Mamatha Silk Centre v. Income-tax Officer, Suryapet
[Citation -2016-LL-0914-11]

Citation 2016-LL-0914-11
Appellant Name Mamatha Silk Centre
Respondent Name Income-tax Officer, Suryapet
Court ITAT-Hyderabad
Relevant Act Income-tax
Date of Order 14/09/2016
Assessment Year 2007-08
Judgment View Judgment
Keyword Tags value of closing stock • additional income • assessment record • business premises • purchase price • excess stock • actual sale • cost price • sale price
Bot Summary: Further, with reference to excess stock it was submitted that the stock inventory was taken on the lesser of the two prices mentioned in the tag, whereas there is about 55 boost-up in the price mentioned in the price tag from the cost. Indicating the further details such as purchase date, purchase price, sale date, sale price, low tag price and high price etc. The analysis of the information shows that though there is a variation between the tag price and the sale price, the variation is not consistent and not as per a formula, as indicated by the appellant during the survey proceedings where in it was stated that the purchase price is increased by 20 to 25 and then doubled for the purpose of tag price. No. Purchase Sale price Tage price of difference price Rs. Rs. between tag Rs. price and sale price 4674/2. No. Purchase Sale price Tage price of difference price Rs. Rs. between tag Rs. price and sale price 5275/6. Ld. Counsel, referring to the details filed before the AO and CIT(A) reconciling the stock found to the purchase price and sale price, submitted that there is a general boost-up in the prices as mentioned in the price tags. Referring to the statement recorded during the course of survey, it was explained that there will be two prices mentioned, a higher price and a lower price on the tag and generally, the sale person is empowered to sell at 50 of the higher tag price which is generally lower than the lower tag price but also covers reasonable profit margin.


IN INCOME TAX APPELLATE TRIBUNAL HYDERABAD BENCHES B (SMC), HYDERABAD BEFORE SHRI B. RAMAKOTAIAH, ACCOUNTANT MEMBER I.T.A. No. 1381/HYD/2013 Assessment Year: 2007-08 Mamatha Silk Centre, Income Tax Officer, SURYAPET Vs SURYAPET [PAN: AADFM4192Q] (Appellant) (Respondent) For Assessee : Shri S. Rama Rao, AR For Revenue : Smt U. Minichandran, DR Date of Hearing : 06-09-2016 Date of Pronouncement : 14-09-2016 ORDER This is appeal by Assessee against order of Ld. Commissioner of Income Tax (Appeals)-VI, Hyderabad dated 23-08-2013. Assessee has raised following grounds: 2. learned Commissioner of Income-tax (appeals) erred in confirming action of Assessing Officer in rejecting books of account and in estimating gross profit at 10.41%. 3. learned Commissioner of Income-tax (appeals) erred in confirming action of Assessing Officer in holding that there was difference in closing stock. 4. learned Commissioner of Income-tax (appeals) erred in holding that discounts allowed would be 30% on average and that discounts of 30% only should be deducted from tagged price as arrived at by Assessing Officer. 5. learned Commissioner of Income-tax (appeals) ought to have accepted that no addition need be made on account of :- 2 -: I.T.A. No. 1381/Hyd/2013 Mamatha Silk Centre difference in stocks as Assessing Officer did not correct value cost of stocks as on date of survey and that there was no difference in stocks available as on date of survey . Ground Nos. 1 & 6 are general in nature. 2. Briefly stated, assessee is partnership firm carrying on business in trading of clothes. survey u/s. 133A of Income Tax Act [Act] was conducted in business premises of assessee on 31-08-2006. Consequent to survey, assessee filed its return of income for AY. 2007-08 on 15-11-2007 admitting income of Rs. 6,467/-. Assessing Officer (AO) completed scrutiny assessment by making addition of excess stock found at time of survey amounting to Rs. 47,05,008/-. Further, AO rejected Books of Account and estimated gross profit at 10.41% and difference in gross profit admitted at 8.10% and 10.41% estimated amounting to Rs. 2,00,092/- was brought to tax. 3. Before Ld. CIT(A), assessee contested both estimation of gross profit as well as addition of excess stock. It was contended that assessee has maintained Books of Account, therefore, there is no need to reject Books of Account. Further, with reference to excess stock it was submitted that stock inventory was taken on lesser of two prices mentioned in tag, whereas there is about 55% boost-up in price mentioned in price tag from cost. It was