M/s. Bhavani Electricals and Hardware, Hyderabad V. ITO, Ward-8(1), Hyderabad

ITA 564/HYD/2011

• Counselvise Citation: [2012] 140 COUNSELVISE.COM (IT) 59189 (ITAT-HYDERABAD)
• Duration Of Justice: 9 month(s) 27 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 03-02-2012
• Appeal Filed By: Assessee
• Order Result: Partly Allowed
• Bench Allotted: A
• Assessment Year: 2005-2006
• Appeal Filed On: 06-04-2011
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Department Lawyers: NIVEDITA BISWAS
• Assessee Lawyers: LAXMINIWAS SHAR MA
• Section: 143(3); 133A

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL HYDERABAD BENCH A', HYDERABAD BEFORE SHRI CHANDRA POOJARI, ACCOUNTANT MEMBER AND SMT. ASHA VIJAYARAGHAVAN, JUDICIAL MEMBER I.T.A. NO. 564/HYD/2011 (ASSESSMENT YEAR : 2005-2006) M/S. BHAVANI ELECTRICALS AND HARDWARE, HYDERABAD PAN: AAEFB7371F VS. INCOME TAX OFFICER WARD-8(1) HYDERABAD APPELLANT RESPONDENT APPELLANT BY: SHRI LAXMINIWAS SHARMA RESPONDENT BY: SMT. NIVEDITA BISWAS DATE OF HEARING: 31 . 0 1.201 2 DATE OF PRONOUNCEMENT: 03.02.2012 O R D E R PER CHANDRA POOJARI, AM: THIS APPEAL BY THE ASSESSEE IS DIRECTED AGAINST TH E ORDER OF THE CIT(A)-III, HYDERABAD DATED 27.01.2011 FOR ASSE SSMENT YEAR 2005-06. 2. THE ONLY EFFECTIVE GROUND RAISED BY THE ASSESSEE IS AS FOLLOWS: 'THE LEARNED APPELLATE COMMISSIONER ERRED IN ESTIMATING THE NET PROFIT @ 5% WHILE IN ASSESSEE'S OWN CASE IN EARLIER YEARS AND COMPARABLE CASES OF OTHER ASSESSEES IN THE SAME LINE OF BUSINESS AND IN THE S AME VICINITY FILED DO NOT HAVE NET PROFIT OF MORE THAN 1% HENCE THE ESTIMATION OF NET PROFIT IS VERY HIGH AND NEEDS TO BE CANCELLED AND REDUCED TO THE RATE AS PE R BOOS OF ASSESSEE, WHICH IS CORRECT AND REASONABLE.' 3. BRIEF FACTS OF THE ISSUE ARE THAT THE ASSESSEE IS A FIRM WHICH DERIVES INCOME FROM RETAIL BUSINESS IN ELECTRICAL G OODS, HARDWARE AND SANITARY ITEMS, PAINTS, PLYWOOD ETC. FOR THE A SSESSMENT YEAR 2005-06, IT HAS FILED THE RETURN OF INCOME ON 1.11. 2005 SHOWING INCOME OF RS. 1,09,720. AS NOTED BY THE ASSESSING OFFICER, EARLIER I.T.A. NO. 564/HYD/2011 M/S. BHAVANI ELECTRICALS & HARDWARE ============================ 2 A SURVEY U/S. 133A OF THE ACT WAS CONDUCTED IN THE BUSINESS PREMISES OF THE ASSESSEE ON 16.3.2005. DURING THE SURVEY OPERATION, IT WAS NOTICED THAT THE ASSESSEE WAS NOT MAINTAINING REGULAR BOOKS OF ACCOUNT LIKE CASH BOOK, JOURNAL, L EDGER AND SALES REGISTER, ETC. THE AO NOTED THAT THE ROUGH PURCHAS E REGISTER FOUND IN THE PREMISES DURING THE SURVEY WAS WRITTEN ONLY UP TO JANUARY, 2005. HE FURTHER NOTED THAT ON BASIS OF THE SAID P URCHASE REGISTER AND SALE BILL BOOKS AVAILABLE IN THE PREMISES OF TH E ASSESSEE, IT SHOULD HAVE STOCK OF RS. 43,61,053. HOWEVER, ON PH YSICAL VERIFICATION, THE STOCK WAS FOUND AT RS. 17,06,988. HE FURTHER NOTED THAT ON QUERY RAISED DURING THE SURVEY FOR EX PLAINING THE REASONS FOR DEFICIT IN STOCK, THE ASSESSEE COULD NO T FURNISH ANY REPLY. 