IT : Where assessee agreed to computation of closing stock, but later attributed discrepancy in stock to error in computer programme which was not established, addition of excess stock as undisclosed investments was justified
■■■
[2013] 33 taxmann.com 370 (Gujarat)
HIGH COURT OF GUJARAT
Vipul Kumar Kirtilal Shah
v.
Income-tax Officer, Ward - 1*
AKIL KURESHI AND MS. SONIA GOKANI, JJ.
TAX APPEAL NO. 1512 OF 2011†
MARCH 18, 2013
Section 69B of the Income-tax Act, 1961 - Undisclosed investments [Stocks] - Assessment year 2004-05 - During survey, physical stock verification and comparison with stock reflected in books of account revealed excess stock - Assessee agreed to computation and closing stock in his statement - Later, on basis of an undated letter to Assessing Officer, assessee claimed that substantial difference in stock was attributable to non-reflection of opening stock in computer generated stock account - Whether, where assessee substantially agreed to computation of closing stock in statement, but later claimed that discrepancy was due to error in computer generated programme, which was not established, addition on account of excess stock, under section 69B as undisclosed investments, was sustainable - Held, yes [Para 11] [In favour of revenue]
FACTS
| ■ | During course of survey, physical stock verification and comparison with stock reflected in books of account revealed excess stock of Rs. 29.50 lakhs. The assessee agreed to the computation of closing stock in his statement during survey, but added that he would point out to the department within few days, if there was any arithmetical mistake in the computation. | |
| ■ | Later, on the basis of an undated letter written by the assessee to the Assessing Officer, the assessee claimed that substantial portion of difference in stock was attributable to non-reflection of opening stock in the computer generated stock account submitted during survey, due to a problem in the computer programme. The assessee also placed statements of purchase and stock before the Assessing Officer. However, the Assessing Officer did not accept assessee's contentions and made addition under section 69B for whole of excess stock. | |
| ■ | On appeal, the Commissioner (Appeals) and the Tribunal upheld the order of the Assessing Officer. | |
| ■ | On further appeal by assessee: |
HELD
| ■ | It is found that the assessee had, in his statement during the course of survey, accepted the working of closing stock by the survey team. He had also not raised any dispute about the actual stock reflected according to his accounts. It is true that his admission was somewhat qualified and had stated that if he found any error of arithmetic nature, he would bring the same to the notice of the officers shortly. It may also be true that he did send the earlier noted communication to the Assessing Officer long before the assessment was over. Merely because in his statement he stated that if any discrepancy is to be pointed out, he would do so in three or four days, would not make any subsequent communication redundant for the purpose of assessment. [Para 8] | |
| ■ | However, the central question is whether the assessee discharged his burden of demonstrating even prima facie that there was any serious error in the computer generated stock statement. The letter does not throw any light other than suggesting that due to computer error, the opening stock was not included in the stock statement. However, before this court, it was suggested that computer entries were made manually and that did not include the opening stock as on 1-4-2003. More significantly, it is noticed from the discussion in the assessment order that the assessee was maintaining accounts not only in the computer but also manually. Nowhere in such manually maintained accounts also, such discrepancy was brought on record. If the computer error was as simple as ignoring the opening balance of stock as on 1-4-2003, the same could have been easily demonstrated through manually maintained accounts. From the record, no such attempt was made. [Para 9] | |
| ■ | Significantly, in presence of the assessee, the survey party had carried out physical stock taking. Valuation thereof and method of computation of valuation was never in dispute either before the Revenue authorities or before this Court. The view of the Commissioner (Appeals), that assessee had not brought anything on record to establish the theory that the stock statement generated by the computer omitted to take into account the opening stock at the beginning of the year is acceptable. Even after taking into consideration such opening stock, admittedly, there was discrepancy in the physical stock found at the time of survey, even as per the assessee, to the tune of Rs. 11 lakhs. [Para 10] | |
| ■ | This is, therefore, not a case where assessment is confirmed on the basis of confessional statement, which was later on retracted. This is a situation where Revenue had, during the course for survey, collected sufficient evidence. Assessee substantially agreed to such material on record. Though later, assessee tried to suggest that discrepancy was owing to the error in computer generated programme in ignoring the opening balance of the stock, he failed to even remotely establish the same. [Para 11] | |
| ■ | In the result, no question of law arises. Tax appeal is dismissed. [Para 12] |
CASE REVIEW
Vipulkumar Kirtilal Shah v. ITO [IT Appeal No. 1417 (Ahd.) of 2008, dated 17-6-2011].
Tushar P. Hemani and Ms. Vaibhavi K. Parikh for the Appellant. K.M. Parikh for the Respondent.
