Sh. Anil Arora, Amritsar. V. The Joint Commissioner of Income Tax, Amritsar.

ITA 405/ASR/2016

• Counselvise Citation: [2016] 121 COUNSELVISE.COM (IT) 3724 (ITAT-AMRITSAR)
• Duration Of Justice: 4 month(s) 1 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 30-11-2016
• Appeal Filed By: Assessee
• Order Result: Partly Allowed
• Bench Allotted: DB
• Assessment Year: 2011-2012
• Appeal Filed On: 29-07-2016
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Assessee Lawyers: P N ARORA
• Keywords: Principle of natural justice
• Section: 144

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL AMRITSAR BENCH; AMRITSAR. BEFORE SH. T. S. KAPOOR, ACCOUNTANT MEMBER AND SH. N.K. CHOUDHRY, JUDICIAL MEMBER ITA NO.405(ASR)/2016 ASSESSMENT YEAR:2011-12 PAN :AAWPA2685D SH. ANIL ARORA, VS. JT. COMMR. OF INCOME TAX, 115/12, GALI GUJJRAN, RANGE-II, AMRITSAR. KATRA BHAI SANT SINGH, AMRITSAR. (APPELLANT) (RESPONDENT) APPELLANT BY: SH. P. N. ARORA, ADV. RESPONDENT BY: SH. RAHUL DHAWAN, DR DATE OF HEARING : 29/09/2016 DATE OF PRONOUNCEMENT: 30/11/2016 ORDER PER N.K.CHOUDHRY, JM: THIS IS AN APPEAL FILED BY THE ASSESSEE AGAINST THE ORDER DATED 20.06.2016, PASSED BY THE LD. CIT(A)-1, AMRITSAR, RELA TING TO ASSESSMENT YEAR 2011-12. THE ASSESSEE HAS RAISED THE FOLLOWI NG GROUNDS OF APPEAL: 1. THAT THE ORDER OF THE ASSESSING OFFICER AS WELL AS THE ORDER OF LEARNED CIT(A) ARE BOTH AGAINST THE FACTS OF THE CASE AND ARE UNTENABLE IN LAW. 2. THAT THE WORTHY CIT(A) HAS NOT APPRECIATED THE FACTS OF THE CASE AND MERELY RELIED ON ORDER OF THE AO AN D WITHOUT ANY RHYME & REASON, THE LD. C1T(A) HAS CONFIRMED THE ADDITION TO THE TUNE OF RS. 10,45,865 /- ITA NO.405(ASR)/2016 ASST. YEAR:2011-12 2 IN THE TRADING A/C ON ACCOUNT OF APPLICATION OF GP RATE. AS SUCH THE ORDER OF THE LD CIT(A) IS LIABLE TO CANCELLED. 3. THAT THE LD CIT(A) DID NOT APPRECIATE THAT FOR THE PURPOSE OF ASSESSMENT ONLY THE NET RATE OF PROFIT H AS TO BE APPLIED AND NOT THE GP RATE AS APPLIED BY THE WORTHY CIT(A) @ 8%. 4. THAT THE AUTHORITIES BELOW DID NOT APPRECIATE T HAT THE ASSESSEE IS CARRYING ON THE BUSINESS OF MEDICINE ON WHOLESALE BASIS WHERE THE MARGIN OF PROFIT IS VERY NOMINAL AND AS SUCH THE LD CIT(A) WAS NOT JUSTIFIED IN CONFIRMING THE GP RATE @ 8% ON SALES WITHOUT APPRECIATING THE FACT THAT THE ASSESSEE IS A WHOLESALER. 