Sh. Gurcharan Singh Ghuman, Phagwara V. The Income Tax Officer, Phagwara

ITA 213/ASR/2016

• Counselvise Citation: [2016] 131 COUNSELVISE.COM (IT) 9573 (ITAT-AMRITSAR)
• Duration Of Justice: 5 month(s) 1 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 15-09-2016
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: SMC
• Next Hearing Date: 30-06-2016
• Assessment Year: 2007-2008
• Appeal Filed On: 13-04-2016
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: BHAWANI SHANKER
• Assessee Lawyers: ATUL VIJ
• Keywords: Principle of natural justice

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL AMRITSAR BENCH; AMRITSAR. BEFORE SH. A.D. JAIN, JUDICIAL MEMBER AND SH. T. S. KAPOOR, ACCOUNTANT MEMBER ITA NO.213(ASR)/2016 ASSESSMENT YEAR:2007-08 PAN : AIEPG4160F SH. GURCHARAN SINGH GHUMAN, VS. INCOME TAX OFFICER, PHAGWARA. WARD-1, PHAGWARA. (APPELLANT) (RESPONDENT) APPELLANT BY: SH. ATUL VIJ, CA RESPONDENT BY: SH. BHAWANI SHANKER, CA DATE OF HEARING: 30/06/2016 DATE OF PRONOUNCEMENT: 15/09/2016 ORDER PER T.S. KAPOOR, AM: THIS IS AN APPEAL FILED BY THE ASSESSEE AGAINST TH E ORDER OF THE LD. CIT(A)-2, JALANDHAR, DATED 21.03.2016, FOR THE ASSE SSMENT YEAR 2007-08. THE ASSESSEE HAS TAKEN THE FOLLOWING GROUNDS OF APP EAL: 1. THAT THE ORDER OF THE CIT(A) TO THE EXTENT SUST AINING THE ADDITIONS MADE BY THE A.O IS AGAINST THE LAW AND FA CTS OF THE CASE. 2. THAT THE CIT(A) HAD ERRED IN LAW AND FACTS OF T HE CASE IN UPHOLDING THE NET PROFIT ADDITION OF RS. 91,787/- IN THE HANDS OF THE PROPRIETARY CONCERN OF THE ASSESSEE, I .E. M/S GURCHARAN SINGH GHUMAN. 3. THAT THE CIT(A) HAD ERRED IN LAW AND FACTS OF T HE CASE IN UPHOLDING THE NET PROFIT ADDITION OF RS. 3,63,455 /- IN THE HANDS OF THE PROPRIETARY CONCERN OF THE ASSESSEE, I .E. M/S GHUMAN MOTORS, AND THEREIN SUSTAINING THE ADVERSE INFERENCES DRAWN BY THE A.O IN THE HANDS OF THE ASS ESSEE ON THE BASIS OF INFEASIBLE COMPARISON. ITA NO.213/ASR/2016 A.Y. 200708 2 4. THAT THE CIT(A) HAD GRAVELY ERRED IN LAW AND FA CTS OF THE CASE IN SUSTAINING THE FLAT APPLICATION OF THE NET PROFIT RATE OF M/S BALAK MOTORS, LUDHIANA TO THE CASE OF THE AS SESSEE CONCERN, LOOSING SIGHT OF THE FACT THAT THE SAID IN FEASIBLE COMPARISON HAD BEEN RESORTED TO BY THE A.O IN ABSOL UTE VIOLATION OF THE BASIC PRINCIPLES OF NATURAL JUSTI CE. 5. THAT THE CIT(A) HAD ERRED IN LAW AND FACTS OF T HE CASE IN SUSTAINING AN ADDITION OF RS. 57,614/- IN THE HANDS OF THE ASSESSEE. 