ACIT, Kota V. Om Service Station, Kota

ITA 257/JPR/2014

• Counselvise Citation: [2015] 140 COUNSELVISE.COM (IT) 99509 (ITAT-JAIPUR)
• Duration Of Justice: 1 year(s) 7 month(s) 7 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 10-11-2015
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: B
• Assessment Year: 2009-2010
• Appeal Filed On: 03-04-2014
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: PUROSHOTTAM KASHYAP
• Assessee Lawyers: VIJAY GOYAL C A DHK
• Keywords: Rejection of books of accounts
• Section: 143(3)

Judgement Text

VK;DJ VIHYH; VF/KDJ.K] T;IQJ U;K;IHB] T;IQJ IN THE INCOME TAX APPELLATE TRIBUNAL, JAIPUR BENCHES, JAIPUR JH VKJ-IH-RKSYKUH] U;KF;D LNL; ,OA JH FOE FLAG ;KN O] YS[KK LNL; DS LE{K BEFORE: SHRI R.P. TOLANI, JM & SHRI VIKRAM SINGH YA DAV, AM VK;DJ VIHY LA-@ ITA NO. 257/JP/2014 FU/KZKJ.K O'K Z@ ASSESSMENT YEAR : 2009-10 . ASSISTANT COMMISSIONER OF INCOME TAX, CIRCLE-2, KOTA. CUKE VS. M/S. OM SERVICE STATION, NEW MOTOR MARKET, KOTA. LFKK;H YS[KK LA-@THVKBZVKJ LA-@ PAN NO. AAAFO 2230 L VIHYKFKHZ@ APPELLANT IZR;FKHZ@ RESPONDENT JKTLO DH VKSJ LS@ REVENUE BY : SHRI PUROSHOTTAM KASHYAP, (ADDL.CIT) FU/KZKFJRH DH VKSJ LS@ ASSESSEE BY : SHRI VIJAY GOYAL, (C.A.) LQUOKBZ DH RKJH[K@ DATE OF HEARING : 03.11.2015. ?KKS'K .KK DH RKJH[K @ DATE OF PRONOUNCEMENT : 10/11/2015. VKNS'K@ ORDER PER SHRI VIKRAM SINGH YADAV, A.M. THE APPEAL IS FILED BY THE REVENUE AGAINST THE ORDE R OF LD. CIT (A), KOTA DATED 18.01.2014 FOR THE ASSESSMENT YEAR 2009- 10 WHEREIN IT HAS TAKEN FOLLOWING TWO GROUNDS OF APPEAL :- ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE , THE LD. CIT (A) HAS ERRED IN I) DELETING THE TRADING ADDITION OF RS. 11,49,127/- MA DE BY AO; 2 ITA NO. 257/JP/2014 A.Y. 2009-10. ACIT VS. OM SERVICE STATION, KOTA. II) DELETING THE DISALLOWANCE OF SALARY EXPENSES OF RS. 69,300/- MADE BY AO U/S 40A(2)(B) OF THE ACT. 2. REGARDING FIRST GROUND OF APPEAL, BRIEF FACTS OF THE CASE ARE THAT THE ASSESSEE IS A PARTNERSHIP FIRM DOING THE BUSINESS O F PURCHASE AND SALE OF PETROL AND DIESEL PRODUCTS OF INDIAN OIL CORPORATIO N AT KOTA. IT HAS FILED ITS RETURN ON 06.09.2009 DECLARING AN INCOME OF RS. 22, 91,270/- WHICH WAS SELECTED FOR SCRUTINY AND ASSESSMENT WAS COMPLETED UNDER SECTION 143(3) OF THE I.T. ACT. DURING THE COURSE OF ASSESSMENT P ROCEEDINGS, THE AO NOTICED THAT THE ASSESSEE HAS DECLARED A TURNOVER O F RS. 33.11 CR. AND DECLARED A GP RATE OF 1.52% AS AGAINST TURNOVER OF RS. 26.17 CR. AND GP OF 1.874% IN IMMEDIATELY PRECEDING YEAR. THE ASSESSEE WAS ASKED TO JUSTIFY THE FALL IN GP RATE. THE ASSESSEE SUBMITTED THAT TH ERE IS CONSIDERABLE INCREASE IN TOTAL TURNOVER BY 6.93 CR. AS COMPARED TO THE LAST YEAR AND THE MARGIN EARNED BY THE ASSESSEE IS FIXED