M/s Seshasayee Knittings Pvt Ltd,, Vijayawada v. The DCIT, Circle-1(1)., Vijayawada

ITA 663/VIZ/2008 | 2000-2001
Pronouncement Date: 30-03-2011 | Result: Allowed

Appeal Details

RSA Number 66325314 RSA 2008
Assessee PAN AADCS1717J
Bench Visakhapatnam
Appeal Number ITA 663/VIZ/2008
Duration Of Justice 2 year(s) 3 month(s) 15 day(s)
Appellant M/s Seshasayee Knittings Pvt Ltd,, Vijayawada
Respondent The DCIT, Circle-1(1)., Vijayawada
Appeal Type Income Tax Appeal
Pronouncement Date 30-03-2011
Appeal Filed By Assessee
Order Result Allowed
Bench Allotted DB
Tribunal Order Date 30-03-2011
Date Of Final Hearing 11-01-2011
Next Hearing Date 11-01-2011
Assessment Year 2000-2001
Appeal Filed On 15-12-2008
Judgment Text
ITA NOS 266 OF 2005 AND663 OF 2008 SESHASAYEE KNITTIN GS PVT LTD VIJAYAWADA PAGE 1 OF 14 IN THE INCOME TAX APPELLATE TRIBUNAL VISAKHAPATNAM BENCH VISAKHAPATNAM BEFORE: SHRI SUNIL KUMAR YADAV JUDICIAL MEMBER AND SHRI BR BASKARAN ACCOUNTANT MEMBER ITA NO.266/VIZAG/2005 ASSESSMENT YEAR: 2000 - 01 ACIT CIRCLE-1(1) VIJAYAWADA VS. M/S SESHASAYEE KNITTINGS PVT. LTD. VIJAYAWADA (APPELLANT) (RESPONDENT) PAN NO: AADCS 1717 J ITA NO.663/VIZAG/2008 ASSESSMENT YEAR: 2000-01 M/S SESHASAYEE KNITTINGS PVT. LTD. VIJAYAWADA VS. ACIT CIRCLE-1(1) VIJAYAWADA (APPELLANT) PAN NO: AADCS 1717 J (APPELLANT) APPELLANT BY: SHRI D.S. SUNDER SINGH SR.DR RESPONDENT BY: SHRI C. SUBRAMANYAM CA ORDER PER SHRI B. R. BASKARAN ACCOUNTANT MEMBER: THESE CROSS APPEALS ARE DIRECTED AGAINST THE ORDER DATED 01.03.2005 PASSED BY LEARNED CIT(A) VIJAYAWADA AND THEY RELAT E TO THE ASSESSMENT YEAR 2000-01. 2. THE ADDITION OF RS.47 08 399/- MADE BY THE ASSE SSING OFFICER ON ACCOUNT OF STOCK DIFFERENCE HAVING BEEN PARTIALLY DELETED BY THE LEARNED CIT (A) BOTH THE PARTIES ARE IN APPEAL BEFORE US A SSAILING THE SAID DECISION OF THE LEARNED CIT (A). 3. THE FACTS RELATING TO THE ISSUE ARE STATED IN BR IEF. THE ASSESSEE COMPANY IS ENGAGED IN THE BUSINESS OF MANUFACTURE A ND SALE OF HOSIERY GOODS. IT ORIGINALLY FILED ITS RETURN OF INCOME FOR THE YEAR UNDER CONSIDERATION ADMITTING AN INCOME OF RS.2 68 440/-. THE DEPARTMENT CARRIED OUT A SURVEY OPERATION UNDER SECTION 133A O F THE ACT IN THE BUSINESS PREMISES OF THE ASSESSEE ON 24.10.2000. DURING THE COURSE OF SURVEY ITA NOS 266 OF 2005 AND663 OF 2008 SESHASAYEE KNITTIN GS PVT LTD VIJAYAWADA PAGE 2 OF 14 CERTAIN LOOSE SHEETS CONTAINING DETAILS LIKE QUANTI TY AND RATE OF VARIOUS ITEMS OF STOCK WERE FOUND. THE DATE WAS WRITTEN AS 31.3.2000 ON THE TOP OF THESE LOOSE SHEETS. HENCE THE ASSESSING OFFICER PRESUMED THAT THE IMPUGNED LOOSE SHEETS DEPICT THE TRUE STOCK POSITIO N OF THE ASSESSEE AS ON 31.3.2000. ACCORDINGLY THE ASSESSMENT FOR THE YEAR UNDER CONSIDERATION WAS REOPENED BY ISSUING NOTICE UNDER SECTION 148. DURING THE COURSE OF ASSESSMENT PROCEEDINGS THE ASSESSING OFFICER CATEG ORIZED THE LOOSE SHEETS INTO SIX GROUPS AND DETERMINED THE VALUE OF CLOSING STOCK AS PER LOOSE SHEETS AS ON 31.3.2000 AT RS.1 41 31 928/-. HOWEVE R THE ASSESSEE HAD DECLARED THE VALUE OF CLOSING STOCK AT RS.94 23 529 /- IN ITS RETURN OF INCOME. HENCE THE ASSESSING OFFICER TREATED THE DIFFERENCE AMOUNT OF RS.47 08 399/- (RS.14131928 (-) 9423529) AS SUPPRES SION OF STOCK AND ACCORDINGLY ADDED THE SAME TO THE TOTAL INCOME OF T HE ASSESSEE. THE ASSESSEE CHALLENGED THE SAID ADDITION BEFORE THE LE ARNED CIT (A) AND THE FIRST APPELLATE AUTHORITY PARTIALLY DELETED THE ADD ITION. HENCE BOTH THE PARTIES ARE IN APPEAL BEFORE US. 4. THE LEARNED A.R SUBMITTED THAT THE SURVEY TOO K PLACE IN THE HANDS OF THE ASSESSEE ON 24.10.2000 AND THE SURVEY TEAM DID NOT NOTICE ANY DIFFERENCE IN THE STOCK. THERE AFTER THE ASSESSMEN T WAS REOPENED UNDER SECTION 147 AND THE SAME WAS COMPLETED AFTER THREE YEARS FROM THE DATE OF SURVEY. THE ASSESSEE FILED SAME EXPLANATIONS BEFORE THE SURVEY OFFICIALS AS WELL AS BEFORE THE ASSESSING