MAHESHWARI BOOK SHOPEE v. ADDITIONAL COMMISSIONER OF INCOME -TAX
[Citation -2005-LL-1024-1]

Citation 2005-LL-1024-1
Appellant Name MAHESHWARI BOOK SHOPEE
Respondent Name ADDITIONAL COMMISSIONER OF INCOME -TAX
Court ITAT
Relevant Act Income-tax
Date of Order 24/10/2005
Assessment Year 2001-02
Judgment View Judgment
Keyword Tags valuation of stock • inventory of stock • business premises • unexplained stock • audited accounts • value of stock • purchase price • closing stock • opening stock • sale price
Bot Summary: The AO accordingly, estimated the stock by reducing the same by GP of 15 per cent The assessee further submitted that the stock so calculated was consisting of old edition books and books worth Rs. 8,879 were specimen copies not meant for sale, in which no investment had been made by the assessee. A perusal of the assessment order shows that as per the return filed for 2000-01 assessment year, the opening stock shown by the assessee was of Rs. 6,41,500 whereas as per the books of account impounded, there were certain discrepancies. The purchases so made in March, 2000 remained in assessee s closing stock and this among other stock forms part of the closing stock as on 31st March, 2000 and as such, would become the opening stock for the year under consideration. The AO has further stated that as per return filed by the assessee for financial year 1999-2000 the opening stock was Rs. 6,41,500, from this, the AO has inferred that the assessee with a view to create explanation of stock found during survey and impounded loose papers and documents etc. What operates in favour of the assessee is the fact of mistake by the accountant which was brought to the notice of the AO by the assessee itself and the fact of credit purchases made in the earlier assessment year, which no doubt, was not found recorded in the books of account maintained hap-hazardly by the assessee. A perusal of the same shows that not only the assessee has filed the statement of account appearing in its books of account, but the assessee has also filed right from the assessment stage the account, but the assessee has also filed right from the assessment stage the statement of accounts appearing in the books of account of those publishers namely, Bharti Bhawan, New Delhi, Frank Brother s Co. New Delhi, Modem Publications, New Delhi, Oxford University Press, New Delhi, S. Chand Co. New Delhi, Selina Publisher s, New Delhi. Accordingly, after a careful consideration of the entire facts and circumstances of the case as well as the settled legal position with regard to closing stock of the preceding assessment year to be taken as the opening stock of the subsequent assessment year, I am of the view that the ground raised by the assessee deserves to be allowed.


This is appeal filed by assessee against order dt. 30th Sept., 2004 of CIT(A)-I, Agra, pertaining to 2001-02 assessment year. grounds, raised by assessee read as under: "1. Because authorities below have erred on facts and in law in making/sustaining addition of Rs. 2,87,289 under head unexplained stock . addition was not, at all, warranted and is liable to be deleted." Because learned AO had not found any anomaly in either purchases or sales which were fully proved with reference to purchases and sales invoices produced before him and audited accounts filed with return of income for asst. yr. 2000-01. Because addition of Rs. 2,47,747 in respect of alleged unexplained purchases for earlier financial year 1999-2000 is illegal and based on presumptions. Because learned AO was not justified in reducing alleged unexplained purchases for earlier financial year 1999-2000 from working of stock at time of survey during financial year 2000-01 relevant to year under appeal which is based on fully explained verified and accepted purchases and sales for period up to date of survey." relevant facts of case, as are culled out from impugned order are that at business premises of assessee, survey under s. 133A was carried out on 23rd June, 2000. During survey, stock of 7,76,357 was found at shop. At time of survey, value of stock at residence was estimated at Rs. 7,50,000. Subsequently, valuation of stock at residence was carried out and it was worked out at Rs. 9,68,043. Accordingly, total value of stock came to Rs. 17,44,400. On 27th June, 2000, books of account and certain other documents were impounded under s. 131 of IT Act. AO required assessee to explain source of stock found at time of survey. In response to this, assessee filed letter dt. 16th Feb., 2004, showing that stock available as per its books of account was Rs. 12,88,016. It was also submitted that stock was inventorised at sale price. AO accordingly, estimated stock by reducing same by GP of 15 per cent assessee further submitted that stock so calculated was consisting of old edition books and books worth Rs. 8,879 were specimen copies not meant for sale, in which no investment had been made by assessee. perusal of assessment order shows that as per return filed for 2000-01 assessment year, opening stock shown by assessee was of Rs. 6,41,500 whereas as per books of account impounded, there were certain discrepancies. AO was of view that assessee with view to create explanation of stock found during survey and impounded loose papers and documents etc. had inflated stock and changed other figures for 2000-01 assessment year, which had direct effect on year under consideration i.e., 2001-02. explanation of assessee dt. 16th Feb., 2004, is reproduced at page 2 para 6 of assessment order. It was pointed out that inventory of stock made during survey was incorrect on account of fact that MRP mentioned in books has been taken for valuation purposes. objection was to effect that in said MRP, profit is also included. Accordingly, it was contended that once stock taken as Rs. 