ON THE BASIS OF AMOUNT PER LITRE. THE MARGIN REMAINS THE SAME INSPITE OF INCREASE IN RATES OF PRODUCTS BY THE COMPANY AND THE MARGIN IS NOT FIXED ON PERCENTA GE BASIS. THEREFORE, WITH INCREASE IN RATES, THE PERCENTAGE OF GROSS PRO FIT REDUCES BECAUSE IT IS FIXED IN AMOUNT PER LITRE. HOWEVER, THE AO DID NOT ACCEPT THE CONTENTION OF 3 ITA NO. 257/JP/2014 A.Y. 2009-10. ACIT VS. OM SERVICE STATION, KOTA. THE ASSESSEE AND STATED THAT THE ASSESSEE HAS NOT M AINTAINED QUANTITATIVE DETAILS OF LUBRICANTS, DIESEL, EXTRA MILES AND PREM IUM PETROL GOODS ON DAY- TO-DAY BASIS. HENCE THE TRADING RESULTS ARE NOT OPE N FOR VERIFICATION. FURTHER, THE AO MENTIONED THAT THE ASSESSEES SUBMI SSION IS NOT SUPPORTED BY ANY SALE BILLS SO AS TO JUSTIFY THE CORRECTNESS OF THE SELLING PRICE TO DETERMINE THE PROFIT MARGIN/COMMISSION EARNED BY TH E ASSESSEE. THE AO THEREAFTER APPLIED THE GP RATE OF 1.874% (AS PER LA ST YEAR) ON THE DECLARED TURNOVER OF RS. 33.11 CR FOR THE YEAR UNDER CONSIDE RATION AND MADE AN ADDITION OF RS. 11,49,127/-. 3. BEING AGGRIEVED, THE ASSESSEE FILED AN APPEAL BE FORE THE LD. CIT (A). AFTER CONSIDERING THE SUBMISSIONS OF THE ASSESSEE, LD. CIT (A) DIRECTED THE DELETION OF ADDITION OF RS. 11,49,127/- WITH THE FO LLOWING OBSERVATIONS :- IN THE LINE OF PETROLEUM PRODUCTS TRADING, THE PU RCHASE AND SALE RATES OF VARIOUS PRODUCT IS DETERMINED BY THE OIL MARKETING COMPANY (INDIAN OIL, HPCL, BPCL ETC.). THE ASSESSEE IS ALSO REQUIRED TO MAINTAIN VARIOUS REGISTERS BY THE OIL M ARKETING COMPANY AS WELL AS STATE GOVERNMENT. THEREFORE, THE BOOKS OF ACCOUNTS/TRADING RESULTS CANNOT BE REJECTED WITHOUT BRINGING SPECIFIC DEFECTS ON RECORD. THE AO IS, THEREFORE, DIRECTED TO DELETE ADDITION OF RS. 11,49,127/-. 4 ITA NO. 257/JP/2014 A.Y. 2009-10. ACIT VS. OM SERVICE STATION, KOTA. 4. THE LD. D/R RELIED ON THE ORDER OF THE AO AND JU STIFIED THE TRADING ADDITION OF RS. 11,49,127/-. 5. ON THE OTHER HAND, THE LD. A/R OF THE ASSESSEE S UBMITTED THAT FIRSTLY THE DEPARTMENT HAS NOT CHALLENGED THE FINDING OF LD . CIT (A) THAT THE BOOKS OF ACCOUNTS CANNOT BE REJECTED. THEREFORE, T HIS FINDING OF LD. CIT (A) HAS ACHIEVED FINALITY. IN VIEW OF THIS, THE TR ADING ADDITION CANNOT BE MADE WHEN PROPER BOOKS OF ACCOUNTS ARE MAINTAINED A ND THE REJECTION OF BOOKS OF ACCOUNTS HAS NOT BEEN CHALLENGED BY THE DE PARTMENT. FURTHER, THE ASSESSEE REITERATED ITS SUBMISSION MADE BEFORE THE LOWER AUTHORITIES AND AS PART OF ITS WRITTEN SUBMISSION HAS STATED AS UNDER :- 1.3. THE ASSESSEE HAS SUBMITTED THAT THE MARGIN O F THE ASSESSEE IS FIXED ON THE BASIS OF AMOUNT PER LITRE. THE MARGIN REMAINS THE SAME INSPITE OF INCREASE IN RATES OF PR ODUCTS BY THE COMPANY. THE MARGIN IS NOT FIXED ON PERCENTAGE BASI S. THEREFORE, WITH INCREASE IN RATES, THE PERCENTAGE O F GROSS PROFIT REDUCES BECAUSE IT IS FIXED IN AMOUNT PER LITRE. IN THIS REGARD KINDLY REFER TO PB 78 : NAME OF ITEM DATE OF INCREASE IN RATE OLD RATE PER LT.