The ACIT, 1(1), Bhopal V. M/s Gulmohar Traders, Bhopal

ITA 115/IND/2011

• Counselvise Citation: 11522714 RSA 2011
• Duration Of Justice: 7 month(s) 14 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 01-02-2012
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: DB
• Assessment Year: 2002-2003
• Appeal Filed On: 17-06-2011
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: R N GUPTA
• Assessee Lawyers: ARUN DEWAN
• Keywords: Rejection of books of accounts; Business income; Depreciation; Deemed dividend; Unabsorbed depreciation
• Section: 143(3); 145

Judgement Text

1 IN THE INCOME TAX APPELLATE TRIBUNAL, INDORE BENCH, INDORE BEFORE SHRI JOGINDER SINGH, JUDICIAL MEMBER AND SHRI R.C. SHARMA, ACCOUNTANT MEMBER ITA NO.115/IND/2011 AY: 2007-08 ASSISTANT COMMISSIONER OF INCOME TAX 1(1), BHOPAL ... ASSESSEE V/S. M/S GULMOHAR TRADERS BHOPAL ... RESPONDENT ASSESSEE BY : SHRI R.N. GUPTA RESPONDENT BY : ARUN DEWAN DATE OF HEARING 12.01.2012 DATE OF PRONOUNCEMENT 0 1 . 02.2012 O R D E R PER JOGINDER SINGH BY WAY OF THIS APPEAL, THE REVENUE HAS ASSAILED TH E ORDER DATED 24.2.2011 OF THE LEARNED COMMISSIONER O F INCOME TAX (APPEALS) ON THE FOLLOWING GROUNDS ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE, THE LD. CIT(APPEALS) HAS ERRED IN 1. DELETING THE ADDITION IN NET PROFIT MADE BY THE ASS ESSING OFFICER AND DIRECTING THE ASSESSING OFFICER TO ACCE PT THE INCOME DECLARED BY THE ASSESSEE 2 2. DELETING THE ADDITION OF RS.22,59,970/- MADE BY THE ASSESSING OFFICER ON ACCOUNT OF DEEMED DIVIDEND. 2. SO FAR AS GROUND NO. 1 IS CONCERNED, SHRI R.N. GUPTA, LEARNED COUNSEL FOR THE ASSESSEE, SUBMITTED THAT IT IS A WELL SETTLED PROPOSITION OF LAW THAT IN THE ABSENCE OF ANY SIGNIFICANT DEFECT IN THE BOOKS OF ACCOUNT O F THE ASSESSEE FIRM ENGAGED IN THE BUSINESS OF TRADING OF COUNTRY LIQUOR AND IMFL, THE BOOKS OF ACCOUNT COULD NOT BE REJECTED MERELY ON THE GROUND THAT THE SALES WER E NOT SUPPORTED BY PROPER VOUCHERS. AS SUCH, THE ASSESSIN G OFFICER WAS NOT JUSTIFIED IN INVOKING THE PROVISION S OF SECTION 145(3) OF THE ACT AND THE LEARNED COMMISSIO NER OF INCOME TAX (APPEALS) RIGHTLY DELETED THE ADDITIO N IN QUESTION. IN SUPPORT OF HIS ARGUMENTS, HE PLACED RE LIANCE ON THE DECISION DATED 15 TH JUNE, 2011 OF THIS BENCH OF THE TRIBUNAL IN THE CASE OF ACIT VS. M/S AVINASH CHALANA & CO.; ITA NO. 78/IND/2010 WHEREIN ON SIMIL AR FACTS THE TRIBUNAL DIRECTED THE ASSESSING OFFICER T O 3 COMPUTE BUSINESS INCOME BY APPLYING NET PROFIT RATE OF 1.77% ON THE DISCLOSED TURNOVER OF THE ASSESSEE. 3. ON THE OTHER HAND, SHRI ARUN DEWAN, LEARNED SENIOR DR STRONGLY OPPOSED THE ORDER OF THE LEARNED COMMISSIONER OF INCOME TAX (APPEALS) AND SUPPORTED THE ORDER OF THE ASSESSING OFFICER BY SUBMITTING TH AT THE ASSESSING OFFICER WAS FULLY JUSTIFIED IN REJECTING THE BOOKS OF ACCOUNT OF THE ASSESSEE AND AS SUCH LEARNED COMMISSIONER OF INCOME TAX (APPEALS) WAS NOT JUSTIF IED IN REVERSING THE ASSESSMENT ORDER ON THIS ISSUE. 3. WE HAVE CONSIDERED THE RIVAL SUBMISSIONS AND PERUSED THE MATERIAL AVAILABLE ON FILE. BRIEF FACT S OF THE CASE ARE THAT THAT THE ASSESSEE IS A FIRM ENGAGED I N THE BUSINESS OF RETAIL SALE OF INDIAN MADE FOREIGN LIQU OR (IMFL), BEER AND COUNTRY LIQUOR (CL) IN THE DISTRIC TS OF HOSHANGABAD AND KHANDWA DURING THE YEAR UNDER CONSIDERATION. THE ASSESSEE FURNISHED ITS RETURN OF INCOME FOR A.Y. 2007-08 ON 29.10.2007 SHOWING A TOT AL 4 INCOME AT RS. 3,53,645/-. THE CASE WAS SELECTED FOR SCRUTINY BY ISSUING NOTICE U/S. 143(2) AND ASSESSME NT U/S 143(3) WAS COMPLETED ON 30.10.2009 DETERMINING TAXABLE INCOME AT RS. 30,63,988/-. THE ASSESSING OF FICER NOTED THAT THE ASSESSEE FIRM HAD SHOWN TOTAL SALES AT RS. 2,36,12,683/- AND NET PROFIT BEFORE ALLOWING SALARY TO PARTNERS WAS SHOWN AT RS. 5,53,645/-WHICH GIVES A N ET PROFIT RATE OF 2.35%. THE ASSESSEE HAD ALSO SHOWN INTEREST ON FDR AT RS. 41,721/-. DURING