TMI Blog2003 (6) TMI 436X X X X Extracts X X X X X X X X Extracts X X X X ..... facts that ( i ) suppression of the closing stock as on 31-3-1989 is detected on the basis of examination of the books of account and that ( a ) it is partly representing value of imported goods lying with the custom bonded warehouse which were received in June 1989 and the cost thereof was debited to the P L A/c. ( b ) Balance part is estimated on the basis of total turnover and also month wise sales which exceeds purchases worked out for the 3 months period from April to June 1989 i.e., subsequent to the end of the accounting period. ( ii ) Assessee has failed to furnish the explanation towards the excess stock and evidence to prove the genuineness of the same inspite of reasonable opportunities given by the Assessing Officer." 2. The assessee company is a company registered under the Companies Act, 1956 carrying on business since 1960 of reselling tubes and pipes and manufacturing super heater elements, Economizers, Heating Coils, Steam Accumulators, shaped tube bundles, heat exchangers, etc. The assessee company is also certified as a competent boiler repairer under the Indian Boiler Act, 1932, Indian Boilers Regulations, 1950, and Maharashtra Boilers Rules, 1962. The tu ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ction. On merit, the learned CIT(A) held that the arithmetical exercise of the Assessing Officer to arrive at the suppressed stock of Rs. 86,22,567 was not based on any evidence and, therefore, the addition made of Rs. 78,52,619 was not justified and accordingly he deleted the addition. 3. The grounds of appeal taken up by the department is regarding the reopening of the assessment under section 147 of the Act and addition of Rs. 78,52,619. According to the department the learned CIT(A) errone- ously held that reopening of the assessment was based on change of opinion and the notice under section 148 was improper and without jurisdiction. On examination of the assessee s sales and purchases for the period 1-4-1989 to 30-6-1989, the Assessing Officer found that there was excess stock worth Rs. 86,22,567 (stock sold in excess of available stock Rs. 45,62,169 plus stock worth Rs. 40,60,398 was lying with the custom bonded warehouse) in comparing with the opening stock increased by the purchases. The Assessing Officer has arrived at the excess stock as below: (Sales - G.P.) + Closing Stock lying with custom bonded warehouses - (Opening Stock + Purchases) Note : The closing ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... total stock worth Rs. 66,95,461 for sale, but the assessee sold stock worth Rs. 82,57,630 (at cost) and was also left with the closing stock worth Rs. 70,60,398 for the same period. Thus, according to the Assessing Officer, such a huge excess stock of Rs. 86,22,567 as on 30-6-1989 could only be out of assessee s suppressed closing stock for the previous year ending on 31-3-1989. 4. The Assessing Officer has further stated that the issue involved in these proceedings are clearly on the basis of finding from the details on record that the assessee as on 30-6-1989 sold goods worth Rs. 45,62,169 in excess of available stock and also left with a closing stock of Rs. 70,60,398. The provisions of the Income-tax Act, 1961 clearly empowers the officer to call for the books of account for verification during the course of reopening assessment proceedings. The Assessing Officer, accordingly requested the assessee to explain the above referred stock discrepancies and prove the genuineness of the same with supporting evidence and books of account. It is stated that inspite of giving reasonable opportunity of being heard by way of repeated letters and notices, assessee failed to file satisf ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... y comparing the purchase and sales registers with the purchase invoices and sales bills and the same were compared with the stock book to ascertain the true facts. It was also argued that after the aforesaid exhaustive exercise, the Assessing Officer has not found any discrepancy and, therefore, assessment was completed on 31st March, 1993 for the assessment year 1990-91 without making any addition. 6. The assessee referred to the provisions of section 147 of the Act and argued that even after the amendment of section 147 with effect from 1-4-1989, the Assessing Officer can reopen the assessment only if he has reasons to believe that the income chargeable to tax for any assessment year has escaped assessment. The assessee submitted though the requirement in the old provisions that the Assessing Officer should have information in possession before taking action to assess or reassess the income escaping assessment has been dispensed with, but this may not make any material change as the power to assess or to reassess the escaped income by the Assessing Officer is still controlled by the phrase "has reason to believe". It was contended that this expression cannot be construed to a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e regular books of account in the assessment year 1990-91, for which no corresponding purchases were debited, the assessee company had offered the whole of sale proceeds for taxation in assessment year 1990-91. Therefore, the addition made in assessment year 1989-90 was required to be reduced while computing the income for the assessment year 1990-91, as the sale proceeds are recorded without recording corresponding purchases. The assessee also submitted that the gross profit shown by the assessee in assessment year 1989-90 was 13.5%, which compares favourably with the gross profit shown by the assessee company in the earlier years. It was argued that if the addition made by the Assessing Officer of Rs. 78,52,619 was taken into account, the gross profit would be as high as 48.7% which was improbable and therefore, the addition was unjustified. 