ORDER
Akil Kureshi, J. - Assessee is in appeal against the judgement of the Income Tax Appellate Tribunal dated 17.6.2011 raising following questions for our consideration :
| "(i) | Whether in the facts and circumstances of the case, the Income Tax Appellate Tribunal was right in law in upholding the order of the lower authorities by confirming the addition of Rs. 29,50,102/- under section 69B of the Act? | |
| (ii) | Whether in the facts and circumstances of the case, the Income Tax Appellate Tribunal was right in law in not appreciating that there was no excess stock as alleged more so when complete stock reconciliation was given to the Respondent? | |
| (iii) | Whether, in the facts and circumstances of the case, the order of the Income Tax Appellate Tribunal was perverse in as much as (i) the very basis of the impugned order viz. the letter disputing the computation of the excess stock placed at Page No.16 of the paper book filed before the Tribunal, was held not to have been filed before the lower authorities, was very much found on the record (ii) it has not properly appreciated the evidences and documents including the stock reconciliation and corrected trading accounts already placed on record? |
2. Issue pertains to addition made by the Assessing Officer and confirmed by the CIT (Appeals) and the Tribunal under section 69B of the Income Tax Act, 1961 ("the Act" for short). The appellant assessee is engaged in the business of trading in readymade garments. Business premises were subjected to survey operation on 14.10.2003. During the course of physical stock verification and comparing the same with the stock reflected in the books of account of assessee, it was found that as on 14.10.2003 there was excess stock of Rs.29.50 lakhs(rounded off). A detailed statement of the assessee was also recorded. In such statement, he agreed to the computation of the closing stock and comparison thereof with the stock reflected in the accounts maintained by the assessee. He was confronted with the excess stock of Rs. 29.50 lakhs being found, to which he agreed that entire computation is being done correctly and he has no dispute with the same. He accepted all the computation but added that he would once again have a look at such computation and if there is any discrepancy, he would bring it to the notice of the officer within three or four days. In the later portion of his statement, he once again reiterated that he will have a relook at the stock statement and if there is any airthematical mistake emerging, he would point this out to the department.
3. A the centre of the controversy is a disputed undated letter written by the assessee to the Assessing Officer in which he stated that the stock submitted as per the books during the course of survey was without the opening stock. Since the computer programme had some problem at the time of survey, it had given wrong figure. This is the crux of the assessee's stand emerging from such letter. In addition to relying on such letter, assessee also before the Assessing Officer placed additional documents such as a working out of the statement of purchases and stock for financial year 2003-2004 relevant to assessment year 2004-2005 and contended that substantial portion of the difference between the stock reflected in the accounts and that found physically during the course of survey is attributable to non reflection of the opening balance in the computer generated stock account. Assessing Officer however, did not accept such version and concluded that there was excess stock of Rs. 29.50 lakhs detected during the survey. He did not place reliance on the above-noted undated communication.
4. Aggrieved by the decision of the Assessing Officer, assessee approached the Commissioner (Appeals) who once again examined the entire issue but found no reason to interfere. He held and observed as under :
"4.4 I have carefully considered the submissions of the Authorized Representative and the order of the Assessing Officer. The valuation of stock was done on the premises of the appellant, It was done in the presence of the appellant who has signed every page of inventory. The closing stock was worked out on the basis of the details supplied by the appellant, The appellate as per the records made no attempt to reconcile the difference if any. The Assessing Officer's observations that reconciliation could have been done by the appellant with the help of manual books of account is faultless. The appellant failed to do so. The plea taken by him that he has filed a letter seeking time to reconcile the accounts, cannot really be accepted. The letter, a copy of which has been filed before me is an undated application which does not even bear the stamp of the Income tax officer. Its veracity cannot be relied upon. Apart from tying to explain the discrepancy being on account of computer fallibility the appellant has not submitted any evidence in support of his claim. The Assessing Officer was therefore, justified in bring to tax Rs. 29,50,102/- as appellant's deemed income u/s. 69B of the Income tax Act in the current year. Accordingly, addition of Rs. 29,50,102/- made by him is confirmed.
