Sh. Saran Singh, New Delhi v. ITO, New Delhi

ITA 2850/DEL/2009 | 2004-2005
Pronouncement Date: 30-04-2010 | Result: Partly Allowed

Appeal Details

RSA Number 285020114 RSA 2009
Bench Delhi
Appeal Number ITA 2850/DEL/2009
Duration Of Justice 10 month(s) 19 day(s)
Appellant Sh. Saran Singh, New Delhi
Respondent ITO, New Delhi
Appeal Type Income Tax Appeal
Pronouncement Date 30-04-2010
Appeal Filed By Assessee
Order Result Partly Allowed
Bench Allotted G
Tribunal Order Date 30-04-2010
Date Of Final Hearing 15-03-2010
Next Hearing Date 15-03-2010
Assessment Year 2004-2005
Appeal Filed On 11-06-2009
Judgment Text
IN THE INCOME TAX APPELLATE TRIBUNAL DELHI BENCH G: NEW DELHI BEFORE SHRI C.L. SETHI JUDICIAL MEMBER & SHRI R.C. SHARMA ACCOUNTANT MEMBER ITA NO. 2850/DEL/2009 ASSESSMENT YEAR : 2004-05 SMT. SUNITA NARANG L/H LATE SHRI SARAN SINGH NARANG NARANG FASHION 11/19-A TILAK NAGAR NEW DELHI. VS. INCOME TAX OFFICER WARD 26(2) NEW DELHI. (APPELLANT) (RESPONDENT) APPELLANT BY : SMT. SUNITA NAR ANG RESPONDENT BY : MS. SHUMANA SEN SR. DR O R D E R PER: C.L. SETHI J.M. THE PRESENT APPEAL HAS BEEN FILED BY THE ASSESSEE AGAINST THE ORDER DATED 08.12.2008 PASSED BY THE LD. CIT(A) IN THE MA TTER OF AN ASSESSMENT MADE BY THE AO U/S. 144 OF THE INCOME TAX ACT 1961 (THE ACT) FOR THE A.Y. 2004-05. 2. THE VARIOUS GROUNDS OF APPEAL RAISED BY THE ASSE SSEE REVOLVE AROUND THE ISSUE REGARDING THE ADDITION OF RS. 16 01 215/- MADE BY THE AO ON ACCOUNT OF UNDISCLOSED INVESTMENT IN STOCK ALLEGEDL Y DETECTED AT THE TIME OF SURVEY CONDUCTED U/S. 133A OF THE ACT. ITA NO. 2850/DEL/2009 PAGE 2 OF 9 3. THIS APPEAL WAS FILED BY THE ASSESSEE NAMELY S HRI SARAN SINGH NARANG ON 10.06.2009 PROPRIETOR OF NARANG EMPORIU M 11/19-A TILAK NAGAR NEW DELHI 18. IN THE MEAN TIME IT HAS BE EN REPORTED THAT THE ASSESSEE HAS EXPIRED ON 25.08.2009. THE ASSESSEES WIFE SMT. SUNITA NARANG HAS FILED APPLICATION ON 06.01.2010 STATING THAT HER HUSBAND HAS EXPIRED ON 25.08.2009 LEAVING BEHIND HIM HERSELF A ND TWO MINOR CHILDRENES LEGAL HEIRS OF THE ASSESSEE. A DEATH CERTIFICATE H AS ALSO BEEN FILED. IN SUPPORT THEREOF AN AFFIDAVIT SWORN ON 22.09.2009 HA S ALSO BEEN FILED. IT HAS BEEN STATED THAT THE ASSESSEE WAS SUFFERING FROM CANCER AND WAS UNDERGOING TREATMENT AT AIIMS AT DELHI AND MEDICAL REPORTS AN D TREATMENT PRESCRIPTIONS WERE SUBMITTED BEFORE THE AO AND THAT IS WHY THE A SSESSEE COULD NOT APPEAL BEFORE THE AO ON LAST DATE OF HEARING FIXED IN THE LAST WEEK OF DECEMBER 2006. 4. AS THE ASSESSEE HAS EXPIRED ASSESSEES NAME HAS BEEN SUBSTITUTED BY HIS LEGAL REPRESENTATIVE SMT. SUNITA NARANG REPRE SENTING HERSELF AND HER TWO CHILDREN. 