Ms/ Sharma Marble Emporium, Agra V. A.C.I.T.-2, Agra

ITA 182/AGR/2013

• Counselvise Citation: 18220314 RSA 2013
• Duration Of Justice: 1 month(s) 27 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 02-08-2013
• Appeal Filed By: Assessee
• Order Result: Partly Allowed
• Bench Allotted: DB
• Next Hearing Date: 30-07-2013
• Assessment Year: 2007-2008
• Appeal Filed On: 05-06-2013
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Department Lawyers: S D SHARMA
• Assessee Lawyers: NAVIN GARGH
• Keywords: Business income
• Section: 142(1); 133A

Judgement Text

AIN THE INCOME TAX APPELLATE TRIBUNAL, AGRA BENCH, AGRA BEFORE : SHRI BHAVNESH SAINI, JUDICIAL MEMBER AND SHRI A.L. GEHLOT, ACCOUNTANT MEMBER ITA NO. 182/AGRA/2013 ASSTT. YEAR : 2007-08 M/S. SHARMA MARBLE EMPORIUM, VS. A.C.I.T. 2, 28/508, GOKULPURA, AGRA. AGRA. (PAN: AAPFS 1882 B) (APPELLANT) (RESPONDENT) APPELLANT BY : SHRI NAVIN GARGH, ADVOCATE RESPONDENT BY : SHRI S.D. SHARMA, JR. D.R. DATE OF HEARING : 30.07.2013 DATE OF PRONOUNCEMENT OF ORDER : 02 08.2013 ORDER PER BHAVNESH SAINI, J.M.: THIS APPEAL BY THE ASSESSEE IS DIRECTED AGAINST TH E ORDER OF LD. CIT(A)-I, AGRA DATED 29.01.2013 FOR THE ASSESSMENT YEAR 2007- 08 ON THE FOLLOWING GROUND : 1. BECAUSE IN ANY VIEW, THE ADDITION CONFIRMED OF RS.73,846/- ON TURNOVER WORKED OUT AT RS.20,83,515/- ON STOCK E STIMATEDLY WORKED OUT AT RS.4,85,046/-, BY APPLYING ESTIMATED STOCK-T URNOVER RATIO AT 12.17%, AND APPLYING ESTIMATED N.P. RATE OF 7% IS W RONG, ILLEGAL AND HIGHLY EXCESSIVE. 2. BRIEFLY, THE FACTS OF THE CASE ARE THAT THE ASSE SSEE IS A PARTNERSHIP FIRM CARRYING ON THE BUSINESS OF MARBLE GOODS (MAINLY IN SMALL MURTIES). THE ASSESSEE IS ONE OF THE CONCERNS OF SHARMA GROUP, ON WHICH A SURVEY OPERATION U/S. 133A OF THE IT ACT WAS CARRIED OUT ON 21.02.2007 AT SIX CON CERNS AND SEVEN DIFFERENT PLACES ITA NO. 182/AGRA/2013 2 MENTIONED IN THE ASSESSMENT ORDER. THE ASSESSEE COU LD NOT PRODUCE CASH BOOK, LEDGER AND JOURNAL. THE ASSESSEE WAS ISSUED NOTICE U/S. 142(1) FOR FILING OF THE RETURN. THE ASSESSEE FILED RETURN OF INCOME ON 30.0 3.2009 DECLARING TOTAL INCOME OF RS.72,000/- FOR ASSESSMENT YEAR UNDER APPEAL, I.E., 2007-08 WHICH WAS FILED LATE AFTER THE DUE DATE PRESCRIBED U/S. 139(1) OF THE IT ACT. IT WAS FOUND THAT THE RETURN OF INCOME HAS BEEN FILED ON ESTIMATE BASIS. SPECIAL AUDIT OF VARIOUS CONCERNS OF SPECIAL GROUP WAS DIRECTED, BUT THE ASSESSEE DID NO T CO-OPERATE REGARDING SPECIAL AUDIT BECAUSE NO BOOKS OF ACCOUNT WERE PRODUCED. UL TIMATELY, NO SPECIAL AUDIT REPORT HAS BEEN FURNISHED. THE ASSESSEE FILED REPLY AT THE DAK