6. THAT THE CIT(A) HAD ERRED IN LAW AND FACTS OF T HE CASE BY FAILING TO APPRECIATE THAT ONCE THE A.O HAD ESTIMAT ED THE INCOME OF THE ASSESSEE BY APPLYING THE NET PROFIT RATE, THEREAFTER NO DISALLOWANCE U/S 40(A)(IA) OF THE AC T COULD HAVE BEEN SEPARATELY MADE IN THE HANDS OF THE ASSES SEE. 7. ANY OTHER GROUNDS AS MAY BE ALLOWED TO BE RAISE D AT THE TIME OF HEARING OF THE APPEAL. 2. OUT OF THREE ADDITIONS SUSTAINED BY THE LD. CIT( A), TWO ADDITIONS RELATE TO TRADING ADDITIONS AND ONE ADDITION RELATE S TO DISALLOWANCE UNDER SECTION 40(A)(IA) OF THE I.T. ACT, 1961. 3. THE BRIEF FACTS, AS NOTED IN THE ASSESSMENT ORDE R ARE THAT THE ASSESSEE IS A PROPRIETOR OF TWO DIFFERENT CONCERNS, NAMELY, GURCHARAN SINGH GHUMAN, WHERE HE IS DOING CONTRACT WORK FOR I NTERNATIONAL TRACTOR LTD., HOSHIARPUR AND GHUMAN MOTORS, WHERE HE IS DOI NG DEALERSHIP OF RHINO JEEPS. THE CASE OF THE ASSESSEE WAS SELECTED FOR SCRUTINY. DURING ASSESSMENT PROCEEDINGS, THE ASSESSEE DID NOT PRODUC E ANY BOOKS OF ACCOUNT, AS HE CLAIMED THAT ALL THE RECORDS HAS BEE N DESTROYED IN THE FIRE. THE AO IN THE CASE OF GURCHARAN SINGH GHUMAN OBSERVED THAT IN EARLIER YEARS THE ASSESSEE HAD DECLARED NET PROFIT RATE OF 12.80%, WHEREAS IN THE PRESENT YEAR, THE NET PROFIT RATE HAD BEEN D ECLARED AT 10.39%. THEREFORE, THE ASSESSEE WAS SHOW CAUSED TO EXPLAIN THE SAME. THE ITA NO.213/ASR/2016 A.Y. 200708 3 ASSESSEE SUBMITTED THAT IN EARLIER YEARS, HE WAS WO RKING FOR TWO COMPANIES, NAMELY, ITL AND ICML LTD. AND PROFIT IN THE CASE OF ICML WAS HIGHER AND THEREFORE, IN EARLIER YEARS, THE PROFIT MARGIN WAS HIGHER. IT WAS SUBMITTED THAT IN THE PRESENT YEAR, THE ASSESSE E UNDERTOOK THE WORK OF ITL ONLY . HOWEVER, THE AO WAS NOT SATISFIED AND HE WORKED OUT THE NET PROFIT RATE AT 12.80%. SIMILARLY IN RESPECT OF GHUM AN MOTORS, THE AO OBSERVED THAT THE ASSESSEE HAD DECLARED ONLY 0.20% NET PROFIT RATE, WHEREAS A FIRM, NAMELY, BALAK AUTOS ENGAGED IN THE SIMILAR TRADE HAD DECLARED NET PROFIT RATE AT 1.50%. THEREFORE, THE A O APPLIED THE NET PROFIT OF 1.50% AS AGAINST 0.20% DECLARED. THE AO FURTHER OBSERVED THAT THE ASSESSEE HAD MADE PAYMENT WITHOUT DEDUCTION OF TDS AND THEREFORE THE DISALLOWANCE OF RS.77506/- WAS MADE U/S 40(A)(IA) OF THE ACT. 4. AGGRIEVED, THE ASSESSEE FILED APPEAL BEFORE THE LD. CIT(A) AND REITERATED THE SUBMISSIONS