Ish Kumar Sachdeva, Kaithal V. JCIT, Kurukshetra

ITA 272/CHANDI/2011

• Counselvise Citation: [2011] 134 COUNSELVISE.COM (IT) 5475 (ITAT-CHANDIGARH)
• Duration Of Justice: 1 month(s) 12 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 28-04-2011
• Appeal Filed By: Assessee
• Order Result: Partly Allowed
• Bench Allotted: A
• Assessment Year: 2007-2008
• Appeal Filed On: 17-03-2011
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Department Lawyers: N K SAINI
• Assessee Lawyers: PERMIL KUMAR GOYAL
• Keywords: Gross profit estimation
• Section: 40A(3); 143(3)

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL CHANDIGARH BENCHES A CHANDIGARH BEFORE SHRI D.K.SRIVASTAVA, ACCOUNTANT MEMBER AND MS SUSHMA CHOWLA, JUDICIAL MEMBER ITA NO.272/CHD/2011 ASSESSMENT YEAR: 2007-08 M/S ISH KUMAR SACHDEVA, VS. THE JCIT, KAITHAL KURUKSHETRA PAN NO. ABMPS6135P (APPELLANT) (RESPONDENT) APPELLANT BY : SHRI PERMIL KUMAR GOYAL RESPONDENT BY: SHRI N.K. SAINI ORDER PER SUSHMA CHOWLA, JM THE APPEAL BY THE ASSESSEE IS AGAINST THE ORDER OF CIT(A), KARNAL DATED 24.1.2011 RELATING TO ASSESSMENT YEAR 2007-08 AGAINST THE ORDER PASSED UNDER SECTION 143(3) OF THE I.T. ACT, 1961. 2. THE ASSESSEE HAS RAISED THE FOLLOWING GROUNDS OF AP PEAL:- 1. THAT ITO / CIT(A) ERRED IN LAW AND FACT IN MAKING / CONFIRMING TRADING ADDITION OF RS. 1,10,440/- ON ACCOUNT OF LOW GP RATE @ 4.96 AT JALANDHAR BRANCH, AS COMPARED TO @ 5.62 OF DELHI BRANCH BY INVOKING SECTION 145. 2. THAT ASSESSING OFFICER (AS CONFIRMED IN APPEAL) ERR ED IN LAW AND FACT IN MAKING ADDITION OF RS. 96,491/- BY 2 MAKING CALCULATION @ 10% OF 96,491/- BEING GROSS HANDLING CONTRACT RECEIPTS. 3. THE BRIEF FACTS OF THE CASE ARE THAT THE ASSESSE E IS ENGAGED IN THE TRADING OF RAW RUBBER, FERTILIZERS AND ALSO RECEIVE D HANDLING PAYMENTS FROM FERTILIZER COMPANY. THE TRADING OF RAW RUBBER IS CARRIED OUT AT DELHI AND AT JALANDHAR WHEREAS TRADING OF FERTILIZE R IS CARRIED OUT AT KAITHAL. THE ASSESSEE HAD DECLARED GP OF 5.62% IN R ESPECT OF TRADING CARRIED OUT AT DELHI AND 4.96% IN THE TRADING CARRI ED OUT AT JALANDHAR. THE ASSESSING OFFICER COMPARED THE TWO AND PROPOSED TO REJECT THE TRADING RESULTS DECLARED AT JALANDHAR IN VIEW OF THE HIGHER GP RATE DECLARED AT DELHI. THE ASSESSEE WAS ALSO SHOW CAUSED IN RESPECT OF FREIGHT BEING PAID IN CASH WHICH AS PER THE ASSESSING OFFICER WAS NOT VERIFIABLE. THE ASSESSEE EXPLAINED THAT FREIGHT WAS RS. 3,200/- AT JALANDHAR AS COMPARED TO FREIGHT AT RS. 2,600/- PAID AT DELHI AND HENCE THE DIFFERENCE IN THE GP RESULTS. THE BOOKS OF ACCOUNT OF THE ASSESSEE WERE REJECTED BY INVOKING THE PROVISIONS OF SECTION 145(3) OF THE ACT AND TH E INCOME OF JALANDHAR UNIT WAS COMPUTED BY APPLYING GP RATE OF 5.62%, RES ULTING IN TRADING ADDITION OF RS. 1,10,440/-. THE CONTENTION OF THE ASSESSEE WAS REJECTED AS OUT OF TOTAL PAYMENT OF FREIGHT AT RS. 3,95,535/-, RS. 2,09,948/- WAS PAID IN CASH, WHICH AS PER THE ASSESSING OFFICER WAS NOT VERIFIABLE. THE CIT(A) UPHELD THE ORDER OF ASSESSING OFFICER AS THE NET PROFIT OF THE JALANDHAR OFFICE WORKED OUT TO 0.88% ONLY AS AGAINS T THE PROFITS DECLARED AT 2.07 % FOR DELHI OFFICE. 