D.b. Income Tax Appeal v. Shri Babulal Gangawal

IN THE HIGH COURT OF JUDICATURE FOR RAJASTHANAT JAIPUR BENCH, JAIPUR::: JUDGMENT D.B. Income Tax Appeal No.599/2011Commissioner of Income Tax, Jaipur-II, JaipurVs.Shri Babulal Gangawal, DATE OF JUDGMENT: 5th July 2013. PRESENT HON’BLE MR. JUSTICE DINESH MAHESHWARI’HONBLE MR. JUSTICE NARENDRA KUMAR JAIN-II Mr.R.B.Mathur ]Mr.Akhil Simlote ] for the appellant BY THE COURT:(Per Dinesh Maheshwari,J.) By way of this appeal under Section 260-A of theIncome Tax Act, 1961 [‘the Act’], the revenue seeks toquestion the order dated 29.10.2010 passed by the IncomeTax Appellate Tribunal, Jaipur Bench, Jaipur [‘the ITAT’] in ITANo.184/JP/2010 relating to assessment year 2006-07 wherebythe ITAT has allowed the appeal filed by the assessee in part. The appellant has suggested that the followingsubstantial questions of law do arise for consideration in thiscase:- “i) Whether in the facts and circumstances of the case, theITAT was justified in deleting the additions made on thebasis of excess stock found during survey u/s. 133A andthe assessee voluntarily surrendered the same fortaxation.ITAT was justified in deleting the additions made on thebasis of excess stock found during survey u/s. 133A andthe assessee voluntarily surrendered the same fortaxation. ii) Whether in the facts and in circumstances of the case,the ITAT was justified in deleting addition ofRs.81,14,716/- made on account of excess stock foundduring survey on assumptions only without there being anythe ITAT was justified in deleting addition ofRs.81,14,716/- made on account of excess stock foundduring survey on assumptions only without there being any corroborative evidence. The assessee voluntarilysurrendered the excess stock found during survey u/s133A of the I.T.Act. Inventory of stock was prepared inpresence of the son of the assessee which was acceptedby assessee himself also. No objection was made to thestock taking or preparation of inventory at that time. Thesurrender made during survey was unconditional.Therefore, the decision of allowing relief to the assessee isperverse on facts.” After having heard the learned counsel for the appellantand having examined the detailed and considered orderpassed by the ITAT on 29.10.2010, we are satisfied that thematter essentially relates to the questions of fact; and that theITAT has adjudicated on the issues involved in a proper andjustified manner. Hence, this appeal does not involve anysubstantial question of law and does not merit admission. Briefly put, the relevant background aspects of thematter are that the assessee, who is engaged in trading ofdifferent varieties of suitings and shirtings in his proprietorshipconcern M/s. Babu Lal Suresh Kumar, had filed the return ofincome on 31.10.2006 declaring total income ofRs.1,84,84,740/-. A survey was, however, conducted underSection 133A of the Act at the business premises of theassessee on 13.07.2005. The stock found during the courseof survey was inventorised at the different business premisesin the presence of son of assessee and other employees. Ithad been the assertion of the department that the totalphysical stock of cloth found at the premises was valued atRs.4,14,14,815/- whereas the assessee worked out the bookstock as on the date of survey at Rs.1,15,51,248/-. Thus, anexcess stock worth Rs.2,98,63,567/- was allegedly found atthe premises. A post dated cheque in the sum of Rs.1,00,00,000/- against the advance tax liability on theexcess stock found was also given by the assessee. However,while filing his return of income, the assessee offered the valueof excess stock only at Rs.1,58,55,092/-, which was short by asum of Rs.1,40,08,475/- from the alleged value of excessstock found at the survey i.e., Rs.2,98,63,567/-. As regardsthis difference, the assessee stated that there had beenseveral discrepancies like arithmetical errors, duplication,wrong measurement, rate differences etc. in the inventoryprepared by the department. The assessee quantified thediscrepancies in his explanation as under:- The Assessing Officer [‘the AO’] accepted theassessee’s explanation in respect of the component ofarithmetical errors involving a sum of Rs.13,91,429/- and didnot make addition of this amount. However, the AO rejectedother suggestions of the assessee and finally made theaddition of a sum of Rs.1,26,17,046/- against excess stock.After making certain other additions, the AO completed theassessment in the impugned order dated 30.12.2008. In the appeal preferred by the assessee, theCommissioner of Income Tax (Appeals)-III, Jaipur [‘the CIT(A)’], in his order dated 22.12.2009, accepted the assessee’s explanation as to the stock wrongly valued on MRP involvingan amount of Rs.16,25,460/- and granted relief to that extentto the assessee but confirmed the rest of the additions madeby the AO. In further appeal preferred by the assessee, the ITATaccepted the contentions of the assessee with regards to otheradditions that were made by the AO and confirmed by the CIT(A) except those relating to ‘OCM-SD’. In the first place, taking up the matter of duplication, theITAT referred to the entire material on record and accepted thecontention of the assessee that several of the items of suitingswere possibly noted by the survey party twice. The ITAT foundthe assessee’s explanation justified and deleted the addition ofRs.16,20,840/- on account of duplication. Taking up the question of wrong measurement, the ITATreferred to the factual aspects relating to suitings and suitlengths and observed, inter alia, as under:- “17. After considering the submissions and perusing thematerial on record alongwith the orders of the authoritiesbelow, we find weight in the contention of ld. A/R. Theexplanations along with details of differences inmeasurements of the clothes have been given. Theexplanation was filed before AO as well as before ld. CIT(A). However, they have not accepted the explanationby observing that the assessee had purchased the clothin thans. In our considered view, the observation of theAO seems not corret as assessee deals in suiting andshirting. Suiting comes in specific suit length which is of3 meters. Pant piece is normally of 1.25 meters andcoat is of 1.75 meters length. The contention of theassessee also seems correct for the reason