8. The learned CIT(A) did not find any force in the arguments of the assessee that the reason recorded were not furnished before reopening. According to him, the law only requires that reasons for reopening should be recorded by the Assessing Officer such reasons had been recorded before reopening the assessment. It is not the requirement ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rified by the Assessing Officer who completed the assessment earlier without making any additions. The records of the assessee were called for by the learned CIT(A) and he found that while framing the original assessment the Assessing Officer had called for details of purchases and sales of each month and verified the same and had not made any addition while completing the assessment on this account. The addition in the original assessment related to the valuation of stock, which was kept in the bonded house. No addition on account of valuation of any stock or on account of any discrepancy of stock was made. Even at that time, the Assessing Officer had taken note of the fact that the goods were entered in the purchase register when the bills were received. Now, if the assessment is reopened on the very same facts it is clearly a case of change of opinion by the successor officer. The fact that the Assessing Officer who made the original assessment had verified this aspect of the matter was again cleared when he mentioned "During the course of assessment proceedings books of account were examined, it is seen that bills were entered when bills were received and also entered in the st ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... comparable with the earlier years wherein the assessee had shown gross profit ranging between 9.85% to 15.53% which had been accepted by the assessing authorities. The learned CIT(A) therefore, held that the arithmetical exercise of the Assessing Officer to arrive at the suppressed stock of Rs. 86,22,567 is based on no evidence. The learned CIT(A), therefore, deleted the addition. 10. During the course of hearing the learned Departmental Representative mainly relied on his written submissions (Paper Book-III). Regarding the basis of issuance of notice under section 148 dated 9-12-1993, the learned Departmental Representative has stated that during the course of assessment proceedings for the assessment year 1992-93, the Assessing Officer wanted to verify the stock position as shown by the assessee. Hence, summons dated 6-9-1993 were issued to the Director of the company to produce books of account not only for that year but also for earlier three years. On 10-10-1993, the auditor of the company attended. According to the learned Departmental Representative no books of account were produced. Another opportunity was given, but there was no compliance. Thereafter a letter dated 9- ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e stock lying in customs warehouse were not included in the inventory due to oversights. The learned Departmental Representative has further stated that the value of stocks lying in the customs warehouse as on 31-3-1989 was worth Rs. 40.6 lacs. As per the assessee, before the CIT(A), this stock lying in the customs warehouse was not included in the inventory as on 31-3-1989, but was added in the assessment proceedings on this count was not Rs. 46.6 lacs but only the amount of Rs. 7,69,948. Thus, according to the learned Departmental Representative, the above submissions of the assessee before the CIT(A) was an information that has come to the Assessing Officer after the completion of the assessment proceedings before the issuance of notice under section 148 dated 9-12-1993. Thus, the learned Departmental Representative relied on the decision of the Supreme Court in the case of Lakhmani Mewal Das ( supra ) wherein it has been laid down that it is not a case of suspicion or rumour that led to the Assessing Officer to form a belief that income had escaped assessment, but a live link can be seen between the material coming to the notice of the Assessing Officer and formation of his ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ccording to him, all these factors only led to issuance of notice under section 148. He, therefore, contended that reopening of assessment may be upheld. 