Manik Mukherjee, Hooghly v. ITO, Ward - 1(4), Hooghly, Hooghly

1 C IN THE INCOME TAX APPELLATE TRIBUNAL BENCH- C KO LKATA [ . . . . . . . . . .. . . .. . ! ] BEFORE SHRI D.K. TYAGI JUDICIAL MEMBER & SRI C.D. RAO ACCOUNTANT MEMBER ' ' ' ' / ITA NO. 1942 (KOL) OF 2010 #$% &' / ASSESSMENT YEAR 2007-08 MANIK MUKHERJEE HOOGHLY. (PAN-AEHPM7752A) INCOME-TAX OFFICER WARD-1(4) HOOGHLY. (*+ / APPELLANT ) - $ - - VERSUS - (.*+/ RESPONDENT ) *+ / 0 / FOR THE APPELLANT: / SRI SOMNATH GHOSH .*+ / 0 / FOR THE RESPONDENT: / SRI S.I. BARA 1 / ORDER ( . .. . . .. . ) ! (C.D. RAO) ACCOUNTANT MEMBER : THIS APPEAL BY THE ASSESSEE IS DIRECTED AGAINST T HE ORDER DATED 13.09.2010 OF LD. C.I.T.(A)-XXXVI KOLKATA PERTAINING TO ASSESSMENT Y EAR 2007-08. THE ASSESSEE HAS RAISED SEVERAL GROUNDS WHICH ARE ALL DIRECTED AGAIN ST UPHOLDING THE ADDITION MADE ON ACCOUNT OF DISCREPANCY OF CLOSING STOCK IN THE SUM OF RS.32 41 038/- MADE BY THE A.O. U/S. 69 OF THE ACT. 2. THE ASSESSEE IS A TRADER OF CONSUMER GOODS. DU RING THE COURSE OF ASSESSMENT PROCEEDINGS THE A.O. BASING UPON THE INFORMATION O BTAINED FROM S.B.I. ADB BRANCH ARAMBAGH U/S. 133(6) OF THE ACT WITH WHOM THE ASSE SSEE WAS HAVING CASH CREDIT ACCOUNT HAS OBSERVED THAT THE ASSESSEE HAD SHOWN S TOCK VALUATION OF HIS BUSINESS AS ON 31/3/2007 RELEVANT TO ASSESSMENT YEAR UNDER CONSID ERATION IN THE SUM OF RS. 68 23 438/- WHEREAS THE DISCLOSURE OF THE SAME MAD E IN HIS BOOKS OF ACCOUNT WAS IN THE SUM OF RS.35 82 400/- RESULTING IN A DIFFERENCE OF RS.32 41 038/- [RS.68 23 438 RS.35 82 400]. ACCORDINGLY THE A.O. VIDE HIS SHOW CAUSE NOTICE DATED 06/11/2009 REQUIRED THE APPELLANT TO EXPLAIN AS TO WHY THIS AL LEGED UNACCOUNTED STOCK OF RS.32 41 038/- OUTSIDE THE BOOKS SHOULD NOT BE TREA TED AS UNDISCLOSED STOCK INVESTED FROM UNDISCLOSED SOURCE OF INCOME. THE EXPLANATION OFFERED WAS NOT FOUND SATISFACTORY 2 BY THE A.O. HE THEREFORE TREATED THE EXCESS OF S TOCK OF THE VALUE OF RS.32 41 038/- AS SUPPRESSION OF THE VALUE OF THE CLOSING STOCK AND A DDED THE SAME TO THE ASSESSEES TOTAL INCOME AS INVESTMENT FROM UNDISCLOSED SOURCES U/S. 69B OF THE ACT. 3. THE ASSESSEE CAME IN APPEAL BEFORE THE LD. C.I. T.(A). THE LD. C.I.T.(A) OBSERVING THAT THE A.O. DID NOT EXAMINE THE CORRECTNESS OF PU RCHASES SALES OPENING BALANCE ACCOUNTS OF THE SUPPLIERS ETC. WHILE PASSING THE IM PUGNED ASSESSMENT ORDER CALLED FOR A REMAND REPORT FROM THE A.O. ON CONSIDERATION OF TH E ASSESSEES SUBMISSIONS EVIDENCE ON RECORD AND REMAND REPORT OF THE A.O. THE LD. C. I.T.