Kamal Suneja Prop, Karnal V. ITO, Panipat

ITA 2086/DEL/2011

• Counselvise Citation: [2011] 134 COUNSELVISE.COM (IT) 3654 (ITAT-DELHI)
• Duration Of Justice: 2 month(s) 2 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 30-06-2011
• Appeal Filed By: Assessee
• Order Result: Partly Allowed
• Bench Allotted: D
• Assessment Year: 2007-2008
• Appeal Filed On: 27-04-2011
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Department Lawyers: KISHORE B
• Assessee Lawyers: K C ANEJA
• Section: 143(3); 142(1)

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL DELHI BENCH `D: NEW DELHI BEFORE SHRI G.E. VEERABHADRAPPA, VICE PRESIDENT AND SHRI C.L.SETHI, JUDICIAL MEMBER. I.T. A. NO.2086/DEL/2011 ASSESSMENT YEAR: 2007-08 KAMAL SUNEJA, PROP. INCOME-TAX OFFICER, M/S. KAMAL FEEDS, VS. WARD-I, PANIPAT. OUTSIDE JUNDLA GATE, KARNAL. PAN: ANGPS6205A (APPELLANT) (RESPONDENT) APPELLANT BY: SHRI K.C. ANEJA, ADVOCATE . RESPONDENT BY: SHRI KISHORE B., SR. DR. O R D E R PER C.L. SETHI, JUDICIAL MEMBER: THE PRESENT APPEAL HAS BEEN FILED BY THE ASSESSEE A GAINST THE ORDER DATED 17.01.2011 PASSED BY THE LEARNED COMMISSIONER OF INCOME-TAX (APPEALS) IN THE MATTER OF AN ASSESSMENT MADE BY TH E ASSESSING OFFICER UNDER SEC. 143(3) OF THE INCOME-TAX ACT, 1961 (THE ACT) FOR THE ASSESSMENT YEAR 2007-08. 2. GROUND NOS.1, 2 & 3 ARE DIRECTED AGAINST THE CIT (A)S ORDER IN CONFIRMING THE ADDITION TO THE EXTENT OF RS.3,94,34 2/- OUT OF THE TOTAL 2 ADDITION OF RS.5,40,570/- MADE BY THE ASSESSING OFF ICER UNDER THE HEAD TRADING ADDITION. 3. THE ASSESSEE IS AN INDIVIDUAL AND IN THE BUSINES S OF MANUFACTURING AND DEALING IN POULTRY FEEDS, FOOD GRAINS ETC. UNDER TH E NAME AND STYLE OF M/S. KAMAL FEEDS. THE ASSESSEE FILED HIS RETURN OF INCO ME ON 19.10.2007 DECLARING INCOME OF RS.4,01,644/-. THE CASE WAS SE LECTED FOR REGULAR ASSESSMENT TO BE MADE UNDER SEC. 143(3) OF THE ACT. THE AO HAD ISSUED NOTICE UNDER SEC. 143(2) AND 142(1) OF THE ACT, WHI CH WERE COMPLIED WITH BY THE ASSESSEE. INFORMATIONS OR DETAILS CALLED FO R BY THE AO WERE FURNISHED BY THE ASSESSEE AND WERE ALSO EXAMINED ON TEST CHEC K BASIS WITH REFERENCE TO BOOKS OF ACCOUNTS AND VOUCHERS OF EXPENSES PRODUCED BY THE ASSESSEE. DURING THE COURSE OF ASSESSMENT PROCEEDINGS, THE AS SESSEE WAS ASKED BY THE AO TO JUSTIFY THE VALUE OF OPENING AND CLOSING STOC K WITH REFERENCE TO THE QUANTITY-WISE FIGURES OF OPENING AND CLOSING STOCK. THE AO ASKED THE ASSESSEE TO PRODUCE QUANTITATIVE DETAILS ITEM-WISE, VALUE-WISE AND