The ACIT, 5(1), Indore V. M/s Gurumukh Das & Co., Indore

ITA 587/IND/2012

• Counselvise Citation: [2015] 140 COUNSELVISE.COM (IT) 99269 (ITAT-INDORE)
• Duration Of Justice: 3 year(s) 1 month(s) 1 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 21-12-2015
• Appeal Filed By: Department
• Order Result: Partly Allowed
• Bench Allotted: DB
• Next Hearing Date: 05-10-2015
• Assessment Year: 2009-2010
• Appeal Filed On: 19-11-2012
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Department Lawyers: RAJIV VARSHNEY
• Keywords: Rejection of books of accounts; Business income; Cost of acquisition
• Section: 143(3)

Judgement Text

ITA NO.587/IND/3012 & CO 4/IND/2013 ACIT VS. GURUMUKH DAS & CO. 1 IN THE INCOME TAX APPELLATE TRIBUNAL INDORE BENCH, INDORE BEFORE SHRI D.T. GARASIA, HONBLE JUDICIAL MEMBER AND SHRI B.C. MEENA, HONBLE ACCOUNTANT MEMBER ITA NO. 587/IND/2012 A.Y.2009-10 ASSTT.COMMR. OF INCOME TAX 5(1) INDORE ::: APPELLANT VS M/S GURUMUKH DAS & CO., INDORE ::: RESPONDENT CO NO. 4/IND/2013 ARISING OUT OF ITA NO. 587/IND/2012 M/S GURUMUKH DAS & CO., INDORE ::: OBJECTOR VS ASSTT.COMMR. OF INCOME TAX 5(1) INDORE ::: RESPONDENT REVENUE BY SHRI RAJIVVARSHNEY RESPONDENT BY SHRI AJAY TULSIYAN DATE OF HEARING 5.10.2015 DATE OF PRONOUNCEMENT 2 1 .12.2015 ITA NO.587/IND/3012 & CO 4/IND/2013 ACIT VS. GURUMUKH DAS & CO. 2 O R D E R PER SHRI B.C. MEENA, AM THE APPEAL FILED BY THE REVENUE AND CROSS OBJECTION FILED BY THE ASSESSEE EMANATE FROM THE ORDER OF THE LEARNED CIT(A)-II, INDORE, DATED 16.8.2012. 2. THE ASSESSEE IS A PARTNERSHIP FIRM ENGAGED IN THE BUSINESS OF COUNTRY LIQUOR AND FOREIGN LIQUOR. THE RET URN OF INCOME WAS FILED DECLARING INCOME AT RS. 48,37,972/-. THE GROUNDS TAKEN BY THE REVENUE READ AS UNDER :- I. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE, THE ORDER OF THE LD. CIT(APPEALS) IS CONTRARY TO THE FA CTS AND LAW . II. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE, THE LD. CIT(APPEALS) ERRED IN ESTIMATING THE SALES OF T HE ASSESSEE AT RS.27,50,00,000/- AS AGAINST THE SALES OF RS.32,32,21,487/- ESTIMATED BY THE A.O. ON THE BASI S OF ITA NO.587/IND/3012 & CO 4/IND/2013 ACIT VS. GURUMUKH DAS & CO. 3 MINIMUM SELLING PRICE (MSP) PRESCRIBED BY THE GOVERNMENT AND THE ASSESSEE COULD NOT PROVIDE ANY EVIDENCE THAT IT HAD SOLD THE LIQUOR BELOW MSP. III. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE, THE LD. CIT(APPEALS) ERRED IN APPLYING NET PROFIT RATE OF 3.5% AFTER ESTIMATING SALES OF RS.27,50,00,000/- AND THU S ALLOWING EXPENSES OF RS.26,53,75,000/- AS AGAINST R S. 24,20,87,470/- CLAIMED BY THE ASSESSEE WHILE THE ASSESSEE NOWHERE HAVE CLAIMED TO HAVE MADE EXCESS EXPENSES THAN DECLARED IN THE BOOKS. IN THE CROSS OBJECTION, THE ASSESSEE HAS TAKEN THE FOLLOWING GROUNDS : - I. THAT THE LD. CIT(A) ERRED IN UPHOLDING THE ACTION O F THE ASSESSING OFFICER OR REJECTING THE AUDITED BOOKS OF ACCOUNTS OF THE ASSESSEE FIRM BY INVOKING THE PROVISIONS OF