M/s. Shree Balaji Medicals Agency, Muzaffarnagar V. ITO, Muzaffarnagar

ITA 3256/DEL/2015

• Counselvise Citation: [2016] 121 COUNSELVISE.COM (IT) 2834 (ITAT-DELHI)
• Duration Of Justice: 8 month(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 22-01-2016
• Appeal Filed By: Assessee
• Order Result: Partly Allowed
• Bench Allotted: SMC 2
• Next Hearing Date: 11-12-2015
• Assessment Year: 2010-2011
• Appeal Filed On: 22-05-2015
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Department Lawyers: DR ANJULA JAIN
• Keywords: Rejection of books of accounts; Corroborative evidences
• Section: 143(3)

Judgement Text

INCOME TAX APPELLATE TRIBUNAL DELHI BENCH SMC - 2 : NEW DELHI BEFORE SHRI VIJAY PAL RAO , JUDICIAL MEMBER ITA NO. 3256 /DEL/ 2015 (ASSESSMENT YEAR: 2010 - 11 ) SHREE BALAJI MEDICALS AGENCY, 74, ZILA PARISHAD MARKET, MUZAFFARNAGAR PAN:AAFS3639A VS. ITO, WARD - 1(1), MUZAFFARNAGAR (APPELLANT) (RESPONDENT) APPELLANT BY : SH. ANIL JAIN, ADV RESPONDENT BY : DR. ANJULA JAIN, SR. DR DATE OF HEARING 16.12.2015 DATE OF PRONOUNCEMENT 22 . 01 .201 6 O R D E R THIS APPEAL OF THE ASSESSEE IS DIRECTED AGAINST THE ORDER DATED 25.02.2015 OF LD. CIT(A), MUZZAFFARNAGAR FOR THE ASSESSMENT YEAR 2010 - 11 . 2. THE ASSESSEE HAS RAISED THE FOLLOWING GROUNDS: - 1. THE LD. CIT (A) HAS ERRED IN PARTLY CONFIRMING THE ORDER OF THE ASSESSING OFFICER WHO ASSESSED THE TOTAL INCOME OF THE APPELLANT AT RS. 8,02,830 AS AGAINST THE DECLARED INCOME AS PER RETURN OF INCOME AT RS.1,48,450. 2. THE LD. CIT (A) HAS ERRED IN CO NFIRMING THE ADDITION OF RS . 512384 / - ON ACCOUNT OF ESTIMATION OF SALES AND THE ESTIMATION OF G.P. RATE. 3. THE LD. CIT(A) HAS ERRED IN CONFIRMING ADDITION MADE BY AO OF RS.14000 / - OUT OF POSTAGE AND TELEPHONE EX PENSES OF RS. 69,834 / - . 4. THE L D. CIT(A) HAS ERRED IN NOT ALLOWING THE ADDITIONAL GROUND OF APPEALS RAISED AT THE TIME OF HEARING IN RESPECT OF ADDITION OF RS. 3,72,140 / - AND RS.30000 / - . 5. THE ORDER OF THE LD. CIT IS AGAINST LAW AND FACTS OF THE CASE. 6. THE APPELLANT CRAVE S THE RIGHT TO ADD, AMEND OR WITHDRAW ANY GROUNDS OF APPEAL AT THE TIME OF HEARING. 3. GROUND NO.1 IS GENERAL IN NATURE AND DOES NOT REQUIRE A SPECIFIC ADJUDICATION. 