RAJESH KUMAR KASWAN, JHUNJHUNU V. ACIT, JHUNJHUNU

ITA 381/JPR/2014

• Counselvise Citation: [2016] 131 COUNSELVISE.COM (IT) 5226 (ITAT-JAIPUR)
• Duration Of Justice: 2 year(s) 2 month(s) 24 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 10-08-2016
• Appeal Filed By: Assessee
• Order Result: Partly Allowed
• Bench Allotted: B
• Assessment Year: 2009-2010
• Appeal Filed On: 16-05-2014
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Department Lawyers: R A VERMA CIT DR DHK
• Assessee Lawyers: K L MOOLCHANDAN I
• Keywords: Gross profit estimation; Tax effect

Judgement Text

VK;DJ VIHYH; VF/KDJ.K] T;IQJ U;K;IHB] T;IQJ IN THE INCOME TAX APPELLATE TRIBUNAL, JAIPUR BENCHES (SMC), JAIPUR JH HKKXPUN] YS[KK LNL; DS LE{K BEFORE: SHRI BHAGCHAND, ACCOUNTANT MEMBER VK;DJ VIHY LA-@ ITA NO. 381/JP/2014 FU/KZKJ.K O'K Z@ ASSESSMENT YEAR : 2009-10 SHRI RAJESH KUMAR KASWAN H-3, INDIRA NAGAR JHUNJHUNU CUKE VS. THE ACIT CIRCLE- JHUNJHUNU JHUNJHUNU LFKK;H YS[KK LA-@THVKBZVKJ LA-@ PAN/GIR NO .: AMEPK 6912 D VIHYKFKHZ@ APPELLANT IZR;FKHZ@ RESPONDENT VK;DJ VIHY LA-@ ITA NO. 394/JP/2014 FU/KZKJ.K O'K Z@ ASSESSMENT YEAR : 2009-10 THE ITO WARD- 1 JHUNJHUNU CUKE VS. SHRI RAJESH KUMAR KASWAN M/S. FRIENDS TELECOM ROAD NO.2 JHUNJHUNU LFKK;H YS[KK LA-@THVKBZVKJ LA-@ PAN/GIR NO .: AMEPK 6912 D VIHYKFKHZ@ APPELLANT IZR;FKHZ@ RESPONDENT FU/KZKFJRH DH VKSJ LS@ ASSESSEE BY: SHRI K.L. MOOLCHANDANI, ADVOCATE JKTLO DH VKSJ LS@ REVENUE BY :SHRI R.A. VERMA, ADDL CIT-. DR LQUOKBZ DH RKJH[K@ DATE OF HEARING : 03/08/2016 ?KKS'K .KK DH RKJH[K@ DATE OF PRONOUNCEMENT : 10/08/2016 VKNS'K@ ORDER PER BHAGCHAND, AM BOTH THESE APPEALS ARE THE CROSS APPEALS AGAINST T HE ORDER OF THE LD. CIT(A)-III, JAIPUR DATED 19-03-2014 FOR THE ASSESS MENT YEAR 2009-10. 2.1 THE ASSESSEE HAS RAISED FOLLOWING GROUNDS OF AP PEAL. ITA NO. 381/JP/2014 RAJESH KUMAR KASWAN, JHUNJHUNU VS. ACIT,CIRCLE- JH UNJHUNU . 2 1. UNDER THE FACTS AND CIRCUMSTANCES, THE AO HAS WRONGLY MADE THE ADDITION FOR A SUM OF RS. 1,41,875 /- AS TRADING ADDITION IN M/S. FRIENDS CREATION. NO SHOW CAUSE NOTICE WAS ISSUED TO EXPLAIN TO DECLINE IN G.P. AND THE ADDITION WAS MADE WITHOUT GIVING US A REASONABLE OPPORTUNITY OF HEARING. 