ACIT, CHENNAI V. Shri M.Shanmugam, CHENNAI

ITA 1111/CHNY/2012

• Counselvise Citation: [2012] 140 COUNSELVISE.COM (IT) 64334 (ITAT-CHENNAI)
• Duration Of Justice: 4 month(s) 7 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 25-09-2012
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: C
• Assessment Year: 2007-2008
• Appeal Filed On: 18-05-2012
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: S DASGUPTA
• Assessee Lawyers: K BALASUBRAMANIAM

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL BENCH C CHENNAI BEFORE SHRI ABRAHAM P. GEORGE, ACCOUNTANT MEMBER AN D SHRI VIKAS AWASTHY, JUDICIAL MEMBER I.T.A. NO. 1110 & 1111/MDS/2012 ASST. YEAR : 2006-07 & 2007-08 THE ASST. COMMISSIONER OF INCOME TAX, CIRCLE V, CHENNAI 600 034. (APPELLANT) V. SHRI M. SHANMUGHAM, NO.20, 2 ND STREET, JAI NAGAR, VALASARAVAKKAM, CHENNAI 600 041. PAN : ABDPS0423R (RESPONDENT) AND C.O NO.108 & 109/MDS/2012 IN I.T.A. NO. 1110 & 1111/MDS/2012 ASST. YEAR : 2006-07 & 2007-08 SHRI M. SHANMUGHAM, NO.20, 2 ND STREET, JAI NAGAR, VALASARAVAKKAM, CHENNAI 600 041. PAN : ABDPS0423R (CROSS OBJECTOR) V. THE ASST. COMMISSIONER OF INCOME TAX, CIRCLE V, CHENNAI 600 034. (RESPONDENT) APPELLANT BY : SHRI S. DASGUPTA, JCIT RESPONDENT BY : SHRI K. BALASUBRAMANIAM, ADVOCA TE DATE OF HEARING : 27 TH AUGUST 2012 DATE OF PRONOUNCEMENT : 25 TH SEPTEMBER 2012 I.T.A. NO.1110, 1111 &/CO 108,109MDS/12 2 O R D E R PER ABRAHAM P GEORGE, A.M: THESE ARE APPEALS OF THE REVENUE AND CROSS OBJECT IONS OF THE ASSESSEE RESPECTIVELY DIRECTED AGAINST ORDER DATED 22.2.2012 OF THE CIT(APPEALS)- VIII, CHENNAI. 2. FACTS RELATING TO THE CASE ARE THAT THE ASSESSE E A WHOLE-SALE TRADER OF OLD BOTTLES HAD FILED HIS RETURN FOR THE ASST. Y EAR 2006-07 ON 26.10.2007 AND FOR THE ASST. YEAR 2007-08 ON 31.10.2006 DECLARING INCOME OF D 2,38,550/- AND D 8,67,260/- RESPECTIVELY. THERE WAS A SURVEY DONE I N THE PREMISES OF THE ASSESSEE ON 26.10.2006. AS PER ASSESSING OFFICER THE SURVEY SHOWED THAT THE ASSESSEE WAS DECLARING LOW NET PROFIT. ASSESSEE HAD EFFECTE D PURCHASE OF A MAJOR PART OF OLD BOTTLES FROM STREET HAWKERS. FOR SUCH PURCHASE S FROM STREET HAWKERS, COST OF BOTTLES PER BAG RANGED BETWEEN D 210 AND D 250. HO WEVER FOR PURCHASES FROM ESTABLISHED SUPPLIERS, THE COST WAS BETWEEN D100 & D150 PER BAG ONLY. AS PER THE ASSESSING OFFICER, PURCHASE VOUCHERS WERE PREPA RED SUCH THAT PAYMENTS WERE EFFECTED ALWAYS LESS THAN D20,000/- FOR AVOIDING R IGOURS OF SEC.40A(3) OF THE I.T. ACT. I.T.A. NO.1110, 1111 &/CO 108,109MDS/12 3 3. EXPLANATION