M/s. Satish Tobacco Industries,, Ahmedabad v. The Income tax Officer, Ward-12(1),, Ahmedabad

IN THE INCOME TAX APPELLATE TRIBUNAL AHMEDABAD BENCH A BEFORE SHRI T.K.SHARMA JUDICIAL MEMBER AND SHRI D.C.AGRAWAL ACCOUNTANT MEMBER DATE OF HEARING : 25/03/2010 DRAFTED ON: 26 /03/2010 ITA NO.45/AHD/2007 ASSESSMENT YEAR : 2003-04 M/S.SATISH TOBACCO INDUSTRIES 208 SARTHAK COMPLEX 2 ND FLOOR OPP.URJA HOUSE NR. SWASTIK 4 RASTA CG ROAD AHMEDABAD 380 009 VS. THE ITO WARD-12(1) AHMEDABAD PAN/GIR NO. : AAJFS 6453 L (APPELLANT) .. (RESPONDENT) APPELLANT BY : SHRI ANIL N. SHAH C.A. RESPONDENT BY: SHRI RAJEEV AGARWAL CIT-DR O R D E R PER SHRI T.K. SHARMA JUDICIAL MEMBER:- THIS APPEAL FILED BY THE ASSESSEE IS AGAINST THE OR DER DATED 16/10/2006 OF THE LEARNED CIT(APPEALS)-XVIII AHMED ABAD CONFIRMING THE ADDITION OF RS.5 10 657/- MADE BY TH E ASSESSING OFFICER ON ACCOUNT OF UNACCOUNTED STOCK FOR ASSESSM ENT YEAR 2003- 04. 2. BRIEFLY STATED THE FACTS ARE THAT THE ASSESSEE IS A PARTNERSHIP- FIRM ENGAGED IN THE BUSINESS OF MANUFACTURING AND TRADING IN TOBACCO. DURING THE COURSE OF SURVEY U/S.133A OF T HE I.T. ACT 1961 CARRIED IN THE BUSINESS PREMISES WITH THE ASSESSEE- FIRM ON ITA NO.45/AHD/2007 M/S.SATISH TOBACCO INDUSTRIES VS. ITO ASST.YEAR 2003-04 - 2 - 26/12/2002 THE EXCESS STOCK WAS WORKED OUT AT RS.5 5 10 657/-. THIS WAS ADMITTED BY THE ASSESSEE AS HIS INCOME AS PER STATEMENT RECORDED T THE TIME OF SURVEY. SUBSEQUENTLY ASS ESSEE-FIRM FILED A RETURN OF INCOME ON 10/10/2004 FOR ASSESSMENT YEAR 2003-04 WHEREIN IT DECLARED INCOME AT NIL. THE ASSESSING O FFICER FRAMED THE ASSESSMENT U/S.143(3) OF THE I.T. ACT 1961 ON 29/0 3/2006 AT TOTAL INCOME OF RS.5 40 630/- AFTER MAKING ADDITION OF RS .5 10 657/- BEING EXCESS/UNACCOUNTED STOCK FOUND DURING THE COURSE OF SURVEY U/S.143(3) OF THE I.T. ACT 1961. 3. ON APPEAL BEFORE THE LEARNED CIT(APPEALS) IT WA S CONTENDED THAT EXCESS STOCK FOUND DURING THE COURSE OF SURVEY WAS ALREADY INCLUDED IN THE QUANTITY RECORD MAINTAINED BY THE A SSESSEE-FIRM. THEREFORE ASSESSEE WAS DISCLOSED EXCESS QUANTITY I N ANNEXURE-2 (QUANTITY DETAILS OF FINISHED GOODS AND RAW-MATERIA LS) OF AUDIT REPORT. IN THE ASSESSMENT ORDER THE ASSESSING O FFICER KEPT SILENT ABOUT NOT OFFERING THE UNACCOUNTED SOURCE OF INCOME FOR TAXATION WHICH WAS UTILIZED FOR THE UNACCOUNTED PURCHASE OF SUCH STOCK. BEFORE