Rajesh Agarwal, Rudrapur V. ITO, Rudrapur

ITA 2214/DEL/2010

• Counselvise Citation: [2012] 140 COUNSELVISE.COM (IT) 58557 (ITAT-DELHI)
• Duration Of Justice: 1 year(s) 8 month(s) 17 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 27-01-2012
• Appeal Filed By: Assessee
• Order Result: Partly Allowed
• Bench Allotted: F
• Next Hearing Date: 17-01-2012
• Assessment Year: 2004-2005
• Appeal Filed On: 10-05-2010
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Keywords: Business income; Opportunity of being heard

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL (DELHI BENCH `F : NEW DELHI) BEFORE SHRI U.B.S. BEDI, JUDICIAL MEMBER AND SHRI A.N. PAHUJA, ACCOUNTANT MEMBER ITA NO.2214/DEL./2010 (ASSESSMENT YEAR : 2004-05) RAJESH AGARWAL, VS. ITO, DISTT. UDHAM SINGH NAGA R, PROP. M/S HARDWARIMAL RAM AVTAR, RUDRAPUR. AGM-4, GALLA MANDI, RUDRAPUR, DISTT. UDHAM SINGH NAGAR, RUDRAPUR. (PAN/GIR NO.ABIPA1762A) (APPELLANT) (RESPONDENT) ASSESSEE BY : SHRI AMIT KUMAR GUPTA, FCA. REVENUE BY : SHRI ROHIT GARG, SR.DR ORDER PER U.B.S. BEDI, J.M. THIS APPEAL OF THE ASSESSEE IS DIRECTED AGAINST THE ORDER PASSED BY THE CIT(A)-II, DEHRADUN, DATED 8.2.2010, RELEVANT TO ASSESSMENT YE AR 2004-05 WHEREBY ASSESSEE HAS CHALLENGED CONFIRMATION OF THE ADDITION OF RS.2,71, 263/-IN THE INCOME, AS EXTRA PROFIT ON ACCOUNT OF SALE OF RICE AFTER REJECTING BOOKS OF AC COUNT U/S 145(3) OF THE I.T. ACT, 1961. 2. ASSESSEE FILED ORIGINAL RETURN OF INCOME ON 1.11 .2004 DECLARING AN INCOME OF RS.92,076/-. THE CASE WAS PROCESSED U/S 143(1) AND LATER ON CASE WAS SELECTED FOR SCRUTINY. IN RESPONSE TO NOTICE U/S 143(2) AND 142 (1), THE ASSESSEES REPRESENTATIVE APPEARED BEFORE THE ASSESSING OFFICER ALONG WITH TH E BROTHER OF THE ASSESSEE ATTENDED THE HEARING FROM TIME TO TIME, FILED WRITTEN SUBMISSION S AND CASE WAS DISCUSSED WITH HIM. THE ASSESSEE RECEIVED INCOME FROM TRADING OF RICE, EXCEL SIM PREPAID AND PADDY. DURING THE YEAR UNDER CONSIDERATION, THE ASSESSEE HAS SHOW N PURCHASES OF THE ABOVE ITEMS AT I.T.A. NO.2214/DEL./2010 (A.Y. : 2004-05) 2 RS.5.29 CRORES AND SALES OF RS.4.73 CRORES. THE BO OKS OF ACCOUNT WERE PRODUCED WHICH WERE PUT TO TEST CHECK INDICATE THAT THE ASSESSEE H AS SHOWN COMBINED G.P. OF 1.18% ON ACCOUNT OF TRADING OF EXCEL SIM RECHARGE COUPON, PA DDY AND RICE. HOWEVER, ON DRAWING TRADING ACCOUNT OF RICE SEPARATELY, IT WAS FOUND TH AT THERE IS A LOSS OF RS.1,82,955.08 ON TRADING OF RICE. IT IS NOTED BY THE ASSESSING OFFI CER THAT THE ASSESSEE HAS NOT SHOWN ANY LOSS IN