Arpana Bains, Chandigarh V. ITO, Chandigarh

ITA 388/CHANDI/2016

• Counselvise Citation: [2016] 132 COUNSELVISE.COM (IT) 9848 (ITAT-CHANDIGARH)
• Duration Of Justice: 2 month(s) 4 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 23-06-2016
• Appeal Filed By: Assessee
• Order Result: Partly Allowed
• Bench Allotted: Not Allotted
• Assessment Year: 2010-2011
• Appeal Filed On: 18-04-2016
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Department Lawyers: S K MITTAL
• Keywords: Rejection of books of accounts; Depreciation; Opportunity of being heard
• Section: 143(3); 10

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL CHANDIGARH BENCHES SMC CHANDIGARH BEFORE SHRI GEORGE GEORGE K. JUDICIAL MEMBER ITA NO.388 /CHD/2016 (ASSESSMENT YEAR: 2010-11) ARPANA BAINS, VS. THE INCOME TAX OFFICER, H.NO.1605, WARD 2(3), SECTOR 10 A, CHANDIGARH. CHANDIGARH. PAN NO. AAXPB1511C (APPELLANT) (RESPONDENT) APPELLANT BY : SHRI PARIKSHIT AGGARWAL RESPONDENT BY : SHRI S.K. MITTAL, DR DATE OF HEARING : 22.06.2016 DATE OF PRONOUNCEMENT : 23.06.2016 O R D E R THIS APPEAL PREFERRED BY THE ASSESSEE IS DIRECTED AGAINST THE ORDER OF COMMISSIONER OF INCOME TAX (APPEALS)-1, CHANDIGARH DATED 29.2.2016 PERTAINING TO ASSESSMENT YEAR 2010-11. 2. BRIEFLY STATED, THE FACTS OF THE CASE ARE THAT THE ASSESSEE IS AN INDIVIDUAL, ENGAGED IN THE BUSINESS OF WHOLESALE TRADING OF PHARMACEUTICAL PRODUCTS. FOR THE RELEVANT ASSESSMENT YEAR, RETURN OF INCOME WAS FILE D ON 14.10.2010 DECLARING TOTAL INCOME OF RS.8,98,990/-. THE ASSESSMENT WAS TAKEN FOR SCRUTINY BY ISSUING NOTICE UNDER SECTION 143(2) OF THE INCOME TAX ACT, 1961 (IN SHOR T THE ACT). 2 THE SCRUTINY ASSESSMENT UNDER SECTION 143(3) OF THE ACT WAS COMPLETED ON 21.2.2013. THE ASSESSING OFFICER REJE CTED THE BOOKS OF ACCOUNT OF THE ASSESSEE AND APPLIED A NET PROFIT RATE OF 6.5% ON THE TOTAL TURNOVER OF THE ASSESSEE. TH E TURNOVER OF THE ASSESSEE WAS RS.3,43,21,326/- AND ACCORDINGL Y, THE ASSESSING OFFICER ESTIMATED THE NET PROFIT AT RS.22 ,30,886/- AS AGAINST THE NET PROFIT DECLARED BY THE ASSESSEE AT RS.2,78,994/-, RESULTING IN AN ADDITION OR RS.19,51 ,896/-. 3. AGGRIEVED BY THE REJECTION OF BOOKS OF ACCOUNT AND ESTIMATING THE NET PROFIT RATE OF 6.5% ON THE TURNO VER, THE ASSESSEE PREFERRED APPEAL TO THE FIRST APPELLATE AU THORITY. 4. BEFORE THE CIT (APPEALS), FOLLOWING CONTENTIONS WERE TAKEN : A. THE REASON AND BASIS ADOPTED FOR REJECTION OF BOOKS OF ACCOUNTS IS UNJUSTIFIED AND ARBITRARY. B. SINCE THE REJECTION OF BOOKS BY APPLYING PROVISI ONS OF SEC 145(3) IS ILLEGAL, THE APPLICATION OF NET PROFIT RATE IS ALSO ILLEGAL. C. THE APPLICATION OF NET PROFIT RATE OF 6.5% WAS A RBITRARY AND HIGHLY EXCESSIVE, KEEPING IN MIND THE WHOLE SA LE TRADING BUSINESS OF THE APPELLANT, PAST DECLARED RE SULTS OF THE APPELLANT, NO INDEPENDENT COMPARISON DRAWN B Y THE APPELLANT AND THE RATE OF 6.5% IS TOTALLY UNSCIENTIF IC AND CAME FROM NO WHERE. D. BEFORE APPLYING AND IDENTIFYING THE YARD STICK O F 6.5%, THE SAME WAS NEVER CONFRONTED TO THE APPELLANT. 