Income-tax Officer, Ward-1, Chitradurga V. M/s Karthik Poultry Farm, Chitradurga

ITA 1106/BANG/2014

• Counselvise Citation: 110621114 RSA 2014
• Duration Of Justice: 1 year(s) 2 month(s) 9 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 06-11-2015
• Appeal Filed By: Department
• Bench Allotted: B
• Next Hearing Date: 04-11-2015
• Assessment Year: 2011-2012
• Appeal Filed On: 27-08-2014
• Court: TRIBUNAL
• Assessee Lawyers: S VENKATESAN
• Keywords: Income from undisclosed sources
• Section: 133A

Judgement Text

IN THE INCOME TAX APPELLATE TRIBU NAL BANGALORE BENCH B, BANGALORE BEFORE SMT ASHA VIJAYARAGHAVAN, JUDICIAL MEMBER AND SHRI JASON P BOAZ, ACCOUNTANT MEMBER ITA NO.1106(B)/2014 (ASSESSMENT YEAR : 2011-12) THE INCOME-TAX OFFICER WARD-1, CHITRADURGA APPELLANT VS M/S KARTHIK POULTRY FARM, GUNDLURU, MOLAKALMURU TALUK, CHITRADURGA PAN NO.AALFK4285C RESPONDENT REVENUE BY : SHRI M. RAJASEKHAR, ADDL. CIT ASSESSEE BY : SHRI S. VENKATESAN, CA DATE OF HEARING : 04-11-2015 DATE OF PRONOUNCEMENT : 06-11-2015 PER SHRI JASON P BOAZ, AM: THIS APPEAL BY REVENUE IS DIRECTED AGAINST THE ORD ER OF THE CIT(A), HUBLI DATED 10-06-2014 FOR THE ASSESSMENT Y EAR 2011-12. 2. THE FACTS OF THE, BRIEFLY, ARE AS UNDER; 2.1 THE ASSESSEE, A FIRM ENGAGED IN THE BUSINESS O F POULTRY FARMING, FILED ITS RETURN OF INCOME FOR THE ASSESSM ENT YEAR 2011-12 ON ITA NO.1106(B)14 2 17-09-2011 DECLARING TOTAL INCOME OF RS.34,140/-. THE RETURN WAS PROCESSED U/S 143(1) OF THE IT ACT, 1961 ( IN SHORT THE ACT) AND THE CASE WAS SUBSEQUENTLY, TAKEN UP FOR SCRUTINY. EARL IER, ON 24-08-2011, A SURVEY U/S 133A OF THE ACT WAS CONDUCTED AT THE B USINESS PREMISES OF THE ASSESSEE, WHEREIN THE PHYSICAL INVENTORY OF BIRDS,CHICKS AND EGGS WERE DRAWN UP. IN THE COURSE OF ASSESSMENT PROCEE DINGS, THE AO COMPUTED THE YIELD OF EGGS BY ADOPTING CERTAIN ASSU MPTIONS AT RS.81,99,120/- EGGS IN PARA-6 OF THE ASSESSMENT ORD ER. ADOPTING THE SALE PRICE AT RS.2.20 PER EGG, THE AO COMPUTED THE TURNOVER FROM SALE OF EGGS AT RS.1,80,38,064/-. THE AO OBSERVED THAT THE ASSESSEE HAD DISCLOSED ONLY AN AMOUNT OF RS.1,26,16,711/- AS TUR NOVER OF EGGS IN THE PROFIT & LOSS ACCOUNT. 