Dy.CIT, Satara Circle, Satara, Satara V. Shri Radheshyam Bherulal Bhandari, Satara

ITA 55/PUN/2010

• Counselvise Citation: 5524514 RSA 2010
• Duration Of Justice: 1 year(s) 7 month(s) 22 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 30-08-2011
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: A
• Next Hearing Date: 18-07-2012
• Assessment Year: 2006-2007
• Appeal Filed On: 08-01-2010
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: ANN KAPTHUAMA
• Keywords: Tax effect
• Section: 143(3); 144

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL PUNE BENCH B, PUNE BEFORE SHRI I C SUDHIR, JUDICIAL MEMBER AND SHRI G.S. PANNU, ACCOUNTANT MEMBER ITA NO 55/PN/10 (ASSTT. YEAR: 2006-07) DY.COMMISSIONER OF INCOME-TAX, .. APPELLANT SATARA CIR., SATARA VS. SHRI RADHESHYAM B BHANDARI .. RESPOND ENT MARKET YARD, SATARA PAN ABHPB7882R APPELLANT BY : SMT ANN KAPTHUAMA RESPONDENT BY : SHRI M K KULKARNI ORDER PER G.S.PANNU, A.M: THIS APPEAL BY THE REVENUE IS DIRECTED AGAINST THE OR DER OF THE COMMISSIONER OF INCOME-TAX (APPEALS)-III, PUNE DATED 7. 10.2009 WHICH, IN TURN, HAS ARISEN FROM THE ORDER DATED 27.6.2008 PASSED BY TH E ASSESSING OFFICER PASSED UNDER SECTION 143(3) OF THE INCOME-TAX ACT, 1961 (IN SHORT THE ACT) FOR THE ASSESSMENT YEAR 2006-07. 2 2. THE FIRST ISSUE RAISED IN THIS APPEAL BY THE REVENUE IS THAT THE COMMISSIONER OF INCOME-TAX (APPEALS) ERRED IN DELETING THE ADDITION OF RS 15,11,878/- ON ACCOUNT OF FALL IN GROSS PROFIT IN GHEVD A ACCOUNT. THE FACTS LEADING TO THIS ADDITION ARE THAT ON PERUSAL OF THE ACCOUNTS AND DETAILS FILED, THE ASSESSING OFFICER FOUND THAT DURING THE RELEVANT ASSESSMEN T YEAR, THE ASSESSEE MADE PURCHASES AND SALES IN AS MANY AS 27 ITEMS WHICH INCLUDE D, DHANA, GHEVADA, MOONG, UDID, MATKI, RICE, WHEAT, JAWARI, PAVA TA, ETC. AS PER THE TRADING ACCOUNT FOR THE YEAR IN QUESTION, THE OPENING STOCK OF GHEVADA AS ON 1.4.2005 WAS RS 2,08,12,500/- AND PURCHASES DURING THE Y EAR WERE OF RS 16,41,99,343/-. ON SALES OF GHEVADA OF RS 15,91,45,08 7/-, THE ASSESSEE SHOWED A GROSS PROFIT OF RS 47,57,243/-. THE CLOSING STOCK WAS SHOWN AT 13,20,000 KG. AND THE GROSS PROFIT PERCENTAGE TO SALES WAS SHOWN AT 2.9 9%. ON THESE FACTS, THE ASSESSING OFFICER OBSERVED THAT THE NATURE AND ACTIVITIES OF THE ASSESSEE AS FAR AS GHEVADA TRADING IS CONCERNED, IT REMAINED ALMOST IDE NTICAL AS IN THE ASSESSMENT YEAR 2005-06 WHEREIN ADDITION ON ACCOUNT OF TH E DISCREPANCIES POINTED OUT THEREIN HAS BEEN MADE. ACCORDINGLY FOR TH E DETAILED REASONS GIVEN IN THE ASSESSMENT ORDER FOR THE YEAR 2005-06 AND BY ADOPT ING THE SAID REASONING, THE ASSESSING OFFICER CALCULATED THE GROSS PROFIT PERCENTAGE IN RESPECT OF GHEVADA AT 3.94% WHICH RESULTED IN AN ADDITION OF RS 1 5,11,878/-. ACCORDINGLY, THE ASSESSING OFFICER MADE AN ADDITION OF RS 15,11,878/- IN THE GHEVADA ACCOUNT. 