5. SMT. SUNITA NARANG IN PERSON HAS APPEARED AT THE TIME OF HEARING. SHE WAS HEARD. THE SR. D.R. WAS ALSO HEARD AND TH E ORDERS OF THE AUTHORITIES BELOW HAVE BEEN PERUSED. ITA NO. 2850/DEL/2009 PAGE 3 OF 9 6. IN THIS CASE THE RETURN OF INCOME WAS FILED ON 17.07.2004 DECLARING TOTAL INCOME OF RS. 4 95 406/-. THE NATURE OF THE BUSINESS OF THE ASSESSEE WAS TRADING IN READYMADE GARMENTS. A SURVEY U/S. 1 33A WAS CONDUCTED BY THE DEPARTMENT AT THE BUSINESS PREMISES OF THE ASSE SSEE ON 10.10.2003. DURING THE COURSE OF THE SURVEY IT WAS REVEALED TO THE SURVEY TEAM THAT THERE WAS A DISCREPANCY IN THE STOCK. THE STOCK FOUND WA S OF RS. 38 79 348/- AS PER TAG-PRICE AGAINST WHICH STOCK COMES TO RS. 14 11 635/- AS PER THE TRADING ACCOUNT PREPARED AS ON 08.10.2003. THIS DI SCREPANCY WAS BROUGHT TO THE NOTICE OF THE ASSESSEE AND HIS STATEMENT WAS RE CORDED. IT IS STATED BY THE AO IN THE ASSESSMENT ORDER THAT VIDE ANSWER TO QUES TION NO. 13 HE ACCEPTED THE ABOVE MENTIONED DISCREPANCY IN THE STOCK AND SU RRENDERED RS. 16 01 215/- AS HIS UNACCOUNTED INVESTMENT IN STOCKS . HE AGREED TO PAY THE TAXES ON THE SAME. THE QUESTION NO. 13 AND ANSWER THERETO READS AS UNDER:- Q. NO. 13:- AFTER PHYSICAL VERIFICATION IT HAS BEE N FOUND THAT YOUR STOCK COMES TO RS. 38 79 348/- HOW YOU WILL EXPLAIN IT? ANS. 13:- I AM HAVING G.P. RATE OF 28.78% AFTER APPLYING THE SAME STOCK AT COST COMES TO RS. 30 12 850/- WHILE AS PER MY BOOKS OF ACCOUNT THE ST OCK IS AT RS. 14 11 635/-. THERE IS A DIFFERENCE OF RS. 16 0 1 215/- FOR WHICH I HAVE NO EXPLANATION AT THIS TIME. TO BUY P EACE OF MIND I HEREBY SURRENDERED THIS AMOUNT ON THE CONDIT ION THAT NO PENALTY OR PROSECUTION WILL BE CHARGED/LAUNCHED UNDER THE INCOME TAX ACT 1961. THE AMOUNT OF TAX COMES T O RS. 4 89 971/- FOR WHICH I AM OFFERING THREE CHEQUE HAV ING DETAILS AS BELOW:- ITA NO. 2850/DEL/2009 PAGE 4 OF 9 S. NO. CHEQUE NO. AMOUNT BANK DATE 1. 739403 1 50 000 THE NAINITAL BANK LTD. 11.11.200 3 2. 739404 1 50 000 THE NAINITAL BANK LTD. 12.12.200 3 3. 739406 1 89 971 THE NAINITAL BANK LTD. 12.03.200 4 7. IT IS FURTHER STATED BY THE AO THAT IN THE RETUR N OF INCOME FILED BY THE ASSESSEE THE ASSESSEE HAS NOT DECLARED THE SURREND ERED AMOUNT OF RS. 16 01 215/-. THE AO ALSO NOTED THE FACT THAT THE A SSESSEE HAS BEEN DECLARING INCOME IN THE LAST TWO YEARS AS UNDER:- (I) A.Y. 2002-03 RS. 97 207/- (II) A.Y. 2003-04 RS. 1 03 470/- 8. IT WAS THE CASE OF THE AO THAT THE ASSESSEE SHOU LD HAVE DECLARED SURRENDERED AMOUNT OVER AND ABOVE THE NORMAL