The Income-tax Officer, Jammu V. M/s. Shiva Mint Industries, Jammu

ITA 426/ASR/2011

• Counselvise Citation: 42620914 RSA 2011
• Duration Of Justice: 1 year(s) 4 month(s) 26 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 17-12-2012
• Appeal Filed By: Department
• Order Result: Partly Allowed
• Bench Allotted: DB
• Assessment Year: 2007-2008
• Appeal Filed On: 22-07-2011
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Department Lawyers: Y K SUD
• Keywords: Gross profit estimation

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL AMRITSAR BENCH; AMRITSAR. BEFORE SH. H.S. SIDHU, JUDICIAL MEMBER AND SH. B.P.JAIN, ACCOUNTANT MEMBER I.T.A. NO.426(ASR)/2012 ASSESSMENT YEAR:2009-10 PAN :AACFP8301P M/S. PATEL PHARMACY VS. DY. COMMR. OF INCOME-TAX, CIVIL LINES, CIRCLE-III, JALANDHAR JALANDHAR. (APPELLANT) (RESPONDENT) APPELLANT BY:SH.Y.K. SUD, CA RESPONDENT BY:SH.TARSEM LAL, DR DATE OF HEARING: 17 /12/2012 DATE OF PRONOUNCEMENT:18/12/2012 ORDER PER BENCH ; THIS APPEAL OF THE ASSESSEE ARISES FROM THE ORDER OF THE CIT(A), JALANDHAR, DATED 04.10.2012 FOR THE ASSESSMENT YEAR 2009-10. THE ASSESSEE HAS RAISED FOLLOWING GROUNDS OF APPEAL: 1. THAT THE LD. CIT(A) WAS NOT JUSTIFIED IN SUSTAI NING THE TRADING ADDITION OF RS.4,32,618/- MADE BY THE AO ON ACCOUNT OF LOW GP. BOTH THE AO AND THE CIT(A) FAILED TO APPRECIATE THAT ALL THE SALES AND PURCHASES WERE DULY VOUCHED AND DAY TO DA Y STOCK REGISTER WAS MAINTAINED. ITA NO.426(ASR)/2012 2 2. THAT THE CIT(A) WHILE SUSTAINING THIS ADDITION F AILED TO APPRECIATE THAT UNLESS THE BOOKS OF ACCOUNTS ARE RE JECTED AND SOME DISCREPANCY IS FOUND IN THE SAME NO ADDITION C AN BE MADE ON ACCOUNT OF LOW GROSS PROFIT RATE. 3. THAT THE CIT(A) FAILED TO APPRECIATE THAT THE GR OSS PROFIT RATE CAN NEVER BE UNIFORM EVERY YEAR AND IT VARIES BECAU SE OF NUMBER OF FACTORS. HE FAILED TO FURTHER APPRECIATES THAT MINUTE TO MINUTE STOCK REGISTER WAS MAINTAINED BY THE ASSE SSEE AND NO DISCREPANCY COULD BE FOUND IN THE SAME EITHER BY TH E AO OR BY THE CIT(A). 4. THAT THE ORDER OF THE CIT(A) IS AGAINST THE LAW AND FACTS OF THE CASE. 2. THE BRIEF FACTS AS ARISING FROM THE ORDER OF THE CIT(A) ARE REPRODUCED FOR THE SAKE OF CLARITY AS UNDER: DURING THE ASSESSMENT THE AO NOTICED THAT THE G.P. RATE WAS SHOWN AT 16.11% WHEREAS IN THE IMMEDIATELY PRECEDING YEAR IT WAS SHOWN AT 20.31%. ON BEING ASKED THE ASSESSEE PLEADED BEFORE AO THAT THE COMPLETE STOCK TALLY AND BILLS FOR SALE AND PURCHAS E