DEPUTY COMMISSIONER OF INCOME TAX v. SUPRINT TEXTILES
[Citation -2005-LL-0425-3]

Citation 2005-LL-0425-3
Appellant Name DEPUTY COMMISSIONER OF INCOME TAX
Respondent Name SUPRINT TEXTILES
Court ITAT
Relevant Act Income-tax
Date of Order 25/04/2005
Assessment Year 1997-98
Judgment View Judgment
Keyword Tags quantum of deduction • departmental store • gross profit rate • foreign currency • returned income • export turnover • foreign tourist • obsolete stock • direct export • export profit • excess stock • dead stock • sale price
Bot Summary: The assessee retracted it before the first appellate authority and the same has rightly been done by the assessee. The AO made the addition but CIT(A) observed that these credit cards were available with the assessee only for preparation of SFT vouchers and recording of sales as the foreign tourists and customers would not like to wait and would prefer utilizing time to visit other places in the town. The AO rejected certificate issued by the chartered accountant of the assessee and recalculated the deduction under s. 80HHC at Rs. 14,06,0833 as against Rs. 28,72,005 claimed by the assessee. The learned Authorised Representative submitted that the assessee made sales to the foreign tourist against foreign currency and these sales were made by issuing the separate sales invoices, which were specifically printed for such sales only, i.e., for sale to foreign tourists against foreign currency. The learned Authorised Representative further submitted that the facts of the assessee's case are similar to the case of ITO vs. Vaibhav Textiles 177 CTR 593: 29 Tax World 147, wherein the jurisdictional High Court had held that the sales to the foreign tourists against the foreign currency should be treated as export sales and deduction under s. 80HHC should be allowed. The learned Authorised Representative further submitted that whether the SFT sales are export sales or not is a pure question of law the learned CIT(A) has rightly admitted the additional claim of the assessee and rightly directed to allow deduction under s. 80HHC against the sales to foreign tourist against foreign currency. 11th April, 1955, issued by the CBDT. Therefore, if the assessee is legally entitled for a rebate or relief, it cannot be deprived from the benefit solely on the ground that it was not claimed before the AO. Therefore, we hold that the CIT(A) has committed no error in admitting the additional claim of the assessee in respect of treating the counter sale to the foreign tourists as export turnover.


Both these cross-appeals filed by Department as well as by assessee against order of CIT(A) dt. 1st Sept., 2000, for asst. yr. 1997-98, are disposed by common order for sake of convenience. assessee derives income from trading of made up cloths, textile made up in local market, by SFT sales and by exports. survey was conducted by Department on 4th March, 1997 at two business outlets of assessee located at Shyam Nagar and Amer Road at Jaipur. During survey, Department inventorized stock available at Shyam Nagar at "Cost Price" whereas stock lying at Amer Road was inventorized at "Tag Price". stock of Shyam Nagar was valued at Rs. 17,41,412 and stock of Amer Road estimated at cost by deducting rebate on account of bargaining and dead stock at 11 per cent and rebate on account of gross profit at 27.80 per cent. cost of stock lying at Amer Road was estimated at Rs. 70,77,645. In this way, total stock estimated by Department was Rs. 88,19,057. Book stock was worked out at Rs. 77,76,591. difference of Rs. 10,42,466 was treated as excess stock of assessee. Further, during course of survey, excess cash was found at Rs. 38,421 and excess credit cards of Rs. 35,708 were also found. So finally, AO made additions of Rs. 11,16,595. However, CIT(A) has restricted addition of Rs. 1,50,000 by giving relief of balance amount of Rs. 9,66,595. Being aggrieved, both parties are before us. With this background, learned Departmental Representative submitted that Department has accepted gross profit rate shown by assessee @ 27.80 per cent. So, there is no dispute about gross profit. About stock t Shyam Nagar, there is no dispute as inventory was made on cost price. sole dispute is regarding 'bargaining discount' given to buyers, who are foreigners. damage of stock value of 5 per cent was also claimed by assessee. Thus, assessee has claimed by bargaining