Sri K Nirmal Kumar, Berhampur V. ACIT, Berhampur

ITA 360/CTK/2010

• Counselvise Citation: [2011] 134 COUNSELVISE.COM (IT) 4395 (ITAT-CUTTACK)
• Duration Of Justice: 7 month(s) 9 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 27-05-2011
• Appeal Filed By: Assessee
• Bench Allotted: DB
• Next Hearing Date: 09-05-2011
• Assessment Year: 2006-2007
• Appeal Filed On: 18-10-2010
• Court: TRIBUNAL
• Department Lawyers: S C MOHANTY
• Assessee Lawyers: D K SETHAR
• Keywords: Set aside

Judgement Text

IN THE INCME TAX APPELLATE TRIBUNAL, CUTTACK BENCH, CUTTACK BEFORE : HONBLE SHRI K.K.GUPTA, ACCOUNTANT MEMBER, AND HONBLE SHRI K.S.S.PRASAD RAO, JUDICIAL MEMBER. ITA NO. 360/CTK/2010 (ASSESSMENT YEAR 2006 - 07) SRI K.NIRMAL KUMAR, PROP. SRI DURGA CL OTH STORES, BIG BAZAR, BERHAMPUR 760 009 PAN: AACHS 0785 E VERSUS ASST.COMMISSIONER OF INCOME - TAX, BERHAMPUR CIRCLE, BERHAMPUR. (APPELLANT) (RESPONDENT) FOR THE APPELLANT: SHRI D.K.SETH,AR FOR THE RESPONDENT SHRI S.C.MOHANTY, DR ORDER SHRI K.S.S.PRA SAD RAO, JUDICIAL MEMBER : THIS APPEAL IS FILED BY THE ASSESSEE HAVING BEEN AGGRIEVED BY THE ORDER DT.7.7.2010 OF THE COMMISSIONER OF INCOME - TAX (APPEALS) FOR THE ASSESSMENT YEAR 2006 - 07. 2. THE ASSESSEE HAS RAISED THE FOLLOWING ISSUES IN THE GROUNDS OF AP PEAL. 1. THAT IT IS NEITHER POSSIBLE NOR PRACTICABLE TO MAINTAIN STOCK ACCOUNT BUT MAKES STOCK INVENTORY COMPANY WISE, BRAND WISE AND SIZE WISE SINCE THE APPELLANT DEALS IN CLOTH AND READYMADE GARMENTS OF UMPTEEN VARIETIES AND SIZES OF ALL BRANDS FOR ALL SORTS OF PEOPLE. 3. THAT THE SALE TURNOVER DURING THE YEAR NOW UNDER APPEAL IS RS.5,50,68,103 WHEN COMPARED TO IMMEDIATE PRECEDING YEAR WHICH WAS RS.4,34,47,923 AND THERE IS GROWTH OF MORE THAN 25% WHICH HAS NOT BEEN CONSIDERED BY THE COMMISSIONER OF IN COME T AX (APPEALS. 4. THAT THE NET PROFIT FOR THE YEAR N OW UNDER APPEAL IS RS.6,65,270 AS AGAINST RS.5,93,505 IN THE IMMEDIATE PRECEDING YEAR. HENCE THE ALLEGATION THAT THERE WAS FALL IN NET PROFIT FROM RS.5,93,505 O F PREVIOUS YEAR TO RS.5,71,170 FOR THE YEAR IN QUESTION IS NOT CORRECT AND IN FACT THE NET PROFIT S MORE BY RS.7 1,765/ - WHEN COMPARED TO PREVIOUS YEAR. 5. THAT THE COMMISSIONER OF INCOME TAX (APPEALS) IS NOT JUSTIFIED IN CONFIRMING THE ASSESSMENT SIMPLY BECAUSE THE APPELLANT HAS NOT MAINTAI NED STOCK ACCOUNT IN ABSENCE OF ANY OTHER DEFECT POINTED OUT BY THE COMMISSIONER OF INCOME TAX (APPEALS). ITA NO.360/CTK/2010 2 3. BOTH THE PARTIES WERE HEARD REGARDING THE ISSUES RAISED BY THE ASSESSEE AND THEIR LEGAL IMPLICATIONS. 