ORDER
P.J. Goradia, Accountant Member
1. This appeal arises from the order dated 16-1-1991, 31-1-1991 passed by the Commissioner of Income-tax (Appeals)-II, New Delhi.
2. The assessee is trading in articles of stationery, gifts and presentation and other novelty items. The company was formed some time in 1981. It has also got branch office at Bangalore and Calcutta. For the financial year ended on 31-3-1987 the assessing officer found that an action was taken under Section 133A on 11-3-1987, i.e., just 20 days before the close of the accounting year when physical inventory of stock was drawn, the value of which was arrived at Rs. 9,62,000 plus. The stock was taken physically on actual basis and there was no record in respect of quantitative details, i.e., in respect of goods inward as also goods outward because as per the assessee it was not possible to maintain such details on records. Therefore, to find out whether the stock of Rs, 9,62,000 plus could be held by the assessee as per the books of accounts maintained, a trading account was drawn on 11-3-1987 making certain adjustments and it was found by the assessing officer that the assessee held excess stock of Rs. 2,55,273. During the course of assessment proceedings the results of the survey and the explanation submitted by the assessee from time to time were placed before the assessee. The assessee was asked to explain the discrepancy. The assessee explained among other things that there were certain goods which were received before the date of survey and lying unsold, which was included in the inventory taken and, therefore, appropriate debit in respect of the value of the impugned purchases should be considered since bills were not received. It was further stated that it was improper to find out the way in which the closing stock was arrived at. Besides, valuation of the closing stock was also not acceptable. The assessing officer considered all the objections and gave partial relief in respect of the bills not entered in the purchase register but for which the goods were rece. d. He also found on verification of one such item in respect of silver ornaments purchased from M/s M.K. Gems that the explanation offered was false and the evidence placed was also tampered with. Ultimately he made an addition under Section 69 of an amount invested in closing stock as stated earlier.
3. The Commissioner (Appeals) confirmed the addition after going through the entire evidence that was led before the assessing officer as also before the Commissioner (Appeals).
4. Before us the learned counsel for the assessee, Shri C.S. Agarwal made lengthy submissions and brought to our notice the evidence placed from time to time before the tax authorities. The learned Departmental Representative highlighted certain factual aspects of the case. The submissions are dealt with in our findings recorded hereinafter.
5. On going through the entire material and considering the submissions, in our opinion, the addition is required to be confirmed. On 11-3-1987 the stock found under Section 133A was as per the physical inventory prepared on the same date for which there cannot be any dispute. The stock belonged to the assessee and, therefore, the ownership is established. It is also a fact that assessee has not maintained quantitative stock records, item-wise of opening stock plus quantity inward less quantities outward, so as to give position of actual stock on any given point of time. In the absence of any records, therefore, whole quantity of stock attracts Section 69. Only that part of the funds invested is required to be deleted for which satisfactory explanation is offered. It is for the assessee to explain what amount of stock was on hand on the day when stock was taken by the survey party and that part of the stock had to be co-related with the items lying in opening stock and purchases unsold. But the assessee has failed on this score obviously because the assessee has no quantitative records. Therefore, to find out whether any amount of stock could have come out of the opening stock and purchases the assessing officer had to prepare the trading account as on 11-3-1987 and this method is correct. The assessing officer accordingly has given appropriate deduction in respect of the stock which the assessee could hold and which could be fairly taken as having come out of opening stock and purchases and deducted the same from the value of the stock. This method adopted by the assessing officer is quite correct because the same is prepared on the basis of details of turnover, percentage of gross profit etc. shown by the assessee. Therefore, there is no defect in the working.
