Smt. Kantaben Ramjibhai Chaudhari, Gandhinagar V. The Income Tax Officer, Ward-2, Gandhinagar

ITA 1/AHD/2016

• Counselvise Citation: [2018] 126 COUNSELVISE.COM (IT) 6095 (ITAT-AHMEDABAD)
• Duration Of Justice: 2 year(s) 1 month(s) 15 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 16-02-2018
• Appeal Filed By: Assessee
• Order Result: Partly Allowed
• Bench Allotted: Not Allotted
• Assessment Year: 2011-2012
• Appeal Filed On: 01-01-2016
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Department Lawyers: ADITYA SHUKLA
• Assessee Lawyers: K P SHAH
• Section: 133(6); 145

Judgement Text

, - IN THE INCOME TAX APPELLATE TRIBUNAL AHMEDABAD BENCH SMC BEFORE SHRI RAJPAL YADAV, JUDICIAL MEMBER ./ ITA NO. 1/AHD/2016 / ASSESSMENT YEAR: 2011-12 SMT.KANTABEN RAMJIBHAI CHAUDHARI C/O. JAY PRABHU SEEDS & GINNING FACTORY MANSA VIJAPUR HIGHWAY ROAD MANSA, GANDHINAGAR. PAN : ADXPC 2695 R VS ITO, WARD-2 GANDHINAGAR. / (APPELLANT) / (RESPONDENT) ASSESSEE BY : SHRI K.P. SHAH, AR REVENUE BY : SHRI ADITYA SHUKLA, SR.DR / DATE OF HEARING : 12/02/2018 /DATE OF PRONOUNCEMENT : 16/02/2018 O R D E R PRESENT APPEAL IS DIRECTED AT THE INSTANCE OF THE A SSESSEE AGAINST ORDER OF LD.CIT(A), GANDHINAGAR, AHMEDABAD DATED 27 .10.2015 PASSED FOR THE ASSTT.YEAR 2011-12. 2. GROUNDS OF APPEAL TAKEN BY THE ASSESSEE ARE NOT IN CONSONANCE WITH THE RULE 8 OF THE INCOME TAX (APPELLATE TRIBUNAL) R ULES, 1963 - THEY ARE DESCRIPTIVE AND ARGUMENTATIVE IN NATURE. IN BRIEF G RIEVANCE OF THE ASSESSEE IS THAT THE LD.CIT(A)HAS ERRED IN CONFIRMING ADDITION OF RS.9,61,133/-. 3. BRIEF FACTS OF THE CASE ARE THAT THE ASSESSEE-FI RM HAS FILED ITS RETURN OF INCOME ON 3.9.2011 DECLARING TOTAL INCOME AT RS.8,1 6,431/-. THE ASSESSEE AT THE RELEVANT TIME WAS ENGAGED IN THE BUSINESS OF TRADIN G IN COTTON BAILS AND SEEDS. ITA NO.1/AHD/2016 - 2 - IT HAS ACHIEVED TURNOVER OF RS.19.56 CRORES AND DIS CLOSED A NET PROFIT AT 0.42% WHICH IS FAR LESS IN COMPARISON TO 0.91% AND 1.26% ACHIEVED IN ASSTT.YEAR 2010-11 AND 2009-10 RESPECTIVELY. HENCE, THE AO IN VESTIGATED ACCOUNTS OF THE ASSESSEE. THE LD.AO HIGHLIGHTED VARIOUS DISCREPANC IES, AND THEREAFTER HE REJECTED BOOK RESULTS, ESTIMATED NET PROFIT AT 0.91 % WHICH WORKED OUT RS.17,80,750/-. HE MADE ADDITION OF RS.9,61,133/-. THE LD.CIT(A) HAS ISSUED A SHOW CAUSE NOTICE FOR ENHANCEMENT OF INCOME. IN TH E OPINION OF THE