Sh. Jai Prakash Prop., Karnal V. ITO, Karnal

ITA 3589/DEL/2011

• Counselvise Citation: 358920114 RSA 2011
• Duration Of Justice: 2 year(s) 4 month(s) 9 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 28-11-2013
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: E
• Next Hearing Date: 10-10-2013
• Assessment Year: 2007-2008
• Appeal Filed On: 19-07-2011
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: MRS RENUKA JAIN GU PTA
• Assessee Lawyers: RANO JAIN CAS
• Keywords: Rejection of books of accounts
• Section: 143(3)

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL DELHI BENCH E NEW DELHI BEFORE SHRI R.P. TOLANI AND SHRI B.C. MEENA ITA NO. 3589/DEL/2011 A.YR. 2007-08 JAI PARKASH VS. INCOME-TAX OFFICER, PROP. M/S NARWANA TIMBER STORE, WARD 1, KARNAL. IMAMBARA, KARNAL. PAN : AAPPG 0272 M ( APPELLANT ) ( RESPONDENT ) APPELLANT BY : SH. VED JAIN & MS. RANO JAIN CAS RESPONDENT BY : MRS. RENUKA JAIN GUPTA SR. DR O R D E R PER R.P. TOLANI, J.M: : THIS IS ASSESSEES APPEAL AGAINST CIT(A)S ORDER DA TED 18-3-2011 RELATING TO A.Y. 2007-08. FOLLOWING GROUNDS ARE RAI SED: 1. THAT ON THE FACTS & IN CIRCUMSTANCES OF THE CA SE, THE LD. CIT(A) HAS ERRED ON LAW & FACTS BY CONFIRMING THE I MPOSITION OF SECTION 145(3) AND UPHOLDING REJECTION OF BOOKS OF ACCOUNTS DESPITE FURNISHING OF REQUISITE INFORMATION & DOCUM ENTS INCLUDING STOCK REGISTER. 2. THAT ON THE FACTS & IN CIRCUMSTANCES OF THE CAS E, THE LD. CIT(A) HAS ERRED ON LAW & FACTS BY APPLYING THE GRO SS PROFIT RATE @ 4% (FROM 4.90%) ASSESSED BY LD. AO ) AGAINST 3.41% SHOWN BY THE ASSESSEE, DESPITE NO DEFECTS HAS BEEN FOUND BY THE LD. AO IN THE BOOKS OF ACCOUNTS OF THE ASSESSEE. 2. BRIEF FACTS ARE: THE ASSESSEE IS AN IMPORTER & WHOLESALE TRADER OF TIMBER; AND OWNS A SHOP & SAW MILL. DURING THE YE AR UNDER CONSIDERATION MOST OF THE TIMBER WAS PURCHASED FROM SINGAPORE. AC CORDING TO ASSESSING 2 OFFICER, THOUGH STOCK REGISTER IS MAINTAINED BUT TH E SAME IS NOT ON THE BASIS OF DESCRIPTION-WISE PURCHASE AND SALE OF TIMBER. AS SESSEE DECLARED A G.P. RATE OF 3.41%. ASSESSING OFFICER REJECTED THE BOOKS OF ACCOUNT BY GIVING A FINDING THAT THE ASSESSEES BOOKS ARE NOT RELIABLE AND MADE THE ADDITION BY ESTIMATING THE G.P. AT 4.9%. 