COUNTER. THE AO DISCUSSED ISSUE IN DETAIL ON THE BASIS OF STOCK FOU ND DURING THE COURSE OF SURVEY IN DIFFERENT PREMISES AND WORKED OUT TOTAL STOCK IN TH E HANDS OF THE ASSESSEE IN A SUM OF RS.16,57,126/- BECAUSE THIS STOCK COULD NOT BE S EGREGATED DURING THE COURSE OF SURVEY IN DIFFERENT PREMISES. THE OPENING STOCK WAS FOUND OF RS.82,750/- AS PER ASSESSEE. THEREFORE, THE AO APPLIED STOCK IN TRADE TURNOVER METHOD FOR THE PURPOSE OF ESTIMATING THE TOTAL TURNOVER OF THE ASSESSEE AN D THE PERCENTAGE WAS TAKEN AT 10.27% FOR MAKING NECESSARY CALCULATION AS PER THE RATIO FOR THE ASSESSMENT YEAR 2006-07. THE AO BY APPLYING THIS METHOD CALCULATED TOTAL TURNOVER AT RS.84,70,671/- AND REDUCING THE TURNOVER OF 39 DAYS , TURNOVER OF THE ASSESSEE WAS ESTIMATED AT RS.75,65,586/- UPON WHICH THE NP RATE OF 9% WAS APPLIED AND ADDITION OF RS.6,08,902/- WAS MADE TO THE RETURNED INCOME. THE ADDITION WAS CHALLENGED BEFORE THE LD. CIT(A) AND IT WAS SUBMITT ED THAT SINCE NO BOOKS OF ITA NO. 182/AGRA/2013 3 ACCOUNT WERE AVAILABLE, THEREFORE, THE RETURN WAS F ILED ON ESTIMATE BASIS. THE STOCK TURNOVER RATIO METHOD AND NP RATE OF 9% IS APPLIED ON HYPOTHETICAL MANNER WITHOUT CONSIDERING THE HISTORY OF THE ASSESSEE. TH E STOCK OF THE ASSESSEE IS EXCESSIVE AS FOUND BY THE AO. THERE WAS MEAGER DEPO SIT IN THE BANK ACCOUNT OF THE ASSESSEE IN THE ASSESSMENT YEAR UNDER APPEAL. T HE LD. CIT(A) CONSIDERING THE ISSUE IN DETAIL FOUND CONTENTION OF THE ASSESSEE TO BE CORRECT THAT VALUATION OF THE STOCK AT RS.16,57,126/- WAS NOT CORRECT, WHICH WAS MODIFIED TO RS.4,85,046/-. PART RELIEF WAS GRANTED TO THE ASSESSEE AND THE AO WAS D IRECTED TO TAKE STOCK OF THE ASSESSEE FOUND DURING THE COURSE OF SURVEY OPERATIO N AT RS.4,85,046/- INSTEAD OF RS.16,57,126/- AS CONSIDERED IN THE ASSESSMENT ORDE R. THE LD. CIT(A) FURTHER TAKEN UP THE ISSUE OF ESTIMATION OF TURNOVER AND FOUND TH AT THE AO HAS APPLIED STOCK TURNOVER RATIO OF ASSESSMENT YEAR 2006-07 FOR ESTIM ATION OF THE TURNOVER FOR THE ASSESSMENT YEAR UNDER CONSIDERATION AND THE SAME WA S COMPUTED AT 10.27%. THE ASSESSEE SUBMITTED BEFORE THE LD. CIT(A) THAT STOCK TURNOVER RATIO FOR THE ASSESSMENT YEAR 2004-05 IS 14.08% AND IF THIS STOCK TURNOVER IS APPLIED, THE ESTIMATED TURNOVER WILL BE FURTHER REDUCED. IT WAS POINTED OUT THAT THE TOTAL DEPOSIT IN THE BANK ACCOUNT OF THE ASSESSEE DURING THE ASSE SSMENT YEAR UNDER APPEAL WAS ONLY RS.3,35,000/- AND THE AO HIMSELF IN THE CASE O F SISTER CONCERN, M/S. SHARMA HANDLOOM INDUSTRIES FOR THE ASSESSMENT YEAR 2007-08 UNDER THE SIMILAR CIRCUMSTANCES IN THE ABSENCE OF BOOKS OF ACCOUNT, H AS