OFFICER. THE LEARNED A.R FURTHER SUBMITTED THAT THE SURVEY OFFICIALS HAVE ACTUALLY IMPOUNDED 6 0 SHEETS CONTAINING CERTAIN DETAILS RELATED TO STOCK. IN THE STATEMENT TAKEN DURING THE COURSE OF SURVEY THE DIRECTOR OF THE ASSESSEE COMPANY HAS CA TEGORICALLY STATED THAT THESE PAPERS ARE ROUGH SHEETS PREPARED FOR SOME PUR POSES BY DIFFERENT PEOPLE AND THEY CANNOT BE TAKEN AS STOCK STATEMENTS . ACCORDINGLY THE LEARNED A.R SUBMITTED THAT THE IMPUGNED LOOSE SHEET S ARE DUMB DOCUMENTS WHICH ARE IN THE NATURE OF ROUGH STOCK CA LCULATION SHEETS ESTIMATES FOR PRODUCTION PENDING ORDERS POSITION E TC. ON WHICH THE ASSESSING OFFICER SHOULD NOT HAVE PLACED MUCH RELIA NCE. DESPITE THIS POSITION THE ASSESSEE HAS EXPLAINED THE NATURE OF THESE LOOSE SHEETS BEFORE THE ASSESSING OFFICER. THE A.O WAS SATISFIED WITH THE EXPLANATIONS OFFERED ITA NOS 266 OF 2005 AND663 OF 2008 SESHASAYEE KNITTIN GS PVT LTD VIJAYAWADA PAGE 3 OF 14 IN RESPECT OF 34 SHEETS AND WAS NOT SATISFIED WITH THE EXPLANATIONS OFFERED IN RESPECT OF REMAINING 26 SHEETS. ACCORDINGLY IT WAS AGAIN REITERATED BY LEARNED A.R THAT THESE DOCUMENTS ARE DUMB DOCUMENTS WHICH DO NOT HAVE ANY SIGNIFICANCE. THE LEARNED A.R RELIED UPON THE FOLLOWING CASE LAW IN SUPPORT OF THIS CONTENTION. (A) CIT VS. S.M.AGGARWAL (2007) (293 ITR 43 (DEL)) (B) S.K. GUPTA VS. D.C.I.T (1999) (63 TTJ (DEL) 53 2) (C) SATNAM SINGH CHHABRA VS. D.C.I.T (2002)(74 TTJ (LUC) 976) IN ALL THESE CASES IT HAS BEEN HELD THAT THE LOOSE S HEETS FOUND DURING THE COURSE OF SEARCH HAVE TO BE CORROBORATED WITH ANY O THER EVIDENCE AND THE UNCORROBORATED LOOSE PAPERS COULD NOT BE TAKEN AS A SOLE BASIS FOR DETERMINATION OF UNDISCLOSED INCOME. 4.1 THE LEARNED A.R FURTHER SUBMITTED THAT THE STATEMENT TAKEN DURING THE COURSE OF SURVEY DOES NOT HAVE ANY EVIDENTIARY VALUE AND HENCE THE ASSESSING OFFICER COULD NOT MAKE ANY ADDITION ON TH E BASIS OF THAT STATEMENT ALONE. IN THIS REGARD HE RELIED UPON TH E DECISION OF HON'BLE MADRAS HIGH COURT IN THE CASE OF CIT VS. S.KHADER K HAN SON (2008)(300 ITR 157) WHEREIN IT WAS HELD THAT THE ADDITION CO ULD NOT BE MADE ON THE BASIS OF STATEMENT RECORDED DURING THE COURSE OF SU RVEY CARRIED OUT UNDER SECTION 133A OF THE ACT SINCE THE SUCH STATEMENT H AS NO EVIDENTIARY VALUE. THE LEARNED A.R SUBMITTED THAT THE DIRECTOR OF THE COMPANY DID NOT ACCEPT THAT THE IMPUGNED LOOSE SHEETS REPRESENT THE TRUE S TOCK POSITION OF THE ASSESSEE COMPANY AND HENCE THE ASSESSING OFFICER CO ULD NOT TAKE SUPPORT FROM THE STATEMENT OF THE DIRECTOR. 4.2 THE LEARNED A.R FURTHER SUBMITTED THAT THE ASSESSING OFFICER IN THE INSTANT CASE HAS NOT CORROBORATED EITHER THE LOOSE SHEETS WITH ANY OTHER EVIDENCE AND HENCE THE ADDITION MADE BY HIM SOLELY ON THE BASIS OF LOOSE SHEETS IS NOT SUSTAINABLE UNDER THE LAW. 4.3 ON MERITS THE LEARNED A.R ADVANCED HIS ARG UMENTS AS DETAILED BELOW: ITA NOS 266 OF 2005 AND663 OF 2008 SESHASAYEE KNITTIN GS PVT LTD VIJAYAWADA PAGE 4 OF 14 (A) THE SURVEY OFFICIALS DID NOT FIND ANY MATERIAL TO SUGGEST THAT THE ASSESSEE IS EARNING PROFIT OUTSIDE THE BOOKS. (B) THE LOOSE SHEETS FOUND DURING THE COURSE OF S URVEY DID NOT CONTAIN ANY SIGNATURE NOR COULD THE AUTHOR OF THE D OCUMENTS BE IDENTIFIED. (C) DURING THE COURSE OF SURVEY THE SURVEY OFFIC IALS DID NOT FIND DISCREPANCY IN THE PHYSICAL STOCK AND HENCE THE ASS ESSING OFFICER DID NOT DISPUTE THE PHYSICAL QUANTITY OF STOCK DECLARED BY THE ASSESSEE. (D) AT THE TIME OF SURVEY ITSELF IT WAS INFORMED THAT THE IMPUGNED LOOSE SHEETS ARE NOT TO BE TAKEN AS ACTUAL STOCK ST ATEMENTS. THE SAID CLARIFICATION WAS REITERATED BEFORE THE ASSESSING O FFICER ALSO. (E) THE ASSESSMENT WAS CARRIED OUT AFTER THREE YE ARS FROM THE DATE OF SURVEY AND THE IMPUGNED ADDITION WAS MADE BY THE ASSESSING OFFICER IN A MECHANICAL MANNER. THE IMPUGNED ADDITION TOWARDS STOCK DIFFERENCE RESULTS IN A G.P RATE OF 23.38% WHICH WAS NEVER RE ALIZED BY THE ASSESSEE. (F) THE CLAIM THAT THE IMPUGNED LOOSE SHEETS COUL D NOT BE RELIED UPON WAS NOT VERIFIED BY COMPARING THE SAID LOOSE S HEETS WITH THE BOOKS OF ACCOUNT. IN THE CASE OF SHEETS NUMBERED AS 37 38 & 40 IT IS CLEARLY MENTIONED THAT THE AVAILABLE STOCK IS ONLY RS.7 34 500/- AS AGAINST THE VALUE OF RS.31 80 132. SIMILARLY IN THE CASE OF SH EETS NUMBERED AS 19 TO 22 THE VALUATION IS OVER STATED. 