4. SHRI PERMIL KUMAR GOYAL APPEARED FOR THE ASSESSE E AND SHRI N.K.SAINI APPEARED FOR THE REVENUE AND PUT FORWARD THEIR CONTENTIONS. 3 5. WE HAVE HEARD THE RIVAL CONTENTIONS AND PERUSED THE RECORDS. THE ISSUE RAISED IN THE PRESENT APPEAL IS WITH REGARD T O THE NET PROFITS DECLARED BY THE ASSESSEE IN RESPECT OF TWO OF ITS UNITS. TH E ASSESSEE WAS CARRYING ON THE SIMILAR LINE OF BUSINESS AT DELHI BRANCH OFF ICE AND AT THE JALANDHAR BRANCH OFFICE. HOWEVER, THE GP AND THE NP RATE DEC LARED FOR THE TWO BRANCH OFFICES WERE AT VARIANCE. THE EXPLANATION OF THE ASSESSEE IN THIS REGARD WAS THAT THE FREIGHT PAID AT THE JALANDHAR O FFICE WAS HIGHER AS COMPARED TO THE DELHI OFFICE AND CONSEQUENTLY THE F ALL IN THE GP AND THE NP RATE. THE AUTHORITIES BELOW HAVE FAILED TO POINT OUT ANY DISCREPANCY IN THE BOOKS OF ACCOUNT MAINTAINED BY THE ASSESSEE EXP ECT POINTING OUT THE VARIANCE IN THE GP AND NP RATE DECLARED AT THE TWO BRANCH OFFICES. THE ASSESSEE HAS FURNISHED BEFORE US THE DETAILS OF FRE IGHT EXPENSES DEBITED TO JALANDHAR OFFICE AT PAGES 2 & 3 OF THE PAPER BOOK. FURTHER CONTENTION OF THE ASSESSEE WAS THAT OUT OF THE TOTAL PAYMENT OF R S. 3,95,535/-, A SUM OF RS. 2,09,948/- WAS PAID IN CASH, WHICH AS PER THE A SSESSING OFFICER WAS NOT VERIFIABLE. IN VIEW THEREOF, THE BOOKS OF ACCOU NT WERE REJECTED AND GP RATE OF 5.62% WAS APPLIED IN JALANDHAR BRANCH RESUL TING IN AN ADDITION OF RS. 1,10,440/-. THE CIT(A) HAS TABULATED THE DETAIL S OF FREIGHT OF RS. 6,89,820/- PAID DURING THE YEAR AT PAGE 4 OF THE AP PELLATE ORDER OUT OF WHICH FREIGHT OF RS. 1,87,587/- WAS PAID THROUGH CH EQUES, RS. 2,05,948/- WAS PAID THROUGH CASH AND BALANCE FREIGHT OF RS. 2, 94,285/- IS PAYABLE. THE SAID DETAILS OF PAYMENTS ARE CHEQUES / CASH PAY ABLE ON DIFFERENT DATES. FURTHER, AS PER THE CIT(A), THE ASSESSEE H AD ENCLOSED THE GR WISE DETAILS OF THE SAID FREIGHT PAYMENT AT PAGES 6 & 7 OF THE PAPER BOOK BEFORE THE CIT(A). THE CIT(A) FURTHER OBSERVED THAT THE SAID PAYMENTS WERE MADE IN CASH TO ESCAPE FROM THE PROVISIONS OF SECTION 40A(3). INSTANCE OF CASH PAYMENTS ARE REFERRED TO BY THE CI T(A) IN PARA 1.05 OF THE APPELLATE ORDER. BUT, NO DISALLOWANCE WAS MADE BY EITHER ASSESSING 4 OFFICER OR CIT(A) U/S 40A(3) OF THE ACT. THE CON TENTION OF THE ASSESSEE THAT THE FREIGHT PAID FOR TRANSPORT OF RAW RUBBER F ROM KERALA / TAMILNADU TO JALANDHAR WAS MORE