ADOPTED TOTAL DEPOSITS AS TURNOVER OF THE ASSESSEE. THEREFORE, THE AO SHOULD NOT HAVE CONSIDERED DIFFERENT ITA NO. 182/AGRA/2013 4 METHOD IN THE CASE OF ASSESSEE. FURTHER, NO INCRIMI NATING DOCUMENTS OR MATERIAL WAS FOUND WHICH COULD SUGGEST ANY INCREASE IN THE T URNOVER OF THE ASSESSEE. THEREFORE, ESTIMATE OF TURNOVER BY THE AO IS WHOLLY UNJUSTIFIED AND WITHOUT CONSIDERING THE PAST HISTORY OF THE ASSESSEE. IN TH E PRECEDING ASSESSMENT YEAR 2006- 07, TOTAL TURNOVER OF THE ASSESSEE WAS RS.8,25,756/ -. THEREFORE, THE TOTAL TURNOVER ESTIMATED BY THE AO IS WHOLLY UNJUSTIFIED. THE LD. CIT(A) ACCEPTED THE CONTENTION OF THE ASSESSEE AFTER FOLLOWING AVERAGE RATIO OF TH E LAST TWO YEARS FOR THE PURPOSE OF COMPUTING TURNOVER OF THE ASSESSEE. THE LD. CIT(A) IN THE ABSENCE OF BOOKS OF ACCOUNT HELD THAT INCOME HAS TO ESTIMATE ON A REASO NABLE BASIS AND BY TAKING AVERAGE OF TWO YEARS, THE STOCK TURNOVER RATIO WAS TAKEN AT 12.17%. THE LD. CIT(A) WITH REGARD TO NET PROFIT RATE FOUND THAT THE ASSES SEE HAS ADOPTED 9% AND IN THE PRECEDING ASSESSMENT YEAR 2006-07, NET PROFIT RATE WAS 6.37%. THEREFORE, 9% NP RATE APPLIED BY THE AO IS ON HIGHER SIDE. THEREFORE , CONSIDERING THE PAST HISTORY OF THE ASSESSEE, THE NP RATE OF 7% SHOULD HAVE BEEN AD OPTED WHICH WOULD BE QUITE REASONABLE. NP RATE OF 5% AS PER SECTION 44AF WAS N OT APPLIED BECAUSE THE NP RATE SHOWN BY THE ASSESSEE IN EARLIER YEAR WAS MORE THAN THE PRESUMPTIVE RATE. THE LD. CIT(A), THEREFORE, APPLYING THE STOCK TURNOVER RATI O AT 12.17% ON THE STOCK OF RS.4,85,046/- CALCULATED THE TOTAL TURNOVER OF 326 DAYS AT RS.20,83,515/- AND APPLYING PROFIT RATE OF 7%, REDUCED THE ADDITION TO RS.73,846/- INSTEAD OF RS.6,08,902/- MADE BY THE AO. THE APPEAL OF THE ASS ESSEE WAS ACCORDINGLY, PARTLY ALLOWED. ITA NO. 182/AGRA/2013 5 3. THE ASSESSEE IS IN APPEAL AND IT IS STATED THAT NO DEPARTMENTAL APPEAL IS PREFERRED. THE LD. COUNSEL FOR THE ASSESSEE REITERA TED THE SUBMISSIONS MADE BEFORE THE AUTHORITIES BELOW AND SUBMITTED THAT WHEN THE P REVIOUS HISTORY OF THE ASSESSEE IS CONSIDERED FOR APPLYING THE NP RATE OF 7%, PREVI OUS HISTORY SHOULD ALSO BE CONSIDERED FOR THE PURPOSE OF CALCULATING THE TURNO VER OF THE ASSESSEE. THE ESTIMATION OF TURNOVER ON THE BASIS OF STOCK TURNOV ER RATIO METHOD IS HYPOTHETICAL AND WITHOUT ANY BASIS. HE HAS SUBMITTED THAT THE ES TIMATE OF TURNOVER IS EXCESSIVE, EXORBITANT AND UNREASONABLE. ON THE OTHER HAND, THE LD. DR RELIED UPON THE ORDERS OF THE AUTHORITIES BELOW. 