4.5 With regard to treating the income as deemed income under section 69B of the Income tax Act, there is merit in the submissions of the appellant. The basic fact is that survey was conducted on the business premises of the appellant. During the course of survey proceedings, stock of merchandise was found in which the appellant had been dealing with regularly for the last many years. The books of accounts wherein, the details of such stock was dealt with were considered by the survey party. The difference in quantity between the stock entered in the books of accounts and the stock found at the business premises of the appellant was considered to be additional stock. The survey party did not distinguish between the excess stock said to have been invested from undisclosed sources and the stock entered in the books of accounts. This was so because the entire stock was from a common pool found on the business premises of the appellant. Therefore a direct nexus between the business activity of the appellant and the excess stock found during the course of survey was established. Further no evidence has been brought on record which indicates that the appellant has any other source of income which has been utilised by him for acquiring the excess stock found during the course of survey. The reliance of the Assessing Officer on the decision of the Gujarat High Court in the case of Fakir Mohammad Haji Hassan is not correct since the facts of the case are clearly distinguishable from the facts of the case of Fakir Mohammad Haji Hassan. In the said judgement, the Hon'ble High Court had commented that it is not the case of the appellant that he is in the business of smuggling. In the present case, it is the case of the appellant that he is in the business of trading in garments and excess stock of garments has been found at the business premises of the appellant, In view of the above, I hold the Assessing Officer was not justified in invoking the provisions of section 69B in the case of the appellant. Therefore, the amount declared as investment made in stock should be brought to tax as the business of income of the appellant and not as deemed income u/s. 69B of the Income Tax Act."
5. Aggrieved by such decisions of the Revenue authorities, the assessee approached the Tribunal. Tribunal by the impugned judgement refused to interfere observing that the valuation of the stock was done in the premises of the assessee which was not disputed at any point of time. The inventory was signed by him. Statement of the assessee was recorded on the above points who admitted in his statement that he had verified that the complete work of inventory was prepared correctly and he has no objection. The Tribunal also did not place much reliance on the undated communication on the premise that same did not carry any date and there was nothing to show when the same was filed before the Assessing Officer.
6. Before us learned counsel Shri Tushar Hemani for the appellant painstakingly taking us through different documents on record contended that admittedly the undated letter was very much before the Assessing Officer even before the assessment was completed. The assessee had laid out sufficient material to establish that it was only on account of the error that the computer generated record did not include the opening stock. Had this been taken into consideration, the excess stock found at the time of survey would have come down to less than Rs. 11 lakhs. He submitted that all the authorities committed a grave error in discarding the letter through which he had reconciled the figure of stock as per the record and the physical stock.
7. On the other hand, learned counsel Shri Ketan Parikh for the Revenue opposed the appeal contending that the Revenue authorities and the Tribunal have correctly appreciated the evidence on record. No question of law therefore, arises.
8. From the record, we find that the assessee had in his statement during the course of survey accepted the working out of closing stock by the survey team. He had also not raised any dispute about the actual stock reflected according to his accounts. It is true that his admission was somewhat qualified and had stated that if he found any error of airthematic nature, he would bring the same to the notice of the officers shortly. It may also be true that he did send the earlier noted communication to the Assessing Officer long before the assessment was over. We have no hesitation in agreeing with Shri Himani that such document also should have been taken into account. Merely because in his statement he stated that if any discrepancy is to pointed out, he would do in three or four days, would not make any subsequent communication redundant for the purpose of assessment.
9. However, the central question is did the assessee discharge his burden of demonstrating even prima facie that there was any serious error in the computer generated stock statement. We have taken note of the contents of the letter. It does not throw any light other than suggesting that due to computer error, the opening stock was not included in the stock statement. Before us, however, a somewhat different stand was taken. It was suggested that computer entries were made manually and that did not include the opening stock as on 1.4.2003. More significantly, we notice from the record particularly from the discussion in the assessment order that the assessee was maintaining accounts not only in the computer but also manually. Nowhere in such manually maintained accounts also such discrepancy was brought on record. Surely, if the computer error was as simple as ignoring the opening balance of stock as on 1.4.2003, the same could have been easily demonstrated through manually maintained accounts. From the record, we do not find any such attempt was made.
10. Significantly, in presence of the assessee, the survey party had carried out physical stock taking. Valuation thereof and method of computation of valuation has never been in dispute either before the Revenue authorities or before us. In that view of the matter, we concur with the view of the Revenue authorities particularly, with the Commissioner(Appeals) whose relevant observations we have reproduced in the earlier portion of the judgement that assessee had not brought anything on record to establish the theory that the stock statement generated by the computer omitted to take into account the opening stock of the beginning of the year. We may record that even after taking into consideration such opening stock, admittedly, there was discrepancy in the physical stock found at the time of survey, even as per the assessee, to the tune of Rs. 11 lakhs.
11. This is therefore, not a case where assessment is confirmed on the basis of confessional statement which was later on retracted. This is a situation where Revenue had during the course of survey collected sufficient evidence. Assessee substantially agreed to such material on record. Though later on assessee tried to suggest that discrepancy was owing to the error in computer generated programme in ignoring the opening balance of the stock, failed to even remotely establish the same.
12. In the result, no question of law arises. Tax Appeal is dismissed.
PROMITARegards
Prarthana Jalan
__._,_.___
No comments:
Post a Comment