2.2 BEFORE THE AO, THE ASSESSEE CONTENDED THAT BO TH THE YIELD OF EGGS COMPUTED BY THE AO AND THE SALE PRICE OF EGGS ADOPTED AT RS.2.20 PER EGG WERE EXCESSIVE. THE AO, HOWEVER, REJECTED THE CONTENTIONS OF THE ASSESSEE AND COMPLETED THE ASSESSMENT U/S 143(3 ) OF THE ACT, VIDE ORDER DATED 28-03-2014 WHEREIN THE INCOME OF THE AS SESSEE WAS DETERMINED AT RS.54,55,490/- AS AGAINST THE DECLARE D INCOME OF RS.34,140/- IN VIEW OF THE AO BRINGING TO TAX IN TH E ASSESSEES HANDS THE DIFFERENCE IN TURNOVER OF EGGS COMPUTED BY HIM AT RS.54,21,353/- (VIZ.RS. 1,80,38,064/- LESS RS.1,26.16711/-). ITA NO.1106(B)14 3 3 . AGGRIEVED BY THE ORDER OF THE ASSESSMENT FOR ASSESS MENT YEAR 2011-12 DATED 28-03-2014, THE ASSESSEE PREFERRED AN APPEAL BEFORE THE CIT(A), HUBLI. BEFORE THE LEARNED CIT(A), THE ASSE SSEE REITERATED THE SUBMISSIONS PUT FORTH BEFORE THE AO. IT WAS ALSO AL TERNATIVELY SUBMITTED AT GROUND NO.5, THAT THE ENTIRE SUPPRESSE D TURNOVER CANNOT BE REGARDED AS INCOME. THE LEARNED CIT(A) DISPOSE D OFF THE APPEAL VIDE ORDER DATED 10-06-2014 ALLOWING THE ASSESSEE PARTIA L RELIEF. THE LEARNED CIT(A) WHILE DISPOSING OFF THE APPEAL ACCEP TED THE ALTERNATE PLEA OF THE ASSESSEE AND DIRECTED THE AO TO RE-COMPUTE T HE INCOME BY APPLYING THE GROSS PROFIT @18% ON THE SUPPRESSION O F SALES TURNOVER AMOUNTING TO RS.54,21,353/-. 3.1 AGGRIEVED BY THE ORDER OF THE CIT(A), HUBLI DA TED 10-06-2014 FOR THE ASSESSMENT YEAR 2011-12. REVENUE HAS PREFE RRED THIS APPEAL RAISING THE FOLLOWING ROUNDS; 1. THE ORDER OF THE LEARNED CIT(A), HUBLI IS OPPOSED TO LAW AND NOT ON THE FACTS AND CIRCUMSTANC ES OF THE CASE. 2. THE CIT(A), HUBLI ERRED IN DIRECTING THE COMPUTATION OF THE INCOME BY APPLYING GROSS PROFIT AT 18% ON THE SAID QUANTUM OF SUPPRESSION OF SALES TO THE EXTENT OF RS.54,21,353/- DETERMINED WHEN THE ITA NO.1106(B)14 4 ASSESSEE HAS NOT PRODUCED ANY EVIDENCE T SHOW THAT EXPENSES WERE INCURRED OR SUPPRESSED PRODUCTION. 3. FOR THESE REASONS THE ORDER OF THE CIT(A) MAY BE REVERSED AND THAT OF THE AO MAY BE RESTORED. 4. FOR THESE AND OTHER GROUNDS THAT MAY BE URGED UPON, THE ORDER OF THE CIT(A) MAY BE REVERSED AND T HAT ASSESSMENT ORDER BE RESTORED. 5. THE ASSESSEE CRAVES LEAVE TOAD, ALTER, AMEND OR DELETE ANY OTHER GROUNDS ON OR BEFORE HEARING OF THE APPEAL. 4. THE GROUNDS OF APPEAL RAISED AT SL.NO.1,3,4 & 5 ARE GENERAL IN NATURE AND THEREFORE, NO ADJUDICATION IS CALLED FOR THEREON. 