Shri Bharat Gordhandas Rajani, JUNAGADH V. The Deputy Commissioner of Income Tax, Circle-1, JUNAGADH

CO 33/RJT/2011

• Counselvise Citation: [2013] 122 COUNSELVISE.COM (IT) 8590 (ITAT-RAJKOT)
• Duration Of Justice: 2 year(s) 22 day(s)
• Appeal Type: Cross Objection
• Pronouncement Date: 26-04-2013
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: DB
• Next Hearing Date: 22-04-2013
• Assessment Year: 2004-2005
• Appeal Filed On: 04-04-2011
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: M K SINGH DR AIU
• Assessee Lawyers: J C RANPURA CA U
• Keywords: Gross profit estimation
• Section: 143(3); 133A

Judgement Text

E, IN THE INCOME TAX APPELLATE TRIBU N AL; RAJKOT BENCH, RAJKOT. BEFORE SHRI D. K. TYAGI, JM AND SHRI A. MOHAN ALANKAMONY, AM IT A NO . 80 /RJT/2011 AI I / ASSESSMENT YEAR 200 4 - 05 DCIT, CIRCLE - 1, JUNAGADH ( . / APPELLANT) VS. SHRI BHARATKUMAR G. RAJANI (HUF) , BLOCK NO.18, RAJKIRAN APPT., JAYSHRI NAGAR, JUNAGADH PAN : AAHHR 1954 F R. / RESPONDENT C.O.NO. 33 /RAJ/2011 IN IT A NO . 80 /RJT/2011 AI I / ASSESSMENT YEAR 200 4 - 05 SHRI BHARATK UMAR G. RAJANI (HUF) , JUNAGADH ( . / CROSS - OBJECTOR ) VS. DCIT, CIRCLE - 1, JUNAGADH R. / RESPONDENT T U / REVENUE BY SHRI M K SINGH, DR AIU /ASSESSEE BY SHRI J C RANPURA, CA U / DATE OF HEARING 22 .04.2013 U / DATE OF PRONOUNCEMENT 26 .04.2013 / ORDER PER BENCH: THIS APPEAL OF THE REVENUE AND CROSS - OBJECTIONS BY THE ASSESSEE ARE AGAINST THE ORDER OF THE LD. CIT(A) - XXI, AHMEDABAD IN APPEAL NO. CIT(A) - XXI/489/CIR.1.JNG/10 - 11 DATED 31.12.2010 FOR THE ASSESSMENT YEAR 2004 - 05 PASSED U/S 250 R.W.S. 143(3) OF THE ACT. SINCE APPEAL OF THE REVENUE AND CROSS - OBJECTIONS THERETO ARE WITH RESPECT TO SAME ISSUES AND FACTS , FOR THE SAKE OF CONVENIENCE, THEY ARE HEARD TOGETHER AND ARE DEC IDED BY THIS CONSOLIDATED ORDER. 2. THE ASSESSEE HAS RAISED FIVE GROUNDS IN ITS APPEAL WHEREIN GROUND NO. 3,4 &5 ARE GENERAL IN NATURE AND DO NOT SURVIVE FOR ADJUDICATION. THE OTHER TWO GROUNDS ARE RE PRODUCED HEREIN BELOW FOR OUR CONSIDERATION. 