Sri Shankar Lal Khetan (HUF), Bhagalpur V. I.T.O., Bhagalpur

ITA 216/PAT/2013

• Counselvise Citation: [2017] 127 COUNSELVISE.COM (IT) 9624 (ITAT-PATNA)
• Duration Of Justice: 3 year(s) 9 month(s) 20 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 08-06-2017
• Appeal Filed By: Assessee
• Order Result: Partly Allowed
• Bench Allotted: DB
• Assessment Year: 2006-2007
• Appeal Filed On: 19-08-2013
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Department Lawyers: SANJAY MALLIK
• Assessee Lawyers: K N PRASAD
• Keywords: Gross profit estimation; Capital asset; Opportunity of being heard; Commercial expediency
• Section: 234B

Judgement Text

1 ITA 216/PAT/2013 IN THE INCOME TAX APPELLATE TRIBUNAL PATNA BENCH SMC, PATNA BEFORE SHRI SHAMIM YAHYA (ACCOUNTANT MEMBER) ITA NO.216/PAT/2013 (ASSESSMENT YEAR 2006-07 ) SHRI SHANKAR LAL KHETAN (HUF) PROP M/S GS TRADERS SAKICHAND KATRA AUJAGANJ, BHAGALPUR 812 002 PAN : AADHK0587H VS ITO, WD.1(3), BHAGALPUR APPELLANT RESPONDENT APPELLANT BY K.N. PRASAD, ADV RESPONDENT BY SHRI SANJAY MALLIK, DR DATE OF HEARING 11-05-2017 DATE OF PRONOUNCEMENT 08- 06-2017 O R D E R THIS APPEAL BY ASSESSEE IS DIRECTED AGAINST THE OR DER OF CIT(A) DATED 07-05- 2013 AND PERTAINS TO AY 2006-07. GROUNDS OF APPEAL READ AS UNDER:- 1. FOR THAT THE GROUNDS OF APPEAL HERETO ARE WITHOUT PREJUDICE TO EACH OTHER. 2. FOR THAT IN THE FACTS AND CIRCUMSTANCES OF THE CASE THE LEARNED CIT(A) IS NOT JUSTIFIED IN SUSTAINING AN AD DITION OF RS. 3,86,188/- ON ACCOUNT OF ALLEGED LESS GROSS PROFIT. THE LEARNED CIT(A) HAS APPLIED A GROSS PROFIT 6.81% ON RS. 94.6 9,305/- IN KIRANA ITEMS AND 4% ON RS. 1,91,83,681/- IN REFINED OIL. THE ADDITION AS SUSTAINED AT RS. 3,86,188/- ON ACCOUNT OF ALLEGED LESS GROSS PROFIT IS ARBITRARY, UNJUSTIFIED AND MISCONCE IVED. THE ADDITION AS SUSTAINED IS FIT TO BE DELETED. 3. FOR THAT IN THE FACTS AND CIRCUMSTANCES OF THE CASE , THE LEARNED CIT(A) IS NOT JUSTIFIED IN CONFIRMING THE A DDITION / DISALLOWANCES OF RS. 3,00,000/- UNDER THE HEAD 'INT EREST ACCOUNT' ON ACCOUNT OF AVAILABILITY OF CASH IN CASH BOOK ON CERTAIN DATE. THE 2 ITA 216/PAT/2013 ADDITION / DISALLOWANCES OF RS. 3,00,000/- AS MADE / SUSTAINED WITH RESPECT TO PAYMENT OF INTEREST ON UNSECURED LOAN IS ARBITRARY, UNJUSTIFIED AND BAD IN LAW. IN ANY CASE, THE ADDITI ON AS MADE / SUSTAINED IS FIT TO BE DELETED. 4. FOR THAT IN THE FACTS AND CIRCUMSTANCES OF THE CASE , THE LEARNED CIT(A) IS NOT JUSTIFIED IN CONFIRMING THE A DDITION OF RS. 3,65.985/- AS MADE BY THE ASSESSING OFFICER ON ACCO UNT OF ALLEGED EXCESS STOCK FOUND DURING THE SURVEY. THE ADDITION OF RS. 3,65,985/- AS MADE / SUSTAINED ON ACCOUNT OF ALLEGE D EXCESS STOCK FOUND IN COURSE OF SURVEY IS ARBITRARY, UNJUSTIFIED , MISCONCEIVED AND HAD IN LAW. THE ADDITION AS MADE SUSTAINED IS FIT T O BE DELETED. 