Shri Ravishankar Modiram Pathak, Pune V. Addl.CIT,Range-8, Pune, Pune

ITA 546/PUN/2011

• Counselvise Citation: [2012] 119 COUNSELVISE.COM (IT) 9925 (ITAT-PUNE)
• Duration Of Justice: 1 year(s) 6 month(s) 2 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 29-10-2012
• Appeal Filed By: Assessee
• Order Result: Partly Allowed
• Bench Allotted: A
• Next Hearing Date: 04-07-2012
• Assessment Year: 2007-2008
• Appeal Filed On: 27-04-2011
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Department Lawyers: ANN KAPTHUAMA
• Section: 143(3)

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL PUNE BENCH A, PUNE BEFORE SHRI G.S. PANNU, ACCOUNTANT MEMBER AND R.S. PADVEKAR, JUDICIAL MEMBER ITA NO. 546/PN/2011 (ASSESSMENT YEAR: 2007-08) SHRI RAVISHANKAR MODIRAM PATHAK L/H MRS. RAJANBALA PATHAK, MR. CHETAN R. PATHAK MR. PIYUSH R. PATHAK MR. BHAVIN R. PATHAK MRS. MANISHA D. DAVE SURVEY NO. 103, NEHRU NAGAR OPP. ATLAS COPCO COLONY, PIMPRI, PUNE-=411 018 PAN AAQPP 9502 L .. APPELLANT VS. ADDL. CIT RANGE 8, PUNE RESPONDENT APPELLANT BY : SHRI PRAMOD SHINGTE RESPONDENT BY : MS. ANN KAPTHUAMA DATE OF HEARING: 28-8-2012 DATE OF PRONOUNCEMENT: 29-10-2012 ORDER PER G.S. PANNU, A.M.: THIS APPEAL BY THE ASSESSEE IS DIRECTED AGAINST TH E ORDER OF THE COMMISSIONER OF INCOME-TAX (APPEALS)-V PUNE DAT ED 14-2-2011 WHICH, IN TURN, HAS ARISEN FROM ORDER DATED 18-11-2 009 PASSED BY THE ASSESSING OFFICER, UNDER SECTION 143(3) R.W.S. 145 AND 144 OF THE INCOME-TAX ACT, 1961 (IN SHORT THE ACT), PERTAININ G TO THE ASSESSMENT YEAR 2007-08 RAISING FOLLOWING GROUNDS:- 1. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CA SE AND IN LAW, THE LOWER AUTHORITIES HAVE GRAVELY ERRED IN IN VOKING THE PROVISIONS OF SEC. 145 OF THE ACT THEREBY REJECTING THE BOOK RESULTS AND ESTIMATING THE PROFIT FOR THE REASON TH AT STOCK RECORD WAS NOT MAINTAINED ON DAY-TO-DAY BASIS AND ERRONEOUSLY HOLDING THAT BOOKS OF ACCOUNTS ARE NOT PRODUCED. 2. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CAS E AND IN LAW, THE LOWER AUTHORITIES HAVE GRAVELY ERRED IN ES TIMATING THE INCOME BY RESORTING TO THE PROVISIONS OF SEC. 144 O F THE ACT WITHOUT GIVING ANY OPPORTUNITY TO THE ASSESSEE TO S HOW CAUSE WHY THE ASSESSMENT SHOULD NOT BE COMPLETED TO THE B EST OF THE ASSESSING OFFICERS JUDGMENT, THEREBY VIOLATING THE BASIC PRINCIPLE OF SECTION 144 OF THE ACT. THEREFORE, THE ENTIRE PROCEEDING NEEDS TO BE QUASHED. 2 ITA NO 546/PN/11 RAVISHANKAR PATHAK A.Y. 2007-08 3. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CAS E AND IN LAW, THE LOWER AUTHORITIES HAVE GRAVELY ERRED IN ESTIMAT ING THE GROSS PROFIT RATIO IN RESPECT OF THE WHOLESALE AND RETAIL TRADE AT 12% AND 14% RESPECTIVELY. SUCH AN ESTIMATE IS EXCESSIV E AND ARBITRARY AND NOT IN CONFORMITY WITH THE BOOK RESUL TS DECLARED BY THE ASSESSEE. ASSESSEE THEREFORE PRAYS TO ACCEP T THE BOOK RESULTS. 