THE YEAR UN DER CONSIDERATION, THE ASSESSEE WAS ALLOTTED A LICENCE FOR RUNNING SHOPS AT HOSHANGABAD AND KHANDWA DISTRICTS FOR RETAIL SALE OF IMFL, BEER AND COUNTRY LIQUOR AN D THE LICENCE FEE FOR THE YEAR WAS PAID TO THE TUNE OF RS. 1,34,00,300/. THE ASSESSING OFFICER NOTICED THA T THE NET PROFIT RATE OF 2.35% SHOWN BY THE ASSESSEE WAS ON A VERY LOW SIDE. THE ASSESSING OFFICER FURTHER OBSERV ED THAT THE ASSESSEE HAS SHOWN ALL THE SALES MADE IN CASH A ND CASH MEMOS WERE NOT MAINTAINED. THE ASSESSEE STATED BEFORE THE ASSESSING OFFICER THAT ITS BUSINESS IS T OTALLY 5 CONTROLLED AND GOVERNED BY EXCISE RULES AND THE EXC ISE DEPARTMENT HAS DAY TO DAY CONTROL ON THE BUSINESS O F THE ASSESSEE. THE CONTRACTOR HAS TO DISPLAY THE SIGN BO ARD IN HINDI INDICATING THE SELLING PRICE OF THE LIQUOR. T HE ASSESSEE SOLD LIQUOR AT THOSE RATES. IT WAS FURTHER SUBMITTED THAT THE EXCISE OFFICERS KEEP ON VISITING/INSPECTING THE LIQUOR SHOPS TO ENSURE THAT THE CONTRACTOR DOES NOT CHARGE MORE PRICE THAN THE DISPLAYED. HOWEVER, THE ASSESSING OFFICER DID NOT A CCEPT THE SUBMISSION OF THE ASSESSEE OBSERVING THAT MERE DISPLAY OF THE SIGN BOARD DOES NOT INDICATE THAT TH E SALES WERE MADE AT THE DISPLAYED PRICES. THERE IS NO PROV ISION IN THE STATE EXCISE ACT OR RULES REQUIRING THE EXCI SE AUTHORITIES TO CONTROL THE SALE PRICE OF THE LIQUOR . A LIQUOR CONTRACTOR IS TO DETERMINE THE SALE PRICE OF THE LI QUOR AT HIS OWN FREE WILL. THE ASSESSING OFFICER CONCLUDED THAT SINCE CASH MEMOS WERE NOT ISSUED FOR THE LIQUOR SAL E, THE RATE CHARGED BY THE ASSESSEE FROM ITS CUSTOMERS CAN NOT BE VERIFIED WITH THE RATES ACCOUNTED FOR BY IT IN I TS BOOKS 6 OF ACCOUNT. THUS, THE SALES OF LIQUOR ARE NOT VERI FIABLE AND, THEREFORE, PROVISIONS OF SECTION 145(3) OF THE ACT ARE CLEARLY ATTRACTED IN THIS CASE. THE ASSESSING OFFI CER, THEREFORE, REJECTED THE BOOKS OF ACCOUNTS AND ESTIM ATED THE SALE OF LIQUOR AT TWO TIMES OF LICENCE FEE OF R S. 1,34,00,300/- WHICH WORKED OUT TO RS. 2,68,00,600/- AS AGAINST SALE OF RS. 2,36,12,683/-SHOWN BY THE ASSES SEE. THE ASSESSING OFFICER ALSO APPLIED NET PROFIT RATE OF 3% ON THE ESTIMATES SALES OF RS.2,68,00,600/- WORKING OUT NET PROFIT AT RS.8,04,018/- AND ACCORDINGLY ASSESSE D THE INCOME OF THE ASSESSEE AT RS. 8,04,018/-. FELT AGGR IEVED, THE ASSESSEE APPROACHED THE LEARNED COMMISSIONER OF INCOME TAX (APPEALS), WHO AFTER HEARING THE ASSESSE E AND CONSIDERING THE MATERIAL AVAILABLE ON RECORD AS ALS O THE CASES RELIED UPON BEFORE HIM, OBSERVED AS UNDER :- IN VIEW OF THE ABOVE, THE ASSESSEE SUBMITTED THAT ASSESSING OFFICER WAS NOT JUSTIFIED IN REJECTING THE BOOKS OF ACCOUNT ONLY ON THE BASIS THAT CASH MEMO WERE NOT ISSUED FOR SALES MADE AND R EQUESTED THAT THE ASSESSING OFFICER MAY BE DIRECTED TO ACCEPT THE BOOK RESULTS DECLARED BY THE ASSESSEE. I HAVE CAREFULLY CONSIDERED THE SUBMISSION OF THE A SSESSEE AND FACTS OF THE CASE. IT IS IMPORTANT TO MENTION THAT IDENTICAL ISSUE CAME UP BEFORE MY LEARNED PREDECESSOR IN THE CASE OF ASSESSEE ITSE LF FOR THE A.Y. 2006- 7 07. IT HAS BEEN HELD BY MY LEARNED PREDECESSOR IN H IS ORDER DTD. 10/11/2009 PASSED IN THE CASE OF ASSESSEE FOR THE A .Y. 2006-07 AS UNDER: - 'IN THIS CASE, THE ASSESSEE WAS GRANTED A LICENCE F OR SALE OF IMFL FOR A LIMITED PERIOD OF ONE YEAR ONLY. THERE WAS NO OPENING OR CLOSING STOCK OF THE GOODS DEALT WITH BY THE ASSESS EE. THE BOOKS OF ACCOUNT HAVE BEEN REGULARLY MAINTAINED FOR THE B USINESS CARRIED ON BY THE ASSESSEE. THESE BOOKS WERE DULY A UDITED AND THE AUDIT REPORT WAS FURNISHED ALONG WITH THE RETUR N. THE ASSESSING OFFICER HAD NOT POINTED OUT ANY POINTED O UT ANY DISCREPANCY IN THE QUANTITATIVE DETAILS OF PURCHASE OR SALE EFFECTED BY THE ASSESSEE. THE COST OF GOODS I.E. PURCHASE PR ICE PAID BY THE ASSESSEE STAND DULY ACCEPTED BY THE ASSESSING OFFIC ER WITH NO ADVERSE COMMENTS THEREON. THE ASSESSEE COMPANY PURC HASED THE