DATE-WISE PURCHASES AS WELL AS ITEM-WISE SALE OF GOODS. IT W AS SUBMITTED BY THE ASSESSEE BEFORE THE AO THAT THE ASSESSEE HAD ALREAD Y SUBMITTED DETAILS OF OPENING AND CLOSING STOCK VIDE REPLY DATED 16.01.20 09. THE ASSESSEE MAINTAINED BEFORE THE AO THAT IT WAS NOT PRACTICALL Y POSSIBLE ON THE PART OF THE ASSESSEE TO MAINTAIN QUANTITATIVE DETAILS OF IT EMS AS THERE WERE VARIOUS 3 ITEMS WHICH WERE PURCHASED BY THE ASSESSEE AND THEN MIXED OR BLENDED FOR PREPARING POULTRY FEEDS. IT WAS ALSO STATED BY THE ASSESSEE BEFORE THE AO THAT RATIO OF PRODUCT MIX OF DIFFERENT COMPONENTS V ARIES IN EACH CASE. THE REPLY OF THE ASSESSEE WAS NOT FOUND TO BE ACCEPTABL E TO THE AO. THE AO THEN ASKED THE ASSESSEE TO EXPLAIN AS TO WHY THE GP RATE OF EARLIER YEAR DECLARED AT 4.23% SHOULD NOT BE ADOPTED FOR THE CUR RENT YEAR ALSO AS THE ASSESSEE FAILED TO PRODUCE THE ITEM-WISE QUANTITATI VE DETAILS OF OPENING STOCK, PURCHASES, SALES AND CLOSING STOCK. THE ASS ESSEE THEN AGAIN SUBMITTED A REPLY ON 23.07.2009 STATING THAT THE POULTRY FEED S BECOME A SALEABLE PRODUCT AFTER MIXING AND BLENDING OF NUMBER OF ITEM S SUCH AS BAJRA, MAIZE, FEED SUPPLEMENT OF DIFFERENT TYPES SUCH AS VITAMINS , KHAL, DOC OF VARIOUS KINDS, RICE NAKKU MARBLE POWDER, SALT ETC. AND THU S, IN THIS LINE OF BUSINESS, IT WAS PRACTICALLY IMPOSSIBLE TO MAINTAIN QUANTITAT IVE DETAILS OF ALL ITEMS PURCHASED BY THE ASSESSEE AND SOLD DURING THE YEAR. THE AO THEN COMPARED THE GROSS PROFIT RATIO AND NP RATIO OF DIFFERENT AS SESSMENT YEARS BEGINNING FROM ASSESSMENT YEAR 2004-05 TO 2007-08. THE AO TH EN APPLIED THE GROSS PROFIT OF IMMEDIATE PRECEDING YEAR SHOWN AT 4.23%, AND MADE THE ADDITION OF RS.5,40,570/-. 4. BEING AGGRIEVED, THE ASSESSEE PREFERRED AN APPEA L BEFORE THE LEARNED CIT(A). 4 5. AFTER CONSIDERING THE AOS ORDER AND ASSESSEES SUBMISSIONS, THE LEARNED CIT(A) HELD THE GP RATE AT 3.9% TO BE REASO NABLE AS AGAINST 3.06% DECLARED BY THE ASSESSEE AND 4.23% ADOPTED BY THE A O. THE LEARNED CIT(A) CONFIRMED THE ADDITION TO THE EXTENT OF RS.3,94,342 /-. 6. HENCE, THE ASSESSEE IS IN FURTHER APPEAL BEFORE US AGAINST THE LEARNED CIT(A)S ORDER IN CONFIRMING THE ADDITION TO THE EX TENT OF RS.3,94,342/-. 