Sri. Ayubkhan M Pathan, Hubli V. ITO-Ward-1(1), Hubli

ITA 1480/BANG/2016

• Counselvise Citation: [2019] 116 COUNSELVISE.COM (IT) 9329 (ITAT-BANGALORE)
• Duration Of Justice: 2 year(s) 10 month(s) 8 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 21-06-2019
• Appeal Filed By: Assessee
• Order Result: Dismissed
• Bench Allotted: A
• Assessment Year: 2008-2009
• Appeal Filed On: 12-08-2016
• Result in Favour of: Revenue
• Court: TRIBUNAL
• Department Lawyers: SWAPNA DAS
• Assessee Lawyers: C RAMESH
• Keywords: Gross profit estimation; Additional evidence; Competent authority; TDS; Set aside
• Section: 40A(3); 68; 148

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL BANGALORE BENCH ES : A , BANGALORE BEFORE SHRI B.R.BASK A RAN, ACCOUNTANT MEMBER AND S HRI PAVAN KUMA R GADALE, JUDICAL MEMBER ITA NO. 1 480 (BANG)/ 20 1 6 ( ASSESSMENT YEAR : 200 8 - 09 ) SHRI AYU B K HAN M P A THAN, PROP: SAGAR TRADERS, APMC YARD, AMARGOL, HUBLI PAN NO. A ODPP1065M APPELLANT VS THE INCOME TAX OFFICER, , WARD - 1(1), HUBLI RESPONDENT AND ITA NO.149 3 (BANG) /2016 (ASSESSMENT YEAR : 2008 - 9) ( B Y REVENUE) APPELLANT BY : SH RI C. RAMESH, CA RE VENUE BY : S MT. SWAPNA DAS, JC IT DATE OF HEARING : 07 - 05 - 2019 DATE OF PRONOUNCEMENT : 21 - 06 - 2019 O R D E R PER SHRI B.R.BASKAR A N, ACCOUNTANT MEMBER THESE ARE CROSS APPEALS WHICH ARE DIRECTED AGAINST THE ORDER DATED 31 - 03 - 2016 PASSED BY THE LD. CIT(A). HUBLI AND THEY RELATE TO ASSESSMENT YEAR 2008 - 09. 2. THE ASSESSEE IS AGGRIEVED BY THE DECISION OF THE LD. CIT(A) ON TH E FOLLOWING ISSUES. I . PARTIAL CONFIRMATION OF ADDITION MADE U/S 68 OF THE IT ACT, 1961 II . PARTIAL CONF I RMATION OF ADDITION MADE TOWARDS GROSS PROFIT. IT A NO S .1 480 & 1493 /BANG/201 6 2 BESIDES T HE ABOVE, THE ASSESSEE HAS ALSO RAISED LEGAL GROUND STATING THAT THE REASONS FOR RE - OPENING OF THE ASSESSMENT WAS NOT SUPPLIED TO THE ASSESSEE AND FURTHER, THE DETAILS OF APPROVAL TAKEN FOR ISSUING THE NOTICE U/S 148 OF THE IT ACT, W A S NOT MENTIONED IN THE ASSESSMENT ORDER. 3. T HE REVENUE IS IN APPEAL C HALLEN G ING THE DECISION OF THE LD.CIT(A) IN DELETING THE DISALLOWANCE M ADE BY THE AO U/S 40A(3) O F THE IT ACT AND ALSO NOT ADMITTING THE ADDITIONAL EVIDENCE. 