LD.CIT(A) FALL IN NET PROFIT RATE WOULD BE ONE CORROBORATIVE CIRCUMSTANCE FOR REJECTING BOOK RESULTS AMONGST OTHERS. THE LD.CIT(A) WAS OF VIEW THAT VARIOUS ADDITIONS WITH RESPECT TO DISCREPANCIES NOTICED BY THE AO DES ERVE TO BE MADE INDEPENDENTLY. HOWEVER, AFTER TAKING INTO CONSIDER ATION CUMULATIVE SETTING OF ALL FACTS, THE LD.CIT(A) CONFIRMED THE ADDITION EQU IVALENT TO THE ONE MADE BY THE AO. 4. BEFORE ME, THE LD.COUNSEL FOR THE ASSESSEE SUBMI TTED DETAILS ON COMPARATIVE TABLE AND POINTED OUT THAT THE AO NOTIC ED DISCREPANCIES ON EIGHT COUNTS. OUT OF THAT MOST OF THE DISCREPANCIES HAVE BEEN RECONCILED AND ACCEPTED BY THE LD.CIT(A). IN THESE CIRCUMSTANCES, THE LD.CIT(A) OUGHT TO HAVE NOT CONFIRMED THE ADDITION. HE EMPHASISED THAT ON ACCOUNT OF DECLINE IN NET PROFIT RATE, AUDITED BOOKS OF ACCOUNTS CANNOT BE RE JECTED. IN SUPPORT OF HIS CONTENTIONS, HE RELIED UPON THE FOLLOWING DECISIONS . I. CIT VS. SMT. POONAM RANI, 192 TAXMANN 167 (DELHI) II. CIT VS.JAS JACK ELEGANCE EXPORTS, 191 TAXMAN 386 (D ELHI) III. DCIT VS. HANUMAN SUGAR (KHANDSARI) MILLS P.LTD., 38 TAXMNNA.COM 53 (ALL) IV. ITO VS. GIRISH M. MEHTA, 105 ITD 585 (RAJKOT) ON THE OTHER HAND, THE LD.RE RELIED UPON THE ORDERS OF THE REVENUE AUTHORITIES. 5. SECTION 145 OF THE INCOME TAX ACT IS THE RELEVAN T PROVISION FOR THIS ISSUE, THEREFORE, IT IS PERTINENT TO TAKE NOTE OF THIS SEC TION. IT READS AS UNDER : ITA NO.1/AHD/2016 - 3 - 145. (1) INCOME CHARGEABLE UNDER THE HEAD 'PROFITS AND GAINS OF BUSINESS OR PROFESSION' OR 'INCOME FROM OTHER SOURCES' SHALL, S UBJECT TO THE PROVISIONS OF SUB-SECTION (2), BE COMPUTED IN ACCORDANCE WITH EIT HER CASH OR MERCANTILE SYSTEM OF ACCOUNTING REGULARLY EMPLOYED BY THE ASSE SSEE. (2) THE CENTRAL GOVERNMENT MAY NOTIFY IN THE OFFICI AL GAZETTE FROM TIME TO TIME [ACCOUNTING STANDARDS] TO BE FOLLOWED BY ANY CLASS OF ASSESSEES OR IN RESPECT OF ANY CLASS OF INCOME. (3) WHERE THE ASSESSING OFFICER IS NOT SATISFIED AB OUT THE CORRECTNESS OR COMPLETENESS OF THE ACCOUNTS OF THE ASSESSEE, OR WH ERE THE METHOD OF ACCOUNTING PROVIDED IN SUB-SECTION (1) [OR ACCOUNTI NG STANDARDS AS NOTIFIED UNDER SUB-SECTION (2), HAVE NOT BEEN REGULARLY FOLL OWED BY THE ASSESSEE], THE ASSESSING OFFICER MAY MAKE AN ASSESSMENT IN THE MAN NER PROVIDED IN SECTION 144.] 