3. IN APPEAL, THE COMMISSIONER OF INCOME-TAX (APPEALS) DELETED THE ADDITION BY FOLLOWING HIS ORDER IN THE ASSESSEES CASE FOR THE PRE CEDING ASSESSMENT YEAR 2005-06. BEING AGGRIEVED, THE REVENUE IS IN FURTHER APPEAL BEFORE US. 4. BEFORE US, THE LEARNED DEPARTMENTAL REPRESENTATIVE , APPEARING FOR THE REVENUE, HAS POINTED OUT THAT THE COMMISSIONER OF INC OME-TAX (APPEALS) HAS DELETED THE ADDITION FOLLOWING HIS ORDER ON A SIMILA R ISSUE IN ASSESSEES OWN CASE FOR THE PRECEDING ASSESSMENT YEAR 2005-06. IT WAS ALSO SUBM ITTED THAT NO APPEAL 3 WAS FILED BY THE REVENUE AGAINST THE ORDER OF THE COM MISSIONER OF INCOME-TAX (APPEALS) FOR THE ASSESSMENT YEAR 2005-06 FOR THE REASON THAT THE TAX EFFECT WAS BELOW THE LIMITS PRESCRIBED BY THE CBDT FOR PREFERRIN G APPEALS BEFORE THE TRIBUNAL. FOR THE SAID REASON, IT IS SOUGHT TO BE MADE OUT THAT NON-FILING OF APPEAL BY THE REVENUE IN THE ASSESSMENT YEAR 2005-06 CANNOT BE CONSTRUED AS ACCEPTANCE OF THE COMMISSIONER OF INCOME-TAX (APPEALS)S D ECISION ON MERITS AND THE SAME WOULD NOT OPERATE AS A PRECEDENT. 5. IN OUR VIEW, THE LEARNED DEPARTMENTAL REPRESENTAT IVE IS CORRECT IN HER ASSERTION HAVING REGARD TO THE PROVISIONS OF SUB-SECTION (2) OF SECTION 268A OF THE ACT. IN THIS VIEW OF THE MATTER, THE LEARNED DEPARTME NTAL REPRESENTATIVE REFERRED TO THE ASSESSMENT ORDER FOR THE INSTANT ASSESSMENT YEAR WH EREIN THE RELEVANT DISCUSSION OF THE ASSESSMENT ORDER IN THE PRECEDING ASSESSMENT YEAR 2005-06 HAS BEEN EXTRACTED. THE REASONING ADOPTED BY THE ASSESSIN G OFFICER IN THE INSTANT YEAR IS BASED ON A DISCUSSION MADE IN THE EARLIER ASSESSMENT YEAR 2005- 06. AS PER THE LEARNED DEPARTMENTAL REPRESENTATIVE, THE ASSESSING OFFICER WAS JUSTIFIED IN REJECTING THE TRADING RESULTS DECLARED BY THE ASSESSEE WITH REGARD TO THE TRADING IN GHEVADA, INASMUCH AS THE ASSESSEE COULD N OT FURNISH THE REQUISITE VARIETY-WISE QUANTITATIVE DETAILS OF THE CLOSING STOCK. FU RTHER, IT WAS POINTED OUT THAT THERE IS A VARIATION IN THE GROSS PROFIT RATE WIT HIN THE VARIOUS VARIETIES OF GHEVADA PURCHASED AND SOLD DURING THE YEAR. QUANTITY-W ISE WORKING OF THE GHEVADA REMAINING IN THE CLOSING STOCK