SMT. ASHARFI DEVI, Alwar V. ITO, Alwar

ITA 158/JPR/2012

• Counselvise Citation: [2012] 140 COUNSELVISE.COM (IT) 62027 (ITAT-JAIPUR)
• Duration Of Justice: 3 month(s) 13 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 01-06-2012
• Appeal Filed By: Assessee
• Order Result: Partly Allowed
• Bench Allotted: B
• Next Hearing Date: 03-05-2012
• Assessment Year: 2008-2009
• Appeal Filed On: 17-02-2012
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Department Lawyers: D K MEENA
• Keywords: Commercial expediency
• Section: 143(3)

Judgement Text

1 IN THE INCOME TAX APPELLATE T RIBUNAL JAIPUR BENCHE S B , JAIPUR BEFORE S/SHRI R.K. GUPTA, JM AND SANJAY ARORA, AM I.T.A NO. 158/JP/2012 ASSESSMENT YEAR: 2008-2009 SMT. ASHARFI DEVI, PROP. M/S. MAHADEV PRASAD AGARWAL, CLOTH MERCHANTS, GANESH MARKET ALWAR [PAN : AHXPA 1297 M] VS THE ITO, WARD 1 (3), ALWAR (ASSESSEE-APPELLANT) (REVENUE-RESPONDENT) ASSESSEE BY WRITTEN SUBMISSIONS REVENUE BY SHRI D.K. MEENA DATE OF HEARING 03/05/2012 DATE OF PRONOUNCEMENT 01 /06/2012 O R D E R PER SANJAY ARORA, AM: THIS IS AN APPEAL BY THE ASSESSEE DIRECTED AGAINST THE ORDER BY THE COMMISSIONER OF INCOME-TAX (APPEALS), ALWAR (CIT (A) FOR SHORT ) DATED 20-12-2011, PARTLY ALLOWING THE ASSESSEE'S APPEAL CONTESTING ITS ASSESSMENT U/S . 143(3) OF THE INCOME TAX ACT, 1961 (THE ACT HEREINAFTER) VIDE ORDER DATED 23-12-2010 FOR THE ASSESSMENT YEAR (AY) 2008- 09. 2. NONE APPEARED FOR AND ON BEHALF OF THE ASSESSE E, WHEN HER APPEAL WAS CALLED OUT FOR HEARING. THE ASSESSEE HAS, INSTEAD FILED WRITTEN SU BMISSIONS (WS), REQUESTING FOR THEIR CONSIDERATION IN DISPOSING HER APPEAL. THE HEARING WAS ACCORDINGLY PROCEEDED WITH BY HEARING THE LD. DEPARTMENTAL REPRESENTATIVE (D.R.) IN THE MATTER. THE APPEAL RAISES THREE ISSUES, EACH OF WHICH WE SHALL TAKE UP IN SERIATIM. 2 3. THE FIRST ISSUE IS QUA TRADING ADDITION PRESSED VIDE GROUND NO. 1. THE AS SESSEE, AN INDIVIDUAL, IS A WHOLE-SALE DEALER IN CLOTH. THE BO OK RESULTS DISCLOSED A GROSS PROFIT (G.P.) RATE OF 4.47% ON A TURNOVER OF RS. 472.05 LACS, AS AGAINST A G.P. RATE OF 4.46% FOR THE IMMEDIATELY PRECEDING YEAR, EVEN AS THE TURNOVER HA D WITNESSED AN INCREASE BY RS. 27.29 LACS. THE ASSESSEE WAS FOUND TO BE NOT MAINTAINING ANY STOCK REGISTER. FURTHER, NO INVENTORY OF CLOSING STOCK, I.E., AS OBTAINING AS A T THE YEAR-END, WAS FURNISHED. THE ASSESSING OFFICER (AO) FOUND THE BOOK RESULTS AS NO T VERIFIABLE FROM THE BOOKS OF ACCOUNT AS MAINTAINED BY THE ASSESSEE. TO FURTHER E XAMINE THE VERACITY OF THE DECLARED G.P. RATE, HE PICKED UP FIVE BILLS, WHICH REVEALED A TRADING MARGIN VARYING FROM 4.88% TO 8.21% (ON SALE PRICE). THE AO, ACCORDINGLY, REJECTE D THE ASSESSEE'S BOOKS OF ACCOUNT BY INVOKING THE PROVISIONS OF SECTION 145(3) OF THE AC T, AND APPLIED A G.P. RATE OF 4.75%, EFFECTING AN ADDITION ON TRADING ACCOUNT FOR RS. 1. 