2. UNDER THE FACTS AND CIRCUMSTANCES, THE AO HAS WRONGLY MADE THE ADDITION FOR A SUM OF RS. 1.00 LAC BY DISALLOWANCE OF EXPENSES IN THE SCHEME EXPENSES 2.2 THE REVENUE HAS RAISED SOLITARY GROUND AS UNDER :- ON THE FACTS AND CIRCUMSTANCES OF THE CASE AND IN LAW THE LD. CIT(A) HAS ERRED IN DELETING THE ADDITI ON OF RS. 12,01,835/- MADE BY THE AO ON ACCOUNT OF SUPPRESSE D COMMISSION RECEIPT. 3.1 APROPOS GROUND NO. 1 OF THE ASSESSEE, BRIEF FAC TS OF THE CASE ARE THAT THE ASSESSEE IS A DEALER OF RELIANCE TELECOMMU NICATION LTD. AND THE ASSESSEE WAS ALSO DOING WORK OF GIVING MOBILE CONNE CTIONS AND BASIC TELEPHONE CONNECTIONS IN THE RURAL AND URBAN AREAS OF JHUNJHUNU. THE ASSESSEE WAS ALSO ENGAGED IN PROVIDING DISH TV CONN ECTIONS AND WAS A DEALER OF DISH TV INDIA LTD. THE BUSINESS OF TELEPH ONES AND RECHARGE COUPONS OF RCL AND RCIL WAS BEING DONE IN THE NAME AND STYLE OF M/S. FRIENDS TELECOM WHEREAS THE BUSINESS OF DISH TV DEA LERSHIP WAS BEING DONE IN THE NAME AND STYLE OF M/S. FRIENDS CREATION . BOTH THESE CONCERNS WERE PROPRIETARY CONCERNS AND WERE SEPARATELY AUDIT ED. DURING THE COURSE OF ASSESSMENT PROCEEDINGS, THE AO NOTED THAT THERE WAS SHARP DECLINE IN ITA NO. 381/JP/2014 RAJESH KUMAR KASWAN, JHUNJHUNU VS. ACIT,CIRCLE- JH UNJHUNU . 3 THE TRADING RESULT OF M/S. FRIEND CREATIONS INASMUC H AS IN A.Y. 2008-09 ON TOTAL TURNOVER OF RS. 1,31,87,401, GROSS PROFIT WAS SHOWN AT RS. 6,42,875/- DECLARING GROSS PROFIT RATE OF 4.87% WHEREAS IN A.Y. 2009-10 ON TURNOVER OF RS. 2,73,56,696, GROSS PROF IT WAS SHOWN AT RS. RS. 2,68,476/- INDICATING GROSS PROFIT RATE OF 0.98 %. THE ASSESSEE COULD NOT GIVE ANY SATISFACTORY REASON FOR SUCH DECLINE I N GROSS PROFIT RATE BEFORE THE AO. THE AO ALSO NOTED THAT THE ASSESSEE HAD NOT MAINTAINED ANY QUANTITATIVE DETAILS AND DUE TO SUCH REASON THE BOOKS OF ACCOUNTS WERE NOT SUBJECT TO PROPER VERIFICATION. THE ASSESS EE FILED THE TRADING RESULTS BEFORE THE AO FOR THE LAST THREE YEARS AS U NDER:- A.Y. TURNOVER GROSS PROFIT GROSS PROFIT RATE 2009-10 27356696 268476 0.98% 2008-09 13187401 642875 4.87% 2007-08 36137574 1059024 2.93% THE AO CONSIDERING THE ABOVE FACTS AND THE CHART OF THE TRADING RESULTS OF THE ASSESSEE FOR THE LAST THREE YEARS REJECTED THE BOOKS OF ACCOUNT OF THE ASSESSEE AND APPLIED GROSS PROFIT RATE OF 1.50% AN D THUS DETERMINED THE GROSS PROFIT AT RS. 4,10,350/- AS AGAINST GROSS PRO FIT OF RS. 2,68,476/- WHICH RESULTED INTO TRADING ADDITION OF RS. 1,41,8 75/- (RS.4,10,350 MINUS RS. 2,68,476) . HENCE, THE DIFFERENCE AMOUNT OF RS . 