The ITO, Ward-1(2), RAJKOT-GUJARAT V. M/s. Kishorchandra & Co., GONDAL

ITA 367/RJT/2012

• Counselvise Citation: 36724914 RSA 2012
• Duration Of Justice: 1 year(s) 2 month(s) 17 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 23-08-2013
• Appeal Filed By: Department
• Order Result: Partly Allowed
• Bench Allotted: DB
• Next Hearing Date: 30-07-2013
• Assessment Year: 2009-2010
• Appeal Filed On: 05-06-2012
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Department Lawyers: VILAS V SHINDE DR REI
• Assessee Lawyers: D M RINDANI CA I
• Keywords: Rejection of books of accounts; Unexplained investment; Cost of acquisition

Judgement Text

I , IN THE INCOME TAX APPELLATE TRIBULAL; RAJKOT BENCH, RAJKOT. . . A OR . . BEFORE SHRI T. K. SHARMA JM AND SHRI D. K. SRIVASTAVA AM ITA NO. 367/RJT/2012. R R / ASSESSMENT YEAR 200 9 - 10. THE INCOME - TAX OFFICER, WARD - 1(2), RAJKOT. ( / APPELLANT) M/S. KISHORCHANDRA & CO., A - 84, NEW SARDAR MARKETING YARD, NATIONAL HIGHWAY, GONDAL. DIST: RAKOT (GUJARAT). PAN : AA CFK7495H / / RESPONDENT H I / REVENUE BY SHRI VILAS V. SHINDE , DR REI / ASSESSEE BY SHRI D. M. RINDANI , CA I / DATE OF HEARING 30 - 0 7 - 2013 I / DATE OF PRONOUNCEMENT 23 - 08 - 2013 / ORDER . . A , OR / T. K. SHARMA, J. M. : THIS APPEAL BY THE REVENUE IS AGAINST THE ORDER DATED 29 - 03 - 2012 OF LD. CIT (AI, RAJKOT FOR THE ASSESSMENT YEAR 200 9 - 10 . 2 . T HE FACTS , IN BRIEF, ARE THAT THE ASSESSEE IS A FIRM ENGAGED IN T RADING ACTIVITIES I.E. CEREALS, PULSES AND AGRICULTURE PRODUCTS AND ALSO SERVING AS COMMISSION AGENT AT AGRICULTURE PRODUCE MARKETING YARD. FOR THE ASSESSMENT YEAR UNDER APPEAL, IT FILED E - RETURN DECLARING TOTAL INCOME OF RS.25,301/ - ON 25 - 09 - 2009. DURING THE COURSE OF ASSESSMENT PROCEEDINGS, ON VERIFICATION OF DETAILS, AO NOTICED THAT AS PER COPY OF TDS REGISTER, TOTAL TDS OF RS.1,33,634/ - IS MADE ON COMMISSION EXPENSES WHEREAS IN THE AUDITED P&L ACCOUNT, TOTAL COMMISSION EXPENSES IN THE NAME OF BROKERAGE EXPENSES OF RS.75,635/ - IS DEBITED. THEREFORE, AO VIDE ORDER SHEET ENTRY DATED 01 - 11 - 2011 ASKED THE ASSESSEE TO FURNISH CORRECT AND COMPLETE EXPENSES AMOUNT WITH SOURCE OF PAYMENT OF SAME. IN RESPONSE, ASSESSEE FILED THE REPLY AND AFTER CONSIDERING THE SA ME, AO FOR THE DETAILED REASONS GIVEN IN PARA - 4 AND 5 OF THE ASSESSMENT ORDER CONCLUDED THAT ASSESSEE MADE UNACCOUNTED INVESTMENT OF