Commissioner Of Income Tax-Xii v. M/S. Garg Cheap Cut Piece House

$~18 *IN THE HIGH COURT OF DELHI AT NEW DELHI +ITA 297/2014 Decided on : 05.02.2015 COMMISSIONER OF INCOME TAX-XII ..... Appellant Through : Sh. Sanjay Kumar, Jr. Standing Counselwith Sh. Basabraj Chakraborty, Advocate. versus M/S. GARG CHEAP CUT PIECE HOUSE ..... Respondent Through : Sh. Piyush Kaushik, Advocate. CORAM:HON'BLE MR. JUSTICE S. RAVINDRA BHATHON'BLE MR. JUSTICE R.K. GAUBA MR. JUSTICE S. RAVINDRA BHAT (OPEN COURT) % 1.The Revenue is aggrieved by the Income Tax Appellate Tribunal’s(ITAT) order allowing the assessee’s appeal for AY 2006-07. It contendsthat the decision of the ITAT, that Section 263 of the Income Tax Act, 1961(hereafterreferredtoas“theAct”)waswrongly invokedinthecircumstances of the case, is erroneous. 2.The assessee firm, at the relevant time, carried on the business oftextiles and garments sale. The Revenue surveyed its premises on15.12.2006 under Section 133A of the Act. Discrepancies to the tune of`1,00,05,388/- in its accounts were found. Of that, `89,91,576/- was in theform of excess stocks and the balance constituted excess cash. The assessee surrendered this amount and incorporated them in the books of accounts.The final books produced during the course of hearing for the year ending31.03.2006, disclosed that all these amounts were duly reflected. Theassessee had filed a return claiming to be taxed for the sum of `42,44,290/-.Scrutiny assessment was completed and the Assessing Officer (AO) framedthe order of `44,01,300/-. The CIT called for the record and was of theopinion that since the surrendered amount had not been disclosed over andabove normal income and the surrendered stock was not accounted forproperly, in addition to other existing discrepancies, the matter required re-examination under Section 263 of the Act. Accordingly, a notice was issuedunder that provision, which was resisted by the assessee. The CIT proceededto finalize the assessment and added considerable amounts, and framed theassessment at a higher amount of `87,83,468/-. 3.The CIT was considerably influenced by the fact that the assessee hadsold its stocks between the period 24.03.2006 and 30.03.2006 at vastlydiscounted rates. The assessee had urged that stock clearance sale, wherebydiscount upto 60% was offered, was resorted to on account of the ongoingsealing drive conducted by the municipal authorities. The CIT also took intoconsideration the fact that stock which was initially valued at `17 lakhs wassold at `1,35,400/-, which was dubious. He, therefore, applied a 20% G.P.rate on the assessee’s normal sales which worked out to `1,07,19,727/- aftergiving some allowance for valuation of defective sales and the actualamount claimed, i.e. `1,37,400/-. This resulted in substantial additions. 4.The ITAT, in its conclusions, found in favour of the assessee and heldthat the exercise of power under Section 263 of the Act in the facts of thepresent case was unwarranted. The ITAT’s conclusions are extracted below: 4.The ITAT, in its conclusions, found in favour of the assessee and heldthat the exercise of power under Section 263 of the Act in the facts of thepresent case was unwarranted. The ITAT’s conclusions are extracted below: “6. We have heard rival contentions and perused the materialavailable on record. From the documents filed by the assessee, itclearly emerges that assessee incorporated the entries ofsurrender in its books of accounts, prepared pre survey, postsurvey and final trading accounts and produced it beforeassessing officer during the course of assessment proceedings.Assessing officer asked for the justification of reduced income.Assessee attributed the same to discounted sales offered by theassessee after the survey, in the last one and half months of theaccounting year. Assessing officer cross verified the factum ofholding of the discounted sale which is evidenced by thenewspaper cutting and the sale bill books all this is part ofassessment record. Thus, the issues about incorporation ofdiscrepancies during the course of survey, the books wereexamined. The loss on account of discounted sales was crossverified. Thus the record shows that the assessing officer wasconscious of all these facts and called for various information.His satisfaction about assessee's explanation is manifest from thefact that he did not make any addition in this behalf. Theassessment order is passed with the approval of JCIT, which isaccorded