1,41,875/- WAS ADDED BY THE AO TO THE TOTAL INCOME OF THE ASSESSEE ON AC COUNT OF LOW GROSS PROFIT DECLARED IN THE BUSINESS OF M/S. FRIENDS CRE ATION. ITA NO. 381/JP/2014 RAJESH KUMAR KASWAN, JHUNJHUNU VS. ACIT,CIRCLE- JH UNJHUNU . 4 3.2 BEING AGGRIEVED, THE ASSESSEE CARRIED THE MATTE R BEFORE THE LD. CIT(A) WHO HAS CONFIRMED THE ACTION OF THE AO BY OB SERVING AS UNDER:- 5.3 I HAVE CAREFULLY CONSIDERED THE SUBMISSION OF THE APPELLANT AS ALSO THE FINDING OF THE AO. IT MAY BE NOTED THAT THE APPELLANT HAS NOT POINTED OUT ANY SPECIFIC REASON F OR DECREASE IN GROSS PROFIT RATE FROM 4.87% TO 0.98%. THOUGH THE A PPELLANT HAS CLAIMED THAT THE DECREASE WAS ON ACCOUNT OF THREE ENTRANTS IN THE SAME FIELD AND THAT DUE TO THE COMPETITION IN THE S ALES GROSS PROFIT RATE DECREASED, HOWEVER, SUCH EXPLANATION IS OF GEN ERAL NATURE. MORE SPECIFICALLY, THE APPELLANT HAS NOT PROVED SUC H SUBMISSION BY WAY OF ANY DOCUMENTARY EVIDENCE I.E. THE SELLING RA TES WERE REDUCED DURING THE A.Y. UNDER CONSIDERATION IN COMP ARISON TO SELLING RATES IN EARLIER ASSESSMENT YEAR. THE APPEL LANT HAS ALSO NOT MAINTAINED ANY QUANTITATIVE DETAILS OF THE ITEMS BE ING SOLD AND NO SPECIFIC REASON IS GIVEN AS TO WHY STOCK REGISTER I S NOT MAINTAINED. IN THESE CIRCUMSTANCES, THE REJECTION OF BOOKS OF A CCOUNTS WAS JUSTIFIED. AS REGARDS ESTIMATION OF PROFIT IT MAY B E NOTED THAT AS AGAINST THE GROSS PROFIT RATE OF 4.87% THE AO HAS A PPLIED GROSS PROFIT RATE OF 1.50% WHICH IS VERY REASONABLE AND F AIR. ACCORDINGLY, THE ADDITION MADE BY THE AO IS CONFIRM ED. THIS GROUND OF APPEAL IS DISMISSED. 3.3 DURING THE COURSE OF HEARING, THE LD. AR OF THE ASSESSEE PRAYED FOR DELETION OF ADDITION MADE BY THE AO WITH FOLLOWING ARGUMENTS AS MENTIONED IN HIS WRITTEN SUBMISSION. IN THE CONCERN M/S. FRIEND CREATION, THE GROSS P ROFIT RESULTS HAD GONE DOWN DRASTICALLY AS SHOWN IN THE C HART GIVEN IN THE ASSESSMENT ORDER ITSELF DUE TO TOUGH COMPETI TION FROM THREE NEW ENTRANTS. AS THE RELEVANT BOOKS STOOD AUD ITED NO DISCREPANCY WHATSOEVER COULD BE POINTED OUT EXCEPT GENERAL REASON OF THE DOWN FALL IN THE PROFIT RESULTS. THE EXPLANATION SO FILED WAS DULY CONSIDERED AND WAS TAKEN TO BE PA RTLY CORRECT WITH THE FINDING THAT AT THE SAME TIME IT CANNOT BE DENIED THAT COMPETITION IN THE BUSINESS OF DISH TV HAS INCREASED OVER THE YEARS IN VIEW OF WHICH DEALERS A RE FORCED TO OPERATE AT THINNER MARGINS AS COMPARED TO EARLIE R YEAR. ITA NO. 381/JP/2014 RAJESH KUMAR KASWAN, JHUNJHUNU VS. ACIT,CIRCLE- JH UNJHUNU . 