Good Morning Agencies, Balasore V. ITO, Balasore

ITA 5/CTK/2014

• Counselvise Citation: 522114 RSA 2014
• Duration Of Justice: 5 month(s) 18 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 27-06-2014
• Appeal Filed By: Assessee
• Order Result: Partly Allowed
• Bench Allotted: DB
• Assessment Year: 2008-2009
• Appeal Filed On: 09-01-2014
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Department Lawyers: S C MOHANTY
• Assessee Lawyers: P K MISHRA
• Keywords: Rejection of books of accounts
• Section: 40A(3); 145; 144

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL CUTTACK BENCH, CUTTACK BEFORE SHRI P. K. BANSAL, HONBLE ACCOUNTANT MEMBER AND SHRI D.T. GARASIA, HONBLE JUDICIAL MEMBER ITA NO. 05/CTK/2014 (ASSESSMENT YEAR-2008-09) GOOD MORNING AGENCIES, CHIDIAPOLO, VIVEKANANDA MARG, BALASORE. PAN:AAGFG9240C (APPELLANT) VS. THE INCOME TAX OFFICER, WARD-1, BALASORE. (RESPONDENT) APPELLANT BY : SHRI P.K. MISHRA, AR RESPONDENT BY : SHRI S.C. MOHANTY, DR DATE OF HEARING : 01/05/2014 DATE OF PRONOUNCEMENT : 27/06/2014 O R D E R PER BENCH: THIS APPEAL HAS BEEN FILED BY THE ASSESSEE AGAINST THE ORDER OF CIT(A)- CUTTAK, DATED 16.09.2013, FOR THE ASSESSMENT YEAR 2008-09. 2. THE FOLLOWING GROUNDS ARE RAISED IN THIS APPEAL AS UNDER. 1. THE LD. ASSESSING OFFICERS ORDER IS CONTRADICTORY TO LAW AND FACTS OF THE CASE AND THEREFORE, THE ADDITIONS MADE BY THE ASSESSING OFFICER TO THE EXTENT OF RS.10,89,137.00 BE DELETED. 2. THE LD. ASSESSING OFFICER WAS WRONG IN ESTIMATING THE HIGHER PERCENTAGE OF INCOME WITHOUT COMPARING OTHER SIMILAR CASES IN THE LOCALITY. 3. THE LD. ASSESSING OFFICER WAS WRONG IN DISALLOWING 20% OF COMMISSION CLAIMED U/S 194 H EVEN THOUGH THE BOOKS OF ACCOUNTS ARE REJECTED. 3. THE LD. ASSESSING OFFICER WAS WRONG IN DISALLOWING THE 20 % OF COMMISSION EVEN THOUGH NEAR ABOUT ALL THE PAYMENTS ARE BELOW RS.2,500.00. 4. THAT THE LEARNED COMMISSIONER OF INCOME TAX (APPEALS) FAILED TO APPRECIATE THE SUBMISSION MADE BY THE APPELLANT AND IS NOT JUSTIFIED TO CONFIRM THE AFORESAID ADDITIONS 2.1 GROUND NO. 1:- THE ASSESSEE IS FIRM FILED ITS RETURN OF INCOME ON 19/10/2008 DISCLOSING A TOTAL INCOME OF RS.1,15,060/-. THE ASSESSEES FIRM 2. ITA NO.05/CTK/2014 (A.Y.2008-09) GOOD MORNING AGENCIES VS. ITO DERIVES ITS INCOME FROM DISTRIBUTOR OF RECHARGE VOUCHERS OF AIRCELL. THE ASSESSEES FIRM DEALS WITH TRADING OF MOBILE RECHARGES VOUCHERS. DURING THE YEAR UNDER CONSIDERATION THE ASSESSEES FIRM DISCLOSED TOTAL TURNOVER/SALES AT RS. 1,15,057/-. THERE FROM THE ASSESSEE FIRM RESULTED NET PROFIT OF RS.1,15,057/-. THE RATE OF NET PROFIT 0.28%. THE ASSESSEE FIRM WAS ASKED TO PRODUCE THE PURCHASE REGISTER, SALES REGISTER AND STOCK REGISTERS ALONG WITH SALES MEMO AND PURCHASE INVOICE AND THE DATE OF COMPLIANCE