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TMI Blog2014 (3) TMI 323X X X X Extracts X X X X X X X X Extracts X X X X ..... ese items in its inventory and the same is duly accepted and assessed whereas the ITO ward 11(3) Pune has not given credit to the undisclosed stock of Rs. 1, 02, 66, 433/- in the assessment made in the case of M/s Benzer Design Center. IV. The learned CIT(A) has erred in law and in the circumstances of the case in holding that the statement of Shri Nainesh Nandu, Karta of the Appellant was recorded at the time of survey and that at the stage of survey action itself, the appellant had clarified that certain stock was belonging to other parties. Actually the survey was conducted on 17. 8. 2005 and. on 17. 8. 2005 the statements of Shri Mukesh Ruparel (General Manager) and that of Shri H. K. Popat (Accountant of the appellant) were recorded in which neither of them stated anything about the stock belonging to any other person. V. The learned CIT(A) has erred in law and in the circumstances of the case in holding that the actual sale price is lower than the tag price. The physical inventory of the stock found was valued by the survey party not on MRP price but same was valued at Tag price (the price printed on the items) which is very low than the MRP. The AO on verification of Sales ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the assessee is about valuation of stock;method of valuation and value of the stock;on the day of survey. During the course of hearing before us, Authorised Representative(AR)did not press ground nos. 4 and 5, hence, same are dismissed as not pressed. As per the AO, a survey under section 133A of the Act was conducted at the business premises of the assessee by the Jt. Director of Income Tax (Inv. ), Pune on 17. 08. 2005, that during the course of survey proceedings physical inventory of cash and stock was taken by the survey party, that as per the survey report on that day physical stock of Rs. 2, 50, 33, 514/- was found, that stock was valued on the basis of price printed on the various items i. e. 'tag price', that the cost price of the stock inventory was valued at Rs. l, 25, 16, 757/- after deducting GP margin of 50% of the 'tag price', that the assessee had shown stock of Rs. 42, 23, 005/-in its books of account as on the date of survey. Therefore, the assessee was asked to explain the difference in the stock found on physical inventory and the stock shown in its books of account as on the date of survey. It was stated by the assessee that the difference was ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... were not lying with the assessee on consignment basis, that BDC was not selling the goods to the market directly as the entire marketing is done by M/s Krome Planet Furniture (KPF) who purchased the goods from BDC, that the entire goods found by the survey party at the business premises of the assessee belonged to the assessee only. AO finally held that the claim of the assessee that the goods lying in its premises are stock of BDC on consignment basis was only a ploy to deflect attention away from the main issue, i. e. excess stock which was found at the time of physical verification on the date of survey on 17. 08. 2008 and the stock found at the time of survey action belonged to KPF only. 2. a. AO further observed that the claim of the assessee that actual sales had taken place at the price lower than the MRP and substantial discounts/rebates were given to the customers on the MRP was incorrect and misleading, that the GP rate as per its final accounts worked out to 42% as against 50%taken by the survey party. Therefore, adopting the GP of 42%, he computed the excess unexplai -ned stock found at the time of survey of Rs. l, 02, 66, 433/-( i. e tag price minus 42% of the tag pri ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... es were out rightly ignored or rejected by the AO without assigning any reasons while making the addition, that the stock register produced during the course of the assessment proceedings was properly maintained, that the assessee was dealing in more than 2, 000 items of furniture, therefore, it is quite possible that a few items were not matching due to the differences in categorization/classification of the items, that same could not be the sole reason to consider that stock register was not maintained properly. Challenging the valuation of stock, it was argued that the addition had been made by taking the 'tag price' as the base price or cost price, although the actual 'sale price' was much lower than the tag price, that whenever customers approached the assessee for purchase of any item of furniture they would generally negotiate the price and the said item of furniture was finally sold at a negotiated price which was generally lower than the tag price being the actual 'sale price', that the AO had adopted the tag price of the items i. e. Rs. 2, 50, 3 3, 514/-and thereafter reduced the gross profit estimated at 42% based on the gross profit ratio actual ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the time the customer would buy the items of furniture same continued to be the property of BDC, that the said modus operandi was duly supported by way of copies of invoices/challans issued by BDC to the assessee and by the assessee to the ultimate customer, that the assessee had also filed copies of invoices issued by BCD as well as by the assessee, that said transactions were also supported by the assessee by extract of the stock register as well as by the consignment note extracted from the books of account, that the AO had not rejected the books of accounts, that those documents could not be ignored, that the evidences clearly proved that the stock lying at the assessee's premises at the time of survey having an aggregate value at the tag price of Rs. 79, 91, 225/- belonged to BDC, that the assessee had also furnished the detailed statement of the stock of items lying on consignment basis showing the aggregate value of the stock of Rs. 83, 66, 425/-, that from the perusal of the said statement it was seen that the items of stock lying at the premises of the assessee amounting to Rs. 79, 91, 225/- were part of the stock declared by BDC at Rs. 1, 5l, 0l, l72/- as evident fro ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... g a wrong product which does not sales at all. At times purchases damages prior to receiving in our showroom such product have to be sold at a rate of scrap value or a small profit margin. Therefore, the inventory of stock taken at our showroom and after deducting the consigned stock value and effective discounts to be given to client to closing stock valuation of our stock at cost price will not have any various beyond as recorded in our books of accounts. " 2. 