5 DESPITE OF SUCH SPECIFIC AND CATEGORICAL FINDINGS, THE AO ESTIMATED GROSS PROFIT @ 1.5% AND MADE TRADING ADDI TION OF RS. 1,41,875/- WITHOUT REJECTING THE BOOK RESULTS U /S 145(3) OF THE ACT AND WITHOUT POINTING OUT ANY DEFECT OR A NY DISCREPANCY ETC. OBVIOUSLY, SUCH ADDITION WAS BAD I N LAW, PARTICULARLY WHEN THE BOOKS WERE DULY AUDITED AS AD MITTED BY THE AO. ACCORDINGLY THE ADDITION UNDER CONSIDERA TION HAD BEEN OBJECTED IN APPEAL. 3.4 THE LD. DR RELIED ON THE ORDERS OF THE LOWER AU THORITIES. 3.5 I HAVE HEARD THE RIVAL CONTENTIONS AND PERUSED THE MATERIALS AVAILABLE ON RECORD. IT EMERGES FROM THE RECORDS TH AT THERE WAS DECLINE IN TRADING RESULTS IN COMPARISON TO THE PRECEDING YEAR S WHICH IS TABULATED AS UNDER: A.Y. TURNOVER GROSS PROFIT GROSS PROFIT RATE 2009-10 27356696 268476 0.98% 2008-09 13187401 642875 4.87% 2007-08 36137574 1059024 2.93% THE AO CONSIDERING THE ABOVE FACTS AND CIRCUMSTANCE S OF THE CASE REJECTED THE BOOKS OF ACCOUNT OF THE ASSESSEE AND A PPLIED THE GROSS PROFIT RATE AT 1.50% WHICH WAS CONFIRMED BY THE LD. CIT(A) . IN MY CONSIDERED VIEW, THE GROSS PROFIT RATE AS APPLIED BY THE AO AT 1.50% IS JUSTIFIED CONSIDERING THE PRECEDING YEARS GROSS PROFIT RATE. I, THEREFORE, FIND NO REASON TO INTERFERE WITH THE ORDER OF THE LD. CIT(A ) ON THIS ISSUE WHICH IS SUSTAINED. HENCE, THE GROUND NO. 1 OF THE ASSESSEE IS DISMISSED. ITA NO. 381/JP/2014 RAJESH KUMAR KASWAN, JHUNJHUNU VS. ACIT,CIRCLE- JH UNJHUNU . 6 4.1 APROPOS GROUND NO. 2 OF THE ASSESSEE WHEREIN TH E ASSESSEE HAD CLAIMED SCHEME EXPENSES AT RS. 13,75,403/-. THE AO ASKED THE ASSESSEE TO PRODUCE THE DETAILS / EVIDENCE IN RESPECT OF HIS CLAIM. NO COMPLETE AND PROPER DETAILS WERE PRODUCED BY THE ASSESSEE BEFORE THE AO. IN ABSENCE OF COMPLETE DETAILS, AN AMOUNT OF RS. 1.00 LAC WAS DISALLOWED BY THE AO AND ADDED THE SAME TO THE TOTAL INCOME OF THE ASSES SEE. 4.2 BEING AGGRIEVED, THE ASSESSEE CARRIED THE MATTE R BEFORE THE LD. CIT(A) WHO HAS CONFIRMED THE ACTION OF THE AO BY OB SERVING AS UNDER:- 6.3 I HAVE CAREFULLY CONSIDERED THE SUBMISSION OF THE APPELLANT AS ALSO THE FINDINGS OF THE AO. IT MA Y BE NOTED THAT THE SUBMISSION OF THE APPELLANT THAT ALL THE D ETAILS WERE FURNISHED BEFORE THE AO IS NOT CORRECT AND SUCH FAC TS ARE EVIDENCES FROM THE FINDING OF THE AO REPORTED IN TH E REMAND