RS.3,81,91,805/24 = RS.15,91,325/ - . HE ACCORDINGLY MADE ADDITION OF RS.15,91,325/ - ON ACCOUNT OF UNACCOUNTED ITA 367 - 2012 2 INVESTMENT IN STOCK OF GRAINS. IN PARA - 4.7, AO REJECTED THE BOOKS OF ACCOUNT TAKING RECOURSE OF PROVISION OF SEC.145(3) OF THE ACT AND ADOPTED GP RATIO OF 1% OF TOTAL PURCHASES WHICH IS MOST REASONABLE. AS THE ASSESSEE HAS DEBITED MOST OF THE EXPENSES IN HIS BO OKS OF AC COUNTS, THE DIFFERENCE IN GP SHOWN AND GP ESTIMATED SHALL FORM THE UNACCOUNTED PROFIT EARNED BY THE ASSESSEE. FOR THIS REASON, AO ALSO MADE ADDITION OF RS.13,57,279 (13,57,27,918 X 1%). 3. ON APPEAL, IN THE IMPUGNED ORDER, THE LD. CIT (A) DELETED BOTH THE AFORESAID ADDITIONS FOR THE REASONS GIVEN IN PARAS - 4.4 AND 4.5, WHICH READ AS UNDER: - 4.4. I HAVE CAREFULLY CONSIDERED THE OBSERVATIONS OF THE A.O. IN HIS ASSESSMENT ORDER AND THE SUBMISSIONS OF THE AR OF THE APPELLANT. I FIND THAT THE BOOKS OF ACCOUNTS OF THE APPELLANT ARE AUDITED AND BOOK RESULTS ARE ACCEPTED BY THE A.O IN THE EARLIER ASSESSMENT YEARS ALSO. IT HAS BEEN CLARIFIED THAT THE APPELLANT HAS GIVEN COMMISSION ON TWO SCORES, VIZ. TOWARDS PURCHASES, WHICH IS INCLUDED IN PURCHASE COST AND TOWARDS SALES, WHICH IS DEBITED SEPARATELY IN BOOKS. THE PURCHASES REFLECTED IN BOOKS ARE IN CONSONANCE WITH THE COMMISSION PAYMENTS AT APPROPRIATE RATE OF BROKERAGE AND DEDUCTION OF TAX IN ELIGIBLE CASES. DURING THE COURSE OF ASSESSMENT PROCEEDINGS, THE APPELLANT ALSO SUBMITTED TDS REGISTER, TDS REGISTER WHEREAS TDS IS MADE AND TDS REGISTER WHERE NO TDS IS MADE. BY A LETTER DATE 8/12/2012, THE A.O. WAS APPRISED THAT THE ENTRIES MADE IN TDS REGISTER WAS MIXTURE OF VARIOUS BUSINESS TRANSACTIONS, INCLUDING PURCHASES BUT THERE WAS INADVERTENT CLERICAL / COMPUTE MISTAKE DUE TO MISCOMMAND. HOWEVER, THE A.O. WAS NOT SATISFIED WITH THIS EXPLANATION OF THE APPELLANT AND REJECTED THE BOOKS OF ACCOUNTS OF THE APPELLANT AND ARRIVED AT UNRECORDED PURCHASES. IN HIS DETAILED WRIT TEN SUBMISSION, THE AR HAS FURNISHED DETAILS OF PARTY - WISE PAYMENT OF PURCHASE COMMISSION, SALES COMMISSION AND DETAILS OF TDS IN ELIGIBLE CASES AS SUBMITTED BY LETTER DATED 18/11/2011, WHICH INTER ALIA, INCLUDED DUPLICATE ENTRIES IN TDS REGISTER. THE A.O. , ON PAGE - 3 IN PARA 4(II) OF HIS ASSESSMENT ORDER HAS NOTED THAT THE CONTENTION OF THE APPELLANT IN RESPECT OF DUPLICATE ENTRIES IS FOUND TO BE CORRECT. THE RECONCILED FIGURES