4. THE FA C T S RELATING TO THE C A SE ARE STATED IN BRIEF. THE ASSESSEE IS A DEALER AND COMMISSION AGENT IN ONIONS. THE RETURN OF INCOME FILED BY THE ASSESSEE FOR THE YEAR UNDER CONSIDERATION WAS PROCESSED U/S 143(1). SUBSEQUENTLY, THE AO RECEIVED INFORMATION FROM DDIT(INV.) , HUBLI THAT THE ASSESSEE HAS MADE PAYM ENTS IN CASH TO CERTAIN PARTIES TO THE TUNE OF RS.143.60 LAKHS , WHICH WAS IN VIOLATION OF PROVISIONS OF SEC.40A(3) OF THE IT ACT, 1961 CALLING FOR DISALLOWANCE U/S 40A(3) OF THE ACT . ACCORDINGLY, THE AO RE - OPENED THE ASSESSMENT AND MADE ADDITION TOWARDS U NPROVED CREDITORS, DISALLOWANCE U/S 40A(3) AND ADDITION TO GROSS PROFITS. BEFORE US , BOTH THE PARTIES ARE IN APPEAL ON THE POINTS DECIDED BY LD CIT(A) AGAINST EACH OF THEM. 5. WE SHALL FIRST TAKE UP THE APPEAL FILED B Y THE ASSESSEE. THE FIRST ISSUE RELATES TO ADDITION OF UNPROVED CREDITORS DURING THE COURSE OF ASSESSMENT PROCEE DINGS. THE AO NOTICED THAT THE ASSESSEE WA S SHOWING OUTSTANDING BALANCE IN THE NAME OF VARIOUS PERSONS TO THE TUNE O F R S. 31.07 LAKHS , WHICH INCLUDED AMOUNT S OUTSTANDING WERE IN THE NAME OF 52 FARMERS TO THE TUNE OF RS.23.44 LAKHS . THE AO ASKED THE ASSESSEE IT A NO S .1 480 & 1493 /BANG/201 6 3 TO PRODUCE CONFIRMATION LETTERS FROM THE FARMERS. HOWEVER, THE ASSESSEE DID NOT FURNISH TH E SAME AND HENCE, THE AO TOOK THE VIEW THAT THE ASSESSEE HAS FAILED TO PROVE THE G ENUINENESS OF CREDITS OUTSTANDING THE IN THE NAME OF FARMERS. ACCORDINGLY, HE ADDED TH E AGGREGATE AMOUNT OF RS.23.44 LAKHS TO THE TOTAL INCOME OF THE ASSESSEE. 6. BEFORE THE LD.CIT(A) THE ASSESSEE FURNISHED CERTAIN INFORMATION AND HENCE, THE LD.CIT(A ) CALLED F OR A REMAND REPORT FROM THE AO. IN THE REMAND PROCEEDINGS THE AO ISSUED SUMMONS TO A LL THE 52 FARMERS , BUT ONLY 1 6 PERSONS RESPONDED. BASED ON THIS REPORT, THE LD. CIT(A) GRANTED RELIEF TO THE TUNE OF RS.7.12 LA K HS , BEING THE AMOUNT OUTSTANDING IN THE N A ME OF FAMERS WHO HAVE RE S PONDED TO THE NOTICES I SSUED BY THE AO. T HE LD. CIT(A) CONFIRMED THE BALANCE AMOUNT OF ADDITION. 7. WE HAVE H EA RD THE PARTIES ON TH IS ISSUE AND PERUSED THE RECORD . WE NOTICE THAT T HE AO HAS MADE THIS ADDITION ONLY FOR THE RE A SON THAT THE ASSESSEE HAS F AILED TO PROVE THE GENUINENESS OF CREDITS OUTSTANDING IN THE NAME OF FAMERS, SINCE CREDIT SALES BY FARMERS IS NOT AN EXISTING TRADE PRACTICE. EVEN THOUGH, AN OPPORTUNITY WAS PROVIDED TO THE ASSESSEE DURING THE APPELLATE PROCEEDINGS AND REMAND PROCEEDINGS TO PROVE THE CREDIT BALANCE S , YET THE ASSESSEE COULD NOT PRODUCE ANY DOCUMENTS OR C ONFIRMATION FROM THE CREDITORS. SINCE SOME OF THE CREDITORS HAVE RESPONDED TO THE NOTICE S ISSUED BY THE AO DURING THE REMAND PROCEEDINGS, THE LD.CIT(A) HAS GRANTED RELIEF TO THE EXTENT OF 7.12 LAKHS M EANING THEREBY, THE ASSESSEE COULD NOT PROVE THE GENUINENESS OF THE REMAINING CREDITORS. UNDER THE SE SET OF FA C TS, WE ARE IT A NO S .1 480 & 1493 /BANG/201 6 4 OF THE V IEW , THAT THE LD. CIT(A) WAS JUSTIFIED IN PARTIALLY SUSTAINING T HE ADDITION MADE BY THE AO ON THIS ISSUE. 