Ankit Garg, Lucknow V. ACIT, Lucknow

ITA 179/LKW/2011

• Counselvise Citation: [2011] 140 COUNSELVISE.COM (IT) 48349 (ITAT-LUCKNOW)
• Duration Of Justice: 2 month(s) 17 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 29-06-2011
• Appeal Filed By: Assessee
• Order Result: Dismissed
• Bench Allotted: B
• Assessment Year: 2006-2007
• Appeal Filed On: 11-04-2011
• Result in Favour of: Revenue
• Court: TRIBUNAL
• Department Lawyers: P K B AJAJ
• Assessee Lawyers: V B BHARGAVA
• Keywords: Business income
• Section: 145

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL, B - BENCH, LUCKNOW. BEFORE SHRI H.L.KARWA, HON'BLE VICE PRESIDENT AND SHRI N.K.SAINI, ACCOUNTANT MEMBER I.T.A.NO.179(LKW.)/2011 A.Y.: 2006-07 SHRI ANKIT GARG, VS. THE ACIT, RANGE IV, PROP. OF M/S. RADHEY PHARMA, LUCKNOW. C-1953, MINI LIG, RAJAJIPURAM, LUCKNOW. PAN ALPG1993F (APPELLANT) (RESPONDENT) APPELLANT BY : SHRI V.B.BHARGAVA, C.A. RESPONDENT BY : SHRI P.K.BAJAJ, SR.D.R. O R D E R PER H.L.KARWA, VICE PRESIDENT THIS APPEAL FILED BY THE ASSESSEE IS DIRECTED AGAINST THE ORDER OF THE LD.CIT(A)-II, LUCKNOW DATED 21.12.2010 RELATING TO THE ASSESSMENT YEAR 2006-07. 2. IN THIS APPEAL, THE ASSESSEE HAS TAKEN THE FOLLOWING GROUNDS : 1. BECAUSE THE LEARNED CIT(APPEALS) WAS UNJUSTIFIED IN CONFIRMING THE ADDITION OF RS.50,000 DUE TO GP RATE SOLELY ON THE ALE OF NORMAT SYRUP. 2. BECAUSE THE CIT(APPEALS) HAS NOT GIVEN DETAILED FINDINGS IN THE APPELLATE ORDER AS SUCH, APPELLATE ORDER CAN BE SAID TO BE NON-SPEAKING ORDER, THEREFORE, THE APPELLATE ORDER DESERVES TO BE QUASHED. 2 3. BECAUSE THE ORDER OF THE CIT(APPEALS) IS AGAINST FACTS AND LAW. 4. BECAUSE THE APPELLANT BE ALLOWED TO RAISE ANY OTHER GROUND OF APPEAL DURING THE COURSE OF APPELLATE PROCEEDINGS. 3. BRIEFLY STATED, THE FACTS OF THE CASE ARE THAT THE ASSESSEE IS ENGAGED IN THE BUSINESS OF RETAIL SALE OF MEDICINES AS PROPRIETOR OF M/S RAHDEY PHARMA. DURING THE ASSESSMENT YEAR UNDER CONSIDERATION, THE ASSESSEE MADE TOTAL SALES AT RS.2,84,48,316. ON THIS AMOUNT, THE ASSESSEE HAS DECLARED GROSS PROFIT OF RS.6,79,588 RESULTING IN GROSS PROFIT RATE OF 2.39%. AS PER THE AO IN THE TAX AUDIT REPORT, QUANTITATIVE DETAILS OF PRINCIPAL ITEMS OF GOODS TRADED HAVE NOT BEEN GIVEN, THE REASON BEING THAT THE ITEMS OF STOCK BEING NUMEROUS, THEREFORE, IT WAS NOT POSSIBLE TO GIVE QUANTITATIVE DETAILS. THE AO REQUIRED THE ASSESSEE TO SHOW CAUSE AS TO WHY IN ABSENCE OF QUANTITATIVE DETAILS OF ITEMS TRADED, HOW TRADE RESULTS CAN BE VERIFIED. IN RESPONSE TO THIS QUERY, THE ASSESSEE SUBMITTED THAT HE DEALS IN ABOUT 700 ITEMS OF VARIOUS MEDICINES OF DIFFERENT