3.1 DURING THE COURSE OF ASSESSMENT PROCEEDINGS, THOUGH THE ASSESSEE HAS PRODUCED BOOKS OF ACCOUNT, THE ASSESSI NG OFFICER NOTED THAT THE SAME HAVE BEEN PREPARED AT THE END O F THE FINANCIAL YEAR. REFERRING TO VARIOUS DEFECTS NOTICED BY HIM THEREIN, REFERRED TO IN PARA-3 OF THE ASSESSMENT ORDER, DURING THE AS SESSMENT PROCEEDINGS, HE HAS ASKED THE ASSESSEE TO EXPLAIN A S TO WHY SUCH BOOKS OF ACCOUNT SHOULD NOT BE REJECTED AND THE INC OME FOR THIS ASSESSMENT YEAR SHOULD NOT BE ESTIMATED. IN RESPON SE TO THIS, THE ASSESSEE HAS FURNISHED REPLY ON 28.12.2007, RAISING OBJECTIONS TO SUCH PROPOSITION OF THE ASSESSING OFFICER. HOWEVER , AFTER DISCUSSING SUCH REPLY FURNISHED BY THE ASSESSEE, TH E ASSESSING OFFICER REJECTED THE SAME. HE NOTED THAT SUCH BOOK S OF ACCOUNT PRODUCED BY THE ASSESSEE WERE PREPARED AFTER THE SU RVEY I.E., AFTER 16.3.2005. FURTHER STATING THAT THE ASSESSEE HAS N OT MAINTAINED ANY QUANTITATIVE DETAILS IN RESPECT OF VARIOUS ITEM S DEALT WITH BY IT, IT FAILED TO PRODUCE ANY ACQUITTANCE ROLL, SALARY R EGISTER ETC., IN SUPPORT OF THE SALARY EXPENDITURE AND SUPPORTING EX TERNAL EVIDENCE WITH REGARD TO CLAIM OF OTHER EXPENDITURE, HE NOTED THAT SUCH BOOKS OF ACCOUNT CANNOT BE RELIED UPON. FURTH ER STATING THAT I.T.A. NO. 564/HYD/2011 M/S. BHAVANI ELECTRICALS & HARDWARE ============================ 3 THERE WAS DEFICIT STOCK OF RS. 25,53,751, HE NOTED THAT NET PROFIT OF RS. 1,09,720 SHOWN BY THE ASSESSEE ON TURNOVER OF R S. 1,25,18,160 IS VERY LOW. WITH THESE OBSERVATIONS, HE REJECTED THE BOOKS OF ACCOUNT OF THE ASSESSEE U/S. 145(3) OF THE ACT. HOLDING THAT THE DEFICIT STOCK OF RS. 25,53,751 REPRESENTS UNACCOUNTED SALES MADE BY THE ASSESSEE DURING THE PREVIOUS YEAR , HE ESTIMATED THE SALES TURNOVER FOR THE PREVIOUS YEAR 2004-05 RE LEVANT TO A.Y. 2005-06 AT RS. 1,50,71,911 (RS. 1,25,18,160 + RS. 2 5,53,751). ESTIMATING THE NET PROFIT FROM RETAIL TRADING OF SU CH GOODS IN THE CASE OF THE ASSESSEE @ 8%, HE DETERMINED THE NET PR OFIT THEREON AND THUS THE TOTAL INCOME IN THE HANDS OF THE ASSES SEE AT RS. 12,05,752 AND COMPLETED THE ASSESSMENT ACCORDINGLY, VIDE HIS ORDER DATED 31.12.2007 PASSED U/S. 143(3) OF THE AC T. 4. ON APPEAL, THE LEARNED CIT(A) CONFIRMED THE ADDITIO N OF TURNOVER AT RS. 25,53,715 TOWARDS UNACCOUNTED SALES . HOWEVER, REGARDING ESTIMATION OF NET PROFIT @ 8% OF TURNOVER , IT WAS REDUCED TO 5% THOUGH THE CIT(A) AGREED WITH THE REJECTION O F BOOKS OF ACCOUNT ON THE REASON THAT THE ASSESSEE HAS INFLATE D THE EXPENSES LIKE RENT, PARTNERS REMUNERATION AND VARIOUS EXPENS ES NOT SUPPORTED BY EXTERNAL VOUCHERS. AGAINST ESTIMATION OF INCOME AT 5% OF TURNOVER, THE ASSESSEE IS IN APPEAL BEFORE US . 5. THE LEARNED AR FILED A STATEMENT SHOWING THE COMPAR ATIVE RATE OF NET PROFIT FROM A.Y. 2003-04 TO 2009-10 WHE REIN THE HIGHEST NET PROFIT DECLARED BY THE ASSESSEE FOR A.Y . 