POORAN CHAND, Hindaun City V. ITO, Hindaun City

ITA 1127/JPR/2016

• Counselvise Citation: [2017] 128 COUNSELVISE.COM (IT) 2006 (ITAT-JAIPUR)
• Duration Of Justice: 6 month(s) 23 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 12-07-2017
• Appeal Filed By: Assessee
• Order Result: Partly Allowed
• Bench Allotted: SMC
• Next Hearing Date: 11-07-2017
• Assessment Year: 2012-2013
• Appeal Filed On: 20-12-2016
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Department Lawyers: POONAM ROY DCIT DHK
• Assessee Lawyers: G C JAIN
• Keywords: Rejection of books of accounts; Business expenditure
• Section: 145

Judgement Text

VK;DJ VIHYH; VF/KDJ.K] T;IQJ U;K;IHB] T;IQJ IN THE INCOME TAX APPELLATE TRIBUNAL, JAIPUR BENCHES (SMC), JAIPUR JH HKKXPAN] YS[KK LNL; ] DS LE{K BEFORE: SHRI BHAGCHAND, ACCOUNTANT MEMBER VK;DJ VIHY LA-@ ITA NO. 1127/JP/2016 FU/KZKJ.K O'K Z@ ASSESSMENT YEAR : 2012-13 POORAN CHAND, PROP.- M/S SHIMBHU DAYAL RAMESH CHAND, HINDAUN CITY. CUKE VS. INCOME TAX OFFICER, WARD-3, SAWAI MADHOPUR. LFKK;H YS[KK LA-@THVKBZVKJ LA-@ PAN/GIR NO.: ABEPC 3716 G VIHYKFKHZ@ APPELLANT IZR;FKHZ@ RESPONDENT FU/KZKFJRH DH VKSJ LS@ ASSESSEE BY : SHRI G.C. JAIN (ADV) JKTLO DH VKSJ LS@ REVENUE BY : SMT. POONAM ROY (DCIT) LQUOKBZ DH RKJH[K@ DATE OF HEARING : 11/07/2017 MN?KKS'K .KK DH RKJH[K @ DATE OF PRONOUNCEMENT : 12/07/2017 VKNS'K@ ORDER PER: BHAGCHAND, A.M. THIS IS AN APPEAL FILED BY THE ASSESSEE EMANATES F ROM THE ORDER OF THE LD. CIT(A), KOTA DATED 01/09/2016 FOR THE A.Y. 2 012-13. THERE WAS A DELAY OF 01 DAY IN FILING THE APPEAL, FOR WHICH THE ASSESSEE HAS FILED AN APPLICATION SEEKING CONDONATION OF DELAY. AFTER HEARING BOTH THE SIDES, DELAY WAS CONDONED AN D THE APPEAL WAS HEARD. 2. IN THIS CASE, THE ASSESSEE HAS TAKEN FOLLOWING GR OUNDS OF APPEAL: ITA 1127/JP/2016_ POORAN CHAND VS ITO 2 1. THAT THE LD. CIT(A) WAS NOT JUSTIFIED ON THE FA CTS AND CIRCUMSTANCES OF THE CASE IN CONFIRMING AN AD HOC A DDITION, WITHOUT ANY BASIS, AND MATERIAL, AT RS. 5,00,000/-, WHICH MAY KINDLY BE DELETED. 2. THAT THE LD. CIT(A) WAS NOT JUSTIFIED IN CONFIRM ING DISALLOWANCES OUT OF BUSINESS EXPENDITURES WHICH WERE MADE ON AD HOC BASIS, WITHOUT ANY FINDING OF EXCESSIVENESS AND UNREASONAB LENESS OF SUCH EXPENSES BY THE LD. A.O.. THEREFORE, DISALLOWA NCES CONFIRMED BY THE LD CIT(A) MAY KINDLY BE DELETED. 