2.1. AGGRIEVED, ASSESSEE PREFERRED FIRST APPEAL WHE RE ASSESSEE PLEADED THAT: (I) EXCEPT IDENTIFICATION OF PURCHASED TIMBER & SAW CUT TIMBER IN STOCK REGISTER NO OTHER DEFICIENCIES OF ANY KIND AR E POINTED OUT BY THE ASSESSING OFFICER IN THE BOOKS OF A/CS. (II) APROPOS MAINTENANCE OF STOCK REGISTER, ASSESSI NG OFFICER WANTED THAT THE SAME OUGHT TO HAVE BEEN MAINTAINED IN A PA RTICULAR FASHION OF DESCRIPTION-WISE LINKING OF SALE OF CUTS OF TIMBER WITH THE PURCHASES. IT WAS PLEADED THAT IT WAS IMPOSSIBLE AS AFTER SAWING IT WILL NOT BE POSSIBLE TO IDENTIFY THE SOLD TIMBER TO BE RELATABL E TO WHICH PARTICULAR PURCHASE INVOICE AS THE TIMBER IS SAWED IN ADVANCE AND IN STOCK ALSO. THUS, THE INCONSISTENCY IN THE STOCK REGISTER IS N OT SIGNIFICANT BUT ONLY SURMISED BY THE ASSESSING OFFICER. (III) CALCULATION OF G.P. RATE AS MADE BY ASSESSING OFFICER WAS ALSO NOT CORRECT. ASSESSEE DEMONSTRATED THAT FROM THE PR EVIOUS YEARS FIGURES OF THE ASSESSEE ON THE SAME METHODOLOGY OF WORKING OF G.P. THE RESULTANT G.P. WAS COMPARABLE WITH PREVIOUS YEA R. ASSESSEE EXPLAINED THAT FINANCIAL CHARGES WERE DEBITED TO TH E TRADING ACCOUNT WHICH ACTUALLY ARE PART OF P&L A/C AND RECONCILIATI ON OF THIS FIGURE WOULD HAVE SIGNIFICANT POSITIVE EFFECT OF THE ASSES SEES G.P. 2.2. CIT(A) HOWEVER GAVE PART RELIEF BY FOLLOWING O BSERVATIONS: 3 1.12. NOW COMING TO THE ISSUE OF ESTIMATION OF PRO FITS. THE A.O. ESTIMATED THE PROFITS @ 4.90% ON THE BASIS OF G.P. DECLARED BY OTHER FIRMS. THE APPELLANT DECLARED G.P . @ 3.41% BUT STATED THAT FINANCIAL CHARGES WERE CONSID ERED IN THE TRADING ACCOUNT AND AFTER EXCLUDING THE SAME, G .P. WOULD WORK OUT @ 3.97% AS AGAINST G.P. DECLARED @ 4.34% I N THE A.Y. 2006-07 AND 6.01% IN THE A.Y. 2005-06. THE PLE A OF THE APPELLANT IS NOT TENABLE SINCE THE FINANCIAL CHARGE S HAS BEEN CONSIDERED IN THE TRADING ACCOUNT FOR WORKING OUT T HE G.P. IN THE LAST YEAR, ALSO. FURTHER, NO REASON/ JUSTIFICAT ION OF DECLINE IN G.P. FROM 6.01% IN THE A.Y. 2005-06 TO 4.34% IN THE A.Y. 2006-07 AND 3.41% IN THE YEAR UNDER CONSIDERATION H AS BEEN GIVEN. THE APPELLANT FURTHER DECLARED NET PROFIT AT RS. 2,57,024/- ONLY ON TURNOVER OF RS. 6.38 CRORES AND IT IS DIFFICULT TO APPRECIATE THAT ONE WOULD BE RUNNING A BUSINESS OF THIS MAGNITUDE FROM TWO STATIONS I.E. KANDLA (GUJ) AND KARNAL, AT SUCH A LOW MARGIN. IN VIEW OF THESE FACT S G.P. @ 4% IS HELD TO BE REASONABLE AND HENCE THE A.O. IS D IRECTED TO WORK OUT THE GROSS PROFIT ACCORDINGLY. THE CASES RE FERRED TO BY THE APPELLANT ARE OF NO USE FOR WANT OF THE COMP LETE FACTS. GROUNDS OF APPEAL NOS. 3 & 4 ARE AS SUCH, PARTLY A LLOWED. AGGRIEVED, ASSESSEE IS BEFORE THE ITAT. 3. LD. COUNSEL FOR THE ASSESSEE RELIED ON THE ITAT JUDGMENT DATED 6-7- 2012 RENDERED IN ITA NOS. 3543/DEL/2011 & 3755/DEL/ 2011 FOR A.Y. 2007- 08 (COPY PLACED ON RECORD) IN THE CASE OF SHRI