Mrs Sabiha Sultana, Kolkata V. ITO, WD-35(2), KOLKATA, Kolkata

ITA 2316/KOL/2016

• Counselvise Citation: [2018] 126 COUNSELVISE.COM (IT) 1316 (ITAT-KOLKATA)
• Duration Of Justice: 1 year(s) 3 month(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 07-03-2018
• Appeal Filed By: Assessee
• Order Result: Partly Allowed
• Bench Allotted: B
• Assessment Year: 2004-2005
• Appeal Filed On: 07-12-2016
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Keywords: Rejection of books of accounts; Capital asset converted into stock in trade
• Section: 143(3); 145

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL D BENCH : KOLKATA [BEFORE HONBLE SHRI ABY. T. VARKEY, JM & SHRI M. BALAGANESH, AM ] I.T.A NO. 2316/KOL/20 16 ASSESSMENT YEAR : 2004-0 5 MRS. SABIHA SULTANA -VS- ITO, WARD-35(2), KOLKATA (L/H OF LATE NAFISUL HASSAN) [PAN: AAQPH 9866 D] (APPELLANT) (RESPONDENT) FOR THE APPELLANT : SHRI MIRAJ D SHAH FOR THE RESPONDENT : SHRI ARINDAM BHATTACHARJ EE, ADDL. CIT DATE OF HEARING : 19.02.2018 DATE OF PRONOUNCEMENT : 07.03.2018 ORDER PER M.BALAGANESH, AM 1. . THIS APPEAL BY THE ASSESSEE ARISES OUT OF THE ORDER OF THE LEARNED COMMISSIONER OF INCOME TAX(APPEALS)-7, KOLKATA [IN SHORT THE LD CIT (A)] IN APPEAL NO.246/CIT(A)- 7/KOL/CIR-25/14-15 DATED 05.11.2016 AGAINST THE OR DER PASSED BY THE DCIT, CIRCLE-2, KOLKATA [ IN SHORT THE LD AO] UNDER SECTION 143(3) OF THE INCOME TAX ACT, 1961 (IN SHORT THE ACT) DATED 29.12.2006 FOR THE ASSESSME NT YEAR 2004-05. 2. THE GROUND NOS. 1 & 5 RAISED BY THE ASSESSEE AR E GENERAL IN NATURE AND DOES NOT REQUIRE ANY SPECIFIC ADJUDICATION. 3. THE GROUND NOS. 2 & 3 RAISED BY THE ASSESSEE WER E STATED TO BE NOT PRESSED BY THE LD AR AT THE TIME OF HEARING. THE SAME IS RECKONED AS A STATEMENT FROM THE BAR AND ARE ACCORDINGLY DISMISSED AS NOT PRESSED. 2 ITA NO.2316/KOL/2016 MRS. SABIHA SULTANA A.YR.2004-05 2 4. THE ONLY ISSUE TO BE DECIDED IN THIS APPEAL IS A S TO WHETHER THE LD CITA WAS JUSTIFIED IN UPHOLDING THE ESTIMATION OF GROSS PROF IT IN THE SUM OF RS 11,44,102/- AT 10% OF TURNOVER FROM M/S ELEGANT, IN THE FACTS AND CIRCUMSTANCES OF THE CASE. 5. THE BRIEF FACTS OF THIS ISSUE IS THAT THE ASSESS EE IS A LEGAL REPRESENTATIVE OF THE DECEASED ASSESSEE, AN INDIVIDUAL, PROPRIETOR OF M/S ELEGANT , AMONG OTHER BUSINESSES. M/S ELEGANT IS ENGAGED IN THE BUSINESS OF TRADING O F CONSUMER GOODS. THE ASSESSEE REPORTED GROSS PROFIT OF RS 90,621/- FROM M/S ELEGA NT WHICH WAS 0.79% OF TURNOVER, WHICH WAS DERIVED BASED ON THE BOOKS OF ACCOUNTS RE GULARLY MAINTAINED BY THE ASSESSEE WHICH WAS ALSO PRODUCED BEFORE THE LD AO. THE SAME WAS DULY EXAMINED AND TEST CHECKED BY THE LD AO , WHICH FACT WAS ACKN OWLEDGED BY HIM IN THE ASSESSMENT ORDER. THE LD AO EVEN OBSERVED THAT ON S CRUTINY OF DETAILS AND DOCUMENTS I.E PURCHASE AND SALE BILLS AND COMPUTERIZED LEDGE R OF PURCHASES AND SALES AS PRODUCED IN THE