WERE EXPLAINED BY THE APPELLANT AS UNDER: - SR. NO. DESCRIPTION COMM ISSION 01 PURCHASE COMMISSION SUBJECT TO TDS 11,79,475 02 PURCHASE COMMISSION NOT SUBJECT TO TDS 2,14,947 03 SALES COMMISSION SUBJECT TO TDS 75,635 04. PURCHASE TRANSACTIONS 3,36,84,961 05 SALES TRANSACTIONS 13,52,95,208 06 MISCE LLANEOUS TRANSACTIONS 10,50,024 07 DUPLICATE ENTRIES 1,14,11,744 TOTAL TRANSACTIONS IN TDS REGISTER 18,29,10,694 HOWEVER, THERE WAS NO REASON FOR DISBELIEVING OTHER TRANSACTIONS REFLECTED IN TDS REGISTER WHICH WERE EXPLAINED WITH SUPPORTING EVI DENCES. MOREOVER, IT HAS BEEN POINTED OUT BY THE AR THAT THE APPELLANT HAD MIXED UP VARIOUS ISSUES AND ACCORDINGLY THE EXPLANATION GOT PERPLEXED AS THE PURCHASE TRANSACTIONS WORTH RS.16.60 CRORES WERE RELATED TO COMMISSION, WHEREAS THE EXPLANATION WAS BASE D ON TRANSACTIONS WORTH RS.18.29 CRORES. EACH ENTRY IN TDS REGISTER IS RECONCILED WITH THE LEDGE ACCOUNTS OF RESPECTIVE BUSINESS TRANSACTIONS. THE TDS REGISTER FURNISHED DURING THE ITA 367 - 2012 3 COURSE OF ASSESSMENT PROCEEDINGS WAS INCLUSIVE OF THE OTHER TRANSACTIONS WH ICH WERE NOT HAVING REFERENCE TO COMMISSION OR TDS. THE TDS IS RECONCILIATION CHART FILED BY APPELLANT AS UNDER ALSO EXPLAINS THAT NO DIFFERENCE EXISTS IN TDS MADE & PAID: - SR. NO. DESCRIPTION AMOUNT 01 TDS ON PURCHASE COMMISSION AS PER SUBM ISSION 1,33,644 02 LESS: DUPLICATE ENTRY IN RESPECT OF RAJPARA TRADING CO. RS.1529 DUPLICATE ENTRY IN RESPECT OF RAJPARA TRADING CO. RS.1529 3,059 03 CORRECT TDS IN RESPECT OF RAJPARA TRADING CO. 1,347 04. TDS ON PURCHASE COMMISSION AS PER B OOKS 1,31,932 05 TDS ON PURCHASE COMMISSION AS PER QUARTERLY TDS RETURNS 1,31,936 DIFFERENCE DUE TO ROUNDING OF RUPEE 4 THEREFORE, THERE IS NO QUESTION OF MISMATCH OF TDS OR PAYMENT OF COMMISSION. IT HAS BEEN POINTED OUT THAT THE A.O. HAS MISCONCEIVED THE EXPLANATION REGARDING BROKERAGE DEBITED AT RS.75,635/ - AS THE SAME RELATES TO SALES COMMISSION AND NOT PURCHASES COMMISSION. LIKEWISE, THE AO HAS ALSO MISREAD THE CONTRA ACCOUNT OF M/S. MODERN TRADERS WHICH WAS ACTUALLY A SALE TRANSACTION AND NOT DISCOUNT LEDGE. THUS, PRIMA FACIE, IT APPEARS THAT THE AO HAS NOT APPRECIATED THE FACTS OF THE APPELLANTS CASE IN RIGHT PERSPECTIVE AND PROCEEDED MERELY ON SURMISES AND CONJECTURES. THE AO MISINTERPRETED THE TRANSACTION ENTRIES BASED ON COMMISSIO N AND CORRESPONDING DEDUCTION OF TDS AND ARRIVED AT UNRECORDED