| SooperKanoon Citation | sooperkanoon.com/73222 |
| Court | Income Tax Appellate Tribunal ITAT Jaipur |
| Decided On | Jun-29-2004 |
| Reported in | (2004)90TTJ(JP.)467 |
| Appellant | Dy. Cit |
| Respondent | Narendra Kumar Lunawat |
First ground is against the deletion of addition of Rs. 4,58,968 on account of excess stock of goods found during the course of search.
The assessee is proprietor of M/s. Narendra Kumar & Co., which is an exporter of precious and semi-precious stones and related items. In this case, search under section 132 of the Income Tax Act was conducted on 10-3-2000. The value of the excess stock was computed by the assessing officer by applying a GP rate of 38.26 per cent as under : The investigating team has prepared the stock inventory and valued the stock at Rs. 6,65,403. The stock of Rs. 2,06,435 as calculated above by the investing team by applying gross profit achieved in the immediately preceding year, i.e., 38.26 per cent and made the addition accordingly.
The learned Commissioner (Appeals) has deleted this addition made on account of excess stock on the ground that the average purchase price of Agate beads is 442.68 per kg. Thus, taking into account the stock of Rs. 400 per kg., the learned Commissioner (Appeals) observed that there was excess valuation of the Agate beads by more than Rs. 82,386. The overall valuation of the stock was reduced by this amount and the calculation of stock found was reduced from Rs. 6,65,403 to Rs. 5,87,694. The learned Commissioner (Appeals) also opined that assessee is 100 per cent exporter of precious and semi precious stones and manipulation of GP rate is not required by the assessee at least for the purpose of reducing profit, as the profits from export earning were exempt in the relevant assessment year. It is also clear that the assessee did not have any (other) source of income.
The learned Departmental Representative (IT) relied upon the order of the assessing officer and submitted that excess stock had rightly been arrived at by applying GP rate of the immediately preceding year and the valuation of stock has also been correctly done. The learned Departmental Representative (IT) has relied upon the order of the learned Commissioner (Appeals).
We have heard the rival submissions. We have also perused the record.
It is evident from perusal of p. 7 of the order of the assessing officer that he arrived at excess stock found during the course of search conducted on 10-3-2000 to the tune of Rs. 4,58,968. The assessing officer has arrived at this figure by applying a GP rate of 38.26 per cent of last year. We agree with the view of the learned Commissioner (Appeals) that the search was conducted on 10-3-2000, i.e., at the fag end of the accounting period out of 365 days of the year, 345 days had already elapsed. Therefore, the correct difference in closing stock can be worked out only by applying the GP rate of current year. By applying the GP rate of 45.68 per cent for current year, value of the stock on the day of the, search was worked out at Rs. 5,87,694 as against the value of stock found on physical verification at Rs. 6,65,403. Thus, there was excess stock of Rs. 77,709. Even this difference was explained as the revenue has taken the excess valuation of Agate beads. If the average purchase price of Rs. 400 per kg. is taken into account, the excess valuation of Agate beads comes to Rs. 82,386, which will explain the difference in the closing stock worked out by the revenue. Secondly, the complete quantitative details of opening stock, purchase and sales had been submitted before the assessing officer. No specific suppression of quantity in closing stock was found. The difference in closing stock shown in the books of account and as found on physical verification was on account of a desired figure which cannot be relied upon. The learned Commissioner (Appeals) rightly held that the assessee is a 100 per cent exporter of semiprecious and precious stones. It is clear that the assessee did not have any other source of income. Therefore, manipulation of GP rate is not required by the assessee in order to reduce the incidence of tax.
The assessee will be entitled to 100 per cent deduction on the profits computed as per provisions of law and even on the addition made on account of excess stock. Therefore, we find no infirmity in the order of the Commissioner (Appeals). We decline to interfere with his order.