MADE BEFORE THE A.O. TH E LD. CIT(A) NOTED DOWN ALL THE SUBMISSIONS OF THE ASSESSEE. HOWEVER, HE CONFIRMED THE ADDITION MADE BY THE AO IN RESPECT OF NET PROFIT RA TE, BUT ALLOWED A MARGINAL RELIEF IN RESPECT OF DISALLOWANCE UNDER SE CTION 40(A)(IA) OF THE ACT AND SUSTAINED THE ADDITION TO THE EXTENT OF RS. 56,714/-. AGGRIEVED, THE ASSESSEE IS IN APPEAL BEFORE US. 5. AT THE OUTSET, THE LD. COUNSEL FOR THE ASSESSEE SUBMITTED THAT DETAILS SUBMISSIONS WERE MADE BEFORE THE LD. CIT(A) REGARDING DECREASE IN PROFIT RATIO IN RESPECT OF CONTRACT BUSINESS OF THE ASSESSEE, WHEREIN IT WAS EXPLAINED THAT IN THE PRESENT YEAR THE WORK OF ONLY ONE FIRM WAS ITA NO.213/ASR/2016 A.Y. 200708 4 UNDERTAKEN WHICH WAS LESS PROFITABLE AS COMPARED TO OTHER FIRM. THE LD. CIT(A) NOTED THE SUBMISSIONS OF THE ASSESSEE BUT HE DID NOT REBUT THE SAME AND SIMPLY UPHELD THE ACTION OF THE A.O. RELI ANCE WAS PLACED ON THE DECISION OF THE HONBLE PUNJAB & HARYANA HIGH C OURT IN THE CASE OF TELELINKS VS. CIT, REPORTED AT 377 ITR 158 (P&H). S IMILARLY, IT WAS SUBMITTED HAT NET PROFIT RATIO OF BALAK AUTOS WAS N EVER CONFRONTED TO THE ASSESSEE AND THEREFORE, THE APPLICATION OF 1.50% NE T PROFIT RATE IN THE CASE OF GHUMAN MOTORS WAS AGAINST THE PRINCIPLES OF NATURAL JUSTICE. 5.1. REGARDING DISALLOWANCE UNDER SECTION 40(A)(IA) OF THE ACT, THE LD. COUNSEL SUBMITTED THAT SINCE THE PROFIT OF THE ASSE SSEE HAS BEEN ESTIMATED AND THEREFORE, FURTHER DISALLOWANCE WAS NOT WARRANTED. IN THIS RESPECT, RELIANCE WAS PLACED ON THE JUDGMENT OF TH E HONBLE PUNJAB & HARYANA HIGH COURT IN THE CASE OF CIT VS. SMT. SANT OSH JAIN, 296 ITR 324 (P&H). ALTERNATIVELY, IT WAS SUBMITTED THAT THE MATTER MAY BE REMITTED BACK TO THE FILE OF THE A.O. WHO IN VIEW O F THE DECISION OF HONBLE SUPREME COURT, IN THE CASE OF HINDUSTAN COCA COLA B EVERAGE (P) LTD. VS. CIT, 293 ITR 226 (SC), SHOULD RE-CALCULATE THE QUAN TUM OF LIABILITY, AS THE PAYEE HAD PAID TAXES THEREON. 6. THE LD. DR, ON THE OTHER HAND, RELIED UPON THE O RDERS OF THE AUTHORITIES BELOW. 7. WE HAVE HEARD BOTH THE PARTIES AND HAVE PERUSED THE MATERIAL AVAILABLE ON RECORD. AS REGARDS THE TRADI NG ADDITION MADE BY APPLYING HIGHER NET PROFIT RATIO AS COMPARE D TO DECLARED ITA NO.213/ASR/2016 A.Y. 200708 5 NET PROFIT RATIO, WE FIND THAT BEFORE THE LD. CIT( A), DETAILED SUBMISSIONS WERE MADE. HOWEVER, THE LD. CIT(A) DID NOT COMMENT UPON THE SAME AND SIMPLY BRUSHED ASIDE THE CONTEN TIONS OF THE ASSESSEE. 