4. GROUND NO.2 IS REGARDING ADDITION OF RS.5,12,384/ - ON ACCOUNT OF ESTIMATION OF SALES AND THE ESTIMATION OF GP RATE. 5. THE ASSESSEE IS A FIRM ENGAGED IN THE BUSINESS OF MEDICINE WHOLESALE TRADING. THE ASSESSEE FILED ITS RETURN OF INCOME ON 14.10.2010 SHOWING TOTAL PAGE NO. 2 INCOME OF RS.1,48,450/ - . THE AO NOTED TH AT THE GROSS PROFIT SHOWN BY THE ASSESSEE AT RS.12.92 LAC I.E. 2.92% IS VERY LOW AND THE ASSESSEE WAS ASKED TO PROVE THE GROSS PROFIT WITH REFERENCE TO THE SAME ILLUSTRATIONS. THE ASSESSEE EXPLAINS THAT THE SALES WERE EFFECTED TO TRADERS IN WHOLESALE AND A S PER PREVAILING RATE IN MARKET, WHICH FLUCTUATE AT ALL TIME. IT WAS FURTHER SUBMITTED THAT THE SALE IS SPECIFICALLY AND DIRECTLY CONNECTED WITH EXPECTATION AND ASSURANCE OF PAYMENTS AND PAST HISTORY OF SAID PURCHASERS RELATING TO BUSINESS DEAL. THE AO NOT ED THAT THE ASSESSEE HAS NOT MAINTAINED ANY STOCK REGISTER IRRESPECTIVE OF THE FACT THAT CLOSING STOCK VALUING RS.82.41 LAC WAS ACCOUNTED FOR TRADING ACCOUNT. THE AO PROCEEDED TO ESTIMATE THE GROSS PROFIT AT RS.4% AS AGA INST 2.92% SHOWN BY THE ASSESSEE AND ACCORDINGLY THE GROSS PROFIT IS ESTIMATED AT RS. 18,12,000/ - AND DIFFERENCE AT RS.5,12,384/ - IS ADDED TO THE TAXABLE INCOME OF THE ASSESSEE. THE ASSESSEE CHALLENGED THE ACTION OF THE AO BEFORE THE LEARNED COMMISSIONER OF INCOME - TAX (APPEALS), BUT COULD NOT SUCCEED. THE LEARNED COMMISSIONER OF INCOME - TAX (APPEALS) HAS CONFIRMED THE ACTION OF THE AO ON THE GROUND THAT THE AO FOUND THE DIFFERENCE AGGREGATING TO RS.3,72,130/ - IN CLOSING BALANCE FROM THE PARTIES FROM WHOM PURCHASE S WERE MADE . FURTHER , NO BOOKS OF ACCOUNTS WERE PRODUCED BEFORE THE AO ON THE GROUND THAT THE SAME WERE MISPLACED. 6 . BEFORE THE TRIBUNAL THE LD AR OF THE ASSESSEE HAS SUBMITTED THAT THE ACTION OF THE AO IN ESTIMATION GP RATE IS NOT JUSTIFIED WHEN THE BOOKS OF ACCOUNTS OF THE ASSESSEE WERE NOT REJECTED BY THE AO. F URTHER THE GP ADMITTED BY THE ASSESSEE @ 2.92 % DURING THE YEAR UNDER CONSIDERATION IS WELL WITHIN THE GP RATE OF THE ASSESSEE IN ALL THE SUBSEQUENT YEARS AND IN THE ASSESSMENT YEAR 2012 - 13 THE AO ACCEPTED THE GP RATE @ 2.92 % WHILE PASSING THE ASSESSMENT ORDER U/S 143(3). THE AR OF THE ASSESSEE HAS RELIED UPON THE DECISION OF JODHPUR OF THIS TRIBUNAL IN THE CASE OF ACIT VS. ERCON COMPOSITES, (2013) 158 TTJ 25, AS WELL AS THE DECISION OF THE COORDINATE BENCH OF THIS TRIB UNAL IN THE CASE OF ITO VS. SUNIL KUMAR, (2014) 41 CCH 0181 DEL TRIB. THUS, THE LD AR SUBMITTED THAT WHEN THE BOOKS OF ACCOUNTS OF THE ASSESSEE WERE NOT REJECTED BY THE AO AND THE GP RATE FOR THE YEAR UNDER CONSIDERATION @ 2.92% WHICH IS MATCHED WITH THE G P RATE OF THE ASSESSEE FOR THE ASSESSMENT YEAR 2011 - 12 TO 2015 - 16 THEN THE AO IS NOT JUSTIFIED IN MAKING ADDITION OF ESTIMATED G.P. RATE . HE HAS POINTED OUT THAT THE GP RATE DECLARED BY THE PAGE NO. 3 ASSESSEE FOR ALL THE FIVE YEARS HAS BEEN ACCEPTED BY THE AO INCLUDING THE ASSESSMENT FOR THE ASSESSMENT YEAR 2012 - 13 WHICH WAS FRAMED U/S 143(3). 