Ground No. 2 is regarding addition of Rs. 81,379 on account of bogus purchases made by the assessing officer This addition has been deleted by the learned Commissioner (Appeals) for the detailed reasons given in the case of M/s. Lunawat Gems Corporation, Jaipur. This ground will be decided while deciding the appeal of M/s. Lunawat Gems Corporation subsequently through this order.
CO No. 20/Jp/2003 is supportive of the order of the learned Commissioner (Appeals). The CO is also being decided accordingly.
Ground No. 1 of revenue is regarding deletion of addition of Rs. 43,38,522 on account of excess stock of goods found during the course of search.
The brief facts of the case are that the assessee is dealing in previous and semi-precious stones as an exporter. In this case, the closing stock as per books as on 10-3-2000 was Rs. 41,64,764 and stock on physical verification as worked out by the department was Rs. 85,03,286 and thus the addition for excess stock was made to the tune of Rs. 43,38,522 as per the calculation given at p. 4 of the order of the assessing officer. In this case, the assessing officer has applied a GP rate of 20 per cent on the basis of profitability in the immediate preceding assessment year without accepting the plea of the assessee that average GP rate of 22.94 per cent should be applied and if the book stock is calculated with this average rate of gross profit, no excess stock win be available. The Commissioner (Appeals) has deleted this addition for the reasons that the GP rate varied from 20.11 per cent to 25.02 per cent. The assessee is 100 per cent exporter and in such cases manipulation of GP rate is not required for the purpose of reducing profit, as the profit from export earning were exempt from income-tax in the relevant assessment year. The learned Commissioner (Appeals) observed that the assessee has filed the details of the opening stock at the beginning of the year together with the quantity of purchases and sales made during the year. No discrepancy has been, pointed out by the assessing officer in the stock tally filed by the assessee. The assessee does not have any other source of income. A higher GP rate resulted into excess stock inventory and higher profit of the assessee for the year is subject to 100 per cent deduction under section 80HHC of the Act. Therefore, he deleted the addition made on account of valuation of closing stock.
The learned Departmental Representative (IT) argued at length. He submitted that the authorised officer has correctly worked out the difference in stock by applying GP rate of 20 per cent declared by the assessee in the immediate past year, i.e., 20.11 per cent. By doing so, the excess stock was estimated at Rs. 43,38,522. The stock, position was admitted by Shri Neeraj Kumar Lunawat and Shri Patan Lal Lunawat in their statements. It was also submitted that if current GP rate of 24.56 per cent is applied, then there would be negative stock of Rs. 21,79,900.
The learned authorised representative submitted that as per stock tally produced during the course of hearing, which related to period ended on 31-3-1999 and 10-3-2000, there was no difference in the quantity of the goods. The difference was on account of application of inappropriate GP rate. The trading results for assessment year 2000-01 and earlier years were totally accepted. The quantitative tally for three different periods, i.e., as on 31-3-1999, as on 10-3-2000, the day of search and as on 31-3-2000 was submitted in detail. There were three volumes (paper book pp. 80, 81, 88, 89, 98 and 99) but while acknowledging it at p. 10 of the assessment order, the same was avoided when the assessing officer has thoroughly checked it with the books of account and other records. The learned Commissioner (Appeals) has also discussed it at para 5, p. 3 and at para 8, p. 5 of his order dated 10-1-2003. The assessing officer did not consider the statement dated 16-3-2000 recorded under section 132(4) of the partner of the firm (p.
105 of paper book) for his expected higher GP rate during the year. No incriminating documents or other material was found during search proceedings. The assessee is 100 per cent export unit. The total export profit is exempt under section 80HHC. Under such circumstances, no addition could be made. He relied on the decision in the following cases : (b) CIT v. Hindustan Mills & Electricals Stores (1998) 232 ITR 421 (MP).
We heard the rival submissions and also perused the record. We find that in this case, the revenue has arrived at excess stock on the basis of valuation of stock found on physical verification and by applying GP rate at 20 per cent declared during the immediately preceding year. It is evident that in this case search was conducted on 10-3-2000, i.e., at the end of the accounting period. Therefore, the assessing officer should have taken the GP of the current year as basis for arriving at the difference as per stock found during the physical verification and as per books of the assessee.