15,26,357 noted by Survey Party is reduced by 15 per cent, being GP shown in immediately preceding assessment year, balance would work out to Rs. 12,97,403 and there would be only small difference of Rs. 9,387, which should be ignored, as Survey Party has included even specimen copies, in which assessee makes no investment at all. perusal of same further shows that it was submitted that in immediately preceding assessment year, return of income filed showed opening stock of 6,41,500. In support of said submission, Annex. C showing closing stock of Rs. 8,72,500 was filed in said year. It was further submitted that large-scale purchases had been made in month of March 2000 as assessee s season starts in April. purchases so made in March, 2000 remained in assessee s closing stock and this among other stock forms part of closing stock as on 31st March, 2000 and as such, would become opening stock for year under consideration. On 17th Feb., 2004, statement of Shri Ajay Maheshwari, partner was also recorded, who further explained details submitted vide letter dt. 16th Feb., 2004. It was submitted that purchases recorded for 1998-99 were taken into account to work out closing stock for 31st March, 1999 and thus, this became opening stock of 2000-01 assessment year (1999-2000 financial year). It was clarified that these purchases related to financial year 1998-99, but were wrongly entered in financial year 1999-2000 by accountant. It was stated that purchases were largely made from S. Chand & Co. New Delhi amounting to Rs. 1,22,485 and other renowned publishers. However, since they were not found entered in ledger, assessee was required to explain same. Thereafter, assessee vide another letter dt. 25th Feb., 2004 and statement of said partner was again recorded. However, AO was of view that assessee has prepared fresh books of account in preceding assessment year, which were different from books of account impounded under s. 131 and details submitted by assessee were based on these fresh books of account. assessee again reiterated that stock was inventorised at sale price and in support of said claim various textbooks were produced. However, AO was convinced that books of account were prepared after survey and were not books of account maintained in regular course of business and as such, cannot be relied upon. plea of assessee that mistake occurred due to accountant should be ignored was also not accepted. AO was of view that these pleas cannot be accepted "because so many mistakes occurred at so many places and continuing for such long-time, cannot be unnoticed." Accordingly, on comparison of books of account, AO was of view that assessee has introduced purchases of Rs. 3,31,221, sales of Rs. 93,656, payment of Rs. 3,67,745, receipt of Rs. 25,855 and purchase return of Rs. 83,474. All these entries are in cash only. After considering all these facts, AO was of view that purchases of Rs. 3,31,221 less purchase return of Rs. 83,474, i.e., Rs. 2,47,747 were unaccounted and they were later on entered in fresh books prepared by assessee to create explanation for stock found at time of survey and further, as these purchases are unaccounted, expenditure on same has to be added under s. 69C of IT Act in relevant year. As this expenditure is unexplained, same cannot b e allowed as deduction directly or indirectly in view of Explanation to s. 69C. Accordingly, AO observed that assessee s purchases should be reduced by Rs. 2,47,747. He laid emphasis on fact that assessee has claimed purchases of Rs. 1,22,485 from S. Chand & Co. New Delhim which although h v e been entered in fresh books of account, however, it were not mentioned in impounded books, as such, it could not be given much credence. Aggrieved by this, assessee went in appeal before CIT(A). In appeal before first appellate authority, submissions made before AO were reiterated. background of case, as brought before CIT(A) is found at p. 3 of impugned order, which reads as under: "The assessee is partnership concern carrying on retail business of purchase and sale of books and stationery. firm consists of two partners namely: Shri Ajay Maheshwari. Shri Amit Maheshwari. There were survey proceedings at business premises of assessee on 23rd June, 2000. During course of survey stocks were inventorised and statement of Shri Bankey Behari Maheshwari, father of partners was recorded and certain incomplete books of account and other documents were impounded. During course of survey stock of Rs. 7,76,357 (calculated at printed MRP) was found and stock lying at residence of Shri Bankey Behari Maheshwari were also inventorised which was estimated at Rs. 7,50,000. Subsequently, this stock was valued at Rs. 9,68,043 and as such total stock at shop and residence aggregated to Rs. 17,44,400 which has wrongly been stated by AO as Rs. 17,47,400 at p. 4 of order, which working unexplained stock. Further in impounded books AO identified entry of Rs. 50,000 stated to be opening stock generated by credit to account of Shri Bankey stated to be opening stock generated by credit to account of Shri Bankey Behari Maheshwari. AO has further stated that as per return filed by assessee for financial year 1999-2000 (asst. yr. 2000-01) opening stock was Rs. 6,41,500, from this, AO has inferred that assessee with view to create explanation of stock found during survey and impounded loose papers and documents etc. had inflated stock and changed other figures for financial year 1999-2000. learned Addl. CIT has ignored fact that entry of Rs. 50,000 appearing in books of account as per statement of Shri Bankey Behari Maheshwari recorded at time of survey represents stock received by Shri Bankey Behari Maheshwari, received by him at time of his separation from firm M/s Maheshwari Book Depot. This does not represent only opening stock of