Income Tax Officer, Ward-1(2), Tirupathi V. Sri Y Jaya Prakash, Tirupathi

ITA 1693/HYD/2012

• Counselvise Citation: [2013] 120 COUNSELVISE.COM (IT) 2776 (ITAT-HYDERABAD)
• Duration Of Justice: 5 month(s) 20 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 10-05-2013
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: A
• Assessment Year: 2009-2010
• Appeal Filed On: 20-11-2012
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: M H NAIK
• Keywords: Business income
• Section: 145

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL HYDERABAD BENCH A, HYDERABAD BEFORE SHRI CHANDRA POOJARI, ACCOUNTANT MEMBER AND SMT. ASHA VIJAYARAGHAVAN, JUDICIAL MEMBER ITA NO. 1693/HYD/2012 ASSESSMENT YEAR: 2009-10 INCOME TAX OFFICER, APPELLANT WARD 1(2), TIRUPATHI. VS. SHRI Y. JAYA PRAKASH, RESPONDENT TIRUPATHI. (PAN AAAPY1575K) APPELLANT BY : SHRI M.H. NAIK RESPONDENT BY : NONE DATE OF HEARING : 04/03/2013 DATE OF PRONOUNCEMENT : 10/05/ 2013 ORDER PER ASHA VIJAYARAGHAVAN, J.M.: THIS APPEAL PREFERRED BY THE ASSESSEE IS DIRECTED A GAINST THE ORDER OF CIT(A), GUNTUR, DATED 11/09/2012 FOR THE A SSESSMENT YEAR 2009-10. 2. BRIEFLY THE FACTS OF THE CASE ARE THAT THE ASSES SEE IS CARRYING ON THE BUSINESS OF SUPPLY OF FRUITS AND VEGETABLES. HE FILED THE RETURN OF INCOME FOR THE AY 2009-10 ON 30/09/2009, DECLARING TOTAL INCOME OF RS. 3,82,980/-. DURING THE COURSE O F ASSESSMENT PROCEEDINGS, THE ASSESSEE WAS REQUESTED TO PRODUCE THE BOOKS OF ACCOUNT, BILLS AND VOUCHERS IN SUPPORT OF THE EXPEN DITURE CLAIMED, BANK ACCOUNT STATEMENTS, INVOICES FOR PURCHASE OF F RUITS ETC. THE AR OF THE ASSESSEE SUBMITTED PART OF INFORMATION BU T HAD NOT PRODUCED THE BOOKS OF A/C, BILLS AND VOUCHERS FOR T HE EXPENDITURE CLAIMED AND LEASE AGREEMENTS ENTERED INTO BY THE AS SESSEE IN SUPPORT OF AGRICULTURAL INCOME. WHILE COMPLETING TH E ASSESSMENT, 2 ITA NO. 1693/HYD/12 SRI Y. JAYA PRAKASH THE AO HAD OPINED THAT SINCE THE ASSESSEE HAD NOT S UBMITTED THE BOOKS OF ACCOUNT, THE AO HAD REJECTED THE BOOK RESU LTS U/S 145(3) OF THE IT ACT AND HAD ESTIMATED THE INCOME @ 8% ON THE NET PROFIT ON TOTAL SALES OF FRUITS OF RS. 2,83,15, 050/-, WHICH COMES TO RS. 22,65,204/- AND COMMISSION RECEIPTS OF RS. 5,64,800/- AND HIRE RECEIPTS OF RS. 65,280/- AND TH E SAME WERE BROUGHT TO TAX AS THESE RECEIPTS DO NOT HAVE CORREL ATION WITH THE TRADE IN FRUIT & VEGETABLES. 