SECTION 145(3) OF THE INCOME TAX ACT, ITA NO.587/IND/3012 & CO 4/IND/2013 ACIT VS. GURUMUKH DAS & CO. 4 1961. THAT ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE AND AS PER LAW, INVOKING THE PROVISIONS OF SECTION 145(3) IS UNWARRANTED AND UNCALLED FOR AND IT IS PRAYED THAT THE BOOK RESULTS MAY VERY KINDLY BE ACCEPTED. II. THAT THE LD. CIT(A) ERRED IN ESTIMATING THE TOTAL S ALES AT RS.27,50,00,000/- AS AGAINST ACTUAL TOTAL SALES AS PER BOOKS OF ACCOUNTS DECLARED AT RS.24,64,09,010/- . THAT ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE, THE SADI ESTIMATION IS WRONG, WITHOUT ANY BAS IS AND IT IS PRAYED THAT THE ACTUAL SALES AS PER AUDIT ED BOOKS OF ACCOUNTS BE ACCEPTED. III. THAT THE LD. CIT(A) ERRED IN ESTIMATING NET PROFIT AT RS.96,25,000/- BY APPLYING A NET PROFIT RATE OF 3.5 % ON THE ESTIMATED SALES OF RS.27,50,00,000/- AGAINST THE DECLARED NET PROFIT OF RS.47,88,697/- AS PER AUDITED BOOKS OF ACCOUNTS. THAT ON THE FACTS AND IN ITA NO.587/IND/3012 & CO 4/IND/2013 ACIT VS. GURUMUKH DAS & CO. 5 THE CIRCUMSTANCES OF THE CASE THE SAID APPLICATION OF NET PROFIT RATE OF 3.5% IS WITHOUT ANY BASIS BASED ON CONJECTURES AND SURMISES AND IT IS THEREFORE PRAYED THAT THE NET PROFIT AS DECLARED BY THE APPELLANT MA Y VERY KINDLY BE ACCEPTED. IV. THAT THE APPELLANT CRAVES LEAVE TO ADD, TO ALTER, AMEND, MODIFY, SUBSTITUTE, DELETE AND/OR RESCIND AL L OR ANY OF THE GROUNDS OF CROSS OBJECTION ON OR BEFO RE FINAL HEARING, IF NECESSITY SO ARISES. 3. GROUND NO. 1 IN THE ASSESSEES CROSS OBJECTION IS AGAINST UPHOLDING THE ACTION OF THE ASSESSING OFFICER IN REJECTING THE BOOKS OF ACCOUNTS AND INVOKING PROVISIO NS OF SECTION 145(3) OF THE ACT. 4. WE HAVE HEARD BOTH THE SIDES. IT IS AN ADMITTED FACT THAT IN THE BUSINESS OF TRADING IN LIQUOR, THE ASSESSE E IS NOT MAINTAINING PROPER SALE BILLS AND CASH MEMOS. THE PURCHASES/SUPPLIES OF THE LIQUOR ARE THROUGH REGULATED ITA NO.587/IND/3012 & CO 4/IND/2013 ACIT VS. GURUMUKH DAS & CO. 6 MECHANISM. HOWEVER, THE SALES ARE NOT PROPERLY RECORDE D BY ISSUING NECESSARY BILLS. THERE IS ALSO A MINIMUM SAL E PRICE PRESCRIBED. THE ASSESSING OFFICER REJECTED BO OK RESULTS AND INVOKED THE PROVISIONS OF SECTION 145(3) OF THE ACT FOR THE REASON THAT THE ASSESSEE COULD NOT PRODUCE PURCHASE AND SALE VOUCHERS. THE ASSESSEE HAS STATED THAT THESE WERE NOT TRACEABLE. ASSESSING OFFICER ALSO OBSER VED THAT THERE WAS INCREASE IN THE COST OF GOODS SOLD AND T HE TURNOVER RATIO. THERE WAS DECLINE IN THE GROSS PROFIT RATE. FINALLY THE ASSESSING OFFICER ALSO OBSERVED THAT THE ASSESSEE IS CLAIMING FOR SELLING THE LIQUOR BELOW THE MINIMUM SALE PRICE AS PRESCRIBED UNDER THE M.P. RAJ PATRA. LEARNED CIT(A) ALSO CONFIRMED THE ACTION OF THE ASSESSING OFFICER. THE RELEVANT PARAS OF THE ORDER OF THE LEARNED CIT(A) ARE 4.1 TO 4.2.10 AT PAGES 29 TO 35 OF H IS ORDER. ITA NO.587/IND/3012 & CO 4/IND/2013 ACIT VS. GURUMUKH DAS & CO. 7 5. WE HAVE HEARD BOTH THE SIDES IN DETAIL. WE