80/ RJT2011 CO 33 /RJT/201 1 2 1. TH E LD. CIT (A), HAS ERRED IN LAW AND ON FACTS IN DELETING THE ADDITION OF RS.6,95,240/ - MADE BY THE AO, ON ACCOUNT OF LOW GP, WITHOUT APPRECIATING THE FACTS BROUGHT ON RECORD BY THE AO. 2. THE LD. CIT (A) HAS ERRED IN LAW AND ON FACTS IN DELETING THE AD DITION OF AMOUNTING TO RS. 4,80,800/ - MADE BY AS PER THE PROVISION OF SECTION 40A(2)(B) WITHOUT CONSIDERING THE FACTS BROUGHT ON RECORD BY THE AO. 3. THE ASSESSEE HAS RAISED TWO GROUNDS IN ITS CO WHEREIN GROUND NO.1 IS GENERAL IN NATURE AND DO NOT SURVIVE FOR ADJUDICATION. THE OTHER RELEVANT GROUND NO.2 IS REPRODUCED HEREIN BELOW FOR OUR CONSIDERATION. 2.0 THE LD. OF INCOME TAX (APPEALS) - XXI, AHMEDABAD [HEREINAFTER REFERRED TO AS THE CIT(A)] ERRED ON FACTS AS IN LAW IN CONFIRMING THE ADDITION OF RS .1,50,000/ - OUT OF THE TOTAL ESTIMATED ADDITION OF RS.8,45,240/ - MADE ON ACCOUNT OF ALLEGED LOW GP. THE ADDITION MAY KINDLY BE DELETED. 4. THE ASSESSEE IS A HUF , ENGAGED IN THE BUSINESS OF TRADING IN TEA ON WHOLESALES BASIS FILED HIS RETURN OF INCOME ON 25.10.2004 DECLARING TOTAL INCOME OF RS.4,54,410/ - . THE TWO CO - PARCENERS OF THE HUF ARE ALSO ENGAGED IN THE SAME TRADE. THERE WAS A SURVEY CONDUCTED U/S. 133A OF THE ACT O N THE ASSESSEE AND THE TWO CO - PARCENERS SHRI DHARMENDRA GORDHANDAS RAJAN & BHARAT G. RAJANI WHEREIN CERTAIN ADDITIONS WERE MADE. NOW BOTH THE REVENUE & THE ASSESSEE ARE BEFORE US AGGRIEVED BY THE ORDER OF THE LD CIT(A). 5. GROUND NO. 1 OF THE REVENUES APPEAL & GROUND NO.2 OF ASSESSEES CO - DELETING THE ADDITION OF RS.6,95,240/ - MADE BY THE AO, ON ACCOUNT OF LOW GP : - AT THE OUTSET WE FIND THIS ISSUE AND FACTS ARE IDENTICAL WITH THE CASE OF THE CO - PA RCENER OF THE ASSESSEE WHEREIN WE HAVE HELD AS UNDER IN PARA 9, 9.1 & 9.2 PAGE 8 & 9 IN ITA NO.83/RJT/2011 VIDE ORDER DATED 26.04.2013: - 9. GROUND NO.3 OF THE REVENUES APPEAL & GROUND NO.3 OF THE ASSESSEES CO - DELETING THE ADDITION OF RS.4,12,761/ - OUT OF THE TOTAL ADDITIONS MADE BY THE AO FOR RS.5,12,761 ON ACCOUNT OF LOW GP AND THE ASSESSEES CROSS - OBJECTIONS FOR SUSTAINING THE ADD ITION OF RS.1 LAC BY THE LD CIT(A): - DURING THE COURSE OF ASSESSMENT PROCEEDINGS, THE LD AO OBSERVED THAT THE ASSESSEE HAS DISCLOSED GP RATE OF 13.99% 80/ RJT2011 CO 33 /RJT/201 1 3 AS AGAINST 20.99% DISCLOSED IN THE IMMEDIATE PRECEDING YEAR. THE ASSESSEE HAD EXPLAINED BEFORE THE LD A O THAT DURING THE RELEVANT PREVIOUS YEAR THE TEA RATE WAS FLUCTUATING AND ALSO THERE WAS STIFF COMPETITION IN THE MARKET WHICH RESULTED IN THE LOW PROFIT MARGIN. HOWEVER, NOT CONSIDERING THE REASONING OF THE ASSESSEE AS GENUINE THE LD AO TREATED THE