PURCHASES MERELY ON PRESUMPTION BASIS, WHICH WERE IN FACT ARE IN CONFORMITY WITH THE PURCHASES RECORDED IN BOOKS. THUS, FACTUAL POSITION SHOWS THAT RECONCILIATION OF ALL ENTRIES, INCLUDING TDS, SUBMITTED DURING APPELLATE PROCEEDINGS HAVE BEEN FOUND CORRECT, HENCE THERE ARISES NO QUESTION OF REJECTING OF BOOKS OF ACCOUNTS OF APPELLANT. IN VIEW OF THE FACTS AND CIRCUMSTANCES OF THE APPELLANTS CASE AND THE LEGAL POSITION IN THE JUDICIAL DECISIONS RELIED UPON BY THE AR OF THE APPELLANT, IT IS HELD THAT THE AO WAS NOT CORRECT IN REJECTING THE BOOKS OF ACCOUNTS OF THE APPELLANT BY INVOKING THE PROVISIONS OF SECTION 145(3) OF THE ACT AND THEREFORE THE ADDITION OF RS.15,91,325/ - IS HEREBY DIRECTED TO BE DELETED. GROUND NO.2 & 3 STAND ALLOWED. 4.5 AS REGARDS GP ADDITION, THERE WAS A SHORTFALL IN GP OF ABOUT 0.13%. AS STATED ABOVE, THE APPELLANT IS ENGAGED IN WHOLESALE TRADING OF AGRICULTURE PRODUCE INVOLVING VARIOUS FACTORS, VIZ. COMPETITION, QUALITY CON TROL, DEMAND & SUPPLY, INFLATION & PRICE FLUCTUATION, WHICH APPARENTLY AFFECT THE PROFIT MARGIN. IT HAS BEEN EXPLAINED THAT THE APPELLANT, AS PER PREVAILING BUSINESS PRACTICE, USED TO EFFECT SALES ON FOR BASIS AND HAD TO BEAR THE COST OF TRANSACTIONS. THE INFLATIONARY TREND ALSO AFFECT TRANSPORTATION EXPENSES. MOREOVER, THOUGH THERE WAS INCREASE IN TOTAL RECEIPTS BY MORE THAN 37.14% AS COMPARED TO PRECEDING YEAR, THE ALLIED FACTORS BROUGHT MAJOR IMPACT ON SLIGHT DECLINE IN THE PROFIT MARGIN. THE EXPLANATION PUT FORTH BY THE AR OF THE APPELLANT APPEARS TO BE REASONABLE. THEREFORE, AS HELD IN PARA 4.4. ABOVE, THERE WERE NO PURCHASES OUT OF BOOKS AND THEREFORE THE AO WAS ALSO NOT CORRECT IN MAKING ADDITION TOWARDS GP AT THE RATE OF 1% OF TOTAL PURCHASES. ACCORD INGLY, THE ADDITION OF RS.13,57,279/ - IS HEREBY DIRECTED TO BE DELETED. GROUND NO.4 STANDS ALLOWED. AGGRIEVED WITH THE ORDER OF LD. CIT (A), THE REVENUE IS IN APPEAL BEFORE THE TRIBUNAL ON THE FOLLOWING GROUNDS: - ITA 367 - 2012 4 1 . THE LEARNED CIT(A) - I, RAJKOT, ERRED IN LAW AND ON FACT IN DELETING THE ADDITION OF RS.15,91,325/ - WAS MADE ON ACCOUNT OF UNACCOUNTED INVESTMENT IN STOCK OF GRA I NS. 2 . THE LEARNED CIT(A) - I, RAJKOT, ERRED IN LAW AND ON FACT IN DELETING THE ADDITION OF RS.13,57,279/ - WAS MADE ON ACCOUNT OF ESTIMATIO N OF GROSS PROFIT AFTER REJECTING THE BOOKS OF ACCOUNT OF THE ASSESSEE. 