discount and damage @ 20 per cent + 5 per cent = 25 per cent of stock lying at Amer Road, which was inventorized at tag price. Further, assessee has revised it to 15 per cent. However, Department has accepted bargaining discount and dead stock at 11 per cent. learned Departmental Representative further submitted that assessee has offered to surrender Rs. 7,24,368 by calculating rebate at 15 per cent. For this purpose, he has drawn our attention to order sheet dt. 20th Jan., 2000 (Departmental paper book page No. 6) where it was mentioned that assessee has agreed for addition of Rs. 7,24,368. Later, assessee has retracted from this addition before CIT(A). He further submitted that assessee is not involved in paying any commission to agent, broker or tourists guide. So, no commission has been paid by assessee to anyone. bargaining price shown by assessee is not on higher side. CIT(A) has wrongly restricted addition to Rs. 1,50,000 to cover possible leakage of revenue and discrepancies. He further submitted that principle of taxing excess stock under s. 69 has been upheld by Hon'ble jurisdictional High Court in case of Radhakishan Ramniranjan vs. CIT (2003) 185 CTR (Raj) 368: (2005) 272 ITR 410 (Raj). He further submitted that assessee has admitted excess stock and he cannot go back on admission. admission was made voluntarily and there was no coercion or pressure. For this purpose, he relied on following decisions: (a) Greenview Restaurant vs. Asstt. CIT (2003) 185 CTR (Gau) 651: (2003) 263 ITR 169 (Gau). (b) V. Kunhambu & Sons vs. CIT (1996) 131 CTR (Ker) 396: (1996) 219 ITR 235 (Ker). (c) Dharamdas Agrawal vs. CIT (1988) 68 CTR (MP) 36: (1988) 172 ITR 244 (MP). Lastly, he justified order of AO. On other hand, learned Authorised Representative submitted that assessee-firm is dealing in items made up of textile, specially cushion cover, sofa cover and quilts, etc., which are changing fast trend in fashion market. stocks exhibited to various customers get dusted and become spoiled. assessee-firm is not paying any commission to tourists guide. Most of customers are foreigners and come after reading guide book of India. He, further, submitted that when stock gets spoiled, it will have to be disposed by way of "sale" but assessee has not conducted any "sale". It proves that assessee was having accumulated spoiled and obsolete stock at time of survey. All books of account were available but later they got destroyed in fire. Immediately, AO was informed accordingly. When books got destroyed in fire, assessee made conditional surrender of Rs. 7,24,386 vide its letter dt. 20th Jan., 2000. In its letter, it was written that no penalty proceedings will be initiated by Department. Further, in point No. (e), it was mentioned: "The recalculation of valuation is made under purchase peace and without conceding to excess stock at time of search." learned Authorised Representative further submitted that without conceding to excess stock this was primary condition before AO, but AO has not accepted offer made by assessee. In said letter, assessee specifically mentioned that surrender will be for buying peace and get immunity from penalty but it will not have anything regarding valuation of excess stock. assessee has accepted bargaining discount and sale price @ 15 per cent in surrender only to purchase peace but AO has not accepted this surrender and made addition. So, assessee retracted it before first appellate authority and same has rightly been done by assessee. learned Authorised Representative further submitted that CIT(A) made comparison of some items of stock lying at Shyam Nagar and Amer Road and found that difference between cost and tag prices was upto 300 per cent. This finding is at p. 7 of order of CIT(A). So, he justified partial order of CIT(A). He also relied upon decision in case of Banarasi Das Departmental Store vs. ACIT 24 Tax World 499. We have heard rival submissions and gone through material available on record. In instant case, surrender was made conditional which was not accepted by AO who made addition. In its letter dt. 20th Jan., 2000, it was clearly mentioned that it has nothing to do with valuation of excess stock. offer was made to get immunity from penal proceedings and to buy peace and finish litigation but AO did not accept it and made addition, started penal proceedings resulting into prolonged litigation. In