Delhi High Court
Commissioner Of Income Tax vs Jackson House on 11 August, 2010
Author: Manmohan
#18-19
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* IN THE HIGH COURT OF DELHI AT NEW DELHI
18.
+ ITA 103/2010
COMMISSIONER OF INCOME TAX ..... Appellant
Through: Ms. Sonia Mathur,
Advocate
versus
JACKSON HOUSE ..... Respondent
Through: Mr. Ajay Vohra with Ms. Kavita
Jha and Mr. Somnath Shukla,
Advocates
AND
19.
+ ITA 544/2010
COMMISSIONER OF INCOME TAX ..... Appellant
Through: Ms. Sonia Mathur,
Advocate
versus
JACKSON HOUSE ..... Respondent
Through: Mr. Ajay Vohra with Ms. Kavita
Jha and Mr. Somnath Shukla,
Advocates
% Date of Decision: 11th August, 2010
CORAM:
HON'BLE THE CHIEF JUSTICE
HON'BLE MR. JUSTICE MANMOHAN
1. Whether the Reporters of local papers may be allowed to see the judgment? No.
2. To be referred to the Reporter or not? No.
3. Whether the judgment should be reported in the Digest? No.
MANMOHAN, J
1. The present two appeals have been filed under Section 260A of
Income Tax Act, 1961 (for brevity "Act, 1961") challenging the orders
dated 8th May, 2009 passed by the Income Tax Appellate Tribunal (in
short "ITAT") in ITA Nos. 3246/Del/2007 and 4807/Del/2007, for the
Assessment Year 2004-2005. Since both the appeals pertain to the
same respondent-assessee for the same assessment year, they are being
disposed of by a common order. It is pertinent to mention that while
ITA No. 103/2009 is the quantum appeal, ITA No. 544/2009 is the
penalty appeal.
2. Briefly stated the relevant facts are that the respondent-assessee
is a partnership firm engaged in the business of manufacture and export
of readymade garments. On 11th March, 2004, a survey operation under
Section 133A was conducted at the business premises of the
respondent-assessee and excess stock worth Rs. 68,69,090/- was found
on physical verification which was accepted by the respondent-
assessee. For the Assessment Year under consideration, the respondent-
assessee filed a return of income tax of Rs. 55,75,930/-. However, the
case of respondent-assessee was selected for scrutiny and the Assessing
Officer (in short "AO") determined the respondent-assessee's taxable
income at Rs. 1,26,75,040/- by making various additions/disallowances.
Upon the matter being carried forward in appeals, the controversy
ultimately reached the ITAT which, by way of impugned order, partly
allowed the respondent-assessee's appeal by deleting the followings:
i) Addition of Rs.5,14,955/- in the value of closing stock
being value of purchases made in post survey period.
ii) Rs.20,00,000/- added on account of stock lying with the
fabricators.
iii) Rs.18,10,915/- being direct manufacturing expenses
debited in the trading account while determining value of
the closing stock.
iv) Rs.25,04,914/- added on account of low gross profit.
3. Ms. Sonia Mathur, learned counsel for the Revenue submitted
that ITAT was not justified in deleting the addition made by the A.O.
and CIT(A) on account of unexplained investment in excess stock and
suppression of gross profit. She further submitted that ITAT had
deleted the addition purely on the basis of surmises and the assessee's
contention were totally unsupported by any material on record.
4. However, upon a perusal of the impugned order, we are of the
opinion that no substantial question of law arises in the present
proceedings inasmuch as ITAT has given cogent reasons for arriving at
its factual conclusions. In fact, the relevant portion of the impugned
order is reproduced hereinbelow:-
"11. We have considered the rival submissions. We find
that the stock inventory runs into 59 different items. While at
the time of survey stock inventory was prepared by the survey
official, the statement of one of the partners was also
recorded during the course of survey operation conducted on
11.3.2004. The work in progress specifically includes 5 items
like blouse, dress, skirt, baby doll, blouse sets totaling into
8000 pieces and valuing at Rs. 20 lacs. The inventory was
taken by the survey officials only in the business premises of
the assessee. Therefore, it will be incorrect to hold that the
work in progress which was admitted in quantity of 8000
pieces and valuing at Rs. 20 lacs will not be added while
preparing the value of the stock found during survey. If the
learned CIT(A) had any other reason, he could very well
question the survey officials in this regard. In spite of the
request by the assessee and filing affidavit in this regard, the
learned CIT(A) merely presumed that since the assessee had
admitted of having some stock at fabricator‟s place, the same
is not included in the final stock inventory prepared by the
survey team. While conducting survey, the survey team is
expected to take all reasonable steps to find out the
unexplained stock, cash etc. found and in including the same.