(A) OBSERVED THAT THE ASSESSEE DID NOT DISCHARGE HIS PRIMARY ONUS TO PROVE THAT THE ST OCK STATEMENT FILED WITH THE BANK IS NOT CORRECT. HE THEREFORE UPHELD THE ADDITION MAD E BY THE A.O. OF RS.32 41 038/-. HENCE THIS APPEAL BY THE ASSESSEE BEFORE US. 4. AT THE TIME OF HEARING BEFORE US THE LD. COUNS EL FOR THE ASSESSEE SUBMITTED THAT THE ASSESSEE MAINTAINS REGULAR BOOKS OF ACCOUNT WH ICH WERE DULY AUDITED U/S. 44AB OF THE ACT. HE SUBMITTED THAT THE A.O. DID NOT DISPUT E THE OPENING STOCK OF THE ASSESSEE AS AT 01/4/2006 WHICH WAS THE CLOSING STOCK AS AT 31/ 3/2006. THE A.O. HAD NOT ADDUCED ON RECORD ANY PURCHASES OR SALES WHICH WERE NOT ACCOUN TED FOR IN THE REGULAR BOOKS OF ACCOUNT AND DAY TO DAY STOCK REGISTERS. HE FURTHER SUBMITTED THAT THE ASSESSEE IS ASSESSED TO VALUE ADDED TAX (VAT) AND THE VAT AUTHORITIES HA VE ACCEPTED THE TRADING RESULTS DECLARED BY THE ASSESSEE. IN THE ABSENCE OF ANY ADV ERSE INFERENCE BY THE A.O. IN RESPECT OF THE TRADING RESULTS AS PER REGULAR BOOKS OF ACCO UNT THE A.O. BASED UPON SURMISE & CONJECTURE AND PLACING MUCH RELIANCE ON THE STATEME NT OBTAINED FROM THE BANK HAS ARBITRARILY AND ILLEGALLY MADE THE ADDITION ON ACCO UNT OF ALLEGED SUPPRESSION OF CLOSING STOCK. HE FURTHER SUBMITTED THAT ADMITTEDLY THE AS SESSEE HAD FURNISHED MERELY A HYPOTHETICAL STATEMENT SHOWING INFLATED STOCK IN QU ANTITY AND VALUATION TO THE S.B.I. IN THE SUM OF RS. 68 23 428/- AS A MATTER OF GENERAL P RACTICE IN THE BUSINESS CIRCLE FOR OBTAINING HIGHER OVERDRAFT FROM THE BANK. THE BANK ALSO DID NOT PHYSICALLY VERIFY THE CONTENTS OF THE STATEMENT OF CLOSING STOCK SUBMITTE D TO THEM. THEREFORE THE IMPUGNED ADDITION ON ACCOUNT OF ALLEGED UNDISCLOSED STOCK ON THE BASIS OF SUCH BANK STATEMENT WAS CLEARLY ERRONEOUS AND THERE WAS AS SUCH NO INFR INGEMENT OF SEC. 69B OF THE ACT. IN SUPPORT OF HIS ARGUMENTS THAT MERELY BECAUSE THERE WAS A DIFFERENCE IN THE STOCK 3 STATEMENT GIVEN TO THE BANK AND IN THE REGULAR BOOK S OF ACCOUNT NO ADDITION IN GARB OF UNDISCLOSED INVESTMENT IS PERMISSIBLE THE LD. COUN SEL FOR THE ASSESSEE RELIED ON THE FOLLOWING DECISIONS :- INDORE MALWA UNITED MILLS LTD. VS. STATE OF M.P. [60 ITR 41 (SC)] CIT VS. RAMAKRISHNA MILLS (COIMBATORE) LTD. [93 ITR 49 (MAD)] CIT VS. N. SWAMY [241 ITR 363 (MAD)] CIT VS. RELAXO FOORWEAR [259 ITR 744 (RAJ)] CIT VS. VEERDIP ROLLERS (P) LTD. [323 ITR 341 (G UJ)] CIT VS. KHAN & SIROHI STEEL ROLLING MILLS [152 TA XMAN 244 (ALL)]. THE LD. COUNSEL FOR THE ASSESSEE THEREFORE SUBMIT TED THAT THE ADDITION MADE BY THE A.O. BEING OUTSIDE THE AMBIT OF THE PROVISIONS OF SEC. 6 9B OF THE ACT THE ACTION OF THE LD. C.I.T.