Jai Kumar Golani, Jaipur vs Assessee

1 ITA No. 461/JP/2011 Shri Jai Kumar Golani vs. DCIT, Circle- 1 Jaipur

IN THE INCOME TAX APPELLATE TRIBUNAL JAIPUR BENCH, JAIPUR

(BEFORE SHRI R.P. TOLANI AND SHRI T.R. MEENA)

ITA No. 461/JP/2011 Assessment year: 2006-07 PAN : ABDPG 1352 M Shri Jai Kumar Golani vs. The DCIT Prop. M/s. Kala Fashions Circle- 1 116-117, Bapu Bazar, Jaipur Jaipur (Appellant) (Respondent)

ITA No. 495/JP/2011 Assessment year: 2006-07 PAN : ABDPG 1352 M

The ITO vs. Shri Jai Kumar Golani Ward- 1(3) Prop. M/s. Kala Fashions Jaipur 116-117, Bapu Bazar, Jaipur (Appellant) (Respondent)

ITA No. 462/JP/2011 Assessment year: 2006-07 PAN : AEXPG 2060 D

Shri Mahendra Kumar Golani vs. The DCIT Prop. M/s. Kala Mandir Circle- 1 116-117, Bapu Bazar, Jaipur Jaipur (Appellant) (Respondent)

ITA No. 494/JP/2011 Assessment year: 2006-07 PAN : ABDPG 1352 M

The ITO vs. Shri Mahendra Kumar Golani Ward- 1(3) Prop. M/s. Kala Mandir Jaipur 116-117, Bapu Bazar, Jaipur (Appellant) (Respondent) 2 ITA No. 461/JP/2011 Shri Jai Kumar Golani vs. DCIT, Circle- 1 Jaipur

ITA No. 493/JP/2011 Assessment year: 2006-07 PAN : ACEPG 9987 G

The ITO vs. Shri Prakash Chand Golani Ward- 1(3) Prop. M/s. Femina Fashion Jaipur 116-117, Bapu Bazar, Jaipur (Appellant) (Respondent)

Assessee by : Shri S.L. Poddar Department by: Shri D.C. Sharma

Date of Hearing: 07-01-2015 Date of Pronouncement: 09 -01-2015

ORDER PER R.P. TOLANI, JM

This is a group of appeals some filed by the revenue and some by

assessees against different orders of the ld. CIT(A)-1, Jaipur dated 01-03-

2011 and 10-03-2011 for AY 2006-07. As the issues are common and the

assessee's belong to same group; this set of appeals is being disposed of by

this common order for the sake of convenience. Respective grounds are as

under:

2.1 Ground raised by the assessee i.e. Shri Jai Kumar Golani:-

''That on the facts and in the circumstances of the case the ld. CIT(A) is wrong, unjust and has erred in law in confirming addition made by the Assessing Officer to the extent of Rs. 15,80,480/- on account of alleged unrecorded and / or excess stock found at the time of survey u/s 133A of the I.T. Act, 1961`' 3 ITA No. 461/JP/2011 Shri Jai Kumar Golani vs. DCIT, Circle- 1 Jaipur

2.2 Ground raised by the Revenue in the case of Shri Jai Kumar Golani :-

''Whether on the facts and in the circumstances of the case and in law:-

(i) the ld. CIT(A) is justified in deleting the addition of Rs. 34,16,581/- made by the AO on account of excess stock found during the survey.

(ii) the ld. CIT(A) is justified in deleting the addition of Rs. 4,29,000/- made by the AO on account of unrecorded payments..

3.1 Ground raised by the assessee i.e. Shri Mahendra Kumar Golani:-

''That on the facts and in the circumstances of the case the ld. CIT(A) is wrong, unjust and has erred in law in confirming addition made by the Assessing Officer to the extent of Rs. 26,67,389/- on account of alleged unrecorded and / or excess stock found at the time of survey u/s 133A of the I.T. Act, 1961`'

3.2 Ground raised by the Revenue in the case of Shri Mahendra Kumar

Golani :-

''Whether on the facts and in the circumstances of the case and in law:-

(i) the ld. CIT(A) is justified in deleting the addition of Rs. 23,62,818/- made by the AO on account of excess stock found during the survey.

4.1 Ground raised by the Revenue in the case of Shri Prakash Chand

Golani :-

4 ITA No. 461/JP/2011 Shri Jai Kumar Golani vs. DCIT, Circle- 1 Jaipur

''Whether on the facts and in the circumstances of the case and in law:-

(i) the ld. CIT(A) is justified in deleting the addition of Rs.37,59,921/- made by the AO on account of excess stock found during the survey.

(ii) the ld. CIT(A) is justified in deleting the addition of Rs. 2,00,000/- made by the AO on account of unrecorded payments..

5.1 Brief facts of the case are that the above three related assessees are

Proprietors of their respective concerns namely.

1. Shri Jai Kumar Golani - Prop. Kala Fashions.

2. Shri Mahendra Kumar Golani - Prop. Kala Mandir

3. Shri Prakash Chand Golani - Prop. Femina Fashion

They deal in ladies suits and dress materials on wholesale and retail basis.

The survey was conducted on their premises on 01-02-2006. During the

course of survey, Shri Jai Kumar Golani was present at the premises of Kala

Fashions and Kala Mandir, physical inventories of stock are claimed to be

prepared in his presence and his statement was recorded for both concerns.

According to survey team following excess stock was found in their

respective premises as per physical stock inventory:

1. Shri Jai Kumar Golani, Prop. Kala Fashions Rs. 49,97,061/-

2. Shri Mahendra Kumar Golani, Prop. Kala Mandir Rs. 50,30,207/-

3. Shri Prakash Chand Golani, Prop. Femina Fashions Rs. 37,80,708/- 5 ITA No. 461/JP/2011

Shri Jai Kumar Golani vs. DCIT, Circle- 1 Jaipur

5.2 Shri Jai Kumar Golani in the survey statement surrendered following

amounts in case of his proprietorship concern M/s. Kala Fashions.

(i) Rs. 49,97,061/- for excess stock.

(ii) Rs. 4,29,000/- for unrecorded payment for purchase of shop in the name of wife and others.

5.3 On behalf of Shri Mahendra Kumar Golani , Prop. M/s. Kala Mandir,

Shri Jai Kumar Golani surrendered following amounts:.

