Income-tax officer, Ward-1, Chitradurga V. M/s Vidya Poultry Farm, Chitradurga

ITA 1107/BANG/2014

• Counselvise Citation: [2016] 133 COUNSELVISE.COM (IT) 0446 (ITAT-BANGALORE)
• Duration Of Justice: 1 year(s) 7 month(s) 16 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 13-04-2016
• Appeal Filed By: Department
• Order Result: Partly Allowed
• Bench Allotted: C
• Next Hearing Date: 11-04-2016
• Assessment Year: 2011-2012
• Appeal Filed On: 27-08-2014
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Keywords: Depreciation; Income from undisclosed sources; Principle of natural justice; Reasonable cause

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL, BANGALORE BENCH C, BANGALORE BEFORE SHRI ABRAHAM P GEORGE, ACCOUNTANT MEMBER AND SHRI GEORGE GEORGE K, JUDICIAL MEMBER ITA NO.1107/(BANG/2014 (ASSESSMENT YEAR 2011 -12) THE INCOME TAX OFFICER, WARD-1, CHIRADURGA APPELLANT VS MS. VIDYA POULTRY FARM, H.R.ROAD, MOLAKALMURU PAN NO.AADFV5885H RESPONDENT AND C.O.NO.218(BANG)/2015 (ASSESSMENT YEAR : 2011-12) (BY ASSESSEE) REVENUE BY : SHRI SUNIL KUMAR AG GARWALA, JCIT ASSESSEE BY : SHRI S. VENKATESAN, CA DATE OF HEARING : 11-04-2016 DATE OF PRONOUNCEMENT : 13-04-2016 O R D E R PER SHRI GEORGE GEORGE K, JUDICIAL MEMBER : THESE TWO APPEALS, AT THE INSTANCES OF THE REVENUE AS WELL AS THE ASSESSEE FIRM, ARE DIRECTED AGAINST THE ORDER OF TH E CIT (A), HUBLI, DATED 10.06.2014. THE RELEVANT ASSESSMENT YEAR IS 2011-12. I. ITA NO.1107/B/2014-15 BY THE REVENUE: 2. THE REVENUE HAS, IN ITS GROUNDS OF APPEAL, RAISE D A SOLITARY ISSUE, NAMELY, THAT THE CIT(A) ERRED IN DIRECTING TO RE-COMPUTE THE IN COME BY APPLYING 2 ITA NO.1107(B)/14 & CO NO.218(B)15 GROSS PROFIT AT 18% ON THE SAID QUANTUM OF THE SUPP RESSED SALES TO THE EXTENT OF RS.1,61,48,817/- DETERMINED. II. CROSS OBJECTION NO.218 OF BANG/2015 BY THE AS SESSEE FIRM: 2.1. THE ASSESSEE FIRM HAS, IN ITS GROUNDS OF CROSS OBJECTION, ALSO RAISED A SOLITARY ISSUE, NAMELY, THAT THE CIT (A) WAS NOT JUSTIFIED IN HOLDING THAT THER E WAS A SUPPRESSION OF TURNOVER OF EGGS AMOUNTING TO RS.1,61,48,817/-. 3. AS THE ISSUES RAISED BY THE RIVAL PARTIES PERTAI N TO THE SAME ASSESSEE/ASSESSMENT YEAR, THE APPEAL OF THE REVENUE AND THE CROSS OBJECTION OF THE ASSESSEE FIRM ARE HEARD, CONSIDERED TOGETHER AN D DECIDED, FOR THE SAKE OF CONVENIENCE AND CLARITY, IN THIS CONSOLIDATED ORDER . 