Shri Prakash F.Singh, Vapi V. The Income tax Officer,Vapi Ward-2, Vapi

CO 137/AHD/2012

• Counselvise Citation: [2016] 123 COUNSELVISE.COM (IT) 2609 (ITAT-AHMEDABAD)
• Duration Of Justice: 4 year(s) 3 month(s) 16 day(s)
• Appeal Type: Cross Objection
• Pronouncement Date: 07-12-2016
• Appeal Filed By: Assessee
• Order Result: Dismissed
• Bench Allotted: D
• Next Hearing Date: 30-11-2016
• Assessment Year: 2009-2010
• Appeal Filed On: 21-08-2012
• Result in Favour of: Revenue
• Court: TRIBUNAL
• Assessee Lawyers: M K PATEL

Judgement Text

, IN THE INCOME TAX APPELLATE TRIBUNAL D BENCH, AHMEDABAD BEFORE SHRI R.P. TOLANI, JUDICIAL MEMBER AND SHRI AMARJIT SINGH, ACCOUNTANT MEMBER ./ ITA NO. 1337/AHD/2012 & CO NO. 137/AHD/2012 / ASSESSMENT YEAR : 2009-10 ITO, VAPI WARD-2, VAPI VS PRAKASH F. SINGH, B-208, RAJMOTI CO. OP. HSG. SOCIETY, CHHARWADA ROAD, VAPI PAN : ANSPS 4835 N / (APPELLANT) / (RESPONDENT) & CROSS OBJECTOR REVENUE BY : SHRI JAMES KURIAN, SR DR ASSESSEE BY : SHRI M.K. PATEL, AR / DATE OF HEARING : 30/11/2016 / DATE OF PRONOUNCEMENT: 07/12/2016 / O R D E R PER R.P. TOLANI, JUDICIAL MEMBER:- THIS APPEAL BY THE REVENUE AND THE CROSS-OBJECTION THEREOF FILED BY THE ASSESSEE ARE DIRECTED AGAINST THE ORDER OF THE COMMISSIONER OF INCOME- TAX (APPEALS), VALSAD DATED 30.03.2012 FOR AY 2009- 10, RAISING RESPECTIVE PART RELIEF ON THE SAME ISSUE. 2. THE SOLE GROUND RAISED BY THE REVENUE READS AS U NDER:- ON THE FACTS AND CIRCUMSTANCES OF THE CASE AND IN L AW THE LEARNED CIT(A) HAS ERRED IN DELETING THE DISALLOWANCE OF RS.88,79,050/ - MADE @ 15% OF TOTAL PURCHASE. 3. THE GROUNDS RAISED BY THE ASSESSEE IN HIS CROSS- OBJECTION READ AS UNDER:- 1. ON APPRECIATION OF THE FACTS AND CIRCUMSTANCES OF T HE CASE, THE LEARNED COMMISSIONER OF INCOME-TAX (APPEALS) HAS RIGHTLY DE LETED THE DISALLOWANCE OF RS.88,79,050/- MADE @ 15% OF TOTAL PURCHASE. ITA NO. 1337/AHD/2012 AND CO NO. 137/AHD/2012 ITO VS. PRAKASH F. SINGH AY : 2009-10 2 2. IT IS THEREFORE PRAYED THAT THE ORDER OF THE LEARNE D COMMISSIONER OF INCOME-TAX (APPEALS) BE UPHELD TO THE ABOVE EXTENT. 3. ON APPRECIATION OF THE FACTS AND CIRCUMSTANCES OF T HE CASE, THE LEARNED COMMISSIONER OF INCOME-TAX (APPEALS) OUGHT NOT TO H AVE DIRECTED THE LEARNED ASSESSING OFFICER TO ADOPT NET PROFIT AT TH E RATE OF 2% OF THE TURNOVER FOR DETERMINING THE TAXABLE INCOME IN THE CASE OF THE APPELLANT AS AGAINST 1.08% AS DISCLOSED BY THE APPELLANT IN H IS RETURN OF INCOME. 