3 . THE LEARNED CIT (A) OUGHT TO HAVE UPHELD THE ORDER OF THE ASSESSING OFFICER. 4. AT THE TIME OF HEARING BEFORE US, ON BEHALF OF REVENUE SHRI VILAS S. SHINDE, DR, APPEARED AND POINTED OUT THAT ASSESSEE HAS MADE UNACCOUNTED PURCHASES TO THE TUNE OF RS.3,81,91,805/ - WHEN COMPARED TO TDS DETAILS WHICH WERE FURNISHED BY THE ASSESSEE WHICH SHOWS TOTAL PURCHASE OF RS.16,60,84,507.50 AND TOTAL PURCHASE SHOWN AT RS.12,78,92,701.35 IN THE BOOKS OF ACCOUNTS. FURTHER, ASSESSEE HAD SHOWN GENERAL LEDGER ENTRY OF DISCOUNT OF RS. 1,08,95,489 FOR WHICH IT HAD NOT ADDUCED ANY EVIDENCES AND THEREFORE THE AO PRESUMED THAT SUCH ENTRIES ARE RELATABLE TO UNRECORDED PURCHASES ONLY. IN THIS MANNER, AO HAS RIGHT LY MADE ADDITION OF RS.15,91,325/ - ON ACCOUNT OF UNACCOUNTED INVESTMENT IN STOCK OF GRAINS AND ESTIMATED THE PROFIT THEREON RS.13,57,279/ - BEING 1% OF RS.13,57,27,918/ - AND LD. CIT (A) IS NOT JUSTIFIED IN DELETING BOTH THE ADDITIONS. AS AGAINST THIS, SHRI D. M. RINDANI, CA, APPEARING ON BEHALF OF ASSESSEE POINTED OUT THAT TURNOVER OF THE ASSESSEE IN THIS YEAR IS 13.57 CRORES AS AGAINST RS.9.89 CRO R ES. THE GP RATIO IN THIS YEAR IS 0.44% AS AGAINST 0.57% . THUS IN THIS YEAR, GP RATIO IS LOW BY 0.13%. ACCORDIN G TO AO, GP RATE OF PROFIT IS 1%. IF THE BOOKS OF ACCOUNTS ARE REJECTED AND LAST YEAR RATE IS ADOPTED, ADDITION WOULD BE RESTRICTED TO RS.1,76,410/ - ONLY AS AGAINST RS.13,57,279/ - MADE BY AO IN THE ASSESSMENT ORDER. IN THE IMPUGNED ORDER, THE LD. CIT (A) HAS ACCEPTED THE SHORTFALL WHICH IS EVIDENCE FROM PARA - 4.5. THE LD. DR FURTHER POINTED OUT THAT IN THE IMPUGNED ORDER, LD. CIT(A) HAS ACCEPTED THE PLEA OF THE ASSESSEE THAT THE AO HAS NOT REJECTED THE BOOKS OF ACCOUNTS AND THE DEPARTMENT IS NOT IN APPEAL A GAINST THE SAID OBSERVATION OF LD. CIT (A). HE FURTHER SUBMITTED THAT NO ADDITION CAN BE MADE UNLESS BOOKS OF ACCOUNTS ARE REJECTED. FURTHER, IN RESPECT OF ADDITION OF RS.15,91,325/ - MADE BY AO ON ACCOUNT OF ALLEGED UNACCOUNTED INVESTMENT IN STOCK IN GRAI NS, COUNSEL OF THE ASSESSEE POINTED OUT THAT PURCHASES AS PER TDS DETAIL ARE RS.16.60 CRORES. ITA 367 - 2012 5 PURCHASES AS PER BOOKS OF ACCOUNT ARE RS.12,79 CRORES. THE AO TREATED THE EXCESS AS UNACCOUNTED RS.3,81 CRORES. COUNSEL OF THE ASSESSEE SUBMITTED THAT AO DURING T HE COURSE OF SCRUTINY COULD NOT POINT OUT ANY UNACCOUNTED PURCHASES. PURCHASE REGISTER AND TDS REGISTER ARE DULY RECONCILED AND REASONS WERE