The learned Departmental Representative has admitted by filing calculation through his written submission on 29-1-2004, that if the GP rate of current year is applied at 24.56 per cent, there will be shortage of stock to the extent of Rs. 21,79,900.
On the other hand, the learned Commissioner (Appeals) and the learned authorised representative are of the view that average GP rate of 22.943 per cent should be applied. If it is considered that there was shortage of stock, then addition on account of GP on shortage of stock is to be done and if it is a case of excess stock, the addition to the extent of excess stock found is to be made. The assessee is a 100 per cent exporter, whose income is 100 per cent exempt under section 80HHC of the Income Tax Act. The deduction under section 80HHC is to be allowed as per the. Profits and gains of the business computed as per provisions of law. Besides, we also find that complete quantitative details, opening purchases and closing stock were filed. The assessing officer could not find any suppression of stock in quantitative details. The suppression of stock was worked out only through estimated figures. For these reasons, the learned Commissioner (Appeals) had rightly deleted the addition of Rs. 43,38,522 made on account of excess stock. Therefore, we decline to interfere with the order of the learned Commissioner (Appeals).
Ground No. 2 is regarding deletion of addition of Rs. 44,07,287 made on account of bogus purchases.
The assessing officer made this addition on account of alleged bogus purchases from 4 concerns, mentioned at p. 4 of the order of the learned Commissioner (Appeals). These purchases have been treated as bogus by the assessing officer on the basis of statement of one Shri Subhash Daga, who has stated that the bogus purchase bills were supplied to the assessee. The assessing officer has also mentioned that the assessee did not furnish the details of purchases and sales, etc., which were required to be submitted in a prescribed proforma and the details of purchases and sales could not link with the export. He did not even consider the plea of the, assessee that the payments were made by account payee cheques. The learned Commissioner (Appeals) has deleted this addition for the reason that Shri Subhash Daga clearly stated that whenever he was not in possession of goods, the same were arranged by him from unregistered dealers and supplied to the assessee.
Shri Subhash Daga has changed his stand in the affidavit and stated that whenever he did not have the stock then the material was supplied by unregistered dealer and bill was issued by him. The Commissioner (Appeals) held at p. 7 of his order that the purchases of Rs. 44,07,287 are not accepted, then it will result into higher profit of the export business by this amount. Deduction under section 80HHC is allowed on the profits and gains as computed under the provisions of the Act.
Since the assessee is 100 per cent exporter of goods, therefore, increase in export profit by Rs. 44,07,287 will result into increase in the claim of deduction under section 80HHC of the equal amount.
Therefore, he deleted this addition.
The learned Departmental Representative (IT) vehemently contended that Shri Subhash Daga cannot retract from his earlier statement and the affidavit filed subsequently cannot be relied upon in view of the decision of Hon'ble Supreme Court in the case of CIT v. Durga Prasad More (1971) 82 ITR 540 (SC). The learned Commissioner (Appeals) has totally ignored the basic fact that the investment in bogus purchases is considered unexplained and taxable. Moreover, the assessee also failed to correlate the nexus of the goods purchased from Daga group concerns with exports. He relied upon the decision of Hon'ble Delhi High Court in the case of CIT v. La Medica (2001) 250 ITR 575 (Del) and contended that the addition for bogus purchases has rightly been made.
The learned authorised representative, inter alia, made the following main submissions : (1) The assessee-firm is 100 per cent export unit. No documents evidencing even a single bogus purchase or local sales was found or noticed in action under section 132 of the Act.
(2) Stock was calculated by taking opening stock + purchases minus cost of goods sold and on consignment (by application of inappropriate GP rate of 20 per cent) as against average GP rate for last three years since stock of more than Rs. 6.84 crores related to earlier years, was in consignment with the foreign buyers.