WAS FIXED ON 19/11/2010. THE ASSESSEES FIRM FAILED TO PRODUCE THE SAME. DUE TO WANT OF SALES REGISTER, PURCHASE REGISTER, PURCHASE BILLS/INVOICE AND SALES MEMO THE INCOME EARNED BY THE ASSESSEE FIRM ITS BUSINESS COULD NOT BE VERIFIED. THE ASSESSEE FIRM IS NOT MAINTAINING PROPER AND REGULAR BOOKS ACCOUNT. THEREFORE, ACCOUNTS MAINTAINED BY THE ASSESSEE FIRM IS REJECTED U/S. 145 OF THE INCOME-TAX ACT AND ASSESSMENT WAS COMPLETED U/S. 144 OF THE ACT AND NET PROFIT WAS ESTIMATED @ 1% OF SALES TURN OVER AT RS. 4,06,070/-. THE ESTIMATION OF THE PROFIT IS BASED ON THE COMPARATIVE CASES AVAILABLE IN THE DISTRICT OF BALASORE. THE ASSESSING OFFICER HAS ALSO CONFIRMED THAT DURING THE SCRUTINY PROCEEDING IT WAS FOUND THAT ASSESSEE FIRM HAS ALLEGED TO RECEIVE COMMISSION FROM AIRCELL OF RS.40,76,327/-. THERE FROM THE ASSESSEE FIRMS STATED TO PAY STATED TO PAY COMMISSION TO THE RETAILER OF RS. 39,90,636/- THE ASSESSING OFFICER HAS VERIFIED THE BOOKS AND THE ASSESSEE HAS FAILED TO DEDUCT THE TAX ON PAYMENT OF COMMISSION, THEREFORE ASSESSEE IS REQUIRED TO DEDUCT THE TAX AND PAYMENT OF COMMISSION TO THE RETAILER AS REQUIRED U/S. 194H OF THE INCOME TAX ACT. THE ASSESSEE WAS GIVEN SHOW CAUSE NOTICE AND THE ASSESSING OFFICER HAS VERIFIED THE STATEMENT OF DETAILS OF RETAILERS WHO HAS BEEN PAID COMMISSION. ON EXAMINATION OF ASSESSING OFFICER IT IS FOUND THAT ASSESSEE HAS PAID THE COMMISSION EXCEEDING RS. 25,000/- IN AGGREGATE IN THE FINANCIAL YEAR. THE ASSESSEE FIRM ALSO FAILED TO PRODUCE THE RETAILER WISE COMMISSION PAYMENT REGISTER. NO TDS HAS BEEN DEDUCTED ON THE PAYMENT OF COMMISSION AS REQUIRED U/S. 194H OF THE INCOME TAX ACT. 3. ITA NO.05/CTK/2014 (A.Y.2008-09) GOOD MORNING AGENCIES VS. ITO THEREFORE, 25% OF SUCH COMMISSION PAID TO RETAILER IN TERMS OF SECTION 40(A)(IA) OF THE INCOME-TAX ACT., RS.7,98,127/- WAS DISALLOWED. 2.2. THE MATTER CARRIED TO CIT(A) AND CIT(A) HAS UPHELD THE ACTION OF AO IN DETERMINING THE NET PROFIT OF 10% OF THE GROSS TURNOVER WHICH AND ALSO DISMISSED THE APPEAL DISALLOWING THE COMMISSION PAYMENT AMOUNTING TO RS.7,98,127/-. 2.3. THE AR ARGUED BEFORE US THAT WHEN THE ASSESSEES BOOKS OF ACCOUNT ARE REJECTED ON THE GROUND THAT THE ASSESSEE HAS NOT MAINTAINED THE PROPER BOOKS OF ACCOUNT AND ALSO FAILED TO PRODUCE THE VOUCHERS FOR VERIFICATION AND THE EXPENDITURE CLAIMED BY THE ASSESSEE ARE NOT SUBSTANTIATED. SINCE THE ASSESSEE HAS NOT PRODUCED THE PROPER BOOKS OF ACCOUNT, TRUE PROFITS OR LOSS CANNOT BE DEDUCED FROM THE BOOKS OF ACCOUNT OF ASSESSEE. THE BOOKS OF ACCOUNT ARE REJECTED AND ESTIMATED THE INCOME @ 10 % OF GROSS RECEIPT. THEREFORE, THE INCOME OF THE ASSESSEE IS ESTIMATED BY ASSESSING OFFICER. LEARNED AR FURTHER SUBMITTED THAT AS PER THE DECISION OF HONBLE JURISDICTION OF HIGH COURT OF