Sh. Jasbir Singh Prop., Amritsar. V. The Income Tax Officer, Amritsar.

ITA 507/ASR/2016

• Counselvise Citation: [2018] 126 COUNSELVISE.COM (IT) 5685 (ITAT-AMRITSAR)
• Duration Of Justice: 1 year(s) 5 month(s) 21 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 28-03-2018
• Appeal Filed By: Assessee
• Order Result: Dismissed
• Bench Allotted: DB
• Next Hearing Date: 22-03-2018
• Assessment Year: 2012-2013
• Appeal Filed On: 07-10-2016
• Result in Favour of: Revenue
• Court: TRIBUNAL
• Assessee Lawyers: P N ARORA
• Keywords: Business income
• Section: 143(3); 145; 144

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL AMRITSAR BENCH; AMRITSAR. BEFORE SH. SANJAY ARORA, ACCOUNTANT MEMBER AND SH. N. K. CHOUDHRY, JUDICIAL MEMBER I.T.A. NO. 507/(ASR)/2016 AS SESSMENT YEAR: 2012-13 JASBIR SINGH PROP. KHALSA JEWELLERY HOUSE, 4335 KOT BABA DEEP SINGH, AMRITSAR [PAN: ABTPS 2800C] VS. INCOME TAX OFFICER WARD 3(2)-AMRITSAR (APPELLANT) (RESPONDENT) APPELLANT BY : SH. P. N. ARORA ( ADV.) RESPONDENT BY: SH. CHARAN DASS (D.R.) DATE OF HEARING: 22.03.2018 DATE OF PRONOUNCEMENT: 28.03.2018 ORDER PER SANJAY ARORA, AM: THIS IS AN APPEAL BY THE ASSESSEE AGITATING THE ORD ER BY THE COMMISSIONER OF INCOME TAX (APPEALS)-1, AMRITSAR ('CIT(A)', FOR SHORT) DATED 23.08.2016, PARTLY ALLOWING THE ASSESSEES APPEAL CONTESTING HIS ASSES SMENT U/S. 144 OF THE INCOME TAX ACT, 1961 ('THE ACT' HEREINAFTER) DATED 26.03.2 015 FOR ASSESSMENT YEAR (AY) 2012-13. 2. THE APPEAL CONCERNS THE ESTIMATION OF THE ASSESS EES - AN INDIVIDUAL, IN THE BUSINESS OF MANUFACTURE AND TRADING OF GOLD JEWELLE RY AND SILVER UTENSILS, BUSINESS INCOME, PURSUANT TO A BEST JUDGMENT ASSESSMENT. ITA NO. 507 (ASR)/2016 (AY 2012-13) JASBIR SINGH V. ITO 2 3. DURING HEARING, AT THE VERY OUTSET, IT WAS CLARI FIED BY THE LD. AUTHORIZED REPRESENTATIVE (AR), THE ASSESSEES COUNSEL, THAT N EITHER THE INVOCATION OF SECTION 144 OF THE ACT, NOR THE NON-GRANT OF REASONABLE OPP ORTUNITY BY THE ASSESSING OFFICER (AO) - RAISED BEFORE THE FIRST APPELLATE AU THORITY, ARE UNDER CHALLENGE. THE ONLY ISSUE, HE WOULD CONTINUE, IS THE REASONABILITY OF THE NET PROFIT RATE, WHICH HAS BEEN, ADOPTING THE NET PROFIT RATE FOR AY 2011-12, THE IMMEDIATELY PRECEDING YEAR, BEEN DIRECTED BY THE LD. CIT(A) AT 5.48% (OF SALES) , AS AGAINST 8% APPLIED BY THE AO. THE LD. CIT(A) HAS FAILED TO CONSIDER THE FACT THAT THERE HAS BEEN A MULTIFOLD INCREASE IN THE TURNOVER FOR THE CURRENT YEAR, I.E. , AT RS.229.82 LACS, AS AGAINST AT RS.74.04 LACS FOR AY 2011-12. IN FACT, THE ASSESSEE STANDS ASSESSED AT A NET PROFIT RATE OF 4.91% FOR AY 2014-15 VIDE