M/s. Kurikkal paints and hardwares, Calicut V. ITO, Calicut

ITA 245/COCH/2012

• Counselvise Citation: [2012] 140 COUNSELVISE.COM (IT) 65051 (ITAT-COCHIN)
• Duration Of Justice: 2 month(s) 25 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 21-12-2012
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: DB
• Assessment Year: 2006-2007
• Appeal Filed On: 26-09-2012
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: S VIJAYAPRABHA
• Keywords: Gross profit estimation; Difference of opinion

Judgement Text

1 ITA NO. 245/COCH/2012 IN THE INCOME TAX APPELLATE TRIBUNAL COCHIN BENCH, COCHIN BEFORE SHRI N.R.S. GANESAN (JM) AND SHRI B.R. BASKA RAN(AM) I.T.A NO. 245/COCH/2012 (ASSESSMENT YEAR 2006-07) M/S KURIKKAL PAINTS & HARDWARES VS ITO, WD.1 SOUBHAGYA SHOPPING COMPLEX KOZHIKODE ARAYIDATHUPALAM, PUTHIYARA PO KOZHIKODE 673 004 PAN : AAHFK3458P (APPELLANT) (RESPONDENT) APPELLANT BY : SHRI ARUN RAJ S RESPONDENT BY : SMT. S VIJAYAPRABHA DATE OF HEARING : 17-12-2012 DATE OF PRONOUNCEMENT : 21-12-2012 O R D E R PER N.R.S. GANESAN (JM) THIS APPEAL OF THE TAXPAYER IS DIRECTED AGAINST TH E ORDER OF THE COMMISSIONER OF INCOME-TAX(A)-I, KOZHIKODE CONFIRMI NG THE PENALTY LEVIED U/S 271(1)(C) OF THE ACT. 2 ITA NO. 245/COCH/2012 2. SHRI ARUN RAJ, THE LD.COUNSEL FOR THE TAXPAYER SU BMITTED THAT THE ASSESSING OFFICER LEVIED PENALTY ON THREE COUNTS, V IZ. (I) DIFFERENCE IN CREDIT NOTES; (2) LOW GP; AND (3) INTRODUCTION OF ADDITION AL CAPITAL IN THE PARTNERS ACCOUNT. ACCORDING TO THE LD.COUNSEL, THE PARTNERS INTRODUCED RS. 35 LAKHS AS CAPITAL. THE TAXPAYER EXPLAINED BEFORE THE ASSE SSING OFFICER THAT THE PARTNERS DISCLOSED AGRICULTURAL INCOME IN THEIR PER SONAL RETURNS AND FROM THE AGRICULTURAL INCOME THEY CONTRIBUTED TOWARDS CA PITAL IN THE FIRM. HOWEVER, THE ASSESSING OFFICER FOUND THAT NO PROPER BILLS WERE PRODUCED. THEREFORE, OUT OF RS.35 LAKHS, THE TAXPAYER HAS ALL OWED RS.10 LAKHS AND MADE ADDITION OF RS.25 LAKHS. SIMILARLY, IN RESPEC T OF CREDIT NOTES ISSUED BY THE TAXPAYER FIRM TO CERTAIN SUPPLIERS AN ADDITION OF RS.3,70,000 WAS MADE. TO COVER UP DEFICIENCY IN THE GROSS PROFIT THE ASSE SSING OFFICER MADE ADDITION OF RS.3,80,000. ACCORDING TO THE LD.REPRE SENTATIVE, THE CREDIT NOTE DIFFERENCE FOUND THAT TAXPAYERS RECORD AND SUNDRY CREDITORS RECORD ARE CREDIT NOTES ISSUED BY THE PARTIES AT THE FAG END O F THE YEAR. MOREOVER, THE TAXPAYER ITSELF ACCOUNTED FOR CREDIT NOTE FOR MORE THAN RS.15 LAKHS. FURTHER, THE GROSS PROFIT RATE WAS FOUND TO BE LOW BY THE TAXING AUTHORITY. ACCORDING TO THE LD.REPRESENTATIVE MERELY BECAUSE THE TAXPAYER AGREED FOR ADDITION IN THE ASSESSMENT PROCEEDINGS, THAT CANNOT BE A REASON FOR LEVYING 3 ITA NO. 245/COCH/2012 PENALTY U/S 271(1)(C) OF THE ACT. THE LD.REPRESENT ATIVE HAS PLACED RELIANCE ON THE JUDGMENT OF THE MADRAS HIGH COURT IN THE CASE OF COMMISSIONER OF INCOME-TAX VS JAYARAJ TALKIES (1999) 239 ITR 914 (MA D) AND SUBMITTED THAT MERELY BECAUSE THE TAXPAYER AGREED FOR ADDITION IT DOES NOT FOLLOW THAT AMOUNT AGREED TO BE ADDED WAS CONCEALED INCOME. 