5.1 GROUND NO.2 IS THE ONLY EFFECTIVE GROUND OF REVENUE FOR CONSIDERATION BEFORE US IN THIS APPEAL. IT IS CON TENDED THAT THE DIRECTION OF THE LEARNED CIT(A) TO RE-COMPUTE THE I NCOME OF THE ASSESSEE ON ACCOUNT OF THE SUPPRESSION OF TURNOVER, BY APPLY ING THE GROSS PROFIT RATE OF 18% ON THE QUANTUM OF SUPPRESSED SALES AMO UNTING TO RS.54,21,353/- IS ERRONEOUS. IT IS SUBMITTED THAT THE ASSESSEE HAS NOT PRODUCED ANY EVIDENCE TO SHOW THAT THERE WERE EXPEN SES INCURRED IN RELATION TO THE SUPPRESSED PRODUCTION OF EGGS. IN VIEW OF THE ABOVE, THE LEARNED DR PRAYED THAT THE ORDER OF THE LEARNED CIT (A) BE SET ASIDE AND ITA NO.1106(B)14 5 THE SUPPRESSED TURNOVER WORKED ABOUT BY THE AO BE R EGARDED AS INCOME OF THE ASSESSEE. 5.2 PER CONTRA, THE LEARNED AR STRONGLY SUPPORTED THE FINDING OF THE LEARNED CIT(A) IN THE IMPUGNED ORDER. 5.3.1 WE HAVE HEARD BOTH PARTIES AND PERUSED CAREF ULLY CONSIDERED THE MATERIAL ON RECORD. WE FIND THAT T HE LEARNED CIT(A) HAS DISPOSED OF THE AFORESAID ISSUE BY HOLDING AS UNDER IN THE IMPUGNED ORDER AT PAGES 14-17 THEREOF; I HAVE GONE THROUGH THE FACTS OF THE CASE, CONTENTS OF THE ASSESSMENT ORDER AND STATEMENTS OF FACTS OF THE ASSESSEE AND THE CASE LAWS REFERRED AND RELIED BY THE ASSESSEE. THE AO HAS WORKED OUT THE SUPPRESSION OF SALES OF EGGS RS. 54,21,353/- BASED ON THE PRODUCTION OF THE EGGS DUR ING THE AY 2011-12, AND THE SALE OF EGGS ADMITTED BY TH E ASSESSEE AS PER THE PROFIT AND LOSS ACCOUNT. THE ASSESSEE HAS CONTENDED IN THE STATEMENT OF FACTS TH AT GP HAS TO BE ADOPTED ON SUPPRESSION OF SALES INSTEAD OF TAKING ENTIRE SUPPRESSION OF SALES AS UNACCOUNTED INCOME. ASSESSEE HAS FILED THE DETAILS OF THE COMPARABLE CASE OF GP ON TURNOVER. THE DETAILS ARE AS MENTIONED BELOW; 'IN THE CASES OF MIS. KARTHIK POULTRJJ FARM, MOLAKALMURU FOR THE A.Y. 2011-12. COMPARATIVE CASES OF GROSS PROFIT DECLARED BY THE FOLLOWING POULTRY FARMS WHICH ARE LOCATED WITHIN VICINITY OF MOLAKALMURU TOWN. ITA NO.1106(B)14 6 1. M/S. JATAYU POULTRY FARM, KONDLAHALLI, MOLAKALMURUTQ. THE SAID FIRM HAS DECLARED THE GROSS PROFIT @10% AND THE SAID FIRM'S TURNOVER IS AROUND RS.5 CRORES. 2. SHASHIDHARA POULTRY FARM, M OGALAHALLI, MOLAKALMURUTQ. THE SAID FIRM HAS DECLARED THE GROSS PROFIT @11.4% AND THE SAID FIRM'S TURNOVER IS AROUND RS.4 CRORES. 3. SADHANA POULTRY FARM, BYRAPURA, MOLAKALMURUTQ. THE SAID FIRM HAS DECLARED THE GROSS PROFIT @11.5% AND THE SAID FIRM'S TURNOVER IS AROUND RS.3,80,000/-. 4. RAGHAVA POULTRY FARM, MOGALAHAILI,MOLAKALMURUTQ. THE SAID FIRM HAS DECLAR ED THE GROSS PROFIT @9.04% AND THE SAID FIRM'S TURNOVER IS AROUND RS.9 CRORES. 