REPORT WHEREIN IT HAS BEEN STATED THAT THE APPELLAN T HAS NOT PROPERLY COMPLIED WITH THE NOTICES ISSUED AS ALSO T HAT COMPLETE DETAILS WERE NOT FURNISHED. THESE FACTS OF NON- COMPLIANCE ARE NARRATED IN THIS ORDER AT PAGE NO. 7 . IT MAY BE MENTIONED THAT THE CLAIM WAS MADE BY THE APPELLA NT IN RESPECT OF SUCH EXPENSES AND ACCORDINGLY THE APPEL LANT HAS TO PROVE THAT SUCH EXPENSES WERE INCURRED FOR THE B USINESS PURPOSES. AS THE APPELLANT HAS NOT FILED COMPLETE D ETAILS IN RESPECT OF SUCH EXPENSES, THEREFORE, THE AO WAS JU STIFIED FOR MAKING SUCH DISALLOWANCE. AS REGARDS VARIOUS CASE L AWS RELIED UPON BY THE APPELLANT IT MAY BE MENTIONED TH AT THESE CASE LAWS ARE IN THE BACKGROUND OF MAKING ARBITRARY ADDITIONS WHEREAS IN THE APPELLANT CASE THE AO HAS MADE SUCH DISALLOWANCE / ADDITION BECAUSE COMPLETE DETAI LS IN RESPECT OF SUCH CLAIMS WAS NOT FILED AND THEREFORE , SUCH DISALLOWANCE CANNOT BE SAID TO BE ARBITRARY NATURE. ACCORDINGLY, DISALLOWANCE OF RS. 1.00 LAC MADE BY T HE AO IS CONFIRMED. ITA NO. 381/JP/2014 RAJESH KUMAR KASWAN, JHUNJHUNU VS. ACIT,CIRCLE- JH UNJHUNU . 7 4.3 DURING THE COURSE OF HEARING, THE LD. AR OF THE ASSESSEE PRAYED FOR DELETION OF ADDITION MADE BY THE AO. THE LD. AR OF THE ASSESSEE FURTHER SUBMITTED THAT ALL THE DETAILS OF THESE SCHEME EXPE NSES WERE PRODUCED BEFORE THE AO BUT THE AO ARBITRARY MADE ADDITION WH ICH SHOULD NOT HAVE BEEN DONE. THE LD. AR OF THE ASSESSEE RELIED ON FOL LOWING CASE LAWS:- 1. INTERNATIONAL FOREST CO. VS. ACIT (1975) 101 ITR 721 (J&K) 2. GREEENVIEW RESTAURANT VS. ACIT (2003) 263 ITR 169 3. K BALIAH VS. CIT (1965) 56 ITR 182 4. BRIJ BHUSHAN LAL PRADUMAN KUMARVS CIT (1989) 11 5 ITR 524 (SC) 4.4 THE LD. DR RELIED ON THE ORDERS OF THE AUTHORIT IES BELOW. 4.5 I HAVE HEARD THE RIVAL CONTENTIONS AND PERUSED THE MATERIALS AVAILABLE ON RECORD. IT EMERGES FROM THE RECORDS TH AT THE BOOKS OF ACCOUNT OF THE ASSESSEE HAVE BEEN REJECTED AND GROSS PROFI T RATE IS ESTIMATED IN THE PRECEDING GROUND OF THE ASSESSEE. HENCE, IN MY CONS IDERED VIEW WHEN THE BOOK RESULTS OF THE ASSESSEE IS NOT ACCEPTED AND GR OSS PROFIT IS ESTIMATED BY THE LOWER AUTHORITIES THEN THERE IS NO FURTHER S COPE FOR MAKING DISALLOWANCE FROM SCHEME EXPENSES DEBITED IN THE P ROFIT AND LOSS ACCOUNT AND THESE EXPENSES HAVE BEEN INCURRED FOR BUSINESS PURPOSES. IN THIS VIEW OF THE MATTER, I DIRECT TO DELETE THE ADD ITION OF RS. 1.00 LAC ITA NO. 381/JP/2014 RAJESH KUMAR KASWAN, JHUNJHUNU VS. ACIT,CIRCLE- JH UNJHUNU . 