3. AGGRIEVED THE ASSESSEE CARRIED THE MATTER IN APP EAL BEFORE THE CIT(A) ON THE GROUND THAT THE ASSESSING OFFICER WAS NOT JUSTIFIED IN ESTIMATION @8% OF THE TURNOVER AND THE ASSESSING OFFICER WAS ALSO NOT JUSTIFIED IN MAKING ADDITION O F GROSS COMMISSION AND HIRE RECEIPTS WITHOUT ALLOWING ANY E XPENDITURE INCURRED FOR THE SAME. 4. BEFORE THE CIT(A), THE AR OF THE ASSESSEE FILED WRITTEN SUBMISSIONS. THE ASSESSEE'S NATURE OF BUSINESS IS SELLING FRUIT S AND VEGETABLES, BUYING FROM THE FARMERS DIRECTLY. THE S UPPLY CHAIN INCLUDES BUYING FROM REMOTE AREAS AT ODD TIME S, TRANSPORTED IN TRACTORS IN SMALLER UNITS, POOLED FR OM VARIOUS PLACES AND DISPATCHED IN BULK TO VARIOUS PLACES. TH E CUSTOMARY PRACTICE PREDOMINANTLY PRESENT IS CASH AN D CARRY BASIS, WITHOUT ANY FORMAL BILLS. WE SUBMIT THAT WE HAVE ADMITTED NET PROFIT OF RS.38 2980/-, WHICH COMES TO ABOUT 2% OF GROSS TURNOVER, WHICH IS HIGHLY REASONABLE IN THIS LINE OF FRUITS BUSINESS. WE SUBM IT THAT FRUITS BEING PERISHABLE IN NATURE, THE ASSESSEE MOS T OF THE TIMES HAVE TO DISPOSE OFF THE GOODS ON LOWER RATES AND ALSO SOME TIMES HAS TO THROWAWAY DUE TO ITS PERISHABLE N ATURE. WE SUBMIT THAT THE FRUITS BUSINESS IS HIGHLY COMPET ITIVE IN NATURE AND BASING ON THE PREVAILING MARKET RATES, T HE ASSESSEE HAS TO SELL THE GOODS WITH LOWER MARGINS. SOME TIMES, DUE TO CROP FAILURE, WE HAVE TO LOOSE THE AD VANCES GIVEN TO THE FARMERS, WHICH CAUSE LOT OF HARDSHIP T O THE 3 ITA NO. 1693/HYD/12 SRI Y. JAYA PRAKASH ASSESSEE. THE ABOVE THINGS WERE BROUGHT TO THE NOTI CE OF THE ASSESSING OFFICER DURING THE COURSE OF ASSESSME NT PROCEEDINGS, BUT HOWEVER, THE AO HAS NOT TAKEN INTO CONSIDERATION THE ARGUMENTS PUT FORTH BY US AND HAS ESTIMATED THE INCOME @ 8%, WHICH IS HIGHLY UNJUSTIF IED AND UNREASONABLE. WE SUBMIT THAT THE AO HAS NOT GIVEN ANY CREDENCE / WEIGHT AGE TO THE DOCUMENTARY EVIDENCE. THE ASSESSEE HAS T O CORRELATE THE MODE OF TRANSPORT AND THE TRANSPORTER FIXES THE RATES AT THE ELEVENTH HOUR AND BASED ON THE AVAILAB ILITY / DEMAND, THEY CHARGE HIGHER RATES. THE ACTIVITY BEIN G PREDOMINANTLY LABOUR ORIENTED, EXPENDITURE LIKE FOO D DURING LOADING AND UNLOADING AND ALSO EXPENDITURE APPEALIN G TO THEIR HABITS HAS TO BE INCURRED. WE SUBMIT THAT WAS TAGE DUE TO DEGRADING, ROTTEN, QUANTITY DISCOUNTS, FREEBIES, TAKE HOME GOODWILL GESTURES, FLUCTUATIONS IN RATES ETC., WOULD CUMULATIVELY EAT AWAY MARGINS. IN CASE OF PACKING MATERIALS, MOST OF THE TIME, GUNNIES ETC., ARE PURC HASED FROM UNORGANIZED DEALERS, FARMERS AND AT TIMES REIM BURSED TO HAMALIES. IN SPITE OF DETAILING THE AO, REGARDING