Pawan Kumar Choudhary, Nagpur V. Income tax Officer, Ward 4(1), Nagpur

ITA 10/NAG/2013

• Counselvise Citation: [2015] 134 COUNSELVISE.COM (IT) 1663 (ITAT-NAGPUR)
• Duration Of Justice: 2 year(s) 7 month(s) 6 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 20-08-2015
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: SMC
• Assessment Year: 2006-2007
• Appeal Filed On: 14-01-2013
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: NARENDRA KANE
• Keywords: Principle of natural justice
• Section: 143(3); 133A; 145

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL SMC BENCH, NAGPUR BEFORE SHRI MUKUL K. SHRAWAT, JUDICIAL MEMBER ITA NO. 10/NAG./2013 ( ASSESSMENT YEAR : 2006-07 ) PAWAN KUMAR CHOUDHARY KAILASH BUILDING GANDHI BAUG, JALAL PURA NAGPUR PAN ABNPC2303C APPELLANT V/S INCOME TAX OFFICER WAD-4(1), TELANDHADI ROAD NAGPUR .... RESPONDENT ASSESSEE BY : NONE REVENUE BY : SHRI NARENDRA KANE DATE OF HEARING 20.07.2015 DATE OF ORDER 20.08.20 15 O R D E R THIS APPEAL FILED BY THE ASSESSEE IS EMANATING FROM THE IMPUGNED ORDER DATED 27 TH NOVEMBER 2012, PASSED BY THE LEARNED COMMISSIONER (APPEALS), NAGPUR, FOR THE ASSESSMENT YEAR 2006-07. THE SUBSTANTIVE GROUND IS GROUND NO.2 , WHICH IS REPRODUCED BELOW:- 2. THE ADDITION MADE FOR ` 3,64,491, WITH REDUCTION OF GROSS PROFIT UPTO 18% BY THE LEARNED CIT(A) IS INCORRECT, ILLEGA L, BAD-IN- LAW AND WITHOUT NATURAL JUSTICE AND THE SAME IS TO BE DELET ED. PAWAN KUMAR CHOUDHARY 2 2. AT THE OUTSET, IT IS WORTH TO MENTION THAT, IN THE PAS T, ON THE REQUEST OF THE LEARNED COUNSEL FOR THE ASSESSEE, THIS C ASE WAS ADJOURNED. HOWEVER, ON THE DATE OF HEARING, AN APPLICATI ON HAS BEEN MOVED TO ADJOURN THIS CASE. SINCE THE ISSUE, AS RAISED IN THE GROUND OF APPEAL, IS TRIFLE IN NATURE, THEREFORE, IT IS DECIDED TO PROCEED EX-PARTE QUA THE ASSESSEE AFTER HEARING THE LEARNED D.R. 3. FACTS IN BRIEF, AS EMERGED FROM THE CORRESPONDING AS SESSMENT ORDER DATED 31 ST DECEMBER 2008, PASSED UNDER SECTION 143(3) OF THE ACT, WERE THAT THE ASSESSEE, IN INDIVIDUAL CAPACITY, I S IN THE BUSINESS OF MANUFACTURING OF TRADING OF SWEETS AND NAMKEEN AS A PR OPRIETOR OF M/S. BIKANER BHUJIYAWALA A SURVEY UNDER SECTION 133A OF THE ACT WAS CONDUCTED ON THE ASSESSEE ON 26 TH OCTOBER 2005. AT THE TIME OF SURVEY, IT WAS FOUND THAT THERE WAS EXCESS CASH OF ` 4,30,120. IT WAS ALSO FOUND THAT THERE WAS EXCESS STOCK OF ` 71,083. THEREAFTER, A RETURN OF INCOME WAS FILED BY THE ASSESSEE ON 30 TH OCTOBER 2006, DECLARING AN INCOME OF ` 61,498. 