(i) Rs. 50,30,207/- for excess stock.

(ii) Rs. 25,000/- for disallowance of ESI Penalty.

5.4 Likewise in case of Prakash Chand Golani, Prop. M/s. Femina

Fashion, surrendered following amounts:

(i) Rs. 37,80,708/- on account of excess stock.

(ii) Rs. 2,00,000/- as unrecorded payment of shop expenses.

5.5 These assessees filed their respective returns of income in which no

surrendered amount was offered. AO relying on survey statements, assessed

them by making following additions:-

1. Shri Jai Kumar Golani, Prop. Kala Fashions

(i) Addition of Rs. 49,97,061/- on account of excess stock.

(ii) Addition of Rs. 4,29,000/- on account of unrecorded payment for purchase of shop in the name of wife and others.

6 ITA No. 461/JP/2011 Shri Jai Kumar Golani vs. DCIT, Circle- 1 Jaipur

2. Shri Mahendra Kumar Golani, Prop. Kala Mandir

(i) Addition of Rs. 50,30,207/- on account of excess stock.

(ii) Addition of Rs. 25,000/- on account of disallowance of ESI Penalty

3. Shri Prakash Chand Golani. Prop. Femina Fashion.

(i) Addition of Rs. 37,80,708/- on account of excess stock.

(ii) Addition of Rs. 2,00,000/- on account of unrecorded payment of shop expenses.

5.6 Aggrieved, the assessee preferred first appeal before ld. CIT(A) where

it was pleaded that survey team committed various mistakes while valuing

the stock items found during the course of survey. They did not bother to

verify the purchase bills, defective stock, old stock and unsalable stock

items. The valuation thereof was adopted in casual manner without allowing

the assesses or their staff to interfere. Stock inventories were completed in

the wee hours of next date i.e. 2-02-2006 and immediately thereafter survey

statements were recorded without giving any time to reconcile the physical

stock in terms of quantity, value, obsolete, discounted stock etc. which are

essential and common feature in the ladies suit trade. It was pleaded that:

(i) The stock inventories and statements recorded by survey team

suffered from many discrepancies and infirmities, stock values were taken

without tallying it with actual purchase bills. Stock inventories were 7 ITA No. 461/JP/2011 Shri Jai Kumar Golani vs. DCIT, Circle- 1 Jaipur

completed in the wee hours of 02-02-2006 and the statements also were

recorded immediately thereafter without giving the tired and mentally

exhausted assessees any opportunity to verify the copious inventories of

valuation of stock items with their record.

(ii) The survey team wanted the surrender of entire excess stock as

per their inventories as additional income without appreciating that their

lists contained many mistakes which were never allowed to be properly

verified by the assessees at the time of recording their statements. In view of

the pressure build up by this exercise and relentless demand of a surrender,

tired assessees were left in the wee hours with no alternative but to accede

to the surrender amounts as desired by survey team. Resultantly the

valuation of the stock as per survey inventories was a result of pure guess

work and defective procedure adopted by survey team. Inventoriesed items

do not refer to even a single detail of any actual purchase bill. Thus the

valuation as adopted by survey team and AO are based on these clear

contradictions.

(iii) It is well known that in trade of ladies suits, lehangas, laches

and dress material, a sizeable quantity of stock becomes less in value due to

material, designs and patterns becoming out of fashion, defective, mismatch

of colors or combinations, damaged and obsolete items, some of the coming 8 ITA No. 461/JP/2011 Shri Jai Kumar Golani vs. DCIT, Circle- 1 Jaipur

from earlier dead stock. No reduction in valuation in respect of such inferior

stock items whatsoever is given in the physical inventories.

(iv) It was brought to the notice of the ld. CIT(A) that during the

course of survey, not a single loose paper , voucher or any incriminating

material was found to suggest any out of books purchase, sale, excess cash

or other irregularity. The audited books of accounts of the assesse are

otherwise accepted as it is and no defect whatsoever has been pointed

therein at the time of assessment. It is incomprehensible as to how the

assesses will be carrying on such mass scale excess stock trade. Thus the

allegations of excess stock lack from even a whisper of any corroborative

material during the sweeping survey operations.

(v) The AO on one hand, himself has mentioned in the order that

assessee's business consists of varieties of materials and maintenance of day

to day stock register is impossible in this line of trade. On the other hand it

has been claimed that survey team adopted the value of stock items were

tallied with the actual purchase bills of the assesse. These assertions are self-

contradictory as the inventories do not have any column about any

comparative value of the item in purchase bill. A purchase bill based

physical comparison of stock of 3 concerns dealing in hundreds of designs,

varieties, saleable and obsolete items is physically not possible in such a 9 ITA No. 461/JP/2011 Shri Jai Kumar Golani vs. DCIT, Circle- 1 Jaipur

short time. The additions have been sustained by AO only on the basis of

survey inventories and statements which were unreliable on account of

various mistakes, inconsistencies and misstatements which were brought to

the notice of ld. CIT(A).

5.7 Ld. CIT(A) allowed partial relief in the case of Shri Jai Kumar Golani

(JKG for short) by following observations.

''During the hearing of appeal it was submitted that being retail trade it was not possible to maintain day to day stock register. On the basis of g.p. the stock as per books was estimated at Rs.5553900/- and the inventory was valued at Rs.10550961/-. Thus excess stock of Rs.4997061/- was determined. It was submitted that copy of the inventory was not provided but objection was raised before the AO when copy was provided. Inventory of 18 pages is Sr.l to Sr. No.388. The list contained all the stock items lying in the shops at the relevant time and the value of stock was taken at Rs.7861141/-. Another list of Rs.2689550/- was prepared though all the articles had already being taken in the inventory. Cost of articles was taken at estimated sale price. That the dead stock was also taken as part of inventory. A list of items considered more than once was provided. Duplicate items alongwith dead stock comes to Rs.798860/-. At the time of survey books of accounts were not complete and therefore, stock as per books was only an estimation. The AO has accepted the books of accounts and failed to find out any mistake. The previous history shows that stock remains between Rs.50 lacs to Rs. 60 lacs. It was also submitted that mere signing of panchnama and inventory list did not mean that they certified the correctness of the inventory list rather it only certifies that they were witness of the proceedings. Inventory list prepared and submitted by the appellant during the course of assessment proceedings was submitted and requested to be accepted. Alternatively it was 10 ITA No. 461/JP/2011 Shri Jai Kumar Golani vs. DCIT, Circle- 1 Jaipur

submitted that a second list prepared by the survey team which has no basis should be deleted and in the first list the stock must be taken at cost after deleting the items like dead stock. 20% deduction should be given out of the sale price.

