Income Tax Officer, Srinagar V. M/s Northern Metal Industrial Estate, Srinagar

ITA 188/ASR/2015

• Counselvise Citation: [2016] 131 COUNSELVISE.COM (IT) 9524 (ITAT-AMRITSAR)
• Duration Of Justice: 1 year(s) 6 month(s) 15 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 28-10-2016
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: DB
• Next Hearing Date: 19-10-2016
• Assessment Year: 2010-2011
• Appeal Filed On: 13-04-2015
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Section: 144

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL AMRITSAR BENCH : AMRITSAR. BEFORE SH. T. S. KAPOOR, ACCOUNTANT MEMBER AND SH. N.K. CHOUDHRY, JUDICIAL MEMBER ITA NO.188(ASR)/2015 ASSESSMENT YEAR:2010-11 PAN : AADFN2701Q INCOME TAX OFFICER, VS. M/S. NORTHERN MEAL INDUSTR IAL WARD 3(2), SRINAGAR. ESTATE BHAGAT BARZULLA, SRI NAGAR. (APPELLANT) (RESPONDENT) APPELLANT BY: SH.RAHUL DHAWAN, DR RESPONDENT BY: WRITTEN SUBMISSIONS DATE OF HEARING: 19/10/2016 DATE OF PRONOUNCEMENT: 28/10/2016 ORDER PER T.S. KAPOOR, AM: THIS IS AN APPEAL FILED BY THE REVENUE AGAINST THE ORDER OF THE LD. CIT(A), DATED 29.01.2015 RELATING TO ASSESSMENT YEA R 2010-11. THE REVENUE HAS TAKEN FOLLOWING GROUNDS OF APPEAL: 1. WHETHER THE DECISION OF THE LD. CIT(A), JAMMU I S ACCEPTABLE ON MERITS WHILE DIRECTING TO APPLY A NET PROFIT RAT E OF 3% ON GROSS RECEIPTS INSTEAD OF 5% APPLIED IN THE ASSESSM ENT ORDER AS THE ASSESSEE FIRM FAILED TO PRODUCE ANY BILL/VOUCHER/DOCUMENTS/INFORMATION TO SUBSTANTIATE EXPENDITURE OF THE HUGE EXPENSES AND THE AO REJECTE D THE BOOKS OF ACCOUNTS U/S 145(3) OF THE I.T. ACT, 1961. 2. WHETHER THE DECISION OF THE LD. CIT(A), JAMMU IS ACCEPTABLE ON MERITS WHILE DIRECTING TO APPLY A NET PROFIT RAT E OF 3% ON GROSS RECEIPTS INSTEAD OF 5% AS THE ASSESSEE FIRM H AS AGAIN FAILED TO PRODUCE ANY BILL /VOUCHER/DOCUMENTS/INFOR MATION ITA NO.188/ASR/2015 A.Y. 2010-11 2 TO SUBSTANTIATE EXPENDITURE OF THE HUGE EXPENSES DU RING THE REMAND PROCEEDINGS BY THE ASSESSING OFFICER. 3. WHETHER THE DECISION OF THE LD. CIT(A), JAMMU IS ACCEPTABLE ON MERITS WHILE ALLOWING RELIEF ON ACCOUNT OF ADDIT ION OF VARIOUS EXPENSES AS THESE VARIOUS INCOMES HAVE BEEN DECLARED BY THE ASSESSEE FIRM ITSELF IN ITS PROFIT AND LOSS ACCOUNT. 