(RS.) NEW RATE PER LT (RS.) OLD PROFIT MARGIN PER LT. NEW PROFIT MARGIN PER LT. % OF PROFIT ON OLD RATES % OF PROFIT ON NEW RATES HSD 05.06.2008 34.29 37.49 PAISA 59.71 PAISA 59.71 1.75% 1.59% XTRA MILE 19.06.2008 35.54 39.74 PAISA 70.26 PAISA 69.71 1.97% 1.75% PETROL 05.06.2008 48.74 54.08 RS. 1.13 RS. 1.13 2.07% 1.87% XTRA PREMIUM 17.06.2008 51.74 58.08 RS. 1.26 RS. 1.26 2.44% 2.17% 5 ITA NO. 257/JP/2014 A.Y. 2009-10. ACIT VS. OM SERVICE STATION, KOTA. 6. WE HAVE HEARD THE RIVAL CONTENTIONS AND PERUSED THE MATERIAL AVAILABLE ON RECORD. FIRSTLY, IT IS NOT UNDER DISPU TE THAT THE ASSESSEE IS IN A LINE OF BUSINESS OF PETROLEUM TRADING WHEREIN BOTH PURCHASE OF PETROLEUM PRODUCTS AS WELL AS SUBSEQUENT SALE THEREOF ARE GOV ERNED BY OIL MARKETING COMPANIES, IN THE INSTANT CASE WHICH IS INDIAN OIL CORPORATION (IOC). ACCORDINGLY, THE MARGIN WHICH IS EARNED BY THE ASSE SSEE IS EFFECTIVELY GOVERNED BY THE IOC. IT IS ALSO NOT UNDER DISPUTE T HAT ASSESSEE HAS DECLARED TURNOVER OF RS. 33.11 CR AND IT IS NOT THE CASE OF THE REVENUE THAT THERE IS A SUPPRESSION OF SALES BY THE ASSESSEE DUR ING THE YEAR UNDER CONSIDERATION. FURTHER, THE ASSESSEE HAS DEMONSTRAT ED THROUGH THE CHART (REPRODUCED ABOVE) THAT WITH THE CHANGE IN SALE PRI CE OF THE PETROLEUM PRODUCTS, THE MARGIN IN THE HANDS OF THE ASSESSEE R EMAINS THE SAME. FURTHER, WE AGREE WITH THE CONTENTION OF THE LD. A/ R THAT SINCE THE REVENUE HAS NOT CHALLENGED THE FINDING OF THE LD. CIT (A) W HEREIN HE HAS HELD THAT BOOKS OF ACCOUNT CANNOT BE REJECTED, REVENUE CANNOT BE ALLOWED TO TAKE THE GROUND THAT LD. CIT (A) HAS ERRED IN DELETING T HE TRADING ADDITION OF RS. 11,49,127/-. IN THE LIGHT OF ABOVE, WE DO NOT FIND ANY INFIRMITY IN THE ORDER 6 ITA NO. 257/JP/2014 A.Y. 2009-10. ACIT VS. OM SERVICE STATION, KOTA. OF LD. CIT (A). HENCE THIS GROUND OF APPEAL TAKEN B Y THE REVENUE IS DISMISSED. 7. REGARDING SECOND GROUND OF APPEAL WHEREIN THE RE VENUE HAS CHALLENGED THE DELETION OF SALARY EXPENSES OF RS. 6 9,300/- UNDER SECTION 40A(2)(B) OF THE IT ACT, THE BRIEF FACTS RELEVANT F OR CONSIDERATION ARE AS FOLLOWS. DURING THE YEAR UNDER CONSIDERATION, ASSES SEE HAS APPOINTED SHRI NARESH PAREEK WHO HOLDS POST GRADUATE DIPLOMA IN MA NAGEMENT FROM BALAJI INSTITUTE OF MODERN MANAGEMENT, PUNE AT A MO NTHLY SALARY OF RS. 15,000/- TOTALING TO RS. 1,65,300/-. AS PER THE AO THE SAID SALARY GIVEN TO SHRI NARESH PAREEK IS EXCESSIVE SPECIALLY WHEN HE H AS NO EXPERIENCE OF BUSINESS AND ALSO THAT ANOTHER EMPLOYEE SHRI S.N. P AREEK WHO HAS A LENGTHY EXPERIENCE OF 