Urvashi, LA Citadelle, 99 Queens Road, M.K.Road, Mumbai- 400 020 Vs. The ITO 12(3)(4), Mumbai
August, 03rd 2015
IN THE INCOME TAX APPELLATE TRIBUNAL
MUMBAI BENCHES "F", MUMBAI
Before Ms.Sushma Chowla, JM & Shri N K Billaiya, AM
ITA No.50/Mum/2014 : Asst.Year 2009-2010
LA Citadelle, 99 Queens Road,
Mumbai- 400 020 ....... Appellant
PAN : AAAFU1086C
The ITO 12(3)(4),
Mumbai ....... Respondent
Appellant by : Shri Rahul Hakani
Respondent by : Shri Pawan Kumar B
Date of Hearing : 20.07.2015 Date of Pronouncement: 31.07.2015.
Per Sushma Chowla (JM) :
The present appeal filed by the assessee is against the order of
Commissioner of Income-tax (Appeals), dated 06.11.2013, relating to assessment
year 2009-2010 against order passed u/s 143(3) of the Income-tax Act, 1961.
2. The assessee has raised following grounds of appeal:-
"1. Under the facts and circumstances of the case and in law the
CIT(A)-23 erred in confirming the addition made by the Assessing
Officer of Rs.7,19,345/- as unexplained investment in stock.
2. In any event and under the facts and circumstances of the
case and in law CIT(A)-23 has erred in rejecting the claim of the
Appellant of the average cash discount given @7.33% for the alleged
ground of not producing the cash memos in support of such claim
specially when the Appellant had submitted the entire details of cash
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discount of each and every cash discount vide our letters dated 8th
December, 2012 and 21st August, 2013 to him.
3. In any event under the facts and circumstances of the case
and in law the CIT(A) -23 ought to have allowed the claim of the
appellant for deduction of the average cash discount given to the
customer @7.33% from the tag price especially when the details of
such cash discount in the cash discount in the cash memos were
given to the CIT(A)-23 vide letters dated 8th December, 2012 and
21st August, 2013 personally.
4. In any event and under facts and circumstances of the case
and in law CIT(A)-23 committed an error by rejecting the claim of
the appellant for cash discount by wrongly comparing the system of
determining the gross profit ignoring the issue before him of working
out the value of the closing
5. In any event and under the facts and circumstances of the
case and in law the CIT(A)-23 erred in confirming the alleged
difference in cash balance of Rs.15,378/- without considering the
explanation of the Assessee that the cash balance debited in cash
book has remained to be withdrawn by the partner.
6. Under the facts and circumstances of the case and in law
CIT(A)-23 erred in not deleting the addition of Rs.5,100/- being the
alleged undisclosed sales of goods which would have gone to
increase the cash balance from the difference of cash balance taken
physically and as per books of accounts.
7. In any event and under the facts and circumstances of the
case and in law the CIT(A)-23 erred in confirming the Addition made
by the Assessing Officer both as alleged unrecorded sales of
Rs.5,100/- and the difference between the actual cash found on day
of the survey with total of cash balance arrived at in books of
8. The order appealed from is against the weight of evidence on
record and contrary to justice, equity and good conscience."
3. Though the assessee has raised several grounds of appeal, the issue raised
vide grounds of appeal nos. 1 to 4 is against the addition of Rs.7,19,345/- as
unexplained investment in stock. Ground of appeal nos. 5 to 7 raised by the
assessee are not pressed, hence the same are dismissed as not pressed.