HAVE ALSO CONSIDERED THE FACTUAL ASPECT OF THE CASE. CONSIDERING ALL THESE ASPECTS, WE ARE OF THE VIEW THAT THE ASSESSING OFFICER HAS RIGHTLY REJECTED THE BOOK RESULTS AS THERE ARE SUF FICIENT REASONS FOR ESTABLISHING THAT THE BOOKS OF ACCOUNTS WER E NOT CORRECT AND COMPLETE. THE BOOKS OF ACCOUNTS WERE NOT REFLECTING TRUE AFFAIRS OF THE ASSESSEES BUSINESS AND INCOME AND IN SUCH A SITUATION THE ASSESSING OFFICER HAS RIGH TLY INVOKED THE PROVISIONS OF SECTION 145(3) OF THE ACT AND LEARNED CIT(A) HAS RIGHTLY SUSTAINED THE ACTION OF THE ASSESSING OFFICER. WE, THEREFORE, DISMISS THIS GROU ND OF THE ASSESSEES CROSS OBJECTION. 6. THE GROUND NO. 2 IN THE APPEAL AND CROSS OBJECTION OF THE ASSESSEE RELATES TO ESTIMATING THE SALES AT RS.27,50,00,000/- AS AGAINST ASSESSING OFFICERS ESTI MATION OF RS.32,32,21,487/- ON THE TURNOVER DECLARED BY THE ASSESSEE IN THE BOOKS OF ACCOUNTS AT RS.24,64,09,010/- . ITA NO.587/IND/3012 & CO 4/IND/2013 ACIT VS. GURUMUKH DAS & CO. 8 THE THIRD GROUND IN THE APPEAL OF THE REVENUE IS RELAT ING TO NET PROFIT @ 3.5% ON THE SALES OF RS.27.54 CRORES. THE REVENUE CLAIMS THAT THE ASSESSEE HAS CLAIMED TOTAL EXPENDITURE OF RS.24,20,87,470/- AND BY APPLYING THE NP RATE OF 3.5% INDIRECTLY THE EXPENSES HAVE BEEN ENHANCE D TO RS.26,53,75,000/- ON THE SALES ESTIMATED AT RS.27.50 CRORES. 7. ON THE OTHER HAND, THE ASSESSEE HAS CHALLENGED ESTIMATING THE NET PROFIT BY APPLYING THE RATE OF 3.5% ON THE SALES OF RS.27.50 CRORES AND ENHANCING THE INCOME TO RS.96,25,000/-. 8. THE LEARNED CIT(A) HAS DEALT WITH THE ISSUE AS UNDE R :- 4.3 COMING TO THE GROUND NO. 2 & 3 TAKEN BY THE APPELLANT AGAINST ESTIMATION OF SALES OF COUNTRY LIQUOR AND IMFL AND MAKING ADDITION THEREOF TO THE RETURNED INCOME, IT IS CLEAR FROM TH E ITA NO.587/IND/3012 & CO 4/IND/2013 ACIT VS. GURUMUKH DAS & CO. 9 ASSESSMENT ORDER THAT THE A.O. HAS ACCEPTED THE QUANTITY OF PURCHASE IN CASE OF COUNTRY LIQUOR AND HAS WORKED OUT THE SALES AT THE PRESCRIBED MSP. PROCEEDING FURTHER THE A.O. HAS WORKED OUT THE MRP AT 1.5 TIMES OF MRP AS PER PARA 4.2. OF THE ASSESSMENT ORDER AND THEN TAKEN OUT THE AVERAGE OF THE SALES AT MSP & MRP AT RS.848.98 LACS AS AGAINST THE SALES DECLARED BY THE APPELLANT AT RS.594.67 LACS IN CASE OF COUNTRY LIQUOR. IN CASE O F IMFL THE WORKING OF MSP & MRP IS AT PAGE 10 OF THE ASSESSMENT ORDER. THE A.O. HAS CONSIDERED THE TOTAL COST OF PURCHASES OF IMFL, EXCISE DUTY THEREON AND TCS WHICH HAAS BEEN INCREASED BY 10% FOR ARRIVING AT THE MSP, MRP HAS BEEN WORKED OUT BY ADDING 30% ON THE BASIS OF THE REPORTS OF THE INSPECTOR AS MENTIONED AT PAGE 10 OF THE ASSESSMENT ORDER. THE AVERAGE OF THE SALES OF ITA NO.587/IND/3012 & CO 4/IND/2013 ACIT VS. GURUMUKH DAS & CO. 10 IMFL AT MSP & MRP HAS BEEN CALCULATED AT 2383.24 LACS AGAINST THE SALES DECLARED BY THE APPELLANT AT 1869.42 LACS THUS CALCULATING THE SUPPRESSED SALES OF IMFL AT 513.81 LACS. THE A.O. OBSERVED THAT THE APPELLANT HAS CLAIMED THE ENTIRE PURCHASE COST, EXCISE DUTY AND ALL THE EXPENSES AND ACCORDINGLY HELD THAT NO FURTHER EXPENSES NEED TO BE ALLOWED AGAINST THE DIFFERENCE OF SALES AND MADE THE ADDITION OF THE ENTIRE SUPPRESSED SALES. 