Shri Ghanshyam Food Ltd, V. The A CIT 1 (1),

ITA 376/IND/2008

• Counselvise Citation: 37622714 RSA 2008
• Duration Of Justice: 2 year(s) 8 month(s) 15 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 29-04-2011
• Appeal Filed By: Assessee
• Order Result: Dismissed
• Bench Allotted: DB
• Next Hearing Date: 19-04-2011
• Assessment Year: 2005-2006
• Appeal Filed On: 14-08-2008
• Result in Favour of: Revenue
• Court: TRIBUNAL
• Department Lawyers: PRADEEP KUMAR MITRA
• Assessee Lawyers: H P VERMA
• Keywords: Business income; Competent authority
• Section: 143(3)

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL , INDORE BENCH, INDORE BEFORE SHRI JOGINDER SINGH, J.M. AND SHRI R.C.SHARMA, A.M. PAN NO. : AABCG2506R I.T.A.NO. 376 /IND/2008 A.Y. : 2005 - 06 M/S.GHANSHYAM FOOD LIMITED, ACIT, BHOPAL. BANKHEDI VS APPELLA NT RESPONDENT I.T.A.NO. 436 /IND/2008 A.Y. : 2005 - 06 ACIT, BHOPAL. M/S.GHANSHYAM FOOD LIMITED, VS BANKHEDI APPELLANT RESPONDENT ASSESSEE BY : S/SHRI H.P.VERMA , ADV. AND SHRI ASHISH GOYAL, C.A. DEPARTMENT BY : SHRI PRADEEP KUMAR MI TRA, SR. DR O R D E R PER R. C. SHARMA, A.M. TH ESE ARE THE CROSS APPEALS FILED BY THE ASSESSEE AND REVENUE AGAINST THE ORDER OF CIT(A) DATED 2.7.2008 FOR THE - : 2 : - 2 ASSESSMENT YEAR 2005 - 06 IN THE MATTER OF ORDER PASSED U/S 143(3) OF THE INCOME - TAX ACT, 19 61. 2. RIVAL CONTENTIONS HAVE BEEN HEARD AND RECORDS PERUSED. THE FACTS, IN BRIEF, ARE THAT THE ASSESSEE COMPANY IS ENGAGED IN MANUFACTURING OF PULSES FROM GRAM. THE RAW MATERIAL IS PURCHASED FROM MANDI ON WHOLESALE AND AFTER MILLING, THEY GET DAL AND BYE PRO DUCTS CHURI AND BHUSSI. DURING THE YEAR UNDER CONSIDERATION, THE ASSESSEE HAD FILED RETURN ALONGWITH AUDITED ACCOUNTS UNDER THE INCOME - TAX ACT, 1961, AS WELL AS UNDER THE COMPANIES ACT. DURING THE COURSE OF ASSESSMENT, THE AO OBSERVED THAT THE ASSESSEE HAS NOT MAINTAINED ANY REGISTER FOR CHURI AND BHUSSI AND THAT ELECTRICITY BILL OF THE ASSESSEE WAS SHOW ING CONSUMPTION OF ELECTRICITY AT A HIGHER FIGURE. ON THE BASIS OF THESE TWO OBSERVATIONS, THE AO REJECTED THE BOOK RESULT AND BY APPLYING NET PROFIT RATE O F 2.00 % MADE TRADING ADDITION. THE AO ALSO FOUND THAT DAL WAS SOLD TO SISTER CONCERN M/S. GHANSHYAM DAL MILL AT A LOWER RATE. HE OBSERVED THAT AVERAGE SALE RATE OF SISTER CONCERN WAS RS. 1629/ - AND TO OTHERS WAS RS. 1798/ - . ACCORDINGLY, THE ADDITION WAS A LSO MADE TOWARDS DIFFERENCE - : 3 : - 3 AMOUNT IN SALE OF GRAM DAL TO THE SISTER CONCERN. BY THE IMPUGNED ORDER, THE LD. CIT(A) OBSERVED THAT THE AO HAS MADE TRADING ADDITION ON ACCOUNT OF UNACCOUNTED SALES MERELY ON CERTAIN PRESUMPTIONS/ASSUMPTIONS AS THE ASSESSEE HA S FAILED TO REPLY A PECULIAR TYPE OF QUERY RAISED BY THE ASSESSING OFFICER REGARDING CONSUMPTION. THE LD. CIT(A) OBSERVED THAT THE AO HAS NOT