The ACIT, Central Circle, Rajahmundry v. M/s Surya Mitra Exim Pvt. Ltd., Bhimavaram

ITA 76/VIZ/2011 | 2007-2008
Pronouncement Date: 05-09-2011 | Result: Dismissed

Appeal Details

RSA Number 7625314 RSA 2011
Assessee PAN AAJCS6258G
Bench Visakhapatnam
Appeal Number ITA 76/VIZ/2011
Duration Of Justice 6 month(s) 8 day(s)
Appellant The ACIT, Central Circle, Rajahmundry
Respondent M/s Surya Mitra Exim Pvt. Ltd., Bhimavaram
Appeal Type Income Tax Appeal
Pronouncement Date 05-09-2011
Appeal Filed By Department
Order Result Dismissed
Bench Allotted DB
Tribunal Order Date 05-09-2011
Assessment Year 2007-2008
Appeal Filed On 25-02-2011
Judgment Text
ITA 76 OF 2011 SURYA MITRA EXMI PVT LTD BHIMAVARAM PAGE 1 OF 7 IN THE INCOME TAX APPELLATE TRIBUNAL VISAKHAPATNAM BENCH VISAKHAPATNAM BEFORE: SHRI SUNIL KUMAR YADAV JUDICIAL MEMBER AND SHRI BR BASKARAN ACCOUNTANT MEMBER ITA NO.76/VIZAG/2011 ASSESSMENT YEAR: 2007 - 08 ACIT CENTRAL CIRCLE RAJAHMUNDRY VS. SURYA MITRA EXIM PVT. LTD. BHIMAVARAM (APPELLANT) (RESPONDENT) PAN NO:AAJCS 6258 G C.O.NO.4/VIZAG/2011 (ARISING OUT OF ITA NO.76/VIZAG/2011) ASSESSMENT YEAR: 2007-08 SURYA MITRA EXIM PVT. LTD. BHIMAVARAM VS. ACIT CENTRAL CIRCLE RAJAHMUNDRY (APPELLANT) PAN NO:AAJCS 6258 G (RESPONDENT) APPELLANT BY: SHRI TH. LUCAS PETER CIT (DR) RESPONDENT BY: SHRI G.V.N. HARI CA DATE OF HEARING: 19/07/2011 DATE OF PRONOUNCEMENT: 05/09/2011 ORDER PER SHRI B. R. BASKARAN ACCOUNTANT MEMBER: THE APPEAL OF THE REVENUE AND THE CROSS OBJECTION O F THE ASSESSEE ARE DIRECTED AGAINST THE ORDER DATED 22.12.2010 PAS SED BY LEARNED CIT(A)- I HYDERABAD AND THEY RELATE TO THE ASSESSMENT YEAR 2007-08. 2. THE ADDITION OF ` 1 06 69 831/- MADE BY THE ASSESSING OFFICER TOWARDS UNACCOUNTED PURCHASES WAS SUSTAINED BY LEARNED CIT( A) TO THE EXTENT OF ` 13 03 871/-. HENCE THE REVENUE IS IN APPEAL BEFORE US ASSAILING THE SAID ITA 76 OF 2011 SURYA MITRA EXMI PVT LTD BHIMAVARAM PAGE 2 OF 7 DECISION OF LEARNED CIT(A). THE ASSESSEE IN ITS C ROSS OBJECTION SEEKS FURTHER RELIEF. 3. THE FACTS RELATING TO THE ISSUE ARE STATED I N BRIEF. THE ASSESSEE IS ENGAGED IN THE BUSINESS OF SEA FOOD PROCESSING. TH E ASSESSMENT OF THE IMPUGNED ASSESSMENT YEAR WAS COMPLETED UNDER SECTIO N 143(3) R.W.S. 153A OF THE ACT BY MAKING AN ADDITION OF ` 1 06 69 831/- TOWARDS UNACCOUNTED PURCHASES. DURING THE COURSE OF ASSESS MENT PROCEEDINGS THE ASSESSING OFFICER ASKED THE ASSESSEE TO FURNISH MON TH-WISE QUANTITY DETAILS OF OPENING STOCK PURCHASES SALES AND CLOSING STOC K RELATING TO SHRIMPS SEA MATERIALS AND SCAMPI. THE ASSESSEE SUBMITTED THAT I T IS NOT MAINTAINING DAY