firm which came into existence on 12th Feb., 1999. learned CIT has completely ignored fact that assessee being retail business has opted for provisions of s. 44AF and filed IT return accordingly." CIT(A) was not convinced by arguments advanced by assessee which it had already advanced before AO. arguments advanced on behalf of assessee that impounded books were not relevant, as assessee had been declaring income under provisions of s. 44AF was also not accepted. He was of view that if any books are to be relied, it was books that were impounded and not books which were prepared after survey under s. 133A. fact that return for asst. yr. 2000-01 was filed was also taken to be situation, which rendered no help to assessee in view of fact that said return was filed after date of survey and also after due date for filing return. arguments that on account of purchases made on earlier years, no addition should be made in year under consideration was also rejected by CIT(A) since he was of view that AO has not made any addition in respect of unaccounted purchases has made addition on account of unexplained stock. arguments of assessee that AO has wrongly mentioned figure of value of stock at Rs. 14,47,400 instead of Rs. 17,44,400, however, was accepted, as it was considered to have been occasioned on account of typographical error. Accordingly, action of AO was upheld by CIT(A). Still aggrieved, assessee is in appeal before Tribunal. learned Authorised Representative appearing on behalf of assessee reiterated at length submissions made before AO and CIT(A). Attention was invited to letter dt. 16th Feb., 2004 addressed to AO placed at paper book, wherein at para 2, background of case was addressed by assessee. For ready reference, same is being reproduced: "That at outset it is brought to your notice that assessee was advised not to maintain books of account and to file return of income availing provisions of s. 44AF of Act. That it was advised after careful thought and after perusal of accounts prepared up to few days of May, 2000 which contains certain mistakes on part of accountant who used to prepare accounts." Inviting attention to p. 2 para 5 of said detailed explanation, before AO, it was emphasized that fact of purchase in month of March, 2000 in view of assessee s season starting from April, had also been brought to notice of AO. For ready reference, same is being reproduced hereunder: "In reply to your honour s query Nos. 2 and 4, it is submitted that for asst. yr. 2000-01 return of income stands filed showing opening Stock at Rs. 6,41,500 (through Annex. C) and closing stock at Rs. 8,72,500. That large scale purchases have been made in month of March, 2000 as assessee s season starts in April, purchases so made in March, 2000 remained in assessee s closing stock and this among other stock forms part of closing stock as on 31st March, 2000. Needless to mention this closing stock as on 31st March, 2000 became opening stock for year under review." It was emphasized that assessee received certain professional advice and its accountant was not competent and did not record transactions over period properly and assessee was advised to file its return of income availing provisions of s. 44AF. books of account were hap-hazardly prepared in which certain mistakes on part of accountant were noticed. However, transactions, it was submitted, are supported by documents and purchase bills of renowned publishers and companies and thus, purely on account of mistakes of accountant and confused advice received by assessee, it was argued, correct and true facts cannot and should not be ignored. It was emphasized that during survey, MRP mentioned in books had wrongly been taken and after it is reduced by profit, i.e., GP rate of 15 per cent shown in immediately preceding year and further reduced by value of specimen copies for which assessee makes no investment, there is hardly any difference. It was also emphasized that return for immediately preceding year had also been filed and accepted, wherein, closing stock of Rs. 8,72,500 has been shown. It was also submitted that in nature of assessee s business, season starts from April, as such, necessarily in March, heavy purchases are made and this is standard practice in this line of business. Accordingly, there is no reason as to why necessary bills and documents pertaining to these should not have been considered by Department. It was argued that accordingly, closing stock for 2000-01 assessment year would automatically become opening stock for year under consideration. As such, addition made in year under consideration of Rs. 2,87,289 is based on no material and fact and arguments of assessee by AO and CIT(A), have been rejected simply on account of fact that there were certain mistakes committed by accountant. It was reiterated that fact that necessary document in support of purchases in earlier year were available before Department have been given no credence. For said contention letter dt. 16th Feb., 2004 before AO wherein bills, copies of accounts in books of publishers and assessee s books were again emphasized. Referring to Annex. C, p. 5 of reply given to AO, in course of assessment proceedings, it was submitted that assessee had submitted that credit purchases from 8th March, 1999 to 31st March, 1999 had been made by assessee since season of selling books to students starts from April onward and these purchases are supported by their bills, bill numbers, dates and exact amount, wherein even specific names of text books, etc. are found mentioned. Inviting attention to same it was submitted that books worth Rs. 6,91,394 had been purchased on credit from renowned publication Modem publications, New Delhi, Oxford University Press, New Delhi, S. Chand & Co. New Delhi, Selina Publisher s, New Delhi. It was