4. WHETHER THE DECISION OF THE LD. CIT(A), JAMMU IS ACCEPTABLE ON MERITS WHILE ALLOWING RELIEF ON ACCOUNT OF ADDIT ION OF VARIOUS EXPENSES AS THE ASSESSEE FAILED TO JUSTIFY DURING THE REMAND PROCEEDINGS BY THE AO WHY THE ADDITION WAS N OT MADE ON ACCOUNT OF VARIOUS INCOMES DECLARED BY THE ASSESSEE FIRM IN ITS PROFIT AND LOSS ACCOUNT. 2. THE BRIEF FACTS OF THE CASE, AS NOTED IN THE ASS ESSMENT ORDER ARE THAT THE ASSESSEE IS DEALING IN MANUFACTURE OF TRAN SFORMERS AND POLES AND DURING THE YEAR, HAD DECLARED A NET PROFIT AT R S.39,79,855/- AGAINST THE GROSS TURNOVER OF RS.13,52,91,375/-. THE CASE W AS SELECTED FOR SCRUTINY. DURING THE ASSESSMENT PROCEEDINGS, THE AS SESSEE WAS ISSUED CERTAIN NOTICES, BUT THE ASSESSEE DID NOT APPEAR DE SPITE VARIOUS OPPORTUNITIES GIVEN BY THE AO, AS NOTED BY HIM AT P AGE 2 OF HIS ORDER. THEREFORE, IN THE ABSENCE OF NON-COOPERATION BY THE ASSESSEE AND IN THE ABSENCE OF ANY DOCUMENTS/BILLS AND VOUCHERS, THE BO OKS OF ACCOUNT OF THE ASSESSEE WERE REJECTED UNDER SECTION 145(3) OF THE ACT AND THE AO ESTIMATED THE INCOME OF THE ASSESSEE BY APPLYING A NET PROFIT RATE OF 5%. THE AO FURTHER MADE AN ADDITION ON ACCOUNT OF HIRE CHARGES, INSURANCE CLAIM, INTEREST EARNED, PRICE VARIATION AND REBATES AND DISCOUNT ETC., WHICH THE ASSESSEE HAD ALREADY DECLARED IN ITS PROF IT & LOSS ACCOUNT. ITA NO.188/ASR/2015 A.Y. 2010-11 3 3. AGGRIEVED, THE ASSESSEE FILED APPEAL BEFORE THE LD. CIT(A) AND ALSO FILED A COMPARATIVE CHART OF NET PROFIT RATIO EARN ED BY HIM IN THE PREVIOUS THREE ASSESSMENT YEARS. IT WAS ARGUED THAT THE ASSESSEE HAD DECLARED A HIGHER NET PROFIT RATIO OF 2.94% AS COMP ARED TO EARLIER YEARS AND THEREFORE, IT WAS SUBMITTED THAT THE SAME MAY B E APPLIED INSTEAD OF 5% APPLIED BY THE AO. IN RESPECT OF OTHER ADDITIONS OF RS.9,24,713/- ON ACCOUNT OF VARIOUS INCOMES DECLARED BY THE ASSESSE E, IT WAS SUBMITTED THAT ONCE THE NET PROFIT RATE IS APPLIED, NO OTHER SEPARATE ADDITIONS WERE WARRANTED. THE LD. CIT(A) AFTER OBTAINING THE REMAN D REPORT FROM AO REDUCED THE NET PROFIT RATE TO 3% AND IN RESPECT OF OTHER INCOMES DECLARED BY THE ASSESSEE IN THE PROFIT & LOSS ACCOU NT, THE LD. CIT(A) HELD THE RECEIPTS OF RS.3,38,449/- AS RELATING TO THE BU SINESS OF THE ASSESSEE AND THEREFORE, ALLOWED THE RELIEF TO THIS EXTENT. F OR THE REMAINING AMOUNT OF RS.5,86,264/-, HE UPHELD THE ADDITION. 