ANDHRA PRADESH IN THE CASE OF INDWELL CONSTRUCTIONS VS. CJT(1999) 151 CM (AP) 207: (1998) 232 ITR 776 (AP), WHEREIN IT IS HELD THAT, WHEN AO REJECTS THE BOOKS OF ACCOUNT, NO SEPARATE ADDITION U/S. 40 OF THE ACT CAN BE MADE. SIMILARLY IN THIS CASE WHEN BOOKS OF ACCOUNTS ARE REJECTED NO SEPARATE ADDITION U/S. 40A(3) OF THE ACT CAN BE MADE WHEN THE GROSS PROFIT IS ESTIMATED BY REJECTING THE BOOKS OF ACCOUNT. LEARNED AR ALSO RELIED UPON THE DECISION OF ITO VS. KENARAM SANA & SUBHASH SAHA (2008) 116 TTJ (KOL) (SB) 289. 2.4. LEARNED DR RELIED UPON THE ORDER OF REVENUE AUTHORITIES. 2.5. WE HAVE HEARD THE RIVAL CONTENTION OF BOTH THE PARTIES. LOOKING TO THE FACTS AND CIRCUMSTANCES OF THE CASE WE FIND THAT DURING THE SCRUTINY PROCEEDINGS THE AO FOUND THAT THE TOTAL TURNOVER OF THE ASSESSEE WAS AT RS. 4,06,07,041/-, IT HAD SHOWN NET PROFIT OF RS. 1,15,057/- WHICH IS AT 0.28% OF THE GROSS TOTAL 4. ITA NO.05/CTK/2014 (A.Y.2008-09) GOOD MORNING AGENCIES VS. ITO TURNOVER. TO VERIFY THE AUTHENTICITY OF THE NET PROFIT ARRIVED AT BY THE ASSESSEE THE AO ASKED TO PRODUCE THE PURCHASE REGISTER, SALE REGISTER AND STOCK REGISTER ALONG WITH SALES MEMO AND PURCHASE INVOICE ETC. THE ASSESSEE DID NOT PRODUCE SUCH BOOKS OF ACCOUNT ASKED BY THE AO. THE AO HELD THAT ASSESSEE FIRM DID NOT MAINTAIN PROPER AND REGULAR BOOKS OF ACCOUNT. THUS, NOT SATISFIED WITH THE CORRECTNESS AND COMPLETENESS OF THE BOOKS OF ACCOUNTS, THE AO REJECTED THE BOOK RESULTS U/S. 145 OF THE ACT AND COMPLETED THE ASSESSMENT IN THE MANNER PROVIDED IN SECTION 144 OF THE ACT ESTIMATING NET PROFIT @ 1% OF THE SALES TURNOVER. DURING THE COURSE OF HEARING, THE LEARNED AR DID NOT BRING ANY EVIDENCE BEFORE US TO SHOW THAT ASSESSEE IS MAINTAIN PROPER BOOKS OF ACCOUNT LIKE PURCHASE REGISTER, SALE REGISTER AND STOCK REGISTER. THEREFORE, WE ARE IN COMPLETE AGREEMENT WITH THE REVENUE AUTHORITIES THAT AO IS JUSTIFIED IN REJECTING THE BOOK RESULTS U/S. 145 OF THE ACT AND ESTIMATED THE NET PROFIT @ 1 % OF SALES TURNOVER. IN ABSENCE OF ANY DOCUMENTARY EVIDENCE THE ASSESSING OFFICER HAS ESTIMATED THE NET PROFIT @ 1 % OF THE SALES TURNOVER BASED ON COMPETITIVE CASES AVAILABLE IN THE DISTRICT OF BALASORE. THEREFORE, WE ARE OF THE VIEW THAT CIT(A) IS JUSTIFIED IN HOLDING THAT THE ASSESSEES NET PROFIT @ 1 % OF THE SALES TURNOVER. IN THE RESULT, GROUND NO. 1 IS DISMISSED. 3. GROUND NO. 2. THE ASSESSING OFFICER FOUND THAT THE ASSESSEE FIRM HAS PAID AN AMOUNT OF RS.39,90,636/- AS COMMISSION TO THE RETAILERS. THE AO HAS POINTED OUT THAT TDS U/S. 194H OF THE ACT IS APPLICABLE PAYMENT MADE TO THE RETAILERS AS COMMISSION AND ASSESSEE IS REQUIRED TO DEDUCT TDS FROM THE PAYMENT MADE TO RETAILERS. THE AO FELT THAT ASSESSEE COULD NOT FIND OUT THE EXACT AMOUNT OF PAYMENT WHICH EXCEEDS RS.2,500/- IN AGGREGATE, THEREFORE, HE DISALLOWED THE 20% O SUCH COMMISSION AT RS.7,98,127/-. 