Harish Ahuja, Chandigarh V. ITO, Chandigarh

ITA 484/CHANDI/2013

• Counselvise Citation: [2014] 140 COUNSELVISE.COM (IT) 81107 (ITAT-CHANDIGARH)
• Duration Of Justice: 1 year(s) 7 month(s) 27 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 31-12-2014
• Appeal Filed By: Assessee
• Order Result: Partly Allowed
• Bench Allotted: B
• Next Hearing Date: 23-12-2014
• Assessment Year: 2009-2010
• Appeal Filed On: 03-05-2013
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Department Lawyers: MANJIT SINGH
• Keywords: Rejection of books of accounts
• Section: 143(3)

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL CHANDIGARH BENCH B CHANDIGARH BEFORE SHRI BHAVNESH SAINI, JUDICIAL MEMBER AND SHRI T.R.SOOD, ACCOUNTANT MEMBER ITA NO. 484/CHD/2013 ASSESSMENT YEAR: 2009-10 SHRI HARISH AHUJA, V THE ITO, SCF 132/15, WARD 5(3), KEHO RAM COLONY, CHANDIGARH. BURAIL, CHANDIGARH. PAN: AANPA0271A (APPELLANT) (RESPONDENT) APPELLANT BY : SHRI AJAY JAIN RESPONDENT BY : SHRI MANJIT SINGH DATE OF HEARING : 23.12.2014 DATE OF PRONOUNCEMENT : 31.12.2014 O R D E R PER BHAVNESH SAINI,JM THIS APPEAL BY ASSESSEE IS DIRECTED AGAINST THE ORD ER OF LD. CIT(APPEALS)-II CHANDIGARH DATED 01.03.2013 FOR ASS ESSMENT YEAR 2009-10 CHALLENGING THE REJECTION OF BOOKS OF ACCOUNT UNDER SECTION 145(3) OF THE INCOME TAX ACT AND APPL ICATION OF HIGHER GP AT 9% AGAINST 6.35%. 2. BRIEF FACTS ARE THAT THE APPELLANT, A WHOLESALE DEALER IN FOOTWEARS, HAD DECLARED G.P. RATE OF 7.34% (INCLUDI NG DISCOUNT RECEIVED) ON SALES OF MORE THAN RS. 11.74 CRORES. T HE ASSESSING OFFICER ANALYSED THE PURCHASE AND SALE BILLS AND CO NCLUDED THAT THE G.P. RATE WAS 21.52% IN THE CASE OF ITEMS OF LI BERTY, 9% IN THE CASE OF ITEMS OF REEBOK AND 66.30% IN THE CASE OF ITEMS OF BATA. THE APPELLANT HAD NOT PRODUCED ANY STOCK REGI STER, FROM 2 WHERE THE SALE OF THESE TYPE OF ITEMS COULD BE SEGR EGATED. THE ASSESSING OFFICER ALSO CALLED FOR INFORMATION FROM STANDARD CHARTERED BANK REGARDING STOCK STATEMENT PROVIDED T O THE BANK AND THE BANK HAD CONVEYED THAT NO STOCK STATEMENT W AS PROVIDED TO THE BANK BY THE APPELLANT. THE NON-MAIN TENANCE OF STOCK REGISTER HAS ALSO BEEN MENTIONED BY THE AUDIT ORS IN THE AUDIT REPORT. THE ASSESSING OFFICER ESTIMATED THE G .P. @ 10% AFTER REJECTING THE BOOKS OF ACCOUNTS U/S 145(3) OF THE INCOME TAX ACT, 1961 (HEREINAFTER REFERRED AS 'ACT) AND M ADE ADDITION OF RS. 41,09,728/-. 