4. BEFORE RESORTING TO ADJUDICATE THE ISSUES RAISED BY EITHER PARTY, IT HAS BEEN BROUGHT TO OUR REFERENCE THAT THERE WAS A DELAY OF 298 DAYS IN FILING THE CROSS OBJECTION BY THE ASSESSEE FIRM. AS A MATTER OF FACT , THE REVENUE, BEING AGGRIEVED BY THE FINDINGS OF THE CIT (A) DATED 10.4.2014 IN T HE ABOVE NAMED ASSESSEES CASE, PREFERRED AN APPEAL BEFORE THIS TRIBUNAL IN FORM NO.36 DATED 25.8.2014 WHEREAS THE ASSESSEE FIRM HAD FILED ITS CROSS OBJEC TION ONLY ON 28.11.2015. TO JUSTIFY ITS BONA FIDE DELAY IN PREFERRING SUCH AN A PPEAL, THE ASSESSEES COUNSEL SUBMITTED, DURING THE COURSE HEARING BEFORE US, THA T THE ERSTWHILE COUNSEL OF THE ASSESSEE FIRM HAD NOT SUITABLY ADVISED THE ASSESSEE TO CHALLENGE THE IMPUGNED ORDER OF THE CIT (A) EVEN THOUGH THE ASSESSEE WAS A GGRIEVED BY THE FINDINGS OF THE CIT (A). THE ASSSESSEES COUNSEL HAD, FURTHER, PLEADED THAT SINCE THE ASSESSEE FIRM WAS PREVENTED BY A REASONABLE CAUSE I N NOT PREFERRING AN APPEAL/CROSS OBJECTION WITHIN THE STIPULATED TIME F RAME AND THE REASON BEING BONA 3 ITA NO.1107(B)/14 & CO NO.218(B)15 FIDE, THE DELAY OF 298 DAYS ON THE PART OF THE ASSE SSEE IN PREFERRING ITS APPEAL REQUIRES TO BE CONDONED IN THE INTERESTS OF NATURAL JUSTICE AND EQUALITY. TO SUBSTANTIATE ITS CLAIM, THE ASSESSEE FIRM HAD FURNI SHED AN AFFIDAVIT DATED 28.11.2015 AFFIRMING ITS BONA FIDE. THE LEARNED D R PRESENT WAS HEARD. 4.1. WE HAVE CAREFULLY CONSIDERED RIVAL SUBMISSIONS AND PERUSED THE COPY OF AFFIDAVIT FURNISHED BY THE ASSESSEE FIRM. AS THE A SSESSEE FIRM WAS PREVENTED BY A REASONABLE CAUSE AND THE SAME BEING BONA FIDE, THE DELAY OF 298 DAYS IN FILING ITS CROSS OBJECTION/APPEAL IS CONDONED AND ADMITTED ITS CROSS OBJECTION FOR ADJUDICATION. 5. LET US NOW TAKE UP THE ISSUE RAISED BY THE REVEN UE FOR ADJUDICATION. BRIEFLY STATED, THE FACTS OF THE ISSUE ARE AS FOL LOWS: THE ASSESSEE FIRM IS ENGAGED IN THE BUSINESS OF P OULTRY FIRM. DURING THE YEAR UNDER CONSIDERATION, THE ASSESSEE FIRM FILED I TS RETURN OF INCOME, ADMITTING A TOTAL INCOME OF RS.1,15,570/- WHICH WAS SUBJECTED T O SCRUTINY. AFTER HAVING CONSIDERED THE REPLIES TO THE QUERIES RAISED AND FO R THE DETAILED REASONS RECORDED IN THE ASSESSMENT ORDER, THE AO HAD CONCLUDED THE A SSESSMENT BY DETERMINING THE TAXABLE INCOME OF THE ASSESSEE FIRM AT RS.1,62, 64,390/- THEREBY MAKING AN ADDITION OF RS.1,61,48,817/- BEING DIFFERENCE