ORDER U/S. 143(3) DATED 26.12.2016 (PB PGS. 15-17), WHICH OUGHT TO HAVE ALSO BEEN CONSIDERED BY THE LD. CIT(A). HE WOULD FURTHER FURNISH THE FOLLOWING CHARTS REFLECTING THE SALES, GP AND NP RATES FROM AY 2011-12 TO AY 2014-15, AS UNDER: ASST. YEAR SALES (RS. IN LACS) GROSS PROFIT (RS.) GP RATE (%) NET PROFIT (RS.) NP RATE (%) 2011-12 74,04,392/- 9,81,324/- 13.25 4,05,458/- 5.48 2012-13 2,29,81,723/- 25,19,806/- 10.96 5,88,189/- 2.56 2013-14 1,59,64,897/- 19,60,027/- 12.28 4,91,138/- 3.08 2014-15 100.69 13,91,575/- 11.33 6,02,028/- 4.91 THE LD. DEPARTMENTAL REPRESENTATIVE (DR) WOULD, PLA CING RELIANCE ON KACHWALA GEMS V. JT. CIT [2007] 288 ITR 10 (SC), SUBMIT THAT A CERTAIN DEGR EE OF GUESSWORK IS ALWAYS INVOLVED IN A BEST JUDGMENT ASS ESSMENT, AND WHERE THE SAME IS AN HONEST AND FAIR ESTIMATE OF THE INCOME BY THE AUTHORITY CONCERNED, NO INTERFERENCE IS CALLED FOR. ITA NO. 507 (ASR)/2016 (AY 2012-13) JASBIR SINGH V. ITO 3 4. WE HAVE HEARD THE PARTIES, AND PERUSED THE MATER IAL ON RECORD. THE ASSESSEES CONTENTION THAT HIS BOOKS OF ACCOUNT HAVE NOT BEEN REJECTED, SO THAT NO ESTIMATE (OF HIS BUSINESS PROFIT) COULD BE ATTEMPTED BY THE REVENUE, FALLS FLAT IN THE FACE OF NON-PRODUCTION OF HIS BOOKS OF ACCOUNT BY THE ASSESSEE DURING THE ASSESSMENT PROCEEDINGS, MARKED BY NON-COOPERATI ON BY THE ASSESSEE. THE ASSESSEE FAILING TO EXPLAIN THE DECLINE IN HIS TRAD ING RESULTS, I.E., VIS--VIS THE EARLIER YEAR, AS WELL AS SUBSTANTIATE CERTAIN EXPENSES QUA WHICH THE AO OBSERVED SPIKE, FURTHER OBSERVING THE ASSESSEE TO HAVE RAISED UNSEC URED LOANS AT RS.31.67 LACS DURING THE YEAR FOR WHICH EVEN NO CONFIRMATION/S WA S FILED, HE WAS CONSTRAINED TO PROCEED TO MAKE A BEST JUDGMENT ASSESSMENT, ESTIMAT ING THE ASSESSEES BUSINESS INCOME (REFER PARAS 3 AND 4 OF THE ASSESSMENT ORDER ). SECTION 144, INVOCATION OF WHICH IS NOT UNDER CHALLENGE, EMPOWERS THE AO TO FR AME A BEST JUDGMENT ASSESSMENT TAKING THE RELEVANT MATERIAL INTO ACCOUN T. THIS IS ALSO PRECISELY THE MANDATE OF SECTION 145(3), WHICH GETS ATTRACTED WHE RE THE CONDITIONS SPECIFIED THEREIN ARE SATISFIED. THE ASSESSEES OBJECTION AS TO NON-REJECTION OF THE BOOKS OF ACCOUNT BY THE AO, I.E., ISSUE OF A FINDING AS TO T HE SAME BEING NOT RELIABLE, IS WITHOUT MERIT. THE RELIANCE ON THE DECISION IN CIT V. K.S. BHATIA [2004] 269 ITR 577 (P&H), RENDERED U/S. 145 (AND, FURTHER, AS IT S TOOD PRIOR TO ITS SUBSTITUTION BY FINANCE ACT, 1995, W.E.F. 01/4/1997), IS MISPLACED AND, IN ANY CASE, OF LITTLE ASSISTANCE TO THE ASSESSEE. THE SECOND OBJECTION, ALSO RAISED DURING HEARING, T HAT THE BOOKS OF ACCOUNT COULD NOT BE REJECTED MERELY ON