SIZES. ON ACCOUNT OF ENORMOUS NUMBER OF TRADED ITEMS, QUANTITATIVE DETAILS COULD NOT BE PREPARED. HOWEVER, AT THE CLOSE OF THE YEAR, THE ASSESSEE CARRIED OUT VALUATION OF STOCK PHYSICALLY. THE ASSESSEE ALSO SUBMITTED THE COPY OF STOCK INVENTORY AS ON 31.3.2008. AFTER CONSIDERING THE REPLY FILED BY THE ASSESSEE, THE AO DID NOT FIND ANY FORCE IN THE SAME. THE AO HAS CATEGORICALLY OBSERVED THAT IN ABSENCE OF QUANTITATIVE DETAILS OF ITEMS TRADED, THE ASSESSEES TRADING RESULTS COULD NOT BE VERIFIED. THE AO ALSO REQUIRED THE ASSESSEE TO PRODUCE SALE AND PURCHASE VOUCHERS FROM PERUSAL OF WHICH THE AO NOTICED THAT NORMAT SYRUP OF BATCH NO.5051 WAS PURCHASED ON 30.7.2005 AT RS.14,WHEREAS SOLD ON 30.7.2005 AT RS.15.50. HOWEVER, NORMAT SYRUP OF SAME BATCH NO. I.E. 5051 WAS SOLD ON 5.8.2005 FOR RS.14.70 RESULTING IN AVERAGE SALE PRICE OF RS.15.1, GIVING GROSS 3 PROFIT RATE OF MORE THAN 7%. ON THE BASIS OF THE ABOVE, THE AO REJECTED THE BOOKS OF ACCOUNT OF THE ASSESSEE UNDER SECTION 145 OF THE INCOME-TAX ACT,1961 (IN SHORT THE ACT) AND GROSS PROFIT WAS COMPUTED ON GROSS PROFIT RATE OF 4% ON ESTIMATED BASIS RESULTING IN GROSS PROFIT OF RS.11,37,933. HENCE, THE ADDITION OF RS.4,58,345 (RS.11,37,933 RS.6,79,588) WAS MADE TO THE INCOME OF THE ASSESSEE. 4. AGGRIEVED BY THE ORDER OF THE AO, THE ASSESSEE CARRIED THE MATTER IN APPEAL BEFORE THE LD.CIT(A). BEFORE THE LD.CIT(A), THE ASSESSEE REITERATED THE SUBMISSIONS MADE BEFORE THE AO. FURTHER, THE ASSESSEE MADE WRITTEN SUBMISSIONS BEFORE THE LD.CIT(A), WHICH READ AS UNDER : 3.1 HOWEVER, THE APPELLANT HAS DISPUTED THE ADDITION ON THE FOLLOWING REASONS: I. IN THE MEDICINE TRADE ALL PURCHASES AND SALES ARE MADE BY MENTIONING THE BATCH NO. OF THE MEDICINE. THE ASSESSING OFFICER HAS NOT CORRECTLY CONSIDERED THE BATCH NO. IN RESPECT OF SALE MADE ON 30.07.2005 @ RS.15.50. THE SAID SALE WAS IN RESPECT OF BATCH NO. 5024, VIDE BILL NO. M01893 @ RS.15.50 PER BOTTLE. THE ASSESSING OFFICER HAS ALSO REFERRED ABOUT SALE MADE ON 5.8.2005 @ RS.14.70 IN RESPECT OF BATCH NO.5051 WHICH IS CORRECT; II. THAT ON THE BASIS OF TWO SALES, THE ASSESSING OFFICER HAS COME TO THE CONCLUSION THAT AVERAGE SALE PRICE OF NORMET SYRUP COMES TO RS.15.1 RESULTING IN G.P. RATE OF MORE THAN 7%. THE CONCLUSION OF THE ASSESSING OFFICER IS TOTALLY UNJUSTIFIED, AS IN WHOLESALE TRADE OF MEDICINE WHICH IS BASED UPON VOLUME THE G.P. RATE VARIES BETWEEN 2% TO 3%; III. IN THE CASE OF APPELLANT, THE GROSS PROFIT PERCENTAGE ON TOTAL PURCHASE AND SALE OF NORMET SYRUP COMES TO 1.95%. AGAINST THIS THE GROSS PROFIT % IN THE CASE OF APPELLANT'S BUSINESS IN THE NAME OF SRI RADHEY