5. THAT THE LD CIT(A) DID NOT APPRECIATE THAT IN CONNECTION WITH AY 2013-14 WHEN IT WAS A SCRUTINY ASSESSMENT THE NP RATE @ 1.4% WAS ACCEPTED. IN VIEW OF THESE CIRCUMSTANCES THE RATE SUSTAINED BY THE CIT(A) IS NOT CALLED FOR AND THE ADDITION SUSTAINED BY THE LD CIT(A) MAY BE DELETED. 6. THAT THE LD CIT(A) DID NOT APPRECIATE THAT THE PAST AS WELL AS SUBSEQUENT HISTORY IS THAT OF ACCEPTANCE AN D THERE WAS NO JUSTIFICATION IN SUSTAINING THE ADDITI ON AND THE NON SUSTAINED BY THE CIT(A) IS UNCALLED FOR , UNJUSTIFIED, AND THE ADDITION MADE MAY BE DELETED. 7. THAT THE LD CIT(A) DID NOT APPRECIATE THAT THE A DDITION SUSTAINED BY THE LD CIT(A) MAY BE DELETED AS THE FACTS AND CIRCUMSTANCES OF THE CASE DO NOT WARRANT THE SAME. WITHOUT PREJUDICE TO THE ABOVE, ALTERNATIVELY THE ADDITION SUSTAINED BY THE LD CIT(A) IS VERY HIG H & EXCESSIVE. 8. ANY OTHER GROUND OF APPEAL WHICH MAY BE URGED AT THE TIME OF HEARING OF THE APPEAL. 2. THE BRIEF FACTS OF THE CASE ARE THAT THE ASSESSEE IS AN I NDIVIDUAL AND FILED HIS RETURN DECLARING AN INCOME OF RS.3,42,450 /- ON ITA NO.405(ASR)/2016 ASST. YEAR:2011-12 3 30.09.2011. THE NATURE OF THE BUSINESS OF THE ASSESSEE IS T HAT OF PURCHASE & SALE OF MEDICINES ON WHOLESALE BASIS AND GOODS ARE DIRECTLY SOLD TO THE DEALERS. THE ASSESSEE DID NOT DEAL DIRECTLY WITH THE CONSUMERS. DURING THE YEAR UNDER CONSIDERATION, THE ASSESSE E HAD DISCLOSED SALES TO THE TUNE OF 2,50,28,978/- ON WHICH GP HAD BEEN SHOWN AT RS.9,51,100/- THEREBY GIVING GP RATE @ 3.8% AND FURTHER NP RATE HAD BEEN DISCLOSED AT 1.4% AS THE NET PROFIT HAD B EEN DISCLOSED AT RS.3,50,372/-. AS PER THE AO, THE BOOKS OF ACCOUNT H AVE NOT BEEN MAINTAINED PROPERLY AND ACCORDINGLY, THE AO INVOKED THE PROVISIONS OF SECTION 144 OF THE ACT. THE AO MADE THE ADDITION IN THE TRADING ACCOUNT OF RS.31,93,400/- BY APPLYING GP RATE OF 16.5 6% ON THE SALES SHOWN BY THE ASSESSEE AT RS.2,50,28,978/- AFTER ALLOWING THE CREDIT OF GP SHOWN BY THE ASSESSEE AT RS.9,51,100/-. 3. AGGRIEVED AGAINST THE TRADING ADDITION OF RS.31,93 ,300/-, THE ASSESSEE FILED AN APPEAL BEFORE THE LD. CIT(A), WHO RED UCED THE ADDITION TO RS.10,45,865/- BY OBSERVING AS UNDER: I HAVE GONE THROUGH THE GROUNDS OF APPEAL, SUBMISSION AND THE ASSESSMENT ORDER. DURING THE COURSE OF ASSESSMENT PROCEEDING THE ASSESSEE WAS ASKED TO FILE THE INVENTORY OF OPENING STOCK, PURCHA SES AND CLOSING STOCK, QUANTITY WISE BUT THE SAME WERE NEVER PRODUCED BEFORE THE AO AS PER PARA 8 OF PAGE 6 OF THE ASSESSMENT ORDER. AS REGARDS APPLICATION OF GP THE AO HAS WORKED OUT GP BY CONSIDERING THE PURCHASE & SALE BILLS