M/s Assam Timber Store, Barnala V. ITO, Barnala

ITA 473/CHANDI/2011

• Counselvise Citation: 47321514 RSA 2011
• Duration Of Justice: 5 month(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 05-10-2011
• Appeal Filed By: Assessee
• Order Result: Partly Allowed
• Bench Allotted: B
• Next Hearing Date: 29-09-2011
• Assessment Year: 2007-2008
• Appeal Filed On: 05-05-2011
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Department Lawyers: JAI SHREE SHARMA
• Assessee Lawyers: RAKESH KUMAR GUPTA
• Keywords: Gross profit estimation; Principle of natural justice; Fair market value; TDS
• Section: 234B; 250

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL: CHANDIGARH BE NCH B BEFORE MS SUSHMA CHOWLA, JM AND SHRI MEHAR SINGH, AM ITA NO. 473/CHANDIGARH/2011 ASSESSMENT YEAR 2007-08 M/S ASSAM TIMBER STORE V. I.T.O. BARNALA SEKHA ROAD BARNALA AACFA 1257 F (APPELLANT) (RESPONDENT) APPELLANT BY : SHRI RAKESH KUMAR GUPTA RESPONDENT BY: SMT. JAISHREE SHARMA DATE OF HEARING: 29.9.2011 DATE OF PRONOUNCEMENT: 05 .10.2011 ORDER PER MEHAR SINGH, AM THE PRESENT APPEAL FILED BY THE ASSESSEE FOR ASSES SMENT YEAR 2007098, IS DIRECTED AGAINST THE ORDER OF LD. CIT(A ), PATIALA DATED 8.3.2011 U/S 250 (6) OF THE INCOME-TAX ACT (IN SHOR T THE ACT). 2. THE ASSESSEE HAS TAKEN THE FOLLOWING GROUNDS OF APPEAL:- 1 THAT THE LD. CIT(A) HAS ERRED IN LAW LAND ON FAC TS IN SUSTAINING AN ADHOC ADDITION OF RS. 30,000/- AGAINS T THE INADMISSIBLE AND UN-VOUCHED EXPENSES AGAINST THE VA RIOUS HEADS DEBITED TO PROFIT AND LOSS ACCOUNT SUCH AS SALARY, CARTAGE AND STACKING, LOADING, CONVEYANCE, ELECTRICITY, INSURAN CE, OFFICE MAINTENANCE, POSTAL, PRINTING & STATIONERY, GENERA L EXPENSES, LABOUR, NEWS PAPER AND MAGAZINE, REPAIR AND MAINTEN ANCE AND ADVERTISEMENT WHILE PASSING THE IMPUGNED ORDER. TH E ADDITION OF RS. 30,000/- ON ACCOUNT OF UN-VOUCHED AND INADMISSI BLE EXPENSES IS AGAINST THE FACTS AND CIRCUMSTANCES OF THE CASE WHI LE THE ENTIRE DISALLOWANCES MADE BY THE ITO SHOULD HAVE BEEN ALLO WED BY THE LD. CIT(A), AS SUCH DISALLOWANCES IS NOT WARRANTED UNDE R THE LAW AND FACTS OF THE CASE. 2 THAT THE LD. CIT(A) HAS ERRED IN LAW LAND ON FAC TS IN SUSTAINING A PART ADDITION OF 0.5% AS AGAINST THE A DDITION OF 0.91% MADE BY THE AO AGAINST THE TURNOVER OF RS. 8,22,43, 662/- IN THE TIMBER ACCOUNT I.E. THE LD. CIT(A) ERRED IN LAW AND ON FACTS IN ITA NO. 473/CHANDI/2011 ASSAM TIMBER STORE V. ITO 2 SUSTAINING AN ADDITION OF RS.4,,15,238/- IN THE TIM BER ACCOUNT WHILE THE ENTIRE ADDITION OF RS. 7,52,437/- MADE BY THE AO SHOULD HAVE BEEN DELETED IN THE TIMBER ACCOUNT ESPECIALLY UNDER THE CIRCUMSTANCES WHERE THE AO HAD NEITHER REJECTED THE