5. RAGHAVENDRA POULTRY FARM,KODAHALLI, CHALLAKERETQ. THE SAID FIRM HAS DECLARED THE GROSS PROFIT @9.50% AND THE SAID FIRM'S TURNOVER IS AROUND RS.8 CRORES. THE COMPARABLE CASES OF GROSS PROFIT EARNED BY THE ABOVE SAID POULTRY FARMS RANGED BETWEEN 9 TO 12 % AND THEY ARE ALL ASSESSED TO TAX UNDER INCOME TAX A CT. KEEPING IN VIEW THE ABOVE COMPARABLE CASES THE GROS S PROFIT BETWEEN 9 TO 12% MAY KINDLY BE CONSIDERED.' THE HON'BLE ITAT, AHEMDABAD BENCH IN THE CASE OF ITO VS. GURUBACHAN SINGH JUNEJA REPORTED IN 216 ITR 99 IT WAS HELD THAT UNACCOUNTED SALES-VALUE OF THE CASH SALES CANNOT BE ADDED TO THE TOTAL INCOME OF THE ASSESSEE AS THERE WAS NO MATERIAL ON RECORD THA T THE ASSESSEE HAS MADE INVESTMENT TO MAKE UNACCOUNTED SALES AND THE GROSS PROFITS SHOULD BE APPLIED TO THE UNACCOUNTED SALES. ITA NO.1106(B)14 7 THE HON'BLE CALCUTTA HIGH COURT IN THE CASE OF CIT VS. S.M. OMAR REPORTED IN 201 ITR 608 IT WAS HELD THAT THE ' ASSESSEE HAS SUPPLIED GOODS AFTER INCURRING CERTAIN COSTS, ETC. AND AMOUNT TO RECEIVED COULD NOT BE REPRESENT THE NET INCOME AND THE ESTIMATION OF THE DIFFERENCE OF NET PROFIT WHIC H WAS SOUGHT TO BE ADDED AND HAVING ACTUALLY ADDED THAT DIFFERENCE, THE ITO DID NOT HAVE ANY FURTHER JURISDICTION TO ADD AN ADDITIONS SUM BY A WAY OFF CONCEALED INCOME IN THE SHAPE OF MONIES INVESTED IN THE RAW MATERIALS. THIS ADDITION WAS UPHELD BY THE TRIBUNAL. THE HON'BLE SUPREME COURT IN THE CASE OF ANIS AHMED & SONS VS. CIT(APPEALS) KANPUR REPORTED IN 297 ITR 441 IT WAS HELD THAT THE 'ASSESSEE FILED ITS RETURN FOR THE ASSESSMENT YEAR 1984-85 DECLARING CERTAIN AMOUNT AS INCOME AS COMMISSION AGENT. HOWEVER, THE AO HAD TREATED THE ASSESSEE AS A TRADER AND NOT AS A COMMISSION AGENT AND ASSESSED IT INCOME ACCORDINGLY. ON REMAND THE AO ISSUED SUMMONS TO TEN TRADERS U/S 13 1(1). IN RESPONSE TO SUMMONS, FIVE TRADERS APPEARED AND GAVE EVIDENCE IN FAVOUR OF ASSESSEE. THE REMAINING FIVE TRADERS DID NOT APPEAR BECAUSE THEY COULD NOT BE SERVED WITH THE SUMMONS AS THEY WERE RESIDING OUTSIDE THE STATE OF U.P. THE AO HAD DRAWN ADVERSE INFERENCE AGAINST CLAIM OF ASSESSEE AND ASSESSED INCOME FOR RELEVANT ASSESSMENT YEAR TREATING TRANSACTION WITH THE ABSENTEE TRADERS AS HAVING BEEN DONE BY ASSESSEE IN CAPACITY OF TRADER AND NOT AS 'COMMISSION AGENT'. THERE IS TRUTH IN THE CONTENTION OF THE ASSESSEE WHENEVER THE SALES WERE MADE OUTSIDE THE BOOKS OF