ACCOUNT OF DECLINE IN THE GP RATE, VALID IN PRINCIPLE, AGAIN DOES NOT HOLD IN THE INSTANT CASE AS SECTION 144 STANDS INVOKED NOT FOR THE REASONS SPECIFIED U/S. 145(3), BUT ON ACCOU NT OF THE SATISFACTION OF THE CONDITIONS U/S. 144(1). AS AFORE-NOTED, THE BOOKS O F ACCOUNT WERE NEVER PRODUCED FOR HIS EXAMINATION AND VERIFICATION BEFORE THE ASS ESSING AUTHORITY. ITA NO. 507 (ASR)/2016 (AY 2012-13) JASBIR SINGH V. ITO 4 WE, NEXT, CONSIDER THE VALIDITY OF THE BEST JUDGME NT EXERCISED BY THE AO, AS MODIFIED BY THE LD. CIT(A) IN-AS-MUCH AS THE REVENU E IS NOT IN APPEAL. THE SAME IS BASED ON THE ASSESSEES DECLARED RESULTS FOR AY 2011-12, THE IMMEDIATELY PRECEDING YEAR. THE ASSESSEES OWN PAST HISTORY IS NORMALLY A VERY VALUABLE GUIDE. THE RELIANCE THEREON BY THE LD. CIT(A) THEREON THER EFORE CANNOT BE FAULTED. THE ASSESSMENT ORDER FOR AY 2014-15 (OR ANY OTHER SUBSE QUENT YEAR) WAS NOT; RATHER, COULD NO BE, BEFORE THE AO AND, THEREFORE, COULD NO T BE CONSIDERED BY HIM AND, NOR CONSEQUENTLY, BY AN APPELLATE AUTHORITY WHILE DECID ING ON A BEST JUDGMENT ASSESSMENT. PLACING RELIANCE ON THE MATERIAL NOT BE FORE THE AO, WOULD AMOUNT TO, AS EXPLAINED IN CIT VS. RAYALA CORPORATION PVT. LTD . [1995] 215 ITR 883 (MAD), CONVERTING A SECTION 144 ASSESSMENT INTO A SECTION 143(3) ASSESSMENT, AND WHICH IS CLEARLY NOT PERMISSIBLE. IT IS, AFTER ALL, IN LAW, HIS BEST JUDGMENT ASSESSMENT AND NOT OF ANY OTHER. HIS ACTION IN ADOPTING AN ARBITRARY R ATE OF 8% STANDS ALREADY MODIFIED BY THE FIRST APPELLATE AUTHORITY BY TAKING INTO CON SIDERATION THE DISCLOSED RESULT FOR AY 2011-12. THE ONLY OBJECTION BY THE ASSESSEE THAT THEREFORE SURVIVES IS THAT IN DOING SO THE LD. CIT(A) HAS NOT TAKEN INTO ACCOUNT THE THREE-FOLD INCREASE IN THE TURNOVER FOR THE CURRENT YEAR OVER THAT YEAR. GP RA TES ARE SUBJECT TO VARIATION FROM YEAR TO YEAR. THE ASSESSEE SELLING GOLD AND SILVER PRODUCTS, THE PRICES OF WHICH COMMODITIES ARE LARGELY MARKET DRIVEN; WITH THE MAN UFACTURER/TRADER STANDING TO GAIN FOR THE VALUE ADDITION, AND WHICH SHOULD BE FA IRLY CONSTANT ACROSS DIFFERENT YEARS, THERE DOES NOT APPEAR TO BE ANY CORRELATION BETWEEN THE VOLUME OF TURNOVER AND THE GROSS PROFIT RATE. FURTHER, EVEN CONSIDERIN G THAT THE QUANTUM INCREASE IN THE TURNOVER MAY RESULT IN A DECLINE IN THE GROSS PROFI T RATIO, ITS EXTENT CANNOT BE ASSESSED ON THE SCANTY MATERIAL AVAILABLE. ALSO, TH E OVERHEAD EXPENSES, AT 7.77% OF THE TURNOVER FOR AY 2011-12, SHOULD NORMALLY WITNES S A DECLINE WITH THE INCREASE IN TURNOVER IN-AS-MUCH AS THE ADMINISTRATION EXPENS ES ARE FAIRLY FIXED OR SEMI-FIXED IN NATURE, WHILE IN THE PRESENT