3. THE ASSESSEE DERIVES INCOME FROM COMMISSION AGENT AND WHOLE SALE TRADE IN AGRICULTURAL COMMODITIES. THERE WAS FALL IN THE GP RATE. THE ASSESSING OFFICER APPLIED THE GP RATE OF 1.25% AND MADE ADDITION OF RS. 24,59,463/-. THE LD CIT(A) REDUCED THE ADDITION TO RS . 5,00,000/- BY HOLDING AS UNDER:- AS REGARDS GROUND NO 2 & 3. THE AO NEED NOT NECESSARILY ONLY EXAMINE THE GROSS MARGIN OF AN ASSESSEE WITH RESPECT TO ITS EAR LIER PERFORMANCE. THERE ARE CYCLES OF UPS AND DOWNS IN VARIOUS SECTORS OF ECONO MY AND IT IS IMPORTANT FOR THE OFFICER TO EXAMINE THIS ISSUE. A FALL IN GP FOR THE ASSESSEE MAY BE COUPLED WITH A GENERAL RECESSION IN THAT SECTOR AND HENCE P ROFITS OF ALL THE PEERS MAY HAVE DIPPED. SIMILARLY, THE YEAR MAY REPRESENT AN E XCEPTIONAL YEAR WHEREIN ALL THE PEERS HAVE MADE EXCEPTIONAL PROFITS. HENCE, WHI LE EXAMINING GROSS MARGINS, THE ASSESSING OFFICER SHOULD NOT ONLY COMP ARE THE PAST MARGINS OF THE ASSESSEE BUT ALSO THE CURRENT YEAR MARGINS OF OTHER ASSESSES ENGAGED IN SIMILAR BUSINESS. THIS WOULD GIVE AN INSIGHT INTO THE ACTUA L PROFIT MARGINS DURING THE YEAR UNDER REFERENCE AND WOULD BE A CORRECT GUIDE F OR ESTIMATION OF PROFITS. AS DISCUSSED ABOVE, A LOW GROSS MARGIN PER SE CAN N EITHER CONSTITUTE A VALID GROUND FOR REJECTION OF BOOKS NOR FOR ESTIMATION OF PROFITS. HOWEVER, ONCE THE ASSESSING OFFICER HAS DEMONSTRATED THAT THE BOOKS O F ACCOUNTS OF THE ASSESSEE COMPANY ARE NOT RELIABLE, HE NEEDS TO PROCEED UNDER SECTION 145 AND REJECT THE BOOKS. THEREAFTER, AN ESTIMATION OF PROFIT BECOMES AN ESSENTIAL STEP TOWARDS DETERMINING THE CORRECT MARGIN EARNED BY THE ASSESS EE. ONCE THE BOOKS OF ACCOUNTS OF THE ASSESSEE ARE REJECTED, PROFIT NEEDS TO BE ESTIMATED ON THE BASIS ITA 1127/JP/2016_ POORAN CHAND VS ITO 3 OF THE MATERIAL AVAILABLE ON RECORD. EVEN IN CASES WHERE ACCOUNTS ARE NOT REJECTED PROFIT CLAIMED BY THE ASSESSEE MAY HAVE TO BE READJUSTED ON THE BASIS OF MATERIAL MADE AVAILABLE BY THE ASSESSEE ITSELF. BEFORE ARRIVING AT A REASONABLE PROFIT ESTIMATE THE AO MUST UNDERSTAND T HE INTRICACY OF THE BUSINESS OF THE ASSESSEE ALONG WITH THE PROFIT EARN ED BY OTHER COMPARABLE BUSINESS OF THE SAME NATURE AS OF THE ASSESSEE. THE RE MAY BE VARIATION IN THE PROFIT OF THE ASSESSEE ALONE OR THE VARIATION MAY B E SEEN IN THE ALL BUSINESSES OF THE SAME NATURE. THE MOST IMPORTANT ISSUE WHICH SHOULD BE EXAMINED A ND ARRIVED AT BY THE OFFICER IS THE REASONABLE PROFIT MARGIN FOR THE YEA R UNDER REFERENCE BASED ON CIRCUMSTANCES PREVAILING IN DURING THE YEAR AND THE PERFORMANCE OF SIMILARLY PLACED ASSESSEES. IN THE PRESENT