submitted that supporting bills as well as statement of accounts appearing in books of assessee as well as in publishers books had also been placed before AO by assessee, which are appearing from pp. 6 to 31. fact that these pertained to credit purchases made in earlier assessment year, return of which had been filed, closing stock from said assessment year would necessarily form opening stock of year under consideration has completely been disregarded by tax authorities and for no reason, good evidence has been considered to be no evidence on account of whims and fancies. fact that these publishers were completely unconnected, unrelated renowned publishers have been ignored. No reasons have been given to show as to how opening stock for assessment year under consideration can be fiddled with without touching closing stock of earlier assessment year. accounts of immediately preceding year, it was submitted, were audited accounts and in year under consideration, they cannot be fiddled without giving any reason, purely based on whims and fancies. Inviting attention to Annex. A, being statement of purchase as on 1st April, 2000 to 26th Feb., 2000, i.e., date of survey and Annex. B as statement of sales as on 1st April, 2000 up to date of survey and credit purchases made of Rs. 6,84,851 from 8th March, 1999 to 31st March, 1999 since text books are required to be purchased immediately before new academic session, which fact is supported by Annex. C. Thus, closing stock in immediately preceding year became opening stock of next assessment year, it was submitted, requires no authority. Thus, once purchase and sales have been accepted in immediately preceding year then as far as year under consideration is concerned, same have to be accepted as opening stock. In context of arguments, which may be advanced for Revenue that in immediately preceding assessment year, return was filed after date of survey. It was argued that statute permits assessee by virtue of s. 139(4) to file return of income before expiry of one year from end of relevant assessment year or before completion of assessment. As such, return filed on 30th March, 2002, it was submitted, was valid return and no reason for ignoring same has been given by Department. Reliance placed upon books of account on date of survey, wherein admittedly, lot of entries were not made and therein various mistakes were committed by Accountant, was assailed receipt of advice by assessee that it could file return under s. 44AF, Department, it was argued yet again, has given no reason to reject evidence placed of credit purchase, etc. from outside unconnected publishing houses, which are supported by documentation not only of assessee but also dates, bill numbers, factum of credit purchases wherein complete details of number of text books, their cost etc. are given. Thus, challenge was posed to fact that in year under consideration, tax authorities were not justified in fidgeting with closing stock of earlier assessment year, in respect of which, return had been filed. learned Departmental Representative on other hand, relied upon orders of tax authorities. It was his submission that in facts of case, books of account relied upon by assessee subsequent to survey should not be relied upon. As such, addition has been rightly made relying upon books of account found recorded up to date of survey. Having heard rival submissions and perused material available on record, it is seen that admittedly, assessee up to date of survey has not recorded his transactions correctly and completely. This fact is owned by assessee itself. However, what operates in favour of assessee is fact of mistake by accountant which was brought to notice of AO by assessee itself and fact of credit purchases made in earlier assessment year, which no doubt, was not found recorded in books of account maintained hap-hazardly by assessee. fact remains that Department has not thought fit to comment upon this unconnected outside evidence relied upon by assessee right from stage of assessment. No arguments have been advanced by learned Departmental Representative or found discussed in orders of tax authorities as to suggest how and why evidence of credit purchase made in immediately preceding assessment year from renowned publishers completely unconnected or related with assessee in any manner should not be believed. perusal of same shows that not only assessee has filed statement of account appearing in its books of account, but assessee has also filed right from assessment stage account, but assessee has also filed right from assessment stage statement of accounts appearing in books of account of those publishers namely, Bharti Bhawan, New Delhi, Frank Brother s & Co. New Delhi, Modem Publications, New Delhi, Oxford University Press, New Delhi, S. Chand & Co. New Delhi, Selina Publisher s, New Delhi. Complete details including dates, bill numbers, number and names of textbooks along with purchase price are given there. Simply because accountant was careless in recording in books of account of assessee is no reason to reject this unconnected outside evidence. Once closing stock of immediately preceding assessment year is taken into consideration, which is supported by way of documentation, there is no reason as to why same should not be taken as opening stock in year under consideration. Accordingly, after careful consideration of entire facts and circumstances of case as well as settled legal position with regard to closing stock of preceding assessment year to be taken as opening stock of subsequent assessment year, I am of view that ground raised by assessee deserves to be allowed. In result, appeal filed by assessee is allowed. *** MAHESHWARI BOOK SHOPEE v. ADDITIONAL COMMISSIONER OF INCOME -TAX
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