4. DURING THE COURSE OF HEARING, THE LEARN ED AR OF THE ASSESSEE ARGUED VEHEMENTLY CONTENDING INTER ALIA THAT THE DEPARTMENTAL AUTHORITIES HAVE ERRED IN RESORTING TO ESTIMATION OF GROSS PROFIT ON THE GROUND THAT THE ASSESSEE HAS NOT MAINTAINED THE STOCK REGISTER ON QUANTATIVE DETAILS. BUT THE DEPAR TMENT HAS NOT TAKEN INTO CONSIDERATION THE INCREASE IN TURNOVER AND GROSS PROFIT FROM YEARS TO YEAR. SUBSTANTIATING THIS CLAIM, THE ASSESSEE MADE AVAILABLE THE DETAILS IN TABULAR FORM SHOWING THE YEAR - WISE TURNOVERS AND GROSS PROFIT AND PERCENTAGE OF PROFI T AND THE VIEW TAKEN BY THE DEPARTMENT IN EACH YEAR. FROM THIS STATEMENT, IT WAS CONTENDED BY THE LEARNED AR OF THE ASSESSEE THAT THE NON - MAINTENANCE OF QUANTATIVE DETAILS IN THE STOCK REGISTER WILL NOT IN ANY WAY EFFECT THE CALCULATION OF GP RATE OR TRADI NG RESULTS SINCE THE QUANTITY IS NOT AT ALL CONSIDERED BUT ONLY THE TURNOVER HAS BEEN CALCULATED. COST OF THE COST ONLY IS ESSENTIAL BUT NOT THE QUANTITY AND THEREFORE , NON - MAINTENANCE OF QUANTITATIVE DETAILS IN THE STOCK REGISTER IS NOT AT ALL PREJUDICE T HE CALCULATION OF GP RATE. THE STATEMENT FILED BY THE ASSESSEE BEFORE THE TRIBUNAL SHOWING THE TURNOVER , PERCENTAGE OF PROFIT AND DEPARTMENTS VIEW, DISCLOSE THAT FOR THE ASSESSMENT YEAR 2004 - 05 THE TURNOVER OF THE ASSESSEE IS RS.4,26,22,370 AND THE GP IS RS.68,52,138 AND THE GP RATE IS 15.61% WHICH WAS ACCEPTED BY THE DEPARTMENT ON PROCESSING THE RETURN U/S.143(1). FOR THE NEXT ASSESSMENT YEAR BEING 2005 - 06, THE TURNOVER IS RS.4,34,47,930 AND THE GROSS PROFIT IS RS.71,5 2,803 AND THE GP RATE IS 16.46% AND I T WA S ACCEPTED BY THE DEPARTMENT IN THE ASSESSMENT U/S.143( 3). FOR THE PERIOD UNDER CONSIDERATION I.E., ASSESSMENT YEAR 2006 - 07, THE TURNOVER IS RS.5,50,68,103, THE GROSS PROFIT IS RS.80,29,803 AND THE PERCENTAGE OF GP IS 14.58%. TO INCREASE THE TURNOVER, THE ASSESSEE OFFERED SPECIAL DISCOUNT RANGING FROM 10% TO 25% DURING PERIOD UNDER CONSIDERATION WHICH HAS LED THE INCREASE IN TURNOVER AND THEREBY THERE WAS INCREASE OF GP THOUGH THE PERCENTAGE THEREOF IS REDUCED TO MEAGER EXTENT OF 2% APPROXIMATELY. EVEN OTHERWISE ALSO NON - MAINTENANCE OF QUANTITATIVE DETAILS IN THE STOCK REGISTER WILL NOT LEAD TO ANY CONCLUSION THAT THE BOOKS OF ACCOUNT ARE NOT RELIABLE. THEREFORE, THE