submitted that by giving reduction to extent of 55%, there will be no excess stock and assessee s Books of Account can be accepted. :- 3 -: I.T.A. No. 1381/Hyd/2013 Mamatha Silk Centre 3.1. With reference to rejection of Books of Account and estimation at 10.41%, Ld. CIT(A) has agreed with AO and confirmed addition of Rs. 2,00,092/-. With reference to excess stock brought to tax, Ld. CIT(A) gave certain factual findings vide para 5.7 of order and determined reduction of price to extent of 30% and accordingly allowed contention partly. His findings in para 5.10 are as under: During course of appellate proceedings, appellant took plea that, there is huge gap between tag prices and actual sale price, which would be almost equal to 55% which was due to discounts allowed to customers. appellant furnished list/details of sales, under each category/items of trade such as sarees, chiffon sarees, fancy sarees etc., indicating further details such as purchase date, purchase price, sale date, sale price, low tag price and high price etc., as applicable in each item/category. analysis of information shows that though there is variation between tag price (low tag price) and sale price, variation is not consistent and not as per formula, as indicated by appellant during survey proceedings where in it was stated that purchase price is increased by 20% to 25% and then doubled for purpose of tag price. This can be evidenced from sample analysis of few items under categories of sarees, chiffon and fancy sarees, as under: A. Sarees: Ref. No./sale Purchase Sale price Tage price % of difference bill dtd. price Rs. Rs. between tag Rs. price and sale price 5031/16.3.16 2000 2600 4800 45.83% 5235/16.5.06 3750 5100 9350 45.45% 4846/30.4.05 3400 4600 7850 41.40% 4954/13.6.05 3300 4200 7600 44.73% 5503/16.7.05 290 370 400 7.5% 5494/13.7.05 145 150 189 16.66% 6055/10.8.05 108 150 180 16.66% 6076/11.8.05 340 400 450 11.11% 6175/22.8.05 500 600 950 36.85% 6190/24.8.05 380 480 950 49.47% 6188/27.8.05 380 450 850 47.05% :- 4 -: I.T.A. No. 1381/Hyd/2013 Mamatha Silk Centre B. Chiffon Sarees: Ref. No. Purchase Sale price Tage price % of difference price Rs. Rs. between tag Rs. price and sale price 4674/2.5.05 102.04 110.00 130 15.38% 4681/3.5.05 127.55 160.00 170 5.88% 4442/22.3.05 142.86 170 220 22.72% 4482/28.3.05 450 550 570 3.50% 4471/26.3.05 280 330 390 15.38% 4470/26.3.05 150 170 180 5.55% 4465/26.3.05 300 370 480 22.91% 4646/29.4.05 320 375 460 18.47% 4783/9.5.05 175 215 240 10.41% 31042/5.4.05 290 350 395 11.40% C. Fancy Sarees: Ref. No. Purchase Sale price Tage price % of difference price Rs. Rs. between tag Rs. price and sale price 5275/6.6.05 450 600 700 14.28% 5346/16.6.05 350 400 500 20.00% 5520/29.7.05 400 450 530 15.09% 4/4.5.06 300 360 570 36.84% 53/3.6.06 375 400 500 20.00% 78/14.8.06 175 280 300 6.66% 83/30.8.06 300 380 420 9.52% 9233/13.5.06 330 400 450 11.11% 103/3.2.07 275 350 410 14.63% Thus, as could be seen from data as enumerated above on sample basis, it reveals that there is difference between tag price and sale price, on account of discounts being allowed by appellant firm to it s customers, which was not taken into consideration by AO, while quantifying physical stock at Rs. 68,88,419 and arrived at excess stock of Rs. 47,05,008 and for making addition of Rs. Equal amount, on said account. Hence, it appears there is basis for argument of appellant that value of closing stock is lower than value as taken at tag price. However, variation was pegged at 55% by appellant, which appears to be on higher side. As could be seen, such variation is more among sarees which is in range of 45.83 to 6.66%, and among chiffon sarees, variation/difference is in range of 3.50% to 22.91%, and in case of fancy sarees, it is in range of 7.5% to :- 5 -: I.T.A. No. 1381/Hyd/2013 Mamatha Silk Centre 49.47%. Hence, it may not be correct to assume that such variation in 55% on total stocks/sales, on average, where volumes of sales/turnover under each category is not indicated. Thus, based on facts of case, and as revealed from analysis made, it may be reasonable to put discount/variation between low tag price and sale price at 30% on average. Accordingly, appellant deserved to deduct 30% variation on stocks quantified on account of discount allowed on tag prices. Thus, discount @30% needed to be deducted from value of stock as arrived at Rs. 68,88,419/- on basis of low tag price, and assessing officer is directed to recomputed net unexplained closing stock for treating same as unexplained investment. Accordingly, this ground of appeal is treated as partly allowed. 