Dhodha House, Kotkapura V. Commissioner of Income Tax, Jalandhar and another

ITA/50/2000

AI Insights

The case involves M/s Dhodha House, a manufacturer of sweets, who appealed against the orders of the Income Tax Appellate Tribunal, Amritsar, which had upheld the additions made to their income for the assessment year 1988-89. The additions were based on findings that the assessee had not maintained proper records of sales and purchases, and discrepancies were noted between the purchases and sales recorded. The Tribunal and the lower authorities rejected the books of accounts maintained by the assessee and applied a gross profit rate to estimate the income, leading to the addition of Rs.96,170 to the assessee's income. The High Court dismissed the appeal, agreeing with the findings of the lower authorities and noting that no substantial question of law was raised.

• Counselvise Citation: [2014] 140 COUNSELVISE.COM (IT) 675477 (HC-CHANDIGARH)
• Appeal Type: Others
• Pronouncement Date: 28-02-2014
• Assessment Year: misc
• Other Referred Cases: Moh. Umer Versus C.I.T. Bihar reported in 101 ITR 525
• Laws Referred To: Income Tax Act, 1961
• Result in Favour of: Revenue
• Court: HIGH COURT
• Department Lawyers: VIVEK SETHI
• Assessee Lawyers: AALOK MITTAL
• Keywords: Assessment Year; Books of Accounts; Discrepancies; Gross Profit Rate; Income Tax; Rejection of Books; Cash Memo
• Section: 131; 145(1); 260-A