5. FOR THAT IN THE FACTS AND CIRCUMSTANCES OF THE CASE , THE LEARNED CIT(A) IS NOT JUSTIFIED IN CONFIRMING THE A DDITION / DISALLOWANCES OF RS . 67,5 18/- ON ACCOUNT OF 'LOSS IN FIRE'. THE ADDITION / DISALLOWANCES OF RS. 67,518/- ON ACCOUNT OF LOSS IN FIRE AS MADE / SUSTAINED IS ARBITRARY, UNJUSTIFIED AND BAD IN LAW. THE ADDITION DISALLOWANCES AS MADE IS FIT TO BE DELETED . 6. FOR THAT IN THE FACTS AND CIRCUMSTANCES OF THE C ASE, THE LEARNED CIT(A) IS NOT JUSTIFIED IN SUSTAINING T HE DISALLOWANCES OF RS. 3,587/- BEING 10% OUT OF TELEP HONE EXPENSES OF RS. 35,875/-. THE DISALLOWANCE AS SUSTA INED IS ARBITRARY AND UNJUST. THE SAME IS FIT TO BE DELETED . 7. FOR THAT IN THE FACTS AND CIRCUMSTANCES OF THE CASE , THE LEARNED CIT(A) IS NOT JUSTIFIED IN SUSTAINING THE D ISALLOWANCES OF RS. 2,188/- BEING 10% OUT OF CAR EXPENSES OF RS. 21 ,889/-. THE DISALLOWANCE AS SUSTAINED IS ARBITRARY AND UNJUST. THE SAME IS FIT TO BE DELETED. 8. FOR THAT IN THE FACTS AND CIRCUMSTANCES OF THE CASE , THE LEARNED CIT(A) IS NOT JUSTIFIED IN SUSTAINING THE D ISALLOWANCES OF RS. 3,153/- BEING 10% OUT OF MOBILE EXPENSES OF RS. 31,5338/-. THE DISALLOWANCE AS SUSTAINED IS ARBITRA RY AND UNJUST. THE SAME IS FIT TO BE DELETED. 9. FOR THAT IN THE FACTS AND CIRCUMSTANCES OF THE CASE , THE LEARNED CIT(A) IS NOT JUSTIFIED IN SUSTAINING THE D ISALLOWANCES OF RS. 1,541/- BEING 10% OUT OF MOTOR CYCLE EXPENSES OF RS . 15,414/-. THE DISALLOWANCE AS SUSTAINED IS ARBITRARY AND UNJU ST. THE SAME IS FIT TO BE DELETED. 10. FOR THAT THE CHARGE OF INTEREST U/S 234B IS ARBITRA RY AND UNJUST. 3 ITA 216/PAT/2013 2. GROUND 1 IS GENERAL AND DOES NOT NEED ANY ADJUDICAT ION. 3. APROPOS GROUND 2 REGARDING ADDITION ON ACCOUNT OF L OW GROSS PROFIT. 4. THE AO NOTED THAT ASSESSEE HAS SHOWN GROSS PROFIT O N TRADING AT 3.58%. THE AO ALSO NOTED THAT ONE OF THE REASONS FOR LOW G ROSS PROFIT WAS EXCESSIVE EXPENDITURE CLAIMED UNDER VARIOUS HEADS. THE AO AL SO COMPARED THE GROSS PROFIT FOUND AT THE TIME OF SURVEY WITH THAT OF EAR LIER PERIOD. HE PROCEEDED TO MAKE AN ADDITION OF RS.9,25,249 ON ACCOUNT OF LOW G ROSS PROFIT. 