4. THE LD. COUNSEL FOR THE ASSESSEE CONTENDS THAT T HE ASSESSEE PURCHASES WASTE-PAPER FROM UNORGANIZED SECTOR FROM MUMBAI, PU NE, VAPI, SURAT, ETC. THE TRUCK LOADS OF WASTE-PAPER ARE SUPPLIED TO PAPE R-MILLS. THE PAYMENT TO THE PURCHASER IS MADE AFTER RECEIVING THE PAYMENT F ROM PAPER-MILLS. SINCE THE PURCHASERS ARE FROM VERY UN-ORGANIZED SECTORS, SCATTERED OVER A VAST AREA, THE ASSESSEE COULD NOT PRODUCE THE DEGREE OF EVIDENCE REQUIRED BY THE ASSESSING OFFICER TO ESTABLISH THE PURCHASES. THE F ACT REMAINS THAT THE SALES OF THE ASSESSEE HAVE BEEN ACCEPTED WHICH IS FROM UN ORGANIZED SECTOR PAPER- MILLS WHO ARE LIABLE TO BE EXCISE DUTY PAYMENTS. T HE PAYMENTS ARE RECEIVED BY WAY OF CHEQUES FROM THE PAPER MILLS AND IT IS UN THINKABLE THAT THERE WILL BE PHYSICAL SALE OF GOODS WITHOUT THERE BEING CORRE SPONDING QUANTITY OF PURCHASE OF WASTE-PAPER. THE LD. AO REJECTED THE B OOKS OF ACCOUNTS AND DISALLOWED 15% OF TOTAL PURCHASES AS UNVERIFIABLE A ND THE ADDITION WAS MADE. THE LD. CIT(A), THOUGH UPHELD THE VIEW OF TH E ASSESSING OFFICER THAT THE PURCHASES WERE NOT SUBSTANTIATED IN THE WAY LD. ASSESSING OFFICER REQUIRED; HOWEVER, DIRECTED THE ASSESSING OFFICER T O ADOPT THE NP AT THE RATE OF 2% FOR DETERMINING THE TAXABLE INCOME, BY F OLLOWING OBSERVATIONS:- 5.2 FURTHER IT WAS ALSO BROUGHT TO MY NOTICE THAT IN THE CENTRAL CIRCLE, SURAT (DEALING WITH SEARCH ASSESSMENTS) SIMILAR CAS ES WERE ASSESSED DURING THE CALENDAR YEAR 2011 WHEREIN THE ASSESSING AUTHOR ITIES CONSIDERED ALL FACTS OF THE CASE WHICH IS VERY SIMILAR TO THE FACTS OF T HE CASE OF THIS CASE AND HAVE ESTIMATED THE GROSS PROFIT AND MADE AN ADDITION OF 0.5% TO 0.75 % OF THE TURNOVER AS INCOME ON THE BASIS OF SAME FACTS AND I SSUES IN DISPUTE. 5.3 THE APPELLANT HAD FURNISHED QUANTITATIVE D ETAILS OF PURCHASES AND STOCK ALONG WITH THE TAX AUDIT RETURN AND HAS DISCL OSED A SUM OF RS. ITA NO. 1337/AHD/2012 AND CO NO. 137/AHD/2012 ITO VS. PRAKASH F. SINGH AY : 2009-10 3 12,06,419/- AS GROSS PROFIT (G.P.) WHICH WORKS OUT TO 2.00 % OF THE TOTAL TURNOVER. ON CONSIDERATION OF THE NATURE OF THE BUS INESS THE ASSESSING OFFICER DOUBTED THE PROFITABILITY OF THE TRAILING RESULTS O F THE APPELLANT. AS A RESULT THE AO COMPLETED THE ASSESSMENT BY DISALLOWING A PO RTION OF THE PURCHASE VALUE OF THE APPELLANT. I AM OF THE CONSIDERED OPIN ION THAT WASTE PAPER COLLECTION AND SUPPLYING THE SAME TO THE TRADERS LI KE THE APPELLANT ARE CARRIED ON BY SMALL TIME COLLECTORS WHO BELONG TO UNORGANIZ ED POOR SECTION OF THE SOCIETY. I AGREE WITH THE AO TO THE EXTENT THAT THE TRADERS LIKE THE APPELLANT SHOULD COMPLY WITH THE PROVISIONS OF THE INCOME TAX LAW IN MAINTENANCE OF BOOKS OF ACCOUNT AND OTHER PARTICULARS REQUIRED FOR THE PURPOSES OF ASSESSMENT. IN THIS CASE CONSIDERING THE PECULIAR N ATURE OF THE BUSINESS AND THE MODUS OPERANDI REQUIRED FOR CARRYING OUT THE BU SINESS, THE INFERENCES HAVE TO BE DERIVED FROM ALL THE FACTS IN ENTIRETY. ADMITTEDLY THERE IS NO DISPUTE AS REGARDS THE QUANTUM OF SALES. THERE IS N O POSSIBILITY OF WASTE PAPER TRADERS LIKE THE APPELLANT ACTING AS CONDUITS FOR TAX PLANNING ON BEHALF OF THE PAPER MILLS. THE AO HIMSELF HAS OBSERVED THA T THE PURCHASE PRICE IS FIXED BY THE GPMA. THE TRADERS LIKE THE APPELLANT A RE DEPENDENT UPON A FEW PAPER MILLS FOR THEIR BUSINESS. IN VIEW OF THIS FAC TS I AM UNABLE TO AGREE WITH THE AO THAT AN ADHOC ADDITION OF 15% OF THE PURCHAS E VALUE SHALL BE MADE THE DETERMINE THE FAIR QUANTUM OF TAXABLE PROFIT. 