Sh. Suresh Jindal Prop., Karnal V. ITO, Karnal

ITA 3590/DEL/2011

• Counselvise Citation: [2014] 140 COUNSELVISE.COM (IT) 81691 (ITAT-DELHI)
• Duration Of Justice: 3 year(s) 2 month(s) 3 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 22-09-2014
• Appeal Filed By: Assessee
• Order Result: Partly Allowed
• Bench Allotted: G
• Next Hearing Date: 25-08-2014
• Assessment Year: 2007-2008
• Appeal Filed On: 19-07-2011
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Assessee Lawyers: RANU JA IN
• Keywords: Rejection of books of accounts
• Section: 143(3)

Judgement Text

ITA 3590 & 3542/DEL/11 IN THE INCOME TAX APPELLATE TRIBUNAL DELHI BENCH G NEW DELHI BEFORE SHRI S.V. MEHROTRA : ACCOUNTANT MEMBER AND SHRI H.S. SIDHU : JUDICIAL MEMBER ITA NO. 3590 /DEL/201 1 ASSTT. YR: 200 7 - 08 SURESH JINDAL PROP. VS. INCOME - TAX OFFICER, M/S SWASTIK IMPEX C/O VINAY GOEL CA WARD - 1, KARNAL. B - 2, PURSHOTAM GARDEN, NEAR CHANDRANCHAL BANQUET HALL, KARNAL. PAN: A LDPK 7993 G AND ITA NO. 3542/DEL/2011 ASSTT. YR: 2007 - 08 INCOME - TAX OFFICER, VS. SURESH JINDAL PROP. WARD - 1, KARNAL. M/S SWASTIK IMPEX KARNAL. ( APPELLANT ) ( RESPONDENT ) A SSESSEE BY : SHRI VED JAIN FCA & SMT. RANU JAIN RE VENUE BY : SHRI RAKESH KUMAR SR. DR DATE OF HEARING : 27 - 08 - 2014 DATE OF ORDER : _______ - 09 - 2014. O R D E R PER S.V. MEHROTRA, A.M: - TH E S E CROSS APPEAL S , PREFERRED BY THE ASSESSEE AS WELL AS THE REVENUE, ARE DIRECTED AGAINST ORDER DATED 18 - 03 - 2011 PASSED BY THE LD. CIT(A) , KARNAL , IN APPEAL NO. IT/102/KNL/CIT(A)/09 - 10 , RELATING TO A.Y. 2008 - 09. 2 2. BRIEF FACTS OF THE CASE ARE THAT IN THE RELEVANT ASSESSMENT YEAR THE ASSESSEE DERIVED INCOME FROM TIMBER BUSINESS. HE FILED HIS RETURN OF INCOME DECLARING TOTAL INCOME OF RS. 1,53,993/ - . THE AO, IN COURSE OF EXAMINATION OF BOOKS OF A/C, AND SALE AND PURCHASE VOUCHERS , NOTICED THAT THERE WAS NO NARRATION OF QUALITY OF TIMBER ON THE SALE VOUCHERS, WHEREAS, THE ASSESSEE HAD PURCHASED THE TIMBER OF DIFFERENT KINDS/ TYPES FOR DIFFERENT RAT ES ACCORDING TO THE QUALITY OF TIMBER. ALMOST ALL THE PURCHASES WERE FROM SINGAPORE EXCEPT FEW LOCAL PURCHASES. IT WAS FURTHER NOTICED THAT ASSESSEE HAD PURCHASED DIFFERENT TYPE/KIND OF TIMBER FOR DIFFERENT RATES ACCORDING TO THE QUALITY OF THE IMPORTED TI MBER. BUT HE HAD NOT MENTIONED THE ITEM WISE QUALITY/ KIND OF TIMBER ON THE SALE VOUCHERS. HE SIMPLY QUOTED IMPORTED TIMBER IN THE COLUMN OF PARTICULARS OF TIMBER SOLD INSTEAD OF QUOTING THE KIND/ TYPE OF TIMBER ITEM WISE ON THE SALE VOUCHERS AND , THUS , SUPPRESSED THE AMOUNT OF SALES IN THE ABSENCE OF SPECIFIC ATION OF QUALITY OF TIMBER SOLD IN THAT MANNER. 