GP OF THE ASSESSEE AT 15% AND THUS MADE AN ADDITION OF RS.5,12,761/ - TO THE INCOME OF THE ASSESSEE. LD CIT(A) CONSIDERING THE ADDITION MADE BY THE LD AO NOT SUPPORTED BY ANY MATERIAL EVIDENCE AND ALSO CONSIDERING THE ADDITIONS SUSTAINED FOR DISCREPANCY IN STOC K, SUSTAINED AN ADDITION OF RS.1 LAC. 9.1 LD DR ARGUED IN SUPPORT OF THE ORDER OF THE LD AO AND SUBMITTED THAT THE SAME MAY BE UPHELD, WHILE AS THE LD AR PLEADED THAT THE ENTIRE ADDITIONS IS BASED ON PRESUMPTIONS AND THEREFORE THE SAME MAY BE DELETED. 9.2 AFTER HEARING BOTH THE SIDES AND CAREFULLY PERUSING THE MATERIAL ON RECORD, WE FIND THAT THE REVENUE HAS MADE THE ADDITIONS ON ACCOUNT OF LOW GP ARBITRARILY AND PURELY BASED ON PRESUMPTIONS AND ASSUMPTIONS. BOTH THE REVENUE AUTHORITIES HAVE NOT BROU GHT ANY MATERIALS ON RECORD TO ESTABLISH THAT THE ASSESSEE HAD UNFAIRLY DECLARED LOW PROFITS. FURTHER THE LD AO HAS NOT UNEARTHED ANY EVIDENCE TO ESTABLISH THAT THE BOOKS OF ACCOUNTS AND RECORDS MAINTAINED BY THE ASSESSEE ARE NOT RELIABLE. THEREFORE FROM THE FACTS AND CIRCUMSTANCE OF THE CASE, WE ARE OF THE CONSIDERED VIEW THAT THE LD AO HAD ARBITRARILY MADE THE ADDITIONS WHICH WAS FURTHER SUSTAINED BY THE LD CIT(A) WHICH IS DESERVED TO BE DELETED. ACCORDINGLY WE HEREBY DELETE THE ADDITIONS MADE BY THE L D AO WHICH WAS FURTHER PARTLY SUSTAINED BY THE LD CIT(A) ON ACCOUNT OF LOW GP. THUS THIS GROUND RAISED BY THE REVENUE IS DISMISSED AND THE GROUND NO.3 RAISED BY THE ASSESSEE IN HIS CO IS ALLOWED. 5.1 FOLLOWING THE SAME RATIO, WE HEREBY DISMISS THE APPEA L OF THE REVENUE ON THIS ISSUE AND ALLOW THE CO OF THE ASSESSEE. 6. GROUND NO.2 OF THE REVENUES APPEAL - DELETING THE ADDITION OF AMOUNTING TO RS.4,80,800/ - MADE BY AS PER THE PROVISION OF SECTION 40A(2)(B) : - THE LD AO HAD OBSERVED THAT THE ASSESSEE HA D PAID SALES COMMISSION OF RS.4,80,800/ - TO THE CO - PARCENERS AND MEMBERS OF THE HUF . SINCE THE ASSESSEE COULD NOT FURNISH THE BASIS ON WHICH THE SALE COMMISSION IS PAID, THOUGH THE RATE OF COMMISSION WAS THE SAME AS PAID TO THE OUTSIDERS, DISALLOWED THE E NTIRE COMMISSION AND ADDED TO THE INCOME OF THE ASSESSEE INVOKING THE PROVISION OF SECTION 40A(2)(B) OF THE ACT. ON APPEAL, THE LD CIT(A) DELETED THE ADDITIONS. THIS ISSUE IS ALSO IDENTICAL AND COVERED IN FAVOUR OF THE ASSESSEE IN THE CASE OF THE CO - PA RCENER IN ITA NO.8 