LIQUOR BASED ON PERMITS GRANTED BY THE EXCISE D EPARTMENT. THE ASSESSING OFFICER HAD ALSO NOT POINTED OUT ANY DEFECT, DEFICIENCY OR INFIRMITY IN THE EXPENSES DEBITED TO THE PROFIT & LOSS ACCOUNT. THE ASSESSING OFFICER REJECTED THE BOOKS O F ACCOUNT MERELY ON THE GROUND THAT CASH VOUCHERS WERE NOT MA INTAIN BY THE ASSESSEE FOR THE SALES MADE. THOUGH THE ASSESSEE DI D NOT MAINTAINED ANY CASH VOUCHERS FOR THE SALE OF LIQUOR , THE FACT REMAINS THAT THE DAILY 'STILTES AFFECTED WERE TAKEN INTO SALES ACCOUNT IN THE BOOKS OF ACCOUNT REGULARLY MAINTAINE D BY THE ASSESSEE. THE ASSESSING OFFICER HAD NOT BROUGHT OUT ANY MATERIAL ON RECORD TO PROVE THAT EITHER THE SALES HAD BEEN U NDER-RECORDED OR UNACCOUNTED SALES WERE MADE BY THE ASSESSEE. SIN CE, THE QUANTITY OF THE LIQUOR IS REGULATED BY THE EXCISE D EPARTMENT AND NO DISCREPANCY IN STOCK OR QUANTITATIVE DETAILS WAS FOUND BY THE ASSESSING OFFICER, NON MAINTENANCE OF SALES VOUCHER COULD NOT ALONE BE A BASIS TO REJECT THE BOOKS OF ACCOUNT. IT IS AL SO NOTICED IN THIS CASE THAT THE ASSESSEE HAD SHOWN NET PROFIT OF 2.35 %, WHEREAS THE ASSESSING OFFICER APPLIED A RATE OF 3%. THUS, THE N ET PROFIT SHOWN BY THE ASSESSEE COULD NOT BE SAID TO BE MUCH LOWER THA N THE PREVAILING RATE ESTIMATED BY THE ASSESSING OFFICER. IT MAY ALS O BE NOTED THAT IT IS NOT POSSIBLE TO HAVE CONSTANT GROSS PROFIT OR NET P ROFIT IN A TRADE. SINCE NO MATERIAL WAS BROUGHT ON RECORD TO SHOW THA T THE SALES WERE MADE OUTSIDE THE BOOKS OF ACCOUNT OF THE ASSESSEE O R THE AMOUNT OF SALE WAS UNDERSTATED, THE SALES SHOWN BY THE ASSESS EE CANNOT BE DISTURBED. 1 AM IN AGREEMENT WITH THE SUBMISSION OF THE ASSESSEE THAT NONISSUING OF CASH MEMO IS A GENERAL PRACTICE IN THIS LINE OF TRADE AND IS GENERALLY AN ACCEPTED AND PREVALENT PR ACTICE. IT MAY BE NOTED THAT ABSENCE OF CASH MEMO IN A GIVEN SITUATIO N LIKE LIQUOR TRADE MAY NOT PER .'IE LEAD TO AN INFERENCE THAT THE ACCO UNTS ARE INCORRECT OR INCOMPLETE. HERE IN THE CASE OF ASSESSEE, THE ASSES SING OFFICER HAD NOT POINTED OUT ANY DEFECT OR DEFICIENCY IN THE BOO KS OF ACCOUNT, AND THEREFORE, THERE WAS NO SUFFICIENT GROUND WITH THE ASSESSING OFFICER FOR INVOKING PROVISIONS U/S. 145(3) OF THE 1. T ACT . SINCE PROVISIONS OF SECTION 145(3) OF THE 1. T ACT ARE NOT APPLICABLE I N THIS CASE AND THE BOOKS OF ACCOUNTS HAVE NOT BEEN VALIDLY REJECTED, T HE ASSESSING OFFICER WAS NOT JUSTIFIED IN ESTIMATING THE SALES A T A HIGHER FIGURE AND APPLYING A HIGHER NET PROFIT THAN DECLARED BY THE A SSESSEE. 8 IT MAY BE MENTIONED THAT THE ASSESSING OFFICER HAS RELIED UPON THE DECISION IN THE CASE OF A CIT VS. GENDALAL HAZARILA L & CO., 263ITR 679 (MP). HOWEVER, ON PERUSAL OF THIS DECISION, IT IS FOUND THAT IT WAS DECIDED IN FAVOUR OF THE ASSESSEE. IN THAT CASE, TH E ASSESSEE FIRM WAS CARRYING ON THE BUSINESS OF LIQUOR CONTRACT. FO R THE A. Y. 199394, THE ASSESSEE WAS HANDLING A GROUP OF SHOPS. IT FILE D ITS RETURN DISCLOSING INCOME OF RS. 98,245/- AFTER ALLOWING IN TEREST AND REMUNERATION TO PARTNERS. THE ASSESSING OFFICER HAD INVOKED PROVISIONS OF SECTION 145 MAINLY ON THE GROUND THAT SALES WERE NOT DULY SUPPORTED BY SALE VOUCHERS AND ESTIMATED THE P ROFITS AT 2 ~ TIMES OF LICENCE FEES. THE CIT (A) HELD THAT THAT I T WOULD BE REASONABLE TO ESTIMATE THE SALE AT TWICE THE LICENC E FEES AND APPLYING A NET PROFIT OF 3% ON THE SAID ESTIMATED SALES. HOW EVER, THE 1. TA. T DIRECTED THE ASSESSING OFFICER TO ACCEPT THE BOOK R ESULTS SHOWN BY THE ASSESSEE ON THE GROUND THAT BOOK RESULTS ON THE BASIS OF BOOKS OF ACCOUNT WERE WELL COMPARABLE WITH FORM P-5, ISSUED BY THE EXCISE AUTHORITIES. IN AN APPEAL FILED BY THE DEPARTMENT, THE HON 'BLE HIGH COURT DISMISSED THE APPEAL OF THE DEPARTMENT. THUS, RATIO OF THIS DECISION IS IN FAVOUR OF THE ASSESSEE. THE HON'BLE PATNA HIGH COURT IN THE CASE OF MOHD. U MER VS. CIT (1975) 101ITR 525 (PAT) WHERE THE ONLY DEFECTS FOUN