AND AL SO CONSIDERING THE BONUS(FREE MEDICINE) COMPONENT IN COST. THIS CANNOT BE OVERRULED THAT THE FREE SAMPL ES (BONUS) ARE RECEIVED BY THE WHOLESALER AND THE SAME ARE PASSED ON TO THE RETAILER, CONSIDERING THE VOLU ME ITA NO.405(ASR)/2016 ASST. YEAR:2011-12 4 OF SALES. THE AO HAS NOT CONSIDERED THE FREE MEDICI NE PASSED OVER IN THE SALE PRICE, AS SUCH IN THESE CIRCUMSTANCES THE G.P. RATE OF 8% WILL BE REASONABL E ON THE SALES OF MEDICINE. THIS G.P. IS CONSIDERED A S THE ASSESSEE HAS NOT BEEN MAINTAINING ANY QUANTITATIVE DETAILS REGARDING MEDICINE. THE GP OF RS.9,51,100/- IS SHOWN IN TRADING RESULT FURNISHED BY THE ASSESSEE, IF THE GP RATE OF 8% IS APPLIED THAN THE GROSS PROFIT WORKS OUT TO RS. 20,00,965/- AGAINST RS.9,51,100/-, THUS E ASSESSEE HAS UNDERSTATED THE G.P. TO THE TUNE OF RS. 10,45,865/-. THE CASE LAWS GIVEN IN THE SUBMISSION ARE ABOUT THE CASES OF UNACCOUNTED SALES AND HENCE ARE NOT APPLICABLE TO THIS CASE. 7. IN VIEW OF ABOVE THE APPEAL IS PARTLY ALLOWED. 4. NOW, AGGRIEVED WITH THE ORDER OF THE LD. CIT(A), THE ASSESSEE IS IN APPEAL BEFORE THIS BENCH. 5. THE LD. COUNSEL FOR THE ASSESSEE, SH. P.N.ARORA, ADVOCA TE, CONTENDED THAT WHILE COMPLETING ASSESSMENT, THE AO HAD A PPLIED GP RATE, WHEREAS ONLY THE NET PROFIT RATE CAN BE APPLI ED FOR THE PURPOSE OF INCOME TAX ASSESSMENT AND NOT THE GP RATE. HE FURTHER STATED THAT IT APPEARS THAT THE AO WAS NOT FULLY CONVERSANT WITH AL L THE LAWS AND HAS ERRONEOUSLY APPLIED GP RATE. HE HAS SUBMITTED A CHAR T SHOWING THE COMPLETE HISTORY OF THE CASE INCLUDING THE GP AS WELL N P RATE RIGHT FROM ASSESSMENT YEAR 2008-09 TO 2014-15, WHICH IS REPRODU CED AS UNDER: ASSTT. YEAR SALES GROSS PROFIT GP RATIO NET PROFIT NP RATIO 2008-09 9532690.00 394654.66 4.14% 132313.44 1.40% 2009-10 15822141.55 639216.11 4.04% 230634.34 1.50% 2010-11 18085926.24 741523.53 4.10% 295883.77 1.60% 2011-12 25028978.17 951100.63 3.80% 350372.00 1.40% 2012-13 29561047.10 1093757.11 3.70% 384316.08 1.30% ITA NO.405(ASR)/2016 ASST. YEAR:2011-12 5 2013-14 31373035.14 1037263.14 3.31% 440964.63 1.40% 2014-15 28903174.87 1043404.61 3.61% 447265.41 1.50% THE LD. COUNSEL FURTHER SUBMITTED THAT THIS IS A CASE OF T AX AUDIT AND THE BOOKS OF ACCOUNT ARE DULY AUDITED AND COPY OF THE A UDIT REPORT FOR THE AY 2011-12 HAS BEEN FILED AT APB 12 TO 23. HE FUR THER STATED THAT IN THE PAST AS WELL AS IN THE SUBSEQUENT YEAR, THE DEP ARTMENT HAS ACCEPTED THE NP RATE OF THE ASSESSEE. HE HAS DRAWN