KRIS HAN KUMAR, PROP. M/S MITTAL TIMBER STORE, KARNAL, WHERE RATHER THE ASSES SEES CASE ITSELF HAS BEEN APPLIED AS COMPARABLE. THEREAFTER ITAT HELD THAT T HE G.P. RATE DISCLOSED IN THAT CASE @ 3.63% HAS BEEN ACCEPTED AS COMPARED TO EARLIER TWO YEARS BY FOLLOWING OBSERVATIONS: 8. WE HAVE CAREFULLY CONSIDERED THE ARGUMENTS OF BO TH THE SIDES AND PERUSED THE MATERIAL PLACED BEFORE US. T HE ASSESSING OFFICER HAS GIVEN FOUR COMPARABLE CASES ON PAGE 6 O F THE ASSESSMENT ORDER. FOR READY REFERENCE, THE SAME IS REPRODUCED BELOW:- 4 NAME OF ASSESSEE ASSTT. YEAR % GROSS PROFIT JAI PARKASH M/S NARWANA TIMBER STORE, KARNAL 2004- 05 6.00% JAI PARKASH M/S NARWANA TIMBER STORE, KARNAL 2005- 06 4.34% NEERAJ JAIN PROP. JAGDAMA TIMBER STORE, KARNAL 2006- 07 5.66% SAT PAUL & SONS, M/S KAITHAL TIMBER STORE, KARNAL 2007- 08 3.53% TOTAL 19.53% AVERAGE RATE 19.53/4 = 4.90% 9. AT PAGE 7 OF THE ASSESSMENT ORDER, THE ASSESSING OFFICER HAS GIVEN THE COMPARATIVE POSITION OF SALE AND GROSS PROFIT I N THE CASE OF THE ASSESSEE. THE SAME IS ALSO REPRODUCED HEREIN BELOW FOR READY REFERENCE:- PARTIC ULARS/ AY 2005 -06 2006 -07 2007 -08 SALES 7319 4816 .00 5887 1050 .00 8400 9166 .00 GP 1737 528. 00 1560 090. 00 3049 494. 00 NP 2322 04.2 9 2397 71.8 2 3672 38.4 0 GP RATIO 2.37 % 2.65 % 3.63 % 10. THE ASSESSMENT YEAR UNDER APPEAL IS 2007-08. T HE COMPARABLE CASES OF OTHER ASSESSEES ARE FOR AY 2004-05 TO 2007 -08. IF WE TAKE THE COMPARABLE CASES OF AY 2007-08, THEN WE FIND THAT T HE GP RATE FOR THE COMPARABLE CASES QUOTED BY THE ASSESSING OFFICER HI MSELF IS 3.53% WHEREAS IN THE CASE OF THE ASSESSEE, THE GP RATE IS 3.63%. IF WE COMPARE THE TRADING RESULT OF THE YEAR UNDER CONSIDERATION AS COMPARED TO EARLIER YEAR IN ASSESSEES OWN CASE, WE FIND THAT IN AY 200 6-07, THE GP RATE WAS 5 2.65% WHICH IS ACCEPTED BY THE REVENUE IN THE ORDER PASSED UNDER SECTION 143(3) WHEREIN THE ASSESSING OFFICER HELD AS UNDER: - PURCHASES AND SALES SHOWN HAVE BEEN VERIFIED FROM THE BOOKS OF ACCOUNT. DURING THE COURSE OF ASSTT. PROCEEDINGS IT WAS NOTI CED THAT THE ASSESSEE HAD SHOWN GROSS TURNOVER OF RS.58871050/- AND G.P. OF RS.1560090/- AND G.P. RATE OF 2.65% AGAINST GROSS TURNOVER OF RS.731 94816/-, G.P. OF RS.1737528/- AND G.P. RATE OF 2.37% OF IMMEDIATELY PRECEDING YEAR. THE G.P. RATE IS ON HIGHER SIDE, WHEREAS GROSS PROFIT R ATE IN THIS LINE OF TRADE SHOWN 2.85% IN THE CASE OF M/S JANTA TIMBER STORE, TIMBER MARKET, KARNAL. 