4.3.1 THE APPELLANT HAS CHALLENGED THE VERY APPROACH OF THE A.O. OF CALCULATING THE AVERAGE TURNOVER STATING THAT THERE WAS NO CONCEPT OF MRP IN THE YEAR UNDER CONSIDERATION WHICH WAS NOTIFIED AND BROUGHT INTO PRACTICE ONLY FROM NEXT YEAR. FOR THIS PARA 9 OF THE SALES MEMO (AT PAGE 41) HAS BEEN REFERRED WHICH READS AS DETERMINATION OF ITA NO.587/IND/3012 & CO 4/IND/2013 ACIT VS. GURUMUKH DAS & CO. 11 MSP. PAGE 130 OF THE PAPER BOOK BEING THE SALE MEMO FOR NEXT YEAR HAS ALSO BEEN REFERRED, THE HEADING OF WHICH READS AS DETERMINATION OF MSP & MRP. IT WAS ALSO POINTED OUT THAT THERE IS CATEGORICAL MENTION IN THE SALE MEMO OF NEXT YEAR THAT THE PRINTING OF MSP AND MRP ON VARIOUS BOTTLES WILL BE BROUGHT INTO EFFECT FROM FY 2009-10 AND THUS IT HAS BEEN STRONGLY CONTENDED THAT SINCE THE VERY CONCEPT OF MRP WAS NOT IN PLACE IN THIS YEAR, THE A.O. WAS NOT JUSTIFIED IN APPLYING THE SAME. 4.3.2 THE APPELLANT HAS ALSO CHALLENGED THE BASIS OF DETERMINING OF THE MRP AT 1.5 TIMES OF MSP IN CASE OF COUNTRY LIQUOR STATING THAT THIS OBSERVATION IS ONLY AN ASSUMPTION AND IS NOWHERE PRESCRIBED IN THE SALE MEMO ISSUED BY THE EXCISE DEPARTMENT EVEN FOR THE NEXT YEAR, WHEN THIS ITA NO.587/IND/3012 & CO 4/IND/2013 ACIT VS. GURUMUKH DAS & CO. 12 CONCEPT WAS BROUGHT IN PLACE. THE METHOD OF DETERMINING MRP IN CASE OF IMFL BY ADDING 30% OF THE MSP ON THE BASIS OF SOME INSPECTOR REPORT HAS ALSO BEEN STRONGLY OBJECTED BY THE APPELLANT STATING THAT SUCH HUGE ADDITION CANNOT BE MADE ON THE WHIMS AND CAPRICE OF THE INSPECTORS WITHOUT ANY COGENT MATERIAL. FOR THIS PROPOSITION CANVASSED IN THE ASSESSMENT ORDER THAT THE SALES ARE MADE ON THE PRICE BETWEEN MSP & MRP ON THE BASIS OF INSPECTOR REPORT WHEREIN THEY HAVE REPORTED THE MSP, MRP AND ACTUAL SELLING PRICE OF COUNTRY LIQUOR AND HAVE ALSO TAKEN SUPPORT OF A RATE LIST DISPLAYED ON ONE OF THE COUNTRY LIQUOR SHOP, THE APPELLANT STRONGLY OBJECTED AS THE SAID INSPECTOR REPORT DATED 24.12.2011 WAS NEVER PROVIDED TO THE APPELLANT BEFORE PASSING OF THE ASSESSMENT ORDER ON 27.12.2011. IT MAY BE ITA NO.587/IND/3012 & CO 4/IND/2013 ACIT VS. GURUMUKH DAS & CO. 13 POINTED HERE THAT THE COPY OF THE SAID REPORT IN RESPECT OF COUNTRY LIQUOR HAS BEEN PROVIDED TO THE APPELLANT BY THIS OFFICE DURING THESE APPELLANT PROCEEDINGS. 4.3.3 THE SAID INSPECTOR REPORT HAS ALSO BEEN CHALLENGED STATING THAT THE SAID REPORT IS SILENT A S TO THE MANY CRUCIAL ISSUES AS TO THE NAME OF THE SHOP FROM WHERE THE IT IS PURCHASED THE LIQUOR, THERE IS NO REFERENCE TO ANY SALE BILL OBTAINED BY THEM TO SUBSTANTIATE THE DATE OF PURCHASE AND THE RATE OF PURCHASE. THE APPELLANT HAS ALSO CONTENDED THAT THE OBSERVATIONS IN THE ASSESSING OFFICER ON PAGE 8 REGARDING THE PRESENT MSP, MRP AND ACTUAL