TO DAY INVENTORY OF THESE ITEMS AS THEY ARE BIOLOGI CAL MATERIALS AND FURTHER THEIR REALIZATION AFTER PROCESSING COULD NOT BE STA NDARDIZED. HOWEVER THE ASSESSEE COULD SUBMIT QUANTITY DETAILS OF PURCHASES SALES OPENING STOCK AS ON 1.4.2006 AND CLOSING STOCK AS ON 31.3.2007. THE ASSESSEE COULD NOT FURNISH MONTH WISE QUANTITY DETAILS OF STOCK AT THE BEGINNING AND AT THE END OF EACH MONTH. WHEN THE ASSESSING OFFICER INSISTED TO FURNISH THE SAID DETAILS THE ASSESSEE FURNISHED THE DETAILS OF STOC K REPORTED TO THE BANK EVERY MONTH. HOWEVER THE ASSESSEE CLARIFIED THAT IT IS NOT TAKING INVENTORY OF STOCK AT THE END OF EACH MONTH AND HENCE THE DET AILS OF STOCK ARE FURNISHED TO THE BANK ON ESTIMATED BASIS. THE ASSE SSEE FURTHER EXPLAINED THAT IT WOULD BE CORRECT TO COMPUTE THE QUANTITY DE TAILS FOR THE WHOLE YEAR AS IT IS NOT MAINTAINING DAY TO DAY STOCK INVENTORY . 4. HOWEVER THE ASSESSING OFFICER PROCEEDED TO A RRIVE AT THE CLOSING STOCK QUANTITY AS AT THE END OF EVERY MONTH FROM APRIL 20 06 TO MARCH 2007 BY COLLATING THE DETAILS OF QUANTITIES OF OPENING STOC K PURCHASES AND SALES. THE CLOSING STOCK SO ARRIVED AT THE END OF EACH MONTH W AS COMPARED WITH THE CLOSING STOCK DECLARED TO THE BANK. WHILE ARRIVING AT THE CLOSING STOCK OF ITA 76 OF 2011 SURYA MITRA EXMI PVT LTD BHIMAVARAM PAGE 3 OF 7 EACH MONTH THE ASSESSING OFFICER CHOSE TO TAKE THE STOCK REPORTED TO THE BANK AT THE END OF PARTICULAR MONTH AS THE OPENING STOCK OF THE SUCCEEDING MONTH I.E. THE ASSESSING OFFICER DID NOT TAKE THE STOCK ARRIVED AT BY HIM AT THE END OF EACH MONTH AS THE OPENING STOCK OF THE S UCCEEDING MONTH. ON COMPARISON OF QUANTITY OF STOCK ARRIVED BY THE ASSE SSING OFFICER WITH THE QUANTITY OF STOCK REPORTED TO THE BANK IT WAS NOTI CED THAT THERE WAS SHORTAGE IN ALL MONTHS EXCEPT IN THE MONTHS OF DECE MBER AND MARCH. THE ASSESSING OFFICER IGNORED THE EXCESS QUANTITY OF ST OCK FOUND IN THE MONTH OF DECEMBER AS HE CONSIDERED THE SAME AS WITHIN PERMI SSIBLE LIMITS. HOWEVER IN THE MONTH OF MARCH 2007 THE STOCK REPO RTED TO THE BANK VIS-- VIS THE STOCK COMPUTED BY HIM WAS EXCESS BY 46 394 KGS. THE DETAILS OF SAID COMPUTATION ARE EXTRACTED BELOW: FOR THE MONTH OF MARCH 2007: OPENING STOCK 289839 KGS. ADD:- PURCHASES 45875 TOTAL AVAILABLE STOCK 335714 LESS: SALES 82824 BALANCE WHICH SHOULD BE AVAILABLE AS CLOSING STOCK 252890 CLOSING STOCK DISCLOSED 299284 UNACCOUNTED PURCHASES 46394 THE ASSESSING OFFICER TREATED THE SAID EXCESS AS UN ACCOUNTED PURCHASES AND ACCORDINGLY ARRIVED AT THE COST OF IT AT ` 1 06 69 831/- AND ADDED THE SAME TO THE TOTAL INCOME OF THE ASSESSEE. 