3 E. EVEN WHILE APPLYING THE RATE OF 6.5%, THE DEDUCT IONS TOWARDS INTEREST AND DEPRECIATION WAS NOT ALLOWED. F. THE ASSESSMENT WAS COMPLETED IN HASTE, WITH A BI ASED AND PREJUDICE MIND AND WITHOUT PROVIDING ADEQUATE A ND REASONABLE OPPORTUNITY OF BEING HEARD TO THE APPELLA NT. 5. THE CIT (APPEALS) CONFIRMED THE REJECTION OF BO OKS OF ACCOUNT MADE BY THE ASSESSING OFFICER. AS REGAR DS THE ESTIMATION OF INCOME, THE CIT (APPEALS) REDUCED THE SAME TO 5% OF THE TURNOVER INSTEAD OF 6.5% ESTIMATED BY THE ASSESSING OFFICER. 6. AGGRIEVED BY THE CIT (APPEALS)S ORDER, THE ASS ESSEE IS IN APPEAL BEFORE US, RAISING THE FOLLOWING GROUN DS : 1. THAT ON THE FACTS, CIRCUMSTANCES OF THE CASE AN D IN LAW, THE WORTHY CIT(A) THROUGH HIS ORDER DATED 29.02.201 6 HAS ERRED IN PASSING THAT ORDER IN CONTRAVENTION OF T HE PROVISIONS OF S. 250(6) OF THE INCOME TAX ACT, 1961. 2. THAT ON THE FACTS, CIRCUMSTANCES OF THE CASE AND IN LAW, THE WORTHY CIT(A) HAS ERRED IN CONFIRMING THE ACTIO N OF LD. AO WHEREIN HE WAS NOT JUSTIFIED IN REJECTING TH E BOOKS OF ACCOUNTS OF THE APPELLANT AND THE PROVISIONS OF SEC 145(3) HAVE BEEN MISAPPLIED. 3. THAT ON THE LAW, FACTS, CIRCUMSTANCES OF THE CAS E AND IN LAW, THE WORTHY CIT(A) HAS ERRED IN PARTLY CONFI RMING THE ACTION OF LD. AO WHEREIN HE WAS NOT JUSTIFIED I N ESTIMATING THE NET PROFIT RATE OF THE APPELLANT AT 5% OF TURNOVER OF THE APPELLANT AND THEREBY HAS ERRED IN MAKING ADDITION OF RS. 17,16,066/-. SINCE THE REJECTION OF BOOKS WAS ILLEGAL AND UNJUSTIFIED, THE APPLICATIO N OF NET PROFIT RATE THEREAFTER WAS ALSO JUSTIFIED. FURTHE R THE NET PROFIT RATE APPLIED WAS ARBITRARY, EXCESSIVE AND 4 UNREASONABLE WHEN THE NATURE OF BUSINESS OF THE APPELLANT IS WHOLESALE TRADING. THE RATE OF 5% WAS APPLIED WITHOUT EVEN CONFRONTING THE SAME TO THE APPELLANT. 4. THAT ON THE FACTS, CIRCUMSTANCES OF THE CASE AND IN LAW, THE WORTHY CIT(A) HAS ERRED IN RECORDING AN ERRONEOUS AND ILLEGAL FINDING THAT THE APPELLANT IS NOT CARRYIN G ON WHOLESALE BUSINESS. DUE TO THIS ERRONEOUS AND ILLEGAL FINDING, THE ULTIMATE CONCLUSION OF THE WORTHY CIT(A) ALSO BECAME ILLEGAL AND DESERVES TO BE SET-A SIDE. 5. THAT THE APPELLANT CRAVES LEAVE FOR ANY ADDITION, DELETION OR AMENDMENT IN THE GROUNDS OF APPEAL ON OR BEFORE THE DISPOSAL OF THE SAME. 7. THE LEARNED COUNSEL FOR THE ASSESSEE RELIED ON THE GROUNDS RAISED IN THE MEMORANDUM OF APPEAL. 8. THE LEARNED D.R., ON THE OTHER HAND, SUPPORTED THE ORDER OF THE INCOME-TAX AUTHORITIES. 