34 LACS. THE SAME STOOD CONFIRMED IN APPEAL; THE ASSESSEE BEING UNABLE TO IMPROVE ITS CA SE IN ANY MANNER BEFORE THE FIRST APPELLATE AUTHORITY, EVEN THOUGH HE RESTRICTED THE TRADING ADDITION TO RS. 1.00 LAC. AGGRIEVED, THE ASSESSEE IS IN SECOND APPEAL. 4. WE HAVE HEARD THE PARTIES, AND PERUSED THE MATER IAL ON RECORD. 4.1 THE ASSESSEE'S CASE IS THAT IT IS NOT POSSIB LE FOR IT TO MAINTAIN THE STOCK RECORDS IN VIEW OF THE INNUMERABLE QUALITIES AND TYPES OF CLOT HS THAT IT DEALS IN. ITS G.P. RATE IS IN LINE WITH ITS PAST HISTORY, WHICH IS REPRODUCED AT PAGE 1 OF THE WRITTEN SUBMISSIONS, WHICH REVEAL A G.P. RATE BETWEEN 4.32% AND 4.46% OVER THE PRECEDING FOUR YEARS. THE AO HAD ASSESSED THE G.P. RATE ON THE ENTIRE TURNOVER BY WO RKING IT OUT ON THE BASIS OF FIVE BILLS. THE TRADING RESULTS OF OTHER SIX BILLS, EACH WITH G .P. RATE AT NIL, STAND REPRODUCED TO REFLECT THAT NO INFERENCE COULD BE MADE ON THE BASIS OF SUC H AN EXERCISE. OUR FIRST OBSERVATION IN THE MATTER IS THAT THE VERY FACT THAT BOTH THE AO A S WELL AS THE ASSESSEE HERSELF COULD DETERMINE THE G.P. RATE WITH REFERENCE TO THE SPECI FIC PURCHASES, ITSELF NEGATE THE ASSESSEES CLAIM THAT IT IS NOT POSSIBLE TO MAINTAI N A STOCK REGISTER; THAT BEING ONE OF THE FUNCTIONS THAT THE STOCK REGISTER FULFILLS. THE STO CK RECORD IS A VITAL COMPONENT OF THE ASSESSEE'S BOOKS OF ACCOUNT; IN THE ABSENCE OF WHIC H IT IS NOT POSSIBLE TO DEDUCE THE 3 CORRECT PROFITS THERE-FROM. HOW WOULD ASSESSEE THEN PLACE RELIANCE ON ITS BOOKS OF ACCOUNT FOR DETERMINING ITS PROFITS? THERE IS NO LA W THAT THE BOOKS OF ACCOUNT CANNOT BE REJECTED IN THE ABSENCE OF A STOCK REGISTER. TRUE, THERE IS EQUALLY NO LAW THAT THE BOOK RESULTS ARE TO BE NECESSARILY REJECTED IN ITS ABSEN CE; THE FINDING OF WHETHER THE BOOKS AS MAINTAINED COULD BE RELIED UPON FOR DEDUCING TRUE P ROFITS BEING ESSENTIALLY A MATTER OF FACT [REFER: CIT VS. UTTAM CHUMA PATTAR UDYOG , 116 TAXMAN 524 (RAJ.)]. IN FACT, EVEN THE FEASIBILITY OF MAINTENANCE OF THE STOCK RECORD/ S IS AGAIN A QUESTION OF FACT, AND WHICH WE HAVE FOUND AS SO IN THE INSTANT CASE. WE, THEREF ORE, UPHOLD THE INVOCATION OF THE PROVISION OF SEC. 145(3) OF THE ACT BY THE REVENUE IN THE INSTANT CASE, AND CONCOMITANTLY PROCEEDING TO ESTIMATE THE ASSESSEES TRADING RESUL TS. RELIANCE FOR THE PURPOSE IS PLACED ON THE DECISIONS, AS IN THE CASE OF NAMASIVAYAM CHETTIAR (S.N.) V. CIT (1960) 38 ITR 579 (SC) AND NARSINGHDAS RAMKISHAN PUNAGALIA V. ASSTT. CIT , 272 ITR 467 (RAJ.). 