3. ON THE CONTRARY, SMT. VIJAYAPRABHA, THE LD.DR SUB MITTED THAT THE TAXPAYER AGREED FOR ADDITION BEFORE THE ASSESSING A UTHORITY. THOUGH THE TAXPAYER CLAIMED THAT AGRICULTURAL INCOME WAS USED FOR CONTRIBUTION TOWARDS CAPITAL IN THE FIRM, THE TAXPAYER HAS NOT P RODUCED ANY PROPER BILLS BEFORE THE ASSESSING OFFICER. THEREFORE, THE ASSES SING OFFICER MADE ADDITION. THE LD.DR PLACED HER RELIANCE ON THE JUDG MENTS OF THE KERALA HIGH COURT IN UNION ENGG CO VS COMMISSIONER OF INCOME-TA X (1980) 122 ITR 719 (KER); COMMISSIONER OF INCOME-TAX VS DEVADASAN (197 3) 91 ITR 464 (KER); SUPREME COURT JUDGMENTS IN THE CASE OF UNION OF INDI A & ORS VS DHARMENDRA TEXTILES PROCESSORS & ORS (2008) 306 ITR 277 (SC); AND COMMISSIONER OF INCOME-TAX VS ATUL MOHAN BINDAL (20 09) 317 ITR 1 (SC). 4 ITA NO. 245/COCH/2012 4. WE HAVE CONSIDERED THE RIVAL SUBMISSIONS ON EITH ER SIDE AND ALSO PERUSED THE MATERIAL AVAILABLE ON RECORD. IT IS WE LL SETTLED PRINCIPLES OF LAW THAT ASSESSMENT PROCEEDINGS ARE DIFFERENT FROM PENA LTY PROCEEDINGS. THE ASSESSING OFFICER HAS TO APPLY HIS MIND INDEPENDENT LY TO THE MATERIAL AVAILABLE ON RECORD FOR THE PURPOSE OF LEVYING PENA LTY. IN THE CASE BEFORE US, THE TAXPAYER OFFERED AN EXPLANATION BY HIS LETT ER DATED 12-01-2009; HOWEVER, THE SAME WAS REJECTED. WITH REGARD TO THE CONTRIBUTION TO THE CAPITAL, THE ADDITION WAS MADE ON THE GROUND THAT P ROPER BILLS WERE NOT PRODUCED. AGRICULTURAL SECTOR IS AN UNORGANIZED SE CTOR IN THIS COUNTRY. THEREFORE, IT MAY NOT BE PROPER TO EXPECT PROPER BI LLS FOR SALE OF AGRICULTURAL PRODUCES FROM THE AGRICULTURISTS. THE ASSESSING OFFICER, THOUGH, A QUASI JUDICIAL AUTHORITY CANNOT IGNORE THE GROUND REALITIES IN THE FIELD OF AGRICULTURE. WHAT IS TO BE SEEN IS WHETHER THE PAR TNERS ARE ALSO HAVING AGRICULTURAL LANDS AND WHETHER THEY ARE CULTIVATED THE LAND TO CONTRIBUTE TO THE PARTNERSHIP, AS CLAIMED. IN THIS CASE, IT IS N OBODYS CASE THAT THE PARTNERS ARE NOT HOLDING AGRICULTURAL LANDS AND THE Y ARE NOT CULTIVATING THE AGRICULTURAL LAND. WITHOUT EXAMINING ALL THESE FAC TS, THE ASSESSING OFFICER DISALLOWED RS.10 LAKHS OUT OF RS.35 LAKHS CONTRIBUT ED BY THE PARTNERS. THE AGREEMENT IN THE ASSESSMENT PROCEEDINGS MAY BE A GO OD REASON FOR 5 ITA NO. 245/COCH/2012 MAKING ADDITION; BUT CANNOT BE A SUFFICIENT REASON FOR LEVYING CONCEALMENT PENALTY THOUGH IN CERTAIN CASES, THE AGREEMENT CAN ALSO BE A BASIS FOR LEVY OF PENALTY. IN THIS CASE, THE ADDITION WAS MADE FO R WANT OF RECEIPTS FOR THE AGRICULTURAL INCOME. THEREFORE, THIS TRIBUNAL IS O F THE CONSIDERED OPINION THAT THERE IS NO GOOD GROUND FOR LEVYING PENALTY U/ S 271(1) FOR NON PRODUCTION OF PROPER BILLS IN RESPECT OF AGRICULTUR AL INCOME. IN OUR OPINION, EVEN THERE WAS NO JUSTIFICATION FOR MAKING THE ADDI TION IN THE ASSESSMENT PROCEEDINGS. 