SELLING PRICE DRAWN ON THE BASIS OF THE INSPECTOR REPORT WHEREIN THE ACTUAL SELLING PRICE I N CASE OF MASALA LIQUOR HAS BEEN STATED TO BE ABOVE MRP, ARE WITHOUT ANY BASIS AND NO LIQUOR TRADER ITA NO.587/IND/3012 & CO 4/IND/2013 ACIT VS. GURUMUKH DAS & CO. 14 CAN DARE TODISPLAY THE SELLING RATE ABOVE THE MRP. THE APPELLANT HAS ALSO QUESTIONED THAT IF IT IS AT ALL POSSIBLE TO SELL ABOVE MRP AS POINTED OUT IN THE ASSESSMENT ORDER THEN WHY IT CANNOT BE POSSIBLE TO SELL BELOW MSP. FINALLY IN RESPECT OF THE ITI S REPORT THE APPELLANT HAS TO CONTENDED TO DISREGARD THE SAME AS IT IS VAGUE AND WAS NOT CONFRONTED TO THE APPELLANT BEFORE USING THE SAME AGAINST IT. 4.3.4 THE APPELLANT HAS ALSO CHALLENGED THE OBSEVATION IN THE ASSESSMENT ORDER THAT THE LIQUOR IS NOT SOLD BELOW MSP STATING THAT CONSIDERING THE NATURE OF TRADE, STIFF COMPETITION AND THE MECHANISM OF ALLOTMENT OF SHOP AGAINST PREDETERMINED PRICES WITHOUT HAVING ANY CORELATION WITH THE SALES AND ALSO WITHOUT REALISING AND APPRECIATING THE GROUND REALITIES ASSOCIATED WITH THIS TRADE, IN THE OVERALL INTEREST OF ITA NO.587/IND/3012 & CO 4/IND/2013 ACIT VS. GURUMUKH DAS & CO. 15 THE BUSINESS, A TRADER HAS TO RESORT TO THE PRACTIC E OF SELLING ITS GOODS AT THE PRICE WHICH IN ITS OPIN ION IS IN THE OVERALL INTEREST OF THE BUSINESS. NON TRADER CAN BE EXPECTED TO MAXIMISE HIS PROFIT. THE AR PRESENT ALSO STRONGLY REFUTED THE METHOD AND MANNER IN WHICH THE A.O.HAS STATED THAT THE APPELLANT IS NOT ALLOWED TO SELL BELOW MSP AS PER SOME CORRESPONDENCE MADE WITH THE EXCISE DEPARTMENT IN SOME OTHER CASE AS THE SAID CORRESPONDENCE WAS NEVER MADE AVAILABLE TO THE APPELLANT AND THE SAID OBSERVATION IN THE ASSESSMENT ORDER DOES NOT EVEN STATE THE NAME OF THE CASE AND THE NATURE OF LIQUOR IN WHICH SAID CORRESPONDENCE WAS OBTAINED. REFERRING TO CLAUSE 38 (ON PAGE 54) OF THE SALE MEMO OF THIS YEAR IT HAS BEEN CONTENDED THAT THERE IS A SPECIFIC CLAUSE THAT THE GOVERNMENT SHALL NOT BE RESPONSIBLE FOR ITA NO.587/IND/3012 & CO 4/IND/2013 ACIT VS. GURUMUKH DAS & CO. 16 ANY UNDERCUTTING, COMPETITION AND FOR ANY LOSS OCCURRING AS A RESULT THEREOF AND THE TRADERS SHALL NOT BE ENTITLED TO ANY COMPENSATION ON THIS ACCOUNT FROM THE GOVERNMENT. ON THE BASIS OF THIS CLAUSE IT HAS BEEN CONTENDED THAT LIKE ANY OTHER TRADER THERE ARE ALL POSSIBILITIES OF LOSSES DUE TO UNDERCUTTING AND STIFF COMPETITION. THE AR PRESENT ALSO POINTED OUT THAT THERE ARE MORE THAN 100 LIQUOR SHOPS IN THE VICINITY OF INDORE CITY AND THEREFORE THE COMPETITION IS VERY TOUGH AND CUT THROAT. 