5. IN THE APPEAL FILED BY THE ASSESSEE THE LEA RNED CIT (A) FOUND FAULT WITH THE ASSESSING OFFICER IN ADOPTING THE QUANTITY OF STOCK REPORTED TO THE BANK AS THE OPENING STOCK OF THE SUCCEEDING MONTHS INSTEAD OF ADOPTING THE CLOSING STOCK ARRIVED AT BY HIM. ACCORDINGLY H E HELD THAT THERE IS ITA 76 OF 2011 SURYA MITRA EXMI PVT LTD BHIMAVARAM PAGE 4 OF 7 DISCREPANCY IN THE STOCK POSITION WORKED OUT BY THE ASSESSING OFFICER. THE LEARNED CIT (A) ACCEPTED THE FACT THAT THERE WOULD BE PROCESSING LOSS IN THIS TYPE OF TRADE. HE NOTICED THAT THE ASSESSEE HAS REP ORTED THE PROCESSING LOSS AT 25.34%. HOWEVER HE CONSIDERED THAT A PROCESSING LOSS OF 25% WOULD BE REASONABLE. ACCORDINGLY RECOMPUTED THE STOCK POSIT ION AND ARRIVED AT THE DIFFERENCE IN THE CLOSING STOCK AS ON 31.3.2007 AT 5669.50 KGS THE VALUE OF WHICH WORKED OUT TO ` 13 03 871/-. ACCORDINGLY THE LEARNED CIT (A) SUSTAINED THE ADDITION TO THE EXTENT OF ` 13 03 871/-. 4. WE HAVE HEARD THE RIVAL CONTENTIONS AND CARE FULLY PERUSED THE RECORD. WE AGREE WITH THE OBSERVATIONS OF LEARNED CIT(A) TH AT THERE IS A FLAW IN THE METHOD ADOPTED BY THE ASSESSING OFFICER IN ORDER TO ARRIVE AT THE CLOSING STOCK AT THE END OF EACH MONTH. WE LIST OUT BELOW THE REASONS:- (A) THE ASSESSING OFFICER HAS ADOPTED TWO DIFFERE NT DOCUMENTS FOR THE SAID PURPOSE I.E. HE HAS RELIED ON THE BOOKS O F ACCOUNT FOR TAKING THE QUANTITIES OF PURCHASES AND SALES. HOWEVER HE HAS ADOPTED THE QUANTITY REPORTED TO THE BANK AT THE END OF EVERY MONTH AS T HE OPENING STOCK OF SUCCEEDING MONTH. (B) THE ASSESSING OFFICER HAS DISREGARDED THE EXP LANATION OF THE ASSESSEE THAT IT DID NOT MAINTAIN DAY TO DAY INVENT ORY AND FURTHER THE DETAILS OF STOCK ARE FURNISHED TO THE BANK ON ESTIM ATED BASIS WITHOUT ANY BASIS. THE ASSESSEE HAS EXPLAINED THE REASONS ALSO FOR FURNISHING THE DETAILS TO THE BANK ON ESTIMATED BASIS. THE ASSESS ING OFFICER WITHOUT APPRECIATING THE PRACTICAL DIFFICULTIES EXPLAINED B Y THE ASSESSEE HAS ASSUMED THAT THE REPORT GIVEN TO THE BANK IS CORREC T. (C) THE ASSESSEE HAS EXPLAINED THAT IT IS TAKING PHYSICAL INVENTORY OF STOCK ONLY AT THE END OF THE YEAR. THOUGH THE ASSE SSEE IS EXPECTED TO MAINTAIN STOCK REGISTER IT HAS EXPLAINED THE REASO NS FOR NOT MAINTAINING THE SAME I.E. IT WAS EXPLAINED THAT THE PRODUCTS DEALT BY IT ARE BIOLOGICAL PRODUCTS WHICH ARE PERISHABLE IN NATURE. THE QUANT ITY THAT ONE IS EXPECTED TO GET AFTER PROCESSING IS ALSO NOT STANDARDIZED DU E TO THE PECULIAR FEATURES ATTACHED TO THE SEA FOODS. IN THIS KIND OF BUSINESS INVOLVING COMPLEX ACTIVITIES INVENTORY IS NORMALLY TAKEN ONLY AT THE YEAR END