7 . ON THE OTHER HAND THE LD DR H AS RELIED UPON THE ORDER OF THE AUTHORITIES BELOW AND SUBMITTED THAT THE AO HAS CLEARLY RECORDED THE FACT THAT THERE WAS DISCREPANCY IN THE OUTSTANDING AMOUNTS WITH THE DIFFERENT PARTIES FROM WHOM MEDICINE S WERE PURCHASED. FURTHER, THE ASSESSEE IS NOT MAINTAINING STOCK REGISTER AS WELL AS BOOKS OF ACCOUNTS WERE NOT FURNISHED BEFOR E THE AO ON THE GROUND THAT THE SAME WERE MISPLACED. THUS IN VIEW OF THE FACTS THE AO HAD NO OPTION BUT TO ESTIMATE THE GP OF THE ASSESSEE. 8 . RIVAL CONTENTION OF THE PARTIES AS WELL AS RELEVANT MATERIAL HAS BEEN CONSIDERED. THE AO HAS INITIATED THE PROCE EDING A ND ESTIMATION OF GP RATE AND MAD E CONSEQUENTIAL ADDITION BY NOTING THE FACT THAT THE GP OF THE ASSESSEE IN THE YEAR UNDER CONSIDERATION @ 2.92% IS VERY LOW. HOWEVER, THE AO HAS NOT GIVEN ANY COMPARABLE INSTANCES IN THE SAME LINE OF BUSINESS TO JUSTI FY THAT THE GP DECLARED BY THE ASSESSEE IS VERY LOW IN COMPARISON TO COMPARABLE CASE S . AS REGARDS THE DISCREPANCY IN THE CREDIT BALANCE FROM THE VARIOU S PARTIES, THE AO FOUND A TOTAL DIFFEREN CE OF RS.72275/ - . HOWEVER THIS DIFFERENCE WAS RECONCILED BY THE A SSESSEE AND IT WAS POINTED OUT THAT SOME OF THE DIFFERENCE S ARE IN THE NEGATIVE SIDE AND SOME ARE OF THE POSITIVE SIDE, THEREFORE ONLY THE NET DIFFERENCE WHICH CAN BE TAKEN INTO CONSIDERATION AND ADDED TO THE INCOME OF THE ASSESSEE AND NOT THE DIFFERENCE WHICH HAS ALREADY INFLATED INCOME OF THE ASSESSEE. THERE IS NO DOUBT ON THE POINT THAT THE AO HAS NOT REJECTED THE BOOKS OF ACCOUNTS OF THE ASSESSEE AND THEREFORE THE BOOKS RESULTS OF THE ASSESSEE WERE NOT REJECTED BY THE AO BY INVOKING PROVISION OF SECTION 145(3) OF THE ACT. IT IS PERTINENT TO NOTE THAT THE GP DECLARED BY THE ASSESSEE FOR ASSESSMENT YEAR 2011 - 12 TO 2015 - 16 IS AS UNDER: - AY:2011 - 12 AY: 2012 - 13 AY: 2013 - 14 AY: 2014 - 15 AY: 2015 - 16 S. NO. PARTICULARS FY:2010 - 11 FY:2011 - 12 FY:2012 - 13 FY:2013 - 14 FY:2014 - 15 1. SALES 5,87,75,158 5,76,09,201 7,98,02,554 7,53,83,070 10,35,48,012 2. GROSS PROFIT 17,16,255 17,02,300 23,14,165 21,71,109 26,97,250 3. G.P.RATE 2.92% 2.95% 2.90% 2.88% 2.60% 9 . FOR THE YEAR UNDER CONSIDERATION THE GROSS PROFIT DECLARED BY THE ASSESSEE IS 2.93% WHICH IS VERY MUCH COMPARABLE WITH THE GP RATE OF SUBSEQUENT YEARS. THE LD DR HAS NOT