2. IN BRIEF, THE FACTS AND CIRCUMSTANCES GIVING RIS E TO THE PRESENT DISPUTE CAN BE SUMMARIZED AS FOLLOWS. THE ASSESSEE IS AN INDIVIDUAL ENGAGED IN THE BUSINESS OF TRADING IN ST EEL SCRAPS, ETC. FOR THE ASSESSMENT YEAR UNDER CONSIDERATION, ASSESSEE F ILED A RETURN OF INCOME ON 31-10-2001 DECLARING AN INCOME OF RS.1,03 ,23,737/-. IN THE COURSE OF ASSESSMENT PROCEEDINGS, THE ASSESSING OFFICER REJECTED THE BOOK RESULTS DECLARED BY THE ASSESSEE AND INVOKED PROVISIONS OF SEC. 144 OF THE ACT TO MAKE BEST JUDG MENT ASSESSMENT. THE ASSESSING OFFICER NOTED THAT THE GROSS PROFIT R ATE DECLARED BY THE ASSESSEE FOR INSTANT ASSESSMENT YEAR WAS 10.9% ON A TURNOVER OF RS. 10,15,09,913/-, WHICH WAS LOWER IN COMPARIS ON TO GROSS PROFIT RATE OF 11.09%, 12.49% AND 14.16% FOR EARLIER THREE ASSESSMENT YEARS 2006-07, 2005-06 AND 2004-05 RESPECTIVELY. H E THEREFORE, RECOMPUTED THE GROSS PROFIT FOR THE YEAR UNDER CONS IDERATION BY CONSIDERING GROSS PROFIT RATE OF 12.58% FOR TURNOVE R RELATING TO WHOLESALE BUSINESS AND 25% ON RETAIL SALES. AS A RE SULT, AN ADDITION OF RS. 25,81,581/- WAS MADE TO THE TOTAL INCOME ON ACCOUNT OF DIFFERENCE IN GROSS PROFIT. 3. THE CIT(A) HAS UPHELD THE ACTION OF THE ASSESSIN G OFFICER IN REJECTING THE BOOK RESULTS AND ESTIMATING THE INCOM E. SO HOWEVER, HE HAS REDUCED THE ESTIMATE OF INCOME BY DIRECTING THE ASSESSING OFFICER TO RECOMPUTE THE INCOME BY CONSIDERING THE GROSS PROFIT IN RESPECT OF WHOLESALE AND RETAIL TRADE AT 12% AND 14 % RESPECTIVELY, AS AGAINST 12.58% AND 25% CONSIDERED BY THE ASSESSI NG OFFICER. 3 ITA NO 546/PN/11 RAVISHANKAR PATHAK A.Y. 2007-08 NOT BEING SATISFIED WITH THE PARTIAL RELIEF SO ALLO WED BY THE CIT(A), ASSESSEE IS IN FURTHER APPEAL BEFORE US. 4. BEFORE US, THE LEARNED COUNSEL FOR THE ASSESSEE POINTED OUT THAT THE REASONS ADVANCED BY THE ASSESSING OFFICER TO THE EFFECT THAT THE ASSESSEE DID NOT PRODUCE THE BOOKS OF ACCOUNT F OR VERIFICATION, IS NOT JUSTIFIED AND THAT IN THIS REGARD, ASSESSEE HAD ALSO FURNISHED AN AFFIDAVIT BEFORE THE CIT(A), A COPY OF WHICH HAS BE EN PLACED IN THE PAPER BOOK AT PAGES10 TO 11. IN TERMS THEREOF, IT WAS DEPOSED BY THE ASSESSEE THAT THE BOOKS OF ACCOUNT ALONG WITH T HE RELEVANT PURCHASE BILLS, SALE BILLS, BANK STATEMENTS, ETC. W ERE PRODUCED ON MORE THAN ONE OCCASION IN THE COURSE OF ASSESSMENT PROCEEDINGS AND THEREFORE, THE PLEA OF THE ASSESSING OFFICER WA S UNFOUNDED. THE LEARNED COUNSEL FURTHER POINTED OUT THAT NON-MAINTE NANCE OF QUANTITATIVE DETAILS OF STOCK ON DAY-TO-DAY BASIS W AS NOT FEASIBLE HAVING REGARD TO THE NATURE OF ASSESSEES BUSINESS AND THEREFORE, THE SAME