3. DURING THE COURSE OF APPELLATE PROCEEDINGS, THE LD. COUNSEL FOR THE APPELLANT HAS FILED A DETAILED SUBM ISSION, MAINLY SUBMITTING THEREIN THAT THE BILLS POINTED OU T BY THE ASSESSING OFFICER HAD BEEN PRODUCED BY THE APPELLAN T AND THE G.P. RATE OF 6.35% (AS DECLARED) WAS ACCEPTED IN SC RUTINY IN A.Y. 2006-07. IT HAS ALSO BEEN CONTENDED THAT THE ASSESS ING OFFICER HAS ESTIMATED THE G.P. ON THE BASIS OF SALE BILLS O F FIVE ITEMS WORTH RS. 3,603/- ONLY OUT OF HUGE TURNOVER OF RS. 11.74 CRORES. THE LD. COUNSEL HAS FURTHER ARGUED THAT NO SHOW CAU SE NOTICE WAS GIVEN BEFORE REJECTING THE BOOKS OF ACCOUNTS. A CCORDING TO HIM, ALL THE PURCHASES AND SALES ARE SUPPORTED BY B ILLS AND VOUCHERS AND IF THE STOCK REGISTER IS NOT MAINTAINE D, IT CANNOT FORM BASIS FOR REJECTION OF BOOKS OF ACCOUNTS. AS P ER THE LD. COUNSEL, THE APPELLANT WAS DISTRIBUTOR/C&F AGENT AN D SO THE MARGIN BETWEEN THE DISTRIBUTOR AND TRADER WAS GOVER NED BY THE AGREEMENT. THE LD. COUNSEL HAS ALSO POINTED OUT THA T IN PARA 5 OF THE ASSESSMENT ORDER, THE ASSESSING OFFICER HAS TAKEN THE PRICE OF GENIES AT RS. 200/-, BUT THE PURCHASE PRIC E OF GENIES AS 3 PER THE BILL WAS RS. 242.56. SIMILAR DISCREPANCIES HAVE BEEN POINTED OUT BY THE LD. COUNSEL IN RESPECT OF THE OT HER ITEMS ALSO. 4. THE LD. LD. CIT(APPEALS) CONSIDERING THE EXPLANA TION OF THE ASSESSEE, CONFIRMED THE REJECTION OF THE BOOKS OF A CCOUNT, HOWEVER RESTRICTED THE ADDITION BY APPLYING GP RATE OF 9%. HIS FINDINGS IN PARA 2.3 TO 2.3.4 OF THE APPELLATE ORDE R ARE REPRODUCED AS UNDER : 2.3 I HAVE CONSIDERED THE SUBMISSION OF THE LD. COUNSEL. THE REPLY FILED BY THE LD. COUNSEL WAS GIVEN TO THE ASSESSING OFFICER FOR HIS REPORT AND THE REPORT OF THE ASSESSING OFFICER WAS SUBSEQUENTLY GI VEN TO THE APPELLANT FOR HIS COMMENTS AND THE APPELLANT HAS FILED HIS COMMENTS. AT THE OUTSET, IT MAY BE MENTIONED THAT PURCHASE PRICE OF GENIES, WINDSOR/169 9 AND WINDSOR/1499 MENTIONED IN PARA 5 OF THE ASSESSMENT ORDER IS NOT CORRECT AND SO THE .G.P. RATE IN RESPECT OF THESE ITEMS WORKED OUT BY THE ASSESS ING OFFICER IS ALSO NOT CORRECT. THE FACTUAL POSITION HAS BEEN VERIFIED BY THE ASSESSING OFFICER AND THE CONTENTION OF THE APPELLANT IN THIS REGARD HAS BEEN FOUND TO BE CORRECT. HOWEVER, AS THE G.P. RATE HAS BEEN ESTIMATED IN THE CASE OF THE APPELLANT AFTER REJECTING THE BOOKS OF ACCOUNTS BECAUSE THE S TOCK REGISTER WAS NOT MAINTAINED, THE G.P. RATE WORKED OUT ON THE BASIS O F THE INDIVIDUAL BILLS IS IMMATERIAL AND CANNOT BE TAKEN INTO ACCOUNT FOR EST IMATING THE G.P. RATE. 2.3.1 IT IS AN ADMITTED FACT THAT THE APPELLANT DO ES NOT MAINTAIN STOCK REGISTER