As it was alleged that the addition was made by the AO only on the basis of statements recorded during the course of survey and inventories prepared at that time which were not signed by any independent witness and both the inventories were not completed, a second inventory was subsequently prepared which shows the list of stock as on 31/3/06. It was claimed by the AR that the inventory was prepared by him as per books of accounts. The AO was asked to offer his comments on the submission. The AO's remand report was received on 18/1/2011. The AO has stated that no new evidence was brought on record by the appellant which requires any verification and adjudication. The reply furnished by the assessee has been properly dealt within the assessment order. Verification on the basis of new list prepared by the A.R. was not possible from the facts of the case as it was prepared subsequent to the survey proceedings.

The AO's remand report and further submission of the AR on remand report are considered. The inventory prepared at the time of survey and signed by the appellant or his employee available at the time of survey should be accepted as an evidence against the appellant. More so in such cases where the value of stock was taken as stated by the appellant or his employee. However the signature of the appellant or his employee confirms only that the inventory was prepared in their presence. If any mistakes or shortcomings is pointed out by the appellant at a later stage which is supported by some evidence then appropriate correction can be made. The list prepared by the AR cannot be considered as it is nothing but an after thought and there appears no reason for ignoring the inventory prepared at the time of survey. Similarly the inventory prepared by the AR as on 31/3/06 will not be relevant 11 ITA No. 461/JP/2011 Shri Jai Kumar Golani vs. DCIT, Circle- 1 Jaipur

to determine the excess stock on the date of survey. At the same time there is some force in the argument of the AR that the inventory appearing from Page No.l to 18 with Sr.l to 388 was concluded. Subsequent inventory from Page No. 19 to 26 is without any serial no. and value has been taken in round figures. From Page No.25 onwards the number of items as well as purchase price both are in round figure. The description of goods is also not given. The dead stock of Rs.72100/- is also included in the inventory. Items considered more than once comes to Rs.726760/-. Thus the inventory list starting from page No.l to 18 giving description of items from Sr. No.l to 388 alone should be considered. The total of page No.l to 18 comes to Rs.7861141/- whereas as per the books the stock should be Rs.5553900/-. Thus the excess stock comes to Rs.1580480/-. Further deduction of Rs.726760/- is allowed for the items considered more than once. The addition of Rs.4997061/- is therefore reduced to Rs.1580480/-. The AO is therefore directed to reduce the addition of Rs.4997061/- to Rs.1580480/-. The appellant thus gets partial relief.''

5.8 Aggrieved thereon, both the parties are before us on their respective

grievances qua the stock addition in the case of Jai Kumar Golani.

5.9 As regards the second issue raised by the Revenue on account of

unrecorded payment amounting to Rs. 4.29 lacs, the ld. CIT(A) has deleted

the same by following observations.

''In the statement of Sh. Jai Kumar Golani it was admitted that property worth Rs.1021000/- was purchased in the name of close relatives. This was not recorded in the books of accounts and therefore income was offered for taxation. Further Rs.4,29,000/- was also spent in cash for registration of documents to purchase the property. For this addition was made in AY 05-06 which was deleted by CIT(A) holding that the payment was made in the accounting period relevant to AY 12 ITA No. 461/JP/2011 Shri Jai Kumar Golani vs. DCIT, Circle- 1 Jaipur

06-07. The addition of Rs.4,29,000/- was therefore, made in AY 06-07 in the hands of the appellant.

The contention of the AR is that the property under question was acquired jointly by some family members who are all assessed to tax. The AO had no material to draw inference that amount was paid in cash. Even if it is accepted that the payment was made in cash it was very much available with the appellant at the beginning of the year. The AO has not given any explanation in his remand report. The addition made by the AO is not justified.

The contention of the AR is considered. The AO's observation regarding finding of CIT(A) while deciding the appeal for AY 05-06 is not based on the facts. No such finding was given in the appellate order for AY 05-06 that addition of Rs.4,29,000/- was deleted because the payment made pertains to AY 06-07. In fact no addition of Rs.4,29,000/- was made in AY 05-06 or at least no ground of appeal is there on this issue and therefore, question of deleting the addition of Rs.4,29,000/- just not arises. As the addition made by the AO is based on the wrong assumption, the same is hereby deleted. Second ground of appeal is decided in favour of the appellant.''

5.10 Aggrieved thereon, the Revenue is in appeal before us.

5.11 The facts about valuation of stock in the case of Shri Mahendra

Kumar Golani and Prakash Golani are claimed to be on the same lines. Ld.

CIT(A) in the case of Mahendra Kumar Golani gave partial relief in stock

addition by following observations.

''During the hearing of appeal it was submitted that being retail trade it was not possible to maintain day to day stock register. On the basis of estimated g.p. of earlier year the stock as per books was estimated at Rs.8034821/- and the inventory was valued at Rs.13065028/-. Thus excess stock of Rs.5030207/- was determined.

13 ITA No. 461/JP/2011 Shri Jai Kumar Golani vs. DCIT, Circle- 1 Jaipur

It was submitted that copy of the inventory was not provided. When objection was raised before the AO when only copy was provided. Inventory of 5 pages at Sr.l to Sr. No. 138 and inventory of 2 pages from Sr. No.1 to Sr. No.32 were prepared in respect of Kala Mandir. Further third inventory of 2 pages was prepared wherein at page No.1 Sr. No. runs from 1-21 but at page No.2 no serial no. is given. This third inventory is in respect of 2nd floor and the value worked out is Rs.10020390/-. In respect of earlier two inventories no such total was done. The list contained all the stock items lying in the shops at the relevant time and the value of stock was taken. Cost of articles was taken at estimated sale price. That the dead stock was also taken as part of inventory. A list of items considered more than once was provided. Duplicate items alongwith dead stock comes to Rs.358740/-. At the time of survey books of accounts were not complete and therefore, stock as per books was only an estimation. The AO has accepted the books of accounts and failed to find out any mistake. The previous history shows that stock remains between Rs.75 lacs to Rs.85 lacs. It was also submitted that mere signing of panchnama and inventory list did not mean that they certified the correctness of the inventory list rather it only certifies that they were witness of the proceedings. Inventory list prepared and submitted by the appellant during the course of assessment proceedings was submitted and requested to be accepted. Alternatively it was submitted that a third list prepared by the survey team which has no basis should be deleted and in the first and second list the stock must be taken at cost after deleting the items like dead stock. 20% deduction should be given out of the sale price.