ACTION OF THE ASSESSING OFFICER IN RESORTING TO SECTION ITA NO.360/CTK/2010 3 145(3) FOR ESTIMATION OF PROFIT IS NOT AT ALL SUSTAINABLE FOR LEGAL SCRUTINY AND HENCE, CONSEQUENTIAL ACT OF ESTIMATION OF GROSS PROFIT IS INCORRECT. THEREFORE, THE LEARNED AR OF THE ASSESSEE PRAYED FOR SETTING ASIDE THE FINDING OF THE DEPARTMENT AND DIRECT THEM TO ACCEPT THE GP RATE MEN TIONED BY THE ASSESSEE. 5. CONTRARY TO THIS, THE LEARNED DR HAS VEHEMENTLY ARGUED SUPPORTING THE IMPUGNED ORDERS PASSED BY THE DEPARTMENTAL AUTHORITIES ON THE ISSUES UNDER CONSIDERATION. 6. ON CAREFUL CONSIDERATION OF THE MATERIAL MADE AVAILABLE TO THE TRI BUNAL AND ANALYZING THE IMPUGNED ORDERS IN THE LIGHT OF SUCH MATERIAL, IT IS FOUND THAT THE ONLY REASON GIVEN BY TH4E ASSESSING OFFICER AND ACCEPTED BY THE LEARNED CIT(A) FOR RESORTING TO ESTIMATION OF PROFIT IS NON - MAINTENANCE OF QUANTITATIVE DETAILS AS W ELL AS BRAND NAMES OF THE CLOTH TRADED BY THE ASSESSEE I N THE STOCK REGISTER MAINTAINED BY THE ASSESSEE. THERE IS NO OTHER DEFECT POINTED OUT BY THE DEPARTMENT FOR REJECTING THE BOOKS OF ACCOUNT MAINTAINED BY THE ASSESSEE AND FOR INVOKING THE PROVISIONS OF SECTION 145(3). IN CLOTH BUSINESS THE COST OF THE CLOTH ONLY DETERMINES THE GROSS PROFIT AS WELL AS NET PROFIT EARNED BY THE ASSESSEE BUT QUANTITATIVE DETAILS OF CLOTH TRADED AS WELL AS BRAND NAMES HAVE NO ROLE TO PLAY EFFECTING THE GROSS PROFIT AND THE N ET PROFIT OF THE ASSESSEE. FROM THE CHART MADE AVAILABLE BY THE ASSESSEE SHOWING THE TURNOVER AND GP RATES IT CLEARLY SHOWS THAT THERE IS INCREASE IN THE TURNOVER FROM RS.4,34,47,930 FOR THE ASSESSMENT YEAR 2005 - 06 TO RS.5,550,68,103 IN THE PRESENT YEAR I .E., ASSESSMENT YEAR 2006 - 07 THOUGH THERE IS DECREASE IN THE PERCENTAGE OF GP BUT THE GROSS PROFIT IN QUANTUM HAS INCREASED FROM RS.71,50,803 FOR ASSESSMENT YEAR 2005 - 06 TO RS.80,29,803 FOR THE ASSESSMENT YEAR 2006 - 007. BESIDES THAT THERE IS INCREASE OF NE T PROFIT FROM RS.5,93,505 FOR ASSESSMENT YEAR 2005 - 06 TO RS.6,65,270 FOR THE PRESENT ASSESSMENT YEAR 2006 - 07. SO, THIS IS THE AMOUNT TO BE TAKEN INTO CONSIDERATION FOR CALCULATION OF TAX CHARGEABLE IN THE HANDS OF THE ASSESSEE. SO, MERE NON - MAINTENANCE OF QUANTITATIVE DETAILS BRAND - WISE IN THE STOCK REGISTER WILL NOT HAVE ANY IMPACT IN THE EARNING OF GP OR NP OR IN ARRIVING AT THE PROFIT THAT IS TO BE TAXED IN THE HANDS OF THE ASSESSEE. ON THE OTHER HAND, AS PER THE