ACCOUNT BOOKS NOR POINTED OUT ANY DEFECTS IN THE SAME. 3 THAT THE LD. CIT(A) HAS ERRED IN LAW LAND ON FAC TS IN SUSTAINING DISALLOWANCES AND ADDING BACK OF RS. 59 ,594/- ON ACCOUNT OF INTEREST DISBURSED @ 15% P.A TO THE SPE CIFIED PERSONS U/S 40A(2)(B) OF THE ACT IBID BEING EXCESSIVE AND U NREASONABLE WHILE THE ENTIRE ADDITION OF RS. 59,594/- MADE BY T HE ITO SHOULD HAVE BEEN DELETED BY THE LD. CIT(A) AND AS SUCH THE ADDITION SUSTAINED BY THE LD. CIT(A) AT RS. 59,594/- IS NOT WARRANTED UNDER THE LAW AND FACTS OF THE CASE. 4 THAT THE ITO HAS ERRED IN LAW AND ON FACTS IN CH ARGING INTEREST U/S 234B OF THE INCOME-TAX ACT. 3. IN GROUND NO. 1, THE ASSESSEE HAS CHALLENGED THE ADDITION OF RS. 30,000/- MADE BY THE AO. THE AO IN THE ASSESSMENT ORDER DATED 29.12.2009 MADE AN ADDITION OF RS. 30,000/- ON THE GROUND THAT SOME OF THE EXPENSES CLAIMED BY THE ASSESSEE ARE INADMISSIB LE AND SOME OF THE EXPENSES ARE UN-VOUCHED FOR WHICH NO SATISFACTORY E XPLANATION HAS BEEN TENDERED BY THE ASSESSEE. THE AO NARRATED A NUMBER OF HEADS UNDER WHICH SOME EXPENSES HAS BEEN CLAIMED. THE LD. CIT(A ) UPHELD THE ADDITION MADE BY THE AO ON THE GROUND GROUND. 4. IN THE PRESENT APPELLATE PROCEEDINGS, THE LD AR FOR THE ASSESSEE MERELY STATED THAT ALL THE EXPENSES ARE VOUCHED AND REQUISITE DETAILS WERE SUBMITTED BEFORE THE AO. THE DR PLACED RELIANCE O N THE ORDER OF LOWER AUTHORITIES. HAVING REGARD TO THE GROUNDS ON WHICH SOME EXPENSES HAS BEEN DISALLOWED BY THE AO AND CONFIRMED BY THE LD. CIT(A). THE RELEVANT PART OF THE FINDINGS OF LD. CIT(A) IS REPRODUCED HE REUNDER:- BEFORE ME THE LD. COUNSEL FOR THE APPELLANT HAS ST ATED THAT ETH AO HAS NOT POINTED OUT ANY PARTICULAR EXPENSES WHICH I S NOT VOUCHED OR INADMISSIBLE IN NATURE NOR HAS HE DOUBTED THE CORRE CTNESS OF THE EXPENDITURE. ALL THE EXPENSES WERE DULY VERIFIED F ROM THE RECORD BY THE AUDITORS WHILE SUBMITTING THE AUDIT REPORT U /S 44AB. THE TOTAL EXPENSES UNDER VARIOUS HEADS OF THE APPELLANT WERE ON LOWER SIDE IN RELATION TO THE TOTAL TURNOVER. ITA NO. 473/CHANDI/2011 ASSAM TIMBER STORE V. ITO 3 IN VIEW OF THE FACTS AND CIRCUMSTANCES OF THE CASE AND RIVAL SUBMISSIONS OF BOTH THE AO IN HIS REMAND REPORT AND CONTENTIONS OF THE COUNSEL, IT IS SEEN THAT CERTAIN EXPENSES MENTI ONED BY THE AO DEFINITELY ARE INADMISSIBLE OR UN-VOUCHED. THE AO HAS REASONABLY DISALLOWED ON ADHOC BASIS AN AMOUNT OF RS. 30,000/- FROM THE TOTAL EXPENDITURE DEBITED TO PROFIT AND LOSS ACCOUNT. TH E AO IS JUSTIFIED IN MAKING THE IMPUGNED ADDITION. THE ADDITION MAD E IS, THEREFORE, UPHELD. 5. IN VIEW OF THE ABOVE FINDINGS OF LD. CIT(A), WE DO NOT FIND ANY INFIRMITY IN THE ORDER OF LD. CIT(A) AND THE SAME A RE UPHELD. 