5.4 AS POINTED OUT BY THE APPELLANT THE CENTRAL CI RCLE SURAT HAS COMPLETED THE ASSESSMENT OF SIMILAR TRADERS BY ESTIMATING THE GROSS PROFIT AND ENHANCED THE RATE BETWEEN 0.5% TO 0.75 % BEING THE FACTS SIM ILAR TO THE APPELLANT. THIS INDICATES THAT THIS TRADING ACTIVITY IS HIGH VOLUME LOW MARGIN BUSINESS. I HAVE ALSO SPARED MY THOUGHTS ON VARIOUS ASPECTS OF THE BUSINESS ACTIVITIES SUCH AS I) WHAT ARE THE ITEMS COVERED UNDER THIS TR ADE, II) SOURCE OF WASTE PAPERS AND OTHER ITEMS TRADED BY THE APPELLANT, III ) HOW-COST OF THE GOODS IS DETERMINED, IV) MODUS-OPERANDIE OF THE TRADING ACTI VITIES, V) METHODS OF ACCOUNTING FOLLOWED AND VI) THE SALES -PURCHASE RAT IO. I HAVE ALSO PERUSED THE COPY OF THE ASSESSMENT ORDER PASSED BY DY. CIT. CEN TRAL CIRCLE - 3, SURAT IN THE CASE OF M/S. PAPER SALES CORPORATION WHEREIN TH E AO HAD MADE G.P. ADDITION OF 0.50% TO 0.75%. THE MARKET RULE IN THIS TRADE IS THAT AS THE TURNOVER INCREASES THE G.P./N.P. DECLINES MARGINALL Y. CONSIDERING THE CASE IN TOTALITY AND THE NATURE OF TRADE, IT IS SAFE TO SAY THAT 15% MARGIN IN THIS TRADE IS NOT POSSIBLE. IN THESE CIRCUMSTANCES, FOR THE SAKE OF JUSTICE AND FAIRNESS, I CONSIDER THE N.P. RATES SHOULD APPLY BE TWEEN 2-3 % DEPENDING ON THE TURNOVER. AS MENTIONED EARLIER, HIGHER THE TURN OVER, THE GP/NP IS LOWER. IN THIS CASE THE APPELLANT HAD SHOWN GP/NP AT 2.00% / 1.00% RESPECTIVELY. THUS, APPLYING THE GENERAL RULE, IN MY CONSIDERED V IEW, THE N.P. ESTIMATED AT 2% AS AGAINST 1.00% DISCLOSED BY THE APPELLANT W ILL MEET THE JUSTICE. ACCORDINGLY, THE AO IS DIRECTED TO ADOPT NP AT THE RATE 2% FOR DETERMINING THE TAXABLE INCOME IN THIS CASE. THIS GROUND OF APP EAL IS PARTLY ALLOWED. ITA NO. 1337/AHD/2012 AND CO NO. 137/AHD/2012 ITO VS. PRAKASH F. SINGH AY : 2009-10 4 4.1 THUS, IN PLACE OF AOS HARSH ADOPTION OF 15% OF AD-HOC DISALLOWANCE OF PURCHASES, LD. CIT(A) ESTIMATED THE NET PROFIT R ELYING ON OTHER COMPARABLE CASES OF VAPI. 4.2 LD. COUNSEL FOR THE ASSESSEE THEN CONTENDS THAT SINCE SIMILAR ADDITIONS WERE MADE IN SEVERAL OTHER CASES, THE APP EALS HAVE BEEN COMING TO ITAT ON THE SAME ISSUE IN THE CASE OF TAYAB YUNU S BARUDGAR FOR AY 2009- 2010 IN ITA NO.1351/AHD/2012 AND CO NO.155/AHD/2012 , WHEREIN THE ITAT VIDE ORDER DATED 27.05.2016 UPHELD THE ORDER O F CIT(A) BY FOLLOWING OBSERVATIONS:- 4. WE HAVE HEARD THE LD.DR, PERUSED THE MATERIAL A VAILABLE ON RECORD AND GONE THROUGH THE ORDERS OF THE AUTHORITIES BELOW. W E FIND THAT THE LD.CIT(A) WHILE DECIDING THE ISSUE IN FAVOUR