INCOME OF THE YEAR. SINCE THE ASSESSEE HAS NOT DECLARED ADDITIONAL INCOME OF RS 16 01 215/- THE AO ASKED THE ASSESSEES AR TO PRODUCE BOOKS OF ACCOUNT S ALONGWITH BILLS AND VOUCHERS AND TO PREPARE TRADING ACCOUNT AS ON DATE OF THE SURVEY AS WELL AT THE END OF THE YEAR ALONGWITH THE BANK STATEMENTS STOCK REGISTER AND OTHER DETAILS. SINCE THE CASE WAS BEING TIME BARRED THE AO STATED THAT HE HAD NO OPTION BUT TO COMPLETE THE ASSESSMENT ON THE BASIS OF THE FACTS AVAILABLE. ITA NO. 2850/DEL/2009 PAGE 5 OF 9 9. THE AO THEN CONSIDERED THE MATERIAL AVAILABLE ON RECORD INCLUDING CERTAIN DETAILS FILED IN THE COURSE OF ASSESSMENT P ROCEEDINGS. THE ASSESSEE FILED THE TRADING ACCOUNT PREPARED UPTO 08.10.2003 AND ALSO THE TRADING ACCOUNT AS ON 10.10.2003 I.E. THE DATE OF THE SURVE Y WHEREIN CLOSING STOCK WAS SHOWN AT RS. 23 75 260/- AS AGAINST 14 11 635/- SHOWN AS ON 08.10.2003. THE AO SAID THAT DURING THIS GAP OF TW O DAYS THE ASSESSEE HAD SHOWN CERTAIN PURCHASES. THE AO FURTHER MENTIONED THAT EVEN AFTER TAKING INTO ACCOUNT THE WORKING OF THE ASSESSEE THE DISCR EPANCY OF STOCK REMAINED TO THE EXTENT OF RS. 6 37 590/-. HOWEVER THE AO H AD CHOSEN TO MADE THE ADDITION TO THE EXTENT OF RS. 16 01 215/-. 10. ON AN APPEAL THE CIT(A) CONFIRMED THE ADDITION BY OBSERVING THAT IN THE ABSENCE OF ANY CLARIFICATION OR DETAILS THE AO WAS JUSTIFIED TO MAKE THE ADDITION IN THE ASSESSMENT MADE U/S. 144 OF THE ACT ON THE BASIS OF MATERIAL AVAILABLE ON RECORD. 11. FROM THE AFORESAID DISCUSSIONS IT IS SEEN THAT PHYSICAL STOCK FOUND AT THE TIME OF SURVEY WAS VALUED AT SALE PRICE AND IT WAS SO VALUED AT RS. 38 79 348/-. THE ASSESSEE WAS SHOWING GROSS PROFIT RATE OF 28.78% AND AFTER TAKING INTO ACCOUNT THE ELEMENT OF PROFIT IN THE SALE PRICE THE PHYSICAL STOCK WAS VALUED AT RS. 30 12 850/- AS ON 10.10.200 3. AS PER THE TRADING ACCOUNT PREPARED BY THE ASSESSEE AS ON 08.10.2003 THE STOCK WAS WORKED ITA NO. 2850/DEL/2009 PAGE 6 OF 9 OUT AT RS. 14 11 635/-. THIS IS HOW A DIFFERENCE O F RS. 16 01 215/- {RS. 30 12 850/- (-) 14 1 635/-} WAS ARRIVED AT THE TIME OF SURVEY AND THIS DIFFERENCE OF RS. 16 01 215/- HAS BEEN ADDED TO THE ASSESSEES TOTAL INCOME. 12. NOW THE QUESTION ARISES AS TO WHETHER FOR THE P URPOSE OF DETERMINING ANY DIFFERENCE IN THE PHYSICAL STOCK FOUND AND THE STOCK AS PER BOOKS THE STOCK POSITION IN THE BOOKS IS TO BE TAKEN AS OF 08 .10.2003 OR 10.10.2003. IT IS NOT IN DISPUTE THAT THE SURVEY WAS TAKEN PLACE O N 10.10.2003 AND PHYSICAL STOCK AS ON 10.10.2003 WAS TAKEN. THE STOCK AS PER THE TRADING ACCOUNT BASED ON THE BOOKS OF ACCOUNTS PREPARED UPTO 08.10. 