these circumstances, assessee appears to be justified to retract from said conditional surrender. Needless to mention that by that time books of account were destroyed in fire and this was compelling factor to offer surrender. In assessee's case, there were two outlets where different methods were adopted for valuation of excess stock. In Amer Road, prices were taken at tag price after decoding words "Come & Buy". buyers of goods are foreigners. We have seen guide book of India (p. 7 of paper book). said book is published by Lonely Planet Publication, London. In this book, warning is mentioned that bargaining price at Jaipur will be about 50 per cent or higher. In instant case, assessee has claimed only 20 per cent bargaining discount which appears reasonable in facts and circumstances of case specially by looking to nature of business. claim of 5 per cent discount for obsolete stock also appears reasonable. How much discount is given to tourists is question of fact and depends upon individual case to individual case. Thus, total discount @ 25 per cent for bargaining price appears reasonable when Department has accepted gross profit rate shown by assessee. No defect was pointed out by Department in books of account even when survey has been conducted. Further, regarding excess credit cards found at time of survey, it is also noted that no foreign currency was found. credit cards of foreign currency found related to foreign banks. These cards were in name of foreigners. AO made addition but CIT(A) observed that these credit cards were available with assessee only for preparation of SFT (counter sale) vouchers and recording of sales as foreign tourists and customers would not like to wait and would prefer utilizing time to visit other places in town. So, they left credit cards, etc., for preparation and packing of goods. When they return from other places of town by time goods in packed form stands delivered to foreigners. Without repeating, we uphold order of CIT(A) along with reasons mentioned therein. excess cash found also stands fully covered with addition sustained by CIT(A) for Rs. 1,50,000. Hence ground Nos. 1 and 2 of Department and Ground No. 1 1,50,000. Hence ground Nos. 1 and 2 of Department and Ground No. 1 of assessee are dismissed. Ground No. 3 of Departmental appeal and ground Nos. 2 and 3 of assessee's appeal relate to deduction under s. 80HHC. ground No. 3 in Departmental appeal is against allowing of deduction under s. 80HHC for SFT sales. brief facts of case are that assessee has two divisions, Export Division and Local Division. In Export Division, there is direct export sales to foreign buyers situated in foreign countries. In Local Division, counter sales are mainly to foreign tourists against foreign currency, called as 'SFT sales'. assessee maintains separate books of account and bank account for each Division. While filing return, assessee claimed under s. 80HHC deduction of Rs. 28,72,005 on basis of certificate issued by chartered accountant. deduction under s. 80HHC in return filed by assessee was claimed on basis of turnover and profit disclosed in books of account of Export Division and turnover and profits of Local Division were ignored for this purpose. AO rejected certificate issued by chartered accountant of assessee and recalculated deduction under s. 80HHC at Rs. 14,06,0833 (sic) as against Rs. 28,72,005 claimed by assessee. AO recalculated deduction under s. 88HHC by taking consolidated figure of sales and profit of export division and local division. AO recalculated under s. 88HHC deduction on amount which bears to consolidated profit of both Divisions, same proportion as turnover of Export Division bears consolidated turnover of both Divisions. Further, profit computed by AO was not further increased by 90 per cent of export incentives. In other words, turnover of Local Division included sales of foreign tourists against foreign currency (SFT sales), but AO treated same as local turnover for calculating deduction under s. 80HHC. Before CIT(A), assessee claimed that assessee maintains separate books of account for Export Division and Local Division and, therefore, claim under s. 80HHC should be allowed on basis of separate books of account maintained by assessee for Export Division. CIT(A) rejected this plea of assessee. assessee also lodged additional claim before CIT(A) that SFT sales should