4. Ld. Counsel, referring to details filed before AO and CIT(A) reconciling stock found to purchase price and sale price, submitted that there is general boost-up in prices as mentioned in price tags. Therefore, same cannot be taken as value of closing stock on date of survey. Referring to statement recorded during course of survey, it was explained that there will be two prices mentioned, higher price and lower price on tag and generally, sale person is empowered to sell at 50% of higher tag price which is generally lower than lower tag price but also covers reasonable profit margin. It was submitted that inventory was not prepared with higher tag price, but only with lower tag price, which itself is boosted-up price. Referring to statement recorded wherein assessee has clearly stated that if price tag is shown as 750/550, sales person can sell at price higher than Rs. 375/- but not lower. He indicated that lower price of Rs. 550/- is more than cost price + profit as stated in statement itself. AO did not take into consideration higher tag price kept on inventory. It was submitted that generally on average, boost-up of price even in lower tag price is to extent of 42% :- 6 -: I.T.A. No. 1381/Hyd/2013 Mamatha Silk Centre and CIT(A) has erred in considering only 30% reduction. He also submitted reconciled statement to indicate that ultimate sale price is much less than tag price and since most of goods are sold during year and sale price was already recorded in books, no further addition can be made on excess stock found on day of survey. 4.1. With reference to rejection of Books of Account, Ld. Counsel submitted that profit offered by assessee is reasonable and should not have estimated income at 10.41%. 5. Ld. DR however, showed inventory, as placed in assessment record (copy was not filed on record of ITAT] to inform that there are many items in which there is only one tag price and there is no higher or lower tag price. Only in certain silk sarees, higher tag price and lower tag prices were available and inventory was made of lower tag price. It was submitted that on average, reduction of price is coming to about 25%. Therefore, Ld. CIT(A) is very reasonable in granting 30% reduction. It was further submitted that Revenue also preferred appeal but same was dismissed on tax effect. It was submitted that order of CIT(A) is reasonable. 6. After considering rival contentions and perusing evidences on record, I am of opinion that assessee s Books of Account were rejected for valid reasons. In fact in course of survey, AO did not verify all vouchers and Books of Account and arrived excess stock as quantified in survey at Rs. 47,05,008/-, for which assessee admitted that inventory was taken :- 7 -: I.T.A. No. 1381/Hyd/2013 Mamatha Silk Centre correctly. Managing Partner in fact admitted additional income of Rs. 30 Lakhs in course of survey. Keeping that in mind and also noticing that assessee has offered only income of Rs. 6,467/- in return of income, there is reasonable cause for rejection of Books of Account and estimating gross profit. 7. Coming to issue of excess stock also, Ld. CIT(A) has examined contentions viz-a-viz., various sale bills and tag prices and has reasonably estimated reduction to be about 30%, which is reasonable on given facts. In view of this, to extent of estimation of gross profit and estimation of stock on day of survey, I agree with findings of Ld. CIT(A). However, I find that there cannot be two additions on same issue. Therefore, I am of view that addition made viz-a-viz gross profit can be telescoped to addition which was made on excess stock. Accordingly, AO is directed to telescope income added as gross profit addition of Rs. 2,00,092/- to excess stock determined after order of CIT(A). Thus, assessee gets partial relief. Grounds are accordingly allowed partially. 8. In result, appeal of assessee is partly allowed. Order pronounced in open Court on 14th September, 2016 Sd/- (B. RAMAKOTAIAH) ACCOUNTANT MEMBER Hyderabad, Dated 14th September, 2016 TNMM :- 8 -: I.T.A. No. 1381/Hyd/2013 Mamatha Silk Centre Copy to : 1. Mamatha Silk Centre, Suryapet. C/o. Sri S. Rama Rao, Advocate, Flat No. 102, Shriya s Elegance, Road No. 9, HImayathnagar, Hyderabad. 2. Income Tax Officer, Suryapet. 3. Commissioner of Income Tax(Appeals)-VI, Hyderabad 4. Commissioner of Income Tax-VI, Hyderabad. 5. D.R. ITAT, Hyderabad. 6. Guard File. Mamatha Silk Centre v. Income-tax Officer, Suryapet
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