AND THE SAME IS NORMALLY ACCEPTED. ACCORDINGLY THE FINANCIAL STATE MENTS ARE PREPARED BY ADOPTING THE VALUE OF CLOSING STOCK SO ARRIVED BY T AKING THE INVENTORY AT THE ITA 76 OF 2011 SURYA MITRA EXMI PVT LTD BHIMAVARAM PAGE 5 OF 7 YEAR END. THE ASSESSING OFFICER HAS FAILED TO APPRE CIATE THE INDUSTRY RELATED PRACTICAL DIFFICULTIES. (D) WHILE COLLATING THE DETAILS THE ASSESSING OFF ICER HAS ADOPTED THE QUANTITY OF STOCK REPORTED TO THE BANK ON ESTIMATED BASIS AS THE OPENING STOCK OF SUCCEEDING MONTH INSTEAD OF ADOPTING THE Q UANTITY OF STOCK ARRIVED AT BY HIM. THE SAID APPROACH IN OUR VIEW ALSO IS NOT CORRECT. (E) THERE CANNOT BE ANY DISPUTE THAT THE ACCURACY OF FIGURES OF OPENING STOCK AS ON 1.4.2006 PURCHASES SALES AND THE CLOSING STOCK AS ON 31.3.2007 COULD ONLY BE CROSS VERIFIED WITH SOME OT HER DOCUMENTS. THE MONTHLY STOCK ARRIVED AT BY THE ASSESSING OFFICER C OULD NOT BE CROSS VERIFIED WITH ANY DOCUMENT AND FURTHER IT IS BASED ON CERTAI N PRESUMPTIONS. (F) NORMALLY THE PHYSICAL QUANTITY IS COMPARED WI TH THE BOOK QUANTITY AND THE EXCESS PHYSICAL QUANTITY IF FOUND IS CONSIDERED AS THE UNACCOUNTED INCOME OF THE ASSESSEE IN THE ABSENCE OF ANY SATISFACTORY EXPLANATION. HOWEVER IN THE INSTANT CASE THE ASS ESSING OFFICER HAS COMPARED THE QUANTITY OF STOCK ARRIVED AT BY HIM WI TH THE PHYSICAL QUANTITY AND HAS TAKEN AN ADVERSE VIEW. 5. HOWEVER THE FACT REMAINS THAT IN THE INSTA NT CASE THERE IS NO DIFFERENCE BETWEEN THE QUANTITY OF PHYSICAL STOCK A ND THE QUANTITY OF BOOK STOCK. THE CLOSING STOCK AS ON 31.3.2007 DECLARED BY THE ASSESSEE IN ITS BOOKS AND THE CLOSING STOCK AS ON THAT DATE DECLARE D TO THE BANK IS 2 99 284 KGS. THERE IS NO DISPUTE WITH REGARD TO T HE FACT THAT THE DEPARTMENT DID NOT FIND ANY EXCESS PHYSICAL STOCK D URING THE COURSE OF SEARCH OPERATIONS. AS STATED EARLIER THE ASSESSIN G OFFICER IS SIMPLY COMPARING THE CLOSING STOCK AS ON 31.3.2007 ARRIVED AT BY HIM WITH THE CLOSING STOCK DECLARED BY THE ASSESSEE. SINCE THE CLOSING STOCK ARRIVED AT BY THE ASSESSING OFFICER WAS LESSER THAN THE CLOSIN G STOCK ACTUALLY DECLARED BY THE ASSESSEE HE PRESUMED THAT THE EXCESS CLOSIN G STOCK REPRESENTS UNACCOUNTED PURCHASES. ASSUMING FOR A MOMENT THAT THE ASSESSEE HAS DECLARED EXCESS QUANTITY OF CLOSING STOCK IN ITS BO OKS OF ACCOUNT THEN THERE IS ACTUALLY NO REQUIREMENT TO MAKE ANY FURTHER ADDI TION AS THE SAID EXCESS AUTOMATICALLY CONSTITUTES THE INCOME OF THE ASSESSE E. LET US EXPLAIN THE ITA 76 OF 2011 SURYA MITRA EXMI PVT LTD BHIMAVARAM PAGE 6 OF 7 SAME WITH A SIMPLE EXAMPLE. LET US ASSUME THAT A P ERSON HAS PURCHASED 1000 UNITS OF