WAS NOT AVAILABLE FROM THE RECORDS MAINTAINED AND, THEREFORE, THE GROSS PROFIT DECLARED W AS FOUND UNACCEPTABLE. DURING THE YEAR GROSS PROFIT RATE DECLARED ON TRADING OF GHEVADA WAS SHOWN AT 2.99% WHEREAS THE ASSESSING OFFICER APPLIED A GROSS PROFIT RATE OF 3.94% BASED ON THE AVERAGE GROSS PROFIT RATE FOR THE ASSESSMENT YEARS 2003-04 AND 2004-05 AND, THEREFORE, ADDITION OF RS 15,11,878/- ON THIS COU NT WAS JUSTIFIED. IN THE COURSE OF HER SUBMISSIONS, THE LEARNED DEPARTMENTAL REPRE SENTATIVE RELIED UPON THE JUDGMENT OF THE HONBLE SUPREME COURT IN THE CAS E OF NAMASIVAYAM 4 CHETHIAR V CIT 38 ITR 577(SC) TO CONTEND THAT IN THE ABSENCE OF THE STOCK REGISTER, THE TRADING RESULTS DECLARED BY THE ASSESSEE WERE LIABLE TO BE REJECTED. 6. ON THE OTHER HAND, THE LEARNED COUNSEL FOR THE R ESPONDENT-ASSESSEE VEHEMENTLY SUBMITTED THAT THE ASSESSING OFFICER WAS NOT JU STIFIED IN MAKING THE DISALLOWANCE BECAUSE NO DEFECTS WERE FOUND IN THE BOOKS OF ACCOUNT. THE ASSESSEE HAD FILED HIS RETURN OF INCOME ON THE BASIS OF A UDITED ACCOUNTS. EVEN OTHERWISE, IT IS SOUGHT TO BE POINTED OUT THAT THE RE ASONING ADOPTED BY THE COMMISSIONER OF INCOME-TAX (APPEALS) IN THE ASSESSMENT YEA R 2005-06 IS FAIR AND PROPER AND THE SAME COVERS THE CONTROVERSY IN THIS Y EAR ALSO. ACCORDING TO THE LEARNED COUNSEL ONCE THE RELIABILITY OF THE ACCOUNT BOOKS IS NOT DISPUTED, A SELECTIVE REJECTION OF GROSS PROFIT OF A PARTICULAR ITEM OF TRADING CANNOT BE DONE. IT IS ALSO POINTED OUT THAT THE DISALLOWANCE HAS BEEN MADE ON MERE SURMISES AND PRESUMPTIONS AND THERE IS NO MATERIAL OR EVIDENCE TO SHO W THAT ANY PROFIT HAS BEEN EARNED BY THE ASSESSEE OUTSIDE THE BOOKS OF ACCOUNT ON GHEVADA TRADING. 7. WE HAVE CAREFULLY CONSIDERED THE RIVAL SUBMISSIONS FA CTUALLY SPEAKING, THE ASSESSEE IN THE PRESENT CASE IS ENGAGED IN THE ACTIVIT Y OF TRADING IN VARIOUS ITEMS, VIZ. DHANA, GHEVADA, MOONG, UDID, MATKI, RICE, WHEAGT, JAWARI, PAVATA, ETC. ONE OF THE MAJOR COMMODITIES TRADED BY THE ASSESSEE IS GHEVADA. THE BOOKS OF ACCOUNT AND OTHER DETAILS PRODUCED BY THE ASSESSEE REVEALED THAT IT WAS MAINTAINING DISTINCT DETAILS OF THE TRADING DONE IN DIFFERENT ITEMS. THE ASSESSING OFFICER EXAMINED THE TRADING ACCOUNT IN RELATIO N TO SALE AND PURCHASE OF GHEVADA. THE ASSESSING OFFICER NOTICED THAT DIFFERENT VARIETIES OF GHEVADA WERE PURCHASED AND SOLD BY THE ASSESSEE AND THAT THE PRI CES OF VARIOUS VARIETIES WERE DIFFERENT. THE ASSESSING OFFICER NOTICED THAT THE L EVEL OF GROSS PROFIT EARNED BY THE