12. Regarding the merits of the case, the learned Departmental Representative argued that the business activity of the assessee was not just purchases and sales but manufacturing was also involved. According to him, the assessee company manufactures super heater elements, economizers, heating coils, steel accumulators, shaped tube bundles, heat exchangers etc. Even with regard to the pipes and tubes, the assessee does not simply resale, but fabricate then which vary in size and range. The learned Departmental Representative has also stated that the assessee company also manufactures items against orders. Thus, according to the learned Departmental Representative the goods, which were purchased by the assessee and later sold by the assessee are not one and the same. Regarding the rejected goods by the customers, the learned Departmental Representative has argued that in the original or reassessment proceedings, the assessee has not produced any evidence of rejection of materials by its customers. The learned Departmental Repres ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d Departmental Representative further pointed out that these bills speak about the delivery date of the goods only but not the date of the purchase bill. He further pointed out even if it is taken that "Dr" date is not delivery, but is the date of the purchase bill, even then as the relevant date of the sale bill is not there, no purpose would be served because of these bills. The learned Departmental Representative referred to the bill appearing at page 50 of the paper book and contended that it shows different materials by the assessee from that party among which the following item is one of them: " NB SCH 80-384 mtrs - Rs. 39 (rate) - Rs. 14,976 70mm 7mm - 121.07 mtrs - Rs. 370.25 (rates) - Rs. 44,847 The learned Departmental Representative referred to copy of the stock register as appearing in paper book-1. On page 27, the stock position of various pipes for various months is given. In that below the heading 1/2" NB no entry is found regarding the receipt of stock either in the month of April, 1989 or in the month of May, 1989. Regarding the other material of 70mm 7mm, the stock register does not contain this item at all. Thus, the learned Departmental Representa ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... f raw materials lying in bonded ware-house Rs. 40.6 lacs Total Rs. 73.5 lacs The learned Departmental Representative, thus finally concluded that the suppressed closing stock of raw materials as arrived at in the above manner, which was not brought to tax by the Assessing Officer in the original assessment proceedings comes to Rs. 32.9 lacs. To this suppressed closing stock of 32.9 lacs, the deficit between the purchases and sales of the subsequent financial year for the months of April, May and June, 1989 as stated above should be added and the total figures should be adopted as the suppressed closing stock of the assessee as on 31-3-1989. Thus, the learned Departmental Representative contended that the suppressed closing stock as arrived at by the Assessing Officer in the re-assessment proceedings needs to be sustained. 15. The learned counsel for the assessee contended that the allegation of not producing books of account as desired by the Assessing Officer is contrary to the facts on record because the books of account of the assessee for the assessment year 1990-91 are in possession of the department till date and for assessment year 1 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ption that the assessee must have had closing stock as on 30th June, 1989 of Rs. 30 lakhs and he takes that assumption further to compute the alleged suppressed stock of Rs. 86,22,567 as on 30th June, 1989. Thereafter the Assessing Officer observed that "such a huge stock of Rs. 86,22,567 as on 30-6-1989 would only be out of assessee s suppressed closing stock for the previous year ending on 31st March, 1989." The learned counsel further contended that the reopened assessment does not show that the assessment for assessment year 1989-90 was reopened only because certain material facts were brought to the knowledge of the Assessing Officer at the time of original assessment and the same were overlooked by him; which had led to an escapement of assessment. Thus, according to the learned counsel the decision of the Gujarat High Court in the case of Praful Chunilal Patel ( supra ), has no application to the present case. 16. Regarding the different version of the assessee of discrepancies leading to addition of Rs. 7,69,948, the learned counsel has contended that the assessee s submissions both before the Assessing Officer and the CIT(A) in the penalty proceedings were made befo ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... books of account. In this connection the learned counsel argued that these were submissions of the assessee before the reopening of the assessment for the assessment year 1989-90. Therefore, there is no variation in the submission of the assessee. Regarding the customs duty, which was outstanding as on 31st March, 1989, the learned counsel argued that even while completing the re-assessment for assessment year 1989-90, the Assessing Officer had not disallowed customs duty under section 43B of the Act because the same was paid before the due date for filing the return of income for assessment year 1989-90. He, therefore, contended that these observations of the learned Departmental Representative have no relevance to the issue whether the Assessing