2 /RJT/2011 FOR THE AY 200 3 - 0 4 VIDE ORDER DATED 26.04.2013 IN PARA NO. 5, 5.1 & 6 AND AT PAGE 3, 4 & 5, AND THE SAME IS REPRODUCED HEREIN BELOW FOR REFERENCE: - 80/ RJT2011 CO 33 /RJT/201 1 4 5. GROUND NO.2 DELETING OF ADDITION OF RS.12,37,480/ - MADE BY AO ON ACCOUNT OF SALES COMMISSION EXPENSES U/S. 40A(2)(B) OF THE ACT : - DURING THE COURSE OF ASSESSMENT PROCEEDINGS LD AO OBSERVED THAT THE ASSESSEE HAD DEBITED RS.12,37,480/ - TOWARDS SALES COMMISSION. IT WAS FURTHER OBSERVED THAT THE ABOVE AMOUNT WAS TO BE PAID TO TH E BROTHER OF THE ASSESSEE. THE LD AO REQUIRED THE ASSESSEE TO FURNISH THE DOCUMENTARY EVIDENCE TO ESTABLISH THAT HIS BROTHER HAD ACTUALLY RENDERED SERVICE TO THE ASSESSEE. SINCE THE ASSESSEE COULD NOT FURNISH ANY DOCUMENTARY EVIDENCE, THE LD AO DISALLOWE D RS.12,37,480/ - INVOKING SECTION 40A(2)(B) OF THE ACT. WHEN THE MATTER WAS BROUGHT BEFORE THE LD CIT(A), THE LD CIT(A) AFTER EXAMINING THE ISSUE IN DETAILS DELETED THE ADDITION WITH THE FOLLOWING OBSERVATIONS: - 4.2. I HAVE PERUSED THE ASSESSMENT ORDER AND ALSO THE ARGUMENT PUT FORTH BY THE LD AR OF THE ASSESSEE. I FIND THAT THE DISALLOWANCE WAS MADE ON MERE SURMISE THAT THE PERSONS TO WHOM THE SALES COMMISSION HAVE BEEN MADE ARE IN THE SIMILAR LINE OF BUSINESS AND THEREFORE THEY DO NOT HAVE TIME FOR CA RRYING OUT THE SALES OF THE ASSESSEE. THIS IS HIGHLY HYPOTHETICAL AND IS NOT SUPPORTED BY ANY MATERIAL EVIDENCE ON RECORD. AS CAN BE SEEN FROM THE CONTENTION OF THE ASSESSEE THAT, THIS FINDING OF THE AO IS MISPLACED IN AS MUCH AS THE RESPECTIVE AGENTS HA VE KNOWLEDGE IN THE FIELD AND RENDERED SERVICES IN MARKETING GOODS. THEREFORE, THE DISALLOWANCE MADE U/S 40A(2)(B) IS WITHOUT ESTABLISHING THE FACT THAT THERE EXISTED UNREASONABLENESS ON THE PART OF THE ASSESSEE TO PART WITH COMMISSION INCOME. SINCE THE AO FAILED TO BRING ANYTHING MATERIAL EVIDENCE ON RECORD, THE DISALLOWANCE MADE U/S 49A(2)(B) IS DIRECTED TO BE DELETED. HENCE THE ASSESSEES SECOND GROUND OF APPEAL IS ALSO ALLOWED. 5.1 LD DR ARGUED IN SUPPORT OF THE ORDER OF THE LD. AO AND PRAYED THAT THE ORDER OF THE LD AO MAY BE RESTORED ON THIS ISSUE, WHILE AS THE LD AR SUBMITTED THAT THE LD CIT(A) HAD EXAMINED THE ISSUE IN DETAIL AND PASSED A SPEAKING ORDER AND PRAYED THAT THE SAME MAY BE SUSTAINED. 