CANNOT BE CONSIDERED AS A DEFECT SO AS TO REJECT THE BOOK RESULTS DECLARED BY THE ASSESSEE. IT WAS ASSERTED BY THE LEARNED COUNSEL THAT THE ASSESSEE WAS CARRYING ON BUSINESS IN SAME MANNER AS IN THE PAST YEARS AND THAT THE ACCOUNT BOOKS WER E DULY AUDITED AS REQUIRED U/S 44AB OF THE ACT AND THEREFORE, TRADING RESULTS DECLARED WERE RELIABLE. IN ANY CASE, IT WAS POINTED OUT THA T THE ESTIMATION OF INCOME MADE BY THE CIT(A) WAS ALSO EXCESSIVE AND NO T IN CONFORMITY WITH THE RESULTS DECLARED BY THE ASSESSEE IN THE PA ST. 5. ON THE OTHER HAND, THE LEARNED DR APPEARING FOR THE REVENUE REFERRED TO THE DISCUSSION IN THE ORDERS OF AUTHORI TIES BELOW AND IN PARTICULAR, IT WAS POINTED OUT THAT IN THE ABSENCE OF QUANTITATIVE STOCK REGISTERS, THE VERIFICATION OF THE STOCK POSITION A S WELL AS ITS VALUATION WAS NOT FEASIBLE AND THEREFORE, THE TRAD ING RESULTS HAVE 4 ITA NO 546/PN/11 RAVISHANKAR PATHAK A.Y. 2007-08 BEEN RIGHTLY REJECTED BY THE AUTHORITIES BELOW. IN THIS MANNER, THE ESTIMATION OF INCOME HAS ALSO BEEN SOUGHT TO BE JUS TIFIED. 6. WE HAVE CAREFULLY CONSIDERED THE RIVAL SUBMISSIO NS. THE APPELLANT IS AN INDIVIDUAL WHO IS ENGAGED IN THE BU SINESS OF DEALING IN ALL TYPES OF SCRAP. THE ASSESSEE IS MAINTAINING REGULAR ACCOUNT BOOKS WHICH HAVE BEEN DULY AUDITED IN TERMS OF THE REQUIREMENTS OF SECTION 44AB OF THE ACT. THE ASSESSING OFFICER REJ ECTED TRADING RESULTS DECLARED IN THE RETURN OF INCOME WHICH WAS FILED ON THE BASIS OF AUDITED BALANCE SHEET AND PROFIT & LOSS ACCOUNT FOR THE YEAR UNDER CONSIDERATION. THE ASSESSING OFFICER ASSERTE D THAT THE ACCOUNT BOOKS WERE NOT PRODUCED FOR VERIFICATION AN D HENCE THE BOOK RESULTS WERE REJECTED. SO HOWEVER, ON THE BASIS OF ASSERTION MADE BY THE ASSESSEE BEFORE THE CIT(A), WHICH INTER ALIA , WERE ON THE BASIS OF AN AFFIDAVIT FURNISHED, THE CIT(A) IN PARA 6 FOUND FORCE IN HIS ARGUMENTS THAT HE HAD COOPERATED WITH THE AO DU RING THE SCRUTINY ASSESSMENT PROCEEDINGS . HOWEVER, THE CIT(A) STILL PERSISTED WITH THE LINE OF THE ASSESSING OFFICER IN REJECTING THE TRADING RESULTS ON THE GROUND THAT THE ASSESSEE WAS NOT MAINTAINING DAY-TO-DAY QUANTITATIVE STOCK RECORDS. 7. BEFORE US, THE LEARNED COUNSEL HAS ALSO REFERRED TO WRITTEN SUBMISSIONS DATED 21-8-2009 ADDRESSED TO THE ASSESS ING OFFICER, A COPY OF WHICH HAS BEEN PLACED IN THE PAPER BOOK FRO M PAGES 12 TO 19, WHEREIN IT IS SOUGHT TO BE EXPLAINED AS TO WHY THE MAINTENANCE OF DAY-TO-DAY QUANTITATIVE RECORD WAS NOT FEASIBLE. THE ASSESSEE HAS EXPLAINED THAT HE IS DEALING IN ALL TYPES OF SC RAP COMPRISING OF RUFF PAPER, CARD BOARD, CORRUGATED BOXES, WASTE OIL , PLASTIC SCRAP, SCRAPPED MACHINES AND TOOLS, DAMAGED SPARE PARTS, E TC. SUCH ITEMS OF SCRAP ARE PURCHASED IN BIGGER LOTS FROM CO