D BY THE ITO WERE (I) ABSENCE OF CASH MEMO AND (II) THE NOTING O F CERTAIN SALES IN LUMP SUMS,' AND THERE WAS NO FINDING THAT (I) THE A CCOUNT WERE INCORRECT OR INCOMPLETE, OR (II) THE METHOD OF ACCO UNTING WAS NOT ACCEPTABLE, IT WAS HELD THAT ITO WAS NOT JUSTIFIED IN REJECTING THE BOOK PROFIT AND ESTIMATING AN ADDITIONAL PROFIT BY APPLY ING A HIGHER FLAT RATE ON HIGHER ESTIMATED SALES. IN THE CASE OF ITO VS. LAXMINARYAN RAMSWAROOP SHIV HARE (2009) 119 LTD 15 . (AGRA) (TN) THE HON 'BLE ITAT A GRA BENCH HAD AN OCCASION TO CONSIDER THIS ISSUE. IN THIS CASE THE A SSESSEE FIRM WAS ENGAGED IN THE TRADING OF LIQUOR IN SHIVPURI (MP). THE ASSESSING OFFICER REJECTED THE BOOKS OF ACCOUNTS ON THE GROUN D THAT ALL THE SALES WERE MADE IN CASH WITHOUT PROPER VOUCHERS SUPPORTIN G THE SALES AND BRANDWISE, QUALITYWISE AND DATEWISE SALES WERE NOT VERIFIABLE BY ANY INDEPENDENT EVIDENCE. THE HON 'BLE I.T.A.T. HELD THAT IN THE ABSENCE OF ANY SIGNIFICANT DEFECT IN THE BOOKS OF A CCOUNT OF THE ASSESSEE FIRM ENGAGED IN THE BUSINESS OF TRADING OF COUNTRY LIQUOR AND IMFL, THE BOOKS OF ACCOUNT COULD NOT BE REJECTE D MERELY ON THE GROUND THAT THE SALES WERE NOT SUPPORTED BY PRO PER VOUCHERS AND THE ASSESSING OFFICER WAS DIRECTED TO ACCEPT TH E DECLARED RESULTS BY THE ASSESSEE. THE FACTS OF THIS CASE ARE IDENTICAL TO THE FACT OF THE ASSESSEE'S CASE, AND THUS, THE RATIO DE CIDENDI OF I. T.A.T. DECISION IS SQUARELY APPLICABLE IN THE ASSESSEE'S C ASE. AS THE ISSUE INVOLVED IN THE PRESENT APPEAL IS IDEN TICAL AND ON THE SAME SET OF FACTS, I AM ALSO INCLINED TO HOLD THAT THE ASSESSING OFFICER WAS NOT JUSTIFIED IN REJECTING BOOKS OF ACCOUNT REG ULARLY MAINTAINED BY THE ASSESSEE MERELY FOR NON ISSUING OF CASH MEMOS F OR SALES MADE AND THEREBY ENHANCING THE SALES AND NET PROFIT SHOW N BY THE ASSESSEE. THE ADDITION IN NET PROFIT MADE BY THE AS SESSING OFFICER IS THEREFORE, DELETED AND THE ASSESSING OFFICER IS DIR ECTED TO ACCEPT THE 9 BOOK RESULTS DECLARED BY THE ASSESSEE. THUS, THE AB OVE GROUNDS ARE DECIDED IN FAVOUR OF THE ASSESSEE. 4. WE AGREE WITH THE SUBMISSION OF THE LEARNED COUN SEL FOR THE ASSESSEE THAT THIS BENCH OF THE TRIBUNAL H AD AN OCCASION TO DECIDE AN IDENTICAL ISSUE IN THE CASE O F ACIT V. M/.S AVINASH CHALANA & COMPANY VIDE ORDER DATED 15 TH JUNE, 2011, THE RELEVANT PORTION WHEREOF READS AS UNDER :- 3. WE HAVE CONSIDERED THE RIVAL SUBMISSIONS OF LD. REPRESENTATIVES OF BOTH SIDES AND PERUSED THE MATER IAL AVAILABLE ON RECORD. BEFORE COMING TO ANY CONCLUSIO N, WE ARE REPRODUCING HEREUNDER THE RELEVANT PORTION AS CONTA INED IN PARA 3.4 OF THE IMPUGNED ORDER: I HAVE CAREFULLY CONSIDERED THE SUBMISSION OF THE ASSESSEE AND FACTS OF THE CASE. IN THIS CASE, THE ASSESSEE WAS GRANTED LICENSES FOR SALE OF COUNTRY LIQUOR, IMFL AND BEER FOR A LIMITED PERIOD OF ONE YEAR ONLY. THERE WAS NO OPENING OR CLOSING STOCK OF THE GOODS DEALT WITH BY THE ASSESSEE. THE BOOKS OF ACCOUNTS HAVE BEEN REGULARLY MAINTAINED FOR THE BUSINESS CARRIED ON BY THE ASSESSEE. THESE BOOKS WERE DULY AUDITED AND THE AUDIT REPORT WAS FURNISHED ALONG WITH THE RETURN. THE ASSESSING OFFICER HAD NOT POINTED OUT ANY DISCREPANCY IN THE QUANTITATIVE DETAILS OF PURCHASE OR SALE EFFECTED BY THE ASSESSEE. THE COST OF GOODS I.E. PURCHASE PRICE PAID BY THE ASSESSEE STAND DULY ACCEPTED BY THE ASSESSING OFFICER WITH NO ADVERSE COMMENTS THEREON. THE ASSESSEE COMPANY PURCHASED THE LIQUOR BASED ON PERMITS GRANTED BY THE EXCISE DEPARTMENT. THE ASSESSING OFFICER HAD ALSO NOT POINTED OUT ANY DEFECT, DEFICIENCY OR INFIRMITY IN THE EXPENSES DEBITED TO THE PROFIT & LOSS ACCCOUNT. THE ASSESSING OFFICER HAD REJECTED THE BOOKS OF ACCOUNTS MERELY ON THE GROUND THAT CASH VOUCHERS WERE NOT MAINTAINED BY THE ASSESSEE 10 FOR THE SALES MADE. THOUGH THE ASSESSEE DID NOT MAINTAIN ANY CASH VOUCHERS FOR THE SALE OF LIQUOR, THE FACT REMAIN THAT THE DAILY SALES EFFECTED WERE