THAN THAT OF DELHI WAS FOUND TO BE NOT TENABLE BY THE AUTHORITIES BELOW. WE FIND NO MERIT IN THE OBSE RVATION OF THE CIT(A) THAT THE COST AT JALANDHAR OFFICE SHOULD BE INCREAS ED, WHICH IS NOT TENABLE IN CASE OF ITEMS OF SAME QUALITY AND IN ORDER TO B E COMPETITIVE, SAME RATES ARE TO BE MAINTAINED. IN VIEW THEREOF, WE ARE OF THE VIEW THAT THE GP AND NP RESULTS SHOWN BY THE ASSESSEE AT JALANDHAR O FFICE IN THE ABSENCE OF ANY EVIDENCE FOUND TO BE CONTRARY MERITS TO BE ACCE PTED IN ENTIRETY. ACCORDINGLY, WE DELETE THE ADDITION OF RS. 1,10,440 /-. 6. THE ISSUE IN GROUND NO.2 IS WITH REGARD TO THE D ISALLOWANCE OUT OF FREIGHT AND LOADING EXPENSES. THE ASSESSING OFFICE R NOTED THAT THE ASSESSEE WAS SELLING FERTILIZERS IN WHOLE SALE FROM HIS HEAD OFFICE AT KAITHAL. THE FREIGHT AND LOADING EXPENSES OF RS. 9 ,64,912/- WERE FOUND TO BE INCURRED IN CASH FOR WHICH ORIGINAL VOUCHERS WER E NOT AVAILABLE AS PER THE ASSESSING OFFICER. THE ASSESSING OFFICER DISAL LOWED 30% OF THE EXPENSE, RESULTING IN DISALLOWANCE OF RS. 2,89,474/ -. BEFORE THE CIT(A) THE CONTENTION OF THE ASSESSEE WAS HANDLING CHARGES WAS RECEIVED FROM TWO COMPANIES M/S C.F.C.L. AND G.F.S.C., WHICH IS A S PER THE TDS CERTIFICATES. THE SECOND CONTENTION OF THE ASSESSE E WAS THAT PROVISIONS OF SECTION 40A(3) WERE NOT VIOLATED AND THE EXPENDITUR E OF RS. 9,50,073/- AND NOT RS. 9,64,912/- (AS MENTIONED IN THE ASSESSM ENT ORDER) WAS PAID TOWARDS LABOUR / CARTAGE. THE CIT(A) NOTED FROM T HE WRITTEN SUBMISSIONS THAT AS PER THE ASSESSEE IN VIEW OF THE TRADE PRACT ICES, IT WAS NOT POSSIBLE EITHER TO GET LABOUR SIGNATURES OR MAKE PETTY PAYME NTS IN CASH. THE CIT(A) HOWEVER, WAS OF THE VIEW THAT THERE WAS NO B ASIS FOR DISALLOWING 30% ON ADHOC BASIS OUT OF THE SAID EXPENDITURE AND THE SAME WAS 5 RESTRICTED TO 10%. THE LD. AR FOR THE ASSESSEE HA S NOT FURNISHED ON RECORD ANY EVIDENCE IN RESPECT OF THE FREIGHT AND L ABOUR PAID DURING THE YEAR EXCEPT FOR THE DETAILED COPY OF ACCOUNT PLACED AT PAGES 5 & 6 OF THE PAPER BOOK. IN THE ABSENCE OF ANY DETAILS IN THIS REGARD, WE ARE IN CONFORMITY WITH THE ORDER OF CIT(A) THAT CERTAIN DI SALLOWANCE IS MERITED IN THE CASE AND WE RESTRICT THE DISALLOWANCE TO 5% OF THE TOTAL EXPENDITURE INCURRED IN CASH. THE DISALLOWANCE HAS BEEN MADE OUT OF THE EXPENDITURE TOTALING RS. 9,50,073/-. THUS, THE GROUND NO.2 R AISED BY THE ASSESSEE IS PARTLY ALLOWED. 7. IN THE RESULT, APPEAL OF THE ASSESSEE IS PARTLY ALLOWED. ORDER PRONOUNCED IN THE OPEN COURT ON THIS 28 TH DAY OF APRIL, 2011. SD/- SD/- (D.K.SRIVASTAVA) (SUSHMA CHOWLA) ACCOUNTANT MEMBER JUDICIAL MEMBER DATED : 28 TH APRIL, 2011 RKK COPY TO: 1. THE APPELLANT 2. THE RESPONDENT 3. THE CIT 4. THE CIT(A) 5. THE DR TRUE COPY BY ORDER ASSISTANT REGISTRAR, ITAT, CHANDIGARH