7. WE HAVE HEARD BOTH THE PARTIES AND HAVE CAREFULL Y GONE THROUGH THE ORDERS OF THE AUTHORITIES BELOW. IN THIS CASE, WE FIND THAT THE ASSESSEE HAD PRODUCED ALL THE BOOKS OF ACCOUNTS AND OTHER DETAIL S BEFORE THE AO. THE ONLY SHORTCOMING POINTED OUT BY THE ASSESSING OFFIC ER WAS THAT THE ASSESSEE DID NOT MAINTAIN DAY-TO-DAY STOCK REGISTER OF ALL I TEMS PURCHASED AND SOLD DURING THE YEAR. THE SYSTEM OF ACCOUNTING IS THE S AME AS HAS BEEN REGULARLY EMPLOYED BY THE ASSESSEE FROM YEAR TO YEAR. NO SUB STANTIAL DISCREPANCY OR IRREGULARITY WAS FOUND BY THE AO IN THE BOOKS OF AC COUNTS MAINTAINED BY THE ASSESSEE. IT IS ALSO NOT A CASE OF THE AO THAT THE VALUE OF OPENING AND CLOSING STOCK HAS BEEN UNDERSTATED. IN THE PRESENT YEAR, THE SALE OF THE ASSESSEE HAS INCREASED TO RS.4.69 CRORES AS AGAINST RS.2.75 CRORES OF THE CURRENT YEAR. THE NET PROFIT SHOWN BY THE ASSESSEE IN THE CURRENT HAS BEEN INCREASED TO RS.3,75,315/- AS AGAINST RS.1,84,463/- OF THE IMMEDIATE PRECEDING YEAR. ON PERUSAL OF THE AOS ORDER, WE F URTHER FIND THAT THE NET 5 PROFIT RATIO SHOWN BY THE ASSESSEE IN THE CURRENT Y EAR IS 0.8% AS AGAINST 0.64%, 0.44% AND 0.45% SHOWN IN THE THREE IMMEDIATE PRECEDING YEARS I.E. ASSESSMENT YEARS 2006-07, 2005-06 AND 2004-05 RESPE CTIVELY. IT IS, THUS, SEEN THAT THE ASSESSEE HAS SHOWN MORE NET PROFIT IN THE YEAR UNDER CONSIDERATION AS COMPARED TO EARLIER YEARS. IT IS WELL SETTLED THAT FALL IN THE GROSS PROFIT RATE WITHOUT THERE BEING ANY DEFECT OR DISCREPANCY IN THE BOOKS OF ACCOUNTS REGULARLY MAINTAINED BY THE ASSESSEE CA NNOT BE A GROUND BY ITSELF TO REJECT THE BOOKS OF ACCOUNT AND TO ESTIMATE THE GROSS PROFIT RATE. IN THE PRESENT CASE, THE SALES OF THE ASSESSEE HAVE BEEN S UBSTANTIALLY INCREASED, AND THAT COULD BE A VALID REASON FOR FALL IN THE GROSS PROFIT RATE. THE ASSESSEE HAS ALSO EXPLAINED THAT THE GROSS PROFIT RATE HAS BEEN REDUCED DUE TO REDUCTION IN MARGIN IN RESPECT OF THE SALES MADE TO NOVA PROTEIN S OF MADHUBAN, KAMAL WHERE MARGIN PROFIT OF 2.5% WAS EARNED AND EVEN ON TWO ITEMS, THE ASSESSEE HAD INCURRED LOSSES. HAVING REGARD TO THE NATURE O F THE ASSESSEES BUSINESS, WE ARE OF THE CONSIDERED VIEW THAT MAINTENANCE OF S TOCK REGISTER OF ALL ITEMS SHOWING CONSUMPTION OF RAW-MATERIAL AND PRODUCTION OF POULTRY FEED WAS NOT FEASIBLE. MOREOVER, THE AO HAS NOT BEEN ABLE T O ESTABLISH ANY DIFFERENCE IN THE CONSUMPTION OF RAW-MATERIAL AND PRODUCTION O F FINISHED GOODS WHEN COMPARED TO THE EARLIER YEARS. IN SUPPORT OF THE P ROPOSITION THAT MERELY FALL IN THE GROSS PROFIT RATE AS COMPARED TO EARLIER YEA R WITHOUT THERE BEING ANY 6 SUBSTANTIAL DEFECT IN THE BOOKS OF ACCOUNT AND MERE LY BECAUSE STOCK REGISTER WAS NOT MAINTAINED, CANNOT BE A GROUND TO INFER THA T ACCOUNTS MAINTAINED BY THE ASSESSEE IN REGULAR COURSE OF BUSINESS ARE INAC CURATE