THE TRADING ACCOUNT, BUT FURTHER DISCOUNTS HAVE BEEN ALLOWED TO THE CUSTOMERS ON SALE. IN THIS MANNER, RESULTANT LOSS IN THE TRADIN G OF RICE IS MUCH MORE THAN INDICATED IN THE ABOVE DRAWN TRADING ACCOUNT. DURING THE COURSE OF ASSESSMENT PROCEEDINGS, ASSESSEE WAS ASKED TO PRODUCE CLOSING STOCK AND VALUATION TH EREOF. IN RESPONSE, THE ASSESSEE FILED INVENTORY OF CLOSING STOCK ALONG WITH COPIES OF PUR CHASE BILLS OF RICE. THE ASSESSING OFFICER NOTED THAT FROM THE DETAILS, IT WAS FOUND T HAT CLOSING STOCK HAS NOT BEEN PROPERLY VALUED. FURTHER DURING THE COURSE OF ASSESSMENT PR OCEEDINGS, FOLLOWING OBSERVATIONS HAVE BEEN MADE: ON ANALYZING PURCHASES AND SALES OF THREE KINDS OF RICE I.E. SUPER FINE (RICE GRADE A), COMMON RICE AND BROKEN RICE, IT T RANSPIRED THAT THE ASSESSEE HAS RECORDED PURCHASE OF 4585.05 QTLS. OF BROKEN RICE. HOWEVER, THE SALES OF BROKEN RICE HAVE BEEN MADE TO THE EXTE NT OF 8584.94 QTLS. IN THIS MANNER, SALE OF EXCESS QUANTITY OF 3998.89 QTL S. OF BROKEN RICE HAS BEEN RECORDED. ON PERUSAL OF QUANTITATIVE DETAILS OF RICE GIVEN IN THE AUDIT REPORT, IT WAS FOUND THAT THE PURCHASE OF BROKEN RICE HAS BEEN SHO WN ONLY TO THE EXTENT OF 200 QTLS. AND THERE IS OPENING STOCK OF BROKEN R ICE ALSO AT 131.75 QTLS. SALES HAVE BEEN INDICATED AT 331.75 QTLS. THEREFOR E, THERE IS NO CONFORMITY IN THE ACTUAL PURCHASES AND SALES OF BRO KEN RICE AND FIGURES SHOWN IN THE QUANTATITIVE DETAILS OF AUDIT REPORT. 3. AFTER DUE NOTICE, PROPOSING REJECTION OF BOOKS O F ACCOUNT U/S 145(3), AS CORRECT PROFIT CANNOT BE DEDUCED FROM SUCH BOOKS OF ACCOUNT . SO, HE WAS ASKED TO AS TO WHY THE PROFIT WORKED OUT BY APPLYING SALE RATE OF SUPERFIN E AND COMMON RICE INSTEAD OF BROKEN RICE FOR THE QUANTITY OF 3998.89 QTLS. THE ASSESSE E FILED REPLY AND SUBMITTED BEFORE THE I.T.A. NO.2214/DEL./2010 (A.Y. : 2004-05) 3 ASSESSING OFFICER THAT EVEN GOVERNMENT ACCEPTS THE FACT OF BROKEN RICE IF THEY ACCEPT THE LEVY RICE AFTER ALLOWING 25% TOWARDS BROKEN RIC E. SO HIS BOOK RESULT SHOULD BE ACCEPTED. VARIOUS OTHER CONTENTIONS WERE ALSO RAIS ED AND ASSESSING OFFICER WHILE REJECTING BOOKS OF ACCOUNT HAS CONCLUDED TO MAKE AD DITION OF RS.2,71,263/- AS PER PARA 4.3 OF HIS ORDER: THEREFORE, THE BOOKS OF ACCOUNT ARE LIABLE TO BE R EJECTED AND HEREBY REJECTED U/S 145(3) OF THE I.T. ACT, 1961. ACCORDINGLY, THE SAL ES IN RESPECT OF FRESH RICE, RECORDED AS BROKEN RICE ARE ESTIMATED. HOWEVER, IT CANNOT BE RULED OUT THAT THERE MUST HAVE BEEN SOME BROKEN IN THE HANDLING OF RICE BAGS. THEREFORE, OUT OF