DISPUTED THAT IN THE ASSESSMENT YEAR 2012 - 13 THE AO COMPLETED THE ASSESSMENT U/S 143(3) AND ACCEPTED THE GP PAGE NO. 4 DECLARED BY THE ASSESSEE @ 2.95%. IN VIEW OF THE FACT THAT GP FOR THE YEAR UNDER CONSIDERATION IS VERY MUCH IN THE LINE WITH THE GP FOR ALL THE SUBSEQUENT FIVE YEARS AND FURTHER WHEN THE AO HAS NOT DECIDED TO REJECT TH E BOOKS OF ACCOUNT AND HAVE ESTIMAT ED THE GP RATE OF THE ASSESSEE WITHOUT ANY BASIS OR ANY COMPARABLE IS NOT JUSTIFIED. ACCORDINGLY IN THE FACTS AND CIRCUMSTANCES OF THE CASE THE ADDITION MADE BY THE AO ON THE BASIS OF ESTIMATION OF GP IS DELETED. 1 0 . GROUND NO.3 IS REGARDING THE DISALLOWANCE OF POSTAGE AND TELEPHONE EXPENSES ON THE GROUND OF PERSONAL ELEMENT. THE AO NOTED THAT THE ASSESSEE HAS CLAIMED POSTAGE AND TELEPHONE EXPENSES OF RS.69,8 34/ - . THE AO FOUND THAT THE ASSESSEE IS NOT MAINTAINING ANY RECORD LIKE LOG BOOK OF THE TELEPHONE AN D THEREFORE THE AO HAS MADE AN AD HOC DISALLOWANCE OF RS.14,000/ - FOR PERSONAL TELEPHONE EXPENSES OUT OF TOTAL EXPENSES OF RS.69844/ - . THE ASSESSEE CHALLENGED THE ACTION OF THE AO BEFORE THE LEARNED COMMISSIONER OF INCOME - TAX (APPEALS) BUT COULD NOT SUCCEE D. 11 . BEFORE THE TRIBUNAL THE AR OF THE ASSESSEE HAS SUBMITTED THAT MAJORITY OF THE BUSINESS TRANSACTION ARE CARRIED OUT ON TELEPHONE AND THEREFORE THE TELEPHONE EXPENSES WHICH IS LESS THAN 0 .01% OF THE TOTAL TURNOVER CANNOT BE TREATED AS EXCESSIVE. HEN CE THE LD AR HAS SUBMITTED THAT THE AO MAD E A DISALLOWANCE ON ADHOC BASIS WITHOUT POINTING OUT ANY FACTS AND CIRCUMSTANCES OF THE PERSONAL USE OF THE TELEPHONE. ON THE OTHER HAND THE LD DR HAS RELIED UPON THE ORDER OF THE AUTHORITIES BELOW AND SUBMITTED THAT WHEN THE ASSESSEE IS NOT MAINTAINING ANY RECORD OR LOG BOOK TO JUSTIFY THAT THE TELEPHONE WAS NOT USED FOR PERSONAL PURPOSE THEN THE AO IS JUSTIFIED IN MAKING THIS DISALLOWANCE. 12 . HAVING CONSIDERED THE RIVAL CONTENTION AS WELL AS THE RELEVANT MATERIAL ON RECORD IT IS NOTED THAT THE ASSESSEE IS A PARTNERSHIP FIRM AND THE PERSONAL USE OF THE TELEPHONE CANNOT BE RULED OUT AS AGAINST IN THE CASE OF THE CORPORATE ASSESSEE. THE ASSESSEE HAS NOT FURNISHED ANY E VIDENCE OR DETAILS TO SHOW THAT THE PARTNERS OF THE ASSESSEE FIRM WERE MAINTAINING THEIR SEPARATE TELEPHONE FOR PERSONAL USE. ACCORDINGLY , IN THE FACTS AND CIRCUMSTANCES OF THE CASE THE DISALLOWANCE MADE BY AO WHICH IS ABOUT 20% OF THE TOTAL PAGE NO. 5 EXPENSES IS ON THE HIGHER SIDE AND THE SAME IS RESTRICTED OF 10% OF THE TOTAL EXPENSES. HENCE THE DISALLOWANCE IS CONFIRMED TO 1 0% OF THE TOTAL EXPENSES. 