Manoj Kumar Ramniranjan Sharma, Mumbai vs Department Of Income Tax

Asstt. Commissioner of बनाम/ Shri Manoj Kumar Ramniranjan Income Tax -Circle-2, Sharma, Vs. 1st Floor, Quoreshi Mansion, C-514, Tirupati Plaza, Station Road, Balaji Nagar, Gokhale Road, Bhayandar (W), Naupada, Thane. Thane(W),400602 (अपीलाथ /Appellant) .. ( यथ / Respondent)

थायी ले ख ा सं . /जीआइआर सं . /PAN/GIR No. :ANAPS5334G

अपीलाथ ओर से / Appellant by: Shri Vivek Batra

यथ क$ ओर से/ Respondent: Shri K Shivram

सन ु वाई क$ तार(ख / Date of Hearing :5.1.2015 घोषणा क$ तार(ख /Date of Pronouncement : 20.2.2015

आदे श / O R D E R

Per B.R.BASKARAN, Accountant Member:

The appeal filed by the Revenue is directed against the order dated 18.11.2010 passed by Ld CIT(A)-II, Thane and it relates to the assessment year 2007-08.

2. The revenue is aggrieved bys the decision of the ld. CIT(A) in deleting the addition of Rs.23,50,000/- relating to the stock difference.

3. We have heard the parties and perused the record. The facts relating to the above said issue are stated in brief. The assessee is in the business of manufacturing of grey cloth. He get the weaving, ITA No.2616/M/11 2

intermingle, mending and clipping on job work basis from outside sources. He buys yarn and give it to the weavers for making grey unfinished cloth and sale the same. Revenue carried survey operation u/s 133A of the Act at the business premises of the assessee on 25.1.2007. During the course of survey proceedings inventories of stock was taken and stock difference was arrived at Rs.23.50 lakhs. The survey team also found certain discrepancies in the creditors balance. In view of the above, the assessee agreed to offer additional income of Rs.29.90 lakhs consisting of stock difference of Rs.23.50 lakhs and creditors difference of Rs.6.40 lakhs. However, while filing the return of income, the assessee offered only Rs.6.40 lakhs. During the course of assessment proceedings the assessee explained that he had sold all the stock before the end of financial year and hence his closing stock was nil as on 31.3.2007. With regard to the inventory on the date of survey, the assessee submitted that he had sold them to outsider at specific rates, He submitted that the gross profit declared by him during the year under consideration was comparable with the rate of percent with the earlier years and hence the same shows that the goods were sold at a prevailing market rate. He further submitted that the rate adopted by a survey officials was very much higher side and hence it had resulted in stock difference at Rs.23.50 lakhs which consists of difference in variation of gray fabrics as an yarn stock. The assessee also furnished the details of sale of gray cloth to the AO. However, the AO was not convinced with the said explanation of the assessee and accordingly he added an amount of Rs.23.50 lakhs to the total income of the assessee.

4. In the appellate proceedings, the ld. CIT(A) deleted the above said addition by observing as under (paragraphs 11 to 16 of CIT(A)'s order) "11. I have carefully considered the assessment order as well as the above written submissions filed by the appellant. I have also perused the documents and other materials filed along with the ITA No.2616/M/11 3

written submissions. There is merit in the above arguments of the appellant. The survey party had taken the value of the closing stock at Rs.34/- per meter of the dyed grey cloth, Rs. 32/- per meter of the Grey dyeing cloth and Rs. 30/- per meter of the dead stock and yarn at the rate of Rs. 82/- per meter to arrive at the total value of the stock at Rs.44,83,962/-. According to the AR of the appellant, these rates were applied to the available stock only to increase its value to show the excess stocks for declaration of additional income of Rs.23,50,000/-. These rates were applied not on the basis of any documentary evidence but only to arrive at a particular figure to show the excess stocks. The average rates of all the items not only for the year under consideration comes to Rs. 25/- per year but in the previous two assessment years also A.Y. 2004-05 and 2005-06 the average price of the items in question were the same.

12. From the facts mentioned in the assessment order it can be observed that the AO has not mentioned the availability of any documentary evidence on the basis of which the average cost price of the stocks in question have been taken at Rs. 32/- to Rs. 34/- per meter. The AO has simply stated in the assessment order that the above price of the goods was taken during the course of survey as told by the appellant and his representatives. This cannot be the method of valuation of the closing stocks. The survey party should have asked the appellant or his representative to produce the documentary evidence on the basis of which they have been quoting the price of the goods for the purpose of valuation of the goods.

13. The appellant had challenged this method of valuation during the course of assessment proceedings but the AO did not accept these arguments and proceeded to complete the assessment on the basis of the above valuation of stocks. The appellant has contended that the survey party had verified the books of accounts, stock register and physical stock during the course of survey action and no discrepancy was pointed out by the survey party in the physical stocks. The appellant had to accept the valuation of the stock at the time of survey at higher price due to mental pressure.

