2005 (4) TMI 271 - AT - Income Tax

Tribunal Decisions: Valuation, Excess Stock, Cash, Credit Cards, Section 80HHC Deduction

The Tribunal partly allowed both the Department's and the assessee's appeals, upholding the CIT(A)'s decisions on key issues. The valuation of excess ... Additional Ground Issues Involved:1. Valuation of excess stock and its treatment under Section 69.2. Treatment of excess cash and credit cards found during the survey.3. Deduction under Section 80HHC for SFT sales.Issue-wise Detailed Analysis:1. Valuation of Excess Stock and Its Treatment Under Section 69:The primary issue involved the valuation of stock at two business outlets of the assessee. The Department inventorized the stock at Shyam Nagar at 'Cost Price' and the stock at Amer Road at 'Tag Price'. The stock at Shyam Nagar was valued at Rs. 17,41,412, and the stock at Amer Road was estimated at Rs. 70,77,645 after applying rebates for bargaining and dead stock. The total stock was estimated at Rs. 88,19,057, while the book stock was Rs. 77,76,591, resulting in a difference of Rs. 10,42,466, which was treated as excess stock. The AO made additions of Rs. 11,16,595, which the CIT(A) restricted to Rs. 1,50,000, giving relief of Rs. 9,66,595. The Department argued that the bargaining discount and damage claimed by the assessee were excessive and not justified. They cited various case laws to support the addition of excess stock under Section 69. The assessee countered that the stock was subject to fast-changing trends, and the bargaining discount and damage were reasonable. The Tribunal found that the conditional surrender made by the assessee was not accepted by the AO, leading to prolonged litigation. The Tribunal upheld the CIT(A)'s decision to allow a 25% discount for bargaining and obsolete stock, considering the nature of the business and the absence of defects in the books of account.2. Treatment of Excess Cash and Credit Cards Found During the Survey:During the survey, excess cash of Rs. 38,421 and excess credit cards of Rs. 35,708 were found. The AO made additions based on these findings. The CIT(A) observed that the credit cards were left by foreign tourists for preparation and packing of goods, and no foreign currency was found. The Tribunal upheld the CIT(A)'s decision, noting that the excess cash was covered by the addition sustained by the CIT(A) for Rs. 1,50,000. The Tribunal dismissed the related grounds of appeal by both the Department and the assessee.3. Deduction Under Section 80HHC for SFT Sales:The assessee claimed a deduction under Section 80HHC for SFT (Sales to Foreign Tourists) sales, which the AO rejected, recalculating the deduction by consolidating the figures of both Export and Local Divisions. The CIT(A) allowed the additional claim of the assessee, treating SFT sales as part of export turnover. The Department argued that such a claim was not made before the AO and should not have been entertained by the CIT(A). They also contended that the assessed income after the CIT(A)'s order should not be less than the returned income. The Tribunal held that the issue of treating SFT sales as export turnover was covered by the jurisdictional High Court's decision in ITO vs. Vaibhav Textiles, which allowed such treatment. The Tribunal also found that the CIT(A) was empowered to admit the additional claim as it involved a pure question of law. The Tribunal dismissed the Department's appeal on this ground and held that the CIT(A) had the power to reduce the assessed income below the returned income.Conclusion:The Tribunal partly allowed both the Department's and the assessee's appeals for statistical purposes, upholding the CIT(A)'s decisions on key issues while ensuring that the legal principles and relevant case laws were appropriately applied.