15 YEARS IN THE SAID LINE OF BUSINESS HAS BEEN PAID A MONTHLY SALARY OF RS. 4,700/- DURING THE YEAR. THE LD. A/R SUBMITTED THAT THERE WAS NECESSITY TO MANAGE THE BUSINESS MORE SCI ENTIFICALLY AND ALSO TO DEAL WITH THE COMPANY IN MORE EFFICIENT MANNER. HEN CE NEED WAS FELT TO APPOINT SOME QUALIFIED PERSON AND ACCORDINGLY SHRI NARESH PAREEK WHO HOLDS A POST GRADUATE DIPLOMA IN MANAGEMENT WAS HIR ED AT A MONTHLY SALARY OF RS. 15,000/-. THE LD. A/R ALSO SUBMITTED THAT EDUCATION AND 7 ITA NO. 257/JP/2014 A.Y. 2009-10. ACIT VS. OM SERVICE STATION, KOTA. EXPERIENCE BOTH ARE IMPORTANT THINGS. AT THE SAME T IME IT CANNOT BE PRESUMED THAT EDUCATED PERSON WILL FETCH LESS SALAR Y IN COMPARISON TO EXPERIENCED PERSON. THE LD. CIT (A) AGREED WITH TH E CONTENTION OF THE LD. A/R AND HELD THAT THE SALARY OF A PERSON NOT ONLY D EPENDS ON EXPERIENCE BUT ALSO DEPENDS ON HIS QUALIFICATION AND SALARY OF RS. 15,000/- PER MONTH PAID TO SHRI NARESH PAREEK WHO WAS HOLDING POST GRA DUATE DIPLOMA IN MANAGEMENT, CANNOT BE CONSIDERED EXCESSIVE. 8. WE HAVE HEARD THE RIVAL CONTENTIONS AND EXAMINED THE MATTER. WE BELIEVE THAT LD. CIT (A) HAS RIGHTLY STATED THAT TH E SALARY WHICH IS DERIVED BY A PERSON NOT ONLY DEPENDS ON EXPERIENCE BUT ALSO DEPENDS ON HIS QUALIFICATION. IN THE INSTANT CASE IT IS NOT UNDER DISPUTE THAT SHRI NARESH PAREEK WAS HOLDING POST GRADUATE DIPLOMA IN MANAGEM ENT FROM BALAJI INSTITUTE OF MODERN MANAGEMENT, PUNE. SECONDLY, TH E APPELLANT, CONSIDERING THE EDUCATIONAL QUALIFICATION, HAS CONT RACTUALLY AGREED TO PAY RS. 15,000/- PER MONTH TO SHRI NARESH PAREEK. IT IS A SETTLED PRINCIPLE THAT IT IS THE BUSINESSMAN WHO IS THE BEST JUDGE TO DETE RMINE THE SERVICES WHICH ARE REQUIRED FOR THE PURPOSE OF HIS BUSINESS AND WHAT SHOULD BE REASONABLE COMPENSATION TO AVAIL THE SERVICES. IN T HE INSTANT CASE THE 8 ITA NO. 257/JP/2014 A.Y. 2009-10. ACIT VS. OM SERVICE STATION, KOTA. APPELLANT IN HIS WISDOM HAS DECIDED TO APPOINT SHR I NARESH PAREEK TO RUN ITS BUSINESS MORE EFFICIENTLY AND HAVE AGREED TO PA Y A SALARY OF RS. 15,000/- PER MONTH TO HIM. WE SEE NO INFIRMITY IN T HE ORDER OF LD. CIT (A). HENCE THIS GROUND OF APPEAL IS REJECTED. 10. IN THE RESULT, APPEAL OF THE REVENUE IS DISMISS ED. ORDER PRONOUNCED IN THE OPEN COURT ON 10/11/2015 . SD/- SD/- VKJ-IH-RKSYKUH FOE FLAG ;KNO (R.P.TOLANI) (VIKRAM SINGH YADAV) U;KF;D LNL;@ JUDICIAL MEMBER YS[KK LNL;@ ACCOUNTANT MEMBER JAIPUR DATED:- 10/11/ 2015 DAS/ VKNS'K DH IZFRFYFI VXZSF'KR@ COPY OF THE ORDER FORWARDED TO: 1. THE APPELLANT- THE ACIT, CIRCLE-2, KOTA. 2. THE RESPONDENT- OM SERVICE STATION, KOTA. 3. THE CIT(A). 4. THE CIT, 5. THE DR, ITAT, JAIPUR 6. GUARD FILE (ITA NO.257/JP/2014) VKNS'KKUQLKJ@ BY ORDER, LGK;D IATHDKJ@ ASSISTANT. REGISTRAR