Judgement Text

"I.T.A. No.50 of 2000 -1- IN THE HIGH COURT OF PUNJAB AND HARYANA AT CHANDIGARH I.T.A. No.50 of 2000. Decided on:-February 28, 2014. M/s Dhodha House, Kotkapura. .........Appellant. Versus Commissioner of Income Tax, Jalandhar & another .........Respondents. CORAM: Hon'ble Mr. Justice Rajive Bhalla Hon'ble Mr. Justice Dr. Bharat Bhushan Parsoon. ***** Argued by:- Mr. Aalok Mittal, Advocate for the appellant. Mr. Vivek Sethi, Advocate for the respondents. Dr. Bharat Bhushan Parsoon, J. This appeal under Section 260-A of the Income Tax Act, 1961 (hereinafter referred to as the Act) arises out of order (Annexure P-3) dated 4.11.1999 passed by the Income Tax Appellate Tribunal, Amritsar Bench, Amritsar (hereinafter referred to as, the Tribunal) in ITA No.914(ASR)/1993 pertaining to the assessment year 1988-89. 2. The assessee, manufacturer of Dhodha, Patisa and other sweets had filed its return of income for the assessment year 1988-89 on 29.7.1988 declaring an income of Rs.61,600/-. Dhodha is a renowned sweet. It is liked by many. As mentioned on the packing boxes of Dhodha sweet of the assessee, the assessee is a gold medalist in the manufacturing of Dhodha. Yag Dutt 2014.03.08 12:25 I attest to the accuracy and integrity of this document I.T.A. No.50 of 2000 -2- The assessee, thus, is a leading manufacturer of this sweet whereas it manufactures other sweets as well. 3. During examination of books of accounts by the Assessing Officer (hereinafter referred to as the AO), it was found by him that the assessee was not issuing cash memoes to the customers qua the sales effected by it. The assessee also admitted that cash memoes were being issued to the purchasers only on demand. On examination of books of accounts, it was found by the AO that the assessee had been supplying finished goods to S/Shri Radhey Shyam, Palji @ Palu Ram and Vijay Kumar. During the course of assessment, their statements were recorded on 22.6.1989 by Inspector of the Income Tax Department; he submitted his report on 29.6.1989. It was found that total value of the goods received from these three parties was to the tune of Rs.3,26,000/- whereas the total sale shown by the assessee to them was to the tune of Rs.7,24,604/-. 4. When report prepared by the tax officials was sent to the assessee, the assessee desired to cross-examine the said purchasers. Those witnesses were called after issuing notices to them under Section 131 of the Act. When after cross-examination of the witnesses, large scale discrepancies were found in the accounts, the assessee was called upon to produce cash memoes which were issued by him to various customers for a particular period i.e. from 1.4.1987 to 31.3.1988. Cash memoes produced by the assessee were only from 18.10.1987 to 31.3.1988; these revealed that even serial number of cash memoes had not been printed on the bills and the bills used to be filled in by hand, whenever it was felt necessary to issue such bills. It was found by the revenue that on many days, there was not even single cash memo which was issued, showing the sale. 5. When scrutiny of the books of account was made even further, it was found that some expenses had also been debited under the head “Salary” i.e. amounting to Rs.65,472/- but no such register had been kept by Yag Dutt 2014.03.08 12:25 I attest to the accuracy and integrity of this document I.T.A. No.50 of 2000 -3- the assessee. In absence of the salary register, it was difficult for the revenue to verify the payments shown to have been made as salary to certain individuals. In the face of serious omissions and commissions, the assessee was asked by the revenue to produce necessary evidence regarding genuineness of the expenses incurred. Similarly, for consumption of milk, sugar and other allied items, no proper books of accounts had been maintained and when the assessee was called upon to produce, neither the milk sellers of the assessee nor any books of accounts were produced. The assessee, thus, was caught napping. 6. Against the order of the AO, the assessee preferred an appeal before the Commissioner of Income Tax, Bhatinda [hereinafter referred to as the CIT(A)]. While deciding the appeal against claim of the assessee qua burning loss at 25% to 35%, going into facts based situation and employing various parameters for assessing the sales, while allowing relief of Rs.61,680/-, estimating gross profit rate at Rs.2,78,070/-, addition of Rs.96,170/- was made by the CIT(A) vide order (Annexure P-2) dated 24.5.1993. 7. Again assessee-firm felt aggrieved and had preferred an appeal before the Tribunal. The Tribunal while deciding the case on 4.11.1999, upheld the order of the CIT(A), whereby addition of Rs.96,170/- had been made. 8. Hearing has been provided to counsel for the parties while going through the paper book. 9. Counsel for the assessee has urged that there was no material worth credit and integrity to dislodge the accounts of the appellant-firm. It is claimed that books of accounts of the assessee were wrongly rejected and results of the accounts reached by the assessee, were wrongly ignored. It is claimed that when books of accounts had been left aside, then the revenue Yag Dutt 2014.03.08 12:25 I attest to the accuracy and integrity of this document I.T.A. No.50 of 2000 -4- should have collected its own evidence to come to a finding distinct and separate from the findings arrived at by the assessee. It is, thus, contended that approach of the revenue has been highly lopsided. 