As it was alleged that the addition was made by the AO only on the basis of statements recorded during the course of survey and inventories prepared at that time were not signed by any independent witness and both the inventories were not completed. A second inventory was subsequently prepared by the AO which shows the list of stock as on 31/3/06. It was claimed by the AR that the inventory was prepared by him as per books of accounts. The AO was asked to offer his comments on the submission. The AO's remand report was received on 18/1/2011. The AO has stated that no new evidence was brought on record by the appellant which requires any 14 ITA No. 461/JP/2011 Shri Jai Kumar Golani vs. DCIT, Circle- 1 Jaipur

verification and adjudication. The reply furnished by the assessee has been properly dealt with in the assessment order. Verification on the basis of new list prepared by the AR was not possible from the facts of the case as it was prepared subsequent to the survey proceedings. It was further stated by the AO that inventory of stock lying at two different locations were prepared separately and valued. If first inventory is found to be acceptable, then there is no valid reason to reject the authenticity of second inventory titled as annexure KM-3. Lastly it was stated that the list prepared by AR can be considered only when the assessee would have prepared stock register. Also that he has not prepared separate trading a/cs upto the date of survey and thereafter. That no person of income-tax department was present at the time of preparation of the list by the AR.

The AO's remand report and further submission of the AR on remand report are considered. The inventory prepared at the time of survey and signed by the appellant or his employee available at the time of survey should be accepted as an evidence against the appellant. More so in such cases where the value of stock was taken as stated by the appellant or his employee. However the signature of the appellant or his employee confirms only that the inventory was prepared in their presence. In the present case though the proprietor was not present at the time of physical verification, he has put his signature on the statement of his brother Sh. Jai Kumar Golani when almost at the end of the day of survey he came to the shop. If any mistakes or shortcomings is pointed out by the appellant at a later stage which is supported by some evidence then appropriate correction can be made. At the same time the list prepared by the AR cannot be considered as it is nothing but an after thought and there appears no reason for ignoring the inventory prepared at the time of survey. Similarly the inventory prepared by the AR as on 31/3/06 will not be relevant to determine the excess stock on the date of survey. At the same time there is some force in the argument of the AR that the third inventory (annexure KM-3) was concluded, though the other two inventories were not included. In the third inventory at second page no serial nos. are given. Value is taken in round figures. This inventory is in respect of 2nd floor wherein there is a godown of another concern Kala Saree which was not covered u/s 133A. Kala Saree separately assessed to tax wherein closing stock as on 15 ITA No. 461/JP/2011 Shri Jai Kumar Golani vs. DCIT, Circle- 1 Jaipur

31/03/06 has been shown at Rs.28.25 lacs and sales Rs.42.91 lacs. The value taken per item is abnormally higher than the value taken in first two inventories. It is higher by almost 10 times or more in each case. In second inventory lehenga is valued at Rs.2500/- per piece whereas the same has been taken in the third inventory at Rs.15,000/-, Rs.11,500/-, Rs. 21,000/-, Rs. 13,7507- and even at Rs.16800/-. Saree Silk in inventory no. 2 is valued at Rs.400/- each whereas same has been valued at Rs.3,400/- in inventory no.3. In inventory no.l value of saree jorget work has been taken at Rs.700/- and Rs.2,300/- per piece whereas in the inventory list 3 the saree base is taken at Rs.21000/- and Rs.15000/- per piece. With these examples conclusion can be drawn that the value taken by the survey team in inventory no.3 is abnormally high. Contention of the AR that the value was taken as per guess work only therefore can be accepted. It will be reasonable if the value taken is reduced by 20%. Thus the stock value of Rs.10020390/- may be reduced by Rs.2004070/-. Further reduction on account of duplicate items of Rs.358740/- may also be given. In other words the physical stock value of Rs.13065028/- may be reduced by Rs.2362818/-. Thus the physical stock comes to Rs.l0702210/- as against stock of Rs.8034821/-. As a result the excess stock comes to Rs.2667389/-. The AO is therefore, directed to reduce the addition of Rs.5030207/- to Rs.2667389/-. The ground of appeal is decided partly in favour of the appellant. ''

5.12 Aggrieved against the partial relief in stock addition , both the parties

are in appeal before us. It may be pertinent to mention that in order to verify

the above mentioned observations of ld. CIT(A) that " In the third inventory

at second page no serial nos. are given. Value is taken in round figures.

This inventory is in respect of 2nd floor wherein there is a godown of

another concern Kala Saree which was not covered u/s 133A. Kala Saree

separately assessed to tax wherein closing stock as on 31/03/06 has been

shown at Rs.28.25 lacs and sales Rs.42.91 lacs" the appeals were refixed 16 ITA No. 461/JP/2011 Shri Jai Kumar Golani vs. DCIT, Circle- 1 Jaipur

for hearing and department was directed to produce the assessment record

and survey folders. On verification the observations were found to be

correct. Ld. DR was also heard on these isues.

5.13 In the case of Shri Prakash Chand Golani, the ld. CIT(A) granted the

relief to assessee by following observations.

''The AO's remand report dt.18/01/11 and further submission of the AR on remand report are considered. The inventory prepared at the time of survey and signed by the appellant or his employee available at the time of survey should be accepted as an evidence against the appellant. More so in such cases where the value of stock was taken as stated by the appellant or his employee. However the signature of the appellant or his employee confirms only that the inventory was prepared in their presence. If any mistakes or shortcomings is pointed out by the appellant at a later stage which is supported by some evidence then appropriate correction can be made. The list prepared by the AR cannot be considered as it is nothing but an after thought and there appears no reason for ignoring the inventory prepared at the time of survey. Similarly the inventory prepared by the AR as on 31/3/06 will not be relevant to determine the excess stock on the date of survey.