OUR ATTE NTION TO THE ASSESSMENT YEAR 2013-14 (I.E. SUBSEQUENT ASSESSMENT YEAR ) WHERE IN SCRUTINY ASSESSMENT, THE ASSESSEE HAS SHOWN SALES TO THE TUNE OF RS.3,13,73,035/-, THEREBY SHOWING GP RATE @ 3.31% AND NP RATE @ 1.4% AND UNDER THE SIMILAR FACTS AND CIRCUMSTAN CES, THE NP RATE OF 1.4% HAS BEEN ACCEPTED BY THE DEPARTMENT AND A COPY OF THE ASSESSMENT ORDER HAS BEEN PLACED AT APB 107 TO 111. 5.1 THE LD. COUNSEL FURTHER POINTED OUT THAT THE FACTS AND CIRCUMSTANCES FOR THE ASSESSMENT YEAR 2013-14 WERE IDENTICAL TO THE FACTS FOR THE ASSESSMENT YEAR UNDER CONSIDERATION AND WHEN NET PROFIT SHOWN BY THE ASSESSEE @ 1.4% FOR THE A.Y. 2013-14 HAS B EEN ACCEPTED BY THE DEPARTMENT, THERE IS NO REASON FOR REJE CTING THE NET PROFIT RATE OF 1.4% SHOWN BY THE ASSESSEE IN THE YEAR UN DER CONSIDERATION AND THEREBY APPLYING A GP RATE OF 16.56 %, WHICH IS AGAINST THE PRINCIPLE OF NATURAL JUSTICE. HE FURTHER ST ATED THAT THIS SORT OF PROFIT CANNOT EVEN BE EARNED BY THE RETAILERS ITSEL F. THE AO HAS ALSO MISERABLY FAILED TO APPRECIATE THAT THIS WAS TAX AUDIT CASE AND ALL THE SALES AND PURCHASES WERE VOUCHED AND AS SUCH THERE WAS NO O CCASION FOR APPLYING A GP RATE UNDER THE FACTS OF THE PRESENT CASE, ESPECIALLY WHEN THE PAST AS WELL AS SUBSEQUENT HISTORY OF THE CASE IS THAT OF ACCEPTANCE. IN SUPPORT OF CASE, HE PLACED RELIANCE UPON CASE LAWS: MT. BALBIR KAUR VS. ITO, ITA NO.151/ASR/2016, ORDER DATE D 23.05.2016 FOR ITA NO.405(ASR)/2016 ASST. YEAR:2011-12 6 THE A.Y. 2004-05 (ITAT, AMRITSAR BENCH), CIT VS. BALCHA ND AJIT KUMAR, 263 ITR 610 (MP), MANMOHAN SADANI VS. CIT, 304 ITR 5 2 . THE LD. COUNSEL FOR THE ASSESSEE ALSO POINTED OUT THAT WHILE MAK ING ADDITION, THE AO HAS FAILED TO CITE ANY COMPARABLE CASE OF ANY WHO LESALER OF MEDICINES WHERE SUCH HUGE RATE WAS APPLIED. THUS, HE SUBM ITTED THAT THE ADDITION HAS BEEN MADE PURELY ON SURMISES AND CONJECT URES AND THE SAME IS LIABLE TO BE DELETED. IN VIEW OF THE ABOV E, HE PRAYED THAT THE ADDITION SUSTAINED BY THE LD. CIT(A) AT RS.10.45,8 65/- BY APPLYING GP @ 8% MAY BE DELETED. 6. THE LD. DR, ON THE OTHER HAND, SUBMITTED THAT UNA CCOUNTED SALE HAS BEEN MADE BY THE ASSESSEE AND EVEN OTHERWISE HE SUPPRE SSED THE G.P RATE AND WHILE FRAMING THE ASSESSMENT ORDER THE ASSES SING OFFICER SPECIFICALLY OBSERVED THAT IN THE VERY FIRST QUESTIONNAIR E DATED 25 TH JULY, 2013, THE ASSESSEE WAS ASKED TO FILE THE INVENTORY OF OPENING AND CLOSING STOCK BOTH AMOUNT WISE AND QUANTITATIVE WISE. BUT REASONS BEST KNOWN TO THE ASSESSEE, THE SAME WAS NEVER BEEN FILED, NO STOCK REGISTER WAS PRODUCED BY THE ASSESSEE AND IN THAT EVENTUAL ITY, THE ASSESSING OFFICER MADE AN ASSESSMENT IN MANNER PROVIDED IN S EC.144 OF THE I.T. ACT ON BEING NOT SATISFIED ABOUT THE COR RECTNESS AND COMPLETENESS OF THE ACCOUNTS OF THE ASSESSEE. 