EXPLAINED AS EVIDENT FROM PARA - 4.4 ON PAGE - 14 OF CIT (A) ORDER. THE AO MADE THIS ADDITION ON PRESUMPTION AND ASSUMP TION AND ON ACCOUNT OF DIFFERENCE IN TDS, IT CANNOT BE SAID THAT INCOME HAS ESCAPED. IN SUPPORT OF THIS, HE RELIED ON THE DECISION OF HONBLE GUJARAT HIGH COURT IN THE CASE OF GANESH VALABHAI FAMILY TRUST VS. DY. CIT REPORTED IN 306 ITR 221 (GUJ.). TO SUM UP, THE COUNSEL OF THE ASSESSEE SUBMITTED THAT THE VIEW TAKEN BY LD. CIT (A) BE UPHELD. ALTERNATIVELY, WITHOUT CONSIDERING HE SUBMITTED THAT EVEN IF IT IS HELD THAT BOOKS OF ACCOUNTS ARE TO BE REJECTED, IN THAT EVENT, LAST YEAR RATE BE ADOPTED AND ADDITI ON BE RESTRICTED TO RS.1,76,410/ - ONLY AS AGAINST RS.13,57,279/ - MADE BY AO. 5. HAVING HEARD BOTH THE SIDES, WE HAVE CAREFULLY GONE THROUGH THE ORDERS OF AUTHORITIES BELOW. IT IS PERTINENT TO NOTE THAT AO REJECTED THE BOOKS OF ACCOUNTS U/S.145(3) OF THE I. T. ACT, 1961. BEFORE LD. CIT (A), ASSESSEE RECONCILED TDS DETAILS. IT IS TRUE THAT THE DEPARTMENT HAS NOT RAISED A SPECIFIC GROUND AGAINST THE VIEW TAKEN BY LD. CIT (A) THAT AO IS NOT CORRECT IN REJECTING THE BOOKS OF ACCOUNTS BUT WE ARE OF THE VIEW THAT W HILE DISPUTING THE DELETION OF ADDITION, DEPARTMENT IS ALSO DISPUTING THE REJECTION OF BOOKS OF ACCOUNTS. THE PROFIT IN THE ASSESSMENT YEAR UNDER APPEAL IS LOW BY 0.13%. IF LAST YEAR RATE IS ADOPTED, THE ADDITION WORKED OUT TO RS.1,76,410/ - . KEEPING IN VIE W THE TOTALITY OF THE FACTS AND CIRCUMSTANCES OF THE CASE, WE ARE OF THE VIEW THAT IT WILL MEET THE ENDS OF JUSTICE IF THE LUMP SUM ADDITION OF RS.2,00,000/ - IS MADE IN RESPECT OF TWO SEPARATE ADDITIONS MADE BY AO IN THE ASSESSMENT ORDER. WE HOLD ACCORDING LY. 6. IN THE RESULT, THE APPEAL OF THE REVENUE IS PARTLY ALLOWED. 7. THIS O RDER IS PRONOUNCED IN OP EN COURT ON THE DATE MENTIONED HEREINABOVE. SD/ - SD/ - ( . . H D. K. SRIVASTAVA ) ( . . R / T. K. SHARMA) / ACCOUNTANT MEMBER H / JUDICIAL MEMBER / ORDER DATE 23 - 08 - 2013. /RAJKOT ITA 367 - 2012 6 NVA/ - 8 RJ / COPY OF ORDER FORWARDED TO: - 1 . / APPELLANT - THE INCOME - TAX OFFICER, WARD - 1(2), RAJKOT. 2 . / / RESPONDENT - M/S. KISHORCHANDRA & CO., A - 84, NEW SARDAR MARKETING YARD, NATIONAL HIGHWAY, GONDAL, DIST: RAKOT (GUJARAT). 3 . I T / CONCERNED CIT - I, RAJKOT. 4 . T - / CIT (A ) - I, RAJKOT. 5 . I , I , / DR, ITAT, RAJKOT 6 . R / GUARD FILE. / BY ORDER TRUE COPY. PRIVATE SECRETARY, ITAT, RAJKOT