8. THE NEXT ISSUE CONTESTED B Y THE ASSESSEE RELATES TO THE ADDITION MADE ON ACCOUNT OF LOW GROSS PROFIT. THE AO NOTICED THAT THE ASSESSEE HAS SHOWN A GROSS PROFIT MARGIN OF 0.24% ONLY. BEFORE THE AO THE ASSESSEE COULD NOT JUSTIFY THE LOW PROFIT MARGIN DECLARED B Y HIM. HENCE, THE AO ESTIMATED THE GROSS PROFIT OF THE A S SESS E E AT THE RATE OF 5% OF THE SALES AND ADDED A SUM OF RS.15.59 LAKHS. IN THE APPELLATE PROCEEDINGS, TH E LD.CIT(A) REDUCED THE ESTIMATE TO 1% AND ACCORDINGLY GRANTED PARTIAL RELIEF TO THE ASSESS E E. 9. WE HAVE HEARD THE PARTIES ON THIS ISSUE AND PERUSED THE RECOR D . WE N OTICE THAT THE LD.CIT(A) HAS REDUCED THE GROSS PROFIT ESTIMATE MADE BY THE AO FROM 5% TO 1% WITH THE FOLLOWING OBSERVATIONS; THE NEXT GROUND OF APPEAL IS ABOUT GROSS PROFIT ADDITION. DURING THE COURSE OF HEARING IN ASSESSMENT PROCEEDINGS THE AO HAD NOTICED THAT THE ASSESSEE HAS SHOWN GRO S S PROFIT RS.81,987/ - ON TURNOVER OF RS.3,28,29,099/ - WHICH WOK OUT TO 0.24%. THE AO STATED IN HI S ORDER THAT THE MARGIN OF PROFIT IN SUCH TRADE IS AROUND 5%. . THEREFORE, HE ESTIMATED THE G ROSS PROFIT AT 5% OF RS.3,28,29,099/ - AND MADE A RESULTANT ADDITION OF R S.15,59,468/ - IS MA D E BY THE AO. I HAVE EXAMINED THE POSITION. THE AO WHILE ESTIMATING 5% GP HAS NOT CITED ANY COMPARABLE CASES WHICH ALSO HAVE MORE THAN RS.3 CRORES TURNOVER. ONIONS ARE PERISHABLE GOODS UNLESS THE ASSESSEE HAS COLD STORAGE FACILITY. NOTHING IS MENTIONED ABOUT THIS. THE ASSESSEE IS BASICALLY A PURCHASE IT A NO S .1 480 & 1493 /BANG/201 6 5 AGENT (COMMISSION AGENT) THEREFORE, HIS MARGIN OF COMMISSION BEING FIXED, HE CANT DRAW M ORE COMMISSION FROM THE ACTUAL BUYERS. SINCE THE ASSESSEE HAS DONE OWN TRADING ALSO, I FIND THAT BEING PERISHABLE GOODS THE MARGIN OF PROFIT RANGES BETWEEN 0.5% TO 1% AND NOT MORE THAN THAT. ONLY A RETAILER WILL EARN MORE PROFIT KEE PING ALL THESE FACTORS IN VIEW AND ESTIMATE THE GROSS PROFIT EARNED BY THE ASSESSEE AT 1% AND DOING SO THE GROSS PROFIT WILL AMOUNT TO RS.3,2 8,290/ - . SINCE THE ASSESSEE HAS DECLARED A GROSS PROFIT OF RS.81,987/ - THE DIFFERENCE OF RS.2,46,303/ - WILL BE TAKEN AS GROSS PROFIT ADDITION AS AGAINST RS.15,59,468/ - ADDED BY THE AO. IN THE RESULT, T HE ASSESSEE GETS A REDUCTION OF RS.13,13,165/ - . 