2003 WAS TAKEN AT RS. 14 11 635/-. IN THE COURSE OF ASSESSMENT PROCEEDIN GS THE ASSESSEE SUBMITTED THE TRADING ACCOUNT AS ON 10.10.2003 SHO WING THE CLOSING STOCK AT RS. 23 75 260/-. IN THE TRADING ACCOUNT PREPARED O N 10.10.2003 THE ASSESSEE HAS INCLUDED CERTAIN TRANSACTION OF PURCHASES MADE BETWEEN 08.10.2003 AND 10.10.2003 AND IN SUPPORT OF WHICH THE ASSESSEE S UBMITTED CERTAIN PURCHASE VOUCHERS AT THE TIME OF HEARING. THE AO HAS ALSO A CCEPTED THE POSITION EVEN IF THE CLOSING STOCK IS TAKEN AT RS. 23 75 260/- S TILL A DISCREPANCY OF RS. 6 37 590/- IS REMAINED. IN THIS VIEW OF THE MATTER WE THEREFORE HOLD THAT THE STOCK AS PER THE BOOKS OF ACCOUNTS AS ON 10.10. 2003 SHOULD BE TAKEN AT RS. 23 75 260/- AS AGAINST STOCK OF RS. 14 11 635/ - AS ON 08.10.2003. PHYSICAL STOCK FOUND AT THE TIME OF SURVEY WAS OF R S. 30 12 850/-. THUS THE DISCREPANCY REMAINED IS ONLY OF RS. 6 37 590/- AND NOT RS. 16 01 215/-. ITA NO. 2850/DEL/2009 PAGE 7 OF 9 13. AT THIS STAGE IT IS PERTINENT TO NOTE THAT THE ASSESSEE HAS FILED THE RETURN OF INCOME DECLARING TOTAL INCOME AT RS. 4 95 406/- INCLUDING ADDITIONAL INCOME. HOWEVER THE AO REJECTED THE BO OKS OF ACCOUNTS U/S. 145 OF THE ACT AND COMPLETED THE ASSESSMENT U/S. 144 O F THE ACT. WHILE COMPLETING THE ASSESSMENT THE AO HAS ESTIMATED THE NET PROFIT/INCOME OF THE YEAR AT RS. 1 50 000/- TO WHICH HE MADE A FURT HER ADDITION OF RS. 16 01 215/- ON ACCOUNT OF ALLEGED UNDISCLOSED INVES TMENT IN STOCK. CONSEQUENTLY THE AO DETERMINED THE TOTAL INCOME AT RS. 17 51 215/-. SINCE THE ASSESSEE HAS ALREADY DECLARED A SUM OF RS. 4 95 406/- IN THE CURRENT ASSESSMENT YEAR WHICH IS VERY MUCH MORE THAN THE T OTAL INCOME OF RS. 97 207/- AND RS. 1 03 470/- SHOWN IN EARLIER TWO A SSESSMENT YEARS I.E. A.Y. 2002-03 AND A.Y. 2003-04 AND IF NORMAL PROFIT OF T HE ASSESSEE IS REASONABLY TAKEN AT RS. 1 00 000/- FOR CURRENT ASSESSMENT YEAR IT WOULD BE SEEN THAT THE ASSESSEE HAS DECLARED SOME MORE INCOME TO THE EXTEN T OF RS. 3 95 400/-. THE DISCREPANCY IN THE STOCK ARRIVED AT BY US IS OF RS. 6 37 590/- OUT OF WHICH INCOME OF RS. 3 95 400/- HAS ALREADY BEEN DEC LARED BY THE ASSESSEE LEAVING THE DIFFERENCE TO THE TUNE OF RS. 2 42 190/ -. 