4. NOW, AGGRIEVED, THE ASSESSEE IS IN APPEAL BEFORE US. 5. NONE WAS PRESENT ON BEHALF OF THE ASSESSEE. HOWE VER, THE ASSESSEE HAD FILED WRITTEN SUBMISSIONS 11.08.2016 AND HAD AL SO REQUESTED THAT ITS CASE MAY BE DECIDED ON THE BASIS OF THESE WRITTEN S UBMISSIONS. THEREFORE, THE LD. DR WAS DIRECTED TO PROCEED WITH HIS ARGUMENTS. 6. THE LD. DR, AT THE OUTSET, SUBMITTED THAT THE AC TION OF THE LD. CIT(A) IN GIVING RELIEF TO THE ASSESSEE FROM 5% TO 3% IS NOT JUSTIFIED, AS ITA NO.188/ASR/2015 A.Y. 2010-11 4 THE ASSESSEE DID NOT SUBMIT ANY DOCUMENT BEFORE TH E AO AND THE LD. CIT(A) ALSO. NOTHING WAS SUBMITTED EXCEPT THE STATE MENT OF NET PROFIT RATIO EARNED BY THE ASSSSEE IN EARLIER THREE YEARS . HE SUBMITTED THAT THE LD. CIT(A) ACCEPTED THE CONTENTION OF THE ASSESSEE AND APPLIED 3% NET PROFIT RATE INSTEAD OF 5% APPLIED BY THE AO. THE LD . DR PLEADED THAT BY APPLYING NET PROFIT RATIO ON THE BASIS OF PAST YEAR S NET PROFIT RATIO, THE ASSESSEES WILL BE ENCOURAGED NOT TO MAINTAIN BOOKS OF ACCOUNT AND WILL INSIST ON APPLYING NET PROFIT RATE, AS IN THE EARLI ER YEARS WITHOUT GETTING VERIFIED ANY EXPENSES OR INCOME AND THE WHOLE PURP OSE OF MAINTAINING BOOKS OF ACCOUNT WILL BE DEFEATED. HE, THEREFORE, S TRONGLY ARGUED THAT THE LD. CIT(A) WAS NOT JUSTIFIED. AS REGARDS THE OTHER RELIEF ALLOWED BY THE LD. CIT(A), HE PLACED RELIANCE ON THE ORDER OF THE ASSE SSING OFFICER. 7. WE HAVE HEARD THE RIVAL CONTENTIONS AND HAVE GON E THROUGH THE MATERIAL AVAILABLE ON RECORD AS WELL AS THE WRITTEN SUBMISSIONS FILED BY THE ASSESSEE. WE FIND THAT DESPITE VARIOUS OPPORTUN ITIES GRANTED, THE ASSESSEE DID NOT CO-OPERATE WITH THE AO AND THEREFO RE, THE AO WAS COMPELLED TO MAKE ASSESSMENT UNDER SECTION 144 OF T HE ACT, AS BEST JUDGMENT ASSESSMENT AND IN THE BEST JUDGMENT ASSESS MENT, HE APPLIED NET PROFIT RATE OF 5%, WHEREAS THE LD. CIT(A) ON T HE BASIS OF THE PAST RESULTS OF THE ASSESSEE, HELD THE NET PROFIT RATE D ECLARED BY THE ASSESSEE TO THE TUNE OF RS.2.94% AS REASONABLE AND THEREFORE , APPLIED THE NET PROFIT RATE OF 3%. WE HAVE NO HESITATION IN HOLDING THAT IN CASE OF NON- ITA NO.188/ASR/2015 A.Y. 2010-11 5 PRODUCTION OF BOOKS OF ACCOUNT, THE BEST COURSE AV AILABLE TO THE AO TO ESTIMATE THE INCOME OF THE ASSESSEES ON THE BASIS OF COMPARABLE CASES AND ON THE BASIS OF PAST HISTORY OF THE ASSESSEE. T HE PAST HISTORY OF THE ASSESSEE ALWAYS GIVES BETTER INDICATION OF REASONAB LE PROFITS EARNED BY THE ASSESSEE, AS