TAKEN INTO SALES ACCOUNT IN THE BOOKS OF ACCOUNTS REGULARLY MAINTAINED BY THE ASSESSEE. THE ASSESSING OFFICER HAD NOT BROUGHT OUT ANY MATERIAL ON RECORD TO PROVE THAT EITHER THE SALES AHD BEEN UNDER-RECORDED OR UNACCOUNTED SALES WERE MADE BY THE ASSESSEE. SINCE, THE QUANTITY OF THE LIQUOR IS REGULATED BY THE EXCISE DEPARTMENT AND NO DISCREPANCY IN STOCK OR QUANTITATIVE DETAILS WAS FOUND BY THE ASSESSING OFFICER, NON MAINTENANCE OF SALES VOUCHER COULD NOT ALONE BE A BASIS TO REJECT THE BOOKS OF ACCOUNTS. IT IS ALSO NOTICED IN THIS CASE THAT THE ASSESSEE HAD SHOWN NET PROFIT OF 1.77%, WHICH WAS CLAIMED BY THE ASSESSEE TO BE REASONABLE CONSIDERING THE PREVAILING RATE IN THE TRADE OF COUNTRY LIQUOR AND IMFL. IT MAY ALSO BE NOTED THAT IT IS NOT POSSIBLE TO HAVE CONSTANT GROSS PROFIT OR NET PROFIT IN A TRADE. SINCE NO MATERIAL WAS BROUGHT ON RECORD TO SHOW THAT THE SALES WERE MADE OUTSIDE THE BOOKS OF ACCOUNTS OF THE ASSESSEE OR THE AMOUNT OF SALE WAS UNDERSTATED, THE SALES SHOWN BY THE ASSESSEE CANNOT BE DISTURBED. I AM IN AGREEMENT WITH THE SUBMISSION OF THE ASSESSEE THAT NON-ISSUING OF CASH MEMO IS A GENERAL PRACTICE IN THE LINE OF TRADE AND IS GENERALLY AN ACCEPTED AND PREVALENT PRACTICE. IT MAY BE NOTED THAT ABSENCE OF CASH MEMO IN A GIVEN SITUATION LIKE LIQUOR TRADE MAY NOT PER SE LEAD TO AN INFERENCE THAT THE ACCOUNTS ARE INCORRECT OR INCOMPLETE. HERE IN THE CASE OF ASSESSEE, THE ASSESSING OFFICER HAD NOT POINTED OUT ANY DEFECT OR DEFICIENCY IN THE BOOKS OF ACCOUNTS AND ,THEREFORE, THERE WAS NO SUFFICIENT GROUND WITH THE ASSESSING OFFICER FOR INVOKING PROVISIONS U/S 145(3) OF THE I.T. ACT. SINCE PROVISIONS OF SECTION 145(3) OF THE I.T. ACT ARE NOT APPLICABLE IN THIS CASE AND THE BOOKS OF ACCOUNTS HAVE NOT BEEN VALIDLY REJECTED, THE ASSESSING OFFICER WAS NOT JUSTIFIED IN ESTIMATING THE SALES AT A HIGHER FIGURE AND APPLYING A HIGHER NET PROFIT THAN DECLARED BY THE ASSESSEE. 4.IF THE AFORESAID CONCLUSION DRAWN IN THE IMPUGNED ORDER IS KEPT IN JUXTAPOSITION WITH THE ARGUMENTS ADVANCED BY THE LD. RESPECTIVE COUNSEL AND THE MATERIAL AVAILABLE ON RECORD, WE 11 FIND THAT THE ASSESSEE FIRM WAS ENGAGED IN THE BUSINESS OF SALE OF LIQUOR AND BEER IN VARIOUS SHOPS ALLOTTED IN THE DISTRICTS OF JABALPUR, INDORE , RAISEN AND KHANDWA DURING THE RELEVANT PERIOD. THE ASSESSEE FURNISHED RETURN DECLARING INCOME AT RS.12,50,760/- ON 31.10.2006 FOR THE IMPUGNED ASSESSMENT YEAR. IT WAS NOTED BY THE ASSESSING OFFICER THAT THE ASSESSEE FIRM SHOWED TOTAL SALES AT RS.8,89,09,784/- AND BEFORE ALLOWING SALARY TO PARTNERS, THE NET PROFIT WAS SHOWN AT RS.15,70,760/- RESULTING INTO NET PROFIT RATE OF 1.77%. THE ASSESSEE ALSO SHOWED INTEREST ON FDR AT RS.82,230/-. AS PER THE LD. ASSESSING OFFICER, THE NET PROFIT SHOWN BY THE ASSESSEE WAS TOWARDS LOWER SIDE BY OBSERVING THAT THE ASSESSEE SHOWED ALL SALES IN CASH AND CASH MEMOS WERE NOT MAINTAINED WHEREAS THE STAND OF THE ASSESSEE WAS THAT THE RETAIL BUSINESS WAS TOTALLY CONTROLLED AND GOVERNED BY EXCISE RULES AND THE EXCISE DEPARTMENT HAS DAY TO DAY CONTROL ON THE BUSINESS OF THE ASSESSEE AND ALSO THE SELLING PRICE OF THE LIQUOR WAS DISPLAYED ON THE SIGN BOARD AND THE STAFF OF THE EXCISE DEPARTMENT REGULARLY USED TO INSPECT THE LIQUOR SHOPS ENSURING THAT THE INDICATED PRICE IS NOT CHARGED MORE THAN WHAT IS STIPULATED/DISPLAYED ON THE BOARD. THERE IS UNCONTROVERTED FINDING IN THE IMPUGNED ORDER THAT THERE WAS NOT OPENING OR CLOSING STOCK OF THE GOODS OF THE ASSESSEE AND THE BOOKS WERE REGULARLY MAINTAINED WHICH WERE DULY AUDITED AND VERIFIED AND THE SAME WERE DULY FURNISHED ALONG WITH THE RETURN. EVEN OTHERWISE, NO DISCREPANCY IN ANY MANNER IN QUANTITATIVE DETAILS WERE FOUND BY THE ASSESSING OFFICER. THE COST OF GOODS I.E. PURCHASE PRICE, PAID BY THE ASSESSEE, WAS DULY ACCEPTED WITH NO ADVERSE COMMENT AND THE LIQUOR WAS PURCHASED ON THE BASIS OF THE PERMIT