6. IN GROUND NO. 2, THE ASSESSEE CHALLENGED THE ADD ITION OF RS. 7,52,437/- MADE BY THE AO ON ACCOUNT OF LOW GP. 7. IN THE COURSE OF ASSESSMENT PROCEEDINGS, THE AO NOTICED THAT THE ASSESSEE HAD SHOWN GP RATE OF 3.53% FOR THE YEAR UN DER CONSIDERATION FOR A GROSS TURNOVER OF RS. 8,22,43,662/- AND GROSS PRO FIT OF RS. 28,99,181/-. IN THE PRECEDING YEAR, THE GP RATE OF 4.4% HAS BEEN SHOWN BY THE ASSESSEE AND THEREBY REGISTERING A DECLINE OF .91%. THE ASS ESSEE SUBMITTED THAT SALES HAD SUBSTANTIALLY INCREASED FROM RS. 5,82,32, 317/- IN THE ASSESSMENT YEAR 2006-07 TO RS. 8,22,43,662/- IN ASSESSMENT YEA R 2007-08 WHICH LEAD TO MARGINAL DECLINE IN THE PROFITS. THE EXPLA NATION OF THE ASSESSEE WAS NOT ACCEPTED BY THE AO AND THE IMPUGNED ADDITIO N WAS MADE. 8. THE LD. CIT(A) UPHELD THE ADDITION TO THE EXTENT OF 0.5% ON ACCOUNT OF LOW GP. THE FINDINGS OF LD. CIT(A) IN GROUND NO . 2 ARE GIVEN AS UNDER:- 5.2 BEFORE ME, LD. COUNSEL FOR THE APPELLANT STA TES THAT IN THE NORMAL COURSE OF BUSINESS ACTIVITIES THE APPELLANT HAD SHOWN A GP RATE OF RS. 28,99,181/- ON A SALE OF RS. 8,22,43,66 2/- THEREBY GIVING A GP RATE OF 3.53% AGAINST THE EARLIER YEAR GP OF R S. 25,84,572/- FOR A SALES OF RS. 5,82,32,317/-GIVING A GP RATE OF 4.4%.THE FALL IN THE GPOF.91%WASVERY NEGLIGIBLE AND IS USUALLY HAPP ENS IN CASES WHERE SALES INCREASE. THE APPELLANT HAD NOT DISTUR BED THE METHOD OF ACCOUNTING EMPLOYED IN THE YEAR UNDER CONSIDERAT ION NOR CHANGED THE SYSTEM OF VALUATION OF STOCKS. MOST OF THE SAL ES HAD BEEN MADE TO REGISTERED DEALERS FOR WHICH TDS WAS EVEN DONE. THE PURCHASES ITA NO. 473/CHANDI/2011 ASSAM TIMBER STORE V. ITO 4 WERE ON DIRECT IMPORTANT AND HIGH SEAS BASIS AND TH E PAYMENTS WERE DISTRIBUTED THROUGH BANKING CHANNELS. THE BOOKS OF ACCOUNTS HAD BEEN DULY AUDITED AND NO DISCREPANCY HAD BEEN POINT ED OUT. FURTHER HE STATED THAT IT WAS PHYSICALLY IMPOSSIBLE TO MAIN TAIN A STOCK REGISTER BECAUSE OF THE DIFFERENT SIZES AND QUALITY OF THE TIMBER. THIS YEAR THE APPELLANT HAD SHOWN MORE NET PROFIT A S COMPARED TO THE EARLIER YEAR BY 36%. THE APPELLANT HAD SOLD TI MBER AS PER THE MARKET RATES AND IT IS A GENERAL PRINCIPAL THAT MOR E THE SALES LOWER THE GROSS PROFIT. THE AO HAD NOT EVEN REJECTED THE ACCOUNT BOOKS BECAUSE HE DID NOT FIND ANY DEFECT IN THE SAME. HE RELIED ON THE FOLLOWING JUDGMENTS: INTERNATIONAL FOREST COMPANY V. CIT (1975) 101 ITR 721 (J&K) PANDIT BROTHERS V. CIT (1954) 26 ITR 159 ( P & H) ACIT V. LMP TRACTOR PVT LTD (2005) 148 TAX MAN 52 ITO V. OSWAL EMPORIUM DELHI (T.M) (1989) 30 ITR 241 HARLAL HEM RAJ V. ITO (1983) 16 TTJ (JP) 165 5.3 THE AO IN HIS REMAND REPORT NO. 4193 DATED 2 2.2.2011 STATED THAT