The survey team is expected to have worked in the interest of
revenue and no doubt can be raised against their capacity in
conducting the survey. Since the purpose of survey itself is to
find out unexplained cash, stock etc., it will be unfair to hold
that the survey team did not acted in the interest of revenue
and left out the value of work-in-progress lying at the
fabricator‟s place in valuing the stock during survey. Since
the number of pieces as also amount exactly tallies with the
answer given by the partner and since the same is also
forming part of the stock inventory prepared by the survey
team, it cannot be said that the stock at fabricator‟s place
were over and above the stock found at the premises of the
assessee. We, therefore, delete the addition of Rs. 20 lacs
made in this regard.
xxx xxx xxx
14. We have considered the rival submissions. The value
of closing stock found on the date of survey as per inventory
prepared by survey official was Rs. 95,08,460/-. The learned
CIT(A) has noted at page 8 of his order the trading account
drawn on the date of survey. As per the said trading account,
the purchases were to the extent of Rs. 1,72,09,384/- and
packing expenses were of Rs. 4,86,636/-. In the audited
trading account as on 31.3.2004 the purchases are mentioned
at Rs. 1,77,24,339/- but no separate packing expenses are
claimed. Thus the contention of the learned counsel for the
assessee is found to be correct. The additional purchase after
the date of survey is only of Rs. 28,319/- but the stock
declared by the assessee is more by 61- as compared to stock
inventory prepared by survey team. The differ is only a sum
of Rs. 7,963/- which is too negligible compared to the value of
closing stock declared by the assessee. There is no dispute
about the value of declared stock which is valued at cost on
market price whichever is lower. We, therefore, delete the
addition Rs. 5,14,4,955/- as made by the learned CIT(A).
The learned CIT(A) also made an addition of Rs.
18,10,915/- being the increase in the value of closing stock
due to direct expenditure incurred after the date of survey but
alleged as not forming part of valuation of closing stock.
Before the learned CIT(A) it was explained that the inventory
was prepared as per the value of such stock. However, some
of the bills from fabricators or consumables were not
received like dyeing‟ and acid wash expenses, finishing
expenses, embroidery expenses fabrication expenses etc. In
respect of some of the goods even the sales had already taken
place and therefore, the expenses cannot be attributed to the
stock remaining in the inventory. These facts were explained
by identifying each bill and in relation to each item
manufactured, for which such expenses were incurred. Even
the sales invoice number for the items sold have been
mentioned. The learned CIT(A) has merely ignored the
contention. Therefore, the addition is to be deleted.
xxx xxx xxx
19. We have considered the rival submission. The learned
CIT(A) has compared the gross profit as per audited books of
account with the G.P. as per trading account prepared on the
date of survey. However, the crucial thing that he has missed
is on the date of survey, though the assessee has incurred
certain expenses, the same were not recorded due to non-
receipt of such bills. The value of such bills was of Rs. 25 lac.
Therefore, if such expenses are reduced from the gross profit
as per trading account prepared on the date of survey, the
same will be as declared by the assessee for the entire year.
Except the reduction in the rate of G.P., no. case is made out
in rejection of books of account. In our opinion, the same is
not in accordance with law. Under section 145(3) the
Assessing Officer may make a best judgment assessment by
rejecting the book results only where the method of
accounting or the accounting standard has not been regularly
followed or where the Assessing Officer is not satisfied about
the correctness or completeness of the account. In the
original assessment the Assessing Officer has not made any
allegation that the books of account are either incorrect or
incomplete. On the contrary the same are duly audited as
required under section 44AB of the Act. The duty draw back
will always be part of trading results. If such amount is
included while computing gross profit, the results declared by
the assessee are better. In such circumstances, no addition
could have been made by rejecting the book results. No
specific defect has been pointed out in the books of account
i.e. whether the purchases are inflated or sales are not
recorded. In such circumstances, no addition could „have
been made by estimating the gross profit. We, therefore,
delete the addition of Rs. 25,04,914/-."
5. In our opinion, the factual findings of the final fact finding
authority are neither perverse nor contrary to record. Accordingly, we
find that no substantial question of law arises in the quantum appeal.
Since the quantum appeal is, bereft of merit, the question of imposing
any penalty does not arise. Accordingly, present appeals are dismissed
in limine.
MANMOHAN, J
CHIEF JUSTICE
AUGUST 11, 2010
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