11. FROM THE ABOVE, IT IS EVIDENT THAT THE ASSESSIN G OFFICER HIMSELF CONSIDERED THE GP RATE OF 2.65% IN AY 2006-07 TO BE REASONABLE. IN AY 2005-06, IN ASSESSEES OWN CASE, THE GP RATE OF 2.3 7% WAS ACCEPTED BY THE REVENUE. IN VIEW OF THE TOTALITY OF ABOVE FACT S, WE DO NOT FIND ANY JUSTIFICATION FOR APPLICABILITY OF GP RATE OF 4.90% . THE GROSS PROFIT RATE DISCLOSED BY THE ASSESSEE AT 3.63% IS BETTER AS COM PARED TO EARLIER TWO YEARS OF ASSESSEES CASE AND ALSO BETTER THAN THE C OMPARABLE CASE OF SAT PAUL & SONS QUOTED BY THE ASSESSING OFFICER FOR AY 2007-08. IN VIEW OF THE ABOVE, WE DO NOT FIND ANY JUSTIFICATION FOR SUS TAINING THE PART OF THE TRADING ADDITION BY APPLYING GP RATE OF 4%. THE SA ME IS DELETED. 3.1. IT IS PLEADED THAT IN THE CASE OF KRISHAN KUM AR (SUPRA), WHO IS IN THE SAME LINE OF TIMBER BUSINESS, WORKING IN THE SAME L OCALITY, G.P. RATE OF 3.63% IN THE SAME ASSESSMENT YEAR HAS BEEN HELD TO BE REASONABLE, THEREFORE, THERE IS NO JUSTIFICATION TO HOLD THAT THE ASSESSE ES RATE OF G.P. AT 3.41% IS LOW AS IN EARLIER YEAR EVEN A LESSER G.P. RATE HAS BEEN ACCEPTED. THE ITAT IN THE CASE OF KRISHAN KUMAR (SUPRA) HAS HELD THAT THE ASSESSEES OWN PREVIOUS RECORD IS TO BE CONSIDERED. IN THE ABSENCE OF ANY S IGNIFICANT DEFECTS IN THE BOOKS OF ACCOUNT AND MERELY ON HYPOTHECATED EXPECTA TION OF MAINTAINING STOCK DETAILS, THE ASSESSEES BOOKS RESULTS WHICH ARE OTHERWISE SOUND, CANNOT BE DISTURBED. 4. LD. DR RELIED ON THE ORDERS OF CIT(A). 5. WE HAVE CONSIDERED RIVAL CONTENTIONS AND PERUSED THE MATERIAL AVAILABLE ON RECORD. IN OUR CONSIDERED VIEW THE JUD GMENT OF COORDINATE 6 BENCH IN THE CASE OF KRISHAN KUMAR (SUPRA) IN WHICH ASSESSEES OWN CASE HAS BEEN CONSIDERED AS COMPARABLE AND HOLDING THAT THOUGHT AVERAGE RATE OF G.P. IN THE CASE OF ASSESSEE BEING 4.9% STILL, THE G.P. RATE OF 3.61% EARNED IN THE CASE OF KRISHAN KUMAR IS JUSTIFIABLE. THE RATIO OF THE JUDGMENT ON THE FACTS IS APPLICABLE AND PROPOSITION THAT ASSESSEE S G.P. MAY VARY YEAR TO YEAR AND BOOKS OF ACCOUNT SHOULD NOT HAVE BEEN REJECTED ON HYPOTHECATED GROUNDS IS ALSO APPLICABLE. IT HAS NOT BEEN DISPUTE D THAT NO OTHER DEFECTS WERE FOUND IN ASSESSEES BOOKS EXCEPT A.OS EXPECTA TION OF A PARTICULAR WAY OF IDENTIFICATION OF CUT TIMBER WITH THE INDIVIDUAL PURCHASE WHICH IN OUR CONSIDERED VIEW IS RATHER DIFFICULT TO MAINTAIN. IN THE CIRCUMSTANCES, WE UPHOLD THE G.P. RATE DECLARED BY THE ASSESSEE. 6. IN THE RESULT, ASSESSEES APPEAL IS ALLOWED. ORDER PRONOUNCED IN OPEN COURT ON 28-11-2013. SD/- SD/- (B.C. MEENA) ( R.P. TOLANI ) ACCOUNTANT MEMBER JUDICIAL MEMBER DATED:28-11-2013. MP COPY TO : 1. ASSESSEE 2. AO 3. CIT 4. CIT(A) 5. DR