5. UPON ASSESSEES APPEAL, LD.CIT(A) ACCEPTED THE SUBM ISSIONS OF THE ASSESSEE PARTLY. HOWEVER, SHE CONFIRMED AN ADDITIO N OF RS.3,86,188 ON THIS ACCOUNT. AGAINST THIS ORDER, ASSESSEE IS IN APPEAL BEFORE ITAT. 6. I HAVE HEARD BOTH THE COUNSELS AND PERUSED THE RECO RDS. I NOTE THAT THE BOOKS OF ACCOUNT IN THIS CASE HAVE NOT BEEN REJECTE D. THE ORDERS OF THE AUTHORITIES BELOW DO NOT COGENTLY SPEAK AS TO WHAT THEY WERE CONSIDERING THE LOW GROSS PROFIT. ONE OF THE REASONS ATTRIBUTED BY THE AO HIMSELF IS EXCESSIVE CLAIM OF EXPENDITURE. THE AO HAS, HIMSELF, MADE SE PARATE ADDITIONS. FURTHERMORE, I FIND THAT FALL IN GROSS PROFIT CAN B E A REASON FOR FURTHER EXAMINATION, BUT IT CANNOT BE A SOLE REASON FOR MAK ING ADHOC ADDITION. IN THESE CIRCUMSTANCES, IN MY CONSIDERED OPINION, THIS ADDITION MADE IS BASED UPON SURMISES WITHOUT REJECTION OF BOOKS OF ACCOUNT AND HENCE, NOT SUSTAINABLE. ACCORDINGLY, I SET ASIDE THE ORDERS O F LD.CIT(A) AND DIRECT THAT THIS ADDITION BE DELETED. 7. APROPOS GROUND 3 WITH REGARD TO DISALLOWANCE UNDER THE HEAD INTEREST ACCOUNT. 8. THE AO NOTED THAT ASSESSEE HAD PAID RS.3 LAKHS INT EREST ON LOANS TAKEN. HE FURTHER NOTED THAT ASSESSEE WAS CARRYING SUBSTAN TIAL CASH IN HAND IN THE BOOKS OF ACCOUNT. THE REASONS FOR CARRYING SUBSTAN TIAL CASH WAS ATTRIBUTED BY 4 ITA 216/PAT/2013 THE ASSESSEE TO PROPOSAL TO PURCHASE CAPITAL ASSET. ON THESE FACTUAL CONSPECTUS, THE LOWER AUTHORITIES FOUND THAT THERE WAS NO NEED FOR THE ASSESSEE TO TAKE LOAN AND HENCE, INTEREST EXPENDITU RE WAS DISALLOWED. AGAINST THIS ORDER, ASSESSEE IS IN APPEAL BEFORE ITAT. 9. I HAVE HEARD BOTH THE COUNSELS AND PERUSED THE RECO RDS. I FIND THAT IT IS NONE OF THE BUSINESS OF THE REVENUE TO DECIDE AS TO HOW THE ASSESSEE SHALL CONDUCT HIS BUSINESS. WHETHER THE ASSESSEE SHOULD TAKE LOAN OR UTILIZE INTERNAL RESOURCES IS THE SOLE PREROGATIVE OF THE ASSESSEE. IT IS NOT THE CASE THAT THE ASSESSEE HAS NOT PAID THE INTEREST. AS HELD BY HON BLE APEX COURT IN CIT VS WALCHAND & CO (P) LTD (1967) 65 ITR 381 (SC), I H OLD THAT IN APPLYING THE TEST OF COMMERCIAL EXPEDIENCY FOR DETERMINING WHETHER TH E EXPENSE WAS WHOLLY AND EXCLUSIVELY LAID OUT FOR PURPOSE, REASONABLENES SS OF THE EXPENSE HAS TO BE JUDGED FROM THE POINT OF VIEW OF BUSINESSMAN AND NO T REVENUE. HENCE, THIS DISALLOWANCE IS DIRECTED TO BE DELETED. 10. APROPOS GROUND 4 REGARDING ADDITION ON ACCOUNT OF E XCESSIVE STOCK FOUND. 11. DURING THE COURSE OF SURVEY, STOCK WAS FOUND TO BE IN EXCESS. THIS EXCESS STOCK FOUND IN SURVEY WAS NOT DIRECTLY ARRIVED AT. IT WAS BASED UPON VARIOUS TYPES OF ADDITION IN WHICH A TENTATIVE P&L ACCOUNT AT THE TIME OF SURVEY WAS ALSO REFERRED. LD.CIT(A) HAS CONFIRMED THE ADDITIO N ALSO PARTLY BASING UPON THE FACT THAT SHE HAS CONFIRMED THE ADDITION ON ACCOUNT OF GROSS PROFIT RATE. AGAINST THIS ORDER ASSESSEE HAS FILED APPEAL BEFORE THE ITAT. 12. UPON HEARING BOTH THE COUNSEL, I FIND THAT THE EXCE SS STOCK HAS BEEN SAID TO HAVE BEEN ARRIVED AT PARTLY ON THE BASIS BY APPL YING THE GROSS PROFIT