13 . GROUND NO.4 IS REGARDING ADDITION ON THE ACCOUNT OF DIFFERENCE IN CREDIT BALANCE WITH THE VARIOUS PARTIES WITH WHOM THE ASSESSEE MADE THE PURCHASE S . 14 . RIVAL CONTENTION AS WELL AS RELEVANT MATERIAL IS CONSIDERED . THE LD AR HAS POINTED OUT THAT THE ASSESSEE HA S RECONCILE D THE DIFFERENCE POINTED OUT BY THE AO BY GIVING THE D ETAILS THAT EXTRA AMOUNT OF RS.7 2 275/ - IN RELATION TO THE ZIVAN MARKETING WAS DUE TO DELAY IN ENCASHING CHEQUE AND THEREFORE, THE ASSESSEE HAS DULY RECON CILE OF THE SAID AMOUNT OF RS.72 275/ - . HE HAS FURTHER POINTED OUT THAT THERE IS POSITIVE AS WELL AS NEGATIVE DIFFERENCE WITH VARIOUS PARTIES. THE REFORE ONLY THE NET OF THIS DIFFERENCE HAS TO BE CONSIDERED . H E HAS FURTHER SUBMITTED THAT ADDITION CAN BE MADE ONLY WITH RESPECT TO THE DIFFERENCE WHICH CAN BE ADDED TO THE INCOME OF THE ASSESSEE AND NOT IN RESPECT OF DIFFEREN CE ALREADY INCREASED THE SALE OF THE ASSESSEE. THUS THE LD AR SUBMITTED THAT THE DIFFEREN CE RECONCILE D BY THE ASSESSEE CANNOT BE ADDED TO THE INCOME OF THE ASSESSEE AND FURTHER THE DIFFERENCE S WHICH ARE MORE SHOWN BY THE ASS ESSEE AND SALE BY THE PARTIES AFTER TRADE DISCOUNTS ETC CAN BE ADDED TO INCOME OF THE ASSESSEE AN D NOT THE BALANCE WHICH ARE LESS SHOWN BY THE ASSESSEE IN COMPARISON TO THE PARTIES CAN BE ADDED. ON THE OTHER HAND THE LD DR RELIED ON THE ORDER S OF THE AUTHORITIES BELOW AND SUBMITTED THAT THE ASSESSEE HAS RA ISED THIS GROUND BEFORE LEARNED COMMISSIONER OF INCOME - TAX (APPEALS) AS ADDITIONAL GROUNDS WHICH WAS NOT ACCEPTED BY THE LEARNED COMMISSIONER OF INCOME - TAX (APPEALS) FOR WANT OF SUFFICIENT REASONS NOT RAISING AT THE TIME OF FILING THE APPEAL. 15 . HAVING C ONSIDERED THE RIVAL SUBMISSION AS WELL AS RELEVANT MATERIAL ON RECORD IT IS TO BE NOTED THAT THE ADDITIONAL GROUND RAISED BY THE ASSESSEE BEFORE LEARNED COMMISSIONER OF INCOME - TAX (APPEALS) IS ARISING FROM THE DISALLOWANCE MADE BY THE AO THEREFORE CLAIM MA DE BY THE ASSESSEE BEFORE LEARNED COMMISS IONER OF INCOME - TAX (APPEALS) WAS ONLY LEFT OUT IN THE GROUNDS RAISED IN THE MEMO OF APPEAL IN THE FORM 35 AND THEREFORE SUBSEQUENTLY THE ASSESSEE RAISED THIS ADDITIONAL GROUNDS. ONCE THE ISSUE IS ARISING FROM THE A SSESSMENT ORDER AND IT WAS RAISED BEFORE THE LEARNED PAGE NO. 6 COMMISSIONER OF INCOME - TAX (APPEALS) THEN HAVING CONSIDERED THE NATURE OF THE PROCEEDING BEFORE THE LEARNED COMMISSIONER OF INCOME - TAX (APPEALS) WHICH IS CO TERMINUS WITH THAT OF THE AO, THE