- (1.) This appeal under Section 260A of the Income-tax Act, 1961 is at the instance of an Assessee and is directed against order dated October 8, 2004 passed by the Income-tax Appellate Tribunal, "A" Bench, Kolkata, in I.T. (SS) A. No. 53 (Kol) of 2004 and C.O. No. 61 (Kol) of 2004 for the block period April 1, 1990 to January 24, 2001.
(2.) The facts giving rise to filing of this appeal may be summed up thus: a) The Assessee is a public limited liability company within the meaning of the Companies Act, 1956 and is a manufacturer of hosiery goods and has branches at various places in the country. b) On January 24, 2001, officials of the Income-tax Department conducted searches at various places of the office of the Assessee and in course of such searches, various books of records were seized. Inventory was prepared of the stock at some of the locations and the portion of the stock was also seized. The Assessee of its own provided details of the stock at the locations which was not visited by the officials. c) The Assessee submitted its return for the period from April 1, 2000 till the date of commencement of the search, namely, January 24, 2001. According to the accounts, the cost of the Assessee's closing stock as on January 24, 2001 was Rs. 18,87,000/-. d) The Assessing Officer after due examination found that the quantity of physical stocks was fully in agreement with the books of account. e) The Assessing Officer, however, required the Assessee to furnish the value of the closing stock at the wholesale price of the stock and after making certain corrections, the same was determined by the Assessing Officer at Rs. 33,01,24,963/-. It appears that the Assessing Officer sought to estimate the cost of the said closing stock with reference to the wholesale price by deducting therefrom the discounts allowed by the Assessee to its customers and the gross profit ratio. f) The gross profit rate was determined by the Assessing Officer at 20.44%. In respect of discounts, the Assessee worked out the average discount allowed on the basis of its books of account for the Financial Years 1999-2000 and 2000-2001 at 25.53% and 29.13% respectively. g) In course of enquiry by the Income-tax Department, it was established that the discounts offered by the Assessee varied between 18.5% and 33.81%. The Income-tax Department also verified the accounts of the buyers in which the full discount received from the Assessee was duly disclosed. However, instead of taking into consideration the average discount of 29.13% for the Financial Year 2000-01 as per the books of account, the Assessing Officer deducted the average discount of 25.53% of the Financial Year 1999-2000 to estimate the cost of the closing stock as on January 24, 2001. By the said process, the Assessing Officer estimated the cost of the stock as on January 24, 2001 at Rs. 19,55,93,534/- and the difference between the said figure and the figure of Rs. 18,87,00,000/- reflected in the accounts was assessed as undisclosed income on the allegation of suppression of valuation of stock. h) Being aggrieved, the Assessee preferred an appeal before the Commissioner of Income-tax (Appeals) and the said authority by order dated February 16, 2004 held that the Assessing Officer should have accepted the discount of 29.13% since the books of accounts were found to be correct. He held since the stock physically found was in agreement with the books of account, there was no scope for holding that there was any suppression. The Commissioner Income tax (Appeals) deleted the addition made by the Assessing Officer. He, however, did not deal with the Assessee's contention against the levy of surcharge. i) Against the said order dated February 16, 2004, the Revenue preferred an appeal before the Income-tax Appellate Tribunal and the Assessee also filed a cross-objection in the said appeal in respect of the ground relating to levy of surcharge which was not adjudicated by the Commissioner (Appeals). j) The Tribunal by the order impugned herein held that the stock should be valued by allowing discount @ 27% being the average of the years 1999-2000 and 2000-2001 and income should be recomputed accordingly. With regard to levy of surcharge, the Tribunal following an order dated October 8, 2004 passed in the case of another Assessee held that the surcharge was leviable according to the provisions of the Finance Act. k) Being dissatisfied, the Assessee has come up with the present appeal.
(3.) A Division Bench of this Court at the time of admission of this appeal formulated the following substantial questions of law: i) Whether in a case where stock physically found is in agreement with the books of account and is valued at cost which is also reflected in the books of account, any undisclosed income within the meaning of Section 158(b) read with Section 158BB of the Income Tax Act, 1961 can be determined on the allegation of undervaluation of stock in the absence of any material and/or finding that the books of account were not correct or did not include and/or reflect any element making up the cost. ii) Whether and in any event, the Tribunal was justified in law in holding that for estimating the cost of the stock of the financial year, the average of the average discounts of the financial years 1999-2000 and 2000-2001 should be deducted and not the average discount for the financial year 2000-01 as per books of account and its purported findings in that behalf are arbitrary, unreasonable and perverse. iii) Whether and in any event, any allegation of undervaluation or any addition could be made in a case where negligible difference is found between the cost of the stock as per books of account and the estimated cost sought to be arrived at by deducting from the whole sale price the average discount and gross profit rate. iv) Whether on a true and proper interpretation of the provisions of Section 158BA read with Section 113 of the Income Tax Act, 1961 and the provisions of the Finance Act, the Tribunal was justified in law in holding that the rate of tax specified in Section 113 was liable to be increased by the surcharge levied under the Finance Act even prior to the insertion of the proviso in Section 113 of the Act by the Finance Act, 2002 with effect from June 01, 2002.;