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TMI Blog2021 (5) TMI 913X X X X Extracts X X X X X X X X Extracts X X X X ..... t profit of ₹ 875,000/ No infirmity in the order of the learned CIT A in deleting the addition made by the learned assessing officer holding that the opening stock of the assessee was an unexplained income of the assessee as such stock in trade was not in existence. In the result, the solitary ground of appeal of the learned AO is dismissed. - ITA No. 176/Del/2018 - - - Dated:- 27-5-2021 - Shri Amit Shukla, Judicial Member And Shri Prashant Maharishi, Accountant Member For the Assessee : Shri Gautam Jain, Adv For the Revenue : Shri S. S. Negi, Sr. DR ORDER PER PRASHANT MAHARISHI, A. M. 01. This appeal is filed by Asst Commissioner of Income Tax, Circle 34 (1), New Delhi for assessment year 2013 14 against order passed by learned Commissioner of Income Tax (Appeals) 12, New Delhi dated 29/9/2017 raising a solitary ground of appeal that whether learned CIT (A) has not erred in deleting addition of ₹ 51,051,656/ made by assessing officer by treating opening stock of assessee to be assessee is an unexplained income. This is solitary issue in this appeal. 02. Briefly stated facts shows that assessee is an individual engaged in bu ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nspection report was obtained. Report of inspector clearly stated that no godown, which can be used for storing of fabrics was not found. Therefore learned assessing officer issued show cause notice to assessee stating that inspector report submitted have shown that no business of exist honourable existed in said premises and go down mentioned by assessee have not been operational for storing or selling of clothes. Assessee was also confronted that vehicle number is submitted by him was also owned by a different person. Assessee submitted his detailed reply on 3 March 2016 sum and was issued to assessee on 22nd of March 2016 however, assessee was out of town, but AR of assessee submitted a detailed reply on 28th of March 2016. After considering the reply of the assessee, Ld AO thereafter made addition as under :- 17. It is well known fact that cloth is a VAT free product. It is many times misused to convert black money into white by showing sales and purchases of large amounts in cloth. This whole charade concocted by assessee is nothing but this. It goes against human prudence and probability that stock worth ₹ 5 crores is kept for more than 6 years when there is a very ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ing Corporation, 324 ITR 406 it is held that once the revenue has accepted the closing stock it would automatically become the opening stock for the subsequent Assessment year. In the case of Indian National Tannery Pvt. Ltd., 278 ITR 213 the Court has held that the value of the closing stock must be the value of the opening stock in the succeeding year. The decision in the case of Ram Luxman Sugar Mills, 63 ITR 51 addresses the method of valuation. Similar ratio has been laid down in the case of Melmould Corporation 202 ITR 789 cited supra. The sum of these decisions which are applicable to the facts of this case are that if the closing stock of the previous year has been accepted by the revenue, the opening stock in the succeeding year cannot be denied. But the catch in this case is: whether the revenue has accepted the existence of closing stock in the previous financial years? I find that the Assessing Officer has vehemently denied through investigation the existence of closing stock in the previous financial years. The other issues linked to this aspect will be discussed in the following paragraphs: 10.14 The appellant has argued that the Assessing officer has not disputed ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... copy of the minutes of the board meeting of M.s BSR Industries Pvt. Ltd. on 24.01.2011 permitting the Assessee for using godown Kundli, Haryana for keeping the stock. With respect to the sales made during the year under consideration the Assessee submitted the list of sundry debtors alongwith their address and PAN, partywise and month-wise sale details, copy of ledger of M/s Rudraksh Fab Pvt. Ltd. (debtor) alongwith reconciliation in the books of M/s Exel Fabrics and ledger of M/s Exel Fabrics in the books of M/s Rudraksh Fab Pvt. Ltd. for FY 2012-13, copy of the confirmation from the above party. Similar documents were submitted in respect of the sales to M/s Balaji Hosiery Udyog. Besides the above, an affidavit of Sh. Sonu Saini was submitted affirming the transportation of fabric and receipt of payment amounting to ₹ 32,650/-. The Copy of the details of freight charges paid to Sh. Raju Khurana was also submitted. It is claimed that these documents proved the sales made by the Assessee. 10.17 The Appellant has argued that the Assessing Officer has not given any finding that accounts are incorrect or incomplete or she could not deduce the income from the accounts m ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... bmitted before the 6 Assessing Officer. Since, this Annexure has also been made part of Appellant s submission in this order, the same is not discussed here at length. On the issue of declaration of stock in the Financial Year relevant for AY 2007-08, the Appellant has referred to the Assessment Order passed u/s 143(3) /147 in which the Assessing Officer noted that the Assessee produced the relevant documents alongwith source of investment in stock and other assets which were examined. On the observation of the Assessing Officer that the Assessee has not shown basic assets like weighing scale /weighing meter, scissors / cutters in the Balance Sheet, it has been replied that the petite items are part of the stationary expenditure and not fixed assets. Such small items were not capitalized by the Assessee owing to their miniscule value. With regard to the inquiries conducted by the Assessing Officer it is submitted that Assessee furnished confirmation from the parties to whom the sales were made. The Assessing Officer conducted no inquiry from such purchasing parties. The assessing officer had doubted the business activities carried out by the Assessee on the ground that he was busy ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... oubted the sales made by the Assessee. The Appellant, during the Assessment proceedings, filed the confirmation from the sundry debtors namely Ms. Sushma Jain, Sh. Krishan Jain, M/s BSR Industries Pvt. Ltd., Sh. Mayank Jain and Sh. Santosh Jain. The Assessee also produced the sale bills to support the transaction. The sale proceeds were substantially realized thought account payee cheques. It is also claimed by the Appellant that the Assessing Officer carried out verification in respect of the sales and she did not find any adverse facts. In view of these facts, where sales have not been denied or disbelieved, to negate the stock out rightly would be a self contradictory proposition. On the given facts and in the circumstances, the theory of the opening stock shown by the Assessee may be rejected on various counts but the existence of stock cannot be denied in view of the sales. It is also possible that the Assessee made the purchases during the year under consideration and sold the stock in the market. In any case, where the credit side of the Profit Loss account has not been dismissed by the Assessing Officer through the inquiry, corresponding debit side in respect of the st ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... urchases might have been made from bogus parties, the purchases themselves were not bogus. The Tribunal adverted to the facts and data on record and came to the conclusion that the entire quantity of opening stock, purchases and the quantity manufactured during the year 2005-06 were sold by the Assessee. Therefore, the purchase of the entire 1,02,514 meters of cloth were sold during the year 2005-06. The Tribunal, therefore, accepted the Assessee s contention that the finished goods were purchased by the Assessee through not from the parties shown in the accounts, but from other 9 sources. The Tribunal was of the opinion that not the entire amount, but the profit margin embedded in such amount would be subjected to tax. Hon ble Gujarat High court held as below: .. 10.21. Reliance is also placed on the decision of the Hon ble Gujarat High Court in the case of CIT vs. Sathyanarayan P. Rathi, 351 ITR 150(Guj) Wherein it was held that: 10.22 In yet Another decision CIT vs. Simit P. Sheth, 356 ITR 451 (Guj) the Hon ble Gujarat High Court held as under on almost similar facts: .. 10.23 Further in the case of ACIT vs. M/s Jaipur Jewels in ITA No. 1699/Mum/2017 dated Septembe ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ing the actual factual gamut of the controversy where inquiries made by AO based on the return of income, on the basis of statement recorded, on the basis of the inquiries of the inspectors, the returns filed by the assessee in earlier years clearly proved that assessee has manipulated these activities of trading of fabric. He therefore submitted that the order of the learned assessing officer should be upheld in the order of the learned CIT A deleting the above addition should be set aside. 08. The learned authorised representative placed on record and extensive written submission running into 33 pages supported by a paper book and thereafter submitting that the issue is squarely covered by the decision of the honourable Delhi High Court on identical facts and circumstances wherein the coordinate bench in the case of that assessee deleted the addition which has been confirmed by the honourable Delhi High Court. He extensively read the decision of the honourable Delhi High Court and submitted that there is not of difference of even an inch except the amount of the addition in the issue dealt with by coordinate bench, which has been upheld by the honourable Delhi High Court. He ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... only the assessee, his father Shri Anil Kumar and his mother Smt. Manjusha were also found trading same cloth/fabric under the similar circumstances in different names. Shri Manjusha Anil was working under the name and style of M/s Hitech Trading takes place from 42 77, Mumbai - Pune Highway, Khopoli Industrial Estate, Raigaol, Mumbai, On physical enquires at all the business premises it was discovered that there was no fabric/cloth trading business in existence for any of the members. f. It was quite intriguing that when the assessee was actually residing in Mumbai, earning salary income in Mumbai and had his business also at Mumbai, and there was no business at Delhi, why had it been consistently been filing its ITRs in Delhi with Delhi address. xxxxxxxxxxxxxxxxxx a. All the sales undertaken by its proprietary concern M/s Loraiya Trading were in cash only. b. During FY 2013-14, no purchases were made, all the sales were made out of the opening stock available at the beginning of the year. c. On perusal of the sample voucher of cash sales, they appeared to be fresh, computer printouts, recently signed and back-dated to FY 2013-14. d. The business of the asses ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... f any weighing machine. The Respondent- Assessee, contested the scrutiny proceedings by relying upon the rule of consistency by referring to the assessment of the earlier years. However, his contention was rejected on the ground that no finding had been given by the AO in AY 2007-08 and the present findings in AY 2014-15 would not be affected by the findings of earlier assessment years as the facts of the present year are entirely different. Accordingly, the order of the AO was upheld. On further appeal, the learned ITAT held that the AO was not justified in law to treat the sales as income from unexplained sources and consequently, addition made by the AO, sustained by the CIT(A) of ₹ 4,20,62,550/- was deleted. As a result, the appeal of the Respondent-Assessee was allowed. 