5. ON THE CONTRARY THE LEARNED D.R SUBMITTED THA T THE ASSESSEE DID NOT MAINTAIN STOCK REGISTER PROPERLY AND NO ATTEMPT WAS MADE TO RECONCILE THE IMPUGNED LOOSE SHEETS WITH THE STOCK STATEMENTS PRE PARED FOR BOOK PURPOSES. THE LEARNED CIT(A) HAS SIMPLY RELIED UPO N THE SUBMISSIONS MADE BY THE ASSESSEE FOR GRANTING PARTIAL RELIEF E VEN THOUGH HE HAS OBSERVED THAT THE ASSESSEE NEVER DISOWNED THE LOOSE SHEETS AND IT IS THE ASSESSEES RESPONSIBILITY TO OFFER EXPLANATIONS. SINCE THE EXPLANATIONS OFFERED BY THE ASSESSEE WERE NOT SATISFACTORY THE ASSESSING OFFICER HAS MADE THE ADDITION BY TAKING THE LOOSE SHEETS AS THE TRUE POSITION OF STOCK. ACCORDINGLY HE CONTENDED THAT THE ADDITION MADE BY THE ASSESSING OFFICER SHOULD BE SUSTAINED. 6. WE HAVE HEARD THE RIVAL CONTENTIONS AND CARE FULLY PERUSED THE RECORD. WE TABULATE BELOW THE DETAILS OF ADDITIONS MADE RE LIEF GRANTED/ADDITIONS SUSTAINED BY THE LEARNED CIT (A). ITA NOS 266 OF 2005 AND663 OF 2008 SESHASAYEE KNITTIN GS PVT LTD VIJAYAWADA PAGE 5 OF 14 S.NO PARTICULARS VALUATION OF CLOSING STOCK AS PER PAGE NO.7 OF THE ASST ORDER RELIEF GRANTED BY CIT (APPEALS) NET AMOUNT SUSTAINED BY CIT (APPEALS) 1 SHEET NOS.19 TO 22 5593800 1818163 3775637 2 SHEET NOS 37 38 &40 3180132 3180132 3 SHEET NOS 8 TO 13 31 58 TO 60 2892194 2892194 4 SHEET NO.7 615972 615972 5 SHEET NOS.14 & 15 573309 573309 0 6 SHEET NOS.32 TO 36 1276521 638260 638261 TOTAL 14131928 3029732 11102196 (-) STOCK ADMITTED IN TRADING ACCOUNT 9425529 9425529 DIFFERENCE 4706399 1676667 7. BEFORE GOING INTO THE ARGUMENTS ON MERITS OF THE ADDITION WE SHALL CONSIDER THE CONTENTIONS OF THE ASSESSEE ON LEGAL P OINTS VIZ. WHETHER THE ASSESSING OFFICER COULD PLACE HIS RELIANCE SOLELY O N THE DOCUMENTS IMPOUNDED DURING THE COURSE OF SURVEY FOR MAKING TH E IMPUGNED ADDITION. IN THIS REGARD THE CONTENTION OF THE ASSESSEE IS TH AT THE ASSESSING OFFICER SHOULD NOT HAVE PLACED RELIANCE ON THE IMPUGNED LOO SE SHEETS WITHOUT CORROBORATING THE SAME WITH ANY OTHER EVIDENCE AS THEY ARE MERELY ROUGH SHEETS PREPARED BY SOME STAFF FOR SOME PURPOSE. 7.1 WE NOTICE FROM THE ASSESSMENT ORDER THAT TH E ASSESSING OFFICER HAS PLACED RELIANCE ON THE FOLLOWING CASE LAW TO HOLD T HAT THE PRIMA FACIE PRESUMPTION IS THAT ONE WHO IS FOUND IN POSSESSION OF AN ARTICLE OR THING IS THE OWNER THERE OF UNLESS THE PRESUMPTION IS REBUTT ED BY COGENT EVIDENCE. (A) CIT VS. SURAJMAL NAGARMULL (181 ITR 340 345 (CAL)) (B) CIT VS. BIMAL PRAKASH GUPTHA (179 ITR 613 61 5 (PUN)) WE HAVE CAREFULLY CONSIDERED BOTH THE CASE LAW AND WE NOTICE THAT THEY ARE RELATED TO THE SEIZURE MADE DURING THE COURSE OF SE ARCH OPERATION. SECTION 132(4A) OF THE ACT A REBUTTABLE PRESUMPTION IS PLA CED UPON THE PERSON WITH WHOM ANY BOOKS OF ACCOUNTS OR OTHER DOCUMENTS MONEY BULLION JEWELLERY OR OTHER VALUABLE ARTICLE OR THINGS ARE F OUND. NO SUCH PRESUMPTION IS AVAILABLE FOR THE DOCUMENTS IMPOUNDE D DURING THE COURSE OF SURVEY. IN THE INSTANT CASE THE IMPUGNED LOOSE SH EETS HAVE BEEN IMPOUNDED BY THE DEPARTMENT DURING THE COURSE OF SU RVEY CARRIED UNDER ITA NOS 266 OF 2005 AND663 OF 2008 SESHASAYEE KNITTIN GS PVT LTD VIJAYAWADA PAGE 6 OF 14 SECTION 133A OF THE ACT AND NOT DURING THE COURSE O F ANY SEARCH. HENCE THE ASSESSING OFFICER COULD NOT TAKE SUPPORT FROM THE C ASE LAW CITED ABOVE FOR THE PRESUMPTION MADE BY HIM. 7.2 THOUGH THE PRESUMPTION IS AVAILABLE UNDER SE CTION 132(4A) OF THE ACT WITH REGARD TO THE DOCUMENTS SEIZED DURING THE COUR