The ACIT, Bhopal V. Shri Atul Kumar Singhai., Bhopal

ITA 551/IND/2009

• Counselvise Citation: 55122714 RSA 2009
• Duration Of Justice: 1 year(s) 4 month(s) 19 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 26-04-2011
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: DB
• Next Hearing Date: 05-04-2011
• Assessment Year: 2005-2006
• Appeal Filed On: 07-12-2009
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: PRADEEP KUMAR MITRA
• Assessee Lawyers: H P VERMA
• Keywords: Depreciation

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL , INDORE BENCH, INDORE BEFORE SHRI JOGINDER SINGH, J.M. AND SHRI R.C.SHARMA, A.M. PAN NO. : ALNPS4608N I.T.A.NO. 133 /IND/20 10 A.Y. : 2005 - 06 SHRI ATUL KUMAR SINGHAI, ACIT, 40A, BDA COLONY, KOHEFIZA, VS 2(1) , BHOPAL. BHOPAL. APPELLANT RESPONDENT I.T.A.NO. 551 /IND/20 09 A.Y. : 2005 - 06 ACIT, SHRI ATUL KUMAR SINGHAI, 2(1), BHOPAL. VS 40A, BDA COLONY, KOHEFIZA, BHOPAL. APPELLANT RESPONDENT ASSESSEE BY : SHRI H.P.VERMA, ADV. AND SHRI ASHISH GOYAL, C.A. DEPARTMENT BY : SHRI PRADEEP KUMAR MITRA, SR. DR - : 2 : - 2 O R D E R PER R. C. SHARMA, A.M. TH ESE ARE THE CROSS APPEALS FILED BY THE ASSESSEE AND REVENUE AGAINST THE ORDER OF LD. CIT(A) DATED 14.9.2009 FOR THE ASSESSMENT YEAR 2005 - 0 6. 2. THE FACTS, IN BRIEF, ARE THAT THE ASSESSEE IS ENGAGED IN BUSINESS OF TRADING IN FOODGRAINS. DURING THE COURSE OF ASSESSMENT, THE AO FOUND THAT THE ASSESSEE HAS SHOWN GROSS PROFIT RATE OF 3.10 % AS AGAINST GROSS PROFIT RATE OF 8.5 % IN THE IMMEDIATELY PR ECEDING YEAR. THE AO ALSO NOTED THAT THERE IS A DECLINE IN NET PROFIT RATE. ACCORDINGLY, THE ASSESSEE WAS ASKED TO FURNISH EXPLANATION REGARDING FALL IN GROSS PROFIT RATE AND NET PROFIT RATE. AFTER CONSIDERING ASSESSEE S REPLY, THE AO HELD THAT CONTENTIO N OF THE ASSESSEE WAS NOT TENABLE. ACCORDINGLY, HE APPLIED THE NET PROFIT RATE OF 19.11 % AND MADE THE TRADING ADDITION ACCORDINGLY. BY THE IMPUGNED ORDER, THE LD. CIT(A) OBSERVED THAT IT IS NOT APPROPRIATE TO APPLY NET PROFIT RATE SINCE THE TURNOVER OF T HE ASSESSEE HAS INCREASED FROM RS. 10.61 LAKHS TO RS. 65.52 LAKHS AS COMPARED TO THE IMMEDIATELY - : 3 : - 3 PRECEDING YEAR. ACCORDINGLY, HE APPLIED THE GROSS PROFIT RATE OF 6.5 % AS AGAINST GROSS PROFIT RATE OF 3.07 % AS DECLARED BY THE ASSESSEE . BOTH ASSESSEE AND RE VENUE ARE IN APPEAL BEFORE US. 3. WE HAVE CAREFULLY CONSIDERED THE RIVAL CONTENTIONS AND FIND FROM RECORD THAT THE AO HAS REJECTED THE ASSESSEE S BOOKS OF ACCOUNT AND APPLIED NET PROFIT RATE OF 19.11 % AND MADE TRADING ADDITION. THE OBSERVATIONS OF THE AO WAS THAT AVERAGE PRICE OF SOYABEAN WAS RS. 1299.45 PER QTL. A ND THAT SOME OF THE PURCHASE BILLS COULD NOT BE VERIFIED. IN THIS REGARD, WE FOUND THAT FINDING OF THE AO IS FACTUALLY INCORRECT INSOFAR AS SOYABEAN ACCOUNT WAS SEGREGATED INTO TWO PARTS ONE RELATIN G TO PURCHASE PRICE OF SOYABEAN AND OTHER EXPENSES LIKE