THE LEARNED CIT(APPEALS) IT WAS CONTENDED T HAT ONCE THE QUANTITY TAKEN IN QUANTITY RECORD SUCH STOCK WOULD EITHER BE SOLD DURING THE YEAR UNDER CONSIDERATION OR WOULD BE INC LUDED IN QUANTITY AND VALUE OF CLOSING STOCK. THEREFORE THE EXCESS STOCK WOULD BE REFLECTED IN THE BOOKS OF ACCOUNT AND EXCESS INCOME WOULD BE DISCLOSED IN TERMS OF VALUE/RUPEES. IN THE IMPUGN ED ORDER THE LEARNED CIT(APPEALS) AFTER CONSIDERING THE VARIOUS SUBMISSIONS OF THE ASSESSEE CONFIRMED THE ADDITION MADE BY THE AS SESSING OFFICER ITA NO.45/AHD/2007 M/S.SATISH TOBACCO INDUSTRIES VS. ITO ASST.YEAR 2003-04 - 3 - FOR THE DETAILED REASON GIVEN IN PARAGRAPH NOS.2.3 & 2.3.1 WHICH READS AS UNDER:- 2.3. THE FACTS OF THE CASE AND THE SUBMISSIONS HAV E BEEN CONSDIE3RED. DURING THE COURSE OF SURVEY U/S.133A IN THE APPELLANTS BUSINESS PREMISES CARRIED OUT ON 26/12/ 2002 PHYSICAL INVENTORY OF STOCK WAS TAKEN. THE STOCK F OUND ON THAT DAY WAS AS FOLLOWS: RAW-MATERIALS (BHUKO) RS. 6 30 720/- FINISHED GOODS RS.39 32 350/- BARDAN STOCK RS. 3 09 928/- ---------------- RS.48 72 998/- THE STOCK AS PER THE BOOKS AMOUNTED TO ONLY RS.43 6 2 341/-. THE DIFFERENCE IN THE STOCK WAS FOUND TO BE RS.5 10 657/-. THIS POSITION WAS ACCEPTED BY THE APPELLANT. SHRI GIRI SHBHAI D.PATEL PARMAR WHO WAS PRESENT AT THE TIME OF SUR VEY WAS QUESTIONED ON THE DIFFERENCE OF STOCK AND NO SATISF ACTORY EXPLANATION WAS FORTHCOMING. HE ADMITTED IN THE S TATEMENT U/S.131 OF I.T.ACT THAT THE DIFFERENCE REPRESENTED UNACCOUNTED INCOME AND HE ALSO OFFERED TO ADMIT SUCH DIFFERENCE AS UNACCOUNTED INCOME. HOWEVER WHILE FINALIZING THE BOOKS OF ACCOUNTS THE QUANTITY OF EXCESS STOCK FOUND ON THE DATE OF SURVEY (26/12/2002) WAS ENTERED IN THE STOCK RECORD S. SALES WERE MADE OUT OF THE STOCK INCLUDING THE EXCESS STO CK RECORDED. ON CLOSING THE BOOKS ON 31/3/2003 CLOSING STOCK WA S VALUED TAKING INTO ACCOUNT THE QUANTITY FIGURING IN THE ST OCK REGISTER (WHICH AGAIN INCLUDED THE EXCESS STOCK). ACCORDIN G TO THE APPELLANT THE UNACCOUNTED STOCK ADMITTED AT THE TI ME OF SURVEY WAS THUS ADMITTED AS INCOME FULLY SINCE CORRESPONDI NG PURCHASES WERE NOT CLAIMED. THE INCOME WAS ADMITT ED IN THE FORM OF SALES OF SUCH STOCK (TO THE EXTENT ACTUALLY SOLD) AND THE BALANCE BY WAY OF CLOSING STOCK. IT WAS ARGUED THA T ONCE THE EXCESS STOCK DETECTED AT THE TIME OF SURVEY WAS FUL LY ADMITTED AS INCOME IN THE BOOKS OF ACCOUNTS ASSESSING OFFIC ER WAS ITA NO.45/AHD/2007 M/S.SATISH TOBACCO INDUSTRIES VS. ITO ASST.YEAR 2003-04 - 4 - INCORRECT IN TREATING THE EXCESS STOCK AS UNDISCLOS ED INCOME AND IN ASSESSING THE SAME SEPARATELY. 