10. Following substantial questions of law had been posed by the assessee for adjudication: a) Whether in the facts and circumstances of the case, orders Annexures P1, P2 and P3 are legally sustainable? b) Whether in the facts and circumstances of the case, order of the ITAT in confirming the addition of Rs.96,170/- based on mere presumption ignoring the evidence put-forth by the assessee showing to the contrary, is legally sustainable? c) Whether in the facts and circumstances of the case, order of the ITAT in confirming the finding regarding the application of proviso to Section 145(1) of the I.T. Act without there being any specific averment as regards the infirmity in the method of accountancy employed by the assessee- appellant as mandated in the case of Moh. Umer Versus C.I.T. Bihar reported in 101 ITR 525, is legally sustainable? d) Whether in the facts and circumstances of the case, order of the ITAT in confirming the addition made, when the quantity of raw-material not being in dispute and ignoring the sales put-forth by the assessee-appellant without there being any evidence to show to the contrary, is legally sustainable? 11. These questions of law are not very happily worded. However, taking the spirit behind framing of these substantial questions of law, the matter is being adjudicated. 12. Following observations made by the AO in order (Annexure Yag Dutt 2014.03.08 12:25 I attest to the accuracy and integrity of this document I.T.A. No.50 of 2000 -5- P-1) dated 31.3.1989 are noteworthy: “If the assessee was right in his approach, then certainly he should have produced the said Bahi in which the record of purchase of milk was kept. All these facts clearly show that the books result shown by the assessee are not subject to any verification and the provisions of section 145(1) are clearly applicable. If on the basis of calculations made by me regarding the sale of Dhodha at the Bus Stop was negligible sale of Dhodha at other places although it is not a fact, yet I estimate the sales of the assessee at Rs.13,50,000/- and apply G.P. Rate 25.10% as shown by the assessee. This will mean an addition of Rs.1,57,850/- in the trading account.” 13. Agreeing with these observations, the CIT(A) vide order (Annexure P-2) affirming the finding of the AO regarding rejection of books of accounts, had held as under: “For the year under consideration, the assessee has himself shown purchases of raw-material at Rs.5,60,535/- and the weight of raw-material consumed has been mentioned at 38392 Kgs. whereas in fact it works out to 38892 Kgs including opening stock etc. The weight of sweets manufactured is estimated after giving a discount of 10% on account of burning losses, pilferage, wastage and other factors like consumption of milk and milk products etc. by the assessee's employees. I am not inclined to accept the plea of the learned counsel that burning losses and wastage tantamount to 25% to 30%. Accordingly, the net weight of sweet manufactured would work out to 35003 kgs. The weight of dhoda manufactured is taken to 65% and weight of other sweets is taken at 35%. This is being taken at estimated figure since assessee has not disclosed the formula for manufacturing dhoda being a trade secret. To the sweets so manufactured the sale rate of dhoda during the year was Rs.40/- per kg. Perusal of assessment record shows that assessee had been giving a discount of Rs.2.5 per kg in respect of bulk sales since the assessee has not been able to produce any record of having given discount on retail sales, the average discount is allowed at Rs.1.25 per kg and the net rate in respect of dhoda is taken at Rs.39/- per kg. In respect of other sweets, the rate varied between Rs.14/- per Kg to Rs.20/- per Kg. Since exact bifurcation is not possible, the average rate of Rs.18/- per Yag Dutt 2014.03.08 12:25 I attest to the accuracy and integrity of this document I.T.A. No.50 of 2000 -6- Kg is applied. Accordingly, the total sales would work out as under: Weight in KGs Rate in Rs. Value in Rs. i) Dhoda manufactured 22752 39/- 8,87,328/- ii) Others. 12251 18/- 2,20,518/- 35003 Total Sale: 11,07,846/- To the sales so estimated, a rate of 25.10% is applied as shown and accepted by the AO. This would mean gross profit of Rs.2,78,070/- as against this, the assessee has shown G.P. Of Rs.1,81,900/-. This would, therefore, call for an addition of Rs.96,170/- since the AO has made addition of Rs.1,57,850/-, the appellant would get relief of Rs.61,680/-.” 14. When the matter was taken to the Tribunal further in appeal by the assessee, the Tribunal affirmed finding of the AO which in turn had been upheld by the CIT(A) as well, regarding invocation of proviso appended to Section 145(1) of the Act. Relevant findings of the Tribunal in this regard as mentioned in para No.11 of the order (Annexure P-3) are reproduced as below: “On going through these observations, we find that the order of the CIT(A) in estimating total sales, application of G.P. rate and in granting a relief of Rs.61,680/- is most reasonable and well discussed and is based on the proper analysis of facts and the circumstances of the case of the assessee. In view of the matter, we do not find any illegality and infirmity in the order of the CIT(A), which is a well reasoned and well discussed and hence no interference is called from our side. Hence grounds of appeal Nos.2 to 5 of the assessee having no merits are rejected and the order of the CIT(A) with regard to the sustaining of addition of Rs.96,170/- is upheld.” 15. In view of the discussion already made, it is apparent that the entire issue concerns facts and attending circumstances and there is no legal issue much less substantial to be adjudicated upon and as such, no Yag Dutt 2014.03.08 12:25 I attest to the accuracy and integrity of this document I.T.A. No.50 of 2000 -7- substantial question of law, in fact, arises. Sequelly, the appeal, being without any merit, is dismissed. (Dr. Bharat Bhushan Parsoon) Judge (Rajive Bhalla) Judge February 28, 2014 'Yag Dutt' 1. Whether Reporters of local papers may be allowed to see the judgment? Yes 2. Whether to be referred to the Reporters or not? Yes 3. Whether the judgment should be reported in the Digest? Yes Yag Dutt 2014.03.08 12:25 I attest to the accuracy and integrity of this document "