(3) It is noticed that total purchases are vouched and all are through brokers, whose names are appearing in purchase invoices (pp. 107 to 196 of paper book). All the payments were through account payee cheques in the name of the parties who had issued the invoices to the assessee-firm. If one or few brokers had arranged goods from one and bill from others, assessee is not supposed to go into the depth to know the party/parties who had supplied the goods nor assessee could be doubted for making bogus purchases on the facts.
(4) Total goods were exported out of India and export sales were verified in 100 per cent cases by the central custom authorities to be actual goods (pp. 197 to 295 of paper book). When genuineness of sales is not doubted, how the purchases could be doubted more particularly when the assessee had prepared day-to-day stock tally and submitted to assessing officer in three volumes to the assessing officer (p. 10 of assessing officer's order).
(5) The assessing officer had examined day-to-day stock tally submitted in 3 volumes by the assessee from the purchases made, goods sold and from the stock found on physical verification. No defect or deficiency was found or noticed by the assessing officer in stock tally.
(6) The total purchases of Rs. 8,65,28,216 had already been considered, accepted and admitted by the investigating team as genuine and considered it in calculating the stock as per the books and these figures were taken in calculating stock position on the day of search, how the part of total purchases could be considered as bogus at other place.
(7) No evidence that the assessee-firm had received back the money for any of so-called bogus bills was noticed or found on examining bank account of Mr. Daga and his sister concerns or the accounts of assessee-firm.
(8) No showroom is maintained by the assessee. Only office is maintained. No foreign office is maintained. Hence, no money laundering is possible from foreign office.
(9) Mr. Daga had no direct link with assessee-firm., He had link with the assessee-firm. only through brokers.
The learned authorised representative also contended that no addition in a block assessment can be made without detecting any evidence in search. He relied upon the following cases : We have heard the rival submissions and have also perused the record.
We find that in this case, the addition for bogus purchases has been made by the assessing officer on the basis of statement of Shri Subhash Daga. Shri Subhash Daga has subsequently changed this stand by filing the affidavit that whenever he did not have the stock, then the material was supplied by unregistered dealer and bill was issued by him. All the purchases were vouched and have been made through brokers whose names and addresses are appearing in the purchase invoices (pp.
107 to 196). Complete stock tally in three volumes for the purchase of goods has been submitted by the assessee. These purchases have been considered as genuine while calculating the stock as per the books, There cannot be any motive of the assessee to make bogus purchases as total income was exempt under section 80HHC of the Income Tax Act. The assessing officer and the learned Commissioner (Appeals) have grossly erred in holding that these purchases were bogus purchases or addition can be made for unexplained investment. The payments have been made through account payee cheques and there is no evidence in this regard that the payment thus made has been received back by the assessee. The assessee is 100 per cent exporter and the assessee is not maintaining any showroom and there cannot be any case of money laundering. The payments have been made through cheques and names and addresses of the Dalals have been given. The assessing officer could not bring sufficient material on record to prove that these purchases were bogus.
If it is held that no purchases had been made by the assessee, then no addition can be made for excess stock as the stock is to be reduced by the amount of bogus purchases, The assessee has also exported the goods, which are subject to verification by the customs authorities. If no purchases have been made then how the assessee has earned income from export of goods. There cannot be any attempt on the part of the assessee to reduce tax incidence as in this case the income of the assessee is 100 per cent exempt under section 80HHC of the Income Tax Act and the assessee has no income from any source. Under such circumstances, the case law relied upon by the learned Departmental Representative (IT) in the case of La Medica (supra), is of no help.
Therefore, we decline to interfere with the order of the learned Commissioner (Appeals).
Therefore, having regard to the findings given in this case, we hold that no addition can also be made for bogus purchases of Rs. 81,379 in the case of Shri Narendra Kumar Lunawat. This also disposes of the cross-objection No. 21/Jp/2003 filed by the assessee, which is supportive of the order of the learned Commissioner (Appeals).
In the result, the appeals of the revenue in both the cases are hereby dismissed and the cross- objections of the assessees in both the cases are allowed.