(A) IN UPHOLDING SUCH ERRONEOUS AND UNJUSTIFI ED ADDITION IN THE SUM OF RS. 32 41 038/- WAS INCONSISTENT WITH THE SETTLED POSIT ION IN LAW AND THE SAME SHOULD BE DIRECTED TO BE DELETED. 5. THE LD. DEPARTMENTAL REPRESENTATIVE ON THE OTH ER HAND RELIED ON THE ORDERS OF THE AUTHORITIES BELOW. HE FURTHER SUBMITTED THAT ON VERIFICATION OF THE STATEMENT FILED WITH THE BANK INDICATING PRODUCT-WISE QUANTITATIVE DETAILS AND THE POSITION OF CLOSING STOCK AS REFLECTED IN THE BOOKS OF ACCOUNT AS ALSO CONSIDERING THE REMAND REPORT OF THE A.O. THE LD. C.I.T.(A) HAS RIGHTLY HELD THAT THE A SSESSEE HAD FAILED TO PROVE THAT THE STOCK STATEMENT FILED WITH THE BANK WAS NOT CORRECT . HE FURTHER SUBMITTED THAT IN THE STOCK STATEMENT ITSELF IT IS CERTIFIED BY THE ASSES SEE THAT THE STATEMENT IS TRUE AND CORRECT. THAT THERE IS AN AUTHENTICITY OF THE STOCK STATEMEN T GIVEN TO THE BANK AND IT CARRIES THE EVIDENTIARY VALUE. ACCORDING TO HIM FURTHER THE AS SESSEE HIMSELF HAVING GIVEN THE STATEMENT TO THE BANK DISCLOSING CERTAIN VALUE OF T HE STOCK HE CANNOT AT THE LATER STAGE RETRACT AND TRY TO JUSTIFY THAT THE STOCK STATEMENT GIVEN TO THE BANK WAS NOT CORRECT. HE THEREFORE SUBMITTED THAT THE ADDITION UPHELD BY TH E LD. C.I.T.(A) OF RS.32 41 038/- ON ACCOUNT OF DISCREPANCY IN CLOSING STOCK SHOULD BE U PHELD. 6. WE HAVE HEARD THE PARTIES AND PERUSED THE MATER IAL PLACED ON RECORD. THE ASSESSEE HAS FILED A PAPER BOOK CONTAINING 148 PAGE S INCORPORATING THEREIN SEVERAL 4 DOCUMENTS IN RELATION TO THE ISSUE AT HAND. THE UND ISPUTED FACTS ARE THAT THE ASSESSEE FURNISHED A STATEMENT OF STOCK TO S.B.I. ARAMBAGH ADB BRANCH HOOGHLY SHOWING THE CLOSING STOCK OF THE VALUE OF RS.68 23 438/- WHILE IN THE AUDITED BOOKS OF ACCOUNT WHICH ARE FURNISHED BEFORE THE REVENUE AUTHORITIES THE ASSESSEE HAD DISCLOSED THE CLOSING STOCK OF DIFFERENT ITEMS VALUED AT RS.35 82 400/-. THE A.O. MADE THE ADDITION BECAUSE OF THE DIFFERENCE THEREIN I.E. RS.32 41 038 /- AS SUPPRESSION OF THE VALUE OF THE CLOSING STOCK. THE ADDITION WAS SUSTAINED BY THE LD . CIT(A). IN THE STATEMENT FURNISHED TO THE BANK THE ASSESSEE HAS SHOWN OPENING STOCK O F FIVE GENERAL ITEMS ONLY IN THE SUM OF RS.25 07 182/- WHICH