4. DURING THE COURSE OF ASSESSMENT PROCEEDINGS, THE OBS ERVATION OF THE ASSESSING OFFICER WAS THAT THE ASSESSEE HAD SHOWN GROSS PROFIT OF ` 4,36,881, DECLARING PROFIT @ 13.55%. THE ASSESSEE HAD PREP ARED A PROVISIONAL ACCOUNT, THE GROSS PROFIT RATE WAS SHOWN @ 28.36%. PAWAN KUMAR CHOUDHARY 3 THEREFORE, THE ASSESSEE WAS ASKED TO FILE A COMPARATIV E STATEMENT OF THE PROFIT RATIO OF PRECEDING THREE YEARS. IT WAS NOTI CED THAT IN THE PRECEDING ASSESSMENT YEAR, THE ASSESSEE HAD SHOWN GR OSS PROFIT @ 23.06%. THE ASSESSEE WAS ASKED TO EXPLAIN THE FALL IN T HE GROSS PROFIT RATE. IT WAS EXPLAINED THAT EARLIER, THE ASSESSEE WAS MANUFACTURING THE FOOD PRODUCTS AND ALSO RUNNING A RESTAURANT BUSINESS . BUT DURING THE YEAR, THE RESTAURANT WAS CLOSED DOWN. THE ASSESSING OFFI CER WAS NOT CONVINCED AND BY ADOPTING AN ESTIMATED PROFIT @ 23% C OMPUTED NET ADDITION ON ACCOUNT OF GROSS PROFIT VARIATION AT ` 3,04,491 [ ` 7,41,372 () 4,36,881]. 5. BEING AGGRIEVED, THE MATTER WAS CARRIED BEFORE THE FIRS T APPELLATE AUTHORITY. THE LEARNED CIT(A), AFTER HEARING THE SUBMIS SIONS, HAS THOUGHT IT PROPER TO RESTRICT THE RATE OF PROFIT TO 8 %. THE RELEVANT FINDING OF THE LEARNED CIT(A) WAS AS UNDER:- 5.3 I HAVE CAREFULLY CONSIDERED THE FACTS OF THE CASE, THE SUBMISSIONS OF THE APPELLANT AND ASSESSMENT ORDER. THE ESTIMATION OF GROSS PROFIT AT 23% HAS BEEN MADE WITHOUT ANY EVIDENCE BROUGHT FORTH ON RECORD BY THE A.O. IT IS A TRUISM OF FACT THAT THE GROSS PROFIT CANNOT REMAIN THE SAME EVERY YEAR. HOWEVER, IT IS ALSO A TRUISM OF FACT THAT THERE CANNOT BE SUBSTANTIAL REDUCTION IN GROSS PROFIT MERELY ON THE BASIS THAT THE NATURE OF BUSINESS HAS CHANGED FROM MANUFACTURING TO TRADING. THERE CAN BE SOME REDUCTION, BUT NOT A SUBSTANTIAL REDUCTION OF APPROXIMATELY 10% FROM THE PRECEDING YEAR. CONSIDERING THE FACTUAL MATRIX OF THE CASE, I DIRECT THE A.O. TO RESTRIC T THE GROSS PAWAN KUMAR CHOUDHARY 4 PROFIT TO 18% AND RECALCULATE THE INCOME ACCORDINGLY. GROUND IS ALLOWED IN PART. 6. THE LEARNED DEPARTMENTAL REPRESENTATIVE HAS SUPPORT ED THE ORDERS OF THE AUTHORITIES BELOW AND PLEADED THAT A R EASONABLE RELIEF HAD ALREADY BEEN GRANTED BY THE LEARNED CIT(A), THEREFORE, T HIS ASSESSEE DO NOT DESERVE FURTHER REDUCTION IN THE FINALLY ASSESSED INCOM E. 7. AFTER CAREFULLY PERUSING THE ORDERS OF THE AUTHORITIES BELOW, IT IS EVIDENT THAT THE ASSESSEE HAS RUNNING THE BUSINESS AT A VERY SMALL SCALE AND DURING THE COURSE OF SURVEY, THERE WAS NO MENTION OF ANY INCRIMINATING MATERIAL EXCEPT THE DIFFERENCE IN THE S TOCK WAS VERY NOMINAL OF 71,083. IT IS ALSO