5. NOW COMING TO GROSS PROFIT RATIO, THE ASSESSING OFFICER MADE AN ALLEGATION THAT THE GROSS PROFIT RATIO ADOPTED BY T HE ASSESSING OFFICER IS LOWER WHEN COMPARED TO THE MARKET RATE. THE ASSESS ING OFFICER AFTER VERIFICATION OF BOOKS OF ACCOUNT FOUND THAT THE GRO SS PROFIT RATE IS LOWER WHEN COMPARED TO THE MARKET RATE. GROSS PROFIT RAT E IS NOT A FIXED RATE. IT WOULD FLUCTUATE DEPENDING UPON VARIOUS CIRCUMSTANCE S. THE TAXPAYER, ADMITTEDLY, IS A DEALER IN PAINTS AND HARDWARE. TH E AVAILABILITY OF STOCK DEMAND IN THE MARKET, COMPETITION IN THE LOCALITY W ITH OTHER TRADERS ARE, ALL RELEVANT FACTORS FOR CONSIDERING THE GROSS PROF IT. THE ASSESSING OFFICER SIMPLY SAYS THAT THE GROSS PROFIT RATE IS LOWER AS COMPARED TO THE RATE 6 ITA NO. 245/COCH/2012 PREVAILING IN THE MARKET. IT IS NOT KNOWN WHAT WAS THE RATE PREVAILING IN THE MARKET. AS WE HAVE ALREADY MENTIONED, THE RATE OF GROSS PROFIT IS A FLEXIBLE ONE. IT MAY VARY FROM DEALER TO DEALER BECAUSE OF VARIOUS CONTRIBUTING FACTORS. THEREFORE, MERELY BECAUSE AN ADDITION WAS MADE IN THE GROSS PROFIT THERE CANNOT BE A REASON FOR LEVY OF PENALTY UNLESS IT IS SHOWN THAT THE TAXPAYER HAS CONCEALED THE INCOME EARNED. MERE LY ON PRESUMPTION IT CANNOT BE SAID THAT THE TAXPAYER HAS FURNISHED INAC CURATE PARTICULARS OR HAS CONCEALED INCOME. THE TAXPAYER HAS FILED ALL THE BOOKS OF ACCOUNT AND IT WAS VERIFIED BY THE ASSESSING OFFICER. WHEN THE TA XPAYER HAS PRODUCED ALL THE BOOKS OF ACCOUNT AND THE SAME WAS VERIFIED WE C ANNOT SAY THAT THE TAXPAYER HAS CONCEALED ANY PART OF THE INCOME OR HA S FURNISHED INACCURATE PARTICULARS OF INCOME. AT THE BEST, WE MAY SAY THA T IT IS A DIFFERENCE OF OPINION IN APPRECIATING THE MATERIALS AVAILABLE ON RECORD. THEREFORE, THIS TRIBUNAL IS OF THE CONSIDERED OPINION THAT THE JUDGM ENT IN THE CASE OF COMMISSIONER OF INCOME-TAX VS RELIANCE PETROPRODUCT S (2010) 322 ITR 158 (SC) WOULD COME INTO OPERATION. 6. IN RESPECT OF ACCOUNT COPIES / CREDIT NOTES, THE ASSESSING OFFICER FOUND CERTAIN DISCREPANCIES TO THE EXTENT OF RS.3,7 0,000. THESE 7 ITA NO. 245/COCH/2012 DISCREPANCIES WERE FOUND ONLY ON THE BASIS OF THE B OOKS OF ACCOUNT SUBMITTED BY THE TAXPAYER. WHEN THE TAXPAYER HAS P RODUCED ALL THE BOOKS OF ACCOUNT AND AGREED FOR ADDITION ON THE BASIS OF THE MATERIAL FILED BY HIM WE CANNOT SAY THAT THE TAXPAYER HAS FURNISHED ANY I NACCURATE PARTICULARS. THE MATTER WOULD BE ENTIRELY DIFFERENT IF THE TAXPA YER HAS NOT FILED ANY BOOKS OF ACCOUNT AND THE ASSESSING OFFICER DETECTED THE CONCEALMENT BY MAKING AN ENQUIRY. IN THIS CASE, FROM THE MATERIAL S FILED BY THE TAXPAYER THE ASSESSING OFFICER FOUND THAT THERE WAS DISCREPA NCY IN THE CREDIT NOTES. THEREFORE, THIS WOULD NOT AMOUNT TO FURNISHING ANY INACCURATE PARTICULARS. BY RESPECTFULLY FOLLOWING THE JUDGMENT IN THE CASE O F COMMISSIONER OF INCOME-TAX VS RELIANCE PETROPRODUCTS (2010) 322 ITR 158 (SC), THIS TRIBUNAL IS OF THE CONSIDERED OPINION THAT THIS IS NOT A FIT CASE FOR LEVY OF PENALTY. ACCORDINGLY, THE ORDERS OF THE LOWER AUTHORITIES AR E SET ASIDE AND THE PENALTY IS DELETED. 7. IN THE RESULT, THE APPEAL OF THE TAXPAYER IS ALL OWED. ORDER PRONOUNCED IN THE OPEN COURT ON THIS 21 ST DECEMBER, 2012. SD/- SD/- (B.R. BASKARAN) (N.R.S. GANESAN) ACCOUNTANT MEMBER JUDICIAL MEMBER COCHIN, DT : 21 ST DECEMBER, 2012 PK/- 8 ITA NO. 245/COCH/2012 COPY TO: 1. THE APPELLANT 2. THE RESPONDENT 3. THE COMMISSIONER OF INCOME-TAX 4. THE COMMISSIONER OF INCOME-TAX(A) 5. THE DR (TRUE COPY) BY ORDER ASSTT. REGISTRAR, INCOME-TAX APPELLATE TRIBUNAL, COCHIN BENCH