2.1. AFTER COMPARING THE PURCHASE VOUCHERS/ SALE VOUCHERS, THE AO CONCLUDED THAT THE ASSESSEE WAS NOT REFLECTING THE TRUE PICTURE OF HIS GROSS PROFIT . HE POINTED OUT THAT HUGE SALES HAD BEEN SUPPRESSED OUT BY THE ASSESSEE BY NOT RECORDING THE NARRATION OF ITEM WISE QUALITY OF TIMBER. AFTER DETAILED CONSIDERATION OF BILLS/ VOUCHERS FOR SALE AND PURCHASE, THE AO ISSUED A DETAILED SHOW CAUSE NOTICE, AS R EPRODUCED FROM PAGES 3 TO 9 OF HIS ORDER , TO EXPLAIN AS TO WHY THE BOOKS OF ACCOUNT BE NOT REJECTED AND GROSS PROFIT RATE OF 4.90% I.E. ON AVERAGE BASIS THAT WAS PREVAILING IN THE MARKET FOR THE LAST FOUR YEARS IN DIFFERENT CASES SHOULD NOT BE APPLIED TO CALCULATE THE GROSS PROFIT. THE AO GAVE THE FOLLOWING COMPARABLE CASES: 3 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% 2.2. THE ASSESSEE S REPLY HAS BEEN REPRODUCED IN PARA 4 OF AO S ORDER. 2.3. AFTER CONSIDERING THE ASSESSEE S REPLY, THE AO GAVE DETAILED REASONS FOR NOT ACCEPTING THE SAME AND AFTER GIVING ELABORATE REASONS REJECTED THE BOOKS OF A/C FOR THE VARIOUS DEFICIENCIES POINTED OUT BY HIM IN THE ASSESSMENT ORDER AND DETERMINED THE G.P. RATE AT 4.9% AND MADE AN ADDITION OF RS. 19,08,583/ - AS AGAINST 2.58% DECLARED BY THE ASSESSEE. 2.4. BEFORE LD. CIT(A), THE ASSESSEE, INTER ALIA, SUBMITTED THA T IT WAS NOT FEASIBLE TO MAKE THE TRADING ACCOUNT FOR EACH ITEM OF TIMBER DEALT WITH. THE ASSESSEE ALSO POINTED OUT THAT THE FIRM DEALT IN ONE OR TWO MAJOR TYPE OF WOODS WHICH WERE ALMOST OF THE SAME PRIC E, STOCK REGISTER WAS PRODUCED BEFORE THE AO DURING ASSESSMENT PROCEEDINGS, DETAILS OF ITEM WISE INVENTORY OF OPENING AND CLOSING STOCK WAS ALSO FILED BEFORE THE AO. THEREFORE, IT WAS SUBMITTED THAT PROVISIONS OF SECTION 145(3) WERE NOT APPLICABLE TO THE FACTS OF THE ASSESSEE S CASE. 2.5. LD. CIT(A), AFTER CONSIDERING THE ASSESSEE S SUBMISSIONS, UPHELD THE REJECTION OF TRADING RESULTS MADE BY THE AO BY RESORTING TO PROVISIONS OF SECTION 145(3). 4 2.6. AS REGARDS THE G.P. RATE ADOPTED AT 4.9% BY THE AO, L D. CIT(A) HELD THAT G.P. @ 4% WAS FAIR AND REASONABLE, INTER ALIA, OBSERVING AS UNDER: 1.08. THE APPELLANT DECLARED NET PROFIT OF RS. 2,73,344/ - ON SALE OF RS. 8.3 CRORES I.E. 0.34% ONLY. IT IS DIFFICULT TO APPRECIATE TH A T A PERSON WOULD BE RUNNING A BU SINESS OF TURNOVER OF RS. 8.3 CRORES WHICH RESULTS IN NP OF RS. 2.73 LACS ONLY. EVEN THE GP DECLARED BY THE APPELLANT IS 2.5% WHICH IS VERY MUCH ON LOWER SIDE IN VIEW OF THE GP DECLARED BY THE OTHER CONCERNS REPRESENTED BY THE SAME COUNSEL IN THE APPEAL IN THIS OFFICE. THE APPELLANT FUR T HE R STATED THAT 7.93% OF HIS TURNOVER WAS HIGH SIZES SALE WHEREIN PROFITS ARE LESS THAN 2%. NO EVIDENCE IN SUPPORT OF THIS CLAIM HAS B E EN BROUGHT ON RECORD BESIDES THE FACT THAT IT IS NOT GOING TO MAKE MUCH EFFECT IN THE G.P . DECLARED BY THE APPELLANT. THE APPELLANT ALSO REFERRED TO SOME OF THE CASES WHEREIN G.P. CLAIM TO BE DECLARED FROM 1.88% TO 3.63% AND CLAIMED THAT GP DECLARED AT 2.58% BY HIM IS NOT LOW. THIS PLEA OF THE APPELLANT IS NOT VERIFIABLE FOR WANT OF RELEVANT FACTS. 