Abhilasha Fashions Pvt.Ltd., Surat vs Assessee

सम ी अ नल चतुव द , लेखा सद य एवं ी कुल भारत, या यक सद य । BEFORE SHRI ANIL CHATURVEDI, ACCOUNTANT MEMBER And SHRI KUL BHARAT, JUDICIAL MEMBER

आयकर अपील सं./I.T.A. No.1486/Ahd/2011 ( नधा रण वष / Assessment Year : 2007-08) Abhilasha Fashions बनाम/ The Income Tax Officer Pvt.Ltd. Vs. Ward-1(1) 3077, Shree Mahavir Surat Textiles Market Ring Road, Surat थायी ले खा सं . /जीआइआर सं . / PAN/GIR No. : AADCA 9566 H (अपीलाथ% /Appellant) .. (&'यथ% / Respondent) अपीलाथ% ओर से / Appellant by : Shri Mehul Shah, AR &'यथ% क) ओर से/Respondent by : Shri Nimesh Yadav, Sr.DR

ु वाई क) तार ख / सन Date of Hearing 22/01/2015 घोषणा क) तार ख /Date of Pronounce ment 12/02/2015

आदे श / O R D E R

PER SHRI KUL BHARAT, JUDICIAL MEMBER :

This appeal by the Assessee is directed against the order of the Ld.Commissioner of Income Tax(Appeals)-I, Surat ('CIT(A)' in short) dated 31/3/2011 pertaining to Assessment Year (AY) 2007-08. The assessee has raised the following grounds of appeal:-

1. On the facts and circumstances of the case as well as law on the subject, the learned Commissioner of Income-tax (Appeals) has erred in confirming the action of the Assessing Officer in making ITA No.1486/Ahd/2011 Abhilasha Fashions Pvt.Ltd. vs. ITO Asst.Year - 2007-08 -2-

addition of Rs.2,50,289/- on account of difference in creditors account.

2. Without prejudice to ground no.1, on the facts and circumstances of the case as well as law on the subject, the learned Commissioner of Income-tax (Appeals) should have given direction to exclude the amount of Rs.2,50,289/- from the total income for assessment year 2008-09 on account of difference in creditors account.

3. On the facts and circumstances of the case as well as law on the subject, the learned Commissioner of Income-tax (Appeals) has erred in confirming the action of the Assessing Officer by disallowing depreciation of Rs.1,679/-.

4. On the facts and circumstances of the case as well as law on the subject, the learned Commissioner of Income-tax (Appeals) has erred in confirming the action of the Assessing Officer in making addition of Rs.4,40,747/- on account of under valuation of closing stock.

5. Without prejudice to ground no.4, on the facts and circumstances of the case as well as law on the subject, the learned Commissioner of Income-tax(Appeals) should have given direction to increase the value of opening stock of Rs.4,40,747/- for the next assessment year i.e. 2008-09 and reduce the income of assessment year 2007-08 accordingly.

6. It is therefore prayed that the additions/disallowances made by Assessing Officer and confirmed by Commissioner of Income-tax (Appeals) may please be deleted.

7. Appellant craves leave to add, alter or delete any ground(s) either before or in the course of hearing of the appeal.

2. Briefly stated facts are that the case of the assessee was picked up for scrutiny under CASS. The assessment u/s.143(3) of the I.T.Act, 1961 ITA No.1486/Ahd/2011 Abhilasha Fashions Pvt.Ltd. vs. ITO Asst.Year - 2007-08 -3-

(hereinafter referred to as "the Act") was framed vide order dated 15/12/2009, thereby the Assessing Officer (AO in short) made addition of a sum of Rs.2,50,289/- on account of difference in balance outstanding in the account of the assessee and the specified sundry creditors. The AO also made addition of Rs.51,706/- on account of failure to deduct tax while invoking the provisions of section 40(a)(ia) of the Act. The AO also disallowed depreciation amounting to Rs.1,679/-. Further, the AO made addition on account of suppression of closing stock amounting to Rs.4,40,747/-. Hence, the AO assessed income at Rs.7,53,453/- against the disclosed income of Rs.9,032/-. Against the assessment order, the assessee filed an appeal before the ld.CIT(A), but after considering the submissions and perusing the record, dismissed the appeal. Now, the assessee is further in appeal before us.

3. Ground Nos.1 & 2 are related to the confirmation of Rs.2,50,289/- on account of difference in creditors account. The ld.counsel for the assessee submitted that the difference between balance in the books of account of the assessee and the confirmation of the various creditors. He submitted that there is no dispute about the confirmation of business transactions of the creditors and the genuineness of the creditors. He submitted that the accounts with the creditors were settled since the assessee was not informed about the discount and rate difference by the creditors during the year under consideration. The discount and the rate ITA No.1486/Ahd/2011 Abhilasha Fashions Pvt.Ltd. vs. ITO Asst.Year - 2007-08 -4-

difference as communicated by the creditors was considered during the financial year relevant to AY 2008-09. The same amount has been offered for the next year. He submitted that the same amount cannot be taxed twice.