POINTED OUT ANY SPECIFIC DEFECTS IN THE BOOKS OF ACCOUNT MAINTAINED BY THE ASSESSEE NOR WAS HAVING ANY MATERIAL OR EVIDENCE INDICATING THAT THE ASSESSEE HAD MADE SALE OUT OF BOOKS OF ACCOUNT . P ROCESS GAIN OR SHORTAGE SHOWN BY THE ASSESSEE IN OTHER YEARS HAS BEEN ACCEPTED BY THE DEPARTMENT. ACCORDINGLY, THE CIT(A) HELD THAT ADDITIONS MADE BY THE ASSESSING OFFICER ON SU RMISES AND CONJECTURES CANNOT BE SUSTAINED. A DDITION MADE ON ACCOUNT OF SALES TO SISTER CONCERN WAS DELETED BY THE LD. CIT(A). THE LD. CIT(A) ALSO OBSERVED THAT AS THE BOOKS OF ACCOUNT WERE REJECTED BY THE ASSESSING OFFICER , HE HAS TO ESTIMATE THE NET PROF IT ON THE BASIS OF AVAILABLE SURROUNDING CIRCUMSTANCES. HOWEVER, HE FOUND THAT COMPARISON OF NET PROFIT RATE IS NOT PROPER AND AO SHOULD HAVE COMPARED THE GROSS PROFIT . B Y OBSERVING THAT THE - : 4 : - 4 ASSESSEE HAS NOT MAINTAINED RECORDS FOR CONSUMPTION OF ELECTRICI TY AND DIESEL WITH RESPECT TO THE PRODUCTION. HE, ACCORDINGLY, SUSTAINED TRADING ADDITION BY APPLYING GROSS PROFIT RATE OF 2.75 % IN PLACE OF PROFIT RATE OF 2.25 % SHOWN BY THE ASSESSEE. AGAINST THIS ORDER OF CIT(A), BOTH THE REVENUE AND ASSESSEE ARE IN AP PEAL BEFORE US. 3. IT WAS CONTENDED BY THE LD. AUTHORIZED REPRESENTATIVE THAT THE ASSESSEE HAS MAINTAINED PROPER BOOKS OF ACCOUNT AS REQUIRED U NDER THE INCOME - TAX ACT, 1961, AND COMPANIES ACT, AND THE SAME WERE DULY AUDITED BY THE COMPETENT AUTHORITY . W ITHOUT POINTING OUT DEFECTS THEREIN, THE AO WAS NOT JUSTIFIED IN REJECTING THE SAME. HE FURTHER SUBMITTED THAT THE ASSESSEE HAS MAINTAINED REGULAR AND PROPER BOOKS OF ACCOUNT, WHICH ARE AUDITED U/S 44AB OF THE INCOME - TAX ACT, 1961, AS WELL AS UNDER THE COMPANIES ACT AND RETURNS WERE FILED ALONGWITH AUDIT REPORT IN FORM 3 - CB AND 3 - CD. AS PER LD. AUTHORIZED REPRESENTATIVE , T HE AO WAS NOT JUSTIFIED IN REJECTING BOOKS OF ACCOUNT WITHOUT POINTING OUT ANY MAJOR DEFICIENCY IN THE BOOKS OF ACCOUNT FOR THE YEAR. IT WAS A LSO ALLEGED THAT ESTIMATION OF NET PROFIT RATE OF 2 % WAS VERY HIGH. - : 5 : - 5 4. ON THE OTHER HAND, THE LD. SENIOR D.R. RELIED ON THE ORDER OF AO AND SUBMITTED THAT BY POINTING OUT DEFECTS IN THE BOOKS OF ACCOUNT THE AO HAS CORRECTLY REJECTED THE BOOKS OF ACCOUNT AND ESTIMATED NET PROFIT RATE OF 2 % IN PLACE OF NET PROFIT RATE OF 0.08 % AS SHOWN BY THE ASSESSEE. HE FURTHER SUBMITTED THAT THE ASSESSEE HAS SOLD ITS PRODUCT TO THE SISTER CONCERN AT A LOWER PRICE, THEREFORE, THE AO WAS NOT JUSTIFIED IN MAKING THE ADDITI ON FOR THE DIFFERENCE IN PRICE. 