CASE THE SAME STAND INCREASED TO 8.40%! THAT IS, ITA NO. 507 (ASR)/2016 (AY 2012-13) JASBIR SINGH V. ITO 5 FROM RS.5.76 LACS (OR RS.0.48 LACS PER MONTH) TO RS .19.32 LACS (OR RS.1.61 LACS P.M.) (BEING THE DIFFERENCE BETWEEN THE GROSS AND N ET PROFIT), OR AN INCREASE OF RS.13.56 LACS, WHICH WORKS TO AN INCREASE BY 235%, A STUPENDOUS INCREASE BY ANY STANDARD, PARTICULARLY CONSIDERING THE NATURE OF TH E EXPENDITURE, WHICH HAS LITTLE OR NO CORRELATION WITH TURNOVER, EVEN AS, WITHOUT DOUB T, SOME INCREASE IS INEVITABLE. IN FACT, EVEN AN INCREASE OF 100% WOULD ESCALATE THE E XPENDITURE LEVEL TO RS. 11.50 LACS, I.E., IN THE RANGE OF RS.12 LACS, WHICH WORKS TO A LITTLE OVER 5% OF THE TURNOVER. IT NEEDS TO BE APPRECIATED THAT SUCH EXPE NDITURE CANNOT BE ESTIMATED IN PERCENTAGE TERMS AS, AS AFORE-NOTED, IT IS LARGELY FIXED OR SEMI-FIXED IN NATURE. EVEN IF THEREFORE THE GP RATE WAS TO BE REGARDED AT THE DISCLOSED RATE OF ABOUT 11%, IT WOULD RESULT IN A NET PROFIT OF RS.13.28 LACS (I.E. , AT 5.78% OF THE TURNOVER). THE ESTIMATED PROFIT OF RS.5.48% (OF THE TURNOVER) IS T HUS JUSTIFIED. THIS IS PARTICULARLY RELEVANT IN VIEW OF THE LARGE UNEXPLAINED INCREASE IN THE ADMINISTRATION (OVER-HEAD) EXPENDITURE. IT ALSO CANNOT BE LOST SIGHT OF THAT T HE ASSESSEE HAS UNCONFIRMED/UNVERIFIED UNSECURED LOANS FOR RS. 31.6 7 LACS DURING THE YEAR. REFERENCE IN THIS REGARD BE MADE TO THE DECISION IN CIT V. DEVI PRASAD VISHWANATH PRASAD [1969] 72 ITR 194 (SC). UNDER THE CIRCUMSTANCES, WE DECLINE INTERFERENCE. T HOUGH LARGELY IRRELEVANT IN-AS-MUCH AS REFERENCE TO THE SAME COULD NOT BE PO SSIBLY BE MADE BY THE AO AND, THEREFORE, BY THE APPELLATE AUTHORITIES, WE MAY IN PASSING MENTION THAT THE ADOPTED RATE IS ALSO IN SYNC WITH THAT ASSESSED FOR AY 2014 -15, I.E., WHEN CONSIDERED AT INCLUSIVE OF THE ACCEPTED ADDITION OF RS.50,000/- O N ACCOUNT OF REVENUE LEAKAGE (I.E., PER ORDER U/S. 143(3) DATED 26/12/2016), RES ULTING IN THE PROFIT PERCENTAGE AT 5.31% OF THE TURNOVER, WHICH IS IN AGREEMENT WITH T HAT ASSESSED FOR THE CURRENT YEAR. WE DECIDE ACCORDINGLY. ITA NO. 507 (ASR)/2016 (AY 2012-13) JASBIR SINGH V. ITO 6 5. IN THE RESULT, THE ASSESSEES APPEAL IS DISMISSE D. ORDER PRONOUNCED IN THE OPEN COURT ON MARCH 28, 201 8 SD/- SD/- (N. K. CHOUDHRY) (SANJAY ARORA) JUDICIAL MEMBER ACCOUNTANT MEMBER DATE: 28.03.2018 /GP/SR. PS. COPY OF THE ORDER FORWARDED TO: (1) THE APPELLANT: JASBIR SINGH, PROP. KHALSA JEWELLERY HOUSE, 4335-KOT BABA DEEP SINGH, AMRITSAR (2) THE RESPONDENT: ITO WARD 3(2), AMRITSAR (3) THE CIT(APPEALS)-1, AMRITSAR (4) THE CIT CONCERNED (5) THE SR. DR, I.T.A.T TRUE COPY BY ORDER