STATISTICS AS STATED SUPR A , THE NET PROFI T THAT IS TAXABLE IN THE HANDS OF THE ASSESSEE HAS INCREASED FROM ITA NO.360/CTK/2010 4 RS.5,934,505 FOR ASSESSMENT YEAR 2005 - 06 TO RS.6,65,270 FOR THE PRESENT YEAR UNDER CONSIDERATION ITSELF SHOWS THAT THE ASSESSEE HAS MAINTAINED PROPER BOOKS OF ACCOUNT AND NON - MAINTENANCE OF QUANTITATIVE DETAILS BRAND - WISE IN THE STOCK REGISTER HAS NO EFFECT TO THE PROFIT OF THE ASSESSEE IN ANY WAY CAUSING PR EJ UDICE TO THE REVENUE. SINCE THE DEPARTMENTAL AUTHORITIES HAVE NOT BEEN ABLE TO POINTED OUT ANY OTHER MATERIAL DEFECT IN THE BOOKS OF AC COUNT MAINTAINED BY THE ASSESSEE, THE SOLE DEFECT POINTED OUT BY THEM BEING INEFFECTIVE ON THE PROFIT EARNED BY THE ASSESSEE IS NOT AT ALL SUSTAINABLE FOR LEGAL SCRUTINY. HENCE, WE ARE OF THE CONSIDERED VIEW THAT THE ACTION OF THE DEPARTMENT IN INVOKING PR OVISIONS OF SECTION 145(3) AGAINST THE ASSESSEE IS NOT AT ALL AS PER LAW APPLICABLE THERETO. SINCE THE SAID PROVISION IS INVOKABLE ONLY WHERE THE ASSESSING OFFICER HAS NOT BEEN ABLE TO DETERMINE THE CORRECT PROFIT TAXABLE IN THE HANDS OF THE ASSESSEE FROM THE BOOKS OF ACCOUNT MAINTAINED BY THE ASSESSEE, THEN ONLY THE PROVISIONS OF SECTION 145(3) IS TO BE INVOKED. THE ASSESSING OFFICER HAVING NOT MENTIONED ANY SUCH INCONVENIENCE SO AS TO INVOKE THE PROVISIONS OF SECTION 145(3). THEREFORE, INVOKING OF PROVISI ONS OF SECTION 145(3) BY THE ASSESSING OFFICER IS NOT SUSTAINABLE FOR LEGAL SCRUTINY. THEREFORE, APPRECIATING THE ISSUES RAISED BY THE ASSESSEE ON THE FACTS AND CIRCUMSTANCES OF THE CASE AND PREVIOUS HISTORY OF THE ASSESSEE AND MORE SO INCREASE IN THE NET PROFIT SHOWN BY THE ASSESSEE IN THIS YEAR, WE SET ASIDE THE IMPUGNED ORDERS OF THE AUTHORITIES BELOW AND DIRECT THE DEPARTMENT TO ACCEPT THE GP RATE RETURNED BY THE ASSESSEE IN THE RETURN. 7. IN THE RESULT, THE APPEAL OF THE ASSESSEE IS ALLOWED. PRONOUNCED IN OPEN COURT ON DT. 27 TH MAY, 2011 SD/ - SD/ - (K.K.GUPTA) ACCOUNTANT MEMBER (K.S.S.PRASAD RAO) JUDICIAL MEMBER DATE: 27 TH MAY, 2011 H.K.PADHEE, SENIOR PRIVATE SECRETARY. ITA NO.360/CTK/2010 5 COPY OF THE ORDER FORWARDED TO : 1. THE APPELLANT: SRI K.NIRMAL KUMAR, PROP. SRI DURGA CLOTH STORES, BIG BAZAR, BERHAMPUR 760 009. 2. THE RESPONDENT: ASST.COMMISSIONER OF INCOME - TAX, BERHAMPUR CIRCLE, BERHAMPUR. 3. THE CIT, 4. THE CIT(A), 5. THE DR, CUTTACK 6. GUARD FILE (IN DUPLICATE) TRUE COPY, BY ORDER, SENIOR PRIVATE SECRETARY.