WERE KEPT HENCE THE VARIATION IN G.P. IS NOT RELEVANT LOOKING TO TH E FACT THAT APPROXIMATELY 2500KINDS OF MEDICINES ARE SOLD AND G .P. RATE DIFFERS FROM MEDICINE TO MEDICINE. IN A PARTICULAR YEAR THE VOLUME OF SALE OF HIGH G.P. YIELDING MEDICINE AS WELL AS LOW G.P. Y IELDING MEDICINE WOULD ALTER THE G.P. FROM YEAR TO YEAR. THE O CONSIDERED THE EXPLANATION OF ASSESSEE BUT H ELD THAT THE BOOK RESULTS WERE NOT ACCEPTABLE FOR THE FOLLOWING REASONS: THE ASSESSEE WAS GIVEN A LIST OF MEDICINES AND WAS REQUIRED TO FURNISH A CHART OF G.P. RATE. AS PER THIS LIST, THE GP RATE WORKED OUT BY THE ASSESSEE COMES TO RS 18.25% TO 22.60%. A COPY O F THIS CHART IS ENCLOSED AS ANNEXURE-I. THUS, IT IS CLEAR THAT ON A RANDOM DATA G.P. IS MORE THAN 18.52%. THE ASSESSEE HAS FILED DETAILS OF CLOSING STOCK BUT IT IS NOT IN ACCORDANCE WITH BRAND WISE MEDICIN ES AS IN MOST CASES KGS (KILOGRAM) HAS BEEN WRITTEN IN THE COLUMN OF UN IT. IN VIEW OF THESE FACTS, I AM SATISFIED ABOUT THE CORRECTNESS O F THE ACCOUNT OF THE ITA NO.426(ASR)/2012 3 ASSESSEE AND THE BOOK RESULTS CANNOT BE ACCEPTED. I N THIS WAY OF THE MATTER AND ALSO KEEPING IN VIEW THE PAST HISTORY O F THE CASE NO RELIANCE CAN BE PLACED ON THE GP RATE SHOWN BY THE ASSESSEE. THE ASSESSEE HAS NOT PINT POINTED ANY PARTICULARS BRAN D WHERE THE GP WAS LOW. IN THIS BACKGROUND OF THE CASE, THE GP RAT E SHOWN BY THE ASSESSEE IS NOT ACCEPTABLE. FOR THE ASSESSMENT YEA R 2006-07, THE ASSESSEE HAD ORIGINALLY SHOWN GP RATE 26.85% ON SAL ES FOR 1.84 CRORE WHICH REVISED TO 22.07% AFTER ADJUSTING THE VALUATION OF CLOSING STOCK. FOR THE ASSESSMENT YEAR 2007-08, THE ASSESSEE HAD SHOWN AT 17.8% ON SALES OF 2.85 CRORE BUT AFTER AD JUDICATION SUCH GP RATE WAS APPLIED AT 20% BY THE ASSESSING OFFICER. F OR THE ASSESSMENT YEAR 2008-09 THE ASSESSEE HAS SHOWN GP AT 20.3% ON SALES OF 3.22 CRORE. G.P. RATE OF 18% HAS BEEN CONFIRMED BY HONB LE ITAT IN CASE OF THE ASSESSEE. KEEPING IN VIEW OF ALL THE FACTS A ND CIRCUMSTANCES OF THE CASE, I APPLY A GP RATE OF 18% WHICH IS ALMOST THE SAME AS SHOWN FOR THE ASSESSMENT YEAR 2007-08 AND WHICH WIL L RESULT INTO GP OF 4133087/- AS AGAINST THE GP SHOWN BY THE ASSESSE E AT RS.3700469/- AND IT WILL MEAN AN ADDITION OF RS.4,32,618/-. ACCO RDINGLY, I MAKE AN ADDITION OF RS.4,32,618/- TO THE RETURNED INCOME OF THE ASSESSEE. PENALTY PROCEEDINGS U/S 271(1)(C) OF THE INCOME TAX ACT ARE INITIATED SEPARATELY FOR FURNISHING INACCURATE PARTICULARS OF SUCH ADDITION. 