4. WE HAVE CONSIDERED THE RIVAL SUBMISSIONS AND PER USED THE FINDINGS OF AUTHORITIES BELOW. THE FACTS AS NOTED ABOVE ARE NOT IN DISPUTE. HONBLE PRIVY COUNCIL IN THE CASE OF LAXMI NARAIN BADRI DAS, 5 IT R 170 HELD THAT ESTIMATE OF INCOME SHOULD BE FAIR. THE AO SHOULD NOT ACT DISHON ESTLY OR VINDICTIVELY OR CAPRICIOUSLY. OWN KNOWLEDGE, PREVIOUS HISTORY, LOCA L KNOWLEDGE AND CIRCUMSTANCES OF THE ASSESSEE HAVE TO BE CONSIDERED TO ARRIVE AT FAIR AND PROPER ESTIMATE OF INCOME. HONBLE DELHI HIGH COURT IN THE CASE OF AERO CLUB, 336 ITR 400 HELD THAT ASSESSMENT SHOULD BE ON REASONABLE BA SIS. PROFIT MARGIN DECLARED BY THE ASSESSEE CANNOT BE REJECTED ARBITRARILY. CONSID ERING THE FACTS OF THE CASE IN THE LIGHT OF ABOVE DECISIONS, WE ARE OF THE VIEW THAT T HE ADDITION IS STILL ON EXCESSIVE ITA NO. 182/AGRA/2013 6 SIDE. THE LD. CIT(A) HELD IN THE APPELLATE ORDER TH AT IN THE ABSENCE OF THE REGULAR BOOKS OF ACCOUNT, INCOME HAS TO BE ESTIMATED ON REA SONABLE BASIS. THE ASSESSEE HAS PLEADED BEFORE THE LD. CIT(A) THAT THE STOCK TAKEN BY THE SURVEY PARTY IN THE HANDS OF THE ASSESSEE ON THE DATE OF SURVEY WAS EXCESSIVE LY CALCULATED. CLAIM OF THE ASSESSEE HAS BEEN FOUND TO BE CORRECT. THE ASSESSEE FURTHER PLEADED THAT DURING THE YEAR UNDER CONSIDERATION, THE ASSESSEE HAS MADE BAN K DEPOSITS OF RS.3,35,000/- ONLY, WHICH WAS CONSIDERED AS TURNOVER IN THE CASE OF SISTER CONCERN, M/S. SHARMA HANDLOOM INDUSTRIES BY THE SAME AO. THEREFORE, THE AO SHOULD NOT HAVE DEVIATED FROM THE STAND TAKEN IN THE CASE OF SISTER CONCERN. THE ASSESSEE ALSO PLEADED THAT THE PREVIOUS HISTORY OF THE ASSESSEE SHOULD HAVE BE EN CONSIDERED. THE LD. CIT(A) CONSIDERING THE PREVIOUS HISTORY OF THE ASSESSEE, P ARTICULARLY IN PRECEDING ASSESSMENT YEAR 2006-07 WHERE NP RATE OF 6.37% HAS BEEN ACCEPTED, DIRECTED TO APPLY THE NP RATE OF 7%. HISTORY OF THE ASSESSEE IN EARLIER YEARS IS REPRODUCED AT PAGE 27 OF THE APPELLATE ORDER AND THE SAME READS A S UNDER : A.Y. SALE GROSS PROFIT % G.P. NET PROFIT % N.P. 2006-07 825756 181141 22.00 52621 6.37 2005-06 820693 180919 22.04 47919 5.84 2004-05 754419 166962 22.13 38033 5.04 2003-04 602977 133399 22.12 34700 5.75 FROM THE FINDING OF FACTS RECORDED BY THE LD. CIT(A ), IT IS CLEAR THAT THE NP RATE OF 7% WAS APPLIED BY THE LD. CIT(A) ON THE BASIS OF TH E PREVIOUS HISTORY EXPLAINED BY THE ASSESSEE AND THE SAME WAS FOUND QUITE REASONABL E. THE ASSESSEE ALSO PLEADED ITA NO. 182/AGRA/2013 7 BEFORE THE LD. CIT(A) THAT DURING THE COURSE OF SUR VEY NO INCRIMINATING DOCUMENT OR MATERIAL WAS FOUND WHICH COULD SUGGEST THAT THER E IS ANY INCREASE IN THE TURNOVER. RATHER, THE AO HIMSELF HAS ACCEPTED THAT THE BUSINESS IS SLOWED DOWN DURING THE YEAR FOR WHICH VARIOUS REASONS