Officer was justified in reopening the assessment for assessment year 1989-90. Regarding the observations of the learned Departmental Representative "that the case of the assessee that on receipt of the goods entry is made in the stock register whereas in respect of the very same goods entry is made in the purchase register only on receipt of the purchase bill, is without merit" the learned counsel argued that the main business of the as ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... epresentative that even before the receipt of the goods by the assessee and entry of the same in the stock register, which happened in July/Nov. 1989, the purchase bill were raised before March, 1989 has no substance. The learned counsel further pointed out that to arrive at the alleged deficit stock, the Assessing Officer has only referred to purchases and sales for the first three months. Had the Assessing Officer considered purchases and sales for the first six months that is from April, 1989 to September, 1989 the Assessing Officer would have not arrived at the alleged deficit stock. This fact was explained by the assessee in the course of assessment proceedings for assessment year 1990-91 in its letter dated 29-1-1993. The learned counsel, therefore, argued that the assumptions made in the order under section 143(3) r.w.s. 147 of the Act and the reference to the purchases and sales for the first three months were made in order to arrive at the alleged deficit stock. Hence, the conclusion drawn by the learned Departmental Representative is incorrect. 19. The learned Departmental Representative stated that the bills at pages 49 and 50 of the assessee s compilation are self-s ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... l be longer in terms of metre. When these goods were actually measured after August 1989, the actual measurement showed that they were 51,555.26 mtrs. Hence in the Tax Audit Report, the assessee company showed the actual measurement of 51,555.26 metres. However, the cost has remained the same in the books of the assessee company. Thus, the learned counsel contended that due to the aforesaid difference, the ld. Departmental Representative was not justified in arguing that both the materials were different and hence the closing stock as on 31-3-1989 was of Rs. 73.50 lakhs as shown by the learned Departmental Representative in his submission. The learned counsel further contended that the case, which is being made out by the learned Departmental Representative is not the case of the Assessing Officer as recorded in his order. The Assessing Officer has nowhere stated that the goods recorded in the books of the assessee were different from the goods stored in the bonded warehouse. Thus, according to the learned counsel the learned Departmental Representative has failed to make out a case for interfering with the order of the CIT(A). 21. We have carefully considered the submissions m ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ccount of valuation of closing stock. Thus, the closing stock as on 31st March, 1989 was thoroughly examined and verified by the Assessing Officer while completing the original assessment for the assessment year under consideration. 22. The contention of the department that the stock which was lying in the custom bonded house of Rs. 40,60,398 was not the same which had been valued by the Assessing Officer at Rs. 32,90,450 during the course of assessment proceedings is also without any basis. If the contention of department is accepted as correct, then there is no basis for making the addition of Rs. 7,69,948. The amount of Rs. 7,69,948 is actually the difference of the value of goods which were lying in the custom bonded house and the assessee valued those goods at Rs. 40,60,398 and debited its profit and loss account with the same amount whereas the Assessing Officer found that the value of such goods was Rs. 32,90,450 and not Rs. 40,60,398 as claimed by the assessee. The assessee therefore, agreed for the addition of Rs. 7,69,948. The Assessing Officer in his original assessment had not made any observations that the goods lying in the custom bonded house were different from ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... year 1990-91, were before the Assessing Officer when he issued the notice under section 148. In view of the facts stated above, there is no sale of undisclosed stock during the previous year relevant to the assessment year 1990-91. If there had been undisclosed stock of Rs. 40,60,398 as alleged by the Assessing Officer, there would have been corresponding sales during the previous year relevant to the assessment year 1990-91. Therefore, the findings of the Assessing Officer are baseless and contrary to the facts on record. 