3. ON APPEAL, THE LD. CIT(A) CONFIRMED THE ACTION O F THE ASSESSING OFFICER FOR APPLYING G.P. RATE OF 18% BY REJECTING THE BOOK RESULTS AND BY INVOKING CO-TERMINUS JURISDICTION WITH THAT OF THE AO THOUGH IT HAS BEEN CLEARLY STATED IN THE ASSESSMENT ORDER THAT THE BOO K RESULTS WERE NOT ACCEPTABLE. 4. THE LD. COUNSEL FOR THE ASSESSEE, SH. Y.K. SUD, CA, INVITED OUR ATTENTION TO THE VARIOUS PAGES OF THE PAPER BOOK T HAT THE ASSESSEE IS MAINTAINING STOCK REGISTER NOT ONLY ON DAILY BASIS BUT ON THE MINUTE TO MINUTE BASIS ON ITS COMPUTER. EACH AND EVERY PURCHA SE AND SALE IS GENERATED ITA NO.426(ASR)/2012 4 FROM THE COMPUTER THROUGH ACCOUNTING SOFT-WARE AND ACCORDINGLY STOCK IS UPDATED AFTER EACH PURCHASE AND EACH SALE. NO DIFFE RENCE IN THE PURCHASES, SALES AND IN ANY ITEM OF THE CLOSING STOCK WHICH IS MAINTAINED MINUTE TO MINUTE BASIS HAS BEEN POINTED OUT BY THE AO OR BY T HE LD. CIT(A). AS REGARDS THE MENTION OF KGS. IT WAS ARGUED AND IS AC CEPTED FACT THAT THAT NO MEDICINE IS SOLD IN KGS OR IN WEIGHT BUT IN NUMBERS . IT IS ONLY THE MENTIONING OF CERTAIN FIGURES WHICH HAS BEEN ENTERE D INTO COMPUTER WHERE THE WORD KGS HAS BEEN MENTIONED OTHERWISE COMPUT ER DOES NOT ACCEPT THE INPUTS AND DOES NOT GIVE THE OUTPUTS. THE SAME WAS EXPLAINED TO BOTH THE AUTHORITIES BELOW. IT WAS ALSO ARGUED THAT THE AO W AS SATISFIED WITH THE CORRECTNESS OF ACCOUNTS BUT AT THE SAME TIME THE B OOKS RESULTS WERE NOT ACCEPTED. THE AO HAS NOT INVOKED THE PROVISIONS OF SECTION 145(3) OF THE ACT AND THEREFORE, THE BOOKS OF ACCOUNT CANNOT BE R EJECTED AND NO ADDITION CAN BE MADE. IT WAS ALSO POINTED OUT THAT THIS FACT WAS BROUGHT TO THE NOTICE OF THE LD. CIT(A), WHO HAS NOT TAKEN THE SAME IN RI GHT SPIRIT. IT WAS ARGUED THAT THE GP RATE OF 18% DIRECTED BY THE ITAT FOR TH E ASSESSMENT YEAR 2007- 08 CANNOT BE A GUIDE IN THE PRESENT CASE, SINCE EAC H YEAR IS AN INDEPENDENT YEAR. DUE TO VARIED COMPETITION IN THE MARKET, IT I S NOT POSSIBLE TO EARN THE SAME RATE OF PROFIT IN EACH YEAR . ITA NO.426(ASR)/2012 5 5. THE LD. DR, SH. TARSEM LAL, ON THE OTHER HAND, R ELIED UPON THE ORDERS OF THE AUTHORITIES BELOW. 