1.09. IN VIEW OF THE FACTS DISCUSSED ABOVE, GP @ 4% IS HELD FAIR AND REASONABLE AS AGAINST 4.9% ADOPTED BY THE AO AND 2.50% DECLARED BY THE APPELLANT. THE AO IS, ACCORDINGLY DIRECTED TO WORK OUT THE GP OF THE APPELLANT AND ADDITION MADE BY HIM IS AS SUCH CONFIRMED UP TO THAT EXTENT ONLY. 2.7. BEING AGGRIEVED WITH THE ORDER OF LD. CIT(A), BOTH THE ASSESSEE AND THE DEPARTMENT ARE IN APPEAL BEFORE US. RESPECTIVE GROUNDS RAISED ARE AS UNDER: ITA NO. 3590/DEL/11: (ASSESSEE S APPEAL) : 1. THAT ON THE FACTS & IN THE CIRCUMSTANCES OF THE CASE, THE LD. CIT(A) HAS ERRED ON LAW & FACTS BY CONFIRMING THE IMPOSITION OF SECTION 145(2) AND UPHOLDING REJECTION OF BOOKS OF ACCOUNTS DESPITE FURNISHING OF REQUISITE INFORMATION & DOCUMENTS INCLUDING STOCK REGISTER . 2. THAT ON THE FACTS & IN THE CIRCUMSTANCES OF THE CASE, THE LD. CIT(A) HAS ERRED ON LAW & FACTS BY APPLYING THE GROSS PROFIT RATE @ 4% (FROM 4.90% ASSESSED BY THE LD AO) AGAINST 2.58% SHOWN 5 BY THE ASSESSEE, DESPITE NO DEFECTS HAS BEEN FOUND BY THE LD AO IN THE BOOKS OF ACCOUNTS OF THE ASSESSEE . ITA NO. 3542/DEL/11 ( REVENUE S APPEAL): ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE, THE LD. CIT(A) HAS ERRED IN DIRECTING TO WORK OUT PROFIT BY APPLYING A G.P. RATE OF 4% AS AGAINST 4.9% APPLIED BY THE AO WITHOUT APPRECIATING THAT G.P. RATE DECLARED IN THE COMPARABLE CASES OF THE LINE RELIED UPON BY THE AO HAD SHOWN BETTER RESULTS AND THE ACCOUNT BOOKS MAINTAINED BY THE ASSESSEE SUFFERED FROM DEFECTS SO AS TO WARRANT INVOKING OF SECTION 145(3) OF THE I.T. ACT. 3. LD. COUNSEL FOR THE ASSESSEE SUBMITTED THAT REJECTION OF BOOKS IS UNJUSTIFIED BUT EVEN IF REJECTION OF BOOKS IS ACCEPTED, STILL REASONABLE RATE SHOULD BE APPLIED FOR DETERMINING NET PROFIT. AFTER GOING THROUGH THE ASSESSMENT ORDER AND LD . CIT(A) S ORDER, WE ARE OF THE OPINION THAT ON ACCOUNT OF ABSENCE OF NECESSARY DETAILS IN RESPECT OF SALES AND OTHER DISCREPANCIES POINTED OUT BY AO, THE BOOKS OF ACCOUNT WERE RIGHTLY REJECTED. NOW, T HE SHORT ISSUE IS AS TO WHAT IS THE REASONABLE RATE OF GROSS PROFIT WHICH SHOULD BE APPLIED. THE ASSESSEE HAD DISCLOSED THE G.P. RATE OF 2.58%. THE BOOKS OF A/C WERE REJECTED BY AO, WHO APPLIED THE G.P. RATE OF 4.90%. LD. CIT(A) UPHELD THE REJECTION OF BOOKS OF A/C BUT REDUCED THE G.P. RATE TO 4% AS AGAINST 4.9%. THE ASSESSEE S CONTENTION IS THAT THE G.P. RATE FOR THE YEAR UNDER CONSIDERATION SHOWS AN INCREASING TREND