6. Similarly with regard to the goods received, for which the bills were received subsequently the assessee had asked for the deduction of an amount of Rs. 1,09,000 plus. After considering the relevant evidence the taxing authorities have taken into consideration part of the amount and the balance was rejected justifiably because the assessee had not been able to lead the necessary evidence to prove that the goods were received earlier and still remained in the stock. Besides even where some evidence was given in the form of two invoices for purchase of silver ornaments from M.K. Gems, the explanation was found to be false. Though the assessee submitted that there was a mistake on the part of the assessee and, therefore, it was subsequently admitted so, yet this fact throws ample light on conduct of the assessee. It was further stated that purchases of other parties should have been verified by assessing officer from the records of the other parties, but in our opinion, it was not necessary for the assessing officer to undertake such exercise since it was for the assessee to lead the clear evidence so as to enable the assessing officer to record clear findings and draw correct inferences from the direct as well as circumstantial evidence.
7. Regarding the valuation it was stated that the assessing officer adopted the method which was not proper because part of the stock was valued at tag price exhibited on various items for the purpose of sale and remaining part of the stock lying in godown was also valued at more or less similar price even though in respect of the goods lying in the godowns there could be various qualities of the same articles. In our opinion, this grievance also has no substance because no evidence was led to prove this point whereas we find that the rate was applied, as was stated by the assessee’s representative at the time of survey.
8. The next objection raised was thus. Even if it is admitted that part of the stock was undisclosed, yet since subsequently gross amount of sales was reflected no addition could be made because no deduction was claimed for cost of sales, for value of purchases and that is why the percentage of gross profit had increased this year to 31.42% as against 27% in the earlier assessment year. According to Mr. Agarwal this was more so when no dispute was raised with regard to the closing stock shown by the assessee on the last day of the accounting year. Great emphasis was led on this contention and for its support various orders of various Benches of the Tribunal were pressed into service, as placed in the paper book. Besides, recent order in the case of Marble Emporium [IT Appeal Nos. 5338 and 5339 (Delhi) of 1987 dated 7-12-1990] passed by ‘A’ Bench of the Tribunal was also placed before the Bench and the contents were read out.
8.1 This factual contention of Mr. Agarwal would carry the point if the accounting intricacies of this case are not properly appreciated. Before this arrangement becomes worthy of acceptance, following data should exist:
(a) Article-wise identification of stock treated as undisclosed.
(b) Co-relation of these articles with those sold during the period between 11-3-1987 to 31-3-1987.
(c) Co-relation of unsold articles with those shown in inventory of closing stock and subsequent sales made in subsequent accounting years so as to co-relate all the undisclosed articles.
9. In the absence of above it cannot be said that gross sales are already reflected in the sales turnover, because if such sales are not shown the same cannot be found out considering the records maintained and evidence led. The assessee has not been able to place even a single instance of such co-relation. Hence this contention is also rejected.
10. It was next contended that since the book results were rejected by invoking Section 145, gracefully admitting that it. was rightly done, only course left in assessment was to estimate percentage of gross profit. In this year percentage of gross profit had increased as compared to earlier years and, therefore, there was no scope for enhancement of the income.
10.1 This contention has also to be rejected because the issue under consideration is addition under Section 69 on account of undisclosed investment in stock and not the issue with regard to the determination of business profits. The contention is not relevant to the issue and, therefore, rejected.
11. A purely legal contention was also raised by Mr. Agarwal when he stated that Section 69 was not applicable to stock-in-trade and in support decision of the Tribunal in 36 Taxation page 25 was pressed into service. This legal argument was amply answered by Sr. Departmental Representative, Mr. Gupta, who submitted that in the absence of full text of judgment, the judicial principle could not be properly appreciated, whereas according to him, there was a direct decision of Bombay High Court in the case of Ramanlal Kadiandal Tejmal v. CIT [1984] 146 ITR 368 [1983] 12 Taxman 130. where it was held that investment in stock could be taxed under Section 69. Mr. Gupta also placed before the Bench meaning of the word “investment” given in Webster dictionary. Mr. Agarwal could not contradict how the decision of the Bombay High Court in the case, referred to above, was not applicable. In our opinion, Section 69 is rightly applied because it refers to the investment made by the assessee in an asset, whether stock-in-trade or investment is irrelevant.
12. to 20. [These paras are not. reproduced here as they involve minor issues.]