THE PRACTIC ALITIES, MODALITIES AND INTRICACIES IN THIS LINE OF ACTIVITY AND ALSO ITS IMPACT ON PROFIT, THE AO HAD PROCEEDED IN ISSUING A FORMAL NOTICE, REQUIRING THE PRODUCTION OF BILL AND VOUCHERS. THE ASSESSEE COULD NOT HEED TO THE CONTENTS OF NOTICE S ERVED BY THE AO. INSTEAD OF TAKING A PRACTICAL VIEW OF THE S ITUATION, THE PROCEEDINGS RESULTED IN HUGE DEMAND WHICH BY AN Y STRETCH OF IMAGINATION THE APPELLANT IS NOT IN A PO SITION TO BEAR.' 5. AFTER CONSIDERING THE SUBMISSIONS OF THE ASSESSE E, THE CIT(A) OBSERVED THAT FROM THE PERUSAL OF RECORDS IT WAS REVEALED THAT THE ASSESSEE IS A TRADER IN FRUITS AND VEGETAB LES AND IN ADDITION RECEIVES COMMISSION ON ACTING AS AGENT IN MANGO PURCHASES AND ALSO IN THE PROCESS OF TRANSPORTING M ANGOES FROM THE PLACE OF THE PURCHASERS, THE ASSESSEE GETS COMM ISSION ON ARRANGING TRACTORS AS AN AGENT. HE FURTHER OBSERVED THAT IT IS THE CONTENTION OF THE ASSESSEE THAT THE AO HAS SUBJECTE D GROSS RECEIPTS OF COMMISSION AND HIRE CHARGES, WITHOUT CO NSIDERING THE AMOUNTS WHICH ARE PAID TO VARIOUS INTERMEDIARIES. 4 ITA NO. 1693/HYD/12 SRI Y. JAYA PRAKASH 6. THE CIT(A) HELD THAT THERE IS A MERIT IN THE SUB MISSIONS OF THE ASSESSEE AND THAT ENDS OF JUSTICE WOULD BE ACHI EVED IF 50% OF SUCH RECEIPTS ARE TREATED AS EXPENSES AND DIRECTED THE AO ACCORDINGLY. 7. THE NEXT ISSUE TO BE CONSIDERED WAS WITH RESPECT TO THE PERCENTAGE OF MARGIN TAKEN BY THE A.O. AT 8%. THE C IT(A) OBSERVED THAT IT IS A FACT THAT THERE ARE RISKS IN PROCURING, STORING, MARKETING AND ADVANCING MONEY TO FARMERS. FURTHER, THERE IS GLUT IN THE MARKET AT TIMES AND TAKING INT O CONSIDERATION THE PERISHABLE NATURE OF FRUITS AND VEGETABLES. THE CIT(A) ALSO OPINED THAT PROPER VOUCHERS CANNOT BE MAINTAINED WH ERE THE CASH PAYMENT IS THE NORM RATHER THAN AN EXCEPTION. 8. THE CIT(A) CONCLUDED THAT THE RATE ADOPTED AT 8% IS HIGH AND TAKING THE LIMITATIONS AS DISCUSSED IN EARLIER PARA, THE CIT(A) DIRECTED THE A.O. TO ADOPT THE PERCENTAGE OF MARGIN AT 4% INSTEAD OF 8% AS ADOPTED BY THE A.O. EARLIER IN HIS ASSESSMENT ORDER. 9. AGGRIEVED BY THE ORDER OF THE CIT(A), THE REVENU E FILED THE PRESENT APPEAL BEFORE THE TRIBUNAL AND RAISED THE F OLLOWING GROUNDS : 1) THE LEARNED CIT(A) ERRED BOTH ON FACTS AND LA W IN PARTLY ALLOWING THE APPEAL OF THE ASSESSEE. 