OR INCORRECT, RELIANCE MAY BE PLACED UPON THE FOLLOWING DECISIONS RELIED UPON BY THE LEARNED COUNSEL FOR THE ASSESSEE:- (1) CIT VS. SMT. POONAM RANI (2010) 326 ITR 223 (DEL); (2) CIT VS. BINDAL APPARELS ( 2011) 332 ITR 410 (DEL); (3) CIT VS. JAS JACK ELEGANCE EXPORTS (2010) 324 ITR 95 (DEL); (4) CIT VS. OM OVERSEAS (2009) 315 ITR 185 (P&H); & (5) CIT VS. PATIALA DISTT. CO-OP. MILK PRODUCERS UNIO N LTD. (2010) 328 ITR 615 (P&H). 8. IN THE LIGHT OF THE DISCUSSION MADE ABOVE, WE, T HEREFORE, HOLD THAT THE AUTHORITIES BELOW WERE UNJUSTIFIED IN REJECTING THE ASSESSEES BOOKS OF ACCOUNT AND THEN IN ESTIMATING GROSS PROFIT RATE FO R MAKING ADDITION UNDER THE HEAD TRADING ACCOUNT. THE ADDITION OF RS.3,9 4,342/- SUSTAINED BY THE LEARNED CIT(A) ON THIS ACCOUNT IS THUS, DELETED. 9. GROUND NO.4 IS DIRECTED AGAINST THE CIT(A)S ORD ER IN CONFIRMING THE ADDITION OF RS.25,776/- OUT OF MOTOR-CYCLE, CAR AND TELEPHONE EXPENSES FOR PERSONAL USE. 10. IN THE YEAR UNDER CONSIDERATION, THE ASSESSEE H AD CLAIMED MOTOR-CYCLE EXPENSES OF RS.10,141/-, CAR EXPENSES OF RS.46,267/ - AND TELEPHONE EXPENSES OF RS.46,697/-, ALL AGGREGATING TO RS.1,03 ,105/- IN THE PROFIT AND LOSS ACCOUNT. THE AO HAD TAKEN A VIEW THAT ALL THE SE EXPENSES ARE OF SUCH A 7 NATURE THAT PERSONAL USE OF THESE EXPENSES CANNOT B E DENIED. THE AO, THEREFORE, DISALLOWED 1/4 TH OF THESE EXPENSES FOR PERSONAL USE RESULTING IN AN ADDITION OF RS.25,776/-. 11. ON AN APPEAL, THE LEARNED CIT(A) CONFIRMED THE ADDITION BY OBSERVING THAT THE ASSESSEE HAS NOT PRODUCED ANY EVIDENCE SUC H AS LOG BOOK, TELEPHONE REGISTER ETC. IN SUPPORT OF THE CLAIM THAT TELEPHON E AND VEHICLES WERE SOLELY USED FOR THE PURPOSE OF BUSINESS. 12. HENCE, THE ASSESSEE IS IN APPEAL BEFORE US. 13. IN THE COURSE OF HEARING OF THIS APPEAL, IT WAS POINTED OUT BY THE LEARNED COUNSEL FOR THE ASSESSEE THAT A SEPARATE AD DITION OF RS.30,000/- HAS ALREADY BEEN MADE BY THE AO, WHICH HAS NOT BEEN DIS PUTED BY THE ASSESSEE, ON ACCOUNT OF LOW HOUSEHOLD EXPENSES, AND THEREFORE , SEPARATE ADDITION OF RS.25,776/- BY WAY OF DISALLOWANCE OF TELEPHONE AND CONVEYANCE EXPENSES FOR PERSONAL USE IS NOT CALLED FOR. IT WAS FURTHER SUBMITTED BY THE LEARNED COUNSEL FOR THE ASSESSEE THAT ALL THE DETAILS OF EX PENSES WERE FILED BEFORE THE AO. 12. THE LEARNED DR ON THE OTHER HAND, SUPPORTED THE ORDERS OF THE AUTHORITIES BELOW. 