6. WE HAVE HEARD THE RIVAL CONTENTIONS AND PERUSED THE FACTS OF THE CASE. AS REGARDS TO THE APPLICABILITY OF SECTION 145(3) O F THE ACT, THERE IS NO DISPUTE TO THE FACT THAT THE AO HAS WRITTEN IN HIS ORDER THAT HE IS SATISFIED ABOUT THE CORRECTNESS OF THE ACCOUNTS OF THE ASSESS EE AND ACCORDINGLY THE BOOK RESULTS WERE NOT ACCEPTED. THE LD. CIT(A) IN PARA 8 HAS MENTIONED THAT THIS IS MERE OMISSION AND IF THE FINDING OF TH E AO ARE READ IN PROPER CONTEXT THEN THE AO WAS NOT SATISFIED ABOUT THE COR RECTNESS OF THE ACCOUNTS OF THE ASSESSEE. BUT AT THE SAME TIME, THE LD. CIT( A) HAS REJECTED THE BOOK RESULTS BY INVOKING CO-TERMINUS JURISDICTION WITH T HAT OF THE AO. THE ASSESSEE HAS NOT TAKEN ANY GROUND AGAINST SUCH REJE CTION OF BOOKS OF ACCOUNT BY THE LD. CIT(A). THEREFORE, WE HAVE NO ALTERNATIV E BUT TO ACCEPT THE FINDING OF THE LD. CIT(A) ABOUT THE REJECTION OF BO OK RESULTS. 6.1. AT THE SAME TIME, IT IS PERTINENT TO MENTION T HAT AO HAS NOT POINTED OUT ANY DEFECT IN THE BOOKS OF ACCOUNT SINCE THE AS SESSEE HAS BEEN MAINTAINING ITS ACCOUNTS REGULARLY AND ON MINUTE TO MINUTE BASIS ON EACH PURCHASE AND SALE WHERE THE PURCHASES & SALES AND S TOCKS ARE ACCOUNTED FOR THROUGH ACCOUNTING SOFT-WARE. THIS FACT HAS NOT BEE N REBUTTED BY THE LD. DR. AS REGARDS THE MENTION OF KGS, THE EXPLANATION GIVE N BY THE LD. COUNSEL FOR ITA NO.426(ASR)/2012 6 THE ASSESSEE, SH.Y.K. SUD, APPEARS TO BE SATISFACTO RY. BUT AS MENTIONED HEREINABOVE, THERE IS NO GROUND TAKEN BY THE ASSESS EE AGAINST REJECTION OF BOOK RESULTS BEFORE THE LD. CIT(A) AND THEREFORE, WE HAVE NO ALTERNATIVE BUT TO ACCEPT THE FINDINGS OF THE LD. CIT(A) ABOUT THE REJECTION OF BOOKS OF ACCOUNT. 6.2. AS REGARDS THE ESTIMATION OF INCOME, THE ARGUM ENTS OF THE LD. COUNSEL FOR THE ASSESSEE ARE ACCEPTABLE THAT EACH YEAR IS A N INDEPENDENT YEAR AND IN COMPETITIVE MARKET IT IS NOT POSSIBLE TO EARN THE S AME RATE OF PROFIT AS IN THE PRECEDING YEAR. THE ASSESSEE HAVING DECLARED G.P. R ATE OF 16.11% DURING THE IMPUGNED YEAR AND TO MEET BOTH ENDS OF JUSTICE IN T HE CIRCUMSTANCES AND FACTS OF THE PRESENT CASE, WE DIRECT THE AO TO ALL OW G.P. RATE OF 17% ON THE SALES DECLARED BY THE ASSESSEE. THE ASSESSEE WILL G ET RELIEF ACCORDINGLY. THUS, ALL THE GROUNDS OF THE ASSESSEE ARE ALLOWED I N PART. 7. IN THE RESULT, THE APPEAL OF THE ASSESSEE IN ITA NO.426(ASR)/2010 IS PARTLY ALLOWED. ORDER PRONOUNCED IN THE OPEN COURT ON 18TH DECEMBER, 2012. SD/- SD/- (H.S. SIDHU) (B.P. JAIN) JUDICIAL MEMBER ACCOUNTANT MEMBER DATED: 18 TH DECEMBER, 2012 /SKR/ COPY OF THE ORDER FORWARDED TO: 1. THE ASSESSEE:M/S. PATEL PHARMACY, JALANDHAR. 2. THE DCIT CIR.III, JALANDAR. 3. THE CIT(A) ITA NO.426(ASR)/2012 7 4. THE CIT 5. THE SR DR, ITAT, AMRITSAR. TRUE COPY BY ORDER (ASSISTANT REGISTRAR) INCOME TAX APPELLATE TRIBUNAL, AMRITSAR BENCH: AMRITSAR.