HAMMALI, MANDI TAX ETC. THE PURCHASE ACCOUNT SHOWED RATE OF SOYABEAN RANGING FROM RS. 1065/ - TO RS. 1774/ - PER QT. THUS, THE TOTAL PURCHASES OF 2908 QTLS WAS @ RS. 1299.94 PER QTL. SIMILARLY, WE ALSO FOUND THAT WITH REGARD TO THE BILLS ALLEGED TO BE NOT VERIFIABLE, THE PURCHASES WERE MADE THROUGH KRISHI MANDI AND THE COPY OF THE PURCHASE ACCOUNT WITH MANDI RECEIPT WAS ALSO PLACED IN THE PAPER BOOK GIVING FULL DETAILS OF - : 4 : - 4 BILLS OF RS. 1,08,387/ - AND RS. 3,52,958/ - . THE ASSESSEE HAD ALSO PRODUCED MANDI RECEIPT BEFORE THE AO. 4. THE AO HAS ALSO ALLEGED THAT THE ASSESSEE HAD MADE A SALE TO THE SISTER CONCERN AT A PRICE LOWER THAN THE PREVAILING PRICE, ACCORDINGLY, THE ASSESSEE S BOOKS RESULT WERE HELD NOT TO B E ACCEPTABLE AND AFTER REJECTING THE SAME, THE AO APPLIED NET PROFIT RATE OF 19.11 %. AFTER GIVING DETAILED REASONING, THE LD. CIT(A) REACHED TO THE CONCLUSION THAT EVEN AFTER REJECTING BOOK RESULT, THE AO OUGHT TO APPLY FAIR GROSS PROFIT RATE COMPARABLE TO THE EARLIER YEARS AND ALSO TO THE NATURE OF TRADE THE ASSESSEE WAS ENGAGED. THE LD. CIT(A) FOUND THAT EVEN IF ANY ADDITION ON ACCOUNT OF GOODS HAVING BEEN SOLD TO SISTER CONCERN IS CONSIDERED, THE MAXIMUM ADDITION, WHICH CAN BE MADE IS TO THE EXTENT OF RS. 2,10,957/ - . ACCORDINGLY, HE APPLIED GROSS PROFIT RATE OF 6.50 % AS AGAINST DECLARED RATE OF 3.07 % AND THE ADDITION WAS ACCORDINGLY RETAINED TO THE EXTENT OF RS. 2,25,000/ - . 5. AS PER OUR CONSIDERED VIEW WHEN THE BOOKS OF ACCOUNT ARE REJECTED, THEN THE PR OFIT IS TO BE ESTIMATED ON THE SALES UNDERTAKEN BY THE ASSESSEE. THE GROSS PROFIT RATE IS THE PROPER - : 5 : - 5 CRITERIA FOR DETERMINING THE PROFIT EARNED BY THE ASSESSEE, IN SO FAR AS INDIRECT EXPENSE REMAIN CONSTANT AND ARE NOT DEPENDED ON THE VOLUME OF SALES. ACCO RDINGLY, IT IS APPROPRIATE TO APPLY GROSS PROFIT RATE BY COMPARING THE SALES MADE IN THE PREVIOUS YEAR AND INCREASE IN SALE DURING THE YEAR UNDER CONSIDERATION. IF THERE IS A SUBSTANTIAL INCREASE IN SALE, THERE IS BOUND TO DECLINE IN GROSS PROFIT RATE. E V EN AFTER REJECTION OF BOOKS OF ACCOUNT, THE GROSS PROFIT RATE TO BE APPLIED SHOULD BE BASED ON MATERIAL AVAILABLE ON RECORD VIS - - VIS GROSS PROFIT RATE SHOWN BY THE ASSESSEE IN EARLIER YEARS AND ALSO THE GROSS PROFIT RATE SHOWN BY OTHER TRADERS ENGAGED IN THE SIMILAR LINE OF ACTIVITIES. FROM THE RECORD, WE FOUND THAT DURING THE YEAR UNDER CONSIDERATION, THE SALES OF THE ASSESSEE HAS INCREASED TO RS. 65.52 LAKHS AS COMPARED TO SALES OF RS. 10.62 LAKHS IN THE IMMEDIATELY PRECEDING YEAR. WHENEVER THERE IS AN INCREASE IN SALE AND WHICH ALSO T O THE 6.5 TIMES OF THE SALES RECORDED IN EARLIER YEARS, THERE IS BOUND TO DECLINE IN THE GROSS PROFIT RATE. THE FIRST TWO REASONS GIVEN BY THE ASSESSING OFFICER FOR REJECTING THE BOOKS OF ACCOUNT IS FOUND TO BE NOT SUSTAINA BLE. HOWEVER, THE REASONS GIVEN BY THE AO WITH REGARD TO ASSESSEE - : 6 : - 6 HAVING SOLD GOODS TO ITS SISTER CONCERNS AT A LOWER RATE WHICH RESULTED INTO DECLINE IN PROFIT, APPEARS TO BE JUSTIFIABLE REASONS FOR REJECTING THE BOOK RESULT. HOWEVER, AT THE VERY SAME TI ME, WE HAVE TO SEE AS TO WHAT EXTENT SUCH A TRANSACTION WITH SISTER CONCERN HAS RESULTED INTO DECLINE IN ASSESSEE S PROFIT. THE LD. CIT(A) FOUND THAT BY SHOWING TRANSACTION OF SALE AND REPURCHASE OF SOYABEAN WITH THE SISTER CONCERNS HAD REDUCED PROFIT TO T HE EXTENT OF RS. 2,10,957/ - AS THE SALES WERE SHOWN AT RS. 20,63,449/ - AND REPURCHASE OF THE SAME GOODS WERE MADE AT RS. 22,74,408/ - WITHIN A TIME SPAN OF FEW DAYS. THIS FINDING OF THE LD. CIT(A) HAS NOT BEEN CONTROVERTED BY THE DEPARTMENT B Y BRINGING ANY POSITIVE MATERIAL ON RECORD. WE, THEREFORE, DO NOT FIND ANY REASON TO INTERFERE IN THE ORDER OF THE LD. CIT(A) FOR TRADING ADDITION SUSTAINED BY HIM AFTER ESTIMATING GROSS PROFIT AT 6.5 % AS AGAINST GROSS PROFIT OF 3.07 % SHOWN BY THE ASSESSEE. 6. THE ASSESS EE IS ALSO AGGRIEVED BY ADDITION OF RS. 30,000/ - CONFIRMED ON ACCOUNT OF HOUSE HOLD EXPENSES. FROM THE RECORD, WE FOUND THAT THE ASSESSEE HAD SHOWN WITHDRAWAL OF RS. 18,000/ - . THE AO ESTIMATED HOUSE HOLD EXPENSES AT RS. - : 7 : - 7 48,000/ - AND ACCORDINGLY MADE ADDITI ON OF RS. 30,000/ - FOR LOW HOUSE HOLD EXPENSES. THE CONTENTION OF THE ASSESSEE BEFORE THE LD. CIT(A) AS WELL AS BEFORE THE TRIBUNAL WAS THAT THE ASSESSEE S PARENTS WERE ALSO LIVING WITH THEM, WHO HAD SHOWN THEIR WITHDRAWALS AT RS. 80,000/ - AND AFTER CONSID ERING THESE WITHDRAWALS, TOTAL WITHDRAWAL FOR HOUSE HOLD EXPENSES WORKS OUT TO BE RS. 98,000/ - , WHICH WAS SUFFICIENT LOOKING TO THE STANDARD OF LIVING OF THE FAMILY. BY THE IMPUGNED ORDER, THE LD. CIT(A) HAS OBSERVED THAT EVEN IF TOTAL WITHDRAWAL OF THE FA MILY IS CONSIDERED AT RS. 98,000/ - , IT WORKS OUT TO BE APPROXIMATELY RS. 8,000/ - PER MONTH, WHICH IS ALSO LOW CONSIDERING THE SIZE OF FAMILY AND STATUS OF THE ASSESSEE. ACCORDINGLY, THE LD. CIT(A) CONFIRMED THE ADDITION. WE DO NOT FIND ANY REASON TO INTERF ERE IN THE ORDER OF THE LD. CIT(A). ACCORDINGLY, THE ADDITION OF RS. 30,000/ - UPHELD BY THE LD. CIT(A) IS CONFIRMED. 7. THE ASSESSEE IS ALSO AGGRIEVED BY THE ADDITION OF RS. 15,200/ - BEING DEPRECIATION ON CAR AND RS. 1088/ - BEING INTEREST ON CAR LOAN FOR PERS ONAL USE OF THE ASSESSEE. THE ASSESSEE BEING AN INDIVIDUAL, THE AO HAS VERY REASONABLY - : 8 : - 8 DISALLOWED A PORTION OF EXPENDITURE OF CAR FOR PERSONAL USE BY THE ASSESSEE, WHICH CANNOT BE RULED OUT. ACCORDINGLY, WE CONFIRM THE ACTION OF THE CIT(A) FOR UPHOLDING TH E ADDITION ON ACCOUNT PERSONAL USE OF CAR. 8. IN THE RESULT, BOTH THE APPEALS OF THE ASSESSEE AND REVENUE ARE DISMISSED. THIS ORDER HAS BEEN PRONOUNCED IN THE OPEN COURT ON 26 TH APRIL, 2011. SD/ - SD/ - (JOGINDER SINGH) ( R.C.SHARMA) JUDICIAL MEMBER ACCOUNTANT MEMBER DATED : 26 TH APRIL, 2011 . CPU* 2526