RISING FROM 2.26% FOR A.Y. 2006 - 07 TO 2.58% WHILE THE G.P. RATE FOR A.Y. 2005 - 06 WAS 2.16%. THE CON T ENTION OF ASSESSEE IS THAT ONLY ONE COMPARA BLE CASE FOR A.Y. 2007 - 08 IS THAT OF M/S SAT PAUL & SONS AND ALL OTHER THREE CASES WERE FOR EARLIER YEARS. THE CONTENTION IS THAT IF EARLIER YEARS ARE TO BE TAKEN AS BENCH MARK THE ASSESSEE S OWN CASE IS THE BEST AND IF COMPARISON WITH OTHERS IS TO BE MADE , IT IS TO BE FOR THE RELEV A NT ASSESSMENT Y E AR. THE ASSESSEE HAS RELIED ON THE ORDER S OF THE ITAT IN THE CASES OF: 6 (I) ITO VS. SHRI KRISHAN KUMAR - ITA NO. 3543/DEL/2011 , A.Y. 2007 - 08 , DATED 6 - 7 - 2012 ; AND (II) JAI PARKASH VS. ITO ITA NO. 3589/DEL/2011, A.Y. 20 07 - 08, DATED 28 - 11 - 2013. 4. LD. COUNSEL POINTED OUT THAT IN THESE TWO CASES EXACTLY ON THE SAME FACTS, USING THE SAME COMPARABLES FOR THE SAME ASSESSMENT YEAR, IN THE CASE OF INDIVIDUAL, ENGAGED IN THE SAME NATURE OF BUSINESS, THE ADDITIONS WERE MADE ON W HICH PARTIAL RELIEF WAS GIVEN BY THE CIT(A), SUSTAINING THE G.P. RATE OF 4% . IN THE CASE OF SHRI KRISHAN KUMAR (SUPRA), THE ITAT IN PARA S 8 TO 11 OF ITS ORDER HAS OBSERVED AS UNDER: 8. WE HAVE CAREFULLY CONSIDERED THE ARGUMENTS OF BOTH THE SIDES AND PERUSED THE MATERIAL PLACED BEFORE US. THE ASSESSING OFFICER HAS GIVEN FOUR COMPARABLE CASES ON PAGE 6 OF THE ASSESSMENT ORDER. FOR READY REFERENCE, THE SAME IS REPRODUCED BELOW: - 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% 7 9. AT PAGE 7 OF THE ASSESSMENT ORDER, THE ASSESSING OFFICER HAS GIVEN THE COMPARATIVE POSITION OF SALE AND GROSS PROFIT IN THE CASE OF THE ASSESSEE. THE SAME IS ALSO REPRODUCED HEREIN BELOW FOR READY REFERENCE: - PARTICUL ARS/AY 2005 - 06 20 06 - 07 2007 - 08 SALES 73194 816.00 58871 050.00 84009 166.00 GP 17375 28.00 15600 90.00 30494 94.00 NP 23220 4.29 23977 1.82 36723 8.40 GP RATIO 2.37% 2.65% 3.63% 10. THE ASSESSMENT YEAR UNDER APPEAL IS 2007 - 08. THE 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 THE GP RATE FOR THE COMPARABLE CASES QUOTED BY THE ASSESSING OFFICER HIMSELF IS 3.53% WHEREAS IN THE CASE OF THE ASSESSEE, THE GP RATE IS 3.63%. IF WE COMPARE THE TRA DING RESULT OF THE YEAR UNDER CONSIDERATION AS COMPARED TO EARLIER YEAR IN ASSESSEE S OWN CASE, WE FIND THAT IN AY 2006 - 07, THE GP RATE WAS 2.65% WHICH IS ACCEPTED BY THE REVENUE IN THE ORDER PASSED UNDER SECTION 143(3) WHEREIN THE ASSESSING OFFICER HELD A S UNDER: - PURCHASES AND SALES SHOWN HAVE BEEN VERIFIED FROM THE BOOKS OF ACCOUNT. DURING THE COURSE OF ASSTT. PROCEEDINGS IT WAS NOTICED 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.73194816/ - , 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 RATE 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 