SE OF SEARCH IT HAS BEEN HELD IN THE CASE OF S.K.GUPTA (SUPRA) AND SAT NAM SINGH CHHABRA (SUPRA) THAT THE LOOSE PAPERS HAVE TO BE CORROBORAT ED WITH ANY OTHER EVIDENCE AND THE UNCORROBORATED LOOSE PAPERS COULD NOT BE TAKEN AS A SOLE BASIS FOR DETERMINATION OF UNDISCLOSED INCOME. HOW EVER THE SITUATION IS STILL WORSE IN THE INSTANT CASE AS THE IMPUGNED LO OSE SHEETS HAVE BEEN FOUND DURING THE COURSE OF SURVEY. FURTHER IT IS R ELEVANT TO NOTE THE FOLLOWING OBSERVATIONS OF THE HON'BLE DELHI HIGH CO URT IN THE CASE OF S.M.AGGARWAL (SUPRA): IT IS ALSO AN ADMITTED FACT THAT THE STATEMENT OF THE ASSESSEE WAS NOT RECORDED AT ANY STAGE DURING THE ASSESSMENT PROCEEDINGS. THE ONLY CONCLUSION WHICH CAN BE DRAW N ABOUT THE NATURE AND CONTENTS OF THE DOCUMENT IS THAT IT IS A DUMB DOCUMENT AND ON THE BASIS OF ENTRY OF NOTINGS OR FI GURES ETC. IN THIS DOCUMENT IT CANNOT BE CONCLUDED THAT THIS REPRESENTS THE UNDISCLOSED INCOME OF THE ASSESSEE. IT IS WELL SETTLED THAT THE ONLY PERSON COMPETENT TO GIVE EVIDENCE ON THE TRUTHFULNESS OF THE CONTENTS OF THE DOCUMENT IS THE WRITER THEREOF. SO UNLESS AND UNTIL THE CONTENTS OF THE DOCUMENT ARE PROVED AGAINST A PERSON THE POSSESSIO N OF THE DOCUMENT OR HANDWRITING OF THAT PERSON ON SUCH DOC UMENT BY ITSELF CANNOT PROVE THE CONTENTS OF THE DOCUMENT. 7.3 IN THE INSTANT CASE THE SURVEY OFFICIALS H AVE RECORDED A STATEMENT FROM THE DIRECTOR OF THE COMPANY IN WHICH HE HAS CA TEGORICALLY STATED THAT THE IMPUGNED LOOSE SHEETS ARE ROUGH SHEETS WRITTEN BY SOME STAFFS FOR SOME PURPOSES. HOWEVER AT ANY OF THE STAGE THE AU THORS OF THE IMPUGNED DOCUMENTS WERE NOT EXAMINED EITHER BY SURVEY OFFICI ALS OR THE ASSESSING OFFICER. 7.4 IN THE INSTANT CASE THE ASSESSEE COMPANY HA S OFFERED EXPLANATIONS ABOUT THE NATURE OF THE LOOSE SHEETS BEFORE THE ASS ESSING OFFICER. HOWEVER THE ASSESSING OFFICER HAS REJECTED THE SAID EXPLANA TIONS BY DRAWING ADVERSE ITA NOS 266 OF 2005 AND663 OF 2008 SESHASAYEE KNITTIN GS PVT LTD VIJAYAWADA PAGE 7 OF 14 INFERENCES ON THE IMPUGNED LOOSE SHEETS WITHOUT EXA MINING THE AUTHORS OF THE DOCUMENTS AND ALSO WITHOUT BRINGING ANY OTHER C ORROBORATIVE EVIDENCE TO PROVE THAT THE ENTRIES FOUND IN THE LOOSE SHEETS . WE HAVE ALREADY NOTED THAT THE SLIPS SEIZED DURING THE COURSE OF SEARCH B Y ITSELF DOES NOT CARRY WITH IT THE PROOF OF TRUTH WITH REGARD TO THE ENTRIES MA DE THEREIN AND HENCE THE TRUTH OF SLIPS SHOULD BE PROVED BY BRINGING ANY OTH ER EVIDENCE. IF NO CORROBORATIVE EVIDENCE IS AVAILABLE THEY BY CROSS EXAMINING THE PERSON WHO PREPARED THE LOOSE SHEETS TRUTH ABOUT THE LOOSE SHE ETS COULD BE BROUGHT OUT. IT IS A WELL SETTLED PROPOSITION THAT THE SUS PICION IS NO SUBSTITUTE FOR PROOF. HENCE THE ASSESSING OFFICERS ACTION OF DRA WING ADVERSE INFERENCES AGAINST THE ASSESSEE WITHOUT CORROBORATING THE IMPU GNED LOOSE SHEETS WITH ANY OTHER EVIDENCE OR WITHOUT EXAMINING THE AUTHOR OF DOCUMENTS IN OUR VIEW IS NOT IN ACCORDANCE WITH LAW MORE PARTICULA RLY IN VIEW OF THE FACT THAT THE IMPUGNED LOOSE SLIPS HAVE BEEN SEIZED DURI NG THE COURSE OF SURVEY CARRIED UNDER SECTION 133A OF THE ACT FOR WHICH PRE SUMPTION ENSHRINED UNDER SECTION 132(4A) IS NOT AVAILABLE. 8. NOW WE SHALL CONSIDER THE IMPUGNED ADDITION ON MERITS ALSO. WE NOTICE THAT THE ASSESSEE HAS OFFERED FOLLOWING EXPL ANATIONS WITH REGARD TO THE EACH GROUP. (A) SHEET NOS. 19 22 - RS.55 93 800/- THESE ARE ROUGH STOCK PAPERS PREPARED BY THIR UPUR BRANCH PEOPLE. THEY HAVE VALUED THE GOODS WITHOUT CLASSIFYING THEM INTO 1 ST QUALITY 2 ND QUALITY AND DEFECTIVE GOODS. THE ACTUAL VALUE WORK S OUT TO RS.37 75 637/- AND THUS THERE IS A DIFFERENCE OF RS.19 18 442/-. (B) SHEET NOS. 37 38 & 40 RS.31 80 132/- THESE ARE ROUGH SHEETS PERTAINING TO THE QUOTATION S RECEIVED FROM SUPPLIERS OF FABRIC AND PREPARED FOR THE PURPOSE OF ASCERTAINING REQUIREMENTS. (C) SHEET NUMBERS 8 TO 12 13 31 58 TO 60 - RS. 28 92 