APPEAL, THE G.P. OF THE YEAR IN APPE AL HAS BEEN WORKED OUT AS BEING ON THE LOWER SIDE AS COMPARED TO THE PREVIOUS 2 YEARS. THE A.O. HAS ALSO CITED ANOTHER CASE WITHOUT APPRECIATING THE HUGE DI FFERENCE IN THE TURNOVER OF THE TWO CONCERNS, THE TURNOVER OF THE ASSESSEE CONC ERN BEING 40 TIMES HIGHER THAN THAT OF THE COMPARABLE CASE CITED IN THE YEAR UNDER CONSIDERATION. FURTHER, IT IS SEEN THAT THE A.O. HAS NOT BROUGHT O UT SPECIFIC DISCREPANCIES IN THE TRADING ITEMS EXCEPT STATING THAT STOCKS OF THESE H AVE NOT BEEN MAINTAINED QUALITY & PRICE WISE THEREFORE CLOSING STOCK IS NOT PROPERLY VALUED. EVEN IF THE FALL IN G.P. RATES & THE STOCK REGISTER NOT BEING MAINTAINED QUANTITY WISE ARE TO BE CONSIDERED AS DISCREPANCIES FOR THE PURPOSES OF REJECTION OF BOOKS OF ACCOUNTS, THE BASIS OF ESTIMATION OF PROFI TS HAS TO BE REASONABLE AND NOT ARBITRARY. IN CASE OF MYSORE FERTILISER CO. V. CIT [1966] 59 I TR 268 (MAD.), IT WAS HELD THAT THE ITO SHALL MAKE THE ASSESSMENT TO THE BEST OF HI S JUDGMENT. IT MEANS THAT HE MUST MAKE IT ACCORDING TO THE RULES OF REASON AN D JUSTICE, NOT ACCORDING TO PRIVATE OPINION, BUT ACCORDING TO LAW AND NOT HUMOR , AND THE ASSESSMENT IS TO BE NOT ARBITRARY, VAGUE AND FANCIFUL, BUT LEGAL AND REGULAR. IN THE PRESENT CASE, THE A.O. HAS RESORTED TO AVERA GE PROFIT WHICH SHOULD NEVER BE A NORM IN FOOD GRAIN BUSINESS WHICH IS HIGHLY VO LATILE AND PRICES ARE QUITE FLUCTUATING YEAR TO YEAR BASED ON CROPPING SUCCESS, MONSOONS AND SEVERAL OTHER FACTORS INVOLVED. ITA 1127/JP/2016_ POORAN CHAND VS ITO 4 IT WAS OBSERVED BY HONBLE COURT IN CASE OF ALUMINI UM INDUSTRIES (P.) LTD. V. CIT [1995] 80 TAXMAN 184 (GAUHATI) THAT ADDITIONS TO THE PROFITS OF THE ASSESSEE MADE SOLELY ON THE GROUND THAT IT WAS LOW WITHOUT G IVING A SPECIFIC FINDING THAT THE ACCOUNTS OF THE ASSESSEE WERE NOT CORRECT AND C OMPLETE, OR THAT THE INCOME COULD NOT BE PROPERLY DETERMINED AND DEDUCED FROM T HE ACCOUNTING METHOD EMPLOYED BY THE ASSESSEE, IS NOT JUSTIFIED. THE MER E FACT THAT THERE WAS A LESS RATE OF GROSS PROFIT DECLARED BY AN ASSESSEE AS COM PARED TO THE PREVIOUS YEAR WOULD NOT BY ITSELF BE SUFFICIENT TO JUSTIFY THE AD DITION. IN A LANDMARK DECISION, THE HON'BLE DELHI HIGH COUR T HAS DEALT WITH THE ISSUE ELABORATELY. IN THE CASE OF CIT VS. SMT. POONAM RAN I [2010] 192 TAXMAN 167 (DELHI), WHEREIN THE OFFICER HAD REJECTED THE BOOKS BECAUSE OF THE QUANTITATIVE VARIATION IN THE WEIGHT OF THE OUTPUT PRODUCTS AS A GAINST INPUT