5. ITA NO.05/CTK/2014 (A.Y.2008-09) GOOD MORNING AGENCIES VS. ITO 3.1. WE HAVE HEARD THE RIVAL CONTENTION OF BOTH THE PARTIES. LOOKING TO THE FACTS AND CIRCUMSTANCES OF THE CASE, WE FIND THAT IN THE ASSESSMENT UNDER CONSIDERATION THE AO RESORTED TO THE REJECTION OF BOOKS OF ACCOUNTS AND ESTIMATION OF THE INCOME. IT IS SEEN FROM THE ASSESSMENT ORDER THAT AO ESTIMATED 1 % OF THE SALES TURNOVER AS NET PROFIT AFTER REJECTING THE BOOKS OF ACCOUNT. WE FIND THAT THE ASSESSEES INCOME HAS BEEN ESTIMATED BY REJECTING THE BOOKS OF ACCOUNT THAT THE BOOKS OF ACCOUNT CANNOT BE RELIED FOR THE PURPOSE OF COMPLETING THE ASSESSMENT OF THE ASSESSEE. WHEN THE ASSESSMENT IS MADE BY REJECTING THE BOOKS OF ACCOUNT NO SEPARATE ADDITION CAN BE MADE BASED ON THE BOOKS OF ACCOUNT. WE FIND THAT SIMILAR ISSUE HAD COME UP BEFORE HIGH COURT OF ANDHRA PRADESH IN THE CASE OF INDWELL CONSTRUCTIONS VS. CJT(1999) 151 CM (AP) 207: (1998) 232 ITR 776 (AP), WHEREIN IT IS CLEARLY HELD THAT WHERE THE BOOKS OF ACCOUNT HAS BEEN REJECTED, THE REVENUE CANNOT RELY ON THE SAME BOOKS OF ACCOUNT FOR ADDITION OF EXACT AMOUNT OF EXPENDITURE IN PROFIT AND LOSS ACCOUNT. IT WAS ALSO HELD IN THAT CASE WHEN AN ESTIMATION IS MADE, IT IS IN SUBSTITUTION OF INCOME THAT IS TO BE COMPUTED U/S. 29. AS PER SECTION 29 WHICH STATES THAT THE INCOME FROM PROFITS AND GAINS OF BUSINESS SHALL BE COMPUTED IN ACCORDANCE WITH THE PROVISIONS CONTAINED IN SECTIONS 30 TO 43D. SECTION 40 PROVIDES FOR CERTAIN DISALLOWANCE IN CERTAIN CASES NOTWITHSTANDING THAT THOSE AMOUNTS ARE ALLOWED GENERALLY UNDER OTHER SECTIONS. WE FIND THAT THE SIMILAR DECISIONS HAS BEEN TAKEN BY SPECIAL BENCH OF THE TRIBUNAL IN THE CASE OF ITO VS. ITO VS. KENARAM SANA & SUBHASH SAHA (2008) 116 TTJ (KOL) (SB) 289. WE THEREFORE, RESPECTIVELY FOLLOWING THE DECISION OF HONBLE ANDHRA PRADESH HIGH COURT AND THE DECISION OF THE SPECIAL BENCH, TRIBUNAL, WE ARE OF THE CONSIDERED OPINION THAT THE INCOME OF THE ASSESSEE HAVING BEEN DETERMINED BY RESORTING TO ESTIMATION, THERE IS NO SCOPE FOR ANY FURTHER DISALLOWANCE EITHER IN TERMS OF SECTION 40(A)(IA)/40A(3) OR OTHERWISE. IN THE RESULT, GROUND NO. 2 IS ALLOWED. 6. ITA NO.05/CTK/2014 (A.Y.2008-09) GOOD MORNING AGENCIES VS. ITO 4. IN THE RESULT, THE APPEAL FILED BY THE ASSESSEE IS PARTLY ALLOWED. 5. ORDER PRONOUNCED IN PURSUANCE OF RULE 34(4) OF ITAT RULES, 1963 BY PUTTING ON NOTICE BOARD OF THE BENCH AT CUTTAK ON THE OPEN COURT ON 27.06.2014. SD/- SD/- ( P.K. BANSAL) (D.T. GARASIA) ACCOUNTANT MEMBER JUDICIAL MEMBER PLACE : PANAJI / GOA DATED : 27.06.2014 P.S.- *PK* COPY TO : (1) APPELLANT (2) RESPONDENT (3) CIT CONCERNED (4) CIT(A) (5) D.R (6) GUARD FILE TRUE COPY, BY ORDER