6. A BARE READING OF SECTION 145 WOULD REVEAL THAT IT PROVIDE THE MECHANISM HOW TO COMPUTE THE INCOME OF THE ASSESSEE. ACCORDIN G TO SUB-SECTION 1, THE INCOME CHARGEABLE UNDER THE HEAD PROFIT AND GAINS O F BUSINESS OR PROFESSION OR INCOME FROM OTHER SOURCE SHALL BE COMPUTED IN ACCOR DANCE WITH THE METHOD OF ACCOUNTANCY EMPLOYED BY AN ASSESSEE REGULARLY, SUBJ ECT TO SUB-SECTION 2 OF SECTION 145 OF THE ACT. SUB-SECTION 2 PROVIDES THAT THE CENTRAL GOVERNMENT MAY NOTIFY IN THE OFFICIAL GAZETTE FROM TIME TO TIM E, THE ACCOUNTING STANDARD REQUIRED TO BE FOLLOWED BY ANY CLASS OF ASSESSEE IN RESPECT OF ANY CLASS OF INCOME. THUS, IT INDICATES THAT INCOME HAS TO BE CO MPUTED IN ACCORDANCE WITH THE METHOD OF ACCOUNTANCY FOLLOWED BY AN ASSESSEE I .E. CASH OR MERCANTILE, SUCH METHOD HAS TO BE FOLLOWED KEEPING IN VIEW THE ACCOUNTING STANDARD NOTIFIED BY THE CENTRAL GOVERNMENT FROM TIME TO TIM E. SUB CLAUSE 3 PROVIDES A SITUATION, THAT IS, IF THE ASSESSING OFFICER IS UNA BLE TO DEDUCE THE TRUE INCOME. ON THE BASIS OF METHOD OF ACCOUNTANCY FOLLOWED BY A N ASSESSEE THAN HE CAN REJECT THE BOOK RESULT AND THE ASSESSEES INCOME AC CORDING TO HIS ESTIMATION OR ACCORDING TO HIS BEST JUDGMENT. THE ASSESSING OFFIC ER IN THAT CASE IS REQUIRED TO POINT OUT THE DEFECTS IN THE ACCOUNTS OF ASSESSEE A ND REQUIRED TO SEEK EXPLANATION OF THE ASSESSEE QUA THOSE DEFECTS. IF T HE ASSESSEE FAILED TO EXPLAIN THE DEFECTS THAN ON THE BASIS OF THE BOOK RESULT, I NCOME CANNOT BE DETERMINED ITA NO.1/AHD/2016 - 4 - AND ASSESSING OFFICER WOULD COMPUTE THE INCOME ACCO RDING TO HIS ESTIMATION KEEPING IN VIEW THE GUIDING FACTOR FOR ESTIMATING S UCH INCOME. THUS, THE CASE OF LAW OF LD.COUNSEL ARE OF NO HELP. 7. DURING THE COURSE OF ASSESSMENT PROCEEDINGS, THE LD.AO HAS NOTICED VARIOUS DISCREPANCIES. THESE HAVE BEEN TABULATED B Y THE LD.COUSNEL FOR THE ASSESSEE. THEY READ AS UNDER: SR. NO. GROUND RAISED BY ASSESSING OFFICER CONTENTION OF C1T (APPEALS) WHILE PASSING THE ORDER 1. REDUCTION IN GROSS PROFIT AND NET PROFIT MARGIN AS COMPARED TO PREVIOUS FINANCIAL YEAR. NO COMMENT OF CIT(A) IN HIS ORDER. REFER PARA 2. LAND PARA 4.2. 