COURSE OF HEARING, IT WAS SEEN THAT THE ASSE SSEE TOOK RE-DISTRIBUTORSHIP OF CONSUMER PRODUCTS OF THE FOLLOWING RENOWNED CONCERN S WHERE THE GROSS PROFIT MARGINS VARIES FROM 10 TO 15% IN MOST OF THE CASES :- NAME OF THE CONCERN MAIN PRODUCTS % OF GP (APPROX .) M/S HINDUSTHAN LEVER LTD TEA & CHOCOLATE 12 TO 1 5% M/S CARGILL INDIA PVT LTD ATTA, MAIDA, SUJI, RICE OIL ETC 10 TO 15% M/S B.K.AGENCIES JAM, JELLY , PICKLES ETC 5 TO 10 % M/S ADANI WILMAR LTD REFINED OIL 10 TO 15% M/S GANAPATI OIL DISTRIBUTORS MUSTARD OIL 3 TO 5% M/S KANCHAN OIL INDUSTRIES VANASPATI (DALDA) 10 TO 12% 3 ITA NO.2316/KOL/2016 MRS. SABIHA SULTANA A.YR.2004-05 3 5.1. THE LD AO OBSERVED THAT ASSESSEE HAD NOT MAINT AINED PROPER BOOKS OF ACCOUNTS IN RESPECT OF THIS BUSINESS EXCEPT LEDGERS AND BILLS / VOUCHERS ETC FOR PURCHASES AND SALES. ON RANDOM CHECKING OF PURCHASES AND SALES BILLS OF DIFFERENT GOODS OF DIFFERENT CONCERNS, THE ABOVE MENTIONED GP RATE HAS BEEN REFL ECTED. THE ASSESSEE HAS NOT MAINTAINED ANY STOCK BOOK. FOR THIS, THE AUDITOR I N HIS AUDIT REPORT (P&L A/C) HAS MENTIONED THAT THE CLOSING STOCK HAS BEEN TAKEN AS CERTIFIED BY THE PROPRIETOR. BASED ON THESE OBSERVATIONS, HE ESTIMATED THE GROSS PROFI T AT 10% OF TURNOVER OF M/S ELEGANT AND ARRIVED AT THE FIGURE OF RS 11,44,102/- IN THE ASSESSMENT. 6. THE ASSESSEE SUBMITTED BEFORE THE LD CITA THAT H E HAD FOR THE FIRST TIME UNDERTOOK THE BUSINESS OF RE-DISTRIBUTION OF CONSUMER GOODS U NDER THE PROPRIETORY CONCERN M/S ELEGANT. ADMITTEDLY ALL THE PURCHASE AND SALES BI LLS WERE DULY PRODUCED BEFORE THE LD AO AND NO DEFECT WHATSOEVER WAS DETECTED BY THE LD AO IN THE SAID BILLS. THE LD AO MERELY STATED THAT THE BOOKS WERE NOT PROPERLY MAIN TAINED. NO DEFECT WHATSOEVER WAS FOUND / DETECTED BY THE LD AO IN THE BOOKS OF A CCOUNTS PRODUCED BEFORE HIM. THE LD AO MERELY STATED THAT THE BOOKS WERE NOT PROPERL Y MAINTAINED AND BY MERELY MAKING THIS REMARK, HE MADE AN ESTIMATE OF GP OF 10 % AS AGAINST 0.79% REPORTED BY THE ASSESSEE FROM M/S ELEGANT. IT WAS ARGUED THAT WITHOUT REJECTION OF BOOKS OF ACCOUNTS BY POINTING OUT SPECIFIC DEFECTS THEREON, THE LD AO COULD NOT HAVE GOT THE POWERS TO ESTIMATE THE GP IN TERMS OF SECTION 145 O F THE ACT. THE ASSESSEE PLACED RELIANCE ON THE DECISION OF HONBLE JURISDICTIONAL HIGH COURT IN THE CASE OF ASHOKE REFRACTORIES LTD REPORTED IN 279 ITR 457 (CAL). 7. THE LD CITA UPHELD THE ACTION OF THE LD AO BY O BSERVING AS UNDER:- PARA 12. FINDINGS OF THE CIT(A) I HAVE PERUSED THE ASSESSMENT ORDER AND SUBMISSIONS MADE BY THE LD. A/R OF THE APPELLANT. THE APPELLANT COULD HAVE PRODUCED T HE BOOKS OF ACCOUNTS BEFORE 4 ITA NO.2316/KOL/2016 MRS. SABIHA SULTANA A.YR.2004-05 4 UNDERSIGNED. HOWEVER THE APPELLANT HAS NOT COMPLIE D WITH THE NOTICES DURING THE APPELLATE PROCEEDINGS. THEREFORE, THE ADDITION IS CONFIRMED. 