OF THE ASSESSEE WAS SOUGHT REGARDI NG THE DISCREPANCY IN PURCHASE PRICE BETWEEN THE STREET HAWKERS AND F ROM ESTABLISHED SUPPLIERS. AS PER THE ASSESSEE, FOR PURCHASES OF OLD BOTTLES FROM STREET HAWKERS QUALITY COULD BE ENSURED AND CLEAN BOTTLES WERE ALWAYS MADE AVAIL ABLE BY STREET HAWKERS. ON THE OTHER HAND, ESTABLISHED SUPPLIERS SUPPLIED BOTT LES IN BAGS AND SUCH BAGS HAD A GOOD SHARE OF BOTTLES OF POOR QUALITY. THERE WER E THREE TYPES OF BOTTLES THAT WERE PURCHASED BY THE ASSESSE. 225 BOTTLES WERE PA CKED IN A BAG WHERE BOTTLES HAD 180 ML CAPACITY. 120 BOTTLES WERE PACKED IN A BAG FOR BOTTLES WITH 375 ML. CAPACITY AND 75 BOTTLES WERE PACKED IN A BAG FOR BO TTLES WITH 750 ML. CAPACITY. RATES PER BAG WERE THE SAME IRRESPECTIVE OF THE SIZ E. 4. AS PER ASSESSING OFFICER, FOR THE PURCHASES E FFECTED FROM STREET HAWKERS, ASSESSEE WAS MAINTAINING ONLY SELF-MADE VO UCHERS. HE WORKED OUT THE AVERAGE COST PER BAG FOR PURCHASE EFFECTED FROM ES TABLISHED SUPPLIERS AND SUBSTITUTED SUCH PER BAG COST TO THE QUANTITIES PU RCHASED FROM THE STREET HAWKERS. ONLY REASON WHY THE ASSESSING OFFICER M ADE SUCH A SUBSTITUTION WAS THAT PURCHASES FROM STREET HAWKERS WERE SUPPORTED O NLY BY BOUGHT-NOTE OR SELF- VOUCHERS. SUCH PARTIAL DISALLOWANCE FOR COST OF PU RCHASES FROM STREET HAWKERS RESULTED IN AN ADDITION OF D 48,50,707/- FOR ASST . YEAR 2006-07 AND D 1,26,07,671/- FOR ASST. YEAR 2007-08. SUBSTITUTION OF COST WAS MADE IN RESPECT OF TWO UNITS, NAMED AS M/S. CHENNAI BOTTLES AND M/ S. BOTTLE POINT BOTH OF WHICH WERE CONSIDERED AS PROPRIETARY CONCERNS OF THE ASSE SSEE. FOR ASST. YEAR 2006-07 I.T.A. NO.1110, 1111 &/CO 108,109MDS/12 4 THERE WAS AN ADDITION FOR A SHORT DISCLOSURE OF STO CK OF D 1,27,796/- ALSO. THIS ADDITION WAS MADE FOR A REASON THAT STOCK FOUND ON A SURVEY ON 26.10.2006 DID NOT TALLY WITH THE ACTUAL STOCK AS PER BOOKS. DIFF ERENCE WAS ARRIVED BASED ON A WORK OUT OF STOCK INFLOW AND OUTFLOW BETWEEN THE DA TE OF SURVEY AND 1.4.2006. 5. AGAINST THE ADDITIONS MADE FOR RESPECTIVE ASST. YEARS, ASSESSEE PREFERRED APPEAL BEFORE CIT(APPEALS). ARGUMENT OF THE ASSESSEE WAS THAT M/S. BOTTLE POINT, ONE OF THE UNITS ON WHICH ADDITION FO R INFLATED PURCHASE WAS MADE WAS NOT OWNED BY HIM BUT BY HIS WIFE, SMT. S. CHAND RA. AS FOR THE ADDITION MADE FOR ALLEGED INFLATION OF PURCHASES IN HIS OWN UNIT, ARGUMENT OF THE ASSESSEE WAS THAT AN ARITHMETICAL AVERAGE OF PRICES FOR PURC HASES EFFECTED FROM ESTABLISHED SUPPLIERS BASED ON BILLS FOR A FEW THOUSANDS OF BOT TLES, IF APPLIED ON OTHER