6. WE HAVE HEARD THE RIVAL SUBMISSION AND CAREF ULLY PERUSED THE MATERIALS ON RECORD. THE CONTENTION OF THE APPELLANT WAS THAT IN ORDER TO ACHIEVE HIGHER TURNOVER HE HAD ENGAGED THE SERVICE OF HIS BROTHER AND OTHER PERSONS. FURTHER IT WAS DIFFICULT TO HANDLE BUSINESS SINGLE HANDEDLY THEREFORE IT WAS E SSENTIAL TO OBTAIN THE HELP FROM OTHER INDIVIDUALS AND THE ASSESSEE PREFERRED TO TAKE THE SERVICE OF HIS BROTHER. FURTHER THE ENTIRE AMOUNT WAS PAID BY ACCOUNT PAYEE CHEQUE AFTER DULY DEDUCTING TAX AT SOURCE. THE APPELLANTS BROTHER WAS ALSO AN ASSESSEE POSSESSING PAN NUMBER. THE ASSESSEE HAS ALSO PLACE RELIANCE IN THE DECISIONS OF VARIOUS HIGHER JUDICIAL AUTHORITIES TO JUSTIFY HIS CLAIM VIZ. 1) S.A. BUILDERS V. CIT 288 ITR 1 (SC), 2) NARSINGDAS SURAJMAL PROPERTIES PVT LTD V. CIT, 3) STATE OF MADRAS VS. G.J. GOELHO (1964) 53 ITR 186 (SC), 4) CIT V. PANIPAT WOOLEN AND GENERAL MILLS CO. LTD. (1976) 103 ITR 66, 71 (SC) & 4) CIT V. DHANRAJGIRJI RAJA NARASINGIRJI (1973) 91 ITR 544 (SC). CONSIDERING THE NATURE OF EXPENDITURE THE ASSESSEE HAD INCURRED AND THE B USINESS OF THE ASSESSEE, WE DO NOT FIND ANY REASON AS TO WHY THE EXPENDITURE BEING SALES COMMISSION PAID TO THE BROTHER OF THE ASSESSEE BE DISALLOWED. FURTHER THE LD CIT(A) HAS DELIBERATED THE ISSUE IN DETAIL AND HAS ALLOWED THE EXPENDITURE. AT THIS STAG E, WE DO NOT FIND IT NECESSARY TO INTERFERE WITH THE ORDER OF THE LD CIT(A) ON THIS ISSUE. THEREFORE, WE HEREBY UPHOLD THE DECISION OF LD CIT(A) ON THIS ISSUE AND ACCORDINGLY DISMISS THIS GROUND RAISED BY THE REVENUE. 80/ RJT2011 CO 33 /RJT/201 1 5 6. FOLLOWING OUR DECISION CITED SUP RA, WE HEREBY CONFIRM THE ORDER OF THE LD CIT(A). THUS, THIS GROUND RAISED BY THE REVENUE IS ALSO DISMISSED. 7. IN THE RESULT, THE APPEAL OF THE REVENUE IS DISMISSED AND THE CROSS - OBJECTION FILED BY THE ASSESSEE IS ALLOWED. T HIS O RDER IS PRONOUNCED IN THE O PEN COURT ON THE DATE MENTIONED HEREINABOVE. SD/ - SD/ - (D .K. TYAGI) (A. MOHAN ALANKAMONY ) A T / JUDICIAL MEMBER / ACCOUNTANT MEMBER N/ ORDER DATE 26 .04.2013 /RAJKOT BT T RJO O / COPY OF ORDER FORWARDED TO: - 1 . / APPELLANT - DCIT, CIRCLE - 1, JUNAGADH 2 R . / RESPONDENT - SHRI BHARATKUMAR G. RAJANI (HUF) , JUNAGADH 3 E D / CIT CONCERNED 4. D - / CIT (A) - XXI, AHMEDABAD 5 AAE, E, / DR, ITAT, RAJKOT 6 I / GUARD FILE. / BY ORDER , TRUE COPY SENIOR PRIVATE SECRETARY INCOME TAX APPELLATE TRIBUNAL, RAJKOT.