OF ASSESSEE HAS GIVEN A FINDING THAT THOUGH THE AO HAS DOUBTED THE PURCHASES BUT HAS NOT BROUGH T ON RECORD ANY INSTANCE OF BOGUS OR INFLATED PURCHASE AND HAS ALSO NOT DOUBTED THE SALES FIGURE DISCLOSED BY THE ASSESSEE. HE HAS FURTHER GI VEN A FINDING THAT PAPER MILL ASSOCIATION HAD FIXED THE PRICE FOR PURCHASES OF WASTE-PAPER FROM THE TRADERS AND, THEREFORE, THE SCOPE OF MANIPULATED SA LES PRICE WAS NOT ESTABLISHED AND THERE WAS NO EVIDENCE TO CONCLUDE T HAT WASTER-PAPER SUPPLIER HAVE HIGHER GROSS MARGIN ON SALES ONLY BECAUSE THEI R PURCHASES ARE FROM SMALL TYPE VENDORS. HE HAS FURTHER GIVEN A FINDING THAT 15% MARGIN OF PROFIT IS NOT POSSIBLE IN THE CASE OF ASSESSEE. HE HAS FUR THER GIVEN A FINDING THAT CENTRAL CIRCLE SURAT HAD COMPLETED THE ASSESSMENT O F SMALL TRADERS BY ESTIMATING THE GROSS PROFIT AND HAD CONSIDERED THE GROSS PROFIT RATE BETWEEN 0.5% TO 0.75% ON SIMILAR FACTS AS THAT OF ASSESSEE. HE THEREAFTER AFTER CONSIDERING THE GROSS PROFIT AND NET PROFIT RATIO S HOWN BY THE ASSESSEE, ESTIMATED THE NET PROFIT AT 2% AS AGAINST 1.10% DIS CLOSED BY THE ASSESSEE.. BEFORE US, REVENUE HAS NOT BROUGHT ANY MATERIAL ON RECORD TO CONTROVERT THE FINDINGS OF LD.CIT(A). LOOKING TO THE TOTALITY OF T HE FACTS OF THE PRESENT CASE, WE DO NOT SEE ANY REASON TO INTERFERE WITH THE ORDE R OF THE LD.CIT(A). THUS, THIS GROUND OF REVENUE IS DISMISSED. 4.3 IT IS CONTENDED THAT THE ISSUE BEING COVERED AN D THE COMPARABLE CASES HAVING BEEN REFERRED TO BY THE LD. CIT(A), THE REVE NUES APPEAL MAY BE DISMISSED AS WELL AS THE ASSESSEES COS MAY ALSO B E DISMISSED. 5. THE LD. DEPARTMENTAL REPRESENTATIVE IS HEARD WHO SUPPORTED THE ORDER OF THE LD. ASSESSING OFFICER. ITA NO. 1337/AHD/2012 AND CO NO. 137/AHD/2012 ITO VS. PRAKASH F. SINGH AY : 2009-10 5 6. WE HAVE HEARD THE RIVAL CONTENTIONS, PERUSED THE MATERIAL AVAILABLE ON RECORD AND GONE THROUGH THE ORDERS OF THE AUTHOR ITIES BELOW. IN OUR CONSIDERED OPINION, THE SAME ISSUE OF SUPPLYING OF WASTE-PAPER TO PAPER- MILLS IN CASE OF VARIOUS ASSESSEES HAVE BEEN CONSID ERED BY LD. CIT(A). SIMILAR ISSUE HAS BEEN UPHELD BY ITAT IN THE CASE O F TAYAB YUNUS BARUDGAR IN ITA NO.1351/AHD/2012 AND CO NO.155/AHD/2012 FOR AY 2009-10, VIDE ORDER DATED 27.05.2016. CONSEQUENTLY, WE SEE NO IN FIRMITY IN THE ORDER OF LD. CIT(A) WHICH IS UPHELD. 7. IN THE RESULT, REVENUES APPEAL AND ASSESSEES C ROSS OBJECTION, BOTH ARE DISMISSED. ORDER PRONOUNCED IN THE COURT ON 7 TH DECEMBER, 2016 AT AHMEDABAD. SD/- SD/- (AMARJIT SINGH) ACCOUNTANT MEMBER (R.P. TOLANI) JUDICIAL MEMBER AHMEDABAD; DATED 07/12/2016 *BIJU T., SR PS / COPY OF THE ORDER FORWARDED TO : 1. / THE APPELLANT 2. / THE RESPONDENT. 3. / CONCERNED CIT 4. ( ) / THE CIT(A) 5. , , / DR, ITAT, AHMEDABAD 6. / GUARD FILE . / BY ORDER, TRUE COPY / ( DY./ASSTT.REGISTRAR) , / ITAT, AHMEDABAD