2006-07 IS 1.16% AND THE LOWEST WAS 0.19% FOR A.Y. 2003-04. B EING SO, HE SUBMITTED THAT AT ANY RATE THE PROFIT OF THE ASSESS EE CANNOT BE EXCEEDING MORE THAN 1.16% WHICH IS HIGHEST AMONG AL L THE ABOVE ASSESSMENT YEARS FROM 2003-04 TO 2009-10. FURTHER HE DREW OUR ATTENTION TO THE COMPARATIVE RATE OF NET PROFIT DEC LARED BY VARIOUS ASSESSEES AS FOLLOWS: I.T.A. NO. 564/HYD/2011 M/S. BHAVANI ELECTRICALS & HARDWARE ============================ 4 NAME OF THE PARTY STATUS A.Y. NET PROFIT % M/S. PRAKASH ENTERPRISES FIRM 2005-06 0.68 M/S. J.N. BROTHERS FIRM 2005-06 0.51 M/S. LAXMI HARDWARE & PAINTS PROPRIETARY 2005-06 1.70 M/S. PAVAN PAINTS & HARDWARE -DO- 2005-06 3.72 M/S. SRI RAMDEV ELECTRICALS FIRM 2005-06 0.39 M/S. SHREE RAM TRADING FIRM 2006-07 0.43 M/S. JAI BALAJI ELECTRICALS, HARDWARE & PAINTS FIRM 2008-09 0.26 6. THE LEARNED COUNSEL FOR THE ASSESSEE DREW OUR ATTEN TION TO THE ABOVE DATA AND SUBMITTED THAT AT ANY RATE, THE ASSESSEE'S NET PROFIT CANNOT EXCEED THE DECLARED AND ACCEPTED BY T HE ABOVE ASSESSEES. 7. ON THE OTHER HAND, THE LEARNED DR SUBMITTED THAT TH E BOOKS OF ACCOUNT OF THE ASSESSEE ARE NOT RELIABLE AND A R EASONABLE ESTIMATE HAS TO BE MADE AND ESPECIALLY IN THIS ASSE SSMENT YEAR THERE WAS A SURVEY U/S. 133A OF INCOME-TAX ACT, 196 1 AND THERE WAS PHYSICAL VERIFICATION OF THE STOCK. THERE WAS DEFICIT STOCK WHICH WAS NOT PROPERLY EXPLAINED BY THE ASSESSEE AN D THERE WAS ALSO ADDITION TOWARDS UNACCOUNTED SALES AT RS. 25,5 3,751. BEING SO, THE ESTIMATION OF THE INCOME AT 5% BY CIT(A) IS TO BE CONFIRMED. 8. WE HAVE HEARD BOTH THE PARTIES AND ALSO PERUSED THE MATERIAL AVAILABLE ON RECORD. CONSIDERING THE TOTA LITY OF THE FACTS AND CIRCUMSTANCES OF THE CASE AND THE RATE OF NET P ROFIT DECLARED BY THE VARIOUS ASSESSEES, IN OUR OPINION, IT IS APP ROPRIATE TO ESTIMATE THE INCOME OF THE ASSESSEE AT 3.72% OF THE TOTAL TURNOVER AS DECLARED BY M/S. PAVAN PAINTS AND HARDWARE, A PR OPRIETARY CONCERN, FOR A.Y. 2005-06 WHICH IS THE HIGHEST RATE OF PROFIT AS BROUGHT ON RECORD. HOWEVER, AFTER CONSIDERING THE SAME, THE ASSESSEE IS BEING A PARTNERSHIP FIRM, IT IS ENTITLE D FOR PAYMENT OF INTEREST AND REMUNERATION TO PARTNERS AS PRESCRIBED U/S. 40(B) OF I.T.A. NO. 564/HYD/2011 M/S. BHAVANI ELECTRICALS & HARDWARE ============================ 5 THE ACT AND THEREAFTER THE ASSESSEE IS NOT ENTITLED FOR ANY OTHER DEDUCTIONS WHICH ARE DEEMED TO HAVE BEEN ALLOWED TO THE ASSESSEE WHILE COMPUTING THE INCOME OF THE ASSESSEE. 9. IN THE RESULT, APPEAL OF THE ASSESSEE IS PARTLY ALL OWED. ORDER PRONOUNCED IN THE OPEN COURT ON 3 RD FEBRUARY, 2012. SD/ - (ASHA VIJAYARAGHAVAN) JUDICIAL MEMBER SD/ - (CHANDRA POOJARI) ACCOUNTANT MEMBER HYDERABAD, DATED THE 3 RD FEBRUARY, 2012 COPY FORWARDED TO: 1. M/S. BHAVANI ELECTRICALS AND HARDWARE, 2 - 6 A & B, CHOWDHARY MANSION, CHANDANAGAR, HYDERABAD-50. 2. THE INCOME TAX OFFICER, WARD - 8(1), HYDERABAD. 3. THE CIT(A) - I II , HYDERABAD 4 . THE CIT - II, HYDERABAD. 5. THE DR A BENCH, ITAT, HYDERABAD. TPRAO