OF SA LE PROCEEDS OF EGGS ADMITTED BY THE ASSESSEE AND WORKED OUT BY THE AO, 6. AGGRIEVED, THE ASSESSEE PREFERRED AN APPEAL BEFO RE THE CIT (A). AFTER DUE CONSIDERATION OF THE ASSESSEES ELABORATE SUBMISSIO NS WHICH INCLUDED THE 4 ITA NO.1107(B)/14 & CO NO.218(B)15 COMPARABLE CASES OF GP ON TURNOVER IN (I) M/S. JATA YU POULTRY FARM, KONDLAHALLI, MOLAKALMURUTALUK; (II) SHASHIDHARA POULTRY FARM, MO GALAHALLI,MOLAKALMURUTALUK; (III) SADHANA POULTRY FARM, BYRAPURA,MOLAKALMURUTAL UK; (IV) RAVHAVA POULTRY FARM, MOGALAHALLI,MOLAKALMURUTALUK; &RAGHAVENDRA PO ULTRY FARM, KODAHALLI, CHALLAKERETQ AND ALSO CITING VARIOUS RULINGS OF THE JUDICIARY, THE CIT (A) OF THE VIEW THAT (ON PAGE 17)..IN VIEW OF THE FACTS AND THE CAS E LAWS AND COMPARATIVE GROSS PROFIT DETAILS OF THE SIMILAR TRA DE SUBMITTED BY THE ASSESSEE, THE CONTENTIONS OF THE AO TO CONSIDER THE ENTIRE SUPPRE SSION OF SALES AS UNACCOUNTED INCOME OF THE ASSESSEE IS NOT JUSTIFIABLE FOR THE REASON T HAT THERE WAS ELEMENT OF EXPENDITURE INCURRED IN PRODUCTION OF THE EGGS. HENCE, IT IS M ORE APPROPRIATE TO GO FOR THE ESTIMATION OF THE GROSS PROFIT ON ENTIRE SUPPRESSIO N OF SALES. THE GP DETAILS OF SIMILAR TRADE I.E., POULTRY FARMS, VARY FROM 9 TO 12% AND I T MAY BE MORE APPROPRIATE TO ADOPT THE GP AT 18% ON THE SUPPRESSION OF SALES ON RS.1,6 1,48,817/-. AO IS DIRECTED TO RE- COMPUTE THE INCOME BY APPLYING THE GP AT 18% ON THE SUPPRESSION OF SALES OF RS.1,61,48,817/-. . 7. AGGRIEVED, THE REVENUE HAS COME UP WITH THE PRES ENT APPEAL. DURING THE COURSE OF HEARING, THE LEARNED DR SUBMITTED THAT TH E CIT (A) ERRED IN DIRECTING TO RE-COMPUTE THE INCOME BY APPLYING GROSS PROFIT AT 1 8% ON THE SAID QUANTUM OF SUPPRESSION OF SALES TO THE EXTENT OF RS.1.61 CRORE S DETERMINED WHEN THE ASSESSEE HAD NOT PRODUCED ANY EVIDENCE TO SHOW THAT EXPENSES WERE INCURRED FOR SUPPRESSED PRODUCTION OF EGGS. IT WAS, THEREFO RE, PLEADED THAT THE FINDINGS OF THE CIT (A) REQUIRES TO BE REVERSED AND THAT OF THE AO BE RESTORED. 5 ITA NO.1107(B)/14 & CO NO.218(B)15 8. ON THE OTHER HAND, THE LEARNED COUNSEL FOR THE A SSESSEE SUBMITTED THAT THE STANDS OF THE AUTHORITIES BELOW WERE OPPOSED TO LAW , FACTS AND CIRCUMSTANCES OF THE CASE. IT WAS SUBMITTED THAT THE CIT (A) WAS NO T JUSTIFIED IN HOLDING THAT THERE WAS A SUPPRESSION OF TURNOVER OF EGGS AMOUNTING TO RS.1.61 CRORES UNDER THE FACTS AND IN THE