AND SO THE CORRECTNESS OF VALUATION OF CLO SING STOCK DECLARED BY THE APPELLANT IN THE PROFIT AND LOSS ACCOUNT IS NOT VER IFIABLE. IT MAY ALSO BE MENTIONED THAT THE CONTENTION OF THE APPELLANT THAT THERE WAS PRACTICAL DIFFICULTY IN MAINTAINING THE STOCK REGISTER IS NOT CORRECT IN VIEW OF THE FACT THAT THE APPELLANT IS TRADING ONLY IN THE ITEMS OF WELL-ESTABLISHED COMPANIES AND IS WHOLESELLER/ C&F AGENT, MAINTAINING HIS B OOKS OF ACCOUNTS ON COMPUTERIZED SOFTWARE AND SO THE STOCK REGISTER COU LD HAVE BEEN PREPARED BY CLICK OF THE MOUSE. THE APPELLANT HAD ALSO NOT PRODU CED THE BILLS OF ITEMS LIKE LEATHER SHOES, BELLYS, SANDALS AND PARTY WEARS BEFO RE THE ASSESSING OFFICER. WITH SO MUCH OF NON-COMP LIANCE BEFORE THE ASSESSING OFFICER, THE ASSESSING OFFICER HAD NO OPT ION, BUT TO REJECT THE BOOKS OF ACCOUNTS U/S 145(3) OF THE ACT AND SHE HAS RIGHT LY DONE SO. 2.3.2 THE CONTENTION OF THE APPELLANT THAT THE G.P . RATE DECLARED IN A.Y. 2006-07 HAD BEEN ACCEPTED IN A SCRUTINY PROCEEDINGS DOES NOT HELP THE APPELLANT FIRSTLY FOR THE REASON THAT THE PRINCIPLE OF RES-JUDICATA DOES NOT APPLY TO THE INCOME TAX PROCEEDINGS AND SECONDLY BECAUSE THE FACTS ARE DISTINGUISHABLE IN THIS YEAR IN AS MUCH AS THE STOC K REGISTER IS NOT MAINTAINED AND SO CORRECTNESS OF VALUATION OF CLOSING STOCK AN D GROSS PROFIT DECLARED IS NOT VERIFIABLE. 2 .3.3 THE ASSESSING OFFICER HAS VERIFIED THE CONTENT IONS OF THE APPELLANT IN DETAIL AND HAS REPORTED VIDE HIS LETTER NO. 6433 DA TED 19.11.2012 AS UNDER : 4 'AS PER THE DETAILS OF PURCHASES PROVIDED BY THE AS SESSEE, HE HAS INTER-OLIO, MADE FOLLOWING PURCHASES: SR. NO. NAME OF THE CONCERN AMOUNT OF PURCHASE (RS.) G.P. TO TURNOVER RATIO 1 M/S LIBERTY SHOES 83,24,469 5.43% 2 M/S REEBOK INDIA COMPANY 11,45,23,401 7.27% 3 M/S BATA INDIA LIMITED 1,19,16,293 9.87% TOTAL 13,47,64,163 IN ABSENCE OF THE FIGURES OF SALES MADE BY THE ASSE SSEE OUT OF THE PURCHASES MADE FROM ABOVE MENTIONED CONCERNS, IT IS ASSUMED T HAT RATIO OF SALES IS THE SAME AS THAT OF PURCHASES FROM THESE CONCERNS AND A CCORDING WEIGHTED AVERAGE OF G.P. TO TURNOVER IS WORKED OUT AT 7.37%(5.73 X 8 3,24,469+7.27 X 11,45,23,401 + 9.87 X 1,19,16,293) / 13,47,64,163 AS DISCUSSED IN THE ASSESSMENT ORDER BY THE THEN ASSESSI NG OFFICER AND PREVIOUS REPORT SUBMITTED BY THE UNDERSIGNED, ASSESSEE HAS F AILED TO MAINTAIN THE STOCK REGISTER AS WELL AS FAILED TO PROVIDE THE DETAILS O F THE STOCK INVENTORY AS ON 31.03.2009. HE HAS ALSO FAILED TO PROVIDE THE DETAI LS OF PURCHASE BILL AND CORRESPONDING