However, the submission of the AR that the excess stock was wrongly worked out less by Rs.172684/- is accepted as this has been worked out by taking correct g.p. rate of last year as well as actual purchases and sales upto the date of survey. The opening stock has been taken correctly by the survey team. Further the total of first list worked out by the survey team comes to Rs.2262955/- whereas the AR's contention of correct figure of Rs.2265955/-is accepted. Thus the stock was shortly taken by Rs.3,000/-. With this the excess stock determined by the AO should be increased by Rs.175684/-

17 ITA No. 461/JP/2011 Shri Jai Kumar Golani vs. DCIT, Circle- 1 Jaipur

. In other words the excess stock as per survey team should come to Rs.3956392/-.

At the same time there is some force in the argument of the AR that the inventory no.2 starting from page no.1-12 giving sr. no. from 1-334 does not appear to be part of the stock. In this inventory no.2 instead of giving specification almost all items are named as cotton salwar suits. On the contrary in the first inventory specifications have been given. As there is only one premises and the appellant mainly deals in ladies salwar suits when one list is completed, there appears no reason for starting second list particularly when the business premises is only on ground floor. Further the possibility of keeping 9000 pieces of salwar suits in one premises is also beyond the storage capacity of the shop. The shop size is 18 X x 20" and installed racks are only 10. Capacity of each rack is only 200 pieces. Thus maximum storage capacity is only 2000 pieces.

Further sales are of Rs. 37 lacs which is in the same range of earlier year. For this much turnover no businessman will keep inventory of Rs. 63 lacs, particularly when appellant deals in fashionable items which gets obsolete within short time.

Thus the second inventory, relied upon by the AO is not considered for determining the excess stock found at the time of survey. Thus the total of first inventory comes to Rs. 2265955/-. As against this the closing stock as per books comes to Rs.2245168/-. The difference i.e. the excess stock actual comes to Rs.20787/-. With this the addition of Rs.3780708/- made by the AO is reduced to Rs.20787/-. Thus the appellant gets partial relief.'' 18 ITA No. 461/JP/2011 Shri Jai Kumar Golani vs. DCIT, Circle- 1 Jaipur

5.14 Apropos second ground of Revenue in respect of addition of Rs. 2.00

lacs against unrecorded shop furnishing expenses same was deleted by ld.

CIT(A) by following observations:

''Contention of A.R. is considered. Addition of Rs. 2 lacs has been made purely on account of statement of Shri Prakash Chand Golani. The AO's observation that head of the family normally incurs expenses is general observation which is not supported by any fact in the present case. On the other hand, expenses of more than what was admitted at the time of survey, has found place in the books of accounts of Smt. Kanchandevi Golani, one of the coowner of the Prop. under question. Under these circumstances, there appears no reason for making any addition in the hands of any other person. Further from the copy of schedule of fixed assets it is evident that expenses were incurred in financial year 2005-06 and has been duly reflected in the return of income of Smt. Kanchandevi Golani. Addition of Rs. 2 lacs made in the hands of Shri Prakashchand Golani is therefore, deleted. As such, the ground of appeal is decided in favour of the appellant.''

5.15 Aggrieved on this relief also, the Revenue is before us.

5.16 Ld. Counsel for the assessee in respect of stock additions based on

survey inventories contends that:

(i) These are admitted facts that survey was conducted on 01-02-

2006 and after preliminary question answers the physical verification of stock started at around 11 am & completed on 01-02-2006 itself. This is evident from the fact that all the pages of stock list from 1 to 6 have been signed by the survey officer and the assessee on 01-02-2006. Pages 1 to 4 of the 19 ITA No. 461/JP/2011 Shri Jai Kumar Golani vs. DCIT, Circle- 1 Jaipur

survey statement also were recorded on 01-02-2006, till then no question was asked for explanation regarding alleged excess stock. The statement of the assessee was completed in the wee hours of 02-02-2006, this can be verified from the last pages and particularly in the case of Prakash Chand Golani from pages 5 to 9. This schedule establishes that the finalization of inventories was dragged to late hours so that assesses are tired and exhausted by the day long survey operations and the statements are recorded in this situation. This also makes it abundantly clear that no time was given to any assessee to reconcile the alleged excess stock from record, work out obsolete, out of fashion, defective, returnable dress material and depreciated stock. Existence of these issues in this business is recognized and an undeniable. Thus the entire survey exercise executed by the department is full of contradictions and lapses which denied any objective response to assesses. A pressure was systematically built on the assessees to be left with no choice but to surrender entire alleged excess stock as their additional income.

(ii) It is nearly impossible to complete physical stock inventories of 3 running business concerns by verification of item to item purchase bill in the time frame taken by survey team. It is well- nigh impossible to segregate hundreds of different varieties of ladies garments so as to compare with actual purchase bills in the day long time. The value of ladies suits and garments depends on type of cloth, design, jari, embroidery, motif work 20 ITA No. 461/JP/2011 Shri Jai Kumar Golani vs. DCIT, Circle- 1 Jaipur

and other value additions thereon. In the absence of any column in the inventories suggesting the comparison with purchase bills date and no. with the inventory items. Consequently the excess stock claim of the survey team and its total adaptation by AO remain uncorroborated and the additions thus are arbitrary and untenable. Such type of stock inventories cannot be a reliable evidence without proper corroboration, attending circumstances and preponderance of probabilities. Ld. CIT(A) though appreciated these issues and contentions but did not provide adequate relief in the case of Jai Golani and Mahendra Golani.

(iii) It is mentioned by AO in the assessment order that it is not possible to maintain details of such stock in regular course of assesses business. Going by these observations entire stock inventories of three different shops cannot be expedited in a short time by verifying the purchase bills of the e different concerns. Thus the claim of AO and survey teams that every item of stock inventory was tallied with the purchase bills becomes untenable. Thus the excess stock additions made by AO solely relying on these inventories without considering the submissions of the assessee is unjustified and against the judicial decisions in this behalf. Thus the manner, method and valuation of the stock items of these shops and consequent additions are unjustified; ad hoc; contradictory and unreliable in nature.

