IN THE INCOME TAX APPELLATE TRIBUNAL
DELHI BENCHES : H : NEW DELHI
BEFORE SHRI R.S. SYAL, AM AND SHRI I.C. SUDHIR, JM
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
ORDER
PER R.S. SYAL, AM:
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
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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
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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
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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
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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
allowed.
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
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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
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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
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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
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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
addition.
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.
dk
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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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