194/- THESE ARE ROUGH SHEETS REPRESENTING THE TOTAL PEND ING ORDER POSITION OF UNDER GARMENTS AT HEAD OFFICE- VIJAYAWADA DEPOT & VIZAG DEPOT. THESE HAVE BEEN PREPARED TO ARRIVE AT THE APPROXIMATE VAL UE OF MATERIAL REQUIRED FOR PRODUCTION. ITA NOS 266 OF 2005 AND663 OF 2008 SESHASAYEE KNITTIN GS PVT LTD VIJAYAWADA PAGE 8 OF 14 (D) SHEET NO.7 RS.6 15 972/- THESE SHEETS REPRESENT ROUGH ESTIMATES FOR THE RAW MATERIAL REQUIREMENTS BY STAFF AT VARIOUS LEVELS ACCORDING T O THEIR KNOWLEDGE AND INFORMATION. (E) SHEET NOS. 14 & 15 RS.5 73 309/- THESE ROUGH SHEETS REPRESENT DEAD WASTE & UNUSABL E MATERIAL. (F) SHEET NOS. 32 TO 36 RS.12 76 521/- THESE SHEETS REPRESENT PENDING ORDER POSITION OF V IJAYAWADA DEPOT AND THE QUANTITIES HAVE BEEN VALUED AT SALES PRICE. HOWEVER THE ASSESSING OFFICER DID NOT ACCEPT THE A BOVE SAID EXPLANATIONS OF THE ASSESSEE AND HELD THAT THESE LOOSE SHEETS DE PICT ACTUAL STOCK POSITION AS ON 31.3.2000. 8.1 IN THE APPEAL PROCEEDINGS THE LEARNED CIT( A) ACCEPTED THE EXPLANATIONS OF THE ASSESSEE WITH REGARD TO THE SHE ETS NUMBERED AS 19-22. IN THAT REGARD THE ASSESSEE HAS STATED THAT THE VALU E OF THE QUANTITIES SHOWN IN THE LOOSE SHEETS ACTUALLY WORKS OUT TO RS. 37 75 637/-. ACCORDINGLY THE LEARNED CIT(A) GRANTED RELIEF OF RS .18 18 163/-. IT IS PERTINENT TO NOTE THAT THE ASSESSEE HAS FURNISHED I NFORMATION SHOWING THAT THE QUANTITY OF CERTAIN ITEMS OF STOCK SHOWN IN THE LOOSE SHEETS ARE LESSER THAN THE QUANTITY THAT WAS SHOWN IN THE CLOSING STO CK STATEMENT PREPARED FOR BOOK PURPOSES. THE LEARNED CIT(A) HAS EXTRACTE D THE SAID INFORMATION IN THE FOLLOWING TABLE EXTRACTED AT PAGE 25 OF HIS ORDER. STATEMENT SHOWING DIFFERENCE BETWEEN QUANTITY IN CLOSING STOCK AND QUANTITY IN LOOSE SHEETS: S. NO ITEM QUANTITY IN LOOSE SHEETS QUANTITY IN CLOSING STOCK STATEMENT 1 HOSIERY YARN 0.000 1650.00 2 CORA CLOTH (1 ST QUALITY & DAMAGED) 3190.100 3919.250 3 BLEACHING CLOTH (1 ST QUALITY & DAMAGED) 1510.975 3520.450 4 DYING CLOTH (1 ST QUALITY & MISTAKE) 845.580 1891.200 5 FINISHED GOODS (1 ST GRADE 2 ND GRADE & MNFG.MISTAKE) 15666 15468 ITA NOS 266 OF 2005 AND663 OF 2008 SESHASAYEE KNITTIN GS PVT LTD VIJAYAWADA PAGE 9 OF 14 IN RESPECT OF SHEET NOS. 14 & 15 (RS.5 73 309/-) TH E LEARNED CIT(A) ACCEPTED THE CLAIM OF THE ASSESSEE THAT IT REPRESEN TS THE QUANTITIES OF DEAD STOCK WHICH HAVE NO MARKET VALUE. IN RESPEC T OF SHEET NOS. 32 TO 36 (RS.12 76 521/-) THE LEARNED CIT(A) REDUCED THE VALUE BY 50% BY ACCEPTING THE CLAIM OF THE ASSESSEE THAT THEY REPRE SENT DEAD STOCK AND NON-MOVING ITEMS. 9. WE HAVE CAREFULLY CONSIDERED THE RIVAL SUBMIS SIONS ON MERITS OF THE IMPUGNED ADDITION. BEFORE GOING INTO THE MERITS W E CONSIDER IT APPROPRIATE TO DISCUSS ABOUT THE METHODS FOLLOWED TO IDENTIFY T HE DIFFERENCE IN STOCK. IN THE INSTANT CASE THE DEPARTMENT HAS CARRIED OUT SU RVEY OPERATIONS IN THE BUSINESS PREMISES OF THE ASSESSEE ON 24.10.2000. IT IS NOT CLEAR FROM THE RECORD WHETHER THE PHYSICAL STOCK AVAILABLE AT THAT TIME WAS VERIFIED. THE DEPARTMENT HAS ONLY IMPOUNDED THE IMPUGNED LOOSE SH EETS. NORMALLY THE DIFFERENCE IN THE VALUE OF STOCK ARISES MAINLY DUE TO FOLLOWING REASONS:- (A) DIFFERENCE IN QUANTITY (B) DIFFERENCE IN THE VALUE OF EACH ITEMS. (C) OMISSION OF CERTAIN ITEMS OF STOCK. IF THE VALUE OF PHYSICAL STOCK IS MORE THAN THE BOOK STOCK THE EXCESS IS TREATED AS UNEXPLAINED INVESTMENT WARRANTING ADDITI ON OF THE SAME. IN THE INSTANT CASE WE ARE CONCERNED WITH THE STOCK POSIT ION AS ON 31.3.2000. SINCE THE SURVEY HAS TAKEN PLACE ON 24.10.2000 IT WOULD NOT HAVE BEEN POSSIBLE FOR ANY BODY TO PHYSICALLY VERIFY THE STOC K POSITION OF AN EARLIER DATE I.E. 31.3.2000 AND CONSEQUENTLY THERE IS NO S COPE TO COMPARE THE STOCKS SHOWN IN THE LOOSE SHEETS WITH THE PHYSICAL STOCK. IN THIS KIND OF SITUATION THE OPTION AVAILABLE WITH THE ASSESSING OFFICER WOULD BE TO COMPARE THE STOCK