4. On the contrary, the ld.Sr.DR supported the orders of the authorities below and their findings.

5. We have heard the rival submissions, perused the material available on record and gone through the orders of the authorities below. We find that the AO has observed in the assessment order that the difference is basically due to discount which has not been accounted by the assessee-company. The fact remains that the correct figure of balance outstanding in the names of the creditors was very clear to the assessee before it had filed its return of income. By not crediting the discount in its books of accounts, the assessee-company has suppressed its income to that extent and proceeded to make addition of the amount of Rs.2,50,289/-. The ld.CIT(A) confirmed the addition by observing as under:-

"The A.O. has given cogent reasons for making addition of Rs.2,50,289/- on account of difference in closing balance of ledger account of certain creditors and ledger account of assessee. The appellant has not been able to meet the points raised by A.O. for making addition. There is considerable force in the arguments of the A.O. that discounts are in the nature of income for financial ITA No.1486/Ahd/2011 Abhilasha Fashions Pvt.Ltd. vs. ITO Asst.Year - 2007-08 -5-

year relevant to A.Y. 2007-08. Hence, they are to be taxed in A.Y. 2007-08. It does not help the case of the assessee that he has offered this income for taxation in a subsequent year. The A.O.'s action in bringing the difference in closing balance of ledger account of certain creditors and ledger account of assessee totaling to Rs.2,50,289/- is fully justified. The A.O. has added the amount to assessee's income after considering all the arguments put forward before him and also after granting reasonable opportunity to defend."

5.1. The above finding of the ld.CIT(A) is not controverted by the ld.counsel for the assessee. The admitted fact remains that the assessee has not recorded the transaction in its books of accounts in the year under consideration. The assessee has made alternative submission that a direction be issued to the CIT(A) to exclude the amount from the total income of the assessment year 2008-09. Since the present appeal is related to AY 2007-08, the admitted facts are that the transactions were not recorded during the year under consideration. Therefore, we do not see any reason to interfere with the order of the ld.CIT(A) on this issue. Hence, ground Nos.1 & 2 of assessee's appeal are rejected.

6. Apropos to ground No.3, the ld.counsel for the assessee submitted that he does not wish to press ground No.3, therefore the same is rejected as such.

ITA No.1486/Ahd/2011 Abhilasha Fashions Pvt.Ltd. vs. ITO Asst.Year - 2007-08 -6-

7. Ground Nos.4 & 5 are inter-connected which are against the addition made on account of undervaluation of closing stock. Therefore, the same are decided together. The ld.counsel for the assessee submitted that the AO was not justified in making the addition made on account of closing stock. He reiterated the submissions as were made before the ld.CIT(A). He submitted that the AO adopted average rate of purchase of grey cloth for determining the valuation of closing stock. On the other hand, the assessee-company has maintained day-to-day stock register. While determining the addition, the AO erred in ignoring complete day- to-day maintenance of stock register along with all supporting evidences. All books of accounts, basic vouchers, stock register before the Ld.A.O. and it is also true that no defects in the books of accounts, vouchers, etc. found during the assessment proceedings. He submitted that alternatively the addition made in the closing stock should be treated as opening stock of the next year.

8. On the contrary, ld.Sr.DR supported the orders of the authorities below and submitted that the AO in para-7 of his order has given a finding that the assessee-company had a closing stock of 2,17,732.50 mts of grey fabric with its at the close of 31.3.2007. From the bills of purchase of grey fabric produced by the assessee-company, it was seen that the average rate of purchase of grey fabric at the end of the year was Rs.11.30 per meter. It was also seen that the assessee-company was ITA No.1486/Ahd/2011 Abhilasha Fashions Pvt.Ltd. vs. ITO Asst.Year - 2007-08 -7-

getting on average discount of 4% on these purchases. The average net cost of grey purchased by the assessee-company at the end of the year, thus works out to Rs.10.85 per meter. Thus, the value of closing stock of grey fabric with the assessee-company as on 31.3.2007 works out to Rs.23,62,398/-. It is also observed by the AO that the assessee had also shown a closing stock of 2808 pieces of finished fabrics, corresponding to 16,847.90 meters of the same, with its at the close of 31.3.2007. From the bills of job charges issued to the assessee-company by process houses, produced by the assessee-company, it was seen that the average rate of job charges at the end of the year is Rs.7.25 per meter. Thus the average value of finished goods per meter works out to Rs.18.10 As such, the value of the closing stock of 16,847.90 meters of finished goods lying with the assessee as on 31.3.2007 works out to Rs.3,04,947/-. As such, the total value of closing stock with the assessee works out to Rs.26,67,345/- as against the value of Rs.22,26,598/- disclosed by the assessee-company in its return of income. The ld.Sr.DR submitted that there is no merit into the contention of the ld.counsel for the assessee that the AO has made the addition on estimation basis.