PURCHASES WOULD NOT GIVE A RELIABLE FIGURE. AS PER THE ASSESSEE, CLEAN BOTTLES COULD BE PURCHASED FROM STREET HAWKERS AND, THEREFO RE, IT WAS OBLIGED TO PAY HIGHER PRICE FOR SUCH BOTTLES. ASSESSEE ALSO BROUGH T TO THE NOTICE OF THE CIT(APPEALS) THAT ITS GROSS PROFIT FOR ASST. YEAR 2 006-07 WAS 16.57% AND FOR THE ASST. YEAR 2007-08 IT WAS TO 8.56% AND THIS WAS IN LINE WITH PROFITS SHOWN BY OTHERS ENGAGED IN SIMILAR TRADE. RELIANCE WAS PLAC ED BY THE ASSESSEE ON THE DECISION DATED 23.12.2011 OF THE CO-ORDINATE BENCH IN THE CASE OF CIT VS. M/S. RENGA ENTERPRISES IN ITA NOS.505,506, 507 & 1289/MD S/2010, WHEREIN ON A SIMILAR ISSUE IT WAS HELD THAT ADDITIONS BASED ON E STIMATES COULD NOT BE SUSTAINED. I.T.A. NO.1110, 1111 &/CO 108,109MDS/12 5 6. LD. CIT(APPEALS) WAS APPRECIATIVE OF THE CONTEN TION OF THE ASSESSEE TO A CERTAIN EXTENT. ACCORDING TO HIM ASSESSEE HAD SHOWN AVERAGE GROSS PROFIT OF 12.56% IN BETWEEN TWO YEARS AND IF SUCH AVERAGE PRO FIT WAS ADOPTED NO ADDITION WAS REQUIRED FOR THE ASST. YEAR 2006-07, SINCE THE RETURNED PROFIT WAS MUCH ABOVE THE AVERAGE RATE. THUS, ACCORDING TO HIM, AD DITION MADE FOR ALLEGED INFLATION IN PURCHASE FOR ASST. YEAR 2006-07 WAS NO T CALLED FOR. NEVERTHELESS, HE SUSTAINED THE ADDITION MADE FOR THE ALLEGED SHORT D ISCLOSURE OF STOCK AMOUNTING TO D 1,27,796/-. FOR ASST. YEAR 2007-08, CIT(APPEALS) DIRECTED THE ASSESSING OFFICER TO APPLY THIS AVERAGE GP OF 12.56% AND SCALED DOWN THE ADDITION FOR INFLATION IN PURCHASE SUCH THAT GP COULD BE PEGGED AT THE LEVEL OF 12.56%. THIS EFFECTUALLY RESULTED IN SUSTENANCE OF THE ADDITION AT D. 20,58, 194/- AGAINST THE TOTAL ADDITION OF D. 46,70,073/- DONE BY THE A.O.FOR ASST. YEAR 20 07-08. 7. NOW, BEFORE US LD. DEPARTMENTAL REPRESENTATIVE ASSAILING THE DELETIONS OF DISALLOWANCE FOR INFLATED PURCHASE FOR A.Y. 2006-07 AND SCALING DOWN OF SUCH DISALLOWANCE FOR A.Y. 2007-08 SUBMITTED THA T ASSESSEE WAS HAVING ONLY SELF-MADE VOUCHERS FOR PURCHASE OF BOTTLES FROM STR EET HAWKERS. ASSESSING OFFICER WAS RIGHT IN ADOPTING A PRICE WHICH THE ASS ESSEE HAD PAID FOR OLD BOTTLES FROM ESTABLISHED SUPPLIERS. ASSESSEE DID NOT GIVE DETAILS OF PURCHASES EFFECTED FROM STREET HAWKERS AND NONE OF THESE PURCHASES WER E VERIFIABLE. SUPPORTING THE ORDER OF CIT(APPEALS) IN SO FAR AS HE SUSTAINED THE ADDITION FOR CLOSING STOCK, LD. D.R. SUBMITTED THAT ASSESSEE DID NOT MAINTAIN A NY STOCK BOOK AND THE I.T.A. NO.1110, 1111 &/CO 108,109MDS/12 6 RECONCILIATION OF STOCK BETWEEN THE DATE OF SURVEY VIZ., 26.10.2006 AND OPENING STOCK ON 