9. Mr. Ajit Sharma, learned Senior Standing Counsel for the Appellant- Revenue urged that the learned ITAT was not justified in ignoring the specific findings given by the AO in the assessment order dated 31.12.2016. He submitted that the AO after conducting a detailed enquiry had rightly concluded that Respondent- Assessee's intention was to get assessed at a remote place in Delhi, rather than bef ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... shown NIL', which factum has been shown in audit report and return of income for A.Y. 2016-17. This inter-alia means that entire stock alleged to have been kept by the assessee were sold during the financial year 2015-16 and all the business was shut down. In her inquiry report AO had stated that the areas specified in the address, heavy constructions was being done for residential housing society and this was not the area was not well addressed and she also stated the details of certain construction sites. On the plot which has been stated to be near the address was in a complete abandoned state which had dilapidated building and even on enquiry, nobody could confirm running of such business. It has been alleged by the AO that similar inquiry was done in the case of assessee's father and mother where again business premises was found to be untraceable at the given addresses. She had also repudiated many evidences as well as explanation given by the assessee which we have already discussed above. Even the Ld.CIT(A) has reiterated and confirmed the said observations of the AO in a very detailed manner. From such finding and observations it does appear that at the time ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s how far will affect the past history and the year under consideration, i.e., F.Y. 2013-14 is the moot point for our consideration juxtaposed with entire facts and material on record. 14. The finding of the AO in her inquiry conducted in November, 2016 and past assessment records have to be weighed in light of all probable factors and preponderance of probability of such factors has to be seen qua material on record which we shall discussed herein after. One of the most glaring fact which unfolds from the material placed on record is that, prior to the assessment year 2007-08 assessee had made huge purchases of stock the source of such purchases have been reflected in the books of account and audited accounts; and in the assessment year 2007-08, the opening stock of fabric/cloth was valued at ₹ 31,65,48,236/- and in that year itself there was sales of around ₹ 5.89 crores leaving behind the stock of ₹ 25.83 crores thereof. Again huge purchases have been shown in the A.Y. 2008-09 and sales have also been made. The details of opening stock, purchases, sales and closing stock for various years has already been incorporated above. As on 31st March, 2014 there was ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... stock stood accepted which had attained finality. Thus, the quantum and figure of the opening stock which stood accepted in the earlier years has to be taken as an actual stock available with the assessee. Out of the said stock purported sales of ₹ 4,20,62,550/- has been made leaving a closing stock of ₹ 15,48,57,470/-. The trading account was thus reflected in the following manner:- Item Unit Opening Qty. Qty. Qty Out Closing Qty. In Details Cotton Kg. 19,85,109.530 0.000 4,11,716.260 15,73,393.270 Fabric Grand Total 19,85,109.530 0.000 4,11,716.260 15,73,393.270 15. Ld. AO or Ld. CIT (A) in the impugned orders have neither said anything about the opening stock or the closing stock coming from the earlier years nor they rejected the trading result or gross profit but instead have treated the entire sales on the credit side as income from unexplained sources. Even if the contention of the AO is accepted that assessee has not made any sales, then in that case the opening stock which has been accepted by the department in earlier years continues to be with the assessee and the same should be reckoned to be reflected as closing stock on the credit side of th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... stly, the AO has neither rejected the books of accounts nor disturbed the opening and closing stock nor the gross profit; and once that is so, then to treat the entire sales as income of the assessee will not hold ground, because either there has been sales or the same stock must be appearing in the closing stock at the year ending 31st March, 2014. This finding of stock available in books has not been dealt at all by the authorities below. Not only that, in the subsequent years also once the assessee's stock which has been sold and said sale and income derived there from has not been disturbed then it quite difficult proposition to hold that the sales made by ht assessee out of its opening stock should be treated as income from unexplained sources. 17. Thus, in our opinion the sale made by the assessee out of his opening stock cannot be treated as unexplained income to be taxed as income from other sources'; firstly, the stock was available with the asssessee in his books of account and trading in such stock including purchase, sale, opening and closing stock (quantity wise and value wise) has been accepted by the department year after year and in some years under scru ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... dditionally, in respect of AY 2012-13 also, Respondent-Assessee's trading activities were subjected to detailed scrutiny under Section 143(3) of the Act. In the said year, the AO had rejected the trading result and even enhanced the GP rate and made an addition in the trading account. The learned ITAT thus held that in respect of AY 2012-13 the opening and closing stock and trading accounts including sales has not been disturbed. In these circumstances, the learned ITAT observed that in the impugned AY 2014-15, the audited balance-sheet reflected an opening stock of ₹ 19,53,29,660/- which stood accepted by the Department either under the scrutiny proceedings or by not selecting the return for scrutiny or by not taking any action to disturb such returned income. In these circumstances, it was held that the quantum figure and the opening stock which stood accepted in the earlier years had to be taken as actual stock available with the Respondent- Assessee. In view of these facts, the sales made by the Respondent-Assessee out of its opening stock were not treated as unexplained income, to be taxed as income from other sources. It thus manifests that the learned ITAT has take ..... X X X X Extracts X X X X X X X X Extracts X X X X
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