(iv) Leaving aside the reference to purchase bills ld. AO has not mentioned as to how excess stock has been determined. On 21 ITA No. 461/JP/2011 Shri Jai Kumar Golani vs. DCIT, Circle- 1 Jaipur

page 3 & 4 he has laid down the manner of determination of stock in an academic fashion without giving relevant figures such as opening stock as per books, purchases made up to the survey time, sales made up to the survey time. This all shows that the survey team summarily concluded the verification of stock purely on the basis of guess work. Therefore, no addition could have been made on the basis of such defective valuation and the additions so made deserve to be deleted.

(v) The books of account of the assessee were audited u/s 44AB of the Act, auditors or ld. AO has also not pointed out any defect in the maintenance of the books. The maintenance of stock register in the case of such retail business is admitted to be impossible by ld. AO. In these circumstances when no incriminating material whatsoever in respect of purchase or sale or deference in cash is found during the course of survey; an inference cannot be drawn that assessee accumulated unaccounted stock. Ld. CIT(A) has correctly observed in the case of Prakash Chand Golani that ''at the same time there is force in the argument of the A.R. that the inventory appearing from page no.1 to 18 with Sr. No.388 was concluded. Subsequent inventory from page no. 19 to 26 is without any Sr. No. and value has been taken in round figures. From page no. 25 onwards the numbers of items as well as purchase price both are in round figure. The description of goods is also not given. The dead stock of Rs. 72,100/- is also included in the inventory items considered more than once comes to Rs. 7,26,760/-. Thus 22 ITA No. 461/JP/2011 Shri Jai Kumar Golani vs. DCIT, Circle- 1 Jaipur

the inventory list starting from page 1 to 18 giving description of items from no.1 to 388 alone should be considered.'' Thus the ld. CIT(A) has correctly inferred that the survey team did not prepare the inventory from pages 19 to 26 in untenable manner. This has vitiated the entire valuation. As the valuation is unreliable and ld. AO has made this valuation as the sole basis of stock additions, ld. CIT(A) should have deleted the entire stock addition.

(vi) The surrender obtained on the basis of statement which in turn are based on palpably wrong valuation can not be relied as a sole evidence for making the additions. It has been held by various authorities that no addition can be made on the basis of such statement recorded u/s 133A of the Act. The right of the assesse to demonstrate that the surrender being based on wrong facts has been recognized and upheld by the courts; it has been further held in plethora of judgments that such additions cannot be sustained. Reliance is placed on following case laws:

1.Kailash Ben Mohanlal Choksi vs. CIT 14 DTR 257 (Guj.)

2. Contech Transport Service (P) Ltd. Ors vs. ACIT 19 DTR 191 (Mumbai)

3. Chitra Devi vs. ACIT, 77 TTJ (Jodhpur) 640

4.Ajit Chintaman Kave vs. ITO 311 ITR (AT) 66 Pune.

5. CIT vs. Bhaskar Mittal73 Taxman 437 (Cal.)

6. Kailash Been Manharilal Chokshi vs. CIT 14 DTR 257 (Guj.)

7. Pullangode Rubber Produce Co. Ltd. vs. State of Kerala, 91 ITR 18 (SC).

8. Jain Trading Co. vs. ITO 17 SOT 574 (Mum.) 23 ITA No. 461/JP/2011 Shri Jai Kumar Golani vs. DCIT, Circle- 1 Jaipur

(vii) Without prejudice to above submissions, it is alternatively contended by ld. Counsel that after determining the excess stock to Rs. 15,80,480/- the ld. CIT(A) in the case of Jai Kumar Golani has observed that ''further deduction of Rs. 7,26,760/- is allowed for the items considered more than once". However, while concluding the relief this deduction of Rs. 7,26,760/- has not been given. Thus in effect, the addition sustained by the ld.

CIT(A) in the case of Prakash Chand Golani should have been only of Rs. 8,53,720/-.

It is pleaded that facts regarding stock additions in the cases of Mahendra

Kumar & Prakash Chand Golani are written submissions filed in all these

cases are relied on.

5.17 Ld. DR contends that in the survey statement or thereafter assesses

have never claimed that any duress or pressure was exerted on them.

Therefore, no credence can be given to this plea. Apropos valuation of stock,

ld.DR contends that in survey statement assesses have agreed for the

valuation and determination of closing stock and voluntarily admitted to

offer the deference as additional income. No retraction was made before

filing of the return of income. Thus the claim about valuation being

defective or erroneous is an afterthought. Ld. CIT(A) should not have given

the relief in respect of stock valuation which is agitated by revenue in the 24 ITA No. 461/JP/2011 Shri Jai Kumar Golani vs. DCIT, Circle- 1 Jaipur

respective grounds. The orders of the ld. AO are relied on this issue in the

cases of these three assessees.

5.18 Apropos other revenue grounds in the cases of Shri Jai Kumar Golani

and Prakash Chand Golani, order ld. AO is relied on.

5.19 The ld. Counsel for the assessee apropos remaining revenue ground

contends that in the case of Jai Kumar Golani for making addition of Rs.

4,29,000/- ld. AO has observed as under:-

(a) Addition of Rs. 4,29,000/- was made in assessment year 2005-06.

(b) The aforesaid addition of Rs. 4,29,000/- was deleted by the ld. CIT(A) holding that it related to the period relevant to assessment year 2006-07.

(d) The addition of Rs. 4,29,000/- being unaccounted investment for AY 2006-07 has passed the test of appeal.

It is pleaded that these observations made by AO are not correct. Ld. CIT(A)

by correct appreciation of appeal order for assessment year 2005-06, deleted

the addition holding that the facts mentioned by the AO are not borne out

from the appeal order. The addition has been made by misinterpreting the

appeal order for AY 2005-06. Therefore, the ld. CIT(A) was justified in

deleting the addition.

25 ITA No. 461/JP/2011 Shri Jai Kumar Golani vs. DCIT, Circle- 1 Jaipur

5.20 Apropos the remaining revenue ground in the case of Prakash Chand

Golani pertains to addition of Rs. 2 lacs, ld. Counsel contends that ld. AO's

added the amount on a presumption that head of the family normally incurs

expenses. Ld. CIT(A) has rightly held it to as a general observation besides

expenses more than surrendered in survey is found to be recorded in the

books of another family member Smt. Kanchandevi Golani. Further assessee

demonstrated from the copy of schedule of fixed assets of Smt. Kanchandevi

Golani that expenses were incurred in financial year 2005-06 and are duly

reflected in her return. In view of these facts the addition of Rs. 2 lacs has

been rightly deleted.