10. WE NOTICE THAT THE LD. CIT(A) WAS V ERY MUCH REASONABLE IN R EDUCING THE GROSS PROFIT EST I MATE TO 1%. BEFORE US NO MATERIAL WAS PL A CED B Y THE ASSESSEE WHICH WOULD CO M PEL US TO INTERFERE WITH THE ORDER P ASS E D BY THE LD. CIT(A) ON THIS ISSUE. ACCORDINGLY, WE CONFIRM THE ORDER PASSED BY THE L D . CIT(A) ON THIS ISSUE. 11. THE ASSESSEE ALSO RAISED TWO LEGAL ISSUES NAMELY, THE AO HAS NOT SUPPLIED THE REASONS RECORDED FOR RE - OPENING OF THE ASSESSMENT AND THE AO HAS NOT MENTIONED IN THE ASSESSMENT ORDER THAT THE APPROVAL FROM THE COMPETENT AUTHORITY W A S OBTAINED. 12. WE NO TICE THAT THE ABOVE SAID LEGAL ISSUES ARE VAGUE AND NOTHING WAS BROUGHT ON RECORD TO SHOW THAT THE REASON FOR REOPENING WAS NOT PROPER AND THE AO DID NOT OBTAIN REQUISITE APPROVAL. IN THE IT A NO S .1 480 & 1493 /BANG/201 6 6 ABSENCE OF ANY MATERIAL TO SUPPORT THE LEGAL ISSUES RAISED BY THE ASSESSEE WE HAVE NO OTHER OPTION BUT TO DI S MISS THEM . 13. WE SHALL NOW TAKE UP THE APPEAL FILED BY THE REVENUE WHEREIN THE DECISION OF LD.CIT(A) IN DELETING THE ADDITION MADE U/S 40A(3) IS BEING CHALLENGED. 14. WE HAVE HEARD THE PARTIES AND PERUSED THE RECORD. WE NOTICE THAT THE LD. CIT(A) HAS FOLLOWED THE CIRCULAR NO.220 DATED 31 - 05 - 1977 ISSUED BY THE CBDT WHEREIN THE SCOPE OF TH A N EXISTING RULE - 6DD(J) OF THE I T RULES WAS DISCUSSED. THE CASE LAWS RELIED ON BY THE LD. CIT(A) IN PAGE - 16 OF HIS ORDER ALSO RELATE TO RULE - 6 DD(J) THAN EXISTING. IT IS PERTINENT TO NOTE THAT THEN EXISTING RULE - 6DD(J) PROVIDED RELIEF IN RESPECT OF PAYMENTS MADE UNDER EXCEPTIONAL CIRCU M STANCES. THE SAID RULE HAS BEEN DELETED LONG BACK AND TH E SAME IS NO LONGER APPLICABLE TO THE ASSESSMENT YEAR UNDER CONSIDERATION. ACCORDINGLY, WE NOTICE THAT T HE LD. CIT(A) HAS MISDIRECTED HIMSELF IN PLACING R ELIANCE ON THE R ULE , WHICH WA S NOT APPLICABLE TO TH E YEAR UNDER CONSIDERATION . HENCE, THE ORDER PASSE D BY THE LED. CIT(A) ON THIS ISSUE GETS VITIATED FOR THE ABOVE SAID REASON. ACCORDINGLY, WE ARE OF THE VIE W, THAT THIS ISSUE REQUIRES FRESH EXAMINATION AT THE END OF THE LD.CIT(A). ACCORDINGLY, WE SET ASIDE THE ORDER PASSED BY THE LD.CIT(A) IN RESPECT OF ADDITION MADE U/S 40A(3) OF THE IT ACT, 1961 AND RESTORE THE SAME TO HIS FILE FOR FRESH EXAMINATION. IT A NO S .1 480 & 1493 /BANG/201 6 7 15. IN THE RESULT, THE APPEAL FILED BY THE ASSESSEE IS DISMISSED AND THE APPEAL OF THE REVENUE IS TREATED AS ALLOWED FOR STATISTICAL PURPOSES. PRONOUNCED ON 21 - 06 - 2019 SD/ - SD/ - ( PAVAN KUMAR GADALE) ( B .R.BASKARAN ) JUDICIAL ME MBER ACCOUNTANT MEMBER DATED: 21 - 06 - 019 * AM C OPY OF THE ORDER FORWARDED TO: 1.APPELLANT; 2.RESPONDENT; 3.CIT; 4.CIT(A); 5. DR 6. ITO (TDS) 7 .GUARD FILE BY ORDER ASST. REGISTRAR