CIRCUMSTANCES OF THE ASSESSEES CA SE. THE LEARNED COUNSEL FOR THE ASSESSEE FURTHER ARGUED THAT THE CIT (A) OUGHT TO HAV E ESTIMATED ONLY NET PROFIT ON THE QUANTUM OF SUPPRESSION OF TURNOVER AN D, THEREFORE, THE DIRECTION TO ASSESS THE INCOME BY APPLYING GROSS PROFIT AT 18% O F THE SUPPRESSED TURNOVER IS HIGHLY EXCESSIVE AND LIABLE TO BE REDUCED SUBSTANTI ALLY. THE LEARNED COUNSEL HAD PLACED RELIANCE ON (I) THE FINDINGS OF THE EARLIER BENCH OF THIS TRIBUNAL IN THE CASE OF ITO V. M/S. KARTHIK POULTRY FARM IN ITA NO.1106( B)/2014 DATED: 6.11.2015 FOR THE AY 2011-12 AND (II) THE RULING OF HONBLE KERAL A HIGH COURT IN CIT V. S.P. NAYAK AND RAMESH M REPORTED IN 235 ITR 94 (KER). 9. IN REPLY LD. DR SUBMITTED THAT CASE LAW RELIE D ON BY THE ASSESEE IN THE APPEAL OF M/S KARTHIK POULKTRY FARM IN ITA NO.1106( B)/2014 DATED 06-11-2015 FOR THE ASSESSMENT YEAR 2011-12 WERE ON PURE TRADING C ONCERN, AND HARDLY HAD ANY RELEVANCE TO A POULTRY FARMING. AS PER THE LD. DR , REVENUE HAD NOT TAKEN THIS LINE OF ARGUMENT IN THE SAID CASE, LEADING TO A DECISION IN FAVOUR OF THE ASSESSEE. 10.1 WE HAVE CAREFULLY CONSIDERED THE RIVAL SUBMISS IONS, PERUSED THE RELEVANT MATERIALS ON RECORD AND FINDINGS OF THE LEARNED CIT (A) ON THE ISSUE. THE FINDINGS OF THE EARLIER BENCH OF THIS TRIBUNAL IN THE CASE O F M/S KARTHIK POULTRY FARM (SUPRA) FOR APPRECIATION OF FACTS, THE RELEVANT POR TIONS OF THE FINDINGS OF THE EARLIER BENCH ARE REPRODUCED AS UNDER: 6 ITA NO.1107(B)/14 & CO NO.218(B)15 5.3.3. IN THE CASE ON HAND, THE GRIEVANCE OF THE R EVENUE IS THAT THE ASSESSEE HAS NOT SHOWN THAT IT HAS INCURRED EXPENDI TURE IN RESPECT OF UNDISCLOSED/SUPPRESSED SALES. THE LEARNED CIT (A) HAS 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 ASSE SSEE IN RESPECT OF THIS TURNOVER HAS NOT BEEN PROVED DOES NOT MEAN THAT THE RE WAS NO EXPENDITURE INCURRED AT ALL AND SUCH A PLEA CANNOT BE ACCEPTED. IN SUCH CIRCUMSTANCES, AN ESTIMATE OF THE PROBABLE PROFIT H AS TO BE MADE HAVING REGARD TO THE SURROUNDING CIRCUMSTANCES, GROUND REA LITIES, CORROBORATIVE EVIDENCE IN THE FORM OF PROFITS SHOWN IN COMPARATIV E CASES AND OTHER FACTORS THAT ARE RELEVANT TO DETERMINE THE REAL INC OME OF THE ASSESSEE. WE ARE OF THE VIEW THAT IN THE FACTS AND CIRCUMSTANCES OF THE CASE AS LAID OUT ABOVE, THE LEARNED CIT (A) HAS FOLLOWED THE CORRECT AND REASONABLE APPROACH IN ESTIMATING THE PROFITS ON THE SUPPRESSE D TURNOVER WORKED OUT BY THE AO WHICH HAS NOT BEEN QUESTIONED BY THE ASSE SSEE. 