2.3.1. THE SURVEY REVEALED EXCESS STOCK OF RS.5 10 657/-. NO EXPLANATION WAS FURNISHED REGARDING THE SOURCE OF S UCH STOCK AND THE PARTNER CAME FORWARD TO ADMIT THE EXCESS ST OCK AS UNACCOUNTED INCOME. DURING ASSESSMENT PROCEEDINGS APPELLANT MADE AN ATTEMPT TO EXPLAIN THE EXCESS TOC K STATING THAT THERE COULD HAVE BEEN MANY REASONS SUCH AS MIS TAKE IN WEIGHT EFFECT OF SEASONS EFFECT OF MOISTURE ETC. NO SUPPORTING EVIDENCE OR CLARIFICATIONS WERE FURNISHED AND THE E XPLANATIONS COULD NOT HAVE BEEN ADMITTED. IT REMAINS THAT THE DIFFERENCE/EXCESS OF STOCK WAS NOT EXPLAINED. THIS WOULD CLEARLY SUGGEST AND MEAN THAT THE EXCESS STOCK REPR ESENTED UNACCOUNTED INCOME WHICH WAS EARNED PRIOR TO THE DA TE OF SURVEY. SUCH UNACCOUNTED INCOME COULD BE INCOME E ARNED FROM SOME UNIDENTIFIED SOURCE DIRECTLY UTILIZED FOR ACQUISITION OF UNACCOUNTED STOCK OR IT COULD BE UNDISCLOSED INC OME EARNED FROM THE SAME BUSINESS ACCUMULATED OVER A PERIOD. SINCE THE SAME WAS ADMITTED AS UNACCOUNTED INCOME BY THE PART NER IN HIS STATEMENT IT SHALL BE PRESUMED THAT SUCH INCOM E WAS UNDISCLOSED INCOME BY WAY OF UNEXPLAINED EXPENDITUR E IN PURCHASES NOT RECORDED IN THE BOOKS OF ACCOUNTS. SUCH EXPENDITURE WAS ASSESSABLE AS INCOME DURING THE YEA R AS PER SECTION 69C OF THE I.T. ACT. NO CORRESPONDING EXP ENDITURE WAS ELIGIBLE TO BE DEDUCTED IN COMPUTING INCOME AS PER PROVISO TO SECTION 69C INTRODUCED BY FINANCE (NO.2) ACT 1998 W.E.F. 1/4/1999. IN THIS CONTEXT THE INCOME WAS ASSESSABLE FOR THE YEAR SEPARATELY AS THE SAME WAS DISTINCT FORM T HE EXISTING BUSINESS. THE SUBSEQUENT ACCOUNTING OF THE STOCK IN THE BOOKS AND INCLUDING THE SAME IN SALES AND STOCK WITHOUT E XPLAINING SOURCE DID NOT OBVIATE THE NECESSITY OF TAXING SUCH INCOME. IN THE ABOVE FACTS AND CIRCUMSTANCES OF THE CASE THE ASSESSMENT OF ACCOUNTED INCOME QUANTIFIED TO THE EXTENT OF UNA CCOUNTED / EXCESS STOCK IS FOUND TO BE CORRECT. ASSESSING OFF ICER WAS JUSTIFIED IN ASSESSING THE INCOME UNDER SECTION 69C OF THE I.T. ACT. HOWEVER IT IS NOTED THAT ASSESSING OFFICER HAD MADE AN ADDITION TO BUSINESS INCOME WHICH IS INCORRECT. NO ADDITION