8 CONFIRMED BY THE LD. CIT(A). THUS GROUND NO. 2 OF T HE ASSESSEE IS ALLOWED. 5.1 NOW I TAKE UP THE APPEAL OF THE REVENUE RAISING THEREIN FOLLOWING GROUND:- ON THE FACTS AND CIRCUMSTANCES OF THE CASE AND IN LAW THE LD. CIT(A) HAS ERRED IN DELETING THE ADDITI ON OF RS. 12,01,835/- MADE BY THE AO ON ACCOUNT OF SUPPRESSE D COMMISSION RECEIPT. 5.2 I HAVE HEARD THE RIVAL CONTENTIONS AND PERUSED THE MATERIALS AVAILABLE ON RECORD. IT IS OBSERVED THAT THE DEMAND / TAX EFFECT IN THE REVENUES APPEAL IN QUESTION IS BELOW RS. 10.00 LA CS . UNDER THE POWERS VESTED BY SEC. 268A(1) OF THE I T ACT, CBDT HAS REC ENTLY ISSUED CIRCULARNO.21 OF 2015 DATED 10.12.2015(F NO. 279/MI SC. 142/2007-ITJ(PT) INSTRUCTING THE AUTHORITIES BELOW DEPARTMENTAL APPEAL SHOULD NOT BE FILED BEFORE ITAT WHERE THE DEMAND/TAX EFFECT DOES NOT EXCEED RS.10 LACS. THE C IRCULAR IS SPECIFICALLY MENTIONED TO BE APPLICABLE FOR ALL PEN DING APPEALS. 5.3 SUBJECT TO SOME EXCEPTIONS, IT IS FURTHER DIRE CTED BY CBDT THAT ALL THE DEPARTMENTAL APPEALS PENDING BEFORE ITAT WHERE THE DEMAND/TAX EFFECT IS LESS THAN 10 LACS SHOULD BE EITHER WITHDR AWN OR NOT PRESSED BY THE DEPARTMENTAL REPRESENTATIVES. ITA NO. 381/JP/2014 RAJESH KUMAR KASWAN, JHUNJHUNU VS. ACIT,CIRCLE- JH UNJHUNU . 9 5.4 THE PRESENT APPEAL IS NOT COVERED BY ANY EXCEP TIONS MENTIONED IN THE SAID CBDT CIRCULAR. SINCE THE TAX DEMAND IN DIS PUTE IN THIS DEPARTMENTAL APPEAL IS BELOW THE LIMIT SET OUT BY C BDT FOR THE APPEAL THE SAME IS NOT MAINTAINABLE IN VIEW OF FORE GOINGS. AC CORDINGLY THE APPEAL OF THE DEPARTMENT IS DISMISSED AS NOT PRESSED/WITHD RAWN. 6.0 IN THE RESULT, APPEAL OF ASSESSEE IS PARTLY ALL OWED AND THAT OF THE REVENUE IS DISMISSED. ORDER PRONOUNCED IN THE OPEN COURT ON 10/08/20 16 SD/- HKKXPUN ( BHAGCHAND) YS[KK LNL;@ ACCOUNTANT MEMBER TK;IQJ@ JAIPUR FNUKAD@ DATED:- 10 /08/ 2016 *MISHRA VKNS'K DH IZFRFYFI VXZSF'KR@ COPY OF THE ORDER FORWARDED TO: 1. VIHYKFKHZ@ THE APPELLANT- SHRI RAJESH KUMAR KASWAN,JHUNJHUNU 2. IZR;FKHZ@ THE RESPONDENT- THE ITO, WARD- 1, JHUNJHUNU/ ACIT, CIRCLE- JHUNJHUNU 3. VK;DJ VK;QDRVIHY@ CIT(A). 4. VK;DJ VK;QDR@ CIT, 5. FOHKKXH; IZFRFUF/K] VK;DJ VIHYH; VF/KDJ.K] T;IQJ@ DR, ITAT, JAIPUR 6. XKMZ QKBZY@ GUARD FILE (ITA NO. 381/JP/2014) VKNS'KKUQLKJ@ BY ORDER, LGK;D IATHDKJ @ ASSISTANT. REGISTRAR