7.1. SIMILARLY, THE ADDITION IN THE CASE OF M/S. GH UMAN MOTORS WAS MADE ON THE BASIS OF NET PROFIT RATE DECLARED BY BA LAK AUTOS. THE ASSESSEE BEFORE THE LD. CIT(A) HAS EXPLAINED THAT T HE SAID BALAK AUTOS WAS NOT COMPARABLE WITH THE ASSESSEES CASE BUT THE LD. CIT(A) JUST IGNORED THE SUBMISSION AND WITHOUT COMMENTING UPON, UPHELD THE ADDITION. WE FURTHER FIND THAT THE NET PROFIT RATE AS DECLARED IN BALAK AUTOS WAS NOT CONFRONTED TO THE ASSESSEE. THE HONB LE PUNJAB & HARYANA HIGH COURT IN THE CASE TELELINKS VS. CIT, 3 77 ITR 158 (P&H), UNDER SIMILAR CIRCUMSTANCES HAS HELD AS UNDER: DISCRETION TO DETERMINE AN ADEQUATE NET PROFIT RATE UNDOUBTEDLY VESTS WITH AUTHORITIES UNDER THE ACT BUT THE DISCRE TION SO VESTED IS NEITHER UNBRIDLED NOR UNGUIDED AS IT MUST BE GUIDED BY REASON I.E. SHOULD BE PRECEDED BY REASONS WHICH, IN TURN, SHOU LD BE PRECEDED BY A PERCEPTIBLE PROCESS OF REASONING BASED UPON DU E CONSIDERATION OF ALL RELEVANT ACTS . IF THE ASSESSING OFFICER PROCEEDS TO RELY UPON ASSESSMENTS OF OTHER ASSESSEES ENGAGED IN SIMI LAR BUSINESS TO DO SO ONLY AFTER DETERMINING POINTS OF SIMILARITY ETC. 8. IN VIEW OF THE ABOVE, WE DEEM IT APPROPRIATE TO REMIT THE ISSUE BACK TO THE FILE OF THE AO TO BE DECIDED AFRESH IN ACCORDANCE WITH LAW AFTER CONFRONTING THE SAME TO THE ASSESSEE. ITA NO.213/ASR/2016 A.Y. 200708 6 9. AS REGARDS THE DISALLOWANCE UNDER SECTION 40(A)( IA), THE LD. COUNSEL FOR THE ASSESSEE HAS SUBMITTED THAT THE SAME MAY BE REMITTED BACK TO THE AO TO GIVE EFFECT TO THE DECISION OF HONBLE SU PREME COURT, IN THE CASE OF HINDUSTAN COCA COLA BEVERAGE (P) LTD. VS. CIT(SUPRA). WE, THEREFORE, DEEM IT PROPER TO REMIT THE ISSUE BACK T O THE FILE OF THE A.O. TO BE DECIDED AFRESH IN ACCORDANCE WITH LAW, AS DIRECT ED HEREINABOVE, AFTER AFFORDING DUE AND ADEQUATE OPPORTUNITY OF HEARING T O THE ASSESSEE. 10. IN THE RESULT, THE APPEAL OF THE ASSESSEE IS AL LOWED FOR STATISTICAL PURPOSES. ORDER PRONOUNCED IN THE OPEN COURT ON 15/09/2 016. SD/- SD/- (A.D. JAIN) (T.S. KAPOOR) JUDICIAL MEMBER ACCOUNTANT MEMBER /SKR/ DATED: 15/09/2016 COPY OF THE ORDER FORWARDED TO: 1. THE ASSESSEE:SH. GURCHARAN SINGH GHUMAN, PHAGWARA 2. THE ITO WARD-II, PHAGWARA. 3. THE CIT(A), JLR 4. THE CIT, JLR 5. THE SR DR, ITAT, AMRITSAR. TRUE COPY BY ORDER INCOME TAX APPELLATE TRIBUNAL, AMRITSAR BENCH: AMRITSAR.