DECISION

5.21 We have heard the rival contentions and perused the material

available on record. The main contentions raised by these assessees pertain

to the mistakes committed by survey team in the valuation of closing stock

on the issues like - manner of preparation of stock inventory; overvaluation;

not considering the damaged and obsolete stock; not referring to any

purchase bill of the assessee and holding that valuation of physical stock was

based thereon etc. In our considered view the mistakes as considered by and

adjudicated upon by ld. CIT(A) are justified and based on sound reasoning.

Assessees have been able to demonstrate the existence of aberrations in the 26 ITA No. 461/JP/2011 Shri Jai Kumar Golani vs. DCIT, Circle- 1 Jaipur

valuation of stock on various counts. It does not emerge from the available

record that valuation was adopted by survey team by comparing the stock

items with the purchase bills of the assessee. Ld. CIT(A) called for the

remand report from AO which has been considered albeit giving partial

relief. Hon'ble Supreme Court in the case of Pullangode Rubber Produce

(supra) has held that a statement is important piece of evidence but if the

deponent is able to demonstrate that there are factual and calculation

mistakes therein, in that case statement is to be read accordingly.

Respectfully following this judgment of Hon'ble Supreme court we uphold

the order of ld CIT(A) qua the revenue grounds relating to stock valuation,

which are accordingly dismissed.

5.22 Adverting to assessee appeal ld CIT(A) awarded the partial relief in

the case of Shri Jai Kumar Golani mainly observing as under:

i) Two inventories were provided to assessee, one containing 18 pages from Sr.l to Sr. No.388 which included all the stock items lying in the shops at the relevant time amounting to Rs.7861141/-.

Another list of Rs.2689550/- whose items had been already considered in first inventory.

ii) Cost of items is taken on estimated sale price & dead stock is also included in the inventory.

27 ITA No. 461/JP/2011 Shri Jai Kumar Golani vs. DCIT, Circle- 1 Jaipur

iii) A list of items considered more than once was provided, their value along with dead stock amounts to Rs.798860/-. AO has accepted the books of accounts and failed to find out any mistake. The previous history shows that stock remains between Rs.50 lacs to Rs. 60 lacs.

iv) Second inventory prepared by the survey team has no basis and should be deleted and in the first list the stock must be taken at cost after dead stock items for which 20% reduction should be given out of the value.

v) Inventory appearing from Page No.l to 18 with Sr.l to 388 was proper and second inventory from Page No. 19 to 26 is without any serial no. and with round figure values of the item. From Page No.25 onwards the number of items as well as purchase price both are in round figure. The description of goods is also not given.

vi) The inventory included Dead stock of Rs.72100/-. Items considered more than once comes to Rs.726760/-. Thus the inventory list starting from page No.l to 18 giving description of items from Sr. No.l to 388 alone should be considered. The total of page No.l to 18 comes to Rs.7861141/- whereas as per the books the stock should be Rs.5553900/-. Thus the excess stock comes to Rs.1580480/-. Further deduction of Rs.726760/- is allowed for the items considered more than once. The addition of Rs.4997061/- is therefore reduced to Rs.1580480/-. The AO is therefore 28 ITA No. 461/JP/2011 Shri Jai Kumar Golani vs. DCIT, Circle- 1 Jaipur

directed to reduce the addition of Rs.4997061/- to Rs.1580480/-. The appellant thus gets partial relief.''

Ld. CIT(A)'s observation clearly indicate that an amount of Rs. 7,26,760/-

on account of double valuation was to be given, however the reduction

remains to be give. In our considered view this being a mathematical

calculation it should be reduced from Rs. 1580480/-, consequently the final

addition amount come to Rs. 8,53,720/-.

5.23 Thus in our considered view that after this correction the amount of

addition on account of stock in the case of Jai Kumar Golani should come to

Rs. 8,53,720/-. Thus we hold accordingly, consequently this ground of

revenue is dismissed and that of assessee is partly allowed.

5.24 Apropos second revenue ground in the case of Jai Kumar Golani,

AO made the addition under impression that ld CIT(A) deleted the same

holding that the payment was made in the accounting period relevant to AY

06-07. Ld. CIT(A) found no such direction in his order for AY 2005-06.

Besides, AO has not given any explanation in his remand report, there

being no other reason ld. CIT(A) deleted this addition.

5.25 In our considered view, ld. AO made the impugned addition on

wrong assumption about the earlier appeal order which does not contain any 29 ITA No. 461/JP/2011 Shri Jai Kumar Golani vs. DCIT, Circle- 1 Jaipur

specific direction. Consequently ld. CIT(A) rightly deleted the same. Second

ground of revenue appeal is dismissed.

5.26 Adverting to the appeal of Shri Mahendra Kumar Golani, the issue of

stock valuation is same and part amount deleted/ retained by ld. CIT(A) is

agitated by both the parties.Ld. CIT(A) has observed that on the basis of

estimated GP of earlier year, the stock as per books was estimated at

Rs.8034821/- and the survey inventory was valued at Rs.1,30,65,028/-

resulting in excess stock of Rs.50,30,207/-. Three inventories were

prepared by survey team; inventory of 5 pages at Sr.l to Sr. No. 138 and

inventory of 2 pages from Sr. No.1 to Sr. No.32; third inventory of 2 pages

was prepared wherein at page No.1 Sr. No. runs from 1-21 but at page No.2

no serial no. is given.

5.27 Ld. CIT(A) has further observed that the third inventory was in respect

of 2nd floor and the value worked out is Rs.10020390/-. In respect of earlier

two inventories no such total was done. The list contained all the stock items

lying in the shops at the relevant time and the estimated value of stock was

taken. The dead stock was also included at full value in the inventory. A

list of items considered more than once was also provided by the

assessee. Duplicate items along with dead stock comes to Rs.358740/-.

30 ITA No. 461/JP/2011 Shri Jai Kumar Golani vs. DCIT, Circle- 1 Jaipur

Assessees past history revealed that stock remained between Rs.75 lacs to

Rs.85 lacs. It is vehemently pleaded that third list prepared by the survey

team has no basis should be deleted and in the first and second list the stock

must being correct inventories taken at cost after deleting the items like dead

stock@ 20% deduction should be given out of the sale price. AO's remand

report was also received on 18/1/2011, ld. CIT(A) duly considered the

same.