THE TOTAL SALE OF 36168.54 QTLS. 5% IS TAKEN TO HAVE BE EN RECEIVED AS BROKEN RICE IN HANDLING OF CONSIGNMENTS. THIS QUANTITY COMES AT 1 808.42 QTLS. IN THIS MANNER, THE SALES OF BALANCE QUANTITY OF 2190.47 QTLS. (399 8.89 QTLS. 1808.42 QTLS.) IS TAKEN TO HAVE RECORDED AS BROKEN RICE INSTEAD OF FR ESH RICE. IT IS SEEN THAT THERE IS SUBSTANTIAL DIFFERENCE IN THE SALE OF RATE OF COMMO N RICE AND BROKEN RICE. FOR THE SAKE OF ILLUSTRATION THE FOLLOWING FIGURES ARE GIVE N ARE GIVEN: FRESH COMMON RICE BROKEN RICE DIFFERENCE BILL NO. DATE SALE RATE PER QTL. BILL NO. DATE SALE RATE PER QTL. 377 02.11.03 741/- 379 02.11.03 657/- 84/- 378 02.11.03 741/- 380 02.11.03 657/- 84/- 396 14.11.03 855/- 395 14.11.03 665/- 190/- 398 16.11.03 868/- 399 17.11.03 647/- 221/- 405 18.11.03 866/- 400 17.11.03 661/- 205/- 413 23.11.03 865/- 412 23.11.03 660/- 205 /- AVERAGE RATE RS,822/66 RS.657/83 RS.164/30 FROM THE ABOVE, IT CAN BE SEEN THAT THE AVERAGE SAL E RATE OF FRESH COMMON RICE COMES AT RS.822.66 PER QUINTAL AND AVERAGE SALE RAT E OF BROKEN RICE COMES AT RS.657.83 PER QUINTAL. IN THIS MANNER, THERE IS DI FFERENCE OF RS.164.30 QUINTAL IN THE SALE RATE. HOWEVER, FOR THE FAIRNESS OF THINGS THE DIFFERENCE I.E. SUPPRESSION, FOR THE QUANTITY OF 1808.42 QNTLS. IS TAKEN @ RS.15 0 PER QNTL. AS DISCUSSED ABOVE, THE VALUE OF SUPPRESSED SALE FOR THE QUANTITY OF 18 08.42 QNTLS. @ RS.150/- PER QNTL. COMES AT RS.2,71,263/-. SINCE THERE IS NO AD DITIONAL EXPENDITURE AGAINST THIS SALE, HENCE THE WHOLE AMOUNT IS TAKEN AS AN ADDITIO NAL INCOME EARNED BY THE ASSESSEE. THIS AMOUNT IS THEREFORE LIABLE TO BE AD DED TO THE TOTAL DECLARED INCOME OF THE ASSESSEE AND ADDITION IS MADE. ADDITION RS.2,71,263.00 I.T.A. NO.2214/DEL./2010 (A.Y. : 2004-05) 4 4. AGAINST SUCH ORDER, ASSESSEE PREFERRED APPEAL, W HICH CAME TO BE DISMISSED VIDE ORDER DATED 27.12.2007. 5. AGGRIEVED BY THE FIRST APPELLATE AUTHORITYS ORD ER, ASSESSEE PREFERRED APPEAL BEFORE ITAT. VIDE ORDER 27.3.2009 OF THE TRIBUNAL, THE ORDER OF THE CIT(A) WAS SET ASIDE ON THE FILE OF THE CIT(A) WITH THE DIRECTION THAT T HE ASSESSEE BE GIVEN REASONABLE OPPORTUNITY OF BEING HEARD TO DECIDE THE APPEAL AFR ESH. FOLLOWING THE DIRECTION OF ITAT, CIT(A) CONSIDERED ALL THE POINTS RAISED BY THE ASSE SSEE AND CONCLUDED TO DECIDE THE APPEAL AGAINST THE ASSESSEE VIDE PARA.6 OF HIS ORDE R AS UNDER: 6. AS ALSO AGITATED IN THE GROUNDS OF APPEAL, THE LD. ASSESSING OFFICER MADE AN ADDITION OF RS.2,71,263/-. THE ADDITION IS SEEN TO BE MADE AFTER DRAWING THE