PARTICULARS I.E. THE QUANTITY AN D RATE SHOWN IN THE LOOSE SHEETS WITH THE QUANTITY AND RATE SHOWN IN THE STOC K STATEMENT PREPARED FOR THE BOOK PURPOSES. ONLY IF SUCH AN EXERCISE IS CARRIED OUT ONE CAN COME TO ANY CONCLUSION ABOUT THE NATURE AND GENUINE NESS OF THE ENTRIES FOUND IN THE LOOSE SHEETS. HOWEVER THE ASSESSING OFFICER DID NOT CARRY OUT ANY SUCH EXERCISE WITH OUT WHICH IN OUR VIEW THE ASSESSING OFFICER COULD NOT DRAW ADVERSE CONCLUSIONS. ITA NOS 266 OF 2005 AND663 OF 2008 SESHASAYEE KNITTIN GS PVT LTD VIJAYAWADA PAGE 10 OF 14 9.1 WHILE MAKING A COMPARISON AS DISCUSSED IN TH E PRECEDING PARAGRAPH BOTH THE QUANTITIES AND THE RATES TO BE APPLIED ON THE SAID QUANTITIES HAVE TO BE COMPARED. COMPARISON OF QUANTITIES IS A SIMP LE EXERCISE. HOWEVER THE COMPARISON OF RATES ADOPTED FOR THE PURPOSE OF STOCK VALUATION IS A COMPLICATED EXERCISE. IT IS A WELL SETTLED PRINCIPL E THAT THE STOCK SHOULD BE VALUED ON A CONSISTENT METHOD IN ORDER TO ARRIVE AT THE CORRECT PROFIT OF ANY YEAR. FOR EXAMPLE THE STOCK MAY BE VALUED AT COST BASIS OR COST OR MARKET RATES WHICH EVER IS LESS BASIS. HERE ALSO THE MARKET RATE COULD BE OBTAINED FROM THE EXTERNAL SOURCES. HOWEVER THE DE TERMINATION OF COST RATE IS AGAIN A COMPLICATED EXERCISE. UNDER ACCOUNTING AND COSTING PRINCIPLES THE COST RATE COULD BE DETERMINED UNDER VARIOUS MET HODS LIKE FIRST IN FIRST OUT (FIFO) LAST IN FIRST OUT (LIFO) AVERAGE COST ETC. THE QUESTION OF VALUATION BECOMES MORE COMPLICATED WITH REGARD TO G OODS WHICH ARE IN INTERMEDIARY PROCESS. THE ASSESSEES ARE EXPECTED T O FOLLOW A CONSISTENT METHOD WHICH IS NORMALLY DISCLOSED IN THE ANNUAL AC COUNTS. THE ASSESSING OFFICER HAS OBSERVED THAT THE TECHNICAL STAFFS WHO PREPARED THE IMPUGNED STATEMENTS WOULD ALSO BE AWARE OF THE PRICES THERE OF. FROM THE DISCUSSIONS MADE EARLIER IT WOULD BE CLEAR THAT TH E TECHNICAL STAFFS CAN NOT BE EXPECTED TO KNOW THE INTRICACIES OF THE METHOD O F VALUATION CITED ABOVE. IN THAT CASE ONE CANNOT PLACE RELIANCE BLINDLY ON T HE IMPUGNED LOOSE SHEETS WITHOUT VERIFYING WHETHER THE RATES ADOPTED IN THOSE SHEETS ARE IN ACCORDANCE WITH THE METHOD OF VALUATION CONSISTENTL Y FOLLOWED BY THE ASSESSEE COMPANY. SIMILARLY NO ATTEMPT HAS BEEN M ADE TO IDENTIFY THE AREAS OF THE DIFFERENCE I.E. DUE TO QUANTITY VARI ATION OR RATE VARIATION OR OMISSION OF ANY STOCK. THE LEARNED D.R CONTENDED T HAT THE ASSESSEE DID NOT RECONCILE THE IMPUGNED DIFFERENCE BETWEEN THE L OOSE SHEETS AND THE BOOK STOCK. IN OUR VIEW THE QUESTION OF THE RECON CILIATION IF ANY SHALL ARISE ONLY WHEN AN ASSESSEE ACCEPTS THE IMPUGNED LO OSE SHEETS AS A PROPER STOCK STATEMENT. 9.2 HENCE IN OUR VIEW THE INFERENCE DRAWN BY THE ASSESSING OFFICER IS NOT CORRECT FROM THE ACCOUNTING POINT OF VIEW ALSO. ITA NOS 266 OF 2005 AND663 OF 2008 SESHASAYEE KNITTIN GS PVT LTD VIJAYAWADA PAGE 11 OF 14 10. NOW WE SHALL TURN TO THE ISSUES ON MERITS O F THE ADDITION. FIRST WE SHALL DEAL WITH THE RELIEF OF RS.18 18 163/- GRANTE D BY LEARNED CIT(A). WE HAVE ALREADY DISCUSSED IN PARAGRAPH 8.1 (SUPRA) THA T THE QUANTITIES OF CERTAIN ITEMS SHOWN IN THE STOCK STATEMENTS PREPARE D FOR BOOK PURPOSES ARE ACTUALLY MORE THAN THAT SHOWN IN THE LOOSE SHEETS. THUS THE LEARNED CIT(A) HAS TAKEN INTO ACCOUNT THIS IMPORTANT POINT WHILE GRANTING THE ABOVE SAID RELIEF. THE OBSERVATIONS MADE BY LEARNED CIT (A) IN THIS REGARD ARE EXTRACTED BELOW: AS REGARDS TO SHEET NUMBERS 19 TO 22 AS PER ASSESS MENT ORDER THE AMOUNT OF THE STOCK IS RS.55 93 800/- AND AS PER THE APPELLANT IT IS RS.37 75 637/-. AS PER THE APPE LLANT IN THOSE LOOSE SHEETS NEITHER THE STOCK NOR THE VALUE WAS CORRECTLY WRITTEN. THIS WAS BECAUSE THE STAFF AT TI RUPUR PREPARED THE SAME AND THEY DID NOT HAVE CORRECT KNO WLEDGE OF THE VALUATION PROCEDURE. QUANTITY OF CLOTH IN DI FFERENT STAGES OF PRODUCTION WERE NOT CORRECTLY EVALUATED. THE FINISHED GOODS RECEIVED FROM HEAD