ADDITIONAL G ROUND RAISED BY THE ASSESSEE IS ADMITTED FOR ADJUDICATION. ON MERITS WHEN THE ASSESSEE HAS ALREADY RECONCILE THE DIFFERENCE TO THE EXTENT OF RS.72275 ON ACCOUNT OF CHEQUE ISSUED BEFORE MARCH AND ACCOUNTED FOR BY THE PARTY AFTER MARCH THEN THE ADDITION ON THAT COUNT IF FOUND TO BE DUE TO TIME GAP OF ISSUING CHEQUE AND ACCOUNTING BY THE PARTY CANNOT BE MADE. ACCORDINGLY, THE AO IS DIRECTED TO VERIFY THIS RECONCILIATION AND IF THE DIFFERENCE IS ONLY BECAUSE TIME GAP BETWEEN ISSUING OF CHEQUE A ND ACCOUNTING BY THE OTHER PARTIES THEN THE SAME CANNOT BE ADDED TO THE INCOME OF THE ASSESSEE. AS REGARDS OTHER DIFFERENCE I FIND SUBSTANCE IN THE CONTENTION OF THE LD AR THAT ONLY NET EFFECT OF THE DIFFERENCE CAN BE ADDE D TO THE INCOME OF THE ASSESSEE. F URTHER IN CASE THE CREDIT BALANCE MORE SHOW BY THE ASSESSEE AND LESS BY THE OTHER PARTIES DUE TO THE TRADE DISCOUNT ETC WHICH COULD NOT BE RECONCILE BY THE ASSESSEE CAN BE ADDED TO THE INCOME OF THE ASSESSEE. THEREFORE THE AO IS DIRECTED TO CONSI DER THE DI FFERENCE WHICH IN FACT MORE SHOWN BY THE ASSESSEE AND LESS SHOWN BY THE OTHER PARTIES. ACCORDINGLY, THIS ISSUE IS SET ASIDE TO THE RECORD BY THE AO TO RECONSIDER AND DECIDE BY CONSIDERING THE ABOVE OBSERVATION. 16 . AS REGARD THE ADDITION MADE BY THE AO OF RS.30,000/ - IT IS THE SECOND PART OF THIS GROUND . T HE AO MADE THIS ADDITION ON THE GROUNDS THAT THE ASSESSE HAS INCURRED A TOTAL EXPENSES OF RS.2 , 68 , 706/ - IN CASH AND WITHOUT ANY SUPPORTING EVIDENCE OR VOUCHERS. THUS, IN THE ABSENCE OF ANY AUTHENTIC AND PR OPER SUPPORT ING EVIDENCE OF THE SAID EXPENSES THE AO DISALLOWED RS.30,000/ - OUT OF TOTAL EXPENSES OF RS.2 , 68 , 706/ - . THE LEARNED COMMISSIONER OF INCOME - TAX (APPEALS) CONFIRMED THIS ADDITION MADE BY THE AO. 17 . THE ARGUMENT OF LD AR AS WELL AS THE LD DR HEARD AND RELEVANT MATERIAL CONSIDERED . S INCE THE ASSESSEE HAS NOT PRODUCED THE RELEVANT BILLS/ VOUCHERS IN SUPPORT OF THE EXPENSES WHICH WAS INCURRED IN CASH THEREFORE IN THE FACTS AND CIRCUMSTANCES NO FAULT CAN BE FOUND WITH THE DISALLOWANCE MADE BY THE AO OF RS.30,000/ - AS THE ASSESSEE FAILED TO SUBSTANTIATE THE CLAIM BY PRODUCING THE SUPPORTING EVIDENCE. SAME IS CONFIRMED. PAGE NO. 7 18 . RESULT APPEAL OF THE ASSESSEE IS PARTLY ALLOWED. ORDER PRONOUNCED IN THE OPEN COURT ON 22 . 01 . 2016 . - SD/ - ( VIJAY PAL RAO ) JUDICIAL MEMBER DATED : 22 / 01 / 2016 A K KEOT COPY FORWARDED TO 1 . APPLICANT 2 . RESPONDENT 3 . CIT 4 . CIT (A) 5 . DR: ITAT ASSISTANT REGISTRAR ITAT, NEW DELHI