NOT CLEAR FROM THE ASSES SMENT ORDER THAT WHETHER THE DIFFERENCE IN STOCK WAS DUE TO VALUATION OR THERE WAS DIFFERENCE IN INVENTORY, IF ANY, PREPARED BY THE SURVEY PARTY. IT HAS ALSO BEEN OBSERVED BY ME THAT IN A ROUTINE MANNER, THE ASS ESSING OFFICER HAD ESTIMATED THE PROFIT @ 23% FOLLOWING THE PROFIT AS DISCLOSED IN THE PAST YEARS. THERE IS NO THUMB RULE IN THE BUSINESS T HAT EVERY YEAR THE SAME RATIO OF PROFIT SHOULD BE EARNED BY A TAX PAYER. IT IS AN ACCEPTED FACTUAL POSITION THAT THE GRAPH OF THE PROFIT RATIO IS NOT A STRAIGHT LINE WHEN A TAX PAYER IS RUNNING A BUSINESS. IT IS ALSO N OT CLEAR THAT WHAT DISCREPANCY WAS FOUND IN THE BOOKS OF ACCOUNT OF THE ASSESSEE. RATHER PAWAN KUMAR CHOUDHARY 5 THE ASSESSING OFFICER HAS NOT PROCEEDED TO ADOPT AN ES TIMATED PROFIT FOR THE YEAR UNDER CONSIDERATION AFTER FOLLOWING RECOURSE OF REJECTION OF BOOKS OF ACCOUNT. IN MY HUMBLE OPINION, WITHOUT INDICA TING THE PROVISIONS OF SECTION 145 OF THE ACT, IT IS NOT JUSTIFIA BLE ON THE PART OF THE ASSESSING OFFICER TO REJECT THE BOOK RESULT AND P ROCEEDED TO ESTIMATE A HIGHER RATE OF GROSS PROFIT. EVEN IN AN EVE NT IF A BEST JUDGMENT IS TO BE MADE, THEN ALSO, THE TAX AUTHORITY S HOULD HAVE A RATIONAL BASIS. IF THERE IS NO COGENT SUPPORT, THEN SU CH ESTIMATION SHALL NOT STAND IN THE EYES OF LAW. EVEN THE FIRST APPELLATE AUTHORITY HAS NOT GIVEN ANY COGENT BASIS TO RESTRICT THE GROSS PROFIT RATE @ 18%, ESPECIALLY WHEN HE HAS OPINED THAT IT IS A TRUISM O F FACT THAT THE GROSS PROFIT CANNOT REMAIN THE SAME EVERY YEAR. SINCE THE AS SESSEE HAD AN EXPLANATION FOR REJECTION IN THE GROSS PROFIT, WHICH WA S NOT REBUTTED BY THE REVENUE DEPARTMENT BY ANY EVIDENCE, THEREFORE, I AM OF THE VIEW THAT THE GROSS PROFIT, AS DISCLOSED BY THE ASSESSEE B ASED UPON THE RECORD MAINTAINED BY HIM, SHOULD NOT HAVE BEEN DISTU RBED BY THE REVENUE DEPARTMENT. RESULTANTLY, THE FINDINGS OF THE AUT HORITIES BELOW ARE HEREBY REVERSED AND THE ASSESSING OFFICER IS DIREC TED TO COMPUTE THE INCOME AS PER THE GROSS PROFIT DISCLOSED BY THE ASSESSEE. THE GROUND RAISED BY THE ASSESSEE IS ALLOWED. PAWAN KUMAR CHOUDHARY 6 8. IN THE RESULT, ASSESSEES APPEAL STANDS ALLOWED. ORDER PRONOUNCED IN THE OPEN COURT ON SD/ - MUKUL K. SHRAWAT JUDICIAL MEMBER NAGPUR, DATED: 20 TH AUGUST 2015 COPY OF THE ORDER FORWARDED TO : (1) THE ASSESSEE; (2) THE REVENUE; (3) THE CIT(A); (4) THE CIT, NAGPUR CITY CONCERNED; (5) THE DR, ITAT, NAGPUR; (6) GUARD FILE. TRUE COPY BY ORDER PRADEEP J. CHOWDHURY SR. PRIVATE SECRETARY A SSISTANT REGISTRAR ITAT, NAGPUR