THE APPELLANT COULD NOT PRODUCE ANY CLOSING ST OCK INVENTORY FOR QUALITATIVE AND QUANTITATIVE DETAILS OF TIMBER PUR CHASED AND SOLD. ALSO THE APPELLANT COULD NOT FURNISH PLAUSIBLE EXPL ANATION REGARDING FALL IN GP RATIO. THE CASE LAWS CITED BY THE APPEL LANT WERE DIFFERENT FROM THE FACTS OF THE PRESENT CASE. 5.4 IN VIEW OF THE FACTS AND CIRCUMSTANCES OF TH E CASE AND RIVAL SUBMISSIONS OF BOTH THE AO IN HIS REMAND REPORT AND CONTENTIONS OF THE LD. COUNSEL FOR THE ASSESSEE, IT IS SEEN THAT E H AO HAS NOT BROUGHT OUT ANY MATERIAL ON RECORD TO COME TO THE C ONCLUSION THAT THERE IS SOMETHING FALSE IN THE ACCOUNT BOOKS. HE HAS NOT REJECTED THE BOOKS OF ACCOUNT AND LOW PROFIT RATE BY ITSELF CAN NOT BE THE GROUND TO DISTURB THE BOOK RESULTS OF THE APPELLANT . THE LD. COUNSEL FOR THE ASSESSEE HAS ADMITTED THAT NO STOCK REGISTE R WAS MAINTAINED FOR THE TRADING IN TIMBER. THE PRESENCE OR ABSENCE OF STOCK REGISTER IS ONE OF THE RELEVANT ASPECTS TO BE TAKEN INTO ACC OUNT IN CONSIDERING THE ACCEPTABILITY OF THE BOOK RESULTS A S HELD IN CIT V. PARECK BROS (1987) 167 ITR 344 (PATNA). FURTHER, T HE ABSENCE OF THE STOCK REGISTER IS ONE OF THE MATERIAL GROUNDS F OR REJECTION OF THE BOOKS AS HELD IN CIT V. BRITISH PAINTS INDIA LTD (1 999) 188 ITR 44 (S.C). IT IS CORRECT TO SAY THAT IT WAS NOT POSSIB LE FOR THE AO TO DEDUCE THE TRUE PROFITS OF THE BUSINESS AND PROFESS ION CARRIED ON BY THE APPELLANT FROM THE STATE OF AFFAIRS PREVAILING AND THAT TOO WITHOUT A STOCK REGISTER. HOWEVER, THE AO HAS NOT R EJECTED THE BOOKS OF ACCOUNTS BUT DEFINITELY THIS LAPSE DOES NO T JUSTIFY THAT THE ENTIRE BOOK RESULTS OF THE APPELLANT SHOULD BE ACCE PTED. IT WOULD BE REASONABLE THAT INSTEAD OF THE DIFFERENCE OF GP RAT E OF 0.91% TAKEN AS THE BASIS BY THE AO FOR MAKING THE IMPUGNED THE S AME REDUCED IS TO 0.5% TO MEET THE ENDS OF NATURAL JUSTICE. THE AO IS DIRECTED TO GIVE THE NECESSARY RELIEF TO THE APPELLANT. ITA NO. 473/CHANDI/2011 ASSAM TIMBER STORE V. ITO 5 9. WE HAVE PERUSED THE RIVAL SUBMISSIONS AND FOUND THAT THE AO HAS NOT BROUGHT ON RECORD ADEQUATE MATERIAL HIGHLIGHTIN G DISCREPANCIES WHICH LED TO THE FORMATION OF OPINION THAT NO CORRECT AND TRUE PROFITS CAN BE DEDUCED FROM SUCH BOOKS OF ACCOUNT. AS PER HON'BLE JURISDICTIONAL HIGH COURT DECISION LISTED ABOVE IN THE CASE OF PANDIT B ROTHERS V. CIT (SUPRA) THE BOOKS OF ACCOUNT CANNOT BE REJECTED MERELY ON A CCOUNT OF NON- MAINTENANCE OF STOCK REGISTER. HOWEVER, THE DECLINE IN GP IS MARGINAL ONE. IT IS A GROUND REALITY THAT GP CANNOT BE UNIF ORMLY MAINTAINED OVER A PERIOD OF TIME. HAVING REGARD TO THE FACTS AND CIR CUMSTANCES OF THE CASE, THE IMPUGNED ADDITION IS DELETED. 