5. WE HAVE CONSIDERED THE RIVAL CONTENTIONS, CAREFULLY GONE THROUGH THE ORDERS OF THE AUTHORITIES BELOW AND FOUND FROM RECORD THAT TWO REASONS WERE ASSIGNED BY THE ASSESSING OFFICER FOR REJECTING BOOKS OF ACCOUNT. FIRST REASON WAS NON - MAINTENANCE OF REGISTER OF CHURI AND BHUSSI. IN THIS REGARD, WE FOUND THAT THE ASSESSEE PURCHASES GRAM AND MANUFACTURES DAL . THE PROCE SS OF MANUFACTURE RESULTS IN FINAL PRODUCTION OF DAL AT 76 % , CHURI AND BHUSSI ( BY PRODUCTS) AT 23 % AND SHOR TAGE/WASTAGE AT 1 %. WE ALSO FOUND THAT THE ASSESSEE WAS ALSO REQUIRED TO MAINTAIN STOCK REGISTER AS PER M.P. FOOD CONTROL ACT, WHICH THE ASSESSEE HAS PROPERLY MAINTAINED WITH RESPECT TO ITS MAIN PRODUCT, WHICH WAS PRODUCED BEFORE THE - : 6 : - 6 AO. THUS, THE ENTIRE RECORD RELATING TO MANUFACTURE OF DAL, WHICH AMOUNTED TO 76 % OF THE TOTAL OUT PUT, WAS PRODUCED BEFORE THE AO FOR VERIFICATION. MERELY BECAUSE ASSESSEE HAS NOT MAINTAINED STOCK REGISTER FOR BY PRODUCTS, THE BOOKS OF ACCOUNT CANNOT BE REJECTED THE NATURE OF BY PRODUCT WHICH HAS TO BE STORED IN HEAPS, IS SUCH THAT NO PHYSICAL REGISTER CAN BE MAINTAINED. EVEN IN RESPECT OF SALES, WE FOUND THAT BY PRODUCTS CONTRIBUTED 10.3 % OF THE TOTAL TURNOVER. EVEN SALES OF CHURI AND BHUSSI WAS VERIFIED BY THE ASSESSING O FFICER AND THE SAME HAS NOT BEEN REJECTED BY HIM. THUS, IT WAS NOT JUSTIFIABLE REASONS FOR REJECTI NG THE BOOKS OF ACCOUNT. IN THIS REGARD, THE LD. AUTHORIZED REPRESENTATIVE RELIED ON THE ORDER OF THE BANGALORE BENCH IN THE CASE OF GUNJAN TRADERS, 12 SOT 36 , WHEREIN IT WAS HELD THAT THERE WAS NO PROVISION IN THE ACT SUGGESTING THAT DAY TO DAY STOCK REGISTER MUST NECESSARILY BE MAINTAINED BY THE ASSESSEE OR THAT BOOKS OF ACCOUNT SHOULD BE REJECTED IN THE ABSENCE OF THE SAME. RELIANCE WAS ALSO PLACED ON THE DE CISION OF PUNJAB & HARYANA HIGH COURT IN THE CASE OF SURENDRA KUMAR CHARANJEET KUMAR, 282 ITR 78. - : 7 : - 7 6. WITH REGARD TO PRODUCTION/CONSUMPTION, VIS - - VIS ELECTRICITY AND DIESEL EXPENSES, THE AO OBSERVED THAT THE ASSESSEE HAD SUPPRESSED THE GRAM DAL. AS PER THE A O, THE PRODUCTION OF THE ASSESSEE SHOULD COMMENSURATE WITH THE ELECTRICITY BILL AND DIESEL BILL. WE DO NOT FIND ANY MERIT IN THIS OBSERVATION, IN SO FAR AS ELECTRICITY BILL KEEPS ON FLUCTUAT ING AS PER THE ELECTRICITY RATES AND THE CONDITIONS OF THE MACHINE S. THERE MAY BE SO MANY REASONS FOR INCREASE IN ELECTRICITY BILL, BUT WITHOUT HIGH LIGHTING THE ABOVE THINGS AND LINKING THE SALE WITH ACTUAL ELECTRICITY CONSUMED, NO ADVERSE INFERENCE IS WARRANTED WITH RESPECT TO THE ACTUAL PRODUCTION ACHIEVED BY THE ASSES SEE , IN SO FAR AS NOTHING WAS BROUGHT ON RECORD BY THE AO SUGGESTING ANY UNACCOUNTED SALES . WE FOUND THAT THE AO HAS NOT TOUCHED THE QUANTITY SOLD BY THE ASSESSEE NOR ANY ADDITION WADS MADE FOR ANY QUANTITY OF SUPPRESSED SALES, T HERE IS BOUND TO BE VARIATI ON IN THE ELECTRICITY BILLS BECAUSE THE ELECTRICITY DEPARTMENT RAISES BILLS BASED ON AVERAGE BILLING. M.P.E.B. ISSUES THE ELECTRICITY BILLS ON AVERAGE BASIS FOR TWO MONTHS AND IN THE THIRD MONTH, IT ISSUES ACTUAL BILLS FOR