01.4.2006 CLEARLY PROVED SUPPRESSION OF ST OCK. 8. LD. A.R. ON THE OTHER HAND, SUBMITTED THAT CIT (APPEALS) HAD SIMPLY AVERAGED THE NET PROFIT BETWEEN TWO YEARS AND APPLI ED IT INDISCRIMINATELY. ACCORDING TO HIM, IN THE CASE OF AN ASSESSEE WHICH WAS SIMILARLY PLACED, NAMELY, M/S. SRI RENGA ENTERPRISES, A MUCH LOWER ADDITION ALONE WAS SUSTAINED BY LD. CIT(APPEALS) IN AN APPEAL FILED BY THE ASSESSEE AND THIS WAS CONFIRMED BY THE TRIBUNAL. ACCORDING TO HIM, ACCOUNTS OF THE SAID A SSESSEE WERE NOT REJECTED AND PURCHASES FROM STREET HAWKERS COULD ONLY BE SUBSTAN TIATED BY SELF-VOUCHERS. WITHOUT FINDING ANY DEFECT IN THE BOOKS, ADDITION W AS MADE SIMPLY BASED ON ASSUMPTIONS AND PRESUMPTIONS. AS FOR THE ADDITION TOWARDS CLOSING STOCK MADE FOR ASST. YEAR 2006-07, LD. AUTHORISED REPRESENTATI VE SUBMITTED THAT STOCK DISCREPANCY WAS ALLEGED BETWEEN STOCK AS ON 1.4.200 6 AND STOCK AS ON 26.10.2006, BOTH OF WHICH FELL IN A DIFFERENT ASST. YEAR. ACCORDING TO HIM, NO ADDITION SHOULD HAVE BEEN MADE FOR ASST. YEAR 2006- 07, EVEN IF THERE WERE ANY VARIATION IN PHYSICAL STOCK ON 26.10.2006. AUTHORIS ED REPRESENTATIVE POINTED OUT THAT THE STOCK DISCREPANCY ITSELF WAS ARRIVED AT BY APPLYING A GP RATE OF 14.53% ON SALES MADE DURING THE INTERVENING PERIOD, FOR ARRIVING AT THE COST OF SALES. ACCORDING TO HIM, IF A SLIGHT VARIATION IN GP RATE WAS THERE, THE STOCK COULD GO HIGHER OR LOWER. THUS, ACCORDING TO HIM THIS ADDIT ION WAS ALSO MADE SIMPLY BASED ON ASSUMPTION. I.T.A. NO.1110, 1111 &/CO 108,109MDS/12 7 9. WE HAVE PERUSED THE ORDERS AND HEARD THE CONTEN TIONS. MAIN GROUND OF THE ASSESSEE AS WELL AS REVENUE IS ON THE ADDITION MADE FOR ALLEGED INFLATION IN COST OF PURCHASE OF OLD BOTTLES. ASSE SSING OFFICER HAD APPLIED THE AVERAGE COST OF PURCHASE FROM ESTABLISHED SUPPLIERS , ON THE PURCHASES EFFECTED FROM STREET HAWKERS, DISCARDING THE COST SHOWN BY T HE ASSESSEE FOR SUCH PURCHASES MADE. AS AGAINST THIS, THE CIT(APPEALS) W ORKED OUT THE GP FOR BOTH THE YEARS UNDER APPEAL, AVERAGED SUCH GP AND APPLIED SU CH GP FOR JUDGING WHETHER THE DISALLOWANCES WERE WARRANTED AND IF WARRANTED T O WHAT EXTENT. THIS APPROACH OF LD. CIT(APPEALS), OF-COURSE, RESULTED I N THE ADDITION FOR THE YEAR IN WHICH GP WAS HIGHER BEING DELETED VIZ., ASST. YEAR 2006-07 AND SCALING DOWN OF THE ADDITION FOR A.Y. 2007-08. WHAT WE FIND IS THA T BOOKS OF ACCOUNTS OF THE ASSESSEE WERE NEVER REJECTED. ADMITTEDLY, ASSESSEE WAS MAINTAINING ATLEAST SELF- MADE VOUCHERS FOR PURCHASES EFFECTED FROM STREET HA WKERS. IN THE TRADE OF OLD