PHARMA IS 2.39% AS EVIDENT FROM THE FINANCIAL STATEMENT AND TAX AUDIT REPORT; 4 IV. THE ASSESSING OFFICER HAS NOT JUSTIFIED THE DEFECTS IN THE BOOKS OF ACCOUNT OF THE APPELLANT WHICH PROMPTED HER TO REJECT THE BOOKS OF ACCOUNT. IT WAS JUST ON THE BASIS OF TWO SALE INVOICES THAT THE ASSESSING OFFICER CAME TO THE CONCLUSION AND REJECTED THE BOOKS OF ACCOUNT. FURTHER, THE ASSESSING OFFICER HAS ALSO NOT FOUND ANY DEFECT IN THE METHOD OF ACCOUNTING FOLLOWED BY THE APPELLANT, V. HENCE, THE ACTION OF THE ASSESSING OFFICER FOR REJECTING THE BOOKS OF ACCOUNT OF THE APPELLANT IS TOTALLY UNJUSTIFIED AND THE ADDITION MADE BY THE ASSESSING OFFICER DESERVES TO BE DELETED. 5. THE LD.CIT(A), AFTER CONSIDERING THE ASSESSEES SUBMISSIONS, RESTRICTED THE ADDITION TO RS.50,000 AND HENCE THE ASSESSEE IS IN APPEAL BEFORE THE TRIBUNAL. 6. BEFORE US, SHRI V.B.BHARGAVA, C.A., LD. COUNSEL FOR THE ASSESSEE VEHEMENTLY ARGUED THAT THE ASSESSEE, FOR THE FIST TIME, FILED THE RETURN OF INCOME ON 30.10.2006 DECLARING INCOME FROM CARRYING OF WHOLESALE BUSINESS OF MEDICINES AS PROPRIETOR OF M/S.SHRI RADHEY PHARMA. THE ASSESSEE HAD TOTAL SALES OF RS.2,84,48,316 RESULTING IN GROSS PROFIT RATE OF 2.39% ON GROSS PROFIT OF RS.6,79,588. AGAINST THIS, THE ASSESSING OFFICER HAD ENHANCED GROSS PROFIT AT THE RATE OF 4% BY REJECTING THE BOOKS OF ACCOUNT U/S 145, WHICH RESULTED IN GROSS PROFIT OF RS.11,37,933. ON THE BASIS OF THE INCREASE IN GROSS PROFIT RATE, THE ADDITION OF RS.4,58,345 WAS MADE. THE AO, SOLELY BASED ON ONE ITEM OF NORMAT SYRUP AS AGAINST 700 ITEMS DEALT BY THE ASSESSEE, HAD COME TO THE CONCLUSION OF ENHANCEMENT OF GROSS PROFIT RATE. AGAINST THIS, THE LD.CIT(A) ACCEPTED THAT THE GROSS PROFIT RATE OF 4% OF THE TOTAL TURNOVER WAS FOUND TO BE NOT SUPPORTED BY THE COGENT MATERIALS AND ALSO WAS VERY EXCESSIVE AND HENCE, ALLOWED RELIEF OF RS.4,08,345. 5 HOWEVER, THE LD.CIT(A) RESTRICTED THE ADDITION TO RS.50,000 WITHOUT GIVING ANY SPECIFIC FINDING OF DOING SO. HE, THEREFORE, SUBMITTED THAT THE ADDITION OF RS.50,000 MAY BE DELETED. 7. SHRI P.K.BAJAJ, LD.SR.D.R. STRONGLY SUPPORTED THE ORDER OF THE LD.CIT(A). 8. WE HAVE CONSIDERED THE RIVAL SUBMISSIONS AND GONE THE MATERIALS AVAILABLE ON RECORD. THE LD.CIT(A) SUSTAINED THE ADDITION OF RS.50,000 OBSERVING AS UNDER : 3.2 I HAVE CONSIDERED THE SUBMISSIONS OF THE APPELLANT AND FACTS OF CASE. IT IS EVIDENT THAT WHILE MAKING THE TEST CHECK OF SALE, DIFFERENCE WAS FOUND BY THE 'ASSESSING OFFICER IN THE SALE PRICES OF THE NORMET SYRUP. THE APPELLANT HAS NOT ABLE TO CONTRADICT THIS FACT. THE APPELLANT HAS FILED A STATEMENT WHERE HE IS TRYING TO JUSTIFY