2) THE ASSESSEE COULD NOT PRODUCE BOOKS OF ACCOUNTS NOR DID HE GIVE QUANTITATIVE DETAILS OF PURCHASES, SALES, S TOCK IN TRADE, WHICH RESULTED IN REJECTION OF BOOK RESULTS U/S 145 OF THE IT ACT BY THE AO AND ESTIMATED INCOME @ 8% OF THE SALES ADMITTED. IN COURSE OF APPEAL PROCEEDINGS TOO THE ASSESSEE DID NOT PRODUCE BOOKS OF ACCOUNTS NOR DID HE PRODUCE QUANTITATIVE DETAILS OF PURCHASES, SALES, S TOCK IN TRADE AS COULD BE SEEN FROM THE APPELLATE ORDER. TH E CIT(A) HAD REDUCED THE ESTIMATED INCOME OF THE ASSESSEE BY 50% 5 ITA NO. 1693/HYD/12 SRI Y. JAYA PRAKASH WITHOUT ANY RELEVANT MATERIAL IN SUPPORT OF HIS CON CLUSIONS. THE EXERCISE OF DISCRETION BY THE CIT(A) IS ARBITRA RY AND CAPRICIOUS. THE CITCA) IS NOT SUPPOSED TO SUBSTITUT E THE DISCRETION EXERCISED BY THE AO. UNLESS A FINDING IS RECORDED THAT THE METHOD ADOPTED BY THE AO IS ARBITRARY AND IT RESULTS IN COMPUTATION OF EXCESS INCOME[IN THE CASE OF PRAG ATI ENGINEERING CORPORATION VS INCOME TAX OFFICER, ORDE R OF ITAT, LUCKNOW BENCH THIRD MEMBER BENCH DATED 1.4.05 .2012 REPORTED IN (2012) 77 DTR (IUCKNOW) (TRIBUNAL) 121]. 3) THE LEARNED C!T(A) ALLOWED 50% OF RECEIPTS OF CO MMISSION OF RS.5,64,8001- TOWARDS EXPENSES I.E., RS.2,82,400J-. THE ASSESSEE HAD NOT BIFURCATED PURCHASES/SALES OF FRUI TS IN THE TRADING ACCOUNT I.E., PURCHASES / SALES ATTRIBUTABL E TO TRADING BUSINESS AND PURCHASES/ SALES ATTRIBUTABLE TO COMMI SSION BUSINESS AND CORRESPONDING GROSS PROFIT IN RESPECT OF EACH BUSINESS. ALLOWANCE OF 50% TOWARDS EXPENDITURE BY C IT(A) BOTH FOR TRADING AND ALSO COMMISSION BUSINESS IS IR RATIONAL, SINCE THE EXPENDITURE FOR COMMISSION BUSINESS WOULD BE MINIMAL, SUCH AS TELEPHONE EXPENSES ONLY. 4) THE LEARNED C!T(A) ALLOWED 50% OF THE RECEIPTS O F RS. 65,280/- TOWARDS EXPENSES I.E., RS.32,6401-. IT MAY BE SEEN FROM THE P&L A/C FOR THE ENDING ON 31.3.2009 THAT HIRE RECEIPTS WERE RECORDED AFTER THE GROSS PROFIT HAD B EEN ARRIVED AT, WHICH MEANS THE HIRE RECEIPTS WERE NET OF ALL EXPENSES. THE C!T(A) ERRED IN ALLOWING FURTHER EXPE NDITURE OF 50% OF THE RECEIPTS. 10. NONE APPEARED ON BEHALF OF THE RESPONDENT-ASSES SEE AT THE TIME OF HEARING BEFORE US. HOWEVER, WE PROCEED TO D ECIDE THE APPEAL AFTER HEARING THE LEARNED DR AND ON MERITS. 11. WE FIND THAT THE ASSESSEE'S NATURE OF BUSINESS IS SELLING FRUITS AND VEGETABLES AND BUYING FROM THE FARMERS D IRECTLY AND TRANSPORTED IN TRACTORS IN SMALLER UNITS, POOLED FR OM VARIOUS PLACES AND DISPATCHED IN BULK TO VARIOUS PLACES. WE CONFIRM THE ORDER OF THE CIT(A) IN ADOPTING THE PERCENTAGE OF M ARGIN AT 4% FOR THE FOLLOWING REASONS : 6 ITA NO. 1693/HYD/12 SRI Y. JAYA PRAKASH 1. THE CUSTOMARY PRACTICE PREDOMINANTLY PRESENT IS CASH AND CARRY BASIS, WITHOUT ANY FORMAL BILLS AND THEREFORE, IT IS ONLY A MATTER OF ESTIMATE WHICH CA N BE ADOPTED. THE ASSESSEE HAS ADOPTED NET PROFIT WHICH COMES TO ABOUT 2% OF GROSS TURNOVER. HOWEVER, IT SEEMS TO BE VERY LOW AND 4% CAN BE A REASONABLE AMOUNT OF PROFIT IN SUCH TRADE. 