that if thecontention of the AO is accepted then question will arisehow in a THAN while selling in retail exact meter canremain in large than and that too in round figure ofmeters. An example has also been cited by ld. Counselof the assessee at page 16 of inventory sheet at sl. no.348 mentions 185 pieces which having the balance of 6meters. In this case as per AO 185 thans werepurchased which were of 15 meters length each. Whileselling in retail from these thans to different customersover a period, how in all the 185 thans the balance ineach than could remain 6 meters. The example cited byld. A/R is seems to be correct and it is quite possible thatwhile making measurement of the cloths the survey party has wrongly noted the length of the pieces found at thepremises of the assessee. Now assessee hasreconciled its entire stock and has taken correctmeasurement. Once correct measurement has beentaken, in our considered view this should be accepted.” has wrongly noted the length of the pieces found at thepremises of the assessee. Now assessee hasreconciled its entire stock and has taken correctmeasurement. Once correct measurement has beentaken, in our considered view this should be accepted.” The ITAT also took note of the admission made duringthe course of arguments on behalf of the assessee that asregards the sum of Rs.48,20,159/-, towards wrongmeasurement, there was a calculation mistake on his(assessee’s) part too, to the extent of about Rs.2,61,500/-; andultimately deleted the addition to the extent of Rs.45,58,689/-. As regards item Nos.5 & 6 i.e., incapacity of godown andexcess quantity of cloth, the ITAT found such additionsunjustified and, with reference to its finding on re-conciliationof measurements adopted by the assessee, deleted theseadditions too. As regards the stock concerning the item of ‘OCM-SD’,the ITAT found no difference in the measurement and ratesand, while rejecting the suggestions on the part of assessee,did not interfere with this addition. As regards rate difference, the ITAT found that theconsistent method had been to value the stock on the basis ofmarket price or the cost price whichever be the lower; and thecost price being lower, the stock should have been valued onthat basis. The ITAT deleted this addition too while observingas under:- “28. The department authorities have taken therates on the basis of MRP whereas the revisedreconciliation filed by the assessee is on account of costprice. The ld. CIT(A) has accepted the contention of theassessee in part. He has deleted an amount ofRs.16,25,000/- or odd on account of stock valued atMRP against cost price. However, the ld CIT(A) has nottaken into consideration the MRP taken by departmentagainst the cost price. He details of sales of each itemrates on the basis of MRP whereas the revisedreconciliation filed by the assessee is on account of costprice. The ld. CIT(A) has accepted the contention of theassessee in part. He has deleted an amount ofRs.16,25,000/- or odd on account of stock valued atMRP against cost price. However, the ld CIT(A) has nottaken into consideration the MRP taken by departmentagainst the cost price. He details of sales of each item have been given by the assessee showing the cost ofthe material purchased The AO as well as ld. CIT(A)has rejected the contention of the assessee by observingthat bills submitted by assessee pertains to financial year2001-02 to 03-04. It has been stated that the oldmaterial was lying with the assessee which waspurchased during financial year 2001-02 to 03-04.Therefore, the department should have taken the rate onthe basis of cost price and not on the basis of tagattached with these items which are on the basis ofMRP. Contention of the assessee seems to be correct.This is settled proposition that stock of assessee shouldbe valued on the basis of consistent method adopted. Inthe present case consistent method is that the value ofstock is valued on the basis of market price or cost pricewhichever is lower. In the present case cost price is onthe lower side. Therefore, the value of stock shouldhave been taken on the basis of cost price by acceptingthe explanation filed by assessee, which is supported bythe purchase vouchers. In view of these facts andcircumstances, we hold that the ld. CIT(A) was notjustified in not accepting the explanation filed on behalfof the assessee. Accordingly we delete the addition ofRs.21,38,113/- also.” A bare look at the subject-matter of the appeal and thecontentions taken note of and dilated upon by the ITAT issufficient to find that the matter relates only to factual aspectsand no legal issue leading to substantial question of law isinvolved. A bare look at the subject-matter of the appeal and thecontentions taken note of and dilated upon by the ITAT issufficient to find that the matter relates only to factual aspectsand no legal issue leading to substantial question of law isinvolved. Mere preparation of inventory of stock in the presence ofson of the assessee or not raising of objection at the time ofpreparation of inventory could not have been taken as that ofestoppel against assessee to the extent that the correctmeasurements, calculations and valuations could not havebeen put forth by him during the assessment proceedings. The discrepancies as referred by the assessee andaccepted by the authorities had been in respect of duplicationof items, arithmetical inaccuracy, wrong measurement/rate andwrong valuation. All such aspects essentially relate to thequestions of fact. It has also come on record that survey wasconducted only one day and there were about 2,94,777 items of different cloths. The ITAT cannot be said to be unjustified inobserving that it was humanly impossible to measureaccurately such huge pieces within one day; and that theinventory was prepared only on the basis of guess work. The correct measurements and calculations havingbeen accepted by the ITAT after thorough analysis of thematerial on record, the impugned order does not appearsuffering from any perversity or illegality so as to call forinterference. In the result, the appeal stands dismissed. (NARENDRA KUMAR JAIN-II),J. (DINESH MAHESHWARI),J. Mk/cp CERTIFIED THAT ALL CORRECTIONS MADE IN THE JUDGMENT / ORDER HAVE BEEN INCORPORATED IN THE JUDGMENT / ORDER BEING EMAILED MANOJ KUMARPS