ACCOUNTS OR THE SALES ARE NOT REFLECTED IN THE REGULAR BOOKS OF ACCOUNTS ONLY THE GP HAS TO BE TAKEN TO THE TOTAL INCOME BUT NOT ENTIRE SALES. THE SALES REPRESENTS THE PURCHASE VALUE AND ELEMENT OF PROFIT. THE SAME ANOLOGY WAS UPHELD BY THE HON'BLE GUJARAT HIGH COURT IN THE CASE OF CIT VS. PRESIDENT ITA NO.1106(B)14 8 INDUSTRIES 258 ITR 654 IT WAS HELD THAT 'THE AMOUNT OF SALES CANNOT BE REPRESENT THE INCOME OF T HE ASSESSEE WHO HAS NOT DISCLOSE THE SALES. THE SALES ONLY REPRESENT THE PRICE RECEIVED BY THE SELLER OF THE G OODS FOR THE ACQUISITION OF WHOSE IT HAS ALREADY INCURRED THE COST. IT IS THE REALIZATION OF EXCESS OVER THE COST INCURRED THAT ONLY FORMS PART OF THE PROFIT INCLUDED IN THE CONSIDERATION OF SALES THEREFORE UNLESS THERE IS A FINDING TO THE EFFECT T HAT THE INVESTMENT BY THE WAY OF INCURRING COST IN ACQUIRIN G GOODS WHICH HAS BEEN SOLD HAVE BEEN MADE BY THE ASSESSEE AND THAT HAS ALSO NOT DISCLOSED. THE QUESTION WHETHER ENTIRE SOME OF UNDISCLOSED SALES PROCEEDS CAN BE TREATED AS AN INCOME, ANSWER BY ITS ELF IN THE NEGATIVE'. IN VIEW OF THE FACTS AND THE CASE LAWS AND COMPARAT IVE GROSS PROFIT DETAILS OF THE SIMILAR TRADE, SUBMITTED BY THE ASSESSEE, THE CONTENTIONS OF THE AO TO CONSIDER THE ENTIRE SUPPRESSION OF SALES AS UNACCOUNTED INCOME OF THE ASSESSEE IS NOT JUSTIFIAB LE FOR THE REASON THAT THERE WAS ELEMENT OF EXPENDITUR E INCURRED IN PRODUCTION OF THE EGGS. HENCE, IT IS MO RE APPROPRIATE TO GO FOR THE ESTIMATION OF THE GROSS PROFIT ON ENTIRE SUPPRESSION OF SALES. THE GP DETAI LS OF SIMILAR TRADE I.E POULTRY FARMS, VARY FROM 9 TO 12% AND IT MAY BE MORE APPROPRIATE TO ADOPT THE GP AT 18% O N THE SUPPRESSION OF SALES ON RS. 54,21,353/-. AO IS DIRECTED TO RE-COMPUTE THE INCOME BY APPLYING THE GP AT 18% ON THE SUPPRESSION OF SALES OF RS. 54,21,353/-. HENCE, THIS GROUND OF APPEAL OF TH E ASSESSEE IS PARTLY ALLOWED. 5.3.2 ON A CAREFUL APPRECIATION OF THE FACTS ON REC ORD IN RESPECT OF THE ISSUE BEFORE US, WE ARE OF THE CONSIDERED VIEW THAT THE AFORESAID CONCLUSION OF THE LEARNED CIT(A) (SUPRA) APPEARS TO BE IN ORDER. IT IS WELL SETTLED LAW THAT THE ENTIRE AMOUNT OF SALE DOE S NOT REPRESENT INCOME OF THE ASSESSEE. IT IS ONLY A PRICE RECEIV ED BY THE SELLER OF THE ITA NO.1106(B)14 9 GOODS AND ONLY THE REALIZATION OVER COST THAT CAN B E THE PROFIT. IN COMING TO THE AFORESAID CONCLUSION, THE LEARNED CIT (A) HAS RELIED