ARE AS BELOW :- SL.NO. DESCRIPTION QUANTITY RATE VALUE 1 SHALIMARS COCOANUT OIL 575 C/S 2053 11 80 475 2 SHALIMARS MUSTARD OIL 416 C/S 624 2 59 584 3 SHALIMARS SPICES POWDER 93 BAGS 1018 94 6 74 4 LACTOGENS NERTOGENS CERELAC NESTUM NIDO MILO. 421 C/S 2088 8 79 048 5 TOMATO SAUCE MAGGI NUDLES COFFEE MILK MAID EVERYDAY MILK. 77 C/S 1213 93 401 FURTHER IN THE STOCK STATEMENT FURNISHED TO THE BA NK (PAGE-118 OF THE PAPER BOOK) THE ASSESSEE HAS SHOWN CLOSING STOCK AS ON 31/3/2007 OF NINE ITEMS OF THE VALUE OF RS.68 23 438/- WHEREAS IN THE DETAILED STOCK STATE MENT AS ON 31/3/2007 MAINTAINED BY THE ASSESSEE IN THE REGULAR BOOKS OF ACCOUNT (PAGE- 62 OF THE PAPER BOOK) THERE ARE 19 ITEMS OF THE AGGREGATE PURCHASE VALUE OF RS.2 80 95 1/-. AGAINST SL. NOS.1 TO 5 12 15 16 18 & 19 DESCRIPTION OF COCOANUT OIL OF DIFFERE NT MEASUREMENT AND QUANTITY HAVE BEEN MENTIONED. THAT APART THERE ARE ITEMS LIKE MU STARD OIL AND OTHER SPICES IN THE SAID STATEMENT OF 19 ITEMS. IN COMPARISON TO THAT THE S TATEMENT AS ON 31/3/2007 FURNISHED TO THE BANK ONLY DEPICTS GROSS QUANTITY WITHOUT MENTIO NING MEASUREMENT VARIETY OF SHALIMAR COCOANUT OIL AND OTHER ITEMS. THE A.O. HAS NOT DISPUTED THE PURCHASES AS WELL AS SALES DURING THE YEAR UNDER CONSIDERATION. HE A LSO DID NOT DISPUTE THE OPENING STOCK OF THE ASSESSEE AS AT 01/4/2006 WHICH WAS THE CLOS ING STOCK AS AT 31/3/2006. IN THE REMAND REPORT FORWARDED TO THE C.I.T.(A) THE A.O. ONLY REPRODUCED THE STOCK STATEMENT AS ON 31/3/2007 FURNISHED TO THE BANK AND NO REPORT OF ANY FURTHER ENQUIRY IN THIS REGARD HAS BEEN MENTIONED. THE ONLY BASIS BY WHICH THE A. O. HAS JUSTIFIED HIS BELIEF ABOUT 5 UNDISCLOSED CLOSING STOCK WAS THE SOLEMN OATH GIVEN BY THE ASSESSEE IN THE DECLARATION BEFORE THE BANK FOR OBTAINING OVERDRAFT FACILITY. I N SUCH CIRCUMSTANCES WE ARE OF THE VIEW THAT WHEN THERE IS A DISCREPANCY BETWEEN THE S TOCK STATEMENT GIVEN TO THE BANK AND DISCLOSED TO THE DEPARTMENT THAT BY ITSELF IS NOT SUFFICIENT TO MAKE THE ADDITION. THIS SHOULD BE A STARTING POINT FOR INVESTIGATION BY THE A.O. REQUIRING THE ASSESSEE TO RECONCILE THE BANK STOCK WITH THE BOOK STOCK. IF TH E ASSESSEE IS UNABLE TO RECONCILE THE DIFFERENCE BETWEEN THE STOCK DISCLOSED TO THE BANK AND IN THE BOOKS IT SHOULD BE EXAMINED WHETHER THE STOCK GIVEN TO THE BANK IS COR RECT OR STOCK SHOWN IN THE REGULAR BOOKS OF ACCOUNT IS CORRECT. THIS IS TO BE ADJUDICA TED UPON AFTER CONSIDERING THE TOTALITY