MPANIES IN RESPONSE TO TENDER NOTICES. THE ASSESSEE THEREAFTE R SEGREGATES THE 5 ITA NO 546/PN/11 RAVISHANKAR PATHAK A.Y. 2007-08 SCRAP INTO DIFFERENT CATEGORIES. THE DIFFERENT ITE MS ARE THEN INSPECTED BY THE CUSTOMERS AND ACCORDINGLY SOLD OFF . IT IS SOUGHT TO BE EXPLAINED THAT HAVING REGARD TO THE AFORESAID NA TURE OF BUSINESS, IT WAS NOT FEASIBLE TO MAINTAIN ITEM-WISE QUANTITA TIVE RECORD OF ITEM- WISE PURCHASE AND SALE. AS PER THE ASSESSEE, IT DO ES NOT PURCHASE ANY PARTICULAR ITEM OF SCRAP. THE SCRAP IS PURCHAS ED IN A LOT COMPRISING OF VARIOUS ITEMS WHICH CANNOT BE QUANTIF IED ITEM-WISE. THE LEARNED COUNSEL ALSO FURTHER EXPLAINED THAT THE STOCK RECORD OF THE ASSESSEE IS MAINTAINED IN SIMILAR MANNER AS WAS DONE IN THE PAST YEARS. 8. WE HAVE CAREFULLY EXAMINED THE EXPLANATION FURNI SHED BY THE ASSESSEE. OSTENSIBLY, HAVING REGARD TO THE NATURE OF BUSINESS EXPLAINED BY THE ASSESSEE WHICH HAS NOT BEEN DISPUT ED BY THE REVENUE, IT IS QUITE APPARENT THAT ITEM-WISE MAINTE NANCE OF QUANTITATIVE RECORD ON A DAILY BASIS IS NEITHER FEA SIBLE NOR PRACTICAL. IT IS ALSO POINTED OUT BY THE ASSESSEE THAT THE INV ENTORIES ARE VALUED AT COST. WE FIND THAT THE ASSERTION OF THE ASSESSE E REGARDING POSITION OF STOCK HAS BEEN REJECTED MERELY IN THE A BSENCE OF DAILY ITEM-WISE QUANTITATIVE RECORDS. AT THE SAME TIME, WE FIND THAT THERE IS NO ASSERTION BY THE ASSESSEE WITH REGARD TO THE MANNER IN WHICH THE CLOSING STOCK HAS BEEN DRAWN UP EXCEPT A STATEM ENT TO THE EFFECT THAT THE CLOSING STOCK IS VALUED AT COST. CONSIDER ED IN THE OVERALL MANNER IN THE GIVEN CIRCUMSTANCES OF THE CASE, THE INCOME-TAX AUTHORITIES ARE NOT JUSTIFIED IN WHOLESALE REJECTIO N OF THE TRADING RESULTS DECLARED BY THE ASSESSEE. SO, HOWEVER, IT IS ALSO APPARENT THAT THE CLOSING STOCK DRAWN UP BY THE ASSESSEE IS ALSO NOT COMPLETELY VERIFIABLE AND THEREFORE, ON THIS LIMITE D POINT, THERE ARISES REASON TO MAKE AN ADDITION SO AS TO PLUG LEAKAGE OF REVENUE, IF ANY. TO THAT EFFECT, WE DEEM IT FIT AND PROPER THAT IT W OULD BE IN THE FITNESS OF THINGS THAT AN ADDITION OF RS. 5,00,000 /- TO THE RETURNED 6 ITA NO 546/PN/11 RAVISHANKAR PATHAK A.Y. 2007-08 INCOME WOULD MEET THE ENDS OF JUSTICE. WE THEREFOR E, DIRECT THE ASSESSING OFFICER TO MAKE AN ADDITION OF RS. 5,00,0 00/-AS ABOVE AND DELETE THE BALANCE ADDITION. 9. IN THE RESULT, APPEAL OF THE ASSESSEE IS PARTLY ALLOWED. DECISION PRONOUNCED IN THE OPEN COURT ON 29 TH OCTOBER 2012. SD/- SD/- (R.S. PADVEKAR) (G.S. PANNU) JUDICIAL MEMBER ACCOUNTANT MEMBER PUNE, DATED: 29 TH OCTOBER 2012 ANKAM COPY TO:- 1. ASSESSEE 2. DEPARTMENT 3. THE CIT (A) V PUNE 4. THE CIT- PUNE 5. THE DEPARTMENTAL REPRESENTATIVE, A BENCH, I.T. A.T., PUNE. BY ORDER //TRUE COPY// SR. P.S. I.T.A.T., PUNE