FOLLOWING CONCLUSIONS: (I) PURCHASE AND SALE OF THREE KINDS OF RICE REVEA L THAT AN EXCESS QUANTITY OF 3998.89 QTLS. OF BROKEN RICE HAS BEEN SHOWN. (II) QUANTITATIVE DETAILS OF RICE IN THE AUDIT REPO RT REVEAL THAT THE PURCHASE OF BROKEN RICE WAS RECORDED AT 200 QTLS. AND OPENING S TOCK OF BROKEN RICE WAS RECORDED AT 131.75 QTLS. TOTAL SALES OF BROKEN RICE WERE SHOWN AT 331.75 QTLS. (III) THE ABOVE SHOWED TO THE ASSESSING OFFICER THA T THE QUANTITIES OF PURCHASE AND SALE OF BROKEN RICE WERE NOT THE SAME AS RECORD ED IN THE AUDIT REPORT. THE LD. ASSESSING OFFICER ACCORDINGLY GAVE A NOTICE OF REJECTION OF BOOKS OF ACCOUNT IN TERMS OF SEC. 145(3) OF THE ACT AS HE FOUND IT DIFFICULT TO COMPUTE CORRECT PROFITS ON THE BASIS OF THE BOOKS OF ACCOUN T MAINTAINED BY THE APPELLANT AND AN AUDIT REPORT ON THE BASIS OF SUCH BOOKS. THE REPLY OF THE APPELLANT TO THE AFORE-MENTIONED QUANTITATIVE DISCREPANCIES HAS BEEN REPRODUCED BY THE LD. ASSESSING OFFICER AT PARA 4.1 OF HIS ASSESSMENT ORD ER. IN THE COURSE OF APPELLATE PROCEEDINGS, THE LD. AR SHRI RAJIV AGARWAL, FCA ARG UED THE POINTS MADE BY HIM IN HIS WRITTEN SUBMISSIONS DATED 17.12.2009. HE MAI NLY AGITATED THE VIEW OF THE ASSESSING OFFICER WHO ACCORDING TO HIM WAS MAINLY G UIDED BY HIS NOTION THAT THERE SHOULD NOT BE ANY LOSS IN A TRADING BUSINESS. THE ASSESSING OFFICER HAS THOUGH MADE THIS OBSERVATION IN THE ASSESSMENT ORDE R, BUT HE HAS CORROBORATED HIS NOTION BY AFFORDING AN OPPORTUNITY TO THE APPELLANT TO RECONCILE THE QUANTITY OF BROKEN RICE AVAILABLE WITH HIM AND THE QUANTITY OF SALE. AS REGARDS THE PERCENTAGE OF BROKEN RICE WHICH ACCORDING TO THE LD. AR SHRI R AJIV AGARWAL, FCA HAS BEEN ACCEPTED BY THE GOVT. AT 25%, THE LD. ASSESSING OFF ICER HAS DULY DISCUSSED THAT I.T.A. NO.2214/DEL./2010 (A.Y. : 2004-05) 5 ASPECT AT PARA 4.2 OF HIS ASSESSMENT ORDER. HE HAS ALSO GONE THROUGH THE GOVT. ORDER PRODUCED BEFORE HIM WHICH ACCORDING TO THE LD . ASSESSING OFFICER WAS RELEVANT IN RESPECT OF THE RICE MILLERS FROM WHOM ' LEVY-RICE' WAS PURCHASED BY THE GOVT. THE LD. ASSESSING OFFICER HAS, THEREFORE, DIS TINGUISHED THE LEVEL OF BROKEN RICE ACCEPTABLE IN THE CASE OF LEVY RICE PURCHASED BY THE GOVT. AND THE LEVEL OF BROKEN RICE WHERE ONLY TRADING WAS INVOLVED. A PERU SAL OF THE TWO-PAGES LONG WRITTEN SUBMISSIONS DATED 17.12.2009 SHOWS THAT THE CONTENTIONS DO NOT OVERCOME OR EXPLAIN QUANTITATIVE DISCREPANCIES POINTED OUT B Y THE LD. ASSESSING OFFICER NOR DISPROVE THE CORRECTNESS OF THE PERCENTAGE OF BROKE N RICE TAKEN AT 5%. THE