after verification of assessment record. Hon'ble DelhiCourt in the case of Sunbeam Auto Ltd (supra) has clearly heldthat if the application of mind by assessing officer emerges fromthe assessment record, merely because while allowing the claimsome specific wording is not used in assessment order, it will notbe an occasion for the Commissioner to hold the assessmentorder as erroneous and prejudicial to the interests of revenue.Respectfully following the Hon'ble Delhi Court's decision in thecase of Sunbeam Auto Ltd (supra) we are of the view that theassessing officer's order does not suffer from any lack of inquiryof relevant issues and non application of mind. We find noinfirmity in assessment order in terms of being erroneous orprejudicial to the interests of revenue. 6.1. In view thereof, we quash the order of Commissioner passedu/s 263 of the Act.” 7.In the result, assessee's appeal is allowed.” 5.Learned counsel urged that the ITAT fell into error of law in holdingthat the premise upon which jurisdiction could be exercised under Section263 did not exist. It was argued that the AO’s order plainly accepted theassessee’s assertions of the need to sell stocks at vastly depressed rates, eventhough such stocks had been purchased previously for considerably higheramounts. It was argued that the reasoning of the AO was unsupportable, andin addition, there was prejudice to the Revenue, which could be construed aserroneous within the expression of Section 263 of the Act. Learned counselfor the assessee urged that the AO had considered, in detail, the explanationswith respect to the clearance sales as well as depressed consideration atwhich the assessee was forced to sell the stocks. In addition, he relied uponthe authoritiy of this Court ruling in CIT v. Sunbeam Auto Ltd. 332 ITR 167(Del). 6.In the present case, the facts which emerge from the previousdiscussion are that the assessee’s premises were subjected to survey on15.02.2006. The discrepancies noticed between its books of accounts, thestocks and the excess cash were surrendered by it. The Revenue does notdispute that these were also reflected in the books of accounts presentedduring the course of assessment. The two circumstances which considerablyswayed and ultimately went into the decision of the CIT were that ofdepressed sales for the period 24.03.2006 and 30.03.2006, for stock valuedat `17 lakhs, which was ultimately sold for `1.37 lakhs. The assessee’s 6.In the present case, the facts which emerge from the previousdiscussion are that the assessee’s premises were subjected to survey on15.02.2006. The discrepancies noticed between its books of accounts, thestocks and the excess cash were surrendered by it. The Revenue does notdispute that these were also reflected in the books of accounts presentedduring the course of assessment. The two circumstances which considerablyswayed and ultimately went into the decision of the CIT were that ofdepressed sales for the period 24.03.2006 and 30.03.2006, for stock valuedat `17 lakhs, which was ultimately sold for `1.37 lakhs. The assessee’s explanation was that the threat of ongoing sealing drive drove it to sell thestock at throwaway prices. The CIT has, in his order, cited an instance ofgoods worth `1900/- being sold for `200/-. Whilst a consistent behaviour, ofdisclosing a pattern, might justify a conclusion which warrants rejection ofthe books of accounts, the explanation of the assessee that but for such sales,the stocks would have been inaccessible for an inordinately long period oftime, thus considerably risking its business, as against which it chose toliquidate its stocks, cannot be characterized as unreasonable. Therefore, toseize upon this or the circumstance that a 60% discount was offered ipsofacto was insufficient to take a different view. The various authorities of theSupreme Courtin Malabar Industrial Co. Ltd. v. CIT 243 ITR 83 hashighlighted that the power under Section 263 cannot be invoked to correct amere error of an AO, based upon an incorrect assumption of fact. There hasto be something more to hold that the determination is both erroneous andprejudicial to the interests of the Revenue. Sunbeam (supra) cited by theassessee also notices the same aspect. Considering the totality of thecircumstances, no substantial question of law arises. The ITAT merelyapplied the prevailing law on the subject. The appeal is consequentlydismissed. S. RAVINDRA BHAT(JUDGE) FEBRUARY 05, 2015 R.K. GAUBA(JUDGE)