HAVE BEEN GIVEN. THE CONTENTION OF THE ASSESSEE WAS ACCEPTED BY THE AO BECAUSE TOTAL TURNO VER FOR THE PURPOSE OF ESTIMATING BUSINESS INCOME OF THE ASSESSEE WAS COMP UTED FOR 326 DAYS INSTEAD OF 365 DAYS. ON THE BASIS OF THESE FINDINGS OF FACT AN D NO ADVERSE MATERIAL FOUND AGAINST THE ASSESSEE, WOULD CLEARLY SHOW THAT NO EV IDENCE WAS FOUND DURING THE COURSE OF SURVEY THAT THE TURNOVER OF THE ASSESSEE HAS INCREASED SUBSTANTIALLY AS AGAINST THE TURNOVER DECLARED IN THE EARLIER YEARS. THEREFORE, THE AUTHORITIES BELOW INSTEAD OF CONSIDERING THE HISTORY OF THE ASSESSEE FOR THE PURPOSE OF ESTIMATING THE TURNOVER OF THE ASSESSEE SHOULD NOT HAVE APPLIED TH E STOCK TURNOVER RATIO METHOD FOR THE PURPOSE OF COMPUTING TURNOVER OF THE ASSESS EE. METHOD APPLIED BY THE AUTHORITIES BELOW WAS NOT PROPER IN THE FACTS AND C IRCUMSTANCES OF THE CASE AND IN ABSENCE OF ANY ADVERSE MATERIAL ON RECORD AGAINST T HE ASSESSEE, THE PROPER AND REASONABLE COURSE SHOULD HAVE BEEN TO ESTIMATE THE TURNOVER OF THE ASSESSEE CONSIDERING THE HISTORY OF THE ASSESSEE WHICH WAS F OUND REASONABLE BASIS FOR APPLYING NP RATE OF 7%. HISTORY OF THE ASSESSEE AS NOTED ABOVE CLEARLY SUGGESTS THAT IN NONE OF THE EARLIER YEARS TURNOVER OF THE A SSESSEE HAVE EXCEEDED RS.8.25 LACS. THEREFORE, EVEN IF TURNOVER OF THE ASSESSEE I S TAKEN AND ESTIMATED ON A VERY HIGH SIDE AT RS.15,00,000/-, IN THE ABSENCE OF PROD UCTION OF BOOKS OF ACCOUNT AND ITA NO. 182/AGRA/2013 8 OTHER MATERIAL, THE SAME WOULD BE VERY REASONABLE A ND PROPER AGAINST ESTIMATED TURNOVER AT RS.20,83,515/- ADOPTED BY THE LD. CIT(A ). IN VIEW OF THE ABOVE DISCUSSION AND CONSIDERING THE PAST HISTORY OF THE ASSESSEE, THE TURNOVER OF THE ASSESSEE IS ESTIMATED AT RS.15 LACS UPON WHICH 7% P ROFIT RATE AS PER ORDER OF THE LD. CIT(A), IF APPLIED, THE PROFIT WOULD BE ESTIMATED A T RS.1,05,000/-. THE ASSESSEE HAS ALREADY DECLARED INCOME OF RS.72,000/- ON ESTIMATE BASIS AND AFTER GIVING BENEFIT OF THE SAME, RESULTANT ADDITION WOULD BE MAINTAINED AT RS.33,000/-. WE ACCORDINGLY MODIFY THE ORDERS OF THE AUTHORITIES BE LOW AND RESTRICT THE ADDITION TO RS.33,000/- AS AGAINST ADDITION MADE BY THE LD. CIT (A) AT RS.73,846/-. RESULTANTLY, THE ASSESSEE IS GRANTED RELIEF IN A SUM OF RS.40,84 6/-. 5. IN THE RESULT, THE APPEAL OF THE ASSESSEE IS PAR TLY ALLOWED. ORDER PRONOUNCED IN THE OPEN COURT. SD/- SD/- (A.L. GEHLOT) (BHAVNESH SAINI) ACCOUNTANT MEMBER JUDICIAL MEMBER *AKS/- COPY OF THE ORDER FORWARDED TO : 1. APPELLANT 2. RESPONDENT 3. CIT(A), CONCERNED BY ORDER 4. CIT, CONCERNED 5. DR, ITAT, AGRA 6. GUARD FILE SR. PRIVATE SECRETARY TRUE COPY