ASSESSEE ON DIFFERENT VARIETIES OF GHEVADA WAS DI FFERENT AND THE SAME WAS NOT IDENTICAL. WITH REGARD TO THE STOCK REGISTER, ASSESSE E CONTENDED THAT THE LEDGER MAINTAINED BY HIM NARRATED THE DETAILS OF PUR CHASES AND SALES AS WELL AS THE STOCK OF PARTICULAR COMMODITY THE ASSESSEE HAD TRADED. THE ASSESSING 5 OFFICER FOUND FAULT WITH THE SAID, BECAUSE ACCORDING T O HIM, NO SUCH DETAILS AND WORKINGS WERE AVAILABLE AS FAR AS THE DIFFERENT VARIETI ES OF GHEVADA PURCHASED AND SOLD BY THE ASSESSEE WAS CONCERNED. ACCORDING TO THE ASSESSI NG OFFICER, BECAUSE OF SUCH LACK OF DETAILS, AN EXERCISE TO DETERMINE T HE VALUATION OF CLOSING STOCK OF GHEVADA IN TERMS OF DIFFERENT VARIETIES WAS NOT POSSIBLE. FOR ALL THE ABOVE REASONS, WHICH WERE ALSO EXISTING IN PRECEDING ASSESSM ENT YEAR 2005-06, THE ASSESSING OFFICER REJECTED THE GROSS PROFIT DECLARED WIT H REGARD TO THE GHEVADA TRADING. INSTEAD, HE APPLIED AN AVERAGE OF T HE GROSS PROFIT RATES FOR ASSESSMENT YEARS 2003-04 AND 2004-05 IN ORDER TO COMPUTE THE GROSS PROFIT IN GHEVADA FOR THE YEAR UNDER CONSIDERATION, WHICH RESULT ED IN AN ADDITION OF RS 15,11,878/-. 8. PERTINENTLY, THE ASSESSING OFFICER HAS NOTICED THAT H E WAS NOT REJECTING THE BOOKS OF ACCOUNT AS A WHOLE, BUT HE DEEMED IT APPROPRIAT E TO INTERFERE WITH THE GROSS PROFIT DECLARED WITH REGARD TO GHEVADA TRADING. IN OUR CONSIDERED OPINION, SECTION 145(3) OF THE ACT EMPOWERS THE ASSESSING OFFICER TO DISREGARD BOOK RESULTS AND MAKE AN ASSESSMENT IN THE MANNER PROVIDED UND ER SECTION 144 OF THE ACT TO THE BEST OF HIS JUDGMENT. HOWEVER, THE SAID POWER OF THE ASSESSING OFFICER IS CIRCUMSCRIBED ON HIS BEING SATISFIED ABOUT THE INCORRECTNESS OR INCOMPLETENESS OF THE ACCOUNTS OF THE ASSESSEE, OR WHERE THE METHOD OF ACCOUNTING PROVIDED IN SECTION 145(1) OR ACCOUNTING STAN DARDS AS NOTIFIED UNDER SECTION 145(2) HAVE NOT BEEN REGULARLY FOLLOWED BY TH E ASSESSEE. OSTENSIBLY, IN THIS CASE THE ONLY PLAUSIBLE PROVISION INVOKED BY THE ASSESSI NG OFFICER IS WITH REGARD TO NOT BEING SATISFIED ABOUT THE CORRECTNESS OR COMPLETENESS OF THE ACCOUNTS OF THE ASSESSEE QUA THE TRADING OF GHEVADA. IN SO FAR AS THE METHOD OF ACCOUNTING IS CONCERNED, THE ASSESSEE HAD ASSERTED BEFORE TH E LOWER AUTHORITIES THAT IT WAS MAINTAINING ACCOUNTS IN SIMILAR FASHION CONSIST ENTLY AND THERE IS NO DISPUTE TO THE AFORESAID ASSERTION. IT IS ALSO NOT A CASE WHERE ANY OF THE ACCOUNTING STANDARDS NOTIFIED UNDER SECTION 145(2) IS SH OWN NOT TO HAVE BEEN FOLLOWED BY THE ASSESSEE. THEREFORE, ONE