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ACIT,Circle 25(1), New Delhi. Vs. Trend Setters, A-23 & 24, Mangolpuri Industrial Area,Phase II, New Delhi.
February, 27th 2015
              DELHI BENCHES : H : NEW DELHI


                         ITA No.5526/Del/2012
                        Assessment Year : 2004-05

ACIT,                               Vs. Trend Setters,
Circle 25(1),                           A-23 & 24,
New Delhi.                              Mangolpuri Industrial Area,
                                        Phase II,
                                        New Delhi.
                                        PAN: AAAFT1462P

     (Appellant)                            (Respondent)

                Assessee By     :    Shri Satish Aggarwal, CA
                Department By   :    Shri J.P. Chandrakar, Sr. DR

           Date of Hearing              :   24.02.2015
           Date of Pronouncement        :     .02.2015

       This appeal by the Revenue is directed against the order passed by

the CIT(A) on 30.8.2012 in relation to the assessment year 2004-05.

2.      The first ground is against the deletion of addition of

Rs.31,85,652/- on account of unexplained investment in stock. Briefly
                                                         ITA No.5526/Del/2012

stated, the facts of this ground are that a survey was conducted u/s 133A

on 5.12.2003 at the business premises of the assessee. A trading account

was prepared on the date of survey which divulged the figure of stock at

Rs.84,54,300/-.   Physical verification was carried out of the stock

available on that date with the help of the assessee's employees. As per

such verification, the stock of the assessee came to Rs.1,16,39,952/-.

This disclosed excess stock to the tune of Rs.31,85,652/-. Statement of

Shri S.K. Vasudevaji, Chief General Manager of the assessee-firm was

recorded at the time of survey, in which he was asked to explain the

difference in stock amounting to Rs.31.85 lac. He had no explanation to

offer in respect of the discrepancy and, accordingly, agreed for taxation

of the amount of excess stock to the tune of Rs.31.85 lac. A partner of

the assessee-firm, namely, Shri Sudhir Sekhri, who was out of Delhi at

the time of survey, attended the office of the AO on 12.12.2003. After

going through the statement of Shri Vasudevaji and other records, he

approved the contents of the statement and agreed for the surrender of

Rs.31.85 lac. However, at the time of filing the return, the assessee did

not include the surrendered amount in its total income. On being called
                                                          ITA No.5526/Del/2012

upon to explain as to why the amount surrendered at the time of survey

was not offered for taxation, the assessee came out with an explanation

that there was no excess stock and the difference in the figures of stock

was on account of rate difference in the value of stock as on the date of

survey.   However, no details/evidence was furnished to show such

alleged rate difference. The AO recorded in the assessment order that

the assessee had at no stage disputed the so called rate difference in

value. Unconvinced with the assessee's submissions, the AO made

addition of Rs.31.85 lac, which came to be deleted by the ld. CIT(A) on

the premise that there was no discrepancy in the number of pieces and

the difference was only in the valuation as per the survey party and the

assessee. The Revenue is in appeal against the deletion of addition.

3.   After considering the rival submissions and perusing the relevant

material on record, it is observed that the income-tax authorities made

out inventory of stock at the time of survey, with the help of the

assessee's staff, giving specific description of the item, quantity, rate

and value. A copy of such detailed inventory prepared on 5.12.2003 is

                                                           ITA No.5526/Del/2012

available on pages 26-30 of the paper book. However, it is only later on

during the course of assessment proceedings that the assessee came out

with a statement showing difference in the rates, a copy of which is

available on pages 31 onwards of the paper book. When we consider the

contents of the items in the stock statement prepared at the time of

survey, it can be seen that these are in the nature of Dress material,

Men's shirt, Ladies' top, Girls' pant, Blouse, Capri with blouse, etc. It is

obvious that the prices of such items vary depending upon its quality,

etc. A piece of shirt may be available for Rs.100/- and also for a couple

of thousands of rupees. There cannot be any standard yardstick to value

such items on a uniform basis.       It can be seen from the inventory

statement drawn by the income-tax authorities on the date of survey that

there are several items with the description `Ladies' dress' with different

quantities and different rates. Similar is the position with Men's shirt,

Ladies' top, etc., etc. Now, the assessee is contending that the value

recorded in the statement prepared on 5.12.2003 by the authorities with

the help of the assessee's employees is wrong in terms of rates and the

statement made by it with lower rates should be accepted. We fail to
                                                          ITA No.5526/Del/2012

appreciate the contention for the obvious reason that the inventory was

drawn by the income-tax authorities on the date of survey with the help

of the assessee's employees on 5.12.2003. The same was examined and

verified by Shri S.K. Vasudevaji, the Chief General Manager of the

assessee-firm who accepted the correctness of the statement so drawn

and offered to surrender the excess stock to the tune of Rs.31.85 lac on

the basis of such statement. Not only that, Shri Sudhir Sekhri, a partner

in the assessee-firm, attended the office of the AO after a week's time

on 12.12.2003. He also did not dispute the valuation of stock recorded

in the statement and approved the contents of the statement made by

Shri S.K. Vasudevaji. It is beyond our comprehension as to how the

valuation of inventory which was made on 5.12.2003 with the help of

employees of the assessee company, as approved firstly by its Chief

General Manager on the date of survey and then by a partner after a

week's time, can be branded as wrong at a later date. It is more so

because there is no corroboration of the rates given by the assessee in its

later statement showing lower rates. There is no basis for checking the

rates given by the assessee in its so-called inventory depicting difference
                                                          ITA No.5526/Del/2012