BOTTLES, TO EXPECT THAT STREET HAWKERS WILL PROVIDE PRINTED BILLS FOR PURCHASES WILL BE UNREASONABLE. COMPARING THE COST OF PURCHASE FR OM STREET HAWKERS WITH COST OF PURCHASE FROM ESTABLISHED SUPPLIERS, IN OUR OPIN ION, WAS NOT BASED ON ANY RATIONALE AT ALL. ASSESSEE WAS SHOWING GP RATES WH ICH WERE COMPARABLE WITH OTHER ASSESSEES SIMILARLY PLACED. WITHOUT FINDING ANY DEFECT IN THE BOOKS OF ACCOUNTS, IN OUR OPINION, ADDITION FOR INFLATION ON PURCHASE OUGHT NOT HAVE BEEN I.T.A. NO.1110, 1111 &/CO 108,109MDS/12 8 MADE, JUST FOR A REASON THAT SELF MADE VOUCHERS ALO NE WERE AVAILABLE FOR PURCHASES FROM STREET HAWKERS. IN THE NATURE OF THE TRADE OF THE ASSESSEE IF SELF- VOUCHERS WERE ONLY MAINTAINED FOR PURCHASE OF BOTTL ES FROM STREET HAWKERS, IN OUR OPINION, ASSESSEE COULD NOT BE FAULTED. NO ASSESSE E CAN BE EXPECTED TO DO AN IMPOSSIBLE THING. AS FOR THE ADDITION MADE IN A.Y. 2006-07 FOR ALLEGED STOCK DISCREPANCY IT MAY BE TRUE THAT THE ASSESSEE HAD NO T MAINTAINED ANY STOCK REGISTER. NEVERTHELESS THE QUANTITY OF PURCHASES M ADE BY THE ASSESSEE WAS AVAILABLE SINCE ASSESSING OFFICER HAD HIMSELF ARRIV ED AT THE COST OF PURCHASE BASED ON SUCH QUANTITIES. HOWEVER, RECONCILIATION OF STO CK OF BOTTLES BETWEEN THE OPENING STOCK AS ON 1.4.2006 AND AS ON THE DATE OF SURVEY ON 26.1.2006, WAS DONE IN A REVERSE MANNER BY APPLYING AN ESTIMATED G P RATE ON THE SALES DURING THE INTERVENING PERIOD TO ARRIVE AT THE COS T OF SALES. THIS DEFINITELY WILL NOT GIVE ANY SCIENTIFIC RESULT. VARIATION WORKED OUT B ASED ON SUCH METHOD WAS ONLY OF A SUM OF D. 1,27,796/-, FOR WHICH ADDITION HAS BEEN DONE. THIS VARIATION WILL GO INTO THIN AIR EVEN WITH A SLIGHT CHANGE IN THE GP R ATE. GP RATE FOR BOTH THE YEARS SHOWN BY THE ASSESSEE WAS MUCH LOWER THAN 14.53% ADO PTED BY THE A.O FOR THE WORK OUT. CONSIDERING NATURE OF BUSINESS OF THE A SSESSEE, WE ARE OF THE OPINION THAT THERE IS NOTHING ON RECORD WHICH CALLED FOR AN ADDITION FOR ANY INFLATION IN PURCHASES NOR FOR ANY SUPPRESSION OF STOCK OF BOTTL ES. I.T.A. NO.1110, 1111 &/CO 108,109MDS/12 9 9. IN THE RESULT APPEALS OF THE REVENUE FOR BOTH Y EARS ARE DISMISSED WHEREAS THE CROSS OBJECTIONS OF THE ASSESSEE ARE AL LOWED. 10. ORDER PRONOUNCED IN THE OPEN COURT AFTER HEARI NG, ON TUESDAY, THE 25 TH OF SEPTEMBER 2012. SD/- SD/- ( VIKAS AWASTHY ) ( ABRAHAM P GEORGE ) JUDICIAL MEMB ER ACCOUNTANT MEMBER CHENNAI, DATED : 25 TH SEPTEMBER 2012 JLS. COPY TO:- (1) APPELLANT (2) RESPONDENT (3) CIT(A)-II, COIMBATORE (4) CIT-III, COIMBATORE (5) D.R., (6) GUARD FILE