ASSESSING OFFICER HIMSELF CONSIDERED THE GP RATE OF 2.65% IN AY 2006 - 07 TO BE REASONABLE. IN AY 2005 - 06, IN ASSESSEE S OWN CASE, THE GP RATE OF 2.37% WAS ACCEPTED BY THE REVENUE. IN VIEW OF THE TOTALITY OF ABOVE FACTS, 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 COMPARED TO EARLIER TWO YEARS OF ASSESSEE S CASE AND ALSO BETTER THAN THE COMPARABLE 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 SUSTAINING THE PART OF THE TRADING ADDITION BY APPLYING GP RATE OF 4%. THE SAME IS DELETED. 8 4.1. IN THE CASE OF JAI PARKASH (SUPRA), THE ITAT IN PARA 5 OF ITS ORDER HAS OBSERVED AS UNDER: 5. WE HAVE CONSIDERED RIVAL CONTENTIONS AND PERUSED THE MATERIAL AVAILABLE ON RECORD. IN OUR CONSIDERED VIEW THE JUDGMENT OF COORDINATE BENCH IN THE CASE OF KRISHAN KUMAR (SUPRA) IN WHICH ASSESSEE S OW N 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 DISPUTED THAT NO OTHER DEFECTS WERE FOUND IN ASSESSEE S BOOKS EXCEPT A.O S 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. 4.2. RELYING ON THE ABOVE TWO DECI SIONS, THE CONTENTION IS THAT SINCE THE G.P. RATE DECLARED BY THE ASSESSEE FOR SAME YEAR IS BETTER THAN EARLIER, THE SAME SHOULD BE ACCEPTED. 4.3. HOWEVER, THE CON T ENTION OF THE DEPARTMENT IS THAT IN SIMILAR LINE OF BUSINESS, THE G.P. RATE , AS ACCEPTED BY THE TRIBUNAL , IS IN THE RANGE OF 3.61% TO 3.63% AND, THEREFORE, THE SAME SHOULD BE ACCEPTED. WE ARE INCLINED TO ACCEPT THE CONTENTION OF THE LD. DR ON THIS COUNT BECAUSE WHEN G.P. RATE IS APPLIED FOR SIMILAR LINE OF BUSINESS, THEN FOR SAME ASSESSMENT YE AR THERE COULD NOT BE ANY WIDE VARIATION IN THE G.P. RATE. MERELY BECAUSE ASSESSEE HAS SHOWN BETTER RESULT FOR THE CURRENT YEAR CANNOT BE THE SOLE CRITERIA AND DUE REGARD HAS TO BE GIVEN TO THE G.P. RATE ADOPTED IN SAME LINE OF BUSINESS FOR SAME ASSESSMENT YEAR. THE G.P. RATE IN THE CASE OF SAT PAUL & SONS (SUPRA) HAS BEEN TAKEN AT 3. 5 3% . THE AO HAS CONSIDERED THE CASE OF SAT PAUL & SONS AS ONE OF THE COMPARABLE CASES AND WE FIND THAT IN THE SIMILAR LINE OF BUSINESS THE G.P. RATE ACCEPTED BY THE TRIBUNAL IN THE CASE OF KRISHAN KUMAR IS 3.61% AND IN THE CASE OF JAI PARKASH 9 3.63%. THEREFORE, CONSIDERING ALL COMPARABLE CASES, WE ARE OF THE OPINION THAT IT WOULD SERVE THE INTEREST OF JUSTICE IF THE G.P. RATE OF 3.53% IS ADOPTED IN THE CASE OF THE ASSESSEE AS WAS IN THE CASE OF SAT PAUL & SONS . WE ORDER ACCORDINGLY. 4.4. IN THE RESULT, BOTH THE APPEALS, FILED BY THE ASSESSEE AS WELL AS THE REVENUE ARE PARTLY ALLOWED. ORDER PRONOUNCED IN OPEN COURT ON 22 - 09 - 2014. SD/ - SD/ - ( H.S. SIDHU ) ( S.V. MEHROTRA ) JUDICIAL MEMBER ACCOUNTANT MEMBER DATED: 22 - 09 - 2014. MP COPY TO : 1. ASSESSEE 2. AO 3. CIT 4. CIT(A) 5. DR