4.2 AS REGARDS THE QUANTIFICATION ASPECT, THE FI VE BILLS PICKED UP BY THE AO, WE SUPPOSE AT RANDOM, THE RESULTS OF WHICH ARE NOT IN DISPUTE, YIELD A SIMPLE AVERAGE AT 6.61% , WITH A MINIMUM OF 4.88%. IN FACT, THE WEIGHTED AVERAGE, WH ICH RATHER AND ONLY WOULD REVEAL THE CORRECT RESULTS, WOULD WORK OUT TO EVEN MORE IN ASMUCH AS WE OBSERVE THAT THE ASSESSEE HAS EARNED A HIGHER G.P. RATE ON MORE EXPE NSIVE CLOTHS. FOR EXAMPLE, AT 8.21% ON SALE RATE OF RS. 195/-; A G.P. RATE OF 7.74% AND 6.88% ON SALE RATES OF RS. 84/- AND RS. 80/- PER MTR., WHILE THE LOWER RESULTS OF 5.36% AND 4.88% ARE ON SALES AT RATES OF RS. 41/- AND RS. 14/- PER METER RESPECTIVELY. EVEN SO, THE A O APPLIED A RATE OF 4.75%, I.E., LOWER THAN THE MINIMUM RATE AS FOUND BY HIM, AND WHICH ST ANDS FURTHER PRUNED DOWN BY THE LD CIT(A), YIELDING A G.P. RATE OF 4.68% . ACCORDINGLY WE FIND NO SUBSTANCE IN ASSESSEE'S ASSAILMENT OF THE ADOPTED TRADING RESULTS OF 4.68%, AS AGAINST A DISCLOSED RATE OF 4.47% . THE ARGUMENT THAT THE G.P. RATE HAS BEEN DETERMINED BY HAND PICKING SOME BILLS IS FALSE; WE HAVING ALREADY CLARIFIED THAT THE ACTUAL G.P. RA TE BASED ON THESE BILLS, WHICH WE, IN THE ABSENCE OF ANY CHARGE, PRESUME TO BE AT RANDOM, TO BE AT 6.61% AND, IN FACT, HIGHER - IN THE RANGE OF 7% TO 8%, IF THE ACTUAL, WEIGHTED RESU LTS WERE TO BE ADOPTED . AS REGARDS THE DETAILS BEING NOW SUBMITTED BY THE ASSESSEE, THE SA ME FIRSTLY ARE NOT A PART OF THE RECORD, 4 FOR US TO CONSIDER THE SAME. THE WRITTEN SUBMISSION S ARE FOR PRESENTING THE ARGUMENTS AND NOT THE FACTS, WHICH, UNLESS DISPUTED, ARE TO BE ON THE BASIS OF THE MATERIAL ON RECORD. EVEN SO, THE ZERO OR NO PROFIT NO LOSS RESULT WOULD UNDERSTANDABLY ARISE ONLY IN EXCEPTIONAL TRANSACTIONS, AND CANNOT BE CONSIDERED AS A NORMAL CIRCUMSTANCE. THE SAME, EVEN ITS RATIO HAVING NOT BEEN INDICATED, WOULD NOT HAVE ANY BEARING ON THE TRADING RESULTS AS ESTIMATED, WITH WE HAVING FOUND THE REVENUE TO H AVE ASSESSED THE SAME VERY REASONABLY. THE IMPUGNED ADDITION IS, THEREFORE, UP HELD. WE DECIDE ACCORDINGLY. 