APPELLANT COULD HAVE UTILIZED THE OPPORTUNITY OF BE ING HEARD GIVEN TO HIM BY PUTTING UP MATCHING REBUTTALS WHICH COULD DISLODGE ASSESSING OFFICER'S CONCLUSIONS AS WRONG. THE LD. AR HAS NOT EVEN REFUT ED THE LD. ASSESSING OFFICER'S CONTENTION THAT THE POSSIBILITY OF 25% BROKEN RICE WAS SPECIFIED IN RESPECT OF THE RICE MILLERS FROM WHOM LEVY RICE WAS PURCHASED. THE APPELLANT ALSO HAD ENOUGH TIME TO GIVE A COMPLETE WORKING OF THE OPENING STOC K OF ALL KINDS OF RICE HANDLED BY HIM DURING THE YEAR, PURCHASES MADE AND QUANTITI ES OF SALES MADE SEPARATELY. IT IS, THEREFORE, APPARENT THAT THERE WAS MUCH TO BE D ESIRED FROM THE BOOKS OF ACCOUNT MAINTAINED WHICH ARE CLAIMED TO HAVE BEEN A UDITED ALSO. THE MAINTAINED BOOKS WERE CERTAINLY NOT A SUFFICIENT GUIDE FOR THE ASSESSING OFFICER TO HELP HIM TO DISCHARGE THE ONEROUS TASK OF MAKING A CORRECT ASSESSMENT. IN THE LIGHT OF THE HANDICAP FACED BY THE ID. ASSESSING OFFICER THERE W AS NO ESCAPE FROM RESORTING TO A SENSIBLE ESTIMATION. THE ADDITION MADE BY THE ID. ASSESSING OFFICER OF RS.2, 71,263/- IS, THEREFORE, UPHELD. WITH THIS DECISION, ALL THE GROUNDS, BEING COMMON, GET DISPOSED OF. 7. IN THE RESULT, THE APPEAL IS DISMISSED. 6. AGGRIEVED BY THE ORDER OF THE CIT(A) IN DE NOVO PROCEEDINGS, THE ASSESSEE HAS COME UP IN FURTHER APPEAL AND WHILE REITERATING THE SUBMISSIONS AS MADE BEFORE THE LOWER AUTHORITIES, HE HAS PLEADED FOR DELETING THE ADDITI ON AS MADE BY THE ASSESSING OFFICER AND CONFIRMED BY THE CIT(A). IT WAS FURTHER SUBMITTED THAT WHEN STATE REGULATORY AUTHORITIES ARE ACCEPTING GENERATION OF BROKEN RICE WHICH OCCURS WHILE HANDLING (INWARD UNLOADING AND LOADING AND OUTWARD UNLOADING AND LOA DING OF FULL RICE, WHICH IS ACCEPTED UP TO 25%). SO, GIVING CERTAIN QUANTITATIVE DETAIL S IN QUINTALS, HE LAYS STRONG STRESS ON DELETING OF THE IMPUGNED ADDITION MADE BY THE ASSES SING OFFICER AND CONFIRMED BY THE CIT(A). HE HAS ALSO FILED SYNOPSIS AND WRITTEN SUB MISSIONS/CONTENTIONS AND MAINLY I.T.A. NO.2214/DEL./2010 (A.Y. : 2004-05) 6 CONTENDED THAT THE ITO HAS NOT FOUND ANY FAULTS/DI SCREPANCIES PER SE OTHER GOODS (FULL RICE ETC.) AND ACCEPTED AND ADMITTED THE PURCHASES AND SALES AS WELL AS CLOSING STOCK THEREOF FOR THEIR QUANTITIES AS WELL AS PRICES. TH US, REJECTION OF ENTIRE BOOKS OF ACCOUNT IS AGAINST FACTS, UNREASONABLE, UNJUSTIFIED AND UNFAIR AND NEEDS TO BE DELETED, WHICH MAY BE DELETED. 