HIS CONTENTION THAT THE MARGIN OF GROSS PROFIT RATIO IN THE SALE OF NORMET SYRUP RANGES BETWEEN 1.07% TO 2.62%, AND THE AVERAGE OF GROSS PROFIT RATIO COMES TO 1.95%. WHEREAS, THE GROSS PROFIT OF TOTAL BUSINESS IS SHOWN BY THE APPELLANT AT 2.39%. IT IS TRUE THAT THE ASSESSING OFFICER HAS ADOPTED THE GROSS PROFIT RATIO 4% OF THE TOTAL TURNOVER WHICH IS NOT FOUND SUPPORTED BY THE COGENT MATERIALS AND ALSO ON VERY EXCESSIVE. THEREFORE, AFTER CONSIDERING THE TOTALITY OF FACTS, THE ADDITION IS RESTRICTED TO RS.50,000. THE APPELLANT GETS RELIEF OF RS.4,08,345. THE GROUNDS OF APPEAL ARE DISPOSED OFF ACCORDINGLY. 8.1 IN OUR CONSIDERED VIEW, THE LD.CIT(A) HAS PASSED A WELL-REASONED ORDER AFTER APPRECIATING THE FACTS OF THE CASE AS WELL AS SETTLED LEGAL POSITION. IT IS SEEN THAT THE ASSESSEE HAS NOT MAINTAINED QUANTITATIVE DETAILS OF ITEMS TRADED. THUS, THE AO HAS CORRECTLY OBSERVED THAT THE ASSESSEES TRADING RESULTS CANNOT BE VERIFIED. THE AO ALSO NOTICED THAT NORMAT SYRUP OF BATCH NO.5051 WAS PURCHASED ON 30.7.2005 AT RS.14, WHEREAS THE SAME WAS SOLD 6 ON 30.7.2005 AT RS.15.50. HOWEVER, NORMAT SYRUP OF SAME BATCH NO. I.E. 5051 WAS SOLD ON 5.8.2005 FOR RS.14.70 RESULTING IN AVERAGE SALE PRICE OF RS.15.1 GIVING GROSS PROFIT RATE OF MORE THAN 7%. IN THIS REGARD, THE ASSESSEE COULD NOT GIVE SATISFACTORY EXPLANATION BEFORE THE LOWER AUTHORITIES. AT THIS STAGE ALSO, NO CONVINCING EXPLANATION HAS BEEN GIVEN. CONSIDERING THE ENTIRE FACTS AND CIRCUMSTANCES OF THE PRESENT CASE, IN OUR OPINION, THE AO WAS JUSTIFIED IN INVOKING THE PROVISIONS OF SECTION 145 OF THE ACT. IN OUR VIEW, THE LD.CIT(A) HAS CORRECTLY OBSERVED THAT THERE WAS NO JUSTIFICATION IN ADOPTING GROSS PROFIT RATE OF 4% ON ESTIMATE BASIS. THE GROSS PROFIT RATE ADOPTED BY THE AO WAS NOT SUPPORTED BY ANY COMPARABLE CASE/INSTANCE. IN OUR VIEW, THE ADDITION SUSTAINED BY THE LD.CIT(A) SEEMS TO BE REASONABLE AND CORRECT KEEPING IN VIEW THE RELEVANT FACTS OF THE PRESENT CASE. IN OUR OPINION, THERE IS NO SUBSTANCE IN THE SUBMISSION OF SHRI V.B.BHARGAVA, C.A., LD. COUNSEL FOR THE ASSESSEE THAT THE ADDITION OF RS.50,000 SUSTAINED BY THE LD.CIT(A) BE DELETED. IN OUR CONSIDERED VIEW, THE ADDITION OF RS.50,000 RESTRICTED BY THE LD.CIT(A) DESERVES TO BE SUSTAINED AND THEREFORE, WE UPHOLD THE ORDER OF THE LD.CIT(A) AND DISMISS THE APPEAL OF THE ASSESSEE. 9. IN THE RESULT, THE APPEAL IS DISMISSED. THE ORDER PRONOUNCED IN THE OPEN COURT ON 29.6.2011. SD. SD. (N.K.SAINI) (H.L.KARWA) ACCOUNTANT MEMBER VICE PRESIDENT JUNE 29 ,2011. COPY TO THE : 1. APPELLANT 2. RESPONDENT 3. CIT(A) (4) CIT 5.DR. A.R.,ITAT, LUCKNOW. SRIVASTAVA. 7