HAS TO EXAMIN E WHETHER IN THE PRESENT 6 CASE, THERE WAS ENOUGH MATERIAL AND EVIDENCE WITH THE A SSESSING OFFICER TO BE SATISFIED ABOUT THE INCORRECTNESS OR INCOMPLETENESS OF THE ACCOUNTS OF THE ASSESSEE SO AS TO EMPOWER HIM, IN TERMS OF SECTION 145(3), TO DETERMINE THE ASSESSMENT TO THE BEST OF HIS JUDGMENT PER SECTION 144 OF T HE ACT. HAVING PERUSED THE IMPUGNED ASSESSMENT ORDER COUPLED WITH THE RE ASONING ADOPTED BY THE ASSESSING OFFICER FROM HIS ORDER FOR THE ASSESSMENT YEA R 2005-06, IT EMERGES THAT THE ONLY REASON TO DISREGARD TRADING RESUL TS QUA THE GHEVADA TRADING IS THE VARIATION IN THE GROSS PROFIT IN DIFFER ENT ASSESSMENT YEARS. QUITE CLEARLY AND, AS HAS BEEN NOTICED BY THE ASSESSING OFFICER, THERE ARE VARIOUS VARIETIES OF GHEVADA BEING PURCHASED AND SOLD BY THE A SSESSEE. THEREFORE, IN THE ABSENCE OF ANY ANALYSIS OF THE MIX OF VARIETIES OF GHEVADA PURCHASED AND SOLD IN DIFFERENT YEARS, COMPARING GROSS PROFIT RATES WO ULD BE A MISNOMER. MOREOVER, THE ASSESSEE RIGHTLY EXPLAINED BEFORE THE LO WER AUTHORITIES THAT LEVEL OF PROFITS IN TRADING IN FOOD GRAINS WAS GOVERNED BY THE VOLATILITY OF THE MARKET FORCES AND CANNOT BE STATIC IN EACH YEAR. ALL THESE ASPECTS, IN OUR VIEW, HAVE TO BE KEPT IN MIND AS AN EXPLANATION FOR VARYING GROSS PROFIT RAT ES IN DIFFERENT YEARS. IN SO FAR AS THE PLEA OF THE DEPARTMENT THAT NECESSARY STOCK RECORDS FOR DIFFERENT VARIETIES OF GHEVADA TRADED WERE NOT AVAILABLE AND, THEREFORE , TRADING RESULTS WERE LIABLE TO BE REJECTED IN TERMS OF THE JUDGMENT OF THE HONB LE SUPREME COURT IN THE CASE OF NAMASIVAYAM CHETHIAR (SUPRA), WE HAVE CAREFULLY PER USED THE SAID JUDGMENT AND FIND THAT IT DOES NOT LAY DOWN AN ABSOLUTE PROPOSI TION THAT IN ABSENCE OF THE REQUISITE STOCK RECORDS TRADING RESULTS HAVE NECESSARILY TO BE REJECTED. IN FACT, IT HAS BEEN NOTICED BY THE HONBLE SUPREME COURT THAT WAN T OF STOCK REGISTER HAS TO BE COUPLED WITH ALL OTHER MATERIALS TO ASCERTAIN WHETH ER CORRECT PROFITS OF THE BUSINESS ARE DEDUCIBLE OR NOT. IN THE PRESENT CASE, APA RT FROM THE ASSERTION OF THE REVENUE THAT THE CLOSING STOCK OF DIFFERENT VARIETIE S OF GHEVADA CANNOT BE CHECKED , THERE IS NO OTHER INFIRMITY OR DEFECT POINTED OUT IN THE TRADING ACTIVITY QUA THE ACCOUNTS OF THE GHEVADA TRADING CARRIED OUT B Y THE ASSESSEE. IN FACT VARIATION IN THE GROSS PROFIT RATE CAN AT BEST BE TAKEN AS AN INDICATOR TO INVESTIGATE 7 THE ACCOUNTS OF THE ASSESSEE FURTHER, BUT THAT BY ITSELF CANNOT BE CONSIDERED AS A DEFECT