ITEMS, THE HIGH COURT REJECTED THE ADDITION MADE ON ESTIMATE BASIS BECAUSE NO DEFECT WAS POINTED OUT IN THE ACCOUNTS AND THERE WAS NO BASIS FOR ESTIMATION. UNDER THE CIRCUMSTANCES, THE G.P. ESTIMATION WHICH HAS BEEN DONE AT THE AVERAGE RATE OF 1.25% (THOUGH IT WAS NEVER 1.25% IN EARLIER YEARS AS WELL), ON THE BASIS OF EARLIER PERIODS, CANNOT BE HELD TO BE JUSTIFIED OR PROPER. UNDER THE CIRCUMSTANCES, WHILE I DO NOT AGREE THAT THE REJECTION OF BOOKS HAS BEEN DONE ON A SOUND FOOTING, BUT IN ORDER TO ADDRE SS THE AOS DOUBTS ON CERTAIN LEAKAGES BEING POSSIBLE ON ACCOUNT OF LACK OF SPECIFIC STOCK KEEPING & FALL IN G.P. (WHICH COULD BE DUE TO SEVERAL FACTORS ), I AM OF THE OPINION THAT AN ADDITION OF RS. 5, 00,000/- IS JUSTIFIED TOWARDS TH IS END. THE BALANCE ADDITION OF RS. 19, 59,463/- MADE IS DIRECTED TO BE DELETED. 4. I HAVE HEARD BOTH THE SIDES ON THIS ISSUE. I HAV E ALSO GONE THROUGH THE VARIOUS CASE LAWS AND PLEADINGS. THE LD. CIT(A) H IMSELF HAS GIVEN A FINDING THAT THE G.P. ESTIMATION AT AN AVERAGE RATE AT 1.25% WAS NOT JUSTIFIED AND PROPER. HE SUSTAINED THE ADDITION OF RS. 5.00 LACS ONLY FOR THE REASON THAT CERTAIN LEAKAGE BEING POSSIBLE ON ACCOU NT OF LACK OF SPECIFIC STOCK KEEPING AND FALL IN GP, WHICH CAN BE OF DUE TO SEVERAL FACTORS BUT HE HAD NOT SPECIFIED THE FACTORS WHILE SUSTAINING THE ADDITION. I HAVE ALSO ITA 1127/JP/2016_ POORAN CHAND VS ITO 5 NOTED THAT THE ASSESSING OFFICER MADE VARIOUS OTHER SPECIFIC ADDITIONS, WHICH HAVE BEEN DELETED BY THE LD. CIT(A) AND NO FURT HER APPEAL HAS BEEN PREFERRED BY THE REVENUE. THEREFORE, CONSIDERING ALL THESE ASPECTS AND FACTUAL MATRIX OF THIS CASE, I SUSTAIN THE ESTIMATE D ADDITION OF RS. 2.50 LACS TO PLUG THE VARIOUS LEAKAGES AS NOTED BY THE LOWER A UTHORITIES. THUS THE ASSESSEE SHALL GET RELIEF OF RS. 2.50 LACS. 5. IN THE RESULT, THE APPEAL OF THE ASSESSEE IS PA RTLY ALLOWED. ORDER PRONOUNCED IN THE OPEN COURT ON 12/07/2017. SD/- HKKXPAN (BHAGCHAND) YS[KK LNL;@ ACCOUNTANT MEMBER TK;IQJ@ JAIPUR FNUKAD@ DATED:- 12 TH JULY, 2017 *RANJAN VKNS'K DH IZFRFYFI VXZSFKR @ COPY OF THE ORDER FORWARDED TO: 1. VIHYKFKHZ @ THE APPELLANT- SHRI POORAN CHAND, HINDAUNT CITY. 2. IZR;FKHZ @ THE RESPONDENT- THE ITO, WARD-3, SAWAI MADHOPUR. 3. VK;DJ VK;QDR @ CIT 4. VK;DJ VK;QDRVIHY @ THE CIT(A) 5. FOHKKXH; IZFRFUF/K] VK;DJ VIHYH; VF/KDJ.K] T;IQJ @ DR, ITAT, JAIPUR 6. XKMZ QKBZY @ GUARD FILE (ITA NO. 1127/JP/2016) VKNS'KKUQLKJ @ BY ORDER, LGK;D IATHDKJ @ ASST. REGISTRAR