2 FOR NON ATTENDENCE OF MUKESHBHAI S. CHAUDHARY AND VINODBHAI M. CHAUDHARY FOR VERIFICATION OF PURCHASES OF RS. 9,59,762/-. CIT(A) AGREED FOR PURCHASES OF RS. 5,33,558 (RS.9,59,762 - RS. 4,26,204). SUBMISSION NOT ACCEPTED FOR RS. 4,26,204/-. (PAGE NO. 9) / 3 ADDITIONAL RENT OF RS. 66,000/- PAID BY CHEQUE FOR USING THE GODOWN. APPELLANT'S SUBMISSION NOT ACCEPTED. (PAGE NO. 10) 4 PAYMENT OF COMMISSION RS. 4,12,584/- BY CHEQUE TO DAUGHTERS OF THE ASSESSEE. APPELLANT'S SUBMISSION NOT ACCEPTED. (PAGE NO. 11) 5. SALARY OF RS. 2,16,000/- PAID TO HUSABAND SHRI RAMJIBHAI M. CHAUDHARY APPELLANT'S SUBMISSION NOT ACCEPTED. (PAGE NO. 9) 6 PRESSING AND PROCESSING CHARGES OF RS. 18,13,757/- PAID TO RELATED CONCERN. APPELLANT'S SUBMISSION IS ACCEPTED. (REF. PARA NO. 4.3 ON PAGE NO. 8) 7 NON ACCEPTANCE OF REPLY OF RAMANLAL K. CHAUDHARY IN RESPONSE TO NOTICE U/S 133(6) OF THE INCOME TAX ACT AS REGARDS TO PURCHASES OF APPELLANT'S SUBMISSION IS ACCEPTED. (PAGE NO. 10) ITA NO.1/AHD/2016 - 5 - 8 PROPOSED DISALLOWANCE FOR INTEREST OF RS. 2,99,999/- FOR NOT SUBMITTING CONFIRMATION OF GOVINDBHAI A. PATEL. APPELLANT'S SUBMISSION WAS ACCEPTED. THE POINT OF INTEREST DISALLOWANCE WAS NOT TAKEN IN THE SHOW CAUSE NOTICE ISSUED BY HON'BLE CIT(A) 8. I HAVE EXAMINED RECORD CAREFULLY AND GONE THROUG H ORDER OF THE LD.CIT(A), IN THE LIGHT OF THE ABOVE DISCREPANCY AN D EXPLANATION OF THE ASSESSEE. TO MY MIND, THE ASSESSEE FAILED TO SHOW ANY JUSTIFI CATION FOR PAYMENT OF ADDITIONAL RENT BECAUSE THERE WAS NO AGREEMENT BETW EEN THE ASSESSEE AND LANDLORD FOR PAYMENT OF ADDITIONAL RENT. THE ASSES SEE COULD OBTAIN A CONFIRMATION EXHIBITING ADDITIONAL SPACE REQUIRED A S WELL AS ADDITIONAL RENT PAID. BUT NO SUCH STEPS WERE TAKEN. SIMILARLY, THE ASSES SEE FAILED TO DEMONSTRATE AS TO WHAT SERVICES HAVE BEEN RENDERED BY HER HUSBAND OR THE DAUGHTER TO WHOM SALARIES HAVE BEEN PAID. THEREFORE, THE SALARY CLA IMED BY THE ASSESSEE TOWARDS HUSBAND AND DAUGHTER DESERVES TO BE DISALLOWED. OU T OF TOTAL ADDITION CONFIRMED BY THE LD.CIT(A) I HEREBY CONFIRM ADDITIO N OF RS.66,000/-, RS.4,12,584 AND RS.2,16,000/-. AS FAR AS ADDITION OF RS.4,26,204 WITH RESPECT TO PURCHASE MADE FROM VINOD M. CHAUDHAR ARE CONCERN ED, THE TURNOVER OF ASSESSEE IS OF RS.19.55 CRORES. HER SALES HAVE BEE N ACCEPTED. THEREFORE, A SMALL AMOUNT OF PURCHASES COULD NOT BE DOUBTED MERE LY ON THE GROUND THAT FARMER WAS NOT PRODUCED BEFORE THE LD.AO. IT IS QU ITE DIFFICULT FOR AN ASSESSEE TO LOCATE EACH AND EVERY SMALL SUPPLIER. THEREFORE, I DELETE THIS ADDITION. 9. IN THE RESULT, APPEAL OF THE ASSESSEE IS PARTLY ALLOWED. PRONOUNCED IN THE OPEN COURT ON 16 TH FEB., 2018. SD/- (RAJPAL YADAV) JUDICIAL MEMBER AHMEDABAD; DATED, 16/02/2018