9. I HAVE HEARD THE RIVAL SUBMISSIONS AND PERUSED THE MATERIAL AVAILABLE ON RECORD. THE ASSESSING OFFICE R HAS RIGHTLY REJECTED THE BOOKS OF ACCOUNT, SINCE VARIOU S DISCREPANCIES HAVE BEEN POINTED OUT IN THE BOOKS OF ACCOUNT MAINTAINED BY THE ASSESSEE. THE VARIOUS DISCREPANCI ES IN THE BOOKS OF THE ASSESSEE ARE LISTED AT PARAS 5 TO 8 OF THE ASSESSMENT ORDER. AS RIGHTLY POINTED OUT BY THE CI T (APPEALS), THE REJECTION OF BOOKS OF ACCOUNT WAS NO T SOLELY FOR THE REASON THAT THE STOCK REGISTER WAS NOT MAINTAIN ED. THE ASSESSING OFFICER HAS ELABORATED UPON INFLATION OF EXPENSES ON ACCOUNT OF LACK OF VOUCHERS, ETC. THE ASS ESSING 5 OFFICER HAD ALSO POINTED OUT THAT COMMISSION PAYME NTS WERE ABOUT FIVE TIMES MORE COMPARED TO THE COMMISSION PA ID IN THE LAST YEAR. IT WAS STATED BY THE ASSESSING OFFICER, THAT THE COMMISSION PAYMENTS ARE EXCESSIVE, WHEN SALE TURNOV ER WAS LESS THAN THE PREVIOUS YEAR. CONSIDERING ALL THESE ABOVE DISCREPANCIES, I AM OF THE VIEW THAT THE ASSESSING OFFICER HAS CORRECTLY REJECTED THE BOOKS OF ACCOUNT OF THE ASSE SSEE. 10. AS REGARDS THE ESTIMATION OF INCOME, THE ASSES SING OFFICER HAS ESTIMATED THE NET PROFIT AT 6.5% OF THE TOTAL TURNOVER OF THE ASSESSEE. THE CIT (APPEALS) HAD R EDUCED THE SAME TO 5% OF THE TOTAL TURNOVER. THE CIT (APPEALS ) FOR ADOPTING NET PROFIT OF 5% HAD RELIED ON THE PROVISI ON OF SECTION 44AF OF THE ACT. THE ASSESSING OFFICER AT PAGE 4 OF THE ASSESSMENT ORDER HAS STATED THAT THE ASSESSEE I S ENGAGED IN THE WHOLESALE TRADING OF MEDICINES. FROM THE RE CORDS, IT IS BORNE OUT THAT THE ASSESSEE IS ENGAGED IN THE BUSIN ESS OF WHOLESALE TRADING OF PHARMACEUTICALS. THEREFORE, T HE CIT (APPEALS)S FINDING THAT THE ASSESSEE IS DEALING IN RETAIL TRADE OF PHARMACEUTICAL IS ERRONEOUS. SECTION 44AF OF TH E ACT PRESCRIBES PRESUMPTIVE RATE OF TAXATION FOR RETAIL TRADERS. IN THIS CASE, THE ASSESSEE BEING IN THE BUSINESS OF WH OLESALE TRADING, ADOPTING THE SAME RATE THAT IS PRESCRIBED UNDER SECTION 44AF OF THE ACT, IS NOT JUSTIFIED, SINCE TH E NET MARGIN IN WHOLESALE TRADE IS MUCH LESS THAN IN THE RETAIL TRADE. MOREOVER, TAKING INTO ACCOUNT THE ASSESSEES CASE, WE FIND THAT DUE TO THE LOSSES, THE BUSINESS OF THE ASSESSE E HAD CLOSED DOWN IN THE SUCCEEDING ASSESSMENT YEAR. THE REFORE, I 6 AM OF THE VIEW THAT THE RATE ADOPTED BY THE CIT (AP PEALS) AT 5% OF THE NET PROFIT IS EXCESSIVE IN THE FACTS AND CIRCUMSTANCES OF THE CASE. IN THE INTEREST OF JUST ICE AND EQUITY, I AM OF THE VIEW THAT NET PROFIT RATE OF 3% OF THE TOTAL TURNOVER WOULD SUFFICE. ACCORDINGLY, I DIRECT THE ASSESSING OFFICER TO ADOPT THE NET PROFIT RATE OF 3% OF THE T OTAL TURNOVER IN ESTIMATING THE INCOME OF THE ASSESSEE. IT IS OR DERED ACCORDINGLY. 11. IN THE RESULT, THE APPEAL OF THE ASSESSEE IS P ARTLY ALLOWED. ORDER PRONOUNCED IN THE OPEN COURT ON THIS 23 RD DAY OF JUNE, 2016 SD/- (GEORGE GEORGE K.) JUDICIAL MEMBER DATED : 23 RD JUNE, 2016 *RATI* COPY TO: THE APPELLANT/THE RESPONDENT/THE CIT(A)/TH E CIT/THE DR. ASSISTANT REGISTRAR, ITAT, CHANDIGARH