be treated as export turnover and deduction under s. 80HHC should be allowed on SFT sales. learned CIT(A) allowed additional claim of assessee and directed AO to treat SFT sales as part of export turnover. Department is in appeal against this direction of CIT(A) and assessee has taken ground Nos. 2 and 3 as alternative grounds to ground No. 3 of Departmental appeal. learned Departmental Representative submitted that assessee has not made any claim before AO allowing deduction under s. 80HHC on SFT sales, therefore, such claim cannot be entertained by CIT(A). learned Departmental Representative submitted that because of direction of CIT(A), assessed income after appeal effect comes to Rs. 5,86,950, which is less than returned income of Rs. 8,89,120. learned Departmental Representative further submitted that AO issued notices under s. 143(2) only in order to ensure that assess has not understated income or has not computed excessive loss or has not underpaid tax in any manner. Since, AO has no power to assessee income below returned income, CIT(A) has also no power to assess income below returned income. learned Departmental Representative further submitted that when no addition has been made by AO or no claim has been rejected by AO, assessment order was not appealable. learned Departmental Representative relied on following case laws: (a) CIT vs. Stepwell Industries Ltd. (1997) 142 CTR (SC) 345: (1997) 228 ITR 171 (SC). (b) Addl. CIT vs. Gurjargravures (P) Ltd. 1978 CTR (SC) 1: (1978) 111 ITR 1 (SC). (c) CIT vs. Shelly Products & Anr. (2003) 181 CTR (SC) 564: (2003) 261 ITR 367 (SC). On other hand, learned Authorised Representative submitted that AO has rejected certificate under s. 80HHC issued by chartered accountant and recalculated allowable export profit. AO is duty-bound to calculate export profit as per law as available and further as per settled judgments of jurisdictional appellate authorities. Since, it is settled issue that counter sale to foreign tourists against foreign currency is export turnover, AO cannot treat same as local turnover. learned Authorised Representative submitted that assessee made sales to foreign tourist against foreign currency and these sales were made by issuing separate sales invoices, which were specifically printed for such sales only, i.e., for sale to foreign tourists against foreign currency. learned Authorised Representative drew our attention towards copy of invoices placed at paper book pp. 11 to 15. learned Authorised Representative submitted that there is condition stipulated on invoices, which reads as "articles purchased under this voucher are totally prohibited for being sold, gifted or otherwise disposed off within territory of India to any person." learned Authorised Representative submitted that signature of buyer accepting terms mentioned on invoices, clearly means that buyer has agreed to such conditions. learned Authorised Representative further submitted that facts of assessee's case are similar to case of ITO vs. Vaibhav Textiles (2002) 177 CTR (Raj) 593: 29 Tax World 147, wherein jurisdictional High Court had held that sales to foreign tourists against foreign currency should be treated as export sales and deduction under s. 80HHC should be allowed. learned Authorised Representative further submitted that whether SFT sales are export sales or not is pure question of law, therefore, learned CIT(A) has rightly admitted additional claim of assessee and rightly directed to allow deduction under s. 80HHC against sales to foreign tourist against foreign currency. Reliance has been placed on following case laws: (a) National Thermal Power Co. Ltd. vs. CIT (1999) 157 CTR (SC) 249: (1998) 229 ITR 383 (SC) (b) ITO vs. Dr. V. Ramalingghaswami (1983) 6 ITD 491 (Del) (c) CIT vs. Kanpur Coal Syndicate (1964) 53 ITR 225 (SC) learned Authorised Representative further submitted with equal vehemence that IT Authorities are quasi-judicial authorities and drew our attention to decision of Hon'ble apex Court in case of CIT vs. Simon Carves Ltd. 1976 CTR (SC) 418: (1976) 105 ITR 212 (SC) where it has been observed that taxing authorities exercise quasi-judicial powers and in doing so they must act in fair and non-partisan manner. Although, it is part of their duty to ensure that no tax which is legitimately due from assessee should remain unrecovered but they must also at same time should not