ITA NO.45/AHD/2007 M/S.SATISH TOBACCO INDUSTRIES VS. ITO ASST.YEAR 2003-04 - 5 - IS TO BE MADE TO BUSINESS INCOME. THE ADDITION IS TO BE MADE U/S.69C SEPARATELY. ASSESSING OFFICER IS DIRECTED TO ASSESS THE INCOME SEPARATELY EXCLUDING THE SAME FROM THE BUSIN ESS INCOME. THE GROUND TAKEN BY THE APPELLANT IS DISMI SSED. 4. AGGRIEVED BY THE ORDER OF THE LEARNED CIT(APPEAL S) THE ASSESSEE IS IN APPEAL BEFORE US. 5. BEFORE US ON BEHALF OF THE ASSESSEE SHRI ANIL N.SHAH LD. COUNSEL FOR THE ASSESSEE APPEARED AND FILED PAPER-B OOK CONTAINING 85 PAGES. THE LD. COUNSEL FOR THE ASSESSEE RELIED O N THE WRITTEN SUBMISSIONS FILED IN THE PAPER-BOOK AT PAGE NO.1 TO 11 AND CONTENDED THAT WHATEVER UNDISCLOSED STOCK WAS FOUND AT THE TI ME OF SURVEY IT HAS BEEN REFLECTED IN THE PROFIT & LOSS ACCOUNT. THEREFORE THERE IS NO JUSTIFICATION FOR MAKING THE ADDITION U/S.69C OF THE I.T. ACT 1961. HE FURTHER SUBMITTED THAT SECTION 69C OF THE I.T. A CT 1961 IS NOT APPLICABLE BECAUSE THERE IS NEITHER ANY UNEXPLAINED EXPENDITURE HAS BEEN FOUND NOR ANY SUCH ALLEGATIONS HAVE BEEN MADE AT ANY STAGE. HE FURTHER SUBMITTED THAT WHATEVER DIFFERENCE THERE IN STOCK IT WAS DUE TO MOISTURE. THEREFORE THE ENTIRE ADDITION MADE SHOULD BE DELETED. 6. ON THE OTHER HAND SHRI RAJEEV AGARWAL LEARNED D EPARTMENTAL REPRESENTATIVE FOR THE REVENUE APPEARED AND SUPPO RTED THE ORDERS OF LOWER AUTHORITIES. HE SUBMITTED THAT EXCESS STO CK OF RS.5 10 657/- WAS FOUND AND DURING THE COURSE OF SURVEY ITSELF PA RTNER CAME FORWARD TO ADMIT THE EXCESS STOCK AS UNACCOUNTED IN COME. NO CORRESPONDING EXPENDITURE IS ELIGIBLE TO BE DEDUCTE D IN COMPUTING THE ITA NO.45/AHD/2007 M/S.SATISH TOBACCO INDUSTRIES VS. ITO ASST.YEAR 2003-04 - 6 - INCOME AS PER PROVISO TO SECTION 69C OF THE I.T. AC T 1961 INTRODUCED BY FINANCE (NO.2) ACT 1998 W.E.F. 01/04/1999. UNDE R THESE CIRCUMSTANCES UNACCOUNTED INCOME QUANTIFIED TO THE EXTENT OF UNACCOUNTED/EXCESS TOCK IS RIGHTLY MADE BY THE ASSE SSING OFFICER AND CONFIRMED BY THE LEARNED CIT(APPEALS) IN THE IMPUGN ED ORDER. WITH REGARD TO PLEA OF ASSESSEE THAT IT IS BUSINESS INCO ME OR EXCESS STOCK FOUND WAS ON ACCOUNT OF MOISTURE CANNOT BE ACCEPTED BECAUSE IN EARLIER YEARS NO SUCH EXCESS STOCK WAS SOLD BY THE ASSESSEE. WITH REGARD TO PLEA OF THE ASSESSEE THAT ITS BUSINESS IN COME THE LD. DR SUBMITTED THAT THE DECISION OF ITAT AHMEDABAD