THE PAST HISTORY IS BASED ON BEST COMPARABLE CASE AVAILABLE TO THE AO. HOWEVER, WE ARE OF THE VIEW T HAT THIS PRACTICE OF ALLOWING RELIEF TO THE ASSESSEE ON THE BASIS OF PAS T HISTORY OF THE CASE GIVES INCENTIVE TO THE PERSON, WHO DO NOT MAINTAI N PROPER BOOKS OF ACCOUNT. THERE SHOULD BE SOME DETERRENT FOR THE PE RSON WHO DO NOT MAINTAIN BOOKS OF ACCOUNT AND WHO DO NOT COOPERATE IN THE PROCEEDINGS. IN THE PRESENT CASE, WE FIND THAT THE ASSESSEE DID NOT PRODUCE ANY BILLS/VOUCHERS BEFORE THE AO AS WELL AS THE LD. CI T(A) AND SIMPLY FILED THE STATEMENT OF PROFITS EARNED BY HIM IN PREVIOUS THREE YEARS. IN OUR CONSIDERED OPINION, THE LD. CIT(A) SHOULD HAVE CONS IDERED SOME SORT OF DETERRENT WHILE ACCEPTING THE ARGUMENTS OF THE ASS ESSEE. THEREFORE, WE ARE OF THE VIEW THAT 1% ADDITIONAL NET PROFIT RATE SHOULD HAVE BEEN APPLIED AND IN OUR CONSIDERED OPINION 4% NET PROFI T RATE IS A REASONABLE INDICATION FOR ESTIMATION OF INCOME KEEPING IN VIE W THE PAST HISTORY OF THE ASSESSEE AS WELL AS THE DETERRENT IMPOSED IN N OT PRODUCING THE BOOKS OF ACCOUNT. IN VIEW OF THE ABOVE DISCUSSION, GROUND NOS. 1 & 2 OF THE APPEAL ARE PARTLY ALLOWED. ITA NO.188/ASR/2015 A.Y. 2010-11 6 8. AS REGARDS GROUND NOS. 3 & 4, WE FIND THAT THE L D. CIT(A) HAS ALLOWED THE RELIEF ONLY FOR THE INCOME CREDITED IN THE PROFIT & LOSS ACCOUNT WHICH WAS DIRECTLY CONNECTED WITH THE BUSINESS OF T HE ASSESSEE-COMPANY AND HAS UPHELD THE ADDITION WITH INCOMES NOT CONN ECTED WITH BUSINESS. WE ARE OF THE CONSIDERED OPINION THAT ONES THE NET PROFIT IS APPLIED, NO SEPARATE ADDITIONS ARE WARRANTED. THE LD. CIT(A) HA S ALREADY UPHELD THE ADDITION OF INCOMES WHICH WAS NOT DIRECTLY CONNECTE D WITH THE BUSINESS OF ASSESSEE AND WE DO NOT FIND ANY INFIRMITY IN THE ORDER OF THE LD. CIT(A) TO THIS EXTENT. THEREFORE, GROUND NOS. 3 & 4 ARE R EJECTED. 9. IN VIEW OF THE ABOVE, APPEAL FILED BY THE REVEN UE IS PARTLY ALLOWED. ORDER PRONOUNCED IN THE OPEN COURT ON 28/10/20 16. SD/- SD/- (M.K. CHOUDHRY) (T.S . KAPOOR) JUDICIAL MEMBER ACCOUNTANT MEMBER /SKR/ DATED: 28/10/2016 COPY OF THE ORDER FORWARDED TO: 1. THE ASSESSEE:M/S. NORHERN METAL INDUSTRIAL ESTATE B HAGAT BARZULLA, SRINAGAR. 2. THE ITO, WARD 3(2), SRINAGAR. 3. THE CIT(A), JAMMU 4. THE CIT, JAMMU 5. THE SR DR, ITAT, AMRITSAR. TRUE COPY BY ORDER INCOME TAX APPELLATE TRIBUNAL, AMRITSAR BENCH: AMRITSAR.