24. As has been discussed in the foregoing paragraphs, cash book ledger, purchase register, sales register etc. of the assessee company for the assessment year 1990-91 were impounded by the Assessing Officer on 28th January, 1993. The assessee company had produced a complete summary, of various sizes of tubes and pipes dealt with in the previous year relevant to the assessment year 1990-91. The assessee company had also explained the nature of business in the original assessment proceed- ings for the assessment year 1990-91. The allegations of the learned Departmental Representative is that the books of account were not produced during the course of original ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... oods are finally approved by the parties and the corresponding bills are issued. This practice of recording the stock in the books of account of the assessee is being consistently followed. Therefore, the goods of Rs. 40,60,398 which were lying in the custom bonded house were entered into the stock register and were debited to the profit and loss account though the entry in the purchase register was made in the month of August, 1989 when the goods were finally approved and the bills were issued. This information was very much in the knowledge of the Assessing Officer who completed the original assessment for the assessment year 1989-90. Thus, the issue of closing stock as on 31st March, 1989 was thoroughly examined and verified by the Assessing Officer while completing the original assessment for the assessment year 1989-90 which is apparent from the fact that the Assessing Officer has made addition of Rs. 7,69,948 to the income of the assessee on account of valuation of closing stock. Secondly, in the course of assessment proceedings for the assessment year 1990-91, the Assessing Officer has examined each and every purchase and sales by comparing the purchases and sales register w ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... hat the income chargeable to tax has actually escaped assessment. Therefore, the reopening of the assessment for the assessment year 1989-90 under section 147 is bad in law. 26. The next issue is regarding the addition of Rs. 78,52,619. The case of the department is that the assessee company had undisclosed stock of Rs. 86,22,567 as on 31st March, 1989 which is sold in the previous year relevant to the assessment year 1990-91. Thus, according to the depart- ment, the value of the undisclosed stock amounting to Rs. 86,22,567 is required to be added to the income of the assessee in the assessment year 1989-90. The Assessing Officer after giving credit of Rs. 7,69,948 which has already been added on account of suppressed closing stock in the order under section 143(3) dated 28-2-1992 made the net addition of Rs. 78,52,619. The Assessing Officer estimated the closing stock of the assessee as on 30-6-1989 at Rs. 30,00,000 as discussed in aforesaid paragraphs. He further increased the closing stock of Rs. 30,00,000 by Rs. 40,60,398 being the stock remained with the custom bonded houses as on 30-3-1989. Thus, he determined the closing stock as on 30-6-1989, at Rs. 70,60,398 which he a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... counting followed by the assessee. The assessee is making the entries in the stock register as soon as the goods are received and accordingly he is making the claim in the profit and loss account but the entries in the purchase register are made only when the goods are approved by the parties and bills are issued. The assessee is following this method of accounting consistently and the same has been accepted by the department in the past. The goods worth Rs. 40,60,398 were imported by the assessee and the same were received before 31-3-1989 and were lying in the custom warehouse, therefore, the assessee made the entry of these goods in the stock book and accordingly, made a claim in the profit and loss account. During the course of original assessment for the assessment year 1989-90, the Assessing Officer made the verification and was satisfied but he made the addition of Rs. 7,69,948 on the basis that the valuation of the imported goods was Rs. 32,90,450 and not Rs. 40,60,398. Therefore, it cannot be said that the stock of Rs. 40,60,398 was undisclosed. The assessee also made entries in the purchase register in the month of June, 1989 when the bills of purchase were received. Ther ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rchases are recorded in the purchase register on the basis of purchase invoices, however, the delivery of goods is recorded in the stock book on the date of receipt of goods. All the purchases are recorded in the purchase register at the end of the year and the books of account are audited. As found by the learned CIT(A) from the stock register there was an overall tally of purchases and sales, therefore, we do not find any justification to compare purchases and sales only for three months. The Assessing Officer has also not brought any evidence on record for estimating the closing stock of the assessee at Rs. 30,00,000 as on 30th June, 1989. Moreover, the stock estimated as on 30th June, 1989 pertains to the assessment year 1990-91 and no addition can be made on that basis in the assessment year 1989-90 as per the provision of law. The gross profit of 13.53% shown by the assessee for the assessment year under consideration is comparable with the earlier years wherein the assessee had shown gross profit ranging between 9.85% to 15.53%, which had been accepted by the department. Therefore, we do not find any justification on the part of the Assessing Officer to indulge in the arithm ..... X X X X Extracts X X X X X X X X Extracts X X X X
|