7. WE HAVE HEARD THE RIVAL PARTIES AND HAVE GONE THR OUGH THE MATERIAL PLACED ON RECORD. THE CASES RELIED UPON BY THE ASSESSEE ARE FACTUALLY DIFFERENT THEREFORE CAN NOT BE APPLIED STRI CTLY HOWEVER AS IT REFLECTS FROM THE CHART SUBMITTED BY THE ASSESSEE SHOWING TH E COMPLETE HISTORY OF THE CASE INCLUDING THE G.P RATE AS WELL AS N.P RATE RIGHT FROM ASST. YEARS:2008-09 TO 2014-15 ON AND OF AVERAGE OF THE ITA NO.405(ASR)/2016 ASST. YEAR:2011-12 7 G.P RATE IS APPROXIMATELY @ 4% AND N.P RATIO IS AROUN D @ 1.50. THE DEPARTMENT HAS NOT DISPUTED THE CONTENTS OF THE CHART S UBMITTED BY THE LD. AR OF THE ASSESSEE. THE LD. CIT(A) ALSO CONSIDER ED THE FACT THAT THE ASSESSEE BEING WHOLESALER IS SUPPOSED TO DISTRIBUTE FRE E MEDICINES TO THE RESPECTIVE RETAILERS AND THE A.O HAS NOT CONSIDERE D THE EFFECT OF FREE MEDICINES PASSED OVER IN A SALE PRICE AND THE LD. CI T(A) WHILE CALCULATING THE G.P. RATE @ 8% AS REASONABLE HAS NOT GIV EN ANY SPECIFIC REASON, HOWEVER, THE LD. CIT(A) CONSIDERED THE F ACT THAT THE ASSESSEE HAS NOT BEEN MAINTAINING ANY QUANTITATIVE DETAI LS REGARDING MEDICINES AND APPLIED G.P RATE AT THE LOWEST SIDE. CONSIDERING THE FACTS AND CIRCUMSTANCES OF THE CASE , AS ALSO THE PAST HISTORY OF G.P AS WELL AS N.P RATE SINCE 2008 TO 201 4 PREVIOUS AND SUBSEQUENT YEARS, IN OUR CONSIDERED OPINION, JUSTICE WOUL D BE MET IF THE G.P RATE BE REDUCED TO 4 % AND APPROPRIATE N.P R ATE BE APPLIED, WHICH IS ON AND OF AVERAGE OF THE PREVIOUS AND SUBSEQUEN T FINANCIAL YEARS. HENCE, WE DIRECT TO CONSIDER THE G.P RATE @ 4 % IN STEAD OF 8 %. WITH THE AFORESAID OBSERVATION AND DIRECTION, THE FILE/CASE IS SENT BACK TO THE FILE OF THE AO TO DETERMINE THE LIABILIT Y ACCORDINGLY. 8. IN THE RESULT, THE APPEAL FILED BY THE ASSESSEE IS P ARTLY ALLOWED FOR STATISTICAL PURPOSES. ORDER PRONOUNCED IN THE OPEN COURT ON 30/11/2016. SD/- SD/- (T.S.KAPOOR) (N.K. CHOUDHRY) ACCOUNTANT MEMBER JUDICIAL MEMBER /PK/PS. DATED: 30/11/2016 ITA NO.405(ASR)/2016 ASST. YEAR:2011-12 8 COPY OF THE ORDER FORWARDED TO: 1. THE ASSESSEE: 2. THE 3. THE CIT(A) 4. THE CIT 5. THE SR DR, ITAT, AMRITSAR. TRUE COPY BY ORDER