4.3.5 IN CASE OF IMFL THE APPELLANT HAS STATED THAT THE MSP WORKED OUT BY THE A.O. IS NOT CORRECT AS THE PURCHASE PRICE TAKEN AT RS.878.98 LACS IS THE FIGURE OF GROSS PURCHASE WHEREAS THE APPELLANT HAS DEBITED NET PURCHASE OF RS.750.42 LACS TO ITS TRADING ACCOUNT. SIMILARLY THE EXCISE DUTY DEBITED ITA NO.587/IND/3012 & CO 4/IND/2013 ACIT VS. GURUMUKH DAS & CO. 17 TO THE TRADING ACCOUNT IN RESPECT OF IMFL IS RS.915.67 LACS AND BASIC LICENCE FEES AT RS.74.25 LACS AND THUS IT HAS BEEN CONTENDED THAT THE TOTAL COST OF IMFL WORKED OUT AT 1883.98 LACS IN THE ASSESSMENT ORDER IS NOT CORRECT AND IF THAT IS ASSUMED TO BE CORRECT IT WILL IMPLY THAT THE APPELLANT HAS INCURRED LOSS IN IMFL WHICH IN TURN WILL MEAN THAT THE GROSS PROFIT OF 236.46 LACS AS PER TRADING ACCOUNT OF THE APPELLANT IS ONLY IN RESPECT OF SALES OF COUNTRY LIQUOR DECLARED AT 594.66 LACS WHICH IS AN IMPOSSIBLE SITUATION. 4.3.6 ON THE BASIS OF THESE ARGUMENTS IT HAS BEEN CONTENDED THAT THE WORKING IN THE ASSESSMENT ORDER IS BASED ON TOO MANY ASSUMPTIONS FAR FROM REALITY. IT HAS BEEN FURTHER ARGUED THAT PRINTING OF MSP IN CASE OF IMFL BOX COSTING ABOVE RS.350 IS NOT MANDATORY. THE HUGE ITA NO.587/IND/3012 & CO 4/IND/2013 ACIT VS. GURUMUKH DAS & CO. 18 ADDITION MADE TO THE RETURNED INCOME WITHOUT GIVING A SINGLE COMPARABLE CASE WAS STRONGLY OPPOSED TO BY THE APPELLANT AND THE TRADING AND PROFIT AND LOSS ACCOUNT HAS BEEN RECASTED BY THE APPELLANT CONSIDERING THE FIGURES OF ADDITIONS MADE BY THE A.O. TO THE TRADING ACCOUNT WHICH GIVES A GROSS PROFIT RATE OF 31% AND NET PROFIT RAT E OF 25.23%. 4.3.7 THE AR PRESENT ALSO ADVANCED THE CONTENTION THAT WHAT IS TAXABLE IS THE REAL INCOME AND IT IS NOT PERMISSIBLE TO TAX NOTIONAL INCOME UNDER THE GARB OF ALLEGED SUPRESSED SALES AND PARTICULARLY WHEN THERE IS NO SHARED OF ANY SALES HAVING MADE OUT OF BOOKS OF ACCOUNTS THROUGH SOME INCRIMINATING DOCUMENTS OR OTHERWISE. IT WAS ALSO EXPHASIZED THAT THE DAILY SALES AND PURCHASE REGISTERS WERE ALSO PRODUCED BEFORE THE A.O. WHICH ITA NO.587/IND/3012 & CO 4/IND/2013 ACIT VS. GURUMUKH DAS & CO. 19 ALSO STAND ACCEPTED IN SO FAR AS NO DEFECT/SHORTCOMING WHAT SO EVER HAS BEEN POINTED OUT IN THESE PRIMARY RECORDS OF THE APPELLANT. 4.3.8 THE APPELLANT HAS ALSO POINTED OUT THAT THIS BUSINESS THOUGH LOOKS LUCRATIVE ON THE FACE OF IT BUT IS NOT SO AS THERE ARE ANY PECULIAR PROBLEMS FACED BY IT SUCH AS AGITATION FROM THE LOCAL RESIDENTS, SEVERE THREATS FROM OTHER TRADERS INDULGED IN DUPLICATE/ADULTERATED LIQUOR IN ADDITION TO STIFF COMPETITION FROM THE TRADERS OF SAME TRADE, STRICT AND CLOSE MONITORING NOT ONLY BY THE EXCISE DEPARTMENT BUT ALSO THE LOCAL ADMINISTRATION AND THE POLICE DEPARTMENT, INTERFERECNES AND PRESSURES FROM THE POLITICIAN, LOCAL ANTI SOCIAL ELEMENTS (DADAS AND GUNDAS). THEN THERE ARE INSPECTIONS SURVEYS AND ENQUIRIES, PILFERAGES, BREAKAGES, MISHANDLING AND ITA NO.587/IND/3012 & CO 4/IND/2013 ACIT VS. GURUMUKH DAS & CO. 20 MISAPPROPRIATION AND SO ON SO FORTH. THE APPELLANT HAS ALSO CITED THAT THERE WAS CURFEW IN THE CITY DURING THE RELEVANT YEAR FROM 3.07.2008 TO 07.07.2008 AND THE SHOP WERE CLOSE DOWN FOR FIVE DAYS, THE APPELLANT ALSO DEMANDED COMPENSATION ON THIS COUNT FROM THE STATE EXCISE DEPARTMENT WHICH WAS STATE AWAY REJECTED BY THE SAID DEPARTMENT. 