8. AGGRIEVED, THE ASSESSEE IS IN APPEAL BEFORE US O N THE FOLLOWING GROUND:- 4. FOR THAT IN THE FACTS AND CIRCUMSTANCES OF THE C ASE THE LD. AO ERRED IN DISALLOWING 15% OF THE CLAIM OF EXPENDITURE ON FORE IGN TRAVEL FOR RS. 58477. THE SAME BEING INCURRED FOR BUSINESS THE SAME SHOUL D BE ALLOWED IN FULL. 9. WE HAVE HEARD THE RIVAL SUBMISSIONS. THE LD AR PLACED RELIANCE ON THE DECISION OF HONBLE JURISDICTIONAL HIGH COURT IN THE CASE OF M/ S SWADESHI COMMERCIAL CO. LTD VS CIT IN ITA NO. 219 OF 2001 DATED 18.12.2008 WHEREIN THE QUESTION RAISED BEFORE THE HONBLE COURT IS AS FOLLOWS:- WHETHER THE TRIBUNAL MISDIRECTED ITSELF IN LAW IN HOLDING THAT THE GROSS PROFIT WAS REQUIRED TO BE ESTIATMED THOUGH THE BOOKS OF AC COUNT WERE NOT REJECTED AND ITS PURPORTED FINDING INT HIS BEHALF ARE ARBITRARY, UNREASONABLE AND PERVERSE? IT WAS HELD THAT - THE BOOKS OF ACCOUNTS WHICH WERE PRODUCED WERE NOT REJECTED NOR EVEN A SINGLE VOUCHER WAS FOUND UNVERIFIABLE. THE SAID FACT HAS ALSO BEEN ACCEPTED BY THE COMMISISONER OF APPEAL IN THE ORDER SO PASSED BY HIM. .. SUCH BEING THE POSITION, IN OUR CONSIDERED OPINION, THE LEARNED TRIBUNAL HAD WRONGLY DECIDED THE SAID QUESTION IN HOLDING THAT T HE GROSS PROFIT WAS REQUIRED TO BE ESTIMATED AT THE RATE WHICH HE ARRIVED AT AND THEREFORE WE FOUND THAT THERE IS NO SUBSTANCE IN THE SUBMISSION MADE BY MR. KHAITAN IN THE MATTER. FURTHERMORE SINCE THE RELEVANT FACT THAT THE BOOKS OF ACCOUNTS WERE NOT REJECTED AND HAD BEEN TAKEN INTO ACCOUNT FOR THE PURPOSE OF DECIDING THIS QUESTION WHICH HAS BEEN RAISED IN THIS APPEAL, WE ALLOW THE APPEAL AND ANSWERED THE QUESTION IN THE AFFIRMATIVE IN FAVOUR OF THE ASSESSEE. THE APPEAL IS, THEREFORE, DISPOSED OF. 9.1. WE FIND THAT NEITHER THE LD AO NOR THE LD CITA HAD POINTED OUT ANY DEFECT IN THE BOOKS OF ACCOUNTS SUBMITTED BY THE ASSESSEE. WITH OUT POINTING OUT SUCH DEFECTS AND WITHOUT REJECTING THE BOOKS OF ACCOUNTS SUBMITTED B EFORE THE LD AO, THE LD AO IS NOT EMPOWERED TO RESORT TO ESTIMATION OF GROSS PROFIT A S WAS DONE IN THE INSTANT CASE. WE ALSO FIND THAT THE CO-ORDINATE BENCH OF THIS TRIBUN AL IN THE CASE OF SRK TEA PROCESSING 5 ITA NO.2316/KOL/2016 MRS. SABIHA SULTANA A.YR.2004-05 5 INDUSTRIES VS ACIT IN ITA NO. 1685/KOL/2009 FOR ASS T YEAR 2003-04 DATED 11.3.2011 HAD ALSO ADDRESSED A SIMILAR ISSUE. THE QUESTIONS R AISED BEFORE THIS TRIBUNAL IN THAT CASE WAS AS UNDER:- 1. FOR THAT THE LD. CIT(A) ERRED IN CONFIRMING THE ADDITION OF THE LD. A.O. IN ADDING BACK RS 23,34,000/- BEING ALLEGED SALES OF S UPPRESSED PRODUCTION OF TEA BY APPLYING THE AVERAGE PRODUCTION RATE OF PRECEDIN G 3 YEARS WHEN THERE WAS NO DEFECTS IN THE AUDITED BOOKS OF ACCOUNT , DAY TO DAY PRODUCTION REGISTERS AND THE PRODUCTION WAS DULY ACCEPTED BY EXCISE AND SALE S TAX AUTHORITIES. 