14. NOW THE QUESTION ARISES AS TO WHETHER THE WHOL E OF THE STOCK PHYSICALLY FOUND AT THE TIME OF SURVEY IS TO BE VAL UED AT SALE PRICE MARKED ON THE ITEMS LESS THE MARGIN OF PROFIT. IN THE PRESEN T CASE IT IS NOT IN DISPUTE THAT THE ASSESSEE WAS CARRYING ON A BUSINESS OF REA DYMADE GARMENTS. IT IS ITA NO. 2850/DEL/2009 PAGE 8 OF 9 COMMON AND NORMAL IN THIS LINE OF BUSINESS THAT REA DYMADE GARMENTS LYING IN STOCK ARE ALSO OF OUTDATED FASHION AND CONTAININ G CERTAIN DEFECTS. ALL THE STOCKS OF READYMADE GARMENTS LYING IN ONES STOCK C ANNOT BE SOLD AT THE SALE PRICE AFTER KEEPING THE REGULAR MARGIN OF PROFIT. THIS IS A NORMAL PRACTICE IN THE MARKET THAT OUTDATED GARMENTS ARE BEING SOLD AT A DISCOUNT OF 10% TO 70% OF THE SALE PRICE. IT IS NOW-A-DAYS A TREND GE NERALLY HAPPENED IN THE MARKET THAT TO SURVIVE IN THE BUSINESS ONE HAS TO PUT OLD STOCK ON SALE AT A DISCOUNTED PRICE. THIS ASPECT OF THE MATTER WAS NO T CONSIDERED AT THE TIME OF SURVEY WHILE DETERMINING VALUE OF THE STOCK AT RS. 30 12 850/-. IT IS NOT IN DISPUTE THAT THE VALUATION OF STOCK IS TO BE MADE A S PER THE COST PRICE OR MARKET PRICE WHICHEVER IS LOWER. IN THE PRESENT C ASE THE VALUE OF STOCK HAS BEEN TAKEN AT THE COST OF RS. 30 12 850/- WITHOUT CONSIDERING THE LOWER MARKET PRICE OF CERTAIN OUTDATED AND DEFECTIVE GARM ENTS. IN THE LIGHT OF WELL- SETTLED NORMAL PRACTICE AS DISCUSSED ABOVE IT IS C LEAR THAT THE MARKET PRICE OF OUTDATED STOCK WOULD BE LOWER THAN THE COST PRICE T O THE ASSESSEE. HAVING REGARD TO THE TOTALITY OF THE FACTS AND CIRCUMSTANC ES OF THE CASE WE THEREFORE GIVE A 15% DISCOUNT IN AVERAGE TO 50% OF THE STOCK OF RS. 30 12 850/- TO ARRIVE AT THE TRUE AND CORRECT VALUE OF STOCK AND IF SUCH DISCOUNT IS GIVEN IT WOULD COME TO RS. 2 25 000/- APPROXIMATELY AND CONSEQUENTLY THE PHYSICAL STOCK FOUND AT THE TIME OF SURVEY WOULD HAVE VALUE OF RS. 27.75 LACS ONLY. THIS WILL RESULT IN A REDUCTION TO THE EXTENT OF ITA NO. 2850/DEL/2009 PAGE 9 OF 9 RS. 2.25 LACS TO THE TOTAL VALUE OF RS. 30 12 850/- DETERMINED BY THE SURVEY TEAM. THE DIFFERENCE AS WORKED OUT ABOVE IS OF RS. 2 42 190/- BEFORE CONSIDERING THE BENEFIT OF DEDUCTION TO BE GIVEN ON ACCOUNT OF DEFECTIVE AND OUTDATED GARMENTS. THEREFORE ADDITION CALLER FOR I S ONLY OF RS. 17 190/- (RS. 2 42 190/- (-) RS. 2 25 000/-). THUS THE TOTAL IN COME OF THE ASSESSEE SHALL STAND DETERMINED AT RS. 4 95 406/- (+) RS. 17 190/- = RS. 5 12 596/- RS. 5 12 600/- AS AGAINST RS. 17 51 215/- DETERMINED BY THE AO. THUS THE ASSESSEE SHALL GET A RELIEF OF RS. 17 51 215/- (-) RS. 5 12 600/- = RS. 12 38 615/-. WE ORDER ACCORDINGLY. 15. IN THE RESULT THE APPEAL FILED BY THE ASSESSEE IS PARTLY ALLOWED. 16. THIS DECISION IS PRONOUNCED IN THE OPEN COURT O N 30 TH APRIL 2010. SD/- (R.C. SHARMA) ACCOUNTANT MEMBER SD/- (C.L. SETHI) JUDICIAL MEMBER DATED: 30 TH APRIL 2010 *NITASHA COPY TO: 1. APPELLANT 2. RESPONDENT 3. CIT 4. CIT(A) 5. DR ITAT NEW DELHI. BY ORDER DEPUTY REGISTRAR