A PRODUCT AT ` 100/- PER UNIT. HE SOLD 800 UNITS @ ` 120/- PER UNIT. NOW HE SHOULD HAVE A CLOSING STOCK OF 20 0 UNITS WHOSE VALUE IS (200 X RS.100/-) ` 20 000/-. HIS GROSS PROFIT IS COMPUTED BELOW: SALES 800 UNITS X ` 120/- 96 000 CLOSING STOCK 200 UNITS X ` 100/- 20 000 ------------- 1 16 000 LESS:- PURCHASES 1000 UNITS X ` 100/- 1 00 000 ------------- GROSS PROFIT 16 000 ======= NOW LET US ASSUME THAT THE SAID PERSON HAS MADE UNA CCOUNTED PURCHASES OF 300 UNITS BUT CHOSE TO DECLARE THE SAME IN THE CLOSING STOCK. HIS GROSS PROFIT WOULD WORK OUT AS UNDER: SALES 800 UNITS X ` 120/- 96 000 CLOSING STOCK 500 UNITS X ` 100/- 50 000 ------------- 1 46 000 LESS:- PURCHASES 1000 UNITS ` 100/- 1 00 000 ------------- GROSS PROFIT 46 000 ======= THUS IT CAN BE SEEN THAT THE GROSS PROFIT IS EXCESS IVE BY ` 30 000/- WHICH IS EQUIVALENT TO THE VALUE OF UNACCOUNTED PURCHASES. THUS THE INCOME WOULD AUTOMATICALLY GET INCREASED IF THE UNACCOUNTED PUR CHASE IS INCLUDED IN THE VALUE OF CLOSING STOCK. IN THAT CASE THERE IS NO R EQUIREMENT OF MAKING SEPARATE ADDITION TOWARDS UNACCOUNTED PURCHASES. IN THE INSTANT CASE ALSO THE CASE OF THE ASSESSING OFFICER IS THAT THE ASSES SEE HAS SHOWN EXCESS QUANTITY OF CLOSING STOCK IN WHICH CASE THE INCOM E OF THE ASSESSEE WOULD AUTOMATICALLY GET INCREASED BY THE VALUE OF SUCH EX CESS QUANTITY. HENCE THERE IS NO NECESSITY OF MAKING ANY FURTHER ADDITIO N ON THAT COUNT. ITA 76 OF 2011 SURYA MITRA EXMI PVT LTD BHIMAVARAM PAGE 7 OF 7 6. IN VIEW OF THE FOREGOING DISCUSSIONS WE SET ASIDE THE ORDER OF LEARNED CIT(A) AND DIRECT THE ASSESSING OFFICER TO DELETE THE IMPUGNED ADDITION MADE TOWARDS UNACCOUNTED PURCHASES. 7. IN THE CROSS OBJECTION THE ASSESSEE HAS RAIS ED GROUNDS RELATING TO CERTAIN LEGAL ISSUES. SINCE WE HAVE DELETED THE IM PUGNED ADDITION ON MERITS WE DO NOT FIND IT NECESSARY TO ADDRESS THE OTHER ISSUES RAISED BY THE ASSESSEE. ACCORDINGLY WE REJECT THEM. 8. IN THE RESULT THE APPEAL OF THE REVENUE IS DISMI SSED AND THE CROSS OBJECTION OF THE ASSESSEE IS ALLOWED. PRONOUNCED IN THE OPEN COURT ON 5 TH SEPTEMBER 2011. SD/- SD/- (SUNIL KUMAR YADAV) (B R BASKARAN) JUDICIAL MEMBER ACCOUNTANT MEMBER PVV/SPS VISAKHAPATNAM DATE:05-09-2011 COPY TO 1 THE ASSTT.COMMISSIONER OF INCOMETAX CENTRAL CIRC LE AAYAKAR BHAVAN VEERABHADRA PURAM RAJAHMUNDRU 533105 2 M/S SURYA MITRA EXIM PVT. LTD. RS NO.130 YENAMA DURRU BHIMAVARAM 534 239 WEST GODAVARI DISTT. 3 4. THE CIT CENTRAL CIRCLE HYDERABAD THE CIT(A)-I HYDERABAD 5 THE DR ITAT VISAKHAPATNAM. 6 GUARD FILE. BY ORDER SENIOR PRIVATE SECRETARY INCOME TAX APPELLATE TRIBUNAL VISAKHAPATNAM