2. FOR THAT EVEN OTHERWISE THE LD. CIT(A) ERRED IN CONFIRMING THE ADDITION OF ALLEGED EXTRA PRODUCTION / SALES OF SUPPRESSED TEA IGNORING THE EXPLANATION FILED BY THE ASSESSEE AND AUDITORS REPROT THAT THE BOOKS OF THE ASSESSEE WERE DULY AUDITED BY HIM AND NO DEFECT WAS POINTED OUT. IT WAS HELD AS UNDER:- 4. WE HAVE HEARD THE RIVAL CONTENTIONS AND GONE TH ROUGH FACTS AND CIRCUMSTANCES OF THE CASE. WE FIND THAT THE ASSESSI NG OFFICER HAS NOT REJECTED THE BOOKS OF ACCOUNTS IN THE PRESENT CASE AND EVEN THE LD. CIT(A) HAS NOT GIVEN ANY FINDING IN RESPECT TO THE SAME. THE LD. C IT(A) SIMPLY GONE THROUGH THE ISSUE THAT THE GROSS PROFIT RATE, IN THE PRESEN T ASSESSMENT YEAR FROM EARLIER YEARS, IS LOWER. WHETHER, ASSESSING OFFICER CAN EST IMATE GROSS PROFIT RATE WITHOUT REJECTING THE BOOKS OF ACCOUNTS OR NOT, WE ARE OF THE VIEW THAT FIRST PROVISO TO SECTION 145(1) OR SECTION 145(2) CAN BE INVOKED ONLY IF AND WHERE THE ELEMENTS ATTRACTING EITHER OF THOSE PROVISIONS ARE FOUND TO EXIST. IN THIS REGARD, THE ASSESSING OFFICER HAS TO GIVE A CLEAR F INDING TO THAT EFFECT, ALONG WITH THE MATERIAL ON WHICH SUCH FINDING IS BASED, H AS TO BE MADE OUT AND GIVEN BY THE AO. NO ASSESSMENT UNDER FIRST PROVISO TO SECTION 145(1) OR 145(2) CAN BE MADE BY THE ASSESSING OFFICER WITHOUT REJECT ING THE BOOKS OF ACCOUNTS. THERE IS NO FINDING IN THE ASSESSMENT ORDER IN RESP ECT TO THE FACT THAT THE ASSESSEES METHOD OF ACCOUNTING IS NOT A REGULARLY EMPLOYED METHOD OR WHETHER HIS INCOME, PROFITS OR GAINS CANNOT BE DEDU CED OR ACCOUNT ARE INCOMPLETE OR INCORRECT IN THE PRESENT CASE. IN THE ABSENCE OF REJECTION OF BOOKS OF ACCOUNTS, WE ARE UNABLE TO ACCEPT THAT THE ASSESSING OFFICER HAS RIGHTLY ESTIMATED THE GROSS PROFIT. ACCORDINGLY, WE ARE OF THE VIEW THAT THE LOWER AUTHORITIES HAVE ERRED IN APPLYING GROSS PROF IT RATE ON THE BASIS OF EARLIER YEARS, WITHOUT REJECTING BOOKS OF ACCOUNTS. WE ALLOW THE CLAIM OF THE ASSESSEE AND THIS ISSUE OF ASSESSEES APPEAL IS ALL OWED. 5. IN THE RESULT, THE APPEAL OF THE ASSESSEE IS ALL OWED. 6 ITA NO.2316/KOL/2016 MRS. SABIHA SULTANA A.YR.2004-05 6 9.2. IN VIEW OF THE AFORESAID FACTS AND FINDINGS AN D RESPECTFULLY FOLLOWING THE AFORESAID JUDICIAL PRECEDENTS, WE HOLD THAT THE LD AO OUGHT N OT TO HAVE MADE ANY ESTIMATION OF GROSS PROFIT IN THE SUM OF RS 11,44,102/- IN THE FA CTS AND CIRCUMSTANCES OF THE CASE. ACCORDINGLY, THE GROUND NO. 4 RAISED BY THE ASSESSE E IS ALLOWED. 10. IN THE RESULT, THE APPEAL OF THE ASSESSEE IS PA RTLY ALLOWED. ORDER PRONOUNCED IN THE COURT ON 07.03.2018 SD/- SD/- [A.T. VARKEY] [ M.BALAGANESH ] JUDICIAL MEMBER ACCOUNTANT MEMBER DATED : 07.03.2018 SB, SR. PS COPY OF THE ORDER FORWARDED TO: 1. MRS. SABIHA SULTANA (L/H OF LATE NAFISUL HASSAN ), C/O, D J SHAH & CO., KALYAN BHAWAN, 2, ELGIN ROAD, KOLKATA-700020. 2. DCIT, CIRCLE-25, 2, GARIAHAT ROAD SOUTH, JODHPUR PARK, KOLKATA-700068 3. C.I.T(A)- , KOLKATA 4. C.I.T.- K OLKATA. 5. CIT(DR), KOLKATA BENCHES, KOLKATA. TRUE COPY BY ORDER SENIOR PRIVAT E SECRETARY HEAD OF OFFICE/D.D.O., ITAT, KOLKATA BENCHE S