CONSUMPTION IN LAST THREE MONTHS. I.T.A.T., AHMEDABAD BENCH - : 8 : - 8 IN THE CASE OF KHANBHATTA FAMILY TRUST, 62 TTJ 685, HELD THAT VARIATION IN ELECTRICITY BILL CANNOT BE A REASON FOR REJECTION OF BOOKS OF ACCOUNT. SIMILARLY, DIESEL EXPENSES ALSO DEPENDED ON VARIOUS FACTORS LIKE POWER FAILURE LEAD S TO INCREASE IN DIESEL EXPENSES, DIESEL PURCHASED ON ANY DATE IS NOT CONSUMED ON THE VERY SAME DATE AND MONTH - WISE CONSUMPTION MAY NOT BE REASONABLE BASIS FOR PRESUMING THAT PRODUCTION OF ASSESSEE WAS LOWER LOOKING TO THE DIESEL EXPENSES IN SO FAR DIESEL PRICES ARE ALSO KEEP ON FLUCTUATING. WE ALSO FOUND FROM THE RECORD THAT PERCENTAGE OF DIESEL HAVE INCREASED , BUT THE SAME IS NOT SUBSTANTIAL AND IT WAS ONLY MARGINAL INCREASE. HOWEVER, SALES MADE TO SISTER CONCERNS ARE WORTH CONSIDERING FOR ASCERTAINING TH E TRUE PROFIT OF THE ASSESSEE . HOWEVER, ONCE BOOKS OF ACCOUNT ARE REJECTED, IT IS PROPER TO MAKE ADDITION BY APPLYING GROSS PROFIT RATE ON THE TOTAL SALES INCLUDING SALES MADE TO SISTER CONCERN . WE ALSO FOUND THAT SALES BY THE ASSESSEE TO THE SISTER CONCER N HAVE BEEN ACCEPTED BY THE DEPARTMENT IN THE ASSESSMENT FRAMED U/S 143(3) IN THE HANDS OF THE SISTER CONCERN. WE ALSO FOUND THAT DURING THE YEAR UNDER CONSIDERATION , THE SALES OF THE ASSESSEE HAS INCREASED TO RS. - : 9 : - 9 9.45 CRORES AS AGAINST SALES OF RS. 7.77 CRORES IN THE IMMEDIATELY PRECEDING YEAR. WHENEVER THERE IS INCREASE IN THE SALE, THE GROSS PROFIT RATE INDICATE DECLINING TREND. COMPARISON OF NET PROFIT RATES DO NOT GIVE TRUE PICTURE IN SO FAR AS INDIRECT EXPENDITURE REMAIN THE SAME AND DOES NOT CHANGE WITH THE TURNOVER. THEREFORE, IN CASE OF REJECTION OF ACCOUNTS, IT IS CORRECT TO COMPUTE THE PROFIT ON THE BASIS OF GROSS PROFIT RATHER THAN NET PROFIT RATE . WE FOUND THAT DURING THE YEAR UNDER CONSIDERATION, THE ASSESSEE HAD SHOWN NET PROFIT RATE OF 0.0 8 % AS AGAINST NET LOSS SHOWN IN THE IMMEDIATELY PRECEDING YEAR, THUS, THE NET PROFIT RATE OF THE YEAR UNDER CONSIDERATION IS BETTER AS COMPARED TO THE EARLIER YEAR, BUT SINCE WE HAVE TO COMPUTE THE INCOME ON THE BASIS OF GROSS PROFIT RATE, WE PROCEED ACC ORDINGLY AND KEEPING IN VIEW SUBSTANTIAL INCREASE IN SALES DURING THE YEAR, WHICH AMOUNTS TO RS.1.68 CRORES MORE THAN THE SALES OF THE PREVIOUS YEAR, AND ALSO PECULIAR FACTS OF THE CASE, IT IS PROPER TO APPLY THE GROSS PROFIT RATE 3.00 % . ACCORDINGLY, WE D IRECT THE AO TO SUSTAIN TRADING ADDITION BY APPLYING GROSS PROFIT RATE AT 3.00 %. WE DIRECT ACCORDINGLY. - : 10 : - 10 7. IN THE RESULT, THE APPEAL OF THE ASSESSEE IS DISMISSED , WHEREAS APPEAL OF REVENUE IS ALLOWED IN PART . THIS ORDER HAS BEEN PRONOUNCED IN THE OPEN COURT ON 29 TH APRIL, 2011. S D/ - S D/ - (JOGINDER SINGH) ( R.C.SHARMA) JUDICIAL MEMBER ACCOUNTANT MEMBER DATED : 29 TH APRIL, 2011 . CPU* 262 8