GRANTED BY THE EXCISE DEPARTMENT. NORMALLY, IN THE RETAIL SHOP OF LIQUOR, CASH SALE I S MADE. HOWEVER, THE SALES EFFECTED WERE DULY TAKEN INTO SALES ACCOUNT. THERE IS NO EVIDENCE ON RECORD TO PROVE THAT EITHER THE SALES WERE UNDER RECORDED. THERE IS A FURTHER FINDING THAT THE NET PROFIT OF 1.77% WAS REASONABLE, CONSIDERING THE PREVAILING RATES IN THE TRADE. IN VIEW OF THESE FACTS, WE FIND NO JUSTIFICATION FOR INVOKING THE PROVISIONS OF SEC. 145(3) OF THE ACT AND ESTIMATION OF SALES AT HIGHER FIGURE. THUS WE DIRECT THE ASSESSING OFFICER TO COMPUTE BUSINESS 12 INCOME BY APPLYING NET PROFIT RATE OF 1.77% ON THE DISCLOSED TURNOVER OF THE ASSESSEE. IF THE CONCLUSION DRAWN IN THE AFORESAID ORDER IS K EPT IN JUXTAPOSITION WITH THE FACTS OF THE PRESENT APPEAL, WE FIND THAT THE FACTS ARE IDENTICAL, WE, THEREFORE, FOLLOW ING THE AFORESAID ORDER OF THE TRIBUNAL, CONFIRM THE ORDER OF THE LEARNED COMMISSIONER OF INCOME TAX (APPEALS) BY HOLDING THAT THE ASSESSING OFFICER WAS NOT JUSTIFIE D IN REJECTING THE BOOKS OF ACCOUNTS REGULARLY MAINTAINE D BY THE ASSESSEE MERELY ON THE GROUND OF NON-ISSUANCE O F CASH MEMOS FOR SALES MADE AND THEREBY ENHANCING THE SALES AND NET PROFIT SHOWN BY THE ASSESSEE. IDENTI CALLY IN THE CASE OF ACIT V. SUREWIN MARKETING PRIVATE LIMIT ED (ITA NO. 605/IND/2010) FOR THE ASSESSMENT YEAR 2007 - 08, THIS BENCH VIDE ORDER DATED 21 ST DECEMBER, 2011 MODIFIED THE ORDERS OF THE LOWER AUTHORITIES AND DI RECTED THE ASSESSING OFFICER TO APPLY NET PROFIT RATE OF 1 .5% IN PLACE OF NET PROFIT RATE OF 1.5% SHOWN BY THE ASSES SEE. WE FURTHER FIND THAT LEARNED COMMISSIONER OF INCOME TAX (APPEALS) WHILE COMING TO A PARTICULAR CONCLUSION H AS 13 ELABORATELY DEALT WITH THE SUBMISSIONS OF THE ASSES SEE INCLUDING THE CHANGED SYSTEM OF EXCISE POLICY AND N ON- APPLICABILITY OF THE REASONING CONTAINED IN THE CAS E OF BADRIDAS BHAGWANDAS ALONG WITH THE DETAILED QUANTITATIVE ACCOUNTS MAINTAINED BY THE ASSESSEE. EVEN OTHERWISE IN THE ENCLOSED AUDITED PROFIT AND LOSS A CCOUNT THE ASSESSING OFFICER HAS NOT DOUBTED THE CORRECTNE SS OF PURCHASES BOTH IN RESPECT OF ITS QUANTITY AND VALUE . AT THE SAME TIME, THE EXPENSES ON THE DEBIT AND CREDIT SIDE OF PROFIT AND LOSS ACCOUNT HAVE BEEN ACCEPTED AS TR UE AND CORRECT AND THERE IS NO FINDING THAT ANY EXPEND ITURE WAS WITHOUT SUPPORTING VOUCHERS. THE DECISION OF TH E HON'BLE APEX COURT IN THE CASE OF RAGHUVAR MANDAL HARIHAR MANDAL V. STATE OF BIHAR (8 STC 770) CLEARL Y HELD THAT THERE MUST BE SOMETHING MORE THAN THE BARE SUSPICION TO SUPPORT THE ASSESSMENT. IDENTICAL RAT IO WAS LAID DOWN IN LALCHAND BHAGAT AMBIKA RAM V. CIT; 37 ITR 288 (SC). WE ARE OF THE VIEW THAT SUSPICION CA NNOT TAKE THE SHAPE OF EVIDENCE HOWSOEVER STRONG IT MAY BE. 14 IN THIS VIEW OF THE MATTER, THE ACTION OF THE LEARN ED COMMISSIONER OF INCOME TAX (APPEALS) IS CONFIRMED. GROUND NO. 1 OF THE APPEAL OF THE REVENUE IS, THERE FORE, DISMISSED. 5. SO FAR AS THE NEXT GROUND IS CONCERNED, WE FIND THAT AN IDENTICAL ISSUE HAS BEEN DECIDED BY THIS BENCH O F THE TRIBUNAL IN THE CASE OF MAKSON NUTRITION FOOD INDIA PVT. LTD., RAISEN, ITA NO.572/IND/2010 VIDE ORDER DATED 21 ST NOVEMBER, 2011, THE RELEVANT PORTION OF THE SAME IS REPRODUCED HEREUNDER :- THE REVENUE HAS FILED THE PRESENT APPEAL WHEREAS THE ASSESSEE HAS FILED THE CROSS OBJECTION AGAINST THE ORDER DATED 4.5.2010 OF THE LEARNED COMMISSIONER OF INCOMETAX ( APPEALS) ON THE ISSUE OF DEEMED DIVIDEND. 2. BRIEFLY, THE FACTS OF THE CASE ARE THAT THE ASSE SSEE COMPANY IS ENGAGED IN THE BUSINESS OF MANUFACTURING OF MODIFIED SUGAR BOILED CANDY AND MODIFIED TOFFEE. I N ITS RETURN THE ASSESSEE SHOWED LOSS OF RS. 1,92,07,679/-. THE CASE WAS SELECTED FOR SCRUTINY BY ISSUING NOTICE U/S 143(2) OF THE ACT AND ASSESSMENT U/S 143(3) OF THE ACT WAS COMPLETED ON 3 1.12.2008 DETERMINING TOTAL INCOME AT NIL AFTER ALLOWING SET OFF OF BROUGHT FORWARD UNABSORBED DEPRECIATION OF EARLIER YEARS. T HE ASSESSING OFFICER NOTED THAT THE ASSESSEE COMPANY H AD TAKEN UNSECURED LOANS FROM THE FOLLOWING SISTER CONCERNS :- I. MAKSON HEALTH CARE P. LTD. RS. 66,87,858/- II. MAKSON IND.P. LTD. RS. 41.09,329 III. MAKPAR EXPORTS P.LTD RS. 17,05,500 RS.1,25,02,687 15 THE ASSESSING OFFICER TREATED THE ABOVE AMOUNTS AS DEEMED DIVIDEND IN THE HANDS OF THE ASSESSEE AND ADDED THE SAME TO THE TOTAL INCOME OF THE ASSESSEE U/S 2(22)(E) OF THE AC T FOR THE REASONS MENTIONED IN THE ASSESSMENT ORDER. 3. FELT AGGRIEVED, THE ASSESSEE APPROACHED THE LEAR NED COMMISSIONER OF INCOMETAX (APPEALS). THE THRUST OF THE SUBMISSIONS MADE BEFORE THE LEARNED COMMISSIONER OF INCOMETAX (APPEALS) IS THAT THE ASSESSING OFFICER W AS NOT JUSTIFIED IN TREATING THE FUNDS BORROWED BY THE ASS ESSEE COMPANY FROM THE ABOVE THREE COMPANIES AS DEEMED DI VIDEND U/S 2(22)(E) OF THE ACT SINCE THE ASSESSEE WAS NEIT HER A REGISTERED OR BENEFICIAL SHAREHOLDER IN ANY OF THE ABOVE COMPANIES. 4. THE LEARNED COMMISSIONER OF INCOMETAX (APPEALS) FOR THE REASONS GIVEN IN HIS APPELLATE ORDER HELD T HAT IT IS AN ADMITTED FACT THAT THE ASSESSEE COMPANY WAS NOT A S HARE HOLDER IN ANY OF THE OTHER THREE COMPANIES FROM WHOM FUNDS WERE BORROWED BY THE ASSESSEE. HE, THEREFORE, RELYING UP ON THE ORDER OF THE MUMBAI ITAT SPECIAL BENCH IN THE CASE OF ACIT VS. BHAUMIK COLOUR PRIVATE LIMITED; 118 ITD 1 HELD THAT DEEMED DIVIDEND U/S 2(22)(E) OF THE ACT COULD BE AS SESSED ONLY IN THE HANDS OF A PERSON WHO IS A SHAREHOLDER OF TH E LENDER COMPANY AND NOT IN THE HANDS OF THE PERSON OTHER TH AN THE SHAREHOLDER. 5. BEFORE US, THE LEARNED SR. DR RELIED UPON THE OR DER OF THE ASSESSING OFFICER WHEREAS THE LEARNED COUNSEL F OR THE ASSESSEE RELIED UPON THE ORDER OF THE LEARNED COMMI SSIONER OF INCOME TAX (APPEALS). 2. WE HAVE CONSIDERED THE RIVAL CONTENTIONS, CAREFULLY GONE THROUGH THE ORDERS OF THE AUTHORITIE S BELOW. SPECIAL BENCH OF THE TRI IN THE CASE OF BHAUMIK COL OUR LAB (SUPRA) AFTER CONSIDERING THE ISSUE AT LENGTH HELD THAT THE PROVISIONS OF SECTION 2(22)(E) OF THE ACT CAN BE AT TRACTED ONLY WHEN THE ASSESSEE COMPANY IS REGISTERED AND BENEFIC IAL OWNER OF SHARES IN THE LENDER COMPANY. FURTHERMORE, IN TH E CASE OF CIT VS. INDIAN TECHNOCRAFT LTD., ITA NO. 352 OF 201 1 ORDER DATED 11 TH MAY, 2011 THE HONBLE DELHI HIGH COURT BY CONSIDERING THE DECISIONS OF C.P.SARATHY MUDALIAR 1972) 83 ITR 170 AND RAMESHWARLAL SANWARMAL VS. CIT (1980) 1 22 ITR 1 (SC) HELD AS UNDER:- PAGE 46 PARA 22 IT IS THUS CLEAR FROM THE AFORESAID PRONOUNCEMEN T OF THE HONBLE SUPREME COURT THAT TO ATTRACT THE FIRST LIM B OF THE PROVISIONS OF SECTION 2 (22) (E) THE PAYMENT MUST B E TO A PERSON WHO IS A REGISTERED HOLDER OF SHARES. AS AL READY 16 MENTIONED THE CONDITION UNDER THE 1922 ACT AND THE 1961 ACT REGARDING THE PAYEE BEING A SHAREHOLDER REMAINS THE SAME AND IT IS THE CONDITION UNDER THAT SUCH SHAREHOLDER SHO ULD BE BENEFICIAL OWNER OF THE SHARES AND THE PERCENTAGE O F VOTING POWER THAT SUCH SHAREHOLDER SHOULD HOLD THAT HAS B EEN PRESCRIBED AS AN ADDITIONAL CONDITION UNDER THE 196 1 ACT. THE WORD SHAREHOLDER ALONE EXISTED IN THE DEFINITION OF DIVIDEND IN THE 1922 ACT. THE EXPRESSION SHAREHOLDER HAS B EEN INTERPRETED UNDER THE 1922 ACT TO MEAN A REGISTERED SHAREHOLDER. THIS EXPRESSION SHAREHOLDER FOUND IN THE 1961 ACT HAS TO BE THEREFORE CONSTRUED AS APPLYING ONLY TO REGISTERED SHAREHOLDER. IT IS A PRINCIPLE OF INTERPRETATION OF STATUTES THAT WHERE ONCE CERTAIN WORDS IN AN ACT HAVE RECEIV ED A JUDICIAL CONSTRUCTION IN ONE OF THE SUPERIOR COURTS , AND THE LEGISLATURE HAS REPEATED THEM IN A SUBSEQUENT STATU TE, THE LEGISLATURE MUST BE TAKEN TO HAVE USED THEM ACCORDI NG TO THE MEANING WHICH A COURT OF COMPETENT JURISDICTION H AS GIVEN THEM. PAGE 46 PARA 23 IN THE 1961 ACT, THE WORD SHAREHOLDER IS FOLL OWED BY THE FOLLOWING WORDS BEING A PERSON WHO