13. WE HAVE CONSIDERED THE RIVAL CONTENTIONS OF BOT H THE PARTIES AND PERUSED THE MATERIAL ON RECORD. THE ASSESSEE WAS L IVING IN HIS OWN HOUSE 8 ALONG WITH HIS FATHER. THE HOUSEHOLD EXPENSES ARE POOLED ALONG WITH HIS FATHER, WHO IS ALSO ASSESSED TO INCOME-TAX. IT IS FURTHER NOT IN DISPUTE THAT A SEPARATE ADDITION OF RS.30,000/- HAS BEEN MADE IN T HE HANDS OF THE ASSESSEE FOR LOW HOUSEHOLD EXPENSES. HOWEVER, WE FIND THAT RECORD FOR USE OF TELEPHONE AND CAR FROM DAY-TO-DAY HAS NOT BEEN PLAC ED BEFORE US. THE ASSESSEE HAS FILED BEFORE US A COPY OF ASSESSMENT O RDER FOR THE ASSESSMENT YEAR 2005-06 IN SUPPORT OF THE CONTENTION THAT BOOK S OF ACCOUNTS MAINTAINED BY THE ASSESSEE WERE ACCEPTED BY THE AO IN THAT YEA R AND TO SUPPORT THE ASSESSEES CONTENTION THAT TRADING ADDITION MADE BY THE AO WAS NOT JUSTIFIED. WE HAVE GONE THROUGH THIS ASSESSMENT ORDER AND FIND THAT IN THIS YEAR ALSO, 1/5 TH OF THE TELEPHONE AND CONVEYANCE EXPENSES WERE DISA LLOWED BY THE AO. THE TOTAL EXPENDITURE CLAIMED BY THE ASSESSEE IN TH AT YEAR WAS OF RS.2,07,400/-, AND 1/5 TH THEREFORE AMOUNTING TO RS.41,480/- WAS DISALLOWED IN THAT YEAR. AN ADDITION OF RS.50,000/- WAS ALSO MADE BY THE AO ON ACCOUNT OF LOW HOUSEHOLD WITHDRAWAL. IT IS NOT CLE AR AS TO WHETHER ANY APPEAL WAS FILED BY THE ASSESSEE AGAINST THIS ASSES SMENT ORDER IN THE ASSESSMENT YEAR 2005-06, WHERE 1/5 TH OF TELEPHONE AND CONVEYANCE EXPENSES AMOUNTING TO RS.41,480/- AND SUM OF RS.50, 000/- ON ACCOUNT OF LOW HOUSEHOLD EXPENSES WERE MADE. THE ASSESSEE IS AN INDIVIDUAL AND IS MAINTAINING A FAMILY. IT IS COMMON THAT THE CAR OR MOTOR-CYCLE OWNED BY 9 THE ASSESSEE IS GENERALLY USED FOR PERSONAL PURPOSE AND USE OF FAMILY. THE ASSESSEE HAS NOT PRODUCED ANY DETAILS OF THESE EXPE NSES TO SHOW AND ESTABLISH THAT THESE WERE EXCLUSIVELY INCURRED FOR THE PURPOSE OF BUSINESS. IN THE LIGHT OF THE FACT THAT THE ASSESSEES TURNOVER HAS BEEN INCREASED DURING THIS YEAR AS COMPARED TO EARLIER YEAR, AND THE TELE PHONE AND VEHICLES WERE MOSTLY USED FOR BUSINESS PURPOSES, WE RESTRICT THE DISALLOWANCE TO 1/6 TH (ONE-SIXTH) OF TOTAL EXPENSES AS AGAINST 1/4 TH (ONE-FOURTH) OF EXPENSES DISALLOWED BY THE AUTHORITIES BELOW. THE AO SHALL MODIFY THE ASSESSMENT ORDER ACCORDINGLY. 14. IN THE RESULT, THE APPEAL FILED BY THE ASSESSEE IS PARTLY ALLOWED IN THE MANNER AS INDICATED ABOVE. 15. THIS DECISION IS PRONOUNCED IN THE OPEN COURT O N 30 TH JUNE, 2011. SD/- SD/- (G.E. VEERABHADRAPPA) (C.L. SETHI) VICE PRESIDENT JUDICIAL MEMBER DATED: 30 TH JUNE, 2011. COPY OF THE ORDER FORWARDED TO:- 1. APPELLANT 2. RESPONDENT 3. CIT(A) 4. CIT 5. DR BY ORDER *MG DEPUTY REGISTRAR, ITAT.