in the rates of items. When the stock statement prepared by the Income-

tax authorities at the time of survey is pitted against a later one-sided

statement with lower rates made by the assessee, we prefer to go with

the former. The reason is obvious that it was drawn on the basis of actual

verification done and as per the rates given by the employees of the

assessee and as affirmed by the Chief General Manager and then the

partner of the assessee firm. As such, we refuse to accept the veracity of

the statement tendered during the course of assessment proceedings

giving lower rates and go with the statement prepared at the time of

survey. The impugned order is vacated on this issue and the addition

made by the AO to the tune of Rs.31.85 lac is restored. This ground is


4.   The second ground is against the deletion of addition of

Rs.49,76,428/- on account of suppressed gross profit. During the course

of assessment proceedings, the assessee was called upon to give

comparative GP rates for the immediately preceding two years. Vide its

letter dated 28.12.2006, the assessee submitted that its gross profit rate

                                                          ITA No.5526/Del/2012

declined from 27.84% for the immediately preceding year to 11.70% for

the year under consideration. A decline in GP rate was stated to be on

account of 14% reduction in average per unit sales realization.

However, the assessee did not furnish any working of the per unit sales

realization and no evidence was made available to support its contention.

The AO observed that the assessee did not give any information about

the type of goods manufactured during the preceding year and the

current year; number of various goods manufactured during the

preceding year and the current year; cost price of each type of goods

manufactured during the year and the earlier year; and sale price of each

of the goods exported during the immediately preceding year and year in

question. The assessee tried to justify reduction in the gross profit rate

by giving the reasons which have been reproduced on page 5 of the

assessment order. The AO discussed point-wise contentions raised by

the assessee. In the ultimate analysis, it was found that the assessee had

not maintained any quantitative details of raw material and finished

goods as was apparent from the audit report and the details furnished

during the course of assessment proceedings did not give the details of
                                                             ITA No.5526/Del/2012

accessories/other   raw    materials;    various   types      of     garments

manufactured; details of semi-finished and finished goods and wastage,

etc. He, therefore, refused to give any credence to the quantitative

statement given by the assessee. The books of account were rejected u/s

145(3). Considering the fact that in the preceding year, the gross profit

rate was 27.84% as against shown at 11.3% for the year in question, the

AO applied GP rate of 20%, which resulted into an addition of Rs.49.76

lac. The ld. CIT(A) concurred with the submissions advanced on behalf

of the assessee that the books were properly maintained and were not

liable to rejection. Accordingly, he deleted the addition.

5.   After considering the rival submissions and perusing the relevant

record, it is observed that the AO categorically asked the assessee to

give details about the break-up of closing stock, which the assessee

failed to adduce. Once there is no authentication of the value of stock as

shown by the assessee, how such valuation can be accepted, more so,

when the gross profit rate has sharply declined. No accounts can be said

to have been properly maintained unless the figures of opening and

                                                           ITA No.5526/Del/2012

closing stock are subject to verification. As the assessee miserably

failed to corroborate the value given for closing stock and, further, there

was absence of details of accessories/raw materials, semi-finished and

finished goods, wastage, etc., we overturn the impugned order upholding

the proper maintenance of books of account. Accordingly, the action of

the AO in rejecting the books of account is upheld.

6.      Having held that the books of accounts were not properly

maintained, the next question is the estimation of income. Unless the

facts and circumstances are shown to have undergone change, ordinarily,

the gross profit of the immediately preceding year constitutes a good

guide for adoption and implementation. When we advert to the facts of

the instant case, we find that the AO was more than reasonable in

applying GP rate of 20% as against the immediately preceding year's GP

rate of 27.84%. The impugned order is vacated and the addition so

deleted in the first appeal is restored. This ground is allowed.

7.   The last ground is against the deletion of disallowance of Rs.4 lac

out of foreign travelling expenses. The facts apropos this ground are

                                                         ITA No.5526/Del/2012

that the assessee claimed foreign traveling expenses of Rs.11,55,527/-.

The assessee furnished details of foreign travel expenses. In the absence

of supporting bills/vouchers, the AO made an ad hoc disallowance of

Rs.4 lac out of such foreign travel expenses. The ld. CIT(A) deleted this


8.     Having heard both the sides and perused the relevant material on

record, it is seen that the foreign travel expenses were incurred by the

assessee on its employees and no foreign travel was undertaken by the

partners. In such circumstances, there can be no reason for making any

ad hoc disallowance. We, therefore, approve the impugned order in

deleting this addition. This ground is not allowed.

9.     In the result, the appeal is partly allowed.

       The order pronounced in the open court on 26.02.2015.

            Sd/-                                        Sd/-

        [I.C. SUDHIR]                              [R.S. SYAL]
     JUDICIAL MEMBER                           ACCOUNTANT MEMBER
Dated, 26th February, 2015.
                                 ITA No.5526/Del/2012

Copy forwarded to:
  1.   Appellant
  2.   Respondent
  3.   CIT
  4.   CIT (A)
  5.   DR, ITAT

                          AR, ITAT, NEW DELHI.

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