RATE, WHICH IN THE EARLIER PART OF THIS ORDER, I HAVE DEL ETED. MOREOVER, IT IS THE CONTENTION OF THE LD.COUNSEL OF THE ASSESSEE THAT T HE STOCK FOUND ON SURVEY 5 ITA 216/PAT/2013 WAS TAKEN AT THE MRP WHICH HAS ALSO RESULTED IN INC REASE IN THE VALUE OF THE STOCK. UPON CAREFUL CONSIDERATION, I REMIT THIS IS SUE TO THE FILE OF THE AO. THE AO SHALL CONSIDER THIS ISSUE AFRESH KEEPING INTO AC COUNT THE OBSERVATIONS AS ABOVE. NEEDLESS TO ADD, THE ASSESSEE SHOULD BE GRA NTED ADEQUATE OPPORTUNITY OF BEING HEARD. 13. APROPOS GROUND 5, ADDITION ON ACCOUNT OF LOSS ON FI RE. 14. THE AO HAS NOTED THAT ASSESSEE HAS DEBITED / CLAIME D LOSS ON FIRE AMOUNTING TO RS.67,518. IT WAS NOTED THAT ASSESSEE HAD CLAIMED TOTAL LOSS IN FIRE OF RS.2,82,945. BUT THE INSURANCE COMPANY HAS ACCEPTED CLAIM OF RS. 2,15,427 SUBSEQUENTLY ON 29-06-2005. SINCE THE BAL ANCE AMOUNT OF R.67,518 WAS NOT RECOVERABLE, THE ASSESSEE HAD WRITTEN IT OF F IN THE P&L ACCOUNT AS BAD DEBT. LD.CIT(A) HAS CONFIRMED THIS ADDITION BY HOL DING THAT THIS DEBIT IN THE P&L ACCOUNT WAS NOT BACKED BY SUPPORTING MATERIAL. 15. UPON HEARING BOTH THE COUNSELS AND PERUSING THE REC ORDS, I FIND THAT IT IS NOT CLEAR AS TO HOW THIS LOSS HAS ARISEN, WHETHER I T IS A CASE OF STOCK LOSS OR A CLAIM OF BAD DEBT. IN MY CONSIDERED OPINION, THIS ASPECT NEEDS FACTUAL VERIFICATION AT THE LEVEL OF AO. HENCE, I REMIT TH E ISSUE TO THE FILE OF THE AO TO EXAMINE AS TO HOW THE LOSS HAS BEEN ARRIVED AT. TH EREAFTER, THE AO SHALL DECIDE ON THE ISSUE, AS PER LAW. NEEDLESS TO ADD, ASSESSE E SHOULD BE GRANTED OPPORTUNITY OF BEING HEARD. 16. APROPOS GROUND RELATING TO 10% DISALLOWANCE OUT OF TELEPHONE EXPENSES, CAN EXPENSE, MOBILE EXPENSE AND MOTOR CAR EXPENSE. 17. THE AO HAD MADE ADHOC DISALLOWANCE OF 25% ON ACCOUN T OF THE ABOVE EXPENSES BEING EXCESSIVE AND NOT BACKED BY PROPER E XTERNAL VOUCHERS. LD.CIT(A) HAS RESTRICTED THE DISALLOWANCE TO 10%. 18. UPON HEARING BOTH THE COUNSEL AND PERUSING THE RECO RDS, I FIND THAT 6 ITA 216/PAT/2013 LD.CIT(A) HAS REASONABLY RESTRICTED THE DISALLOWANC E. ADMITTEDLY, ALL THE VOUCHERS UNDER DISPUTE HAVE NOT BEEN CLAIMED TO BE BACKED BY PROPER EXTERNAL VOUCHERS. IN SUCH SITUATION, A SMALL DISALLOWANCE SUSTAINED BY THE LD.CIT(A) IS REASONABLE. HENCE, THERE IS NO NEED OF ANY INTERFE RENCE IN THE ORDER OF LD.CIT(A). ACCORDINGLY, I UPHOLD THE SAME. 9. IN THE RESULT, APPEAL FILED BY THE ASSESSEE IS PART LY ALLOWED. ORDER PRONOUNCED IN THE OPEN COURT ON 08 TH JUNE, 2017. SD/- (SHAMIM YAHYA) ACCOUNTANT MEMBER MUMBAI, DT : 08 TH JUNE, 2017 COPY TO : 1. APPELLANT 2. RESPONDENT 3. CIT(A) 4. CIT 5. DR /TRUE COPY/ BY ORDER ASSTT. REGISTRAR, ITAT, PATNA