9. We have heard the rival submissions, perused the material available on record and gone through the orders of the authorities below. The contention of the assessee is that the AO has not doubted the accounts of the assessee, he submitted that all relevant material were ITA No.1486/Ahd/2011 Abhilasha Fashions Pvt.Ltd. vs. ITO Asst.Year - 2007-08 -8-

placed before the AO. Even if it is assumed that there is a difference in stock in that eventuality, the closing stock of this year would become closing stock of next year. We find that the AO has given a categorical finding as under:-

"..... that the assessee company had a closing stock of 2,17,732.50 mts of grey fabric with its at the close of 31.03.2007. From the bills of purchase of grey fabric produced by the assessee company, it was seen that the average rate of purchase of grey fabric at the end of the year was Rs.11.30/mtr. It was also seen that the assessee company was getting on average discount of 4% on these purchases. The average net cost of grey purchased by the assessee company at the end of the year, thus works out to Rs.10.85/mtr. Thus, the value of closing stock of grey fabric with the assessee company as on 31.03.2007 works out to Rs.23,62,398/- (2,17,732.50 mts x Rs.10.85).

- that the assessee had also shown a closing stock of 2808 pieces of finished fabrics, corresponding to 16,847.90 mts of the same, with its at the close of 31.03.2007. From the bills of job charges issued to the assessee company by process houses, produced by the assessee company, it was seen that the average rate of job charges at the end of the year is Rs.7.25/mtr. Thus the average value of finished goods per meter works out to Rs.18.10. As such, the value of the closing stock of 16,847.90 mts of finished goods lying with the assessee as on 31.03.2007 works out to Rs.3,04,947/- (16,847.90 mts x Rs.18.10).

As such, the total value of closing stock with the assessee works out to Rs.26,67,345/- (Rs.23,62,398/- + Rs.3,04,947), as against the value of Rs.22,26,598/- disclosed by the assessee company in its return of income. In other words, the closing stock of the ITA No.1486/Ahd/2011 Abhilasha Fashions Pvt.Ltd. vs. ITO Asst.Year - 2007-08 -9-

assessee company is suppressed by an amount of Rs.4,40,747/- (Rs.26,67,345 (-) Rs.22,26,598)."

9.1. The aforesaid finding of the Assessing Officer is not controverted by placing any material on record by the assessee. Therefore, we see no reason to interfere with the order of the authorities below. In respect of the alternate plea of the assessee, it is clarified that Assessing Officer would decide the claim of the assessee in accordance with law. Thus, ground Nos.4 & 5 are rejected.

10. Ground Nos.6 & 7 are general in nature which require no independent adjudication.

11. In the result, Assessee's appeal is dismissed.

Order pronounced in the Court on Thursday, the12th day of February, 2015 at Ahmedabad.

Sd/- Sd/- (अ नल चतव ु द ) (कुल भारत) लेखा सद य या यक सद य ( ANIL CHATURVEDI ) ( KUL BHARAT ) ACCOUNTANT MEMBER JUDICIAL MEMBER

Ahmedabad; Dated 12/ 02 /2015

ट .सी.नायर, व. न.स./T.C. NAIR, Sr. PS ITA No.1486/Ahd/2011 Abhilasha Fashions Pvt.Ltd. vs. ITO Asst.Year - 2007-08 - 10 -

आदे श क" # त%ल&प अ'े&षत/Copy of the Order forwarded to :

1. अपीलाथ% / The Appellant

2. &'यथ% / The Respondent.

3. संबं4धत आयकर आयु6त / Concerned CIT

4. आयकर आयु6त(अपील) / The CIT(A)-I, Surat

5. 7वभागीय & त न4ध, आयकर अपील य अ4धकरण, अहमदाबाद / DR, ITAT, Ahmedabad

6. गाड; फाईल / Guard file.

आदे शानुसार/ BY ORDER,

स'या7पत & त //True Copy// उप/सहायक पंजीकार (Dy./Asstt.Registrar) आयकर अपील य अ धकरण, अहमदाबाद / ITAT, Ahmedabad

1. Date of dictation .. 2.2.15(dictation-pad 17-pages attached at the end of this File)

2. Date on which the typed draft is placed before the Dictating Member ...5.2.15

3. Other Member...

4. Date on which the approved draft comes to the Sr.P.S./P.S.................

5. Date on which the fair order is placed before the Dictating Member for pronouncement......

6. Date on which the fair order comes back to the Sr.P.S./P.S.......12.2.15

7. Date on which the file goes to the Bench Clerk.....................12.2.15

8. Date on which the file goes to the Head Clerk..........................................

9. The date on which the file goes to the Assistant Registrar for signature on the order..........................

10. Date of Despatch of the Order..................