2. THE FRUITS BEING PERISHABLE IN NATURE, THE ASSES SEE AT MOST OF THE TIMES HAVE TO DISPOSE OFF THE GOODS ON LOWER RATES AND ALSO SOME TIMES HAS TO THROWAWAY. HENCE, THE PROFIT MARGIN CANNOT BE AS HIGH AS 8%. 3. THE FRUITS BUSINESS IS HIGHLY COMPETITIVE IN NAT URE AND BASED ON THE PREVAILING MARKET RATES, THE ASSESSEE HAS TO SELL THE GOODS WITH LOWER MARGINS. HENCE, THE CI T(A) HOLDING THE PERCENTAGE OF MARGIN AT 4% IS JUSTIFIED. 4. SOME TIMES, DUE TO CROP FAILURE, THE ASSESSEE HA S TO LOOSE THE ADVANCES GIVEN TO THE FARMERS, WHICH REDU CES THE PROFIT OF THE ASSESSEE. 5. HENCE, THE ASSESSEE HAS TO CORRELATE THE MODE OF TRANSPORT AND THE TRANSPORTER FIXES THE RATES AT TH E ELEVENTH HOUR BASED ON THE AVAILABILITY / DEMAND, T HEY CHARGE HIGHER RATES. THE ACTIVITY BEING PREDOMINANT LY LABOUR ORIENTED, EXPENDITURE LIKE FOOD DURING LOADI NG AND UNLOADING AND ALSO EXPENDITURE APPEALING TO THE IR HABITS HAS TO BE INCURRED. HENCE, EXPENDITURE HAS T O BE NECESSARILY INCURRED. 6. WASTAGE DUE TO DEGRADING, ROTTEN, QUANTITY DISCO UNTS, FREEBIES, TAKE HOME GOODWILL GESTURES, FLUCTUATIONS IN 7 ITA NO. 1693/HYD/12 SRI Y. JAYA PRAKASH RATES ETC., WOULD CUMULATIVELY EAT AWAY MARGINS. IN CASE OF PACKING MATERIALS, MOST OF THE TIME, GUNNIE S ETC., ARE PURCHASED FROM UNORGANIZED DEALERS, FARME RS AND AT TIMES REIMBURSED TO HAMALIES. 7. TO CONCLUDE, PRODUCTION OF BILLS AND VOUCHERS IS HIGHLY IMPRACTICAL IN THIS LINE OF ACTIVITY AND THE FACTOR S WHICH HAVE AN IMPACT ON THE PROFIT HAS BEEN DISCUSSED IN POINT NO.1 TO 6 ABOVE. HENCE, IN OUR OPINION, THE PERCENTAGE OF PROFIT IS TO BE TREATED AT 4% IS REASONABLE AND HENCE, WE CONFIRM THE ORDER OF THE CIT(A). 12. IN THE RESULT, APPEAL OF THE REVENUE IS DISMIS SED. PRONOUNCED IN THE OPEN COURT ON 10 TH MAY, 2013. SD/- SD/- (CHANDRA POOJARI) (ASHA VIJAYARAGH AVAN) ACCOUNTANT MEMBER JUDICIAL MEMBE R HYDERABAD, DATED: 10 TH MAY, 2013. KV COPY TO:- 1) ITO, WARD 1(2), AAYAKAR BHAVAN, KT ROAD, TIRUPATH I 517 507. 2) SRI Y. JAYA PRAKASH, 16, SRI NAGAR COLONY, 1 ST CROSS, TUDS PLOTS, ROYAL NAGAR, TIRUPATHI. 3) THE CIT (A), GUNTUR 4) THE CIT, TIRUPATHI 5) THE DEPARTMENTAL REPRESENTATIVE, I.T.A.T., HYDE RABAD.