ITO, Jaipur V. SHRI ARUN DARGAR, Jaipur

ITA 1174/JPR/2010

• Counselvise Citation: [2011] 140 COUNSELVISE.COM (IT) 47961 (ITAT-JAIPUR)
• Duration Of Justice: 9 month(s) 9 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 08-07-2011
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: A
• Assessment Year: 2006-2007
• Appeal Filed On: 29-09-2010
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: SANJAY KUMAR SHRI P C PARWAL
• Keywords: Rejection of books of accounts
• Section: 40A(3); 194C

Judgement Text

1 IN THE INCOME TAX APPELLATE TRIBUNAL JAIPUR BENCH A JAIPUR (BEFORE SHRI R.K.GUPTA AND SHRI N.L.KALRA) ITA NO.1174/ JP/2010 ASSESSMENT YEAR 2006-07 PAN: ABYPD 9440 N THE ITO VS. SHRI ARUN DARGAR WARD- 2(4) D-74, JANPATH, SHYAM NAGAR JAIPUR JAIPUR (APPELLANT ) (RESPONDENT) DEPARTMENT BY : SHRI SANJAY KUMAR ASSESSEE BY : SHRI P.C. PARWAL ORDER PER N.L. KALRA, AM:- THE REVENUE HAS FILED AN APPEAL AGAINST THE ORDE R OF THE LD. CIT(A)- I, JAIPUR DATED 05-07-2010 FOR THE ASSESSMENT YEAR 2006-07. 2.1 THE FIRST GROUND OF APPEAL OF THE REVENUE IS T HAT THE LD. CIT(A) HAS ERRED IN APPLYING THE GROSS PROFIT RATE OF 2.5% AS AGAINST GROSS PROFIT RATE OF 6% APPLIED BY THE AO ON SALES OF RS. 4,16,08,548/-. 2.2 THE ASSESSEE IS ENGAGED IN THE BUSINESS OF TRAD ING OF PAPERS AND COPIES. DURING THE ASSESSMENT PROCEEDINGS, THE AO N OTICED THAT THE ASSESSEE HAS PAID RS. 6,78,321/- IN CASH OUT OF TOTAL EXPEND ITURE OF FREIGHT INWARD OF RS. 8,46,264/- .IN THE IMMEDIATELY PRECEDING YEAR, SUCH EXPENDITURE WAS ONLY TO THE EXTENT OF RS. 1,67,107/- AND WAS RS. 1, 82,402/- FOR THE 2 ASSESSMENT YEAR 2004-05. THE ASSESSEE EXPLAINED THA T THE EXPENDITURE HAS INCREASED BECAUSE IN THIS YEAR MOST THE PURCHASES H AVE BEEN MADE OUT OF RAJASTHAN. ACCORDING TO THE AO, THE ASSESSEE HAS NO T PRODUCED THE BOOKS OF ACCOUNTS AND THEREFORE, HIS WRITTEN SUBMISSION ARE NOT VERIFIABLE. AT PAGE 2 OF THE ASSESSMENT ORDER, THE AO HAS OBSERVED THAT T HE ASSESSEE IN THE REPLY STATED THAT HE IS PRODUCING THE SUPPORTING VOUCHERS BUT NO SUCH VOUCHERS OR BOOKS OF ACCOUNTS WERE PRODUCED FOR VERIFICATION. A T PAGE 3 OF THE ASSESSMENT ORDER, THE AO PREPARED A CHART IN RESPEC T OF ASSESSMENT YEARS 2002-03, 2004-05 AND 2005-06. THE GROSS PROFIT RATE DURING THE YEAR IS 2.35% AS AGAINST 2.78% AND 2.30% IN THE IN THE IMME DIATELY PRECEDING TWO ASSESSMENT YEARS. THE TURNOVER IS AROUND RS. 4.16 CRORES AS AGAINST RS. 2.97 CRORES AND RS. 2.27 CRORES IN THE IMMEDIATELY PRECE DING TWO ASSESSMENT YEARS. ACCORDING TO THE AO, THE ASSESSEE HAS PRODUC ED THE BOOKS OF ACCOUNTS ON 5 TH DEC. 2008, FIRST TIME AND ON THAT DATE, THE ENTIRE VERIFICATION WAS NOT COMPLETED. THE BOOKS OF ACCOUNTS WERE NOT PRODUCED AGAIN AND THEREFORE, THE AO WAS NOT ABLE TO VERIFY THE DETAILS FROM THE BOOKS OF ACCOUNTS. THEREFORE, THE AO ISSUED THE SHOW CAUSE NOTICE ON 1 5 TH DEC. 2008 VIDE WHICH THE ASSESSEE WAS INTIMATED THAT BOOKS OF ACCO UNTS HAVE NOT BEEN PRODUCED AND THEREFORE, THE BUSINESS RESULTS AS DEC LARED BY THE ASSESSEE CANNOT BE VERIFIED. THE ASSESSEE INSTEAD OF PRODUC ING THE BOOKS OF ACCOUNTS 3 FILED A REPLY VIDE LETTER DATED 2 ND DEC. 2008. THE AO HAS MENTIONED THAT THE ASSESSEE WAS INTIMATED THAT THE COMPARABLE CASE OF M/S. VINAYAK ENTERPRISE HAS SHOWN THE GROSS PROFIT RATE OF 8.66%. THE ASSES SEE STATED THAT REFERRED CASE IS ENGAGED IN THE MANUFACTURING ACTIVITY AND T HEREFORE, IT IS NOT A COMPARABLE CASE. THE ASSESSEE VIDE REPLY DATED 22 ND DEC. 2008 HAS REFERRED TO VARIOUS CONCERNS WHICH ARE DEALING IN THE SAME B USINESS AS BEING DONE BY THE ASSESSEE . FROM THE LIST OF SUCH COMPARABLE CAS ES, THE AO HAS REFERRED TO ONE CASE I.E. M/S. SHREE MARBLE UDYOG. THIS CONCERN HAS SHOWN GROSS PROFIT RATE OF 4.58%. THE AO ACCORDINGLY REJECTED THE BOOK S OF ACCOUNTS AND APPLIED THE GROSS PROFIT RATE OF 6%. THUS THE ADDIT ION WAS MADE AT RS. 15,20,050/-. 2.3 BEFORE THE LD. CIT(A), IT WAS SUBMITTED THAT TH E ASSESSEE IS MAINTAINING THE DAY TO DAY BOOKS OF ACCOUNTS WHICH ARE DULY SUPPORTED BY BILLS AND VOUCHERS. THE ASSESSEE DEALS IN VARIOUS K INDS OF PAPERS AND, THEREFORE, MAINTENANCE OF STOCK REGISTER IS NOT POS SIBLE. AT THE END OF THE YEAR, COMPLETE DETAILS OF THE CLOSING STOCK WERE PR EPARED. IN THE IMMEDIATELY PRECEDING YEAR, THE GROSS PROFIT RATE OF 2.78% ON S ALES OF RS. 2.96 CRORES WAS SHOWN WHEREAS IN THE YEAR UNDER CONSIDERATION, THE SALES HAVE BEEN INCREASED UPTO RS. 4.16 CRORES THOUGH THE GROSS PRO FIT RATE HAS ONLY MARGINALLY DECLINED FROM 2.78% TO 2.35%. BEFORE THE LD. CIT(A), IT WAS 4 SUBMITTED THAT THE AO HAS NOT REFERRED TO OTHER COM PARABLE CASES WHILE APPLYING THE GROSS PROFIT RATE. M/S. TIRUPATI PAPER S HAS SHOWN THE GROSS PROFIT RATE OF 2%. IT WAS FURTHER SUBMITTED THAT TH E ADDITION MADE BY THE AO SHOULD BE DELETED. RELIANCE WAS PLACED ON THE FOLLO WING DECISIONS. 1. ITO VS. HITESH KUMAR PANCHORI 113 TTJ 357 (JD) 2. MALANI RAMJIVAN JAGANNATH VS. ACIT, 316 ITR 120 (RAJ.) 3. CIT VS. GOTAN LIME KHANIJ UDYOG, 256 ITR 243 (RAJ.) 4. ACIT VS. AMTEK AUTO LTD. , 112 TTJ 455 (DEL.) 2.4 THE LD. CIT(A) HELD THAT THE ASSESSEE HAS NOT M AINTAINED THE STOCK REGISTER AND THEREFORE, BOOKS OF ACCOUNTS HAVE BEEN RIGHTLY REJECTED. AFTER HOLDING THE REJECTION OF BOOKS OF ACCOUNTS, THE LD. CIT(A) DIRECTED THE AO TO APPLY THE GROSS PROFIT RATE OF 2.5% ON THE DECLARED SALES AFTER CONSIDERING THE GROSS PROFIT RATE IN THE IMMEDIATELY PRECEDING YEA R AND CONSIDERING THE INCREASE IN TURNOVER. 2.5 BEFORE US, THE LD. DR DREW OUR ATTENTION TO THE FACTS CONTAINED IN THE ASSESSMENT ORDER. IT WAS STATED THAT THE ASSESSEE H AS NOT PRODUCED THE BOOKS OF ACCOUNTS AND THEREFORE, THE AO WAS NOT ABLE TO V ERIFY THE RESULTS DECLARED BY THE ASSESSEE. THE AO CONSIDERED THE COMPARABLE C ASE AND THEREFORE, GROSS PROFIT RATE APPLIED BY THE AO WAS REASONABLE. 5 2.6 BEFORE US, THE LD. AR SUBMITTED THAT THE ASSESS EE PRODUCED THE BOOKS OF ACCOUNTS BEFORE THE AO ON 5 TH DEC. 2008 AND THIS FACT IS NOT DISPUTED. THE AO RAISED CERTAIN QUERIES AND THE AO NEVER REQUIRED THE ASSESSEE TO PRODUCE THE BOOKS OF ACCOUNTS. THE LD. AR HAS RELIED UPON T HE ORDER OF THE LD. CIT(A). 2.7 WE HAVE HEARD BOTH THE PARTIES. THE POWERS OF T HE LD. CIT(A) ARE COEXTENSIVE WITH THE POWERS OF THE AO. THE LD. CIT( A) HAS CONSIDERED THE PAST HISTORY OF THE CASE AND HAS NOTICED THAT THE G ROSS PROFIT RATE IN THE IMMEDIATELY PRECEDING YEAR WAS 2.78%. THERE WAS GRO SS PROFIT RATE OF 2.30% IN THE ASSESSMENT YEAR 2004-05. THERE HAS BEE N SUBSTANTIAL INCREASE IN THE TURNOVER. LOOKING TO THESE FACTS, THE LD. CI T(A) DIRECTED THE AO TO APPLY THE GROSS PROFIT RATE OF 2.5%. WE THEREFORE, FEEL THAT THE LD. CIT(A) WAS FAIR AND REASONABLE IN DIRECTING THE AO TO APPL Y THE GROSS PROFIT RATE OF 2.5% ON THE DECLARED SALES. WE THEREFORE, UPHOLD TH E FINDINGS OF THE LD. CIT(A). 3.1 THE SECOND GROUND OF APPEAL OF THE REVENUE IS THAT THE LD. CIT(A) HAS ERRED IN DELETING THE ADDITION OF RS. 6,78,321/- ON ACCOUNT OF SECTION 40A(3) OF INCOME TAX ACT. 3.2 THE AO MADE THE ADDITION OF RS. 6,78,321/- BECA USE THE PAYMENT WAS IN CASH IN RESPECT OF FREIGHT INWARD CHARGES. 6 3.3 BEFORE THE LD. CIT(A), IT WAS SUBMITTED THAT TH E ASSESSEE HAS NOT MADE ANY SINGLE PAYMENT EXCEEDING RS. 20,000/- IN CASH. NO TAX AT SOURCE WAS REQUIRED TO BE DEDUCTED U/S 194C BECAUSE THE LIABIL ITY OF DEDUCTION OF TAX AT SOURCE CAME INTO FORCE W.E.F. 01-06-2007 IN THE CAS E OF THE INDIVIDUAL OR HUF PROVIDED THE TURNOVER EXCEEDS RS. 40.00 LACS. I T WAS THEREFORE, CONTENDED BEFORE THE LD. CIT(A) THAT THE DISALLOWAN CE MADE BY THE AO IS REQUIRED TO BE DELETED. 3.4 THE LD. CIT(A) AFTER CONSIDERING THE SUBMISSION S OF THE LD. AR DELETED THE ADDITION. 3.5 WE HAVE HEARD BOTH THE PARTIES. THE AO HAS REJE CTED THE BOOKS OF ACCOUNTS AND MADE THE TRADING ADDITION. THE AO IN H IS ORDER HAS MENTIONED THAT THE ASSESSEE HAS MADE THE PAYMENT IN CASH AND ACCORDING TO HIM, NO RECEIPTS HAVE BEEN MAINTAINED. AT PAGE 2 OF THE ASS ESSMENT ORDER, THE AO HAS REFERRED TO THE PARTIES TO WHOM CASH PAYMENTS H AVE BEEN MADE. THE AO HAS CONSIDERED AGGREGATE PAYMENT IN CASH. THE CONTE NTION OF THE ASSESSEE IS THAT NO SUCH PAYMENT EXCEEDS RS. 20,000/-. SECTION 40A(3) HAS BEEN AMENDED BY FINANCE ACT 2008 W.E.F. 01-04-2009. IF T HE AGGREGATE OF THE PAYMENT MADE TO A PERSON IN A DAY EXCEEDS RS. 20,00 0/- THEN THE PROVISIONS OF SECTION 40A(3) ARE APPLICABLE FROM THE ASSESSMEN T YEAR 2009-10. HENCE, THE LD. CIT(A) WAS JUSTIFIED IN DELETING THE ADDITI ON OF RS. 6,78,321/-. 7 4. IN THE RESULT, THE APPEAL OF THE REVENUE IS DISM ISSED. THE ORDER IS PRONOUNCED IN THE OPEN COURT ON 08-07 -2011 SD/- SD/- (R.K. GUPTA) (N.L. KALRA) JUDICIAL MEMBER ACCOUNTANT MEMBER JAIPUR DATED; 08 /07/2011 *MISHRA COPY FORWARDED TO :- 1. THE ITO, WARD- 2 (4), JAIPUR 2. SHRI ARUN DARGAR, AJMER 3. THE LD. CIT BY ORDER 4. THE LD. CIT(A) 5. THE LD.DR 6. THE GUARD FILE (ITA NO.1174/JP /10) A.R, ITAT, JAIPUR 8 9