4.3.10 THE AR PRESENT FINALLY EMPHASIZED THAT INSPITE ALL ODDS THE APPELLANT HAS RETURNED A HANDSOME PROFIT OF ABOVE 48 LACS AND PAID TAXES ON THE SAME AT THE MAXIMUM RATE OF TAX AND THAT THE PARTNERS DID NOT WITHDRAW ANY REMUNERATION FROM THE FIRM, WHICH THEY COULD HAVE EASILY DONE NOT ONLY TO REDUCE THE TAX LIABILITY OF THE FIRM BU T ALSO TO TAKE ADVANTAGE OF THE REDUCED TAX SLABS RATES APPLICABLE TO INDIVIDUALS. IT WAS ALSO ITA NO.587/IND/3012 & CO 4/IND/2013 ACIT VS. GURUMUKH DAS & CO. 21 CONTENDED THAT THE ASSESSMENTS OF MOST OF THE PARTNERS FOR THIS VERY YEAR WERE COMPLETED U/S 143(3) AND NO INSTANCE OF ANY SORT OF ABNORMALITY WAS NOTICED IN THOSE CASES. HAD THE APPELLANT ACTUALLY SUPPRESSED SALES AAS ESTIMATED BY THE A.O. OR EVEN A PART OF IT, THE SAME WOULD HAVE BEEN REFLECTED IN THE PERSONAL RETURNS/ACCOUNTS OF THE PARTNERS IN SOME FORM OR THE OTHER, WHICH IS NOT THE CASE AT ALL. 4.4 HAVING CONSIDERED THE OVER ALL FACTS OF THE CASE AND FINDINGS AND OBSERVATIONS RECORDED IN THE ASSESSMENT ORDER THOROUGHLY AND ALSO THE FACT THAT THE A.O.S ACTION OF REJECTING THE BOOKS OF ACCOUNTS HAVE BEEN APPROVED IN PRINCIPLE, SO ALSO THE WRITTEN AS WELL AS THE ORAL SUBMISSIONS ADVANCED BY THE APPELLANT IT HAS TO BE HELD THE A.O. WAS NOT JUSTIFIED IN MAKING THE HUGE ADDITION ITA NO.587/IND/3012 & CO 4/IND/2013 ACIT VS. GURUMUKH DAS & CO. 22 OF THE ENTIRE SUPRESSED SALES CALCULATED BY HIM IN THE MANNER AS DONE IN THE ASSESSMENT ORDER. THE FACT THAT THE CONCEPT OF MRP WAS NOT IN VOGUE IN THIS YEAR AND WAS BROUGHT IN ONLY FORM FY 2009- 10 CAN BE EASILY INFERRED FROM THE RESPECTIVE SALE MEMOS ISSUED BY THE EXCISE DEPARTMENT AND PLACED ON RECORD HENCE THE OVERALL APPROACH OF DERIVING THE MEAN OF MSP AND MRP WAS TOTALLY UNWARRANTED, AND HENCE CAN NOT BE APPROVED. THE SALES MEMO ISSUED BY THE EXCISE DEPARTMENT HAS NOWHERE PRESCRIBED THE MRP IN CASE OF COUNTRY LIQUOR. 4.4.1 FURTHER THE INSPECTORS REPORT RELIED HEAVILY UPON BY THE A.O. IS ONLYB IN RESPECT OF COUNTRY LIQUOR AND NOT MUCH CREDENCE CAN BE GIVEN TO IT BASICALLY FOR THE REASON THAT THE SAME WAS NO T PROVIDED TO THE APPELLANT BEFORE USING THE SAME ITA NO.587/IND/3012 & CO 4/IND/2013 ACIT VS. GURUMUKH DAS & CO. 23 AGAINST IT IN TH ASSESSMENT ORDER AND THESAID REPORT AS RIGHTLY POINTED OUT BY THE APPELLANT THAT IF THE ACTUAL SELLING RATES AS PER THE RATE LIST PROVIDED IN THE REPORT CAN BE HIGHER THAN THE MRP THEN THE APPELLANTS CONTENTION THAT AT TIMES IT HA D TO SELL IT BELOW THE MRP ALSO NEEDS TO BE ACCEPTED. 4.4.2 FURTHER, THE PRACTICAL GROUND REALITIES ASSOCIATED WITH ANY TRADE AND IN PARTICULAR WITH LIQUOR TRADE, WHICH IS SUBJECT TO REGULAR OBSERVATION AND REGULATORY SUPERVISION OF THE EXCISE DEPARTMENT AND PARTICULARLY THE INVOLVEMENT OF THE POLITICIANS AND LOCAL INFLUENTIA L PERSONS, ALSO CONSIDERING THE PILFERAGES, BREQAKAGES, MISHANDLINGS AND MISAPPROPRIATIONS ETC. AND ALSO THE FACT OF STIFF COMPETITION, WHICH IN THIS TRADE IS EVIDENT, HAVE TO BE NECESSARILY TAKEN IN TO