act in manner which might indicate that scales are weighted against assessee. We have heard rival submissions and perused material available on record. issue involves three questions. Whether, counter sales to foreign tourists against foreign currency should be treated as part of export turnover? Whether, CIT(A) is empowered to admit additional claim? and whether, assessed income after order of CIT(A) can be less than returned income? first issue is covered by decision of jurisdictional High Court in case of ITO vs. Vaibhav Textiles (supra), wherein Hon'ble Rajasthan High Court has held that sales to foreign tourists against foreign currency should be treated as export sales and deduction under s. 80HHC should be allowed. We follow decision of jurisdictional High Court and hold that counter sales to foreign tourist against foreign currency should be treated as part of export sales and there is no infirmity in decision of CIT(A), wherein CIT(A) has directed to treat SFT sales as part of export turnover. Now, second question though academic in nature involves whether, CIT(A) is empowered to admit additional claim or not? additional claim is in respect of treating counter sale to foreign tourists as export turnover. issue involves pure question of law and assessee can raise question of law at any stage of appeal. Hon'ble Supreme Court in case of National Thermal Power Co. Ltd. vs. CIT (supra) has held that where question of law arose (although not raised before authorities below) having bearing on assessee's tax liability, Tribunal had jurisdiction to examine same. Department cannot take benefit of ignorance of assessee as per Circular No. 14 (XL-35)/1955 dt. 11th April, 1955, issued by CBDT. Therefore, if assessee is legally entitled for rebate or relief, it cannot be deprived from benefit solely on ground that it was not claimed before AO. Therefore, we hold that CIT(A) has committed no error in admitting additional claim of assessee in respect of treating counter sale to foreign tourists as export turnover. Now, third question involves issue whether, assessed income after order of CIT(A) can be less than returned income or not? This issue is neither emerging from order of CIT(A) nor from ground of appeal of Department. However on merits, it may be mentioned that it is well settled principles of law that person cannot be charged even paisa more than what is due. procedural provisions of s. 143(2) are applicable for AO and not on appellate authorities. powers of CIT(A) are contained under s. 251 of IT Act, 1961. Clause (a) of sub-s. (1) of s. 251 empowers CIT(A) to confirm, reduce, enhance or annul assessment. CIT(A) has power to reduce assessed income and this power of reduction is not restricted to returned income. plea of learned Departmental Representative that assessment order is not appealable as it does not fall in any of conditions prescribed under s. 246(1)(a), is also not acceptable. AO has made additions and recalculated 80HHC deduction at lower figure, therefore, assessee is aggrieved from order of AO and it can file appeal before CIT(A). case laws relied upon by learned Departmental Representative are distinguishable on facts and not applicable to case before us. In case law reported in (1997) 142 CTR (SC) 345: (1997) 228 ITR 171 (SC) (supra), claim under s. 35B was made for first time before Tribunal. It was held that since claim was not made before ITO or AAC, Tribunal was wrong in allowing claim of assessee. In case law reported in 1978 CTR (SC) 1: (1978) 111 ITR 1 (SC) (supra), claim under s. 84 was made without having any material and on mere fact that such claim was allowed in subsequent years. In case of present assessee, direction of CIT(A) to treat SFT sales as part of export turnover is based on decision of jurisdictional Tribunal. From letter of AO dt. 29th Sept., 2000 (APB 30) it appears that quantum of deduction under s. 80HHC on SFT sales was determined after verification of SFT sales by AO. Hence, ground No. 3 of Departmental appeal is dismissed. ground Nos. 2 and 3 of assessee's appeal have also become infructuous and, therefore, dismissed. In result, both appeals filed by Department as well as by assessee are partly allowed for statistical purposes as stated above and announced in open Court. *** DEPUTY COMMISSIONER OF INCOME TAX v. SUPRINT TEXTILES
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