OFFICE WERE VALUE D AT MARKET PRICE INSTEAD OF COST PRICE AND THE FINISHED GOODS AT BRANCH WERE NOT VALUED WITH REGARD TO FIRST QUALITY 2 ND QUALITY AND DEFECTIVE. FURTHER QUANTITY OF STOCK IN DIFFERE NT STAGES OF PROCESS WAS ALSO NOT TAKEN INTO ACCOUNT CORRECTLY. FOR THIS THE APPELLANT HAS SHOWN MUCH HIGHER QUANTITY THAN THE QUANTITY MENTIONED IN THE LOOSE SHEETS. ALL THESE THINGS WERE BROUGHT TO THE ASSESSING OFFICER AND TH E ASSESSING OFFICER HAS NOT FACTUALLY DISSECTED THESE PLEADINGS OF THE APPELLANT ITEM BY ITEM. HE HAS NOT GIVEN ANY CONCRETE EVIDENCE AS TO WHY THE SAME SHALL BE TAKEN AT RS.55 93 800/- AND NOT RS.37 75 637/- PARTICULARLY WHEN THE APPELLANT WAS SHOWING MORE QUANTITY OF CLOSING STOCK THAN THA T WAS WRITTEN IN LOOSE PAPERS AND HAD GIVEN ADEQUATE REASON FOR EVALUATING THE SAME. FURTHER THESE ARGUMENTS WERE NOT FIRST TIME FILED BEFORE THIS FOR UM BUT IT WAS ALL ALONG WITH THE ASSESSING OFFICER AND I HAVE ALREADY QUOTED IN THIS ORDER THE ARGUMENTS OF THE APPELLANT AT PAGE NO-13 AND 17 IN RESPONSE TO T HE LETTER OF THE APPELLANT TO THE DEPUTY COMMISSIONER OF INCOME TAX DATED 20-11-2000 AND 25-03-2004. IN SUCH VIEW OF THE MATTER I FINE THERE IS NO PROPER D ISCOVERY OF FACTS MADE BY THE ASSESSING OFFICER EITHER AT THE S TAGE OF ASSESSMENT OR AT THE STAGE OF THE APPELLATE PROCEED INGS FOR ENABLING THE SUSTENANCE OF THE SAID ADDITION. IN SUC H VIEW OF THE MATTER I ORDER FOR HE DELETION OF THE AMOUNT O F RS.18 18 163/- FROM THE ADDITION OF RS.55 93 800/- AS MADE BY THE ASSESSING OFFICER SINCE THERE IS NO FINDING OF FACT AGAINST THE VALUE SHOWN BY THE APPELLANT AT RS.37 7 5 637/-. THE ASSESSING OFFICER IS DIRECTED TO ACCEPT THE SAM E AS HE IS ITA NOS 266 OF 2005 AND663 OF 2008 SESHASAYEE KNITTIN GS PVT LTD VIJAYAWADA PAGE 12 OF 14 NOT HAVING ANY CONTRADICTORY MATERIAL IN HIS POSSES SION TO REBUT THE ARGUMENTS AND EVIDENCE PLACED BEFORE HIM. THE APPELLANT GETS RELIEF OF RS.18 18 163/- ON THIS COU NT. WE HAVE ALREADY OBSERVED THAT THE STOCK DIFFERENCE MAINLY ARISES DUE TO THE DIFFERENCE IN QUANTITIES AND RATES ADOPTED FOR VALU ATION AND OMISSION. WITH REGARD TO THIS PARTICULAR ADDITION THE QUANTITIES SHOWN IN THE LOOSE SHEETS ARE LESSER THAN THE QUANTITIES SHOWN IN THE STOCK S TATEMENT. THE RATES THAT ARE REQUIRED TO BE APPLIED FOR THE PURPOSE OF VALUA TION WOULD DEPEND UPON THE METHOD OF VALUATION CONSISTENTLY FOLLOWED BY TH E ASSESSEE. THE LEARNED CIT(A) HAS ACCEPTED THE VALUATION REPORT FO R THE QUANTITIES SHOWN IN SHEET NOS.19 TO 22. IT WAS NOTICED THAT THE SAME HAS BEEN PREPARED IN ACCORDANCE WITH THE METHOD OF VALUATION CONSISTENTL Y FOLLOWED BY IT. THE LEARNED CIT(A) HAS NOTICED THAT THE ASSESSING OFFIC ER DID NOT FACTUALLY DISSECT THESE PLEADINGS OF THE ASSESSEE ITEM BY ITE M THOUGH THE ASSESSEE HAS BEEN MAKING SAME PLEADINGS BEFORE HIM ALSO. S INCE NO FAULT HAS BEEN FOUND WITH THE VALUATION STATEMENT PREPARED FOR THE QUANTITIES SHOWN IN SHEET NOS.19 TO 22 IN OUR VIEW THE LEARNED CIT(A) IS REASONABLE IN GRANTING THE RELIEF OF RS.18 18 163/- ON THIS COUNT . HENCE WE DO NOT FIND ANY INFIRMITY IN HIS DECISION ON THIS ISSUE. 14. THE NEXT MAJOR ITEM OF ADDITION RELATES TO SHEET NOS. 37 38 & 40. THE ASSESSING OFFICER HAS ADDED A SUM OF RS.31 80 1 32/- ON ACCOUNT OF THESE THREE SHEETS AND THE SAID ADDITION WAS ALSO C ONFIRMED BY LEARNED CIT(A). HOWEVER ACCORDING TO THE ASSESSEE THE ABO VE SAID THREE SHEETS ARE DOCUMENTS RELATED TO PRODUCTION PLANNING PROC ESS FOR MANUFACTURING OUTER GARMENTS IN DIFFERENT FABRICS AND THEY HAVE B EEN PREPARED ON THE BASIS OF QUOTATIONS RECEIVED FROM THE SUPPLIERS. A CCORDING TO THE ASSESSEE THE STAFF WHO PREPARED THESE THREE STATEMENTS HAS C LEARLY NOTED THE WORD REQUIREMENT ON THE TOP OF THESE STATEMENTS AND TH E SAID WORD WAS STRUCK OFF BY SOME BODY. HOWEVER ON A CAREFUL PERUSAL OF THESE THREE STATEMENTS WE NOTICE THAT IN SHEET