CONSIDERATION WHICH WILL HAVE A DEFINITE AND ITA NO.587/IND/3012 & CO 4/IND/2013 ACIT VS. GURUMUKH DAS & CO. 24 DIRECT BEARING ON THE PROFITABILITY. THE CONTENTION THAT THERE IS NO RESTRICTION ON SELLING THE COUNTRY LIQUOR BELOW THE MSP, THOUGH SUCH ACTION IS PROHIBITED IN THE CASE OF IMFL AS PER THE SALE MEMOS ISSUED BY THE EXCISE DEPARTMENT ALSO CARRIES SIGNIFICANT WEIGHT, PARTICULARLY WHEN THE A.O. HAS NOT PROVIDED THE RELVANT CORRESPONDENCE IF ANY DONE WITH THE EXCISE DEPARTMENT IN SOME OTHER CASE, TO THE APPELLANT. THERE ARE CATEGORICAL RECITALS IN THE SALE MEMOS ISSUED BY THE EXCISE DEPARTMENT THAT THE GOVERNMENT SHALL NOT BE RESPONSIBLE AND LIABLE FOR ANY LOSSES SUFFERED DUE TO COMPETITION AMONGST THE LIQUOR TRADERS. IT IS A SETTLED PROPOSITION THAT AN ASSESSEE IS FREE TO EXERCISE HIS COMMERCIAL WISDOM IN CARRYING OUT HIS TRADE AND CANNOT BE EXPECTED TO EARN MAXIMUM POSSIBLE PROFITS. COMMERCIAL DECISIONS ORDINARILY ITA NO.587/IND/3012 & CO 4/IND/2013 ACIT VS. GURUMUKH DAS & CO. 25 CANNOT BE ORDINARILY CHALLENGED AS THE SAME ARE PRONE TO MANY FACTORS AND PECULIAR TO THE CIRCUMSTANCES IN WHICH THEY ARE TAKEN UNLESS THESE ARE DEFINITE AND DIRECT EVIDENCES TO HOLD OTHERWISE. 4.4.3 THOUGH INVOKING OF THE PROVISIONS OF SECTION 145(3) OF THE ILT ACT HAS BEEN HELD TO BE JUSTIFIED IN THIS CASE FOR WANT OF CASH SALES VOUCHERS AND THE BOOKS OF ACCOUNTS HAVE BEEN VALIDLY REJECTED, STILL IT HAS TO BE NECESSARILY HE LD THAT THE ASSESSING OFFICER WAS NOT JUSTIFIED IN ESTIMATING THE SALES AT SUCH A HUGE FIGURE AND ON TOP OF IT IN ADDING SUCH ENTIRE ALLEGED SUPRESSED SALES TO THE TOTAL INCOME. THIS WAS APPARENTLY UNJUSTIFIED AND UNWARRANTED ON THE FACTS OF THIS CASE CONSIDERING THE VERY NATURE OF THIS TRADE AND THE ASSOCIATED CIRCUMSTANCES AND OTHER FACTORS AS ITA NO.587/IND/3012 & CO 4/IND/2013 ACIT VS. GURUMUKH DAS & CO. 26 ALREADY DISCUSSED ABOVE. THE ADDITION MADE TO THE TOTAL INCOME ON ACCOUNT OF SUPRESSED SALES OF RS.7,68,12,477/- IS DELETED AND THE ESTIMATED NET PROFIT IS DIRECTED TO BE WORKED OUT AS UNDER :- 4.4.4 IN THE CASE OF VIJAY KANT JAISWAL, INDORE, A LIQUOR TRADER, THE A.O. ALMOST ON THE SAME LINES AS IN THIS CASE HAVING REJECTED THE BOOKS OF ACCOUNTS ESTIMATED THE TURNOVER AT RS.1,40,21,892/- AS AGAINST RS.1,17,30,839/- DECLARED BY THE ASSESSEE AND MADE AN ADDITION OF RS.22,98,053/- ON ACCOUNT OF SUPRESSION OF SALES. THE A.O. IN THAT CAASE OBSERVED THAT SALE RATE OF LIQUOR FOR THE LATER PART OF THE YEAR WAS SIGNIFICANTLY LOWER THAN THE FORMER PART OF THE EYA R WHICH COULD NOT BE SATISFACTORILY EXPLAINED BY THE ASSESSEE AND THAT IT WAS NOT PERMISSIBLE TO SELL THE LIQUOR BELOW MINIMUM RATES AND ALSO THAT THE ITA NO.587/IND/3012 & CO 4/IND/2013 ACIT VS. GURUMUKH DAS & CO. 27 SALES VOUCHERS WERE NOT AVAILABLE. IN THE FIRST APPEAL BEFORE THIS OFFICE THE ADDITION ON ACCOUNT O F SUPRESSION OF SALES WAS DELETED AND THE SALES WERE DIRECTED TO BE ADOPTED AT ESTIMATED FIGURE OