Shri Vaibhav D. Pataskar, Ahmednagar V. ITO, Ward-4, Ahmednagar

ITA 1467/PUN/2013

• Counselvise Citation: [2016] 133 COUNSELVISE.COM (IT) 2955 (ITAT-PUNE)
• Duration Of Justice: 2 year(s) 5 month(s) 24 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 06-01-2016
• Appeal Filed By: Assessee
• Order Result: Partly Allowed
• Bench Allotted: B
• Next Hearing Date: 15-12-2015
• Assessment Year: 2009-2010
• Appeal Filed On: 12-07-2013
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Department Lawyers: HITENDRA NINAWE
• Section: 143(3); 37(1); 144

Judgement Text

] ]] ] IN THE INCOME TAX APPELLATE TRIBUNAL PUNE BENCH B, PUNE , !', $ % BEFORE MS. SUSHMA CHOWLA, JM AND SHRI PRADIP KUMAR KEDIA, AM ITA NO.1467/PN/2013 ASSESSMENT YEAR : 2009-10 SHRI VAIBHAV D. PATASKAR, KHANDOBAGALLI, SANGAMNER, DIST. AHMEDNAGAR 422 605. PAN : AODPP6613F . APPELLANT VS. THE INCOME TAX OFFICER, WARD-4, AHMEDNAGAR. . RESPONDENT / APPELLANT BY : SHRI NIKHIL PATHAK / RESPONDENT BY : SHRI HITENDRA NINAWE / DATE OF HEARING : 15.12.2015 / DATE OF PRONOUNCEMENT: 06.01.2016 & / ORDER PER PRADIP KUMAR KEDIA, AM : THE PRESENT APPEAL PREFERRED BY THE ASSESSEE IS AGA INST THE ORDER OF CIT(A)-I, PUNE DATED 27.05.2013 RELATING TO ASSESSM ENT YEAR 2009-10 PASSED UNDER SECTION 143(3) OF THE INCOME-TAX ACT, 1961 (I N SHORT THE ACT). 2. THE GROUNDS OF APPEAL RAISED BY THE ASSESSEE ARE REPRODUCED AS UNDER :- THE FOLLOWING GROUNDS ARE TAKEN WITHOUT PREJUDICE TO EACH OTHER - ON FACTS AND IN LAW, 1] THE LEARNED CIT(A) ERRED IN CONFIRMING THE ADDIT ION OF RS.29,14,50L/- ON ACCOUNT OF ESTIMATION OF G.P. @ 6% OF THE TURNOVER OF THE ASSESSEE FOR THIS YEAR BY HOLDING THAT THE GROSS LOSS DECLARED BY THE ASSESSEE IN TRADING IN ONIONS WAS NOT GENUINE AND HENCE, THE SAME WAS TO B E REJECTED. 2] THE LEARNED CIT(A) ERRED IN ESTIMATING THE GROSS PROFIT OF THE ASSESSEE FOR THIS YEAR WITHOUT APPRECIATING THAT NO SPECIFIC DEF ECTS WERE POINTED OUT IN THE BOOKS OF THE ASSESSEE AND HENCE, THE ESTIMATION OF GROSS PROFIT MADE WITHOUT REJECTION OF BOOKS OF THE ACCOUNTS WAS NOT JUSTIFIE D IN LAW. 3] THE LEARNED CIT(A) ERRED IN HOLDING THAT- 2 ITA NO.1467/PN/2013 A. THE MAIN BUSINESS OF THE ASSESSEE WAS THAT OF TR ADING IN ONIONS AND NOT OF COMMISSION AGENT/ ADATIYA AND HENCE, THE ASS ESSEE COULD NOT HAVE INCURRED A GROSS LOSS IN TRADING BUSINESS OF O NIONS. B. THE ASSESSEE HAD PURCHASED HUGE QUANTITIES OF ON IONS FROM THE MARKET COMMITTEE AND OTHER AGENTS WITH THE INTENTIO N OF TRADING IN MARKETS OUTSIDE MAHARASHTRA AND HENCE, IT WAS NOT A CCEPTABLE THAT THE ASSESSEE WOULD HAVE SOLD THE ONIONS AT A LOSS. C. IF THE ASSESSEE WAS ONLY A COMMISSION AGENT, HE WOULD HAVE SOLD THE DAILY CLOSING STOCK REMAINING WITH HIM TO OTHER LOC AL AGENTS BUT THE FACT THAT THE ASSESSEE HAD MADE SALES OUTSIDE MAHAR ASHTRA DEMONSTRATES THAT THE ASSESSEE WAS NOT MERELY A COM MISSION AGENT BUT A TRADER OF ONIONS. D. THE CLOSING STOCK OF ONIONS OF RS. 1,19,408/- WA S VERY LESS AS COMPARED TO THE TOTAL ANNUAL PURCHASES OF ABOUT RS. 5 CRS. AND HENCE, THE TRADING RESULTS OF THE ASSESSEE WERE NOT CORRECTLY VOUCHED. 4] THE LEARNED CIT(A) FAILED TO APPRECIATE THAT - A. THE ASSESSEE HAD DULY MAINTAINED THE BOOKS OF AC COUNTS, SUPPORTING DOCUMENTS AND QUANTITATIVE RECORD AND HENCE, SUCH A N ADDITION MADE MERELY ON THE BASIS OF PRESUMPTIONS AND SURMISES WA S NOT JUSTIFIED ON FACTS OF THE CASE. B. THE ASSESSEE WAS MAINLY ENGAGED AS COMMISSION AG ENT IN THE MARKET COMMITTEE OF SANGAMNER AND THE TRADING ACTIVITY OF ONIONS WAS ONLY INCIDENTAL TO THE MAIN COMMISSIONING BUSINESS OF TH E ASSESSEE. C. THE ASSESSEE USED TO PURCHASE HUGE QUANTITIES OF ONIONS FROM THE MARKET COMMITTEE IN ORDER TO EARN MORE COMMISSION A ND ONIONS BEING A PERISHABLE ITEM, THE STOCK LEFT WITH THE AS SESSEE AFTER SALES MADE IN THE MARKET COMMITTEE HAD TO BE SOLD OFF BY THE ASSESSEE AT THE PREVALENT RATES EVEN AT LOSSES. D. THE ASSESSEE HAD EARNED SUBSTANTIAL COMMISSION I NCOME AND THE TRADING LOSS INCURRED BY THE ASSESSEE WAS IN THE NA TURE OF A COST INCURRED IN ORDER TO EARN THE COMMISSION INCOME AND SINCE THE TRADING LOSS WAS VERY REASONABLE AS COMPARED TO THE COMMISSION INCOME EARNED IN THIS YEAR, THERE WAS NO REASON TO DOUBT THE GENUINENESS OF THE TRADING LOSS INCURRED BY THE ASS ESSEE. 5] THE LEARNED CIT(A) ERRED IN HOLDING THAT THE COM MISSION OF RS. 11,02,792/- PAID BY THE ASSESSEE TO SHRI SOMANI IN THIS YEAR WA S NOT GENUINE AND HENCE, THE SAME WAS TO BE DISALLOWED WHILE COMPUTING THE B USINESS INCOME OF THE ASSESSEE FOR THIS YEAR. 5.1] THE LEARNED CIT(A) ERRED IN HOLDING THAT- A. THERE WAS NO WRITTEN AGREEMENT BETWEEN THE ASSES SEE AND SHRI SOMANI IN RESPECT OF PAYMENT OF COMMISSION AND HENC E, THE SAID EXPENSES COULD NOT BE ALLOWED AS A DEDUCTION FROM B USINESS INCOME OF THE ASSESSEE. B. THE ASSESSEE HAD NOT BROUGHT ANYTHING ON RECORD TO SHOW THE NATURE OF SERVICES RENDERED BY SHRI SOMANI AND HENCE, THE COMMISSION EXPENSES INCURRED BY THE ASSESSEE COULD NOT BE HELD TO BE GENUINE. 5.2] THE LEARNED CIT(A) FAILED TO APPRECIATE THAT- A. THE ASSESSEE WAS RELATIVELY INEXPERIENCED IN THE BUSINESS OF COMMISSION AGENT AND SHRI SOMANI HAD HELPED HIM TO INCREASE HIS TURNOVER HUGELY IN THIS YEAR AND HENCE, THE COMMISS ION PAID TO SHRI SOMANI WAS AN ALLOWABLE DEDUCTION ULS 37(1) OF THE ACT. 3 ITA NO.1467/PN/2013 B. SHRI SOMANI HAD A GOOD REPOT WITH THE LOCAL FARM ERS AND HE HELPED THE ASSESSEE TO INCREASE HIS TURNOVER DURING THE CU RRENT YEAR AS COMPARED TO THE EARLIER YEARS AND ACCORDINGLY, THE COMMISSION PAID BY THE ASSESSEE WAS GENUINE. C. THE PAYMENT OF COMMISSION TO SHRI SOMANI WAS MAD E BY BANK CHEQUE AND THE SAME WAS DULY REFLECTED BY SHRI SOMANI IN H IS RETURN OF INCOME FOR THIS YEAR AND THEREFORE, THERE WAS NO RE ASON TO DOUBT THE GENUINENESS OF THE SAID PAYMENT. 6] THE LEARNED CIT(A) ERRED IN DISALLOWING AN AMOUN T OF 10% OF GENERAL OFFICE EXPENSES INCURRED BY THE ASSESSEE ON AN ADHOC BASIS WITHOUT APPRECIATING THE FACTS OF THE CASE. 6.1] THE LEARNED CIT(A) FAILED TO APPRECIATE THAT THE SAID EXPENSES WERE INCURRED TOWARDS TEA EXPENSES OF TRUCK DRIVERS AND HENCE, THERE WAS NO REASON TO MAKE ANY DISALLOWANCE IN RESPECT OF THE S AME. 7] THE APPELLANT CRAVES LEAVE TO ADD, ALTER, AMEND OR DELETE ANY OF THE ABOVE GROUNDS OF APPEAL. 3. BY WAY OF GROUND NOS.1 TO 4, THE ASSESSEE HAS OB JECTED TO ESTIMATION OF GROSS PROFITS @ 6% OF THE TURNOVER. 4. THE RELEVANT FACTS, IN BRIEF, ARE THAT THE ASSES SEE IS AN INDIVIDUAL MAINLY ENGAGED AS A COMMISSION AGENT (ADATIYA) OF ONIONS I N THE AGRICULTURAL MARKET COMMITTEE AT SANGAMNER AND IS ALSO SIMULTANEOUSLY E NGAGED IN TRADING BUSINESS OF ONIONS. FOR THE YEAR UNDER CONSIDERATI ON, THE ASSESSEE FILED HIS RETURN OF INCOME DECLARING TOTAL INCOME AT RS.6,55, 760/-. THE CASE WAS SELECTED UNDER SCRUTINY AND THE ASSESSMENT WAS COMP LETED UNDER SECTION 143(3) OF THE ACT. THE ASSESSING OFFICER OBSERVED THAT THE ASSESSEE HAS SHOWN SALES AT RS.4,85,75,019/- AND THE COST OF GOODS SOL D AT RS.4,97,39,123/- THEREBY SHOWING GROSS LOSS AT RS.11,64,105/-. IT WAS ALSO OBSERVED BY THE ASSESSING OFFICER THAT THE COMMISSION INCOME DECLARED BY THE ASSESSEE STANDS AT RS.44,11,171/-. AFTER DEBITING ADMINISTRATIVE AND SELLING EXPENSES OF RS.24,61,249/-, THE ASSESSEE HAS DECLARED A MEAGER PROFIT OF RS.7,55,756/-. THE ASSESSING OFFICER OBSERVED ON PERUSAL OF THE EA RLIER RETURNS OF INCOME, THE ASSESSEE IS FOUND TO HAVE DECLARED GROSS PROFIT AT 13.76% IN THE ASSESSMENT YEAR 2008-09 IN ADDITION TO COMMISSION INCOME AT RS .1,79,309/-. THE ASSESSING OFFICER, INTER-ALIA , OBSERVED THAT INSPITE OF SURGE IN THE TURNOVER BY 21 TIMES, THE ASSESSEE HAS ENDED UP DECLARING GROSS LOSS AT RS.11,64,105/- WITHOUT ANY DISCERNABLE REASON. HE, THEREAFTER, CO MPARED OTHER ASSESSEE IN THE SAME LINE OF BUSINESS NAMELY SHRI SAINATH TRADING C OMPANY, SANGAMNER 4 ITA NO.1467/PN/2013 (AHMEDNAGAR) WHICH HAS DECLARED A GP OF 15.15%. HE ALSO OBSERVED AS PER PARA 3.3 OF THE ASSESSMENT ORDER THAT ASSESSEE HAS REMAINED RECALCITRANT IN ATTENDING THE ASSESSMENT PROCEEDINGS AND SHOW-CAUSE NOTICE WAS ALSO ISSUED TO FRAME BEST ASSESSMENT UNDER SECTION 144 OF THE ACT. THE ASSESSING OFFICER OBSERVED THAT THE ASSESSEE DID NOT FILE ANY SUBMISS IONS EXPLAINING THE CAUSE OF ALLEGED LOSSES INCURRED AND THERE BEING NO PLAUSIBL E REASON FOR SHOWING LOSSES AND IN THE LIGHT OF PROFITS DECLARED BY THE ASSESSE E IN THE SAME LINE OF BUSINESS AND HAVING REGARD TO THE INCREASE IN THE TURNOVER O F THE ASSESSEE AS COMPARED TO THE LAST YEAR, HE ESTIMATED GROSS PROFIT AT 6% F OR THIS YEAR WHICH WAS WORKED OUT TO RS.29,14,501/-. 5. THE CIT(A) CONFIRMED THE ACTION OF THE ASSESSING OFFICER, AGAINST WHICH ASSESSEE IS IN FURTHER APPEAL BEFORE US. 6. BEFORE US, THE LD. AUTHORIZED REPRESENTATIVE FOR THE ASSESSEE SUBMITTED THAT THE ACTION OF THE AUTHORITIES BELOW IN ESTIMAT ING THE GROSS PROFIT OF THE ASSESSEE IS UNCALLED FOR AND IS TAKEN WITHOUT APPRE CIATING THE EXACT NATURE OF BUSINESS OF THE ASSESSEE. THE ASSESSEE IS ENGAGED IN THE BUSINESS OF TRADING IN ONIONS, WHICH IS NOT INDEPENDENT BUSINESS BUT IS ON LY ADJUNCT AND SECONDARY TO THE MAIN BUSINESS OF THE COMMISSION AGENT IN THE SA ME COMMODITY. THE ASSESSEE IS PRIMARILY A COMMISSION AGENT (ADATIYA). THE PURCHASE IS MADE BY WAY OF BIDDING OR AUCTION IN THE OPEN MARKET AND TH E COMMISSION AGENTS IN- TURN SALE THE PROCUREMENTS TO VARIOUS DEALERS BY WA Y OF AUCTION MECHANISM. THE ASSESSEE IS ONLY ONE SUCH AGENT. THE ASSESSEE UNDERTAKES BULK PURCHASES OF ONIONS FROM THE VARIOUS FARMERS IN THE MARKET CO MMITTEE. THEREAFTER, THE SAID PRODUCE PURCHASED BY THE ASSESSEE IS SOLD TO V ARIOUS TRADERS AFTER CHARGING CERTAIN COMMISSION MARGIN OVER AND ABOVE THE PURCHA SE PRICE. THE BULK PURCHASES FROM THE FARMERS ARE SOMETIMES NOT ENTIRE LY SOLD ON SPOT I.E. IN THE MARKET COMMITTEE AND HENCE THE REMAINING STOCK FALL S BACK ON THE ASSESSEE HIMSELF WHICH ARE SOLD SEPARATELY TO VARIOUS OTHER PLACES. THE INCOME ARISING FROM SALE OF THESE LEFTOVER STOCKS CONSTITUTE INCOM E FROM TRADING BUSINESS OF THE ASSESSEE. THE ONION BEING A PERISHABLE ITEM, T HE ASSESSEE IS NOT HAVING ANY OPTION BUT TO SALE THE STOCK AT THE RATE PREVAILING IN THE MARKET ON THE DAY 5 ITA NO.1467/PN/2013 WHICH IS SOLD. THE LD. AUTHORIZED REPRESENTATIVE F OR THE ASSESSEE THEREAFTER ADVERTED OUR ATTENTION TO TABULATION STATEMENT GIVI NG SAMPLE TRADING TRANSACTIONS IN ONIONS UNDERTAKEN AT PAGES 30 31 OF THE PAPER BOOK. HE ALSO SUBMITTED THAT NO SPECIFIC DEFECTS FOUND IN THE BOO KS OF ACCOUNT AND THUS THE ESTIMATE MADE BY THE ASSESSING OFFICER IS UNJUST AN D UNCALLED FOR. 7. THE LD. DEPARTMENTAL REPRESENTATIVE FOR THE REVE NUE RELIED UPON THE ORDER OF THE ASSESSING OFFICER AND SUBMITTED THAT T HE ESTIMATION HAS BEEN MADE AFTER OBJECTIVE CONSIDERATION OF THE FACTS AND CIRC UMSTANCES INVOLVED IN THE CASE AND ALSO KEEPING IN MIND THE PROFITS DECLARED BY THE OTHER ASSESSEE IN THE SIMILAR FIELD. 8. WE HAVE CAREFULLY CONSIDERED THE RIVAL SUBMISSIO NS AND MATERIAL PLACED ON RECORD. THE ASSESSING OFFICER HAS RESORTED TO T HE ESTIMATION ON THE GROUND THAT THE COMPARATIVE ANALYSIS OF THE BOOK RESULTS O F THE ASSESSEE QUA THE OTHER ASSESSEE IN THE SIMILAR LINE OF BUSINESS ARE SHOWIN G WIDE VARIANCES. THE ASSESSING OFFICER HAS DEMONSTRATED THAT THE ASSESSE E HAS AVOIDED APPEARANCE BEFORE HIM TILL FAG END INSPITE OF SEVERAL ISSUANCE S OF STATUTORY NOTICES. IT APPEARS THAT THE ASSESSEE HAS NOT PROVIDED ANY JUST IFICATION BEFORE THE ASSESSING OFFICER TO OBJECTIVELY PROVE HIS CASE. T HE ONUS WHICH LAY UPON THE ASSESSEE WAS NOT FULLY DISCHARGED. THE ASSESSEE HA S GIVEN ONLY GENERALIZED SUBMISSIONS. IN THE CIRCUMSTANCES, HAVING REGARD T O THE FACT THAT THE TURNOVER OF THE ASSESSEE HAS SHARPLY INCREASED AND THE LOSS DECLARED BY THE ASSESSEE IN THE TRADING ACTIVITY IS NOT IN TUNE WITH PAST YEAR S RECORD AS WELL AS OTHER ASSESSEE IN THE SIMILAR LINE OF BUSINESS, WE FIND T HAT THERE IS JUSTIFICATION IN THE ACTION OF THE ASSESSING OFFICER IN ESTIMATING THE P ROFIT FROM TRADING ACTIVITY. HOWEVER, WE ALSO NOTICE THAT HAVING REGARD TO THE MODUS OPERANDI OF THE ASSESSEE BUSINESS WHERE COMMISSION ACTIVITY AND TRA DING ACTIVITY ARE INTER- LINKED AND LEFTOVER STOCKS ARE SOLD AT A VARIED PRI CE SUBSEQUENTLY AND HAVING REGARD TO THE FACT THAT THE COMMODITY IN WHICH THE ASSESSEE IS ENGAGED IN TRADING IS HIGHLY PERISHABLE IN NATURE, THE ARGUMEN TS CANVASSED BY THE LD. AUTHORIZED REPRESENTATIVE FOR THE ASSESSEE CANNOT B E ALTOGETHER DISCARDED. WE ALSO NOTICE THAT THE ASSESSEE HAS GIVEN DETAILS OF SAMPLE TRADING TRANSACTIONS ON 6 ITA NO.1467/PN/2013 DAY TO DAY BASIS WHICH SOMEWHAT SUPPORT THE CONTENT IONS OF THE ASSESSEE THAT THE GROSS PROFIT IN SUCH ACTIVITY CANNOT REMAIN UNI FORM AND IS BEYOND CONTROL AT TIMES. ACCORDINGLY, HAVING REGARD TO THE TOTALITY OF THE FACTS AND CIRCUMSTANCES OF THE CASE, WE FIND IT JUST AND EXPE DIENT TO RESTRICT THE ESTIMATION OF PROFIT AT 2% OF THE TURNOVER OF THE A SSESSEE AS AGAINST 6% ESTIMATED BY THE ASSESSING OFFICER TO MEET THE ENDS OF JUSTICE. 9. IN THE RESULT, APPEAL OF THE ASSESSEE IS PARTLY ALLOWED. IN TERMS OF THE ABOVE, GROUND NOS.1 TO 4 OF THE ASSESSEE ARE DISPOS ED-OFF. 10. GROUND NOS.5 AND 6 ARE DISMISSED AS NOT PRESSED . 11. RESULTANTLY, THE APPEAL OF THE ASSESSEE IS PART LY ALLOWED. ORDER PRONOUNCED ON THIS 06 TH DAY OF JANUARY, 2016. SD/- SD/- ( SUSHMA CHOWLA ) ( PRADIP KUMAR KEDIA ) / JUDICIAL MEMBER $ / ACCOUNTANT MEMBER PUNE ; DATED : 06 TH JANUARY, 2016. & ' ()* +*( / COPY OF THE ORDER IS FORWARDED TO : 1) THE ASSESSEE; 2) THE DEPARTMENT; 3) THE CIT(A)-I, PUNE; 4) THE CIT-I, PUNE; 5) THE DR B BENCH, I.T.A.T., PUNE; 6) GUARD FILE. &, / BY ORDER , ' # //TRUE COPY// $ %& # '( / SR. PRIVATE SECRETARY ) '* , / ITAT, PUNE