SALE VOUCHERS FOR THE ITEM PURCHASED THROUGH PARTICULAR PURCHASE VOUCHER. PERUSAL OF THE PURCHASE VOUCHERS SHOWS THA T THE CONCERNED COMPANY HAS GIVEN FULL PARTICULAR TO EACH AND EVERY ITEM SO LD TO THE ASSESSEE LE. ITEM NO., ITS NAME AS WELL AS SIZE & COLOUR. ONE OF THE COMPANY HAS R EQUIRED THE ASSESSEE TO MAINTAIN HIS ACCOUNTS ON THE SOFTWARE PROVIDED BY T HIS COMPANY WHICH REQUIRES THE DETAILS OF THE ITEM SOLD AS PER SPECIFICATION O F ITEM PROVIDED BY THE COMPANY. FURTHER THE ASSESSEE HAS ISSUED COMPUTERIZED SALE V OUCHERS GIVING REFERENCE NAME OF THE ITEM AS PROVIDED BY THE SELLER COMPANY IS E.G. RETAIL INVOICE NO.S00239 DATED 27.10.2008 TO M/S ASHIRWAD CREATION WHEREAS M AJORITY OF SALE INVOICES HAS BEEN ISSUED MANUALLY. ASSESSEE IS SELLING THE ITEMS IN BULK AND IN THE SAME CONDITION AS RECEIVED FROM PURCHASER SO THERE SEEM TO BE NO DIFFICULTY IN MAINTAINING THE DAY TO DAY STOCK INVENTORY BY THE ASSE SSEE. BUT HE HAS FAILED TO DO SO FOR THE REASON BEST KNOWN TO HIM. IN ABSENCE OF DETAIL OF OPENING AND CLOSING STOCK AND METHOD OF ITS VALUATION, FINAL G.P. RATIO CANNOT BE WORKED OUT SPECIFICALLY. IN VIEW OF THE ABOVE AND TOTALITY OF THE FACTS OF T HE CASE, THE INCOME OF THE ASSESSEE ON THE BASIS OF THE G.P. RATIO OF 10% ADOPTED BY TH E THEN A.O. APPEARS, IN ALL PROBABILITIES, TO BE RIGHTLY ESTIMATED AND THEREFOR E I STRONGLY RELY ON THE ASSESSMENT ORDER PASSED BY THE A.O. IN THIS CASE. 2.3.4 AS ALREADY MENTIONED IN THE PRECEDING PARAGRAP HS THAT THE FIGURE OF CLOSING STOCK DECLARED BY THE APPELLANT IN THE PROFIT AND L OSS ACCOUNT IS NOT VERIFIABLE IN THE ABSENCE OF STOCK REGISTER AND SO THE G.P. RATE DECLA RED IS NOT VERIFIABLE, IPSO-FACTO. IT SEEMS THAT THE APPELLANT HAD NOT PREPARED ANY DE TAILS OF CLOSING STOCK AND THAT IS WHY HE HAD NOT SUBMITTED THE STOCK STATEMENT TO HIS BANKER - STANDARD CHARTERED BANK. HOWEVER, KEEPING IN VIEW THE SUBMIS SION OF THE APPELLANT AND VERIFICATION DONE BY THE ASSESSING OFFICER, IN MY C ONSIDERED VIEW, THE ESTIMATION OF G.P. @ 10% IS A BIT ON THE HIGHER SIDE AND SO THE S AME IS RESTRICTED TO 9%. THE ASSESSING OFFICER IS DIRECTED ACCORDINGLY. GROUNDS OF APPEAL NOS. 1 TO 4 ARE PARTLY ALLOWED. 