UPON BY THE JUDGMENTS OF THE ITO VS GURUBACHAN SINGH JU NEJA (216 ITR 99 (ITAT AHMEDABAD) CIT VS S.M.OMAR (201 ITR 608) (CAL .) ANIS AHMED & SONS VS CIT (297 ITR 441) (SC) AND CIT VS PRESIDENT INDUSTRIES (258 ITR 654) (GUJ.), WHICH HAS BEEN APPROVED BY THE HO NBLE MADHYA PRADESH HIGH COURT IN THE CASE OF CIT VS BALCHAND AJIT KUMAR (263 ITR 610) (MP) AND WHICH, IN OUR VIEW, ARE APPLICABLE TO THE FACTS OF THE CASE ON HAND. 5.3.3 IN THE CASE ON HAND, THE GRIEVANCE OF THE REV ENUE IS THAT THE ASSESSEE HAS NOT SHOWN THAT IT HAS INCURRED EXPENDI TURE IN RESPECT OF UNDISCLOSED/SUPPRESSED SALES. THE LEARNED CIT(A) H AS PROCEEDED TO ESTIMATE THE ASSESSEES PROFIT @18% OF THE TURNOVER AFTER RECORDING THAT ENTITIES IN THE SAME LINE OF BUSINESS, AS THAT OF T HE ASSESSEE IN THE CASE ON HAND, HAVE SHOWN LESSER PROFITS IN THE REGION OF 9% TO 12% OF TURNOVER. MERELY BECAUSE THE EXPENDITURE INCURRED BY THE ASSESSEE IN RESPECT OF THIS TURNOVER HAS NOT BEEN PROVED DOES N OT MEAN THAT THERE WAS NO EXPENDITURE INCURRED AT ALL AND SUCH A PLEA CANNOT BE ACCEPTED. IN SUCH CIRCUMSTANCES, AN ESTIMATE OF THE PROBABLE PROFIT HAS TO BE MADE HAVING REGARD TO THE SURROUNDING CIRCUMSTANCES , GROUND REALITIES, CORROBORATIVE EVIDENCE IN THE FORM OF PROFITS SHOWN IN COMPARATIVE CASES ITA NO.1106(B)14 10 AND OTHER FACTORS THAT ARE RELEVANT TO DETERMINE TH E REAL INCOME OF THE ASSESSEE. WE ARE OF THE VIEW, THAT IN THE FACTS AN D CIRCUMSTANCES OF THE CASE AS LAID OUT ABOVE, THE LEARNED CIT(A) HAS FOLL OWED THE CORRECT AND REASONABLE APPROACH IN ESTIMATING THE PROFIT ON THE SUPPRESSED TURNOVER WORKED OUT BY THE AO WHICH HAS NOT BEEN QU ESTIONED BY THE ASSESSEE. IN OUR VIEW, REVENUE EXCEPT FOR RAISING THE GROUND HAS NOT BEEN ABLE TO CONTRAVENE THE FINDING OF THE LEARNED CIT(A) AND WE ARE,THEREFORE, NO INTERFERENCE IS CALLED FOR IN THE FINDING OF THE LEARNED CIT(A) IN THE IMPUGNED ORDER ON THIS ISSUE. CONSEQ UENTLY, GROUND NO.2 OF THE REVENUES APPEAL STANDS DISMISSED. 6. IN THE RESULT, REVENUES APPEAL FOR THE ASSESSME NT YEAR 2011-12 IS DISMISSED. ORDER PRONOUNCED IN THE OPEN COURT ON THE 6 TH NOVEMBER, 2015. SD/- SD/- (ASHA VIJAYARAGHAVAN) (JASON P BOAZ) JUDICIAL MEMBER ACCOUNTANT MEMBER D A T E D : 06-11-2015 PLACE: BANGALORE AM* ITA NO.1106(B)14 11 COPY TO : 1 APPELLANT 2 RESPONDENT 3 CIT(A) BANGALORE 4 CIT 5 DR, ITAT, BANGALORE. 6 GUARD FILE BY ORDER AR, ITAT, BANGALORE