SO AS TO BE SATISFIED ABOUT THE INCOMPLETENESS OR INCORRECTNESS OF THE ACCOUNTS OF THE ASSESSEE. NOTABLY, THERE IS NO EVIDENCE OF THE ASSESSEE HAVING CARRIED OUT ANY SALE OR PURCHASE OF GHEVADA OUTSIDE BOO KS OF ACCOUNT AND, THEREFORE, IN THE ABSENCE OF ANY SPECIFIC DEFECT OR INFIR MITIES, THE TRADING RESULTS OF GHEVADA TRADING COULD NOT HAVE BEEN REJECTED BY THE ASSESSING OFFICER. IN OUR VIEW, UNDER THESE CIRCUMSTANCES, THE COMMISSIONER OF INCOME -TAX (APPEALS) MADE NO MISTAKE IN DELETING THE ADDITION. THE ORDER O F THE COMMISSIONER OF INCOME-TAX (APPEALS) IS, THEREFORE, AFFIRMED. THUS, ON THIS GROUND, THE REVENUE FAILS. 9. THE NEXT ISSUE RAISED BY THE REVENUE IN ITS APPEAL RELATES TO THE DISALLOWANCE OF RS 64,608/- MADE OUT OF TRAVELLING AND SHOP EXPENSES. DURING THE COURSE OF ASSESSMENT PROCEEDINGS, THE ASSESSING OFFICER D ISALLOWED 10% OF THE AMOUNT OF EXPENDITURE INCURRED ON TRAVELLING EX PENSES (RS 5,23,687/-) AND SHOP EXPENSES (RS 1,22,395/-) FOR THE REASON THAT ELEME NT OF PERSONAL EXPENSES OF THE ASSESSEE AND RELATIVES CANNOT BE RULED OUT AND MO ST OF THE EXPENSES WERE SUPPORTED BY SELF-MADE VOUCHERS. IN APPEAL, THE COMMISSIO NER OF INCOME-TAX (APPEALS) DELETED THE DISALLOWANCE MADE BY THE ASSESSING OFFICER. BEING NOT SATISFIED WITH THE SAID ACTION OF THE COMMISSIONER OF I NCOME-TAX (APPEALS), THE REVENUE IS IN FURTHER APPEAL BEFORE US. 10. AFTER CONSIDERING THE SUBMISSIONS OF RIVAL PARTIES, W E ARE OF THE CONSIDERED OPINION THAT NO INTERFERENCE IS CALLED FOR IN THE IMPU GNED ORDER OF THE COMMISSIONER OF INCOME-TAX (APPEALS). WE FULLY ENDORSE THE FINDING OF THE COMMISSIONER OF INCOME-TAX (APPEALS) THAT THE DISALLOWA NCES HAVE BEEN MADE WITHOUT GIVING EVEN A SINGLE ILLUSTRATION IN SUPPORT O F THE ASSESSING OFFICERS OBSERVATION THAT PERSONAL EXPENSES ARE DEBITED UNDER T HE HEAD TRAVELLING EXPENSES AND SHOP EXPENSES. WE ACCORDINGLY AFFIRM THE DECISION OF THE 8 COMMISSIONER OF INCOME-TAX (APPEALS) AND DISMISS THE GROUN D OF APPEAL OF THE REVENUE. 11. IN THE RESULT, THE APPEAL OF THE REVENUE IS DISMI SSED. DECISION PRONOUNCED IN THE OPEN COURT ON THIS 30 TH DAY OF AUGUST, 2011. SD/- SD/- (I.C. SUDHIR) JUDICIAL MEMBER (G.S. PANNU) ACCOUNTANT MEMBER PUNE: DATED: 30 TH AUGUST, 2011 B COPY OF THE ORDER IS FORWARDED TO : 1. SHRI RADHESHYAM B BANDARI, SATARA 2. THE DCIT, SATARA CIR. SATARA 3. THE CIT(A)-III PUNE 4. THE CIT- III PUNE 5. THE D.R, B BENCH, PUNE 6. GUARD FILE TRUE COPY BY ORDER ASSISTANT REGISTRAR ITAT, PUNE BENCHES, PUNE