BENCH B IN THE CASE OF M/S.FASHION WORLD VS. ASSTT.CIT (IN ITA NO. 1634/AHD/2006 FOR A.Y. 2002-03) DATED 12/02/2010 IS NOT APPLICA BLE FOR DECIDING THE HEAD OF INCOME UNDER WHICH UNDISCLOSED STOCK FO UND IS ASSESSABLE. THE CONTROVERSY IN THE AFORESAID CASE BEFORE THE TRIBUNAL FOR ASSESSMENT YEAR 2002-03 WAS REGARDING ALLOWANCE OF PARTNERS REMUNERATION U/S.40(B) OF THE I.T. ACT 1961. 7. AFTER HEARING BOTH THE SIDES WE HAVE CAREFULL Y GONE THROUGH THE ORDERS OF LOWER AUTHORITIES. IT IS PERTINENT T O NOTE THAT EXCESS STOCK FOUND BY THE ASSESSEE IS ACCOUNTED IN THE BOO KS OF ACCOUNT. EITHER IT IS SOLD SUBSEQUENTLY OR SHOWN AS CLOSING STOCK AT THE END OF THE PREVIOUS YEAR UNDER APPEAL. SUCH UNACCOUNTED STOCK SHOULD HAVE BEEN OFFERED AS UNACCOUNTED INCOME SEPARATELY IN TH E RETURN OF INCOME AND SHOULD NOT HAVE BEEN COMBINED IN THE PRO FIT & LOSS ACCOUNT. BY ADMITTING THE STOCK IN CLOSING STOCK THE ASSESSEE HAD IN ITA NO.45/AHD/2007 M/S.SATISH TOBACCO INDUSTRIES VS. ITO ASST.YEAR 2003-04 - 7 - EFFECT ONLY ADMITTING GROSS PROFIT ON THE SALE OF UNACCOUNTED STOCK WITHOUT ADMITTING THE ORIGINAL SOURCE OF INVESTMENT WHICH WAS UTILIZED FOR THE PURPOSE OF SUCH STOCK. THE INV ESTMENT MADE IN SUCH STOCK IS NOT RECORDED IN THE BOOKS OF ACCOUNT. WE ARE THEREFORE OF THE VIEW THAT THE ASSESSING OFFICER H AS RIGHTLY MADE THE ADDITION U/S.69C OF THE I.T. ACT 1961 AND THE LEAR NED CIT(APPEALS) HAS GIVEN COGENT REASON FOR UPHOLDING THE SAME. TH E ITAT AHMEDABAD BENCH B IN THE CASE OF M/S.FASHION WORL D(SUPRA) NOWHERE HELD THAT EXCESS STOCK FOUND DURING THE COU RSE OF SURVEY CANNOT BE ASSESSED U/S.69C OF THE I.T. ACT 1961. ONCE IT IS HELD THAT SOURCE OF INVESTMENT IN THE UNACCOUNTED EXCESS STOC K ARE NOT EXPLAINED IT CAN BE ASSESSED U/S.69C OF THE I.T. A CT 1961. WE THEREFORE DECLINE TO INTERFERE WITH THE ORDER OF T HE LEARNED CIT(APPEALS). 8. IN THE RESULT THE APPEAL OF THE ASSESSEE IS DIS MISSED. ORDER SIGNED DATED AND PRONOUNCED IN THE COURT ON 23.04.2010. SD/- SD/- ( D.C. AGRAWAL ) ( T. K. SHARMA ) ACCOUNTANT MEMBER JUDICIAL MEMBER AHMEDABAD; DATED 23 / 04 /2010 T.C. NAIR SR. PS COPY OF THE ORDER FORWARDED TO : 1. THE APPELLANT. 2. THE RESPONDENT 3. THE CIT CONCERNED. 4. THE LD. CIT(APPEALS)-XV III AHMEDABAD 5. THE DR AHMEDABAD BENCH. 6. THE GUARD FILE. BY ORDER //TRUE COPY// (DY./ASSTT.REGISTRAR) ITAT AHMEDABAD