7. LD.DR STRONGLY RELIED UPON THE ORDERS OF AUTHORI TIES BELOW AND PLEADED THAT THERE WERE LOT OF DISCREPANCIES FOUND IN THE AUDITED RESU LTS FILED AND BOOKS OF ACCOUNT PRODUCED AND ASSESSEE COULD NOT PROPERLY EXPLAIN SUCH DISCRE PANCIES. THEREFORE, HE HAS RIGHTLY REJECTED THE BOOK RESULT AS SHOWN BY THE ASSESSEE A ND SO FAR AS STATE REGULATORY AUTHORITIES ACCEPTANCE OF BROKEN RICE AT 25% IS CO NCERNED, SAME IS APPLICABLE TO THE CASES OF MANUFACTURING AND MILLING WHEREAS ASSESSE E HAS BEEN DEALING IN TRADING OF RICE AND ALL THE DETAILS SOUGHT FOR AND DISCREPANCIES FO UND HAVE NOT BEEN FILED/EXPLAINED AT ALL BEFORE THE ASSESSING OFFICER OR IN APPEAL EVEN. T HEREFORE, ADDITION IS CALLED FOR, WHICH HAS RIGHTLY BEEN MADE BY THE ASSESSING OFFICER AND CONFIRMED BY THE CIT(A). IT WAS URGED FOR CONFIRMATION OF THE IMPUGNED ORDER. 8. WE HAVE HEARD BOTH THE SIDES, CONSIDERED THE MAT ERIAL ON RECORD AS WELL AS SYNOPSIS FILED, CASE LAWS CITED AND ARGUMENTS ADVAN CED BEFORE US. IT IS FOUND THAT THERE WERE DISCREPANCIES IN THE BOOK RESULT FILED, TRACED ON THE SCRUTINY OF THE BOOKS MADE BY THE ASSESSING OFFICER WHICH COULD NOT BE PROPERLY R EPLIED/EXPLAINED. SO, ACTION OF THE ASSESSING OFFICER IN REJECTING THE BOOK RESULT AND CONFIRMATION OF THE SAME BY THE CIT(A) IN VIEW OF THE FACTS AND CIRCUMSTANCES IS FO UND TO BE JUSTIFIED AND PROPER WHICH ACTION IS UPHELD. BUT, SO FAR AS QUANTUM OF TRADIN G ADDITION ON ACCOUNT OF BROKEN RICE IS CONCERNED, PLEA OF THE ASSESSEE THAT STATE REGULATO RY AUTHORITIES ARE ACCEPTING IT UP TO I.T.A. NO.2214/DEL./2010 (A.Y. : 2004-05) 7 25%, SUCH ACCEPTANCE OF RATE IS TRUE FOR MILLERS AN D MANUFACTURERS, WHEREAS ASSESSEE IS TRADING IN RICE AND PADDY. THEREFORE, SAME YARDSTI CK WILL NOT HOLD GOOD OR APPLY HERE SO FAR AS ASSESSEE IS CONCERNED. HOWEVER, IN VIEW OF FACTS AND THE MATERIAL PLACED ON RECORD, WE FIND THAT THE ADDITION MADE BY THE ASSES SING OFFICER AND CONFIRMED BY THE CIT(A), THOUGH CALLED FOR YET APPEARS TO BE HIGHER SIDE THEREFORE, IN VIEW OF FACTS AND CIRCUMSTANCES, WE ARE OF THE OPINION THAT IT WOULD MEET THE ENDS OF JUSTICE IF SUCH ADDITION MADE BY THE ASSESSING OFFICER AND CONFIRME D BY THE CIT(A) IS RESTRICTED TO 50% OF THE ADDITION MADE. WE HOLD AND DIRECT ACCORDING LY. SO, ASSESSEE GETS RELIEF OF RS.1,35,631.50. 9. AS A RESULT, THE APPEAL OF THE ASSESSEE GETS PAR TLY ACCEPTED. ORDER PRONOUNCED IN OPEN COURT ON 27.01.2012. SD/- SD/- (A.N. PAHUJA) ACCOUNTANT MEMBER (U.B.S. BEDI ) JUDICIAL MEMBER DATED : JANUARY , 2012 SKB COPY OF THE ORDER FORWARDED TO:- 1. APPELLANT 2. RESPONDENT 3. CIT 4. CIT(A)-II, DEHRADUN 5. CIT(ITAT) DEPUTY REGISTRAR, ITAT