESERVES TO BE DELETED. 21 AFTER CONSIDERING THE ABOVE SUBMISSIONS THE LD. CIT(A) DELETED THE ADDITION. 22 BEFORE US THE LD. DR FOR THE REVENUE RELIED ON THE ORDER OF THE ASSESSING OFFICER AND ON THE OTHER HAND THE LD. COUNSEL OF THE ASSESSEE SUPPORTED THE IMPUGNED ORDER. 23 WE HAVE HEARD THE RIVAL SUBMISSIONS CAREFULLY AN D FIND THAT THE LD. CIT(A) HAS RIGHTLY DELETED THE ADDITIO N. THE ASSESSEE HAD SURRENDERED A SUM OF RS. 3 80 000/- WH ICH WAS SHOWN AS PURCHASES OF GOLD OUTSIDE THE BOOKS AND TH IS AMOUNT WAS SHOWN AS PURCHASES BECAUSE OF THE SURRENDER. T HERE IS NO EVIDENCE BEFORE THE REVENUE THAT THIS AMOUNT WAS SPENT IN PAYMENT OF CASH EXCEEDING RS. 20 000/-. THEREFORE THERE IS NO JUSTIFICATION IN THE ADDITION. HENCE WE CONFIRM ED THE ORDER OF THE LD. CIT(A). 24 IN THE RESULT APPEAL OF THE REVENUE IS PARTLY A LLOWED. ORDER PRONOUNCED ON 27.07.2012 SD/- SD/- (SUSHMA CHOWLA) (T.R. SOOD) JUDICAL MEMBER ACCOUNTANT MEMBER DATED : 27.7. 2012 SURESH COPY TO: THE APPELLANT/THE RESPONDENT/THE CIT/THE C IT(A)/THE DR 9 10