5. THE SECOND ISSUE RELATES TO DISALLOWANCE U/S. 36 (1)(III) OF THE ACT EFFECTED BY THE AO IN THE SUMS OF RS. 2,28,350/-, AND WHICH STANDS SINCE RESTRICTED TO RS. 1,07,050/- BY THE LD. CIT(A). THE IMPUGNED DISALLOWANCE IS ON ACC OUNT OF A LOAN OF RS. 21.41 LACS GIVEN BY THE ASSESSEE TO M/S. M.P. FOOD PRODUCTS ON INTEREST-FREE BASIS. IN FACT, THE TOTAL OF SUCH ADVANCES, I.E., GIVEN BY THE ASSESSEE ON IN TEREST-FREE BASIS, IS AT RS. 29.21 LACS. AT THE SAME TIME, THE ASSESSEE HAD INCURRED INTEREST C OST IN THE SUM OF RS. 7.81 LACS, INCLUDING AT RS. 0.62 LACS TO BANK AND AT RS. 6.86 LACS TO PERSONS SPECIFIED U/S 40A(2)(B) OF THE ACT, AT A RATE OF 12% PER ANNUM. THERE WAS T HUS CLEARLY A DIVERSION OF INTEREST BEARING CAPITAL, I.E., ON WHICH THE ASSESSEE HAD IN CURRED INTEREST COST. A DISALLOWANCE IN THE SUM OF RS. 2,28,350/- WAS THEREFORE EFFECTED BY THE AO. THE LD. CIT(A), HOWEVER, FOUND MERIT IN THE CONTENTION THAT THE ASSESSEE HAD ALSO AT THE SAME TIME OBTAINED UNSECURED LOANS AT RS. 38.00 LACS FROM M/S. AGARWAL SAREE SADAN @ 5% PER ANNUM. HE, THEREFORE, RESTRICTED THE DISALLOWANCE AS MADE BY T HE AO TO THE AMOUNT WORKED OUT BY APPLYING THE RATE OF 5% P.A. ON THE SAID DIVERTED F UNDS OF RS. 21.41 LACS. AGGRIEVED, THE ASSESSEE IS IN APPEAL. 6. WE HAVE HEARD THE PARTY BEFORE US, AND PERUSED T HE MATERIAL ON RECORD. THE MATTER IS AGAIN PURELY FACTUAL, I.E., WHETHER THE ASSESSEE 'S BORROWED FUNDS HAVE BEEN USED, I.E., IN PART, FOR PURPOSES OTHER THAN BUSINESS PURPOSES. TH E ASSESSEE RELIES ON THE COMMERCIAL EXPEDIENCY OF ITS LOAN TO M/S. M.P. FOOD PRODUCTS, RELYING ON THE DECISION OF HONB'LE APEX COURT IN THE CASE OF S.A. BUILDERS LTD. V. CIT (APPEALS) & ANR . (2007) 288 ITR 1 5 (SC). OUR FIRST OBSERVATION IN THE MATTER IS THAT T HERE IS NO QUESTION OF APPLICATION OF THE RATIO OR THE PRINCIPLE OF THE SAID DECISION IN THE INSTANT CASE. THE CONCERN, M/S. M.P. FOOD PRODUCTS, IS NOT THE ASSESSEES SISTER CONCERN; THE SAME BEING A PROPRIETARY CONCERN OF SHRI DEVENDRA AGARWAL, THE ASSESSEE'S GRAND-SON, AN D FOR ALL WE KNOW IN A COMPLETELY DIFFERENT LINE OF BUSINESS. AS SUCH, THERE IS NO QU ESTION OF ANY BUSINESS EXPEDIENCY FOR ADVANCING THE SAME TO THE SAID CONCERN, AND THE REL IANCE IN THE SAID CASE LAW IS MISCONCEIVED. THE ASSESSEE WAS IN FACT SPECIFICALLY QUESTIONED IN THE MATTER BY THE AO, WHEREAT IT WAS EXPLAINED THAT THE INTEREST-FREE LOA N HAS BEEN GIVEN AS THE BENEFICIARY IS THE ASSESSEES GRANDSON. THE SAME IS CLEARLY IS NOT A BUSINESS CONSIDERATION. THE ASSESSEE BEFORE US, VIDE HER WRITTEN SUBMISSIONS, STATES THA T SHRI DEVENDRA AGARWAL LOOKS AFTER THE ASSESSEE'S BUSINESS BY GIVING TWO HOURS A DAY. THE ASSESSEE HAS THUS AGAIN SOUGHT TO INTRODUCE A NEW FACT, I.E., NOT BORNE OUT BY THE RE CORD, NOT BEFORE AND, CONSEQUENTLY, NOT EXAMINED BY THE AUTHORITIES BELOW. THE