Madhur Jain Vs ITO (ITAT Delhi)
In this case the valuation was done based on the statement of assessee’s son who is no way connected with assessee’s business except his occasional visits. Therefore, the statement of Sh. Rajat Jain has no evidentiary value.
Facts-
The assessee Late Sh. Rakesh Kumar Jain was an individual carrying on his business activity in trading of utensils, flat steel putta and manufacturing of utensils. The assessee filed ROI for AY 2014-15 on 29.11.2014 declaring income of Rs.4,07,660/-. Assessee also declared stock of Rs.88,16,413/- in his audited financials as on 31.03.2014. The case was selected for scrutiny and in the course of assessment proceedings the assessee Rakesh Kumar Jain died and assessment order was passed in the name of Sh. Madhur Jain the son of the assessee as legal heir. The assessment was completed u/s 143(3) on 29.12.2016 determining the income of the assessee at Rs.27,05,510/-. AO added Rs.22,72,050/- as difference in valuation of stock and Rs.25,800/- was disallowed on account of labour charges paid by the assessee for making furniture for his godown.
AO valued the stock at a price of Rs.230/- and the basis for adopting this rate of Rs.230/-was the statement taken from the son (Rajat Jain) of the assessee in the course of survey proceedings. The assessee submits that the assessee has valued the stock at Rs.190/- and whereas the AO valued the stock at Rs.230/-. Hence, the total stock value was determined at Rs.1,12,22,070.00.
The survey team took opening stock and took all purchase and sale as per book and to compute stock as per the record of the assessee applied 8% Gross Profit rate to the sale value and derived closing stock of Rs.89,50,000.00 of the assessee. Hence, the difference between the 1,12,22,070.00 and 89,50,000.00 amounting to Rs.22,72,050.00 was added in the hand of the assessee.
Conclusion-
On perusal of the statement given by Sh. Rajat Jain it is noticed that he has stated that he is not associated with his father’s proprietary business conducted in the name of Jain Trading Company. In the statement Sh. Rajat Jain also stated that no specific duties have been entrusted to him. However, he occasionally comes to the premises and looks after day to day business. In this case the valuation was done based on the statement of assessee’s son who is no way connected with assessee’s business except his occasional visits. Therefore, the statement of Sh. Rajat Jain has no evidentiary value and cannot be relied on to value the stocks at Rs.230/- as was stated by him in the very same statement that the exact valuation i.e. gauge wise, weight wise etc. would be made available by his father Sh. Rakesh Kumar Jain. However, it appears that there is no proper statement recorded from Sh. Rakesh Kumar Jain in the course of survey proceedings. No statement was recorded from the assessee late Shri Rakesh Jain during survey operations. Therefore, there is no justification for adopting the value of Rs.230/- to value all the stocks of the assessee including the scrap at this rate. Therefore, I direct the AO to delete the addition of Rs.22,72,050/-made on account of difference in valuation of stocks as there is no basis for such valuation at all.
FULL TEXT OF THE ORDER OF ITAT DELHI
This appeal is filed by the assessee against the order of the Ld. Commissioner of Income Tax (Appeals)-20, New Delhi dated 29.06.2018 for the AY 2014-15. The assessee has raised the following grounds: –
1. “That CIT(A)-20 has erred in law and on facts in sustaining the addition of Rs.21,62,182.00 on illegal and untenable term and hence the addition as such may be deleted.
2. That CIT(A)-20 has erred in law and on facts in sustaining the demand of Rs.8,29,200.00 on illegal and untenable grounds ignoring the facts that demand has been raised in the name of dead person. Hence, the demand as such may be deleted.
3. That CIT(A)-20 has erred in law and on facts in sustaining the addition of Rs.21,36,382.00 out of Rs.22,72,050.00 on account of difference in stock value on illegal and untenable grounds. Hence, the addition as such may be deleted.
4. That CIT(A)-20 has erred in law and on facts in sustaining the addition of Rs.25,800.00 on account of illegal and untenable grounds. Hence, the addition as such may be deleted.
5. The appellant craves leave to add, substitute, modify or delete any grounds of appeal on or before the date of hearing. All the above grounds of appeal are without prejudice to each other.”
2. In so far as the ground nos. 1 & 3 are concerned, the Ld. Counsel for the assessee submits that the assessee Late Sh. Rakesh Kumar Jain was an individual carrying on his business activity in trading of utensils, flat steel putta and manufacturing of utensils having factory premises at Shalimar Village, Delhi and shop and godown at Deputy Ganj at Sadar Bazar, Delhi. The Ld. Counsel submits that assessee filed return of income for AY 2014-15 on 29.11.2014 declaring income of Rs.4,07,660/-. Assessee also declared stock of Rs.88,16,413/- in his audited financials as on 31.03.2014. Ld. Counsel submits that the case was selected for scrutiny and in the course of assessment proceedings the assessee Rakesh Kumar Jain died and assessment order was passed in the name of Sh. Madhur Jain the son of the assessee as legal heir. The assessment was completed u/s 143(3) on 29.12.2016 determining the income of the assessee at Rs.27,05,510/-. The Ld. Counsel submits that while completing the assessment the Assessing Officer added Rs.22,72,050/- as difference in valuation of stock and Rs.25,800/- was disallowed on account of labour charges paid by the assessee for making furniture for his godown.
3. In so far as the valuation of difference in valuation of stocks is concerned the Ld. Counsel submits that the AO valued the stock at a price of Rs.230/- and the basis for adopting this rate of Rs.230/-was the statement taken from the son of the assessee in the course of survey proceedings. The Ld. Counsel for the assessee submits that the assessee has valued the stock at Rs.190/- and whereas the AO valued the stock at Rs.230/-. The Ld. Counsel submits that there was no stock register maintained at the premises of the assessees at the time of survey. The survey team took physical survey of stock at three locations and for two locations at deputy gang, value of stock was done differently depending upon its nature. However, at factory, Shalimar Bagh, the variety of stock like raw material, finished goods, semi finished goods, and scrap were all valued at the maximum sale price that is @230 instead of accepted accounting standard method on valuation of stock i.e. cost or net releasable value whichever is lower. Hence, the total stock value was determined at Rs.1,12,22,070.00.
The Ld. Counsel submits that Comparative/stock as per books of account computed by survey team in the following manner:
The survey team took opening stock and took all purchase and sale as per book and to compute stock as per the record of the assessee applied 8% Gross Profit rate to the sale value and derived closing stock of Rs.89,50,000.00 of the assessee. Hence, the difference between the 1,12,22,070.00 and 89,50,000.00 amounting to Rs.22,72,050.00 was added in the hand of the assessee.
It is submitted that:
