The ACIOT, Bhopal V. Shri Santosh Singh Raghuwansgi, Vidisha

ITA 547/IND/2009

• Counselvise Citation: [2010] 136 COUNSELVISE.COM (IT) 2786 (ITAT-INDORE)
• Duration Of Justice: 6 month(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 04-06-2010
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: DB
• Assessment Year: 2005-2006
• Appeal Filed On: 04-12-2009
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: APARNA KARAN
• Assessee Lawyers: GIRISH AGRAWAL
• Keywords: Rejection of books of accounts
• Section: 44AD; 143(3)

Judgement Text

1 IN THE INCOME TAX APPELLATE TRIBUNAL, INDORE BENCH, INDORE BEFORE SHRI JOGINDER SINGH, JUDICIAL MEMBER AND SHRI V.K. GUPTA, ACCOUNTANT MEMBER ITA NO.547/IND/09 A.YS. 2005-06 ASSTT. COMMISSIONER OF INCOME TAX 3(1), BHOPAL APPELLANT VS SHRI SANTOSH SINGH RAGHUWANSHI VIDISHA PAN AAQPR-5400H RESPONDENT APPELLANT BY : SMT. APARNA KARAN, SR. DR RESPONDENT BY : SHRI ASHISH GOYAL AND SHRI GIRISH AGRAWAL O R D E R PER JOGINDER SINGH, JM THIS APPEAL IS BY THE ASSESSEES AGAINST THE ORDER O F THE LEARNED CIT(A) DATED 18.8.2008. THE FIRST GROUND RAISED BY THE REVENUE IS THAT THE LEARNED COMMISSIONER OF INCOME TAX (APPEALS) WA S NOT JUSTIFIED IN DELETING THE ADDITION OF RS.12,42,615/- MADE BY THE AO ON ACCOUNT OF GROSS PROFIT ON SALE OF HERO HONDA MOTOR CYCLES BY APPLYING THE PROVISIONS OF SECTION 145(3) OF THE ACT. 2 2. DURING HEARING, THE LEARNED SENIOR DEPARTMENTAL REPRESENTATIVE SUPPORTED THE ASSESSMENT ORDER WHERE AS THE LD. COUNSEL FOR THE ASSESSEE DEFENDED THE IMPUGNED ORDE R. WE HAVE CONSIDERED THE RIVAL SUBMISSIONS OF LD. REP RESENTATIVES OF BOTH SIDES AND PERUSED THE MATERIAL AVAILABLE ON RE CORD. BRIEF FACTS ARE THAT THE ASSESSEE IS ENGAGED IN THE BUSINESS OF SAL E OF HERO HONDA MOTORS AND ALSO TRADING OF SPARE PARTS. THE ASSESSE E MAINTAINS MERCANTILE SYSTEM OF ACCOUNTING, DECLARED INCOME OF RS.5,671,080/- IN ITS RETURN FILED ON 31.10.2005. DURING THE ASSESSM ENT PROCEEDINGS IT WAS NOTICED BY THE AO THAT THE ASSESSEE EVALUATED I TS CLOSING STOCK ON ESTIMATE BASIS AND THE CLOSING STOCK OF SPARE PARTS WAS DETERMINED ON RECIPROCAL BASIS. AS PER THE REVENUE, THE GROSS PR OFIT WAS SHOWN AT 13.76% WHICH COMES TO AROUND 16% AND IN THE BALANCE -SHEET AND TRADING AND LOSS ACCOUNT, THE PROFIT OF SPARE PARTS WAS SHOWN ON ESTIMATE BASIS. THE STAND OF THE ASSESSEE IS THAT PRACTICALLY QUANTITATIVE DETAILS OF SPARE PARTS ARE NOT PRACTICALLY POSSIBLE TO MAINTAIN AS THERE ARE APPROXIMATELY 5000 TYPES OF SPARE PARTS, HOWEVER, T HE AO WAS NOT SATISFIED WITH THE CORRECTNESS AND COMPLETENESS OF THE ACCOUNTS, THEREFORE, HE REJECTED THE BOOKS OF ACCOUNTS U/S 14 5(3) OF THE ACT LEADING TO THE ADDITION OF RS.12,42,615/-. ON APPEA L, THE LEARNED COMMISSIONER OF INCOME TAX (APPEALS) DELETED THE AD DITION WHICH IS UNDER CHALLENGE BEFORE THE TRIBUNAL. 3 3. IF THE SALE OF MOTOR CYCLES IS ANALYSED AS AVAIL ABLE IN PARA 2 TO 5 OF THE ASSESSMENT ORDER, THE REASONING MENTION ED IN THE IMPUGNED ORDER AND THE ARGUMENTS ADVANCED BY THE RESPECTIVE LEARNED COUNSELS, WE HAVE FOUND THAT THE ADDITION OF RS.2,42,615/- WA S MADE TO THE GROSS PROFIT AFTER REJECTING THE BOOKS OF ACCOUNTS U/S 14 5(3) OF THE ACT. THE ASSESSEE ESTIMATED THE GROSS PROFIT AT 15% AGAINST 13.77% SHOWN DURING THE YEAR. ADMITTEDLY, THE ASSESSEE MAINTAIN S REGULAR BOOKS OF ACCOUNTS WHICH ARE AUDITED U/S 44AD OF THE ACT AND THE AUDIT REPORTS WERE ANNEXED WITH THE RETURN. THE ASSESSEE ALSO PR ODUCED BOOKS OF ACCOUNTS, BILLS AND VOUCHERS, DURING ASSESSMENT PRO CEEDINGS WHEREIN NOTHING ADVERSE WAS POINTED OUT. THE MAJOR REASON FOR ADDITION IS THAT AGAINST THE GROSS PROFIT OF 13.76% THE GROSS PROFIT ON MOTOR CYCLES IS AROUND 16% WHEREAS THE GROSS PROFIT OF SPARE PARTS AND LUBRICATES IS ON ESTIMATE BASIS. BEFORE THE LEARNED COMMISSIONER OF INCOME TAX (APPEALS) THE FORMULA OF THE ASSESSEE FOR CALCULATI NG THE GP RATE WAS AS FOLLOWS :- GP = OPENING STOCK+PURCHASES+DIRECT EXPENSES (SALE S+CLOSING STOCK) THE STAND OF THE ASSESSEE IS THAT IF THE AFORESAID FORMULA WOULD HAVE BEEN ADOPTED B Y THE AO THERE REMAINS NO ADDIT ION BECAUSE THERE WOULD HAVE BEEN NO DIFFERENCE IN GP RATE SHOWN BY T HE ASSESSEE AND WORKED OUT BY THE AO. THE GP RATE FOR THE YEAR UNDE R CONSIDERATION AND EARLIER YEARS IF COMPARED IT IS SEEN THAT FOR ASSES SMENT YEAR 2003-04 IT IS 4 13.55% FOR THE ASSESSMENT YEAR 2004-05 IT IS 13.51% WHEREAS FOR THE IMPUGNED ASSESSMENT YEAR IT IS 13.77% MEANING THERE BY THAT THERE IS INCREASING TREND IN THE GROSS PROFIT. IN THE IMPUGN ED ORDER THE LEARNED COMMISSIONER OF INCOME TAX (APPEALS) CONSIDERED THE FOLLOWING DECISIONS ALONG WITH OTHERS:- ITO V. SUBHASH SYNTHETICS; 259 ITR (AT) 78(JOD) SATPAL PANDIT & COMPANY V. ACIT; 244 ITR (AT) 160 ( ASR) SHRI VENKATESHWARA DAL FLOOR & OIL MILL CONTRACTORS COMPANY VS.ITO (1976) 2 TTJ (HYD) 788. ACIT V. MEWAR POLYTEX (P) LIMITED; 51 TTJ (JP) 698 PRAHLAD INDUSTRIES V. ITO; 52 TTJ 345 (DEL) MYSORE FERTILIZERS COMPANY V. CIT; 59 ITR 268 IF THE TOTALITY OF FACTS IS ANALYSED, WE FIND THAT WHILE REJECTING THE BOOKS OF ACCOUNTS BY APPLYING THE MATHEMATICAL CALC ULATION OF GP BY QUOTING THE INSTANCES OF PURCHASE AND SALE PRICE OF MOTOR CYCLES ON MOTHLY BASIS WITHOUT LOOKING INTO THE OPENING STOCK , EXPENSES DEBITED BUT HAS NOT QUOTED ANY INSTANCE THAT THERE WAS ACTU AL DEFECT IN THE BOOKS OF ACCOUNTS IN PURCHASE AND SALES AND EXPENSE S THEREOF WHEREAS THE ASSESSEE HAS DULY RECORDED THE ENTRIES IN THE B OOKS WHICH ARE AUDITED U/S 44AD OF THE ACT. THE ACCOUNTING POLICY ADOPTED IN THE PAST AND SUBSEQUENT YEAR HAS BEEN ACCEPTED BY THE DEPART MENT, THEREFORE, WITHOUT POINTING OUT ANY DEFECT IN THE BOOKS OF ACC OUNTS, THESE CANNOT BE REJECTED BY APPLYING THE PROVISIONS OF SECTION 1 45(3) OF THE ACT. OUR VIEW FINDS SUPPORTS FROM THE JUDICIAL PRONOUNCEMENT S MENTIONED ABOVE WHICH HAVE BEEN DULY CONSIDERED BY THE LEARNED COMM ISSIONER OF 5 INCOME TAX (APPEALS). IT IS NOT THE CASE THAT THER E IS A CHANGE IN THE METHOD OF ACCOUNTING OR UNDER-ESTIMATION OF PROFIT. ADMITTEDLY, THE ITO IS NOT BOUND TO ACCEPT THE DECLARED PROFIT BUT AT THE SAME TIME, HE IS NOT EXPECTED TO REJECT THE BOOKS OF ACCOUNTS WITHOUT PI N POINTING ANY SPECIFIC DEFECT IN THEM. THE AO HAS ALSO NOT GIVEN ANY CLEAR FINDING , THEREFORE INSIGNIFICANT MISTAKES CANNOT FORM THE BASIS FOR REJECTING THE BOOKS OF ACCOUNTS, AS WAS HELD BY THE HONBLE APEX COURT IN CIT V. PADAMCHAND RAMGOPAL; 76 ITR 719 (SC). EVEN IF THER E IS ESTIMATION OF PROFIT DUE TO PRACTICAL DIFFICULTIES, STILL THE ASS ESSEE MUST BE GIVEN OPPORTUNITY TO REBUT THE ESTIMATE. EVEN OTHERWISE, THE ESTIMATION MADE BY THE AO SHOULD NOT BE ARBITRARY, VAGUE AND FANCIF UL. EVEN THE ESTIMATE BASED ON BOTH RELEVANT AND IRRELEVANT MATERIAL CANN OT BE SUSTAINED EVEN PARTLY. WHERE THE ESTIMATION HAS A NEXUS TO THE MA TERIAL ON RECORD, THE EXERCISE OF DISCRETION SHOULD NOT BE ARBITRARY AND THE AO IS EXPECTED TO COUNTER THE EVIDENCE FILED BY THE ASSESSEE ABOUT GR OSS PROFIT RATE. THE RATIO LAID DOWN IN CIT V. EASTERN COMMERCIAL ENTERP RISE; 210 ITR 103 (CAL) SUPPORTS OUR VIEW. IN VIEW OF THESE FACTS, WE FIND NO INFIRMITY IN THE STAND OF THE LEARNED COMMISSIONER OF INCOME TAX (AP PEALS) WHICH IS AFFIRMED. THE NEXT GROUND PERTAINS TO ADDITION OF RS.1,40,10 1/- ON ACCOUNT OF SALE OF SPARE PARTS AND RS.13,260/- ON ACCOUNT O F GROSS PROFIT ON SALE OF LUBRICANTS. THE LEARNED SENIOR DEPARTMENTAL REPR ESENTATIVE 6 SUPPORTED THE ASSESSMENT ORDER WHEREAS THE LD. COUN SEL FOR THE ASSESSEE DEFENDED THE IMPUGNED ORDER. WE HAVE CONSIDERED THE RIVAL SUBMISSIONS OF LD. RE PRESENTATIVES OF BOTH SIDES AND FIND THAT THE ADDITION OF RS.13,260/ -WAS MADE ON ACCOUNT OF SALE OF LUBRICANTS AFTER REJECTING THE LOSS BY E STIMATING THE GROSS PROFIT AT 6% AGAINST 3.6% SHOWN BY THE ASSESSEE. LIKEWISE , ADDITION OF RS.1,40,101/- WAS MADE BY ESTIMATING THE GROSS PROF IT OF 20% BY REJECTING THE BOOKS OF ACCOUNTS THEREBY INVOKING TH E PROVISIONS OF SECTION 145(3) OF THE ACT. THE ASSESSEE IS DEALING IN ABOUT 5000 ITEMS OF SPARE PARTS, THEREFORE, PRACTICALLY MAY NOT BE P OSSIBLE TO MAINTAIN QUANTITATIVE DETAILS WHEREAS THE STOCK OF SPARE PAR TS IS KEPT FOR SERVICING THE VEHICLES AND NOT FOR SALE IN THE MARKET. THE G P RATE IN RESPECT OF SPARE PARTS WAS ACCEPTED IN THE PAST AND IN SUBSEQU ENT YEARS BY FRAMING AN ORDER U/S 143(3) OF THE ACT. EVEN OTHER WISE, NO SOLID BASIS HAS BEEN MENTIONED IN REJECTING THE BOOKS OF ACCOUN TS AND ESTIMATING THE GROSS PROFIT. IN SUCH A SITUATION, THE DECISIO N IN DEVJI KESHAVJI GINNING & TRADING COMPANY PRIVATE LIMITED V. DCIT ( 2005) 3 SOT 803 (BANG) WHEREIN IT WAS HELD THAT BOOKS OF ACCOUNTS C ANNOT BE REJECTED SIMPLY ON THE GROUND THAT QUANTITATIVE DETAILS OF S TOCK ARE NOT MAINTAINED, FURTHER FORTIFIES THE CASES OF THE ASSE SSEE. SIMILAR IS THE SITUATION FOR LUBRICANTS WHICH ARE USED FOR SERVICI NG THE VEHICLES AND SUCH LUBRICANTS ARE NOT OPEN FOR SALE IN THE MARKET , CONSEQUENTLY, THERE 7 IS NO INFIRMITY IN THE STAND OF THE LEARNED COMMISS IONER OF INCOME TAX (APPEALS), WHICH SEEMS TO BE MORE REASONED ONE. FINALLY, THE APPEAL OF THE REVENUE IS DISMISSED. ORDER PRONOUNCED IN OPEN COURT ON 4 TH JUNE, 2010. SD SD (V.K. GUPTA) (JOGINDER SINGH) ACCOUNTANT MEMBER JUDICIAL MEMBER JUNE 4 , 2010 COPY TO: APPELLANT, RESPONDENT, CIT, CIT(A), DR, G UARD FILE *DBN/