IS THE BENEFICI AL OWNER OF SHARES. THIS EXPRESSION USED IN SECTION 2 (22)(E) , BOTH IN THE 1961 ACT AND IN THE AMENDED PROVISIONS W.E.F. 1 ST APRIL ,1968 ONLY QUALIFIES THE WORD SHAREHOLDER AND DOES NOT IN ANY WAY ALTER THE POSITION THAT THE SHAREHOLDER HAS TO BE A REGISTERED SHAREHOLDER. THESE PROVISIONS ALSO DO NO T SUBSTITUTE THE AFORESAID REQUIREMENT TO A REQUIREMENT OF MERE LY HOLDING A BENEFICIAL INTEREST IN THE SHARES WITHOUT BEING A REGISTERED HOLDER OF SHARES. THE EXPRESSION BEING IS A PRESENT PARTICIPLE. A PARTICIPLE IS A WORD WHICH I S PARTLY A VERB AND PARTLY AN ADJECTIVE. IN SECTION 2(22) (E), THE PRESENT PARTICIPLE BEING IS USED TO DESCRIBED THE NOUN SHAREHOLDER LIKE AN ADJECTIVE. THE EXPRESSION BE ING A PERSON WHO IS THE BENEFICIAL OWNER OF SHARES IS TH EREFORE A FURTHER REQUIREMENT BEFORE A SHAREHOLDER CAN BE SAI D TO FALL WITHIN THE PARAMETERS OF SECTION 2 (22) (E) OF THE ACT. IN THE 1961 ACT, SECTION HAS ALSO TO BE BENEFICIAL OWNER OF SHARES (NOT BEING SHARES ENTITLED TO A FIXED RATE O F DIVIDEND WHETHER WITH OR WITHOUT A RIGHT TO PARTICIPATE IN P ROFITS) HOLDING NOT LESS THAN TEN PERCENT OF THE VOTING POW ER. IT IS NOT POSSIBLE TO ACCEPT THE CONTENTION OF THE LEARNED DE PARTMENTAL REPRESENTATIVE THAT UNDER THE 1961 ACT THERE IS N O REQUIREMENT OF A SHAREHOLDER BEING A REGISTERED HOL DER AND THAT EVEN A BENEFICIAL OWNERSHIP OF SHARES WOULD BE SUFFICIENT. PAGE 47 PARA 24 17 THE EXPRESSION SHAREHOLDER BEING A PERSON WHO IS THE BENEFICIAL OWNER OF SHARES REFERRED TO IN THE FIRS T LIMB OF SECTION 2(22) (E) REFERS TO BOTH A REGISTERED SHARE HOLDER AND BENEFICIAL SHAREHOLDER. IF A PERSON IS A REGISTERED SHARES HOLDER BUT NOT HE BENEFICIAL THEN THE PROVISION OF SECTION 2(22) (E) WILL NOT APPLY. SIMILARLY IF A PERSON IS A BENE FICIAL SHAREHOLDER BUT NOT A REGISTERED SHAREHOLDER THEN ALSO THE FIRST LIMB OF PROVISIONS OF SECTION 2 (22) (E) WILL NOT APPLY. PAGE 47 PARA 46 IN VIEW OF THE ABOVE, THIS APPEAL IS ALSO DISMISSE D. A XEROX COPY OF THE ORDER IS ENCLOSED HEREWITH. RELIANCE IS ALSO PLACED ON THE FOLLOWING DECISIONS: - (I) ACIT VS. BHAUMIK COLOUR P.LTD (2009) 313 ITR (A.T) 146 (MUMBAI) (SB). (II) JCIT VS. KUNAL ORGANICS (P) LTD. 164 TAXMAN 169 ( AHD.) THUS EVEN WITH THE CHANGE IN THE DEFINITION UNDER T HE CURRENT PROVISIONS OF THE INCOME-TAX ACT, 1961, WHEREIN THE DEFINITION OF DEEMED DIVIDEND IS APPLICABLE TO LOAN OR ADVANCE GIVEN TO A REGISTERED AND A BENEFICIAL SHAREHOLDER, THE AFOREM ENTIONED DECISION OF THE SUPREME COURT IN THE CASE OF RAMESHWARLAL SANWARMAL (SUPRA) IS NOT APPLICABLE TO THE FACTS OF ASSESSEES CASE. 7. IN VIEW OF THE ABOVE JUDICIAL PRONOUNCEMENTS, WE HOLD THAT FOR BRINGING AN ASSESSEE WITHIN THE PURVI EW OF SECTION 2(22)(E), BOTH THE CONDITIONS REGARDING ASSESSEE BE ING REGISTERED AS WELL AS BENEFICIAL SHAREHOLDER OF THE LENDER COMPANY ARE REQUIRED TO BE ESTABLISHED. IN CASE ANY OF THE CONDITIONS IS NOT SATISFIED THEN DEEMING PROVISIONS CONTAINED U/S 2(22)(E) OF THE ACT CANNOT BE ATTRACTED. SINCE IN THE PRESENT CASE, THE ASSESSEE IS NEITHER A REGISTERED NOR A BE NEFICIAL SHAREHOLDER OF THE LENDER COMPANY, WE DO NOT FIND A NY INFIRMITY IN THE ORDER OF CIT(A) AND CONFIRM THE SA ME. 8. IN THE RESULT, THE APPEAL OF THE REVENUE AND THE CROSS OBJECTION OF THE ASSESSEE ARE DISMISSED. WE, THEREFORE, FOLLOWING THE AFORESAID DECISION OF THE 18 TRIBUNAL, HOLD THAT THE ASSESSEE IS NEITHER A REGIS TERED NOR A BENEFICIAL SHAREHOLDER OF THE LENDER COMPANY. AS SUCH, THERE IS NO INFIRMITY IN THE ORDER OF THE LEA RNED COMMISSIONER OF INCOME TAX (APPEALS) AND WE CONFIRM THE SAME. GROUND NO. 2 IS ACCORDINGLY DISMISSED. IN THE RESULT, THE APPEAL OF THE REVENUE IS DISMIS SED. ORDER PRONOUNCED IN OPEN COURT ON FEBRUARY, 2012. SD SD (R.C. SHARMA) (JOGINDER SINGH) ACCOUNTANT MEMBER JUDICIAL MEMBER FEBRUARY 01 , 2012 COPY TO ASSESSEE/RESPONDENT/CIT/CIT(A)/DR DN/- 19