OF THE FACTS NAMELY (I) WHETHER THE ASSESSEE HAS M AINTAINED REGULAR BOOKS OF ACCOUNT AND DAY-TO-DAY REGISTER (II) WHETHER THE SALE AND PURCHASE ARE VOUCHED AND VERIFIABLE (III) WHETHER ANY DISCREPANCY IS FOUND IN THE BOOKS OF ACCOUNTS STOCK REGISTER ETC. (IV) WHETHER THE STOCK DISCLOSED TO THE BANK IS ESTIMATE D OR A COMPLETE QUANTITY-WISE DETAILS OF THE STOCK DISCLOSED TO THE BANK IS ALSO FURNISHE D TO THE BANK (V) WHETHER THE BANK AUTHORITIES MADE ANY PHYSICAL VERIFICATION ABOUT TH E CORRECTNESS OF THE STOCK DISCLOSED TO THEM. 6.1. ON PERUSAL OF THE ASSESSMENT ORDER WE OBSERV E THAT THE A.O. HAS TREATED THE DIFFERENCE BETWEEN THE STOCK SHOWN TO THE BANK AND STOCK DISCLOSED IN THE REGULAR BOOKS OF ACCOUNT AS UNDISCLOSED STOCK OUT OF UNDISCLOSED SOURCE OF INCOME ONLY ON THE REASONING THAT THE ASSESSEE DID NOT SUBMIT ANY WRIT TEN EXPLANATION IN THAT REGARD AND ALSO CERTIFIED BEFORE THE BANK ABOUT CORRECTNESS OF THE STOCK SHOWN TO THEM. BEFORE COMING TO THE CONCLUSION THAT THE ASSESSEE HAD UNDI SCLOSED STOCK ACQUIRED OUT OF UNDISCLOSED INCOME THE A.O. IN OUR CONSIDERED OPI NION SHOULD HAVE VERIFIED THE CASE IN THE ABOVE MENTIONED MANNER/DIRECTIONS TO COME TO A CONCLUSIVE FINDING. HOWEVER IN THE ASSESSMENT ORDER ADMITTEDLY THERE IS NO SUCH F INDING BY THE A.O. IN VIEW OF THE ABOVE AND TO MEET THE ENDS OF JUSTICE WE DEEM IT P ROPER TO SET ASIDE THE ISSUE FOR FURTHER VERIFICATION IN THE ABOVE-MENTIONED DIRECTIONS (I) TO (V) REFERRED TO IN PARA-6 ABOVE. WE THEREFORE SET ASIDE THE ORDERS OF THE AUTHORITIES BELOW AND SEND THE MATTER BACK TO THE FILE OF A.O. WHO IS DIRECTED TO READJUDICATE THE M ATTER IN THE ABOVE DIRECTIONS AFTER ALLOWING ADEQUATE OPPORTUNITY OF BEING HEARD TO THE ASSESSEE. 6 7. IN THE RESULT THE APPEAL OF THE ASSESSEE IS AL LOWED FOR STATISTICAL PURPOSES. 2 1 !3 4 3$ 25 THIS ORDER IS PRONOUNCED IN THE OPEN COURT. SD/- SD/- ( . . . . . . . . ) ( . .. . . .. . ) ! (D.K.TYAGI) JUDICIAL MEMBER (C.D.RAO) ACCOUNTANT MEMBER ( (( (! ! ! !) )) ) DATE: 11 -02-2011 1 / .##6 76&8- COPY OF THE ORDER FORWARDED TO : 1. *+ / THE APPELLANT : MANIK MUKHERJEE C/O. SOMNATH GHOSH ADVOCATE SEVEN BROTHERS LODGE PO- BUROSHIBTALA PS-CHINSURA H HOOGHLY-712 105. 2 .*+ / THE RESPONDENT : I.T.O. WARD 1(4) HOOGHLY. 3. #1$ () : THE CIT(A)-XXXVI KOLKATA. 4. #1$/ THE CIT KOL- 5 . <# .#$ / DR ITAT KOLKATA BENCHES KOLKATA 6 . GUARD FILE . 6 .#/ TRUE COPY 1$3/ BY ORDER (DKP) = > / DY/ASSTT. REGISTRAR .