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, THEREFOR E, (OF THE VIEW THAT) NO INTERFERENCE IS CALLED FOR IN THE FINDING OF THE LE ARNED CIT (A) IN THE IMPUGNED ORDER ON THIS ISSUE. 10.1. ON A CAREFUL PERUSAL OF THE FINDINGS OF THE E ARLIER BENCH OF THIS TRIBUNAL (SUPRA), IT IS OBSERVED THAT THE CIT (A) AS WELL AS THE BENCH ITSELF HAVE CONCEDED THAT 5.3.3.. WE ARE OF THE VIEW THAT IN THE FACTS AND CIRCUMSTA NCES OF THE CASE AS LAID OUT ABOVE, THE LEARNED CIT (A) HAS FOLLOWED TH E CORRECT AND REASONABLE APPROACH IN ESTIMATING THE PROFITS ON THE SUPPRESSED TURNOVER W ORKED OUT BY THE AO WHICH HAS NOT BEEN QUESTIONED BY THE ASSESSEE. NO DOUBT, THE ASSESSEE COULD HAVE INCURRED CERTAIN EXPENDITURE IN THE SALE OF EGGS TO THE EXTE NT OF RS.1,61,48,817/-[WHICH WAS WORKED BY THE AO AND THE SAME HAS BEEN GRACEFULLY A CCEPTED BY THE ASSESSEE] OUTSIDE ITS BOOKS OF ACCOUNT. 10.2. THE ASSESSEE FIRM HAD PLEADED BEFORE THE AO D URING THE COURSE OF ASSESSMENT PROCEEDINGS THAT 20% OF THE SALE PROCEED S HAS TO BE DEDUCTED ON ACCOUNT OF TRANSPORTATION, VARIATION IN SIZE (OF EG GS), DEMAND AND SUPPLY. ON 7 ITA NO.1107(B)/14 & CO NO.218(B)15 VERIFICATION OF THE PROFIT AND LOSS, IT WAS OBSERVE D BY THE AO THAT THE ASSESSEE HAS DEBITED EXPENSES TOWARDS LORRY FREIGHT, HAMALI, WAGES, DIESEL EXPENSES AND DEPRECIATION ON VEHICLES. AS THE ASSESSEE HAD ALRE ADY CLAIMED EXPENSES TOWARDS TRANSPORTATION ETC., THE AO WAS OF THE VIEW THAT 20% DEDUCTION OUT OF THE SALE PROCEEDS WAS NOT CALLED FOR. [REFER: PARA 7 OF THE ASST. ORDER]. 10.3. HOWEVER, IN OUR VIEW, THE AO WAS NOT FAIR IN DENYING THE ASSESSEES LEGITIMATE CLAIM FOR CERTAIN EXPENSES FOR THE SALE OF EGGS TO THE TUNE OF RS.1.61 CRORES OUTSIDE ITS BOOKS OF ACCOUNT AS WORKED BY TH E AO.AT THE SAME TIME, WHEN THE ASSESSEE HAD EFFECTED SALE OF EGGS TO THAT EXTE NT OUTSIDE ITS BOOKS OF ACCOUNT, IT MAY NOT BE UNAWARE OF THE EXPENSES INCURRED BY I T FOR SUCH SALES. SUCH BEING THE SCENARIO, WE ARE OF THE VIEW IN THE INTERESTS O F NATURAL JUSTICE AND EQUITY THAT THE ISSUE REQUIRES VERIFICATION AT THE AOS LEVEL. ACCORDINGLY, THIS ISSUE IS RESTORED ON THE FILE OF THE AO WITH A SPECIFIC DIRECTION TO LOOK INTO THE DETAILS OF THE EXPENSES INCURRED BY THE ASSESSEE FIRM [FOR HAVING EFFECTED THE SALE OF EGGS TO THE TUNE OF RS.1.61 CRORES] WHICH WILL BE FURNISHED BY THE ASSESSEE AND TO TAKE APPROPRIATE ACTION IN ACCORDANCE WITH THE PROVISION S OF THE ACT AFTER AFFORDING A REASONABLE OPPORTUNITY TO THE ASSESSEE FIRM OF BEIN G HEARD. IT IS ORDERED ACCORDINGLY. 