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4. The facts relating to the issue in grounds of appeal nos. 1 to 4 is that the
assessee is dealing in sarees, dress material, borders and silk material of all kinds of
semi wholesale and retail basis. The survey action u/s. 133A of the Act was
conducted on the business premises of the assessee on 19.01.2009. During the
course of survey an inventory of stock found at the premises of the assessee was
taken by the survey authority as per tag price at Rs.1,00,06,975/-. The survey
team allowed gross profit rate of 20% and the value of closing stock worked out to
Rs.80,05,580/-, whereas the stock as per the books of account worked out to
Rs.37,64,080/-. The partner of the assessee firm was asked to reconcile the
difference of Rs.42,41,497/- . During the course of assessment proceedings, the
assessee stated that the opening stock was incorrectly adopted and the same was
taken as on 01.04.2007 and not of 01.04.2008 and further certain purchase bills
and purchase returned were not accounted for. Certain sales were also referred to
in the reconciliation statement. Another contention raised by the assessee was that
certain goods were damaged and, hence, same could not be adopted at tag price
less than 20%. The AO on reconciliation of the different aspect of the stock
inventory and also reconciliation of the bills/invoices reworked the stock position as
on the date of survey by adopting the gross profit at 25%. Consequently, the value
of stock as per the books as on the date of survey was Rs.67,85,886/- as against
the value of stock found as per tag price at Rs.1,00,06,975/-, less 25%, the value of
the stock works out to Rs.75,05,231/- The AO noted that there was difference of
Rs.7,19,345/- in the stock found during the course of survey from that recorded in
the books of account and the same was added as unexplained income of the
assessee invested in stock.
5. Before the CIT(A) the main contention of the assessee was that even the
survey team was informed that the assessee was giving cash discount to its
customers on the purchases and the gross profit works out to 33 1/3 % on the
selling price, however, the AO had only considered the gross profit ratio @25%. In
the absence of any other details and also where the sale price was net of cash
discount given to the customers, addition made by the AO was upheld by the
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6. Aggrieved, the assessee is in appeal against the order of the CIT(A). The
learned AR pointed out that no rebate of cash discount was given to the assessee
though during the survey proceedings and even before the assessment and
appellate proceedings, the case of the assessee was that it was normally offering
cash discount to its customers and its gross profit rate was not 25%. Our attention
was drawn to the statement of the partners recorded during the course of survey,
which was placed at pages 91 to 94 of the paper book. Further the learned AR
drew out attention to the specimen copies of the cash memo of the sarees/dress
material in which discount was given to the parties.
7. The learned DR placed reliance on the orders of the authorities below.
8. We have heard the parties and perused the record. The issue arising in the
present appeal is the valuation of stock found during the course of survey and
whether the same is reconcilable to the books of account. Admittedly, during the
course of survey, stock was found from the possession of the assessee and certain
explanations with regard to certain purchases/sales were filed and the same were
reconciled before the AO. The AO accepted the explanation of the assessee
however, applied the gross profit rate of 25% to the tag price of the material found
during the course of survey in order to work out the stock in hand as on the date of
survey, which in turn differed from the books of account. First of all, the AO had
applied gross profit rate of 25%, irrespective of the nature of goods found i.e. no
consideration for obsolete material was allowed to the assessee. Another
contention of the assessee was that out of the gross profit, it was further passing on
cash discount to its customers, which was also part and parcel of the gross profit
rate and credit for the same should be allowed in the hands of the assessee. We
find merit in the plea of the assessee in this regard and consequently, we hold that
there is no merit in the addition made by the AO on this account on hypothetical
basis. In case the credit is allowed to the assessee on account of the cash discount
it is passing to its customers, which in turn is to be reduced from the sale price of
the goods and also taking into account the obsolete items available with the
assessee, which have no market value as such, we find no merit in the addition of
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Rs.7,19,345/- made in the hands of the assessee. Accordingly, we direct AO to
delete the same and grounds of appeal nos. 1 to 4 are allowed.
9. In the result, the appeal is partly allowed.
Order pronounced on this 31st day of July, 2015.
(N K Billaiya) (Sushma Chowla)
ACCOUNTANT MEMBER JUDICIAL MEMBER
Mumbai; Dated : 31st July, 2015.
Copy of the Order forwarded to :
1. The Appellant
2. The Respondent.
3. The CIT, Mumbai.
4. CIT(A)-concerned, Mumbai
5. DR, ITAT, Mumbai
6. Guard file.
Income Tax Appellate Tribunal,