5.28 Ld. Counsel contends that third inventory was in respect of 2nd floor

wherein there is a godown of another concern Kala Saree which was not

covered u/s 133A. Kala Saree is separately assessed to tax wherein closing

stock as on 31/03/06 has been shown at Rs.28.25 lacs and sales Rs.42.91

lacs. The value taken per item is abnormally higher than the value taken in

first two inventories. It is higher by almost 10 times or more in each case.

In second inventory lehenga is valued at Rs.2500/- per piece whereas the

same has been taken in the third inventory at Rs.15,000/-, Rs.11,500/-, Rs.

21,000/-, Rs. 13,7507- and even at Rs.16800/-. Silk Saree in inventory no. 2

whereas same has been valued at Rs.3,400/- in inventory no.3. In inventory

no.l value of saree jorget work has been taken at Rs.700/- and Rs.2,300/- per

piece whereas in the inventory list 3 the saree base is taken at Rs.21,000/-

31 ITA No. 461/JP/2011 Shri Jai Kumar Golani vs. DCIT, Circle- 1 Jaipur

and Rs.15000/- per piece. With these examples ld. CIT(A) drew a conclusion

that the value taken by the survey team in inventory no.3 is abnormally high.

Ld. CIT(A) instead of deleting the third list estimated the stock and gave

20% reduction.

5.29 Ld.CIT(A) gave the reduction on account of duplicate items of

Rs.3,58,740/- consequently stock of Rs.13065028/- was reduced by

Rs.23,62,818/- is equal to Rs.l,07,02.210/- as against book stock of

Rs.80,34,821/-. As a result the excess stock worked out at Rs.26,67,389/-.

Ld. CIT(A) directed to reduce the addition in this behalf from

Rs.50,30,207/- to Rs.26,67,389/-.

5.30 We have heard the rival contentions and perused the materials

available on record. For the same observations and reasonings as given in

the case of Jai Golani, we dismiss the revenue ground in this behalf.

Adverting to the assessee's appeal that the third inventory was prepared

by survey team in respect of 2nd floor which was a godown of another

concern Kala Saree which was not covered u/s 133A. Kala Saree

separately assessed to tax where closing stock as on 31/03/06 has been

returned at Rs.28.25 lacs. Ld. Counsel pleads that the third inventory itself

has no validity, the items belonged to Kala Sarees which was not under 32 ITA No. 461/JP/2011 Shri Jai Kumar Golani vs. DCIT, Circle- 1 Jaipur

survey operations. Assessee is not dealing in sarees, therefore, there is no

justification in including the third inventory as assessee's stock. Ld.

CIT(A) has offered correct adverse observations about third inventory

being not serially numbered and values being given in round figures and

includes the stock of sarees not dealt in by the assessee. Considering these

inconsistencies, the third inventory itself should have been excluded. Thus

despite adverse observations ld. CIT(A) thus erred in aggregating the three

inventories and reducing the value by 20%. In correct terms third

inventory including stock of Kala Sarees should have been excluded and

double addition items + 20% old stock reduction should have been given

on aggregate of two inventories, this will result in deletion of entire

addition, which is prayed to be deleted.

5.31 We are of the considered view that after having given adverse

findings about the third inventory being related to the premises of Kala

Sarees and the items being not dealt in by the assessee; ld. CIT(A) should

have excluded the third inventory. Separate existence of Kala Sarees and

inclusion of its stock in assessee's stock is not disputed by the AO in

remand report and no adverse comments are offered by AO in respect of

third inventory.

33 ITA No. 461/JP/2011 Shri Jai Kumar Golani vs. DCIT, Circle- 1 Jaipur

5.32 Considering all the facts, circumstance and pleading of both the

parties we are of the view that third inventory should be excluded from

the aggregate stock added in the hands of the assessee. It is not disputed

that if third inventory is excluded there will be no resultant addition as

retained by the ld. CIT(A) . Thus we delete the disallowance retained by

ld. CIT(A). In the result revenue ground is dismissed and assessee's

ground is allowed.

5.33 Adverting to revenue's appeal in the case of Prakash Golani for the

reasons as given in foregoings the order of ld CIT(A) giving partial relief

in respect of stock is upheld and revenue appeal is dismissed.

5.34 2nd revenue ground in the case of Prakash Golani agitates addition

of Rs. 2 lacs. Ld. AO's made the addition by a presumptive observation that

head of the family normally incurs expenses which has been rightly held by

Ld. CIT(A) to be not sufficient for making addition. Assessee demonstrated

that it was shown as assets of Smt. Kanchandevi Golani which is duly

reflected in her return. In view of these facts, we hold that the addition of Rs.

2 lacs has been rightly deleted by ld. CIT(A). Thus revenue appeal is

dismissed.

34 ITA No. 461/JP/2011 Shri Jai Kumar Golani vs. DCIT, Circle- 1 Jaipur

6.0 In the result, set of appeals are disposed of as under:

(i) Jai Kumar Golani: Revenue Appeal is dismissed; assessee appeal is partly allowed.

(ii) Mahendra Kumar Golani: Revenue appeal is dismissed; assessee appeal is allowed.

(iii) Prakash Chand Golani: Revenue appeal is dismissed.

The order is pronounced in the open Court on 09-01-2015

Sd/- Sd/-

(T.R. MEENA) (R.P. TOLANI) ACCOUNTANT MEMBER JUDICIAL MEMBER

Jaipur Dated: 9th JAN 2015 *Mishra Copy forwarded to:- 1. Shri Jai Kumar Golani, Jaipur

2. The DCIT, Circle- 1, Jaipur / ITO , Ward- 1(3), Jaipur

3. Shri Mahendra Kumar Golani, Jaipur

4. The DCIT, Circle- 1, Jaipur / ITO, Ward- 1(3), Jaipur

5. The ITO , Ward- 1(3), Jaipur (in the case of Prakash Chand Golani )

6. The ld. CIT(A)

7. The ld. CIT By Order

8..The ld. DR

9.The Guard File (IT No. 461/JP/2011)

AR ITAT, Jaipur