10.4. BEFORE PARTING WITH, WE WOULD LIKE TO REFER T O THE RATIO PRESCRIBED BY THE HONB,LE KERALA HIGH COURT IN THE CASE OF CIT V. S. P. NAYAK AND RAMESH M (SUPRA) WHICH SUBSCRIBES OUR VIEW. FOR APPRECIATIO N OF FACTS, THE RELEVANT PORTION OF THE RULING OF THE HONBLE COURT IS EXTRACTED AS UNDER: 8 ITA NO.1107(B)/14 & CO NO.218(B)15 THAT THE CLAIM FOR EXPENDITURE WAS DISALLOWED MERE LY ON THE GROUND THAT THE ASSESSEE FAILED TO PRODUCE EVIDENCE. IT WAS NO T THE CASE OF THE ASSESSING AUTHORITY THAT THE GROSS AMOUNT OF RS.7,4 0,747 CAME TO THE HANDS OF THE ASSESSEE WITHOUT INCURRING ANY EXPENDI TURE. IF INCOME WAS NOT RECEIVED WITHOUT INCURRING EXPENDITURE, THEN IT WAS THE DUTY OF THE ASSESSING AUTHORITY TO ASSESS EXPENDITURE BY BEST J UDGMENT ASSESSMENT, IF THE ASSESSEE FAILED TO PRODUCE COGENT EVIDENCE IN S UPPORT OF HIS CLAIM. HOWEVER, IT WAS NOT DENIED THAT THE ASSESSEEFASILED TO PRODUCE COGENT EVIDENCE TO PROVE THE EXPENDITURE. THEREFORE, THE APPELLATE TRIBUNAL WAS NOT JUSTIFIED IN ALLOWING THE FULL EXPENDITURE OF R S.9,31,920/- AS CLAIMED BY THE ASSESSEE ESPECIALLY IN THE ABSENCE OF GOOD R EASONS THEREFOR. IN SUBSTANCE, THE REVENUES APPEAL IS TREATED AS PA RTLY ALLOWED FOR STATISTICAL PURPOSE. II. CROSS OBJECTION NO.218 OF BANG/2015 BY THE AS SESSEE FIRM: 11. WE HAVE SINCE REMITTED BACK THE ISSUE ON THE FI LE OF THE AO FOR APPROPRIATE ACTION FOR THE REASONS RECORDED IN THE REVENUES AP PEAL (SUPRA), THE FINDINGS RECORDED THEREIN HOLD GOOD IN THE CROSS OBJECTION O F THE ASSESSEE FIRM ALSO. 12. IN THE RESULT: (I) THE REVENUES APPEAL IS TREATED AS PARTLY ALL OWED FOR STATISTICAL PURPOSE; & (II) THE ASSESSEE FIRMS CROSS OBJECTION IS ALSO TREATED AS PARTLY ALLOWED FOR STATISTICAL PURPOSE. . ORDER PRONOUNCED IN THE OPEN COURT ON TH E 13 TH APRIL, 2016. SD/- SD/- (ABRAHAM P GEORGGE) (GEORGE GEORGE K ) ACCOUNTANT MEMBER JUDICIAL MEMBER AM * PLACE : BANGALORE DATED : 13-04-2016 9 ITA NO.1107(B)/14 & CO NO.218(B)15 COPY TO : 1. THE ASSESSEE 2. THE REVENUE 3. THE CIT CONCERNED. 4. THE CIT(A) CONCERNED. 5. DR 6. GF BY ORDER ASST. REGISTRAR, ITAT, BANGALORE