NO. 38 THE STAFF WHO PREPA RED THESE THREE SHEETS HAVE NOTED AS UNDER:. AS AGAINST REQUIREMENTS OF RS.3180130 ACTUAL ST OCK IS RS.734500/- ITA NOS 266 OF 2005 AND663 OF 2008 SESHASAYEE KNITTIN GS PVT LTD VIJAYAWADA PAGE 13 OF 14 THIS FINAL NOTING SUPPORTS THE CONTENTION OF THE AS SESSEE. THE REASONS FOR WHICH THE ASSESSING OFFICER HAS REJECTED THE ABOVE SAID CLAIM OF THE ASSESSEE ARE THAT (A) THESE STATEMENTS CONTAINS DETAILS LIKE VARIOUS ITEMS OF STOCK RATE AND WEIGHT OF EACH ITEM AND THE VALUE THERE OF (B) THE NAMES OF SUPPLIERS HAVE NOT BEEN N OTED AND (C) IT IS NOT NECESSARY TO NOTE THE QUANTITIES OF S TOCK THAT ARE AVAILABLE WITH THE SUPPLIER. IN OUR VIEW THE OBSERVATIONS MADE BY THE ASSESSING OFFICER ARE MISCONCEIVED. THE ASSESSEE HAS NO WHERE SAID THAT IT HAS NOTED DOWN THE QUANTITIES OF STOCK THAT ARE AVAILABLE WITH THE SUP PLIERS. WHAT THE ASSESSEE HAS STATED IS THAT IT HAS NOTED DOWN THE QUANTITIES OF STOCK REQUIRED FOR THE PRODUCTION PLAN VIS--VIS THE STOCK AVAILABLE IN ST OCK. IT IS ONLY STATED THAT FOR THE PURPOSE OF ASCERTAINING THE TOTAL COST OF T HE ENSUING PRODUCTION PLAN THE RATES QUOTED BY SUPPLIERS FROM THEIR QUOT ATIONS ARE TAKEN. AS NOTED EARLIER IT HAS BEEN CLEARLY STATED IN PAGE N O.38 THAT THESE THREE STATEMENTS DEPICTS ONLY THE REQUIREMENT ASSESSMENT. WHILE DOING PRODUCTION PANNING THAT TOO WHEN THE BATCH PRODUCT ION METHOD IS ADOPTED IT IS QUIET COMMON TO FIRST ASSESS THE MATERIALS RE QUIRED FOR THE PRODUCTION OF BATCH AND THEN COMPARE IT WITH THE AVAILABLE STO CK SO THAT IT WOULD HELP TO FINALIZE THE PURCHASE PLAN. AS PER THE NOTING THE ACTUAL STOCK AVAILABLE WITH THE ASSESSEE WAS RS.7 34 500/- AND ACCORDING T O THE ASSESSEE THE SAME HAS ALREADY BEEN INCLUDED IN THE IN THE BOOK S TOCK. HOWEVER THE IMPUGNED SHEETS DID NOT CONTAIN THE DETAILS OF STOC K STATED TO HAVE BEEN AVAILABLE WITH THE ASSESSEE AND HENCE THE SAID EXPL ANATION CANNOT BE FOUND FAULT WITH. IN VIEW OF THE ABOVE WE HOLD THAT THE PRESUMPTION MADE BY THE ASSESSING OFFICER WITH REGARD TO THIS ADDITION IS N OT CORRECT ON BASIS OF FACTS AVAILABLE ON RECORD. IN VIEW OF THE ABOVE IN OUR VIEW NO ADDITION IS WARRANTED ON ACCOUNT OF SHEET NOS.37 38 & 40 AND ACCORDINGLY THE ADDITION OF RS.31 80 132/- IS LIABLE TO BE DELETED . ITA NOS 266 OF 2005 AND663 OF 2008 SESHASAYEE KNITTIN GS PVT LTD VIJAYAWADA PAGE 14 OF 14 15. THE ASSESSING OFFICER HAS MADE AN ADDITION OF RS.47 08 399/- TOWARDS THE STOCK DIFFERENCE. WE HAVE ALREADY UPHELD THE O RDER OF LEARNED CIT(A) IN GRANTING RELIEF OF RS.18 18 163/-. IN THE PRECE DING PARAGRAPH WE HAVE HELD THAT THE ADDITION OF RS.31 80 130/- IS NOT WAR RANTED. THESE TWO ITEMS PUT TOGETHER EXCEEDS THE AMOUNT OF ADDITION OF RS.4 7 08 399/- MADE BY THE ASSESSING OFFICER. THE REASON BEHIND THIS KIND OF SITUATION IS THAT THE ASSESSING OFFICER DID NOT IDENTIFY THE NATURE OF ST OCK DIFFERENCES I.E. QUANTITY DIFFERENCE RATE DIFFERENCE AND OMISSION. 16. IN VIEW OF THE DETAILED DISCUSSIONS MADE IN THE PRECEDING PARAGRAPHS WE ARE OF THE VIEW THAT THE IMPUGNED AD DITION OF RS.47 08 399/- IS NOT SUSTAINABLE ON ANY ANGLE. AC CORDINGLY WE MODIFY THE ORDER OF LEARNED CIT(A) AND DIRECT THE ASSESSING OF FICER TO DELETE THE ABOVE SAID ADDITION. 17. IN THE RESULT THE APPEAL OF THE ASSESSEE IS ALL OWED AND THE APPEAL OF THE REVENUE IS DISMISSED. PRONOUNCED IN THE OPEN COURT ON 30 TH MARCH 2011. SD/- SD/- (SUNIL KUMAR YADAV) (B R BASKARAN) JUDICIAL MEMBER ACCOUNTANT MEMBER PVV/SPS VISAKHAPATNAM DATE: 30-03-2011 COPY TO 1 THE ASSTT. COMMISSIONER OF INCOME TAX CIRCLE-1(1) CENTRAL REVENUES BUILDING MG ROAD VIJAYAWADA 2 M/S SESHASAYEE KNITTINGS (P) LTD. 40-14-1 SURYAL AKSHMI TOWERS 1 ST CROSS ROAD CHANDRAMOULIPURAM VIJAYAWADA 3 4 THE CIT VIJAYAWADA THE CIT(A) VIJAYAWADA 5 THE DR ITAT VISAKHAPATNAM. 6 GUARD FILE. BY ORDER SENIOR PRIVATE SECRETARY INCOME TAX APPELLATE TRIBUNAL VISAKHAPATNAM