5 5. WE HAVE CONSIDERED THE RIVAL SUBMISSIONS AND MAT ERIAL AVAILABLE ON RECORD. THE LD. COUNSEL FOR THE ASSES SEE SUBMITTED THAT THE CALCULATION OF GP RATE GIVEN BY THE ASSESS ING OFFICER IN THE ASSESSMENT ORDER WAS FOUND TO BE DEFECTIVE REGA RDING CERTAIN BILLS WHICH WAS ACCEPTED BY LD. CIT(APPEALS ). HE HAS SUBMITTED THAT IN THE YEAR UNDER CONSIDERATION, ASS ESSEE HAS DECLARED GROSS PROFIT OF 6.50% WITHOUT DISCOUNT AND AFTER INCLUDING DISCOUNT, THE GP RATE WOULD BE 7.34%. IN PRECEDING ASSESSMENT YEAR 2008-09, THE GROSS PROFIT RATE DECL ARED BY ASSESSEE WAS 5.40% AND IN ASSESSMENT YEAR 2006-07, THE GROSS PROFIT RATE WAS 6.35% IN SCRUTINY ASSESSMENT UNDER SECTION 143(3) OF THE ACT. HE HAS, THEREFORE, SUBMITTED TH AT ADDITION IS WHOLLY UNJUSTIFIED. 6. ON THE OTHER HAND, LD. DR RELIED UPON ORDERS OF THE AUTHORITIES BELOW AND SUBMITTED THAT SINCE NO STOCK REGISTER HAS BEEN MAINTAINED, THEREFORE THE PROFIT COULD NOT BE WORKED OUT AND AS SUCH, ADDITION IS JUSTIFIED. 7. ON CONSIDERATION OF THE RIVAL SUBMISSIONS, WE AR E OF THE VIEW REJECTION OF THE BOOKS OF ACCOUNT IS JUSTIFIED IN THE MATTER. THE ASSESSING OFFICER HAS VERIFIED THE GP RATE OF D IFFERENT CONCERNS AND FOUND ASSESSEE HAS BEEN DECLARING DIFF ERENT GP, THOUGH SAME CALCULATION WAS FOUND TO BE DEFECTIVE B Y LD. CIT(APPEALS) BUT THE FACT REMAINS THAT THERE WAS A VARIATION IN THE GP RATE AND FURTHER, ASSESSEE HAS NOT MAINTAINE D ANY STOCK REGISTER, THEREFORE THE VERIFICATION OF THE PROPER GROSS PROFIT COULD NOT BE DONE BY THE ASSESSING OFFICER. THE VA LUATION OF THE CLOSING STOCK WAS THUS, NOT VERIFIABLE. IT WAS ALS O FOUND THAT 6 ASSESSEE IS TRADING IN THE ITEMS OF WELL ESTABLISHE D COMPANIES AND IS A WHOLESELLER/C&F AGENT. THEREFORE, STOCK R EGISTER SHOULD HAVE BEEN MAINTAINED BY ASSESSEE. THEREFORE , CONSIDERING THE OBJECTIONS RAISED BY THE ASSESSING OFFICER, THE REJECTION OF THE BOOKS OF ACCOUNT IS JUSTIFIED. WE , THEREFORE, CONFIRM THE ORDERS OF THE AUTHORITIES BELOW IN REJE CTING THE BOOKS OF ACCOUNT OF THE ASSESSEE. HOWEVER, CONSIDER ING THE HISTORY OF THE ASSESSEE IN WHICH THE ASSESSEE HAS D ECLARED LESSER GROSS PROFIT AND ACCEPTED BY THE DEPARTMENT, IT WOU LD BE REASONABLE AND PROPER TO DIRECT THE AUTHORITIES BEL OW TO APPLY GROSS PROFIT RATE OF 8% INSTEAD OF 9% APPLIED BY TH E LD. CIT(APPEALS). THE ORDERS OF AUTHORITIES BELOW TO T HAT EXTENT ARE MODIFIED AND IT IS DIRECTED THAT INCOME OF THE ASSE SSEE BE COMPUTED BY APPLYING GP RATE OF 8% INSTEAD OF 9% AP PLIED BY THE LD. CIT(APPEALS). 8. IN THE RESULT, APPEAL OF THE ASSESSEE IS PARTLY ALLOWED. ORDER PRONOUNCED IN THE OPEN COURT ON 31 ST DECEMBER,2014. SD/- SD/- (T.R.SOOD) (BHAVNESH SAINI) ACCOUNTANT MEMBER JUDICIAL MEMBER DATED: 31 ST DECEMBER,2014. POONAM COPY TO: THE APPELLANT, THE RESPONDENT, THE CIT(A), THE CIT, DR ASSISTANT REGISTRAR, ITAT CHANDIGARH