14. In support of his above contentions, the appellant has further contended that the stock found at the time of survey was completely sold out and the stock as on 31/03/2007 was nil. The appellant has also filed the copies of the bills of sales of these stocks and further confirmation from the parties to whom the stocks were sold during the year under consideration. Perusal of the sale bills shows that the entire stocks which were available with the appellant on the date of survey i.e. 25/01/2007, the entire lot of this stock was sold out from ITA No.2616/M/11 4

26/01/2007 to 31/ 03/ 2007. Copies of these bills have been placed at pages 1 to 57 of the paper book filed by the appellant. Perusal of these bills reveal that the leftover stocks were sold by the appellant from 26.01.2007 at an average price of Rs.24/- per meter. Further, the appellant has also filed the confirmations from all the parties regarding the above sales made along with the sale bills and all these parties are regular income tax assessees. In the absence of any evidence, contrary to the above, it is very difficult to ignore these documentary evidence brought on record by the appellant. These facts were also brought before the AO but were totally disregarded by him.

15. In support of its above contention the AR of the appellant has also placed on record the working of the cost of production of the goods produced by him for the year ending on 31/03/2005, 31/03/2006 and 31/03/2007 (placed at pages 110 to 111 of the paper book). which also shows the average cost price of the goods manufactured for all these three years, was approximately Rs. 24/- per meter. The gross profit rate for the above three years is also approximately the same

16. In view of the facts and circumstances explained above, it is difficult to ignore the above vital facts placed on record by the appellant. On the other hand, the AO has not placed any evidence on record regarding the cost price adopted by him for the purposes of valuation of the stock inventory and assessing it accordingly. The statement of the appellant during the course of survey regarding cost price of the closing stock, without being supported by any documentary evidence, cannot be taken as the basis for valuing the stock at that rate."

5. Aggrieved by the order of ld. CIT(A), the revenue has filed this appeal before the Tribunal.

6. The facts that the assessee has sold all the gray fabrics before the end of financial year was not disputed by the ld.DR. The fact that the gross profit rate disclosed in the year under consideration was comparable with the GP rate declared in the earlier years was not disputed by the ld.DR. However, the stock wasps valued in the financial year during the course of survey as on 25.1.2007. The fact that the quantity of physical ITA No.2616/M/11 5

stock as well as book stock was the same and hence, difference in stock variation has arisen due to adoption of higher rate for the purpose of valuation. The fact that the rate adopted by the revenue was on the higher side was proved by the fact that the assessee has sold material at lower rate subsequently. All these facts show that there is no reason to make addition with regard to the stock difference of gray cloth. Further, we notice that the yarn stock was conserved by the assessee and it was not sold to any outsider. The perusal of the assessment order shows that the survey team has valued the yarn stock at Rs.6,67,436/- and the assessee has valued the same at Rs.6,27,436/- resulting in difference of Rs.40,126/-. In the case of yard fabrics, we notice that it has been sold to outsider and hence, we were able to appreciate the contention of the assessee. Further with regard to the yarn stock, the average value of yarn per kg. adopted by the survey team and the assessee was not properly explained by the assessee. We notice that the lf. CIT(A) has deleted the addition without appreciating this difference and hence we are of the view that the difference in yarn stock i.e. Rs.40,126/- needs to be sustained. Accordingly, we modify the order of ld. CIT(A) and direct the AO to sustain the addition due to creditors difference of Rs.40126/- and deleted the difference.

7. In the result, the appeal filed by the revenue is partly allowed. The above order was pronounced in the open court on 20th Feb, 2015.

th घोषणा खल ु े यायालय म+ ,दनांकः 20 Feb, 2015 को क$ गई ।

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(आय.पी. बंसल/I.P. BANSAL) (बी.आर. बा करन,/ B.R. BASKARAN) या यक सद य / Judicial Member लेखा सद य/Accountant Member

th मंब ु ई Mumbai: 20 Feb,2015.

व. न.स./ SRL , Sr. PS ITA No.2616/M/11 6

आदे श क त ल प अ े षत/Copy of the Order forwarded to : 1. अपीलाथ / The Appellant 2. यथ / The Respondent. 3. आयकर आयु2त(अपील) / The CIT(A)- concerned 4. आयकर आयु2त / CIT concerned 5. 3वभागीय त न5ध, आयकर अपील(य अ5धकरण, मुंबई / DR, ITAT, Mumbai concerned 6. गाड फाईल / Guard file.

आदे शानुसार/ BY ORDER, true copy सहायक पंजीकार (Asstt. Registrar) आयकर अपील(य अ5धकरण, मुंबई /ITAT, Mumbai