10. IN GROUND NO. 3, THE ASSESSEE CHALLENGED THE AD DITION OF RS. 59,594/- UPHELD BY THE LD. CIT(A). THE ASSESSEE HA D PAID INTEREST @ 15% P.A. TO SUBSTANTIAL PERSONS MENTIONED AT PAGE 3 OF ASSESSMENT ORDER AMOUNTING TO RS. 2,97,971/-. HOWEVER, THE ASSESSEE PAID INTEREST TO THE BANKS ON CC LIMIT AT 12% P.A. FURTHER, THE ASSESS EE HAD ALSO PAID INTEREST AT 12% P.A. TO SMT. KIRAN BALA, BARNALA, S ALOCHNA RANI AND SMT. SANTOSH RANI. CONSEQUENTLY THE AO DISALLOWED EXCE SS AMOUNT OF INTEREST AT RS. 59,594/- U/S 40A(2)(B) OF THE ACT. THE FIND INGS OF LD. CIT(A) ON GROUND NO. 3 ARE GIVEN HEREUNDER:- 6.2 BEFORE ME, LD. COUNSEL FOR THE ASSESSEE HAS STATED THAT INTEREST PAID/CREDIT AGAINST CC LIMIT CAN NOT BE EQUATED WIT H INTEREST PAID/CREDITED TO SPECIFIED PERSONS U/S 40A(2)(B) OF THE ACT. THE CC LIMIT HAD BEEN SANCTIONED AGAINST SECURITY OF THE P ROPERTY PLEDGED WITH THE BANK WHILE IN THE CASE OF SPECIFIED PERSON S NO SECURITY HAD BEEN OFFERED. THE CURRENT MARKET RATE WAS 18% P.A. AND THE APPELLANT HAD PAID LOWER RATE OF 15% P.A. KEEPING I N VIEW THE BUSINESS EXPEDIENCY. 6.3 THE AO IN HIS REMAND REPORT HAS RELIED UPON T HE ASSESSMENT ORDER. 6.4 IN VIEW OF THE FACTS AND CIRCUMSTANCES OF THE CASE AND RIVAL SUBMISSIONS OF BOTH THE AO IN HIS REMAND REPORT AND CONTENTIONS OF THE LD. COUNSEL FOR THE ASSESSEE, IT IS SEEN THAT T HE REASONABLENESS OF ITA NO. 473/CHANDI/2011 ASSAM TIMBER STORE V. ITO 6 ANY EXPENDITURE IS TO BE JUDGED WITH REGARD TO THE FAIR MARKET VALUE OF GOODS, SERVICES OR FACILITIES FOR WHICH PAYMENT IS MADE OR FOR THE LEGITIMATE BUSINESS NEEDS OF THE CONCERN. THE AO H AS RIGHTLY TREATED A PORTION OF SUCH EXPENDITURE AS EXCESSIVE AND UNREASONABLE CONSIDERING THAT A LOWER RATE HAD BEEN GIVEN TO OTH ER PERSONS AND THE BANKS. THE IMPUGNED ADDITION MADE IS, THEREFOR E, UPHELD. 11. WE HAVE PERUSED THE RIVAL SUBMISSIONS AND THE F INDINGS OF LD. CIT(A). THE CASE OF THE ASSESSEE CLEARLY FALLS UND ER SECTION 40A(2)(B) OF THE ACT. HAVING REGARD TO THE PAYMENT OF INTEREST MADE TO THE SPECIFIED PERSONS, AT A HIGHER RATE OF INTEREST, THE FINDING S OF LD. CIT(A), ARE UPHELD. 12. GROUND NO. 4 OF ASSESSEES APPEAL PERTAINS TO C HARGING OF INTEREST U/S 234B OF THE ACT. THIS GROUND IS CONSEQUENTLY A ND MANDATORY IN NATURE. 13. GROUND NO. 5 IS GENERAL IN NATURE AND DOES NOT REQUIRE ANY ADJUDICATION. 14. IN THE RESULT, APPEAL FILED BY THE ASSESSEE IS PARTLY ALLOWED. ORDER PRONOUNCED ON 05.10.2011 SD/- SD/- (SUSHMA CHOWLA) (MEHAR SINGH) JUDICIAL MEMBER ACCOUNANT MEMBER CHANDIGARH, THE 05.10.2011 SURESH COPY TO: 1. THE APPELLANT 2. THE RESPONDENT 3. THE CIT 4. THE CIT(A) 5. THE DR ITA NO. 473/CHANDI/2011 ASSAM TIMBER STORE V. ITO 7