SAME IS EVEN OTHERWISE WITHOUT ANY EVIDENCE OR MATERIAL, SO THAT, FIRSTLY, THERE IS THEREFORE NO S COPE FOR THE SAME BEING ADMITTED AT THIS STAGE, WHEREAT THE RELEVANT FACTS STAND CRYSTALLIZE D AND FINALLY DETERMINED. SECONDLY, EVEN SO, WE ARE NOT PREPARED OR INCLINED TO EXTRAPOLATE THE SAID ARRANGEMENT, I.E., ASSUMING SO, TO IMPUTE THE TIME COST OF THE RELEVANT FUNDS, WHIC H IS WHAT INTEREST ESSENTIALLY IS, TOWARD THE VALUATION OF THE SERVICES RENDERED BY THE ASSES SEES GRANDSON TO HER CONCERN, WHICH WOULD THEREFORE, I.E., FOR THAT REASON, NEED TO BE SUBSTANTIATED. WOULD THAT, ONE MAY ASK, ENTITLE OR AUTHORIZE HIM TO DIVERT THE BUSINESS FUN DS OF THE ASSESSEES CONCERN TO HIS PROPRIETARY CONCERN, AND THAT TOO, FREE OF INTEREST ? BUSINESS IN FAMILY CONCERNS IN INDIA IS NO DOUBT MANAGED BY ONE OR MORE OF THE MEMBERS OF T HE FAMILY, SO THAT THERE IS NOTHING UNUSUAL ABOUT WHAT THE ASSEESSEE SAYS, AND WHICH MA Y WELL BE TRUE. HOWEVER, WHAT IS UNUSUAL AND NOT ACCEPTABLE AS A PROPOSITION IS THE ARGUMENT TO TREAT THE SAID DIVERSION OF FUNDS AS FOR BUSINESS PURPOSES, SO THAT WHERE SOURC ED FROM BORROWED CAPITAL, AS IN THE INSTANT CASE, NO PROPORTIONATE DISALLOWANCE OF INTE REST PAID WOULD ENSUE. THE LD. CIT(A) HAS, IN OUR CONSIDERED VIEW, TAKEN A VERY REASONABL E AND CONSIDERATE VIEW OF THE MATTER, SO THAT HIS ORDER REQUIRES NO INTERFERENCE. UNDER T HE CIRCUMSTANCES, WE UPHOLD THE DISALLOWANCE AS CONFIRMED BY HIM. WE DECIDE ACCORDI NGLY. 6 7.1 THE THIRD GROUND OF THE ASSESSEE IS IN RESPECT OF CONFIRMING THE DISALLOWANCE OUT OF DISCOUNT EXPENSES BY THE LD. CIT(A) AT RS. 5,000 /-. THE SAID EXPENDITURE HAS BEEN EXPLAINED BY THE ASSESSEE AS ARISING ON ACCOUNT OF SHORT RECEIPT FROM THE CUSTOMERS. 7.2 WE HAVE HEARD THE PARTY BEFORE US, AND PERUSED THE MATERIAL ON RECORD. IN VIEW THEREOF, WE FIND NO BASIS IN THE SAID DISALLOWANCE BY THE AO; THE ASSESSEE EXPLAINING THE CLAIM WITH REFERENCE TO ITS ACCOUNTS. THE SAME STAN DS RESTRICTED BY THE LD. CIT(A) ON ADHOC BASIS, WITHOUT FURNISHING ANY REASON FOR ITS CONFIRMATION OR RESTRICTION. WE, THEREFORE, DIRECT FOR ITS DELETION, AND THE ASSESSE E SUCCEEDS ON THIS GROUND. 8. IN THE RESULT, THE ASSESSEE APPEAL IS PAR TLY ALLOWED. SD/- SD/- (R.K. GUPTA) (SANJAY ARORA) JUDICIAL MEMBER ACCOUNTANT MEMBER PLACE: JAIPUR, DATED: JUNE 1 , 2012 *MISHRA COPY TO: 1. SMT. ASHARFI DEVI, ALWAR 2. THE ITO, WARD - 1 (3), ALWAR 3. THE CIT (APPEALS), ALWAR 4. THE CIT CONCERNED 5. THE D.R., I.T.A.T. 6. GUARD FILE (ITA NO. 158/JP/2012) BY ORDER (ASSISTANT REGIST RAR) ITAT, JAIPUR BENCHES