1. b. Considering the statement of the Karta of the assessee, FAA held that the assessee had clarified that certain stock included in the valuation of the physical inventory in the case of the assessee was belonging to other parties and the value of such stock at market rate was approx. of Rs. 85 lakhs, that that in spite of such categorical submissions made by the assessee the AO had not made any efforts to examine whether the said statement was correct or not, that the evidences placed on record by the assessee in the form of challans, octroi slips, invoices etc. , issued by BDC were on record of the AO, that the evidences had been merely rejected on the ground that the claim of the assessee was only a ploy to deflect t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... iture sold, that the large sample base consisted the details from more than 200 bills, that it consisted of more than 500 items prepared during the period from April 2005 to August 2005, that it showed that the aggregate MRP of the items sold was Rs. 1, 01, 58, 318/-whereas the corresponding price at which the same were sold was Rs. 52, 40, 014/-, that the sale price as disclosed in its books of account was accepted by the AO, that there was no evidence to prove that the assessee had received on such sales and not such evidences were found during survey, that the difference in the price between tag price and the sales price ranged from 20% to 50% on most of the items dealt in by the assessee as per the chart furnished by it. In light of the above discussion, he held that the actual sales never take place at the 'tag price' or 'MRP' in the case of the assessee which was proved by the actual sales bills or invoices recorded in its books of account, that same were not found incorrect or false, that the items dealt with by the assessee were basically fashion driven items which were prone to frequent changes in ongoing trends and tastes of customers, that invariably a r ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... disclosed in the books of account of the assessee were incorrect or false or suppressed. He further held that because the sales were made by cash could not be a reason to hold that the same were not genuine, more particularly in the case of the assessee, being a retailer, where frequency of cash sales was huge as compared to the sales made by cheque, that the AO had not brought any defect or discrepancy in the sales made with the buyers or brought any evidence to prove that the cash sales were not genuine, that he had not doubted the correctness of the books of accounts maintained and had not rejected the same u/s. 145 of the Act, that the findings of the AO were also not corroborated by any concrete evidences found during the survey, that in spite of survey u/s. l33A of the Act the AO had not been able to find any discrepancy in the sales made till the date of survey, that the survey party had also not reported any bogus sales detected in the survey, that in case of sales made by showroom, often customers would come with ready cash with the expectation of getting generous discounts, that such sales could not be disputed merely because they were made in cash, that the comparative G ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s value Rs. 1, 16, 56, 962 G P Rate 42% G P Amount Rs. 48, 95, 924 Cost of the stock (Sales value-GP) Rs. 67, 61, 038 As per the FAA, the assessee had shown the stock of Rs. 42, 53, 005/-, that the said figure was not disputed by the AO, that the balance stock not accounted for in the books of account of the assessee was to be computed at Rs. 25, 08, 033/-(i. e Rs. 67, 61, 038-Rs. 42, 53, 005). Hence, the addition made on account of unaccounted stock of the assessee was determined at Rs. 25, 08, 033/- as against Rs. 1, 02, 66, 433/-determined by the AO. 2. 2. Before us, Authorised Representative(AR) submitted that , that the stock belonged to BDC was intimated to officers of the department at the time when the 1st statement of the assessee was recorded on 29. 08. 2005, that vide letter dated 29. 08. 2005, filed before the DDIT (Inv. ) assessee had explained the fact that the stock to the tune of Rs. 79, 91, 225/- belonged to BDC, that said fact was also recorded at para 5. 3 on page 3 of the assessment order, that the stock transfer challans, consignment note, etc. also supported the fact that the assessee was receiving and holding the stock belonging to BDC on consignment ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tag price, that order of the AO was based on facts and same should be upheld. 2. 3. We have heard the rival submissions and perused the material before us. We find that the AO is aggrieved by the reduction made by the FAA in the alleged unaccounted stock found during the survey action, whereas assessee-HUF has challenged the addition sustained by him. As stated earlier there are two issue involved in the appeals-claim made by the assessee that goods belonging to BDC were lying at the business premises of the assessee and the method of valuation of stock. First we would like to take the claim made by the assessee about the stock owned by BDC and lying with it on 17/08/2005. We find that survey party did not ask any question in this regard before starting the survey action. Generally, before initiating action u/s. 133 of the Act and before preparing physical inventory of stock and cash questions are always asked to the assessee as to whether stock/ cash belonging to others is lying with it or cash/stock belonging to it is lying with some one else. Similar question is asked about the books of accounts also. These questions are asked so that later on assessee cannot claim that differe ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of fact that goods were sold at lower rate as compared to tag price or sometimes same were sold at loss also. He had taken in to consideration various factors for arriving at the conclusion that goods were not sold at tag price. It is a known fact that assessees has to offer heavy discount in case he deals in thing that have shorter shelf life i. e. where fashion and taste of people change rapidly. The fact that goods having tag price of 1. 01 Crores were sold for Rs. 52. 4 lakhs clearly shows that assessee was offering hefty discount to the customers. FAA has held that adopting the tag price as base price for calculating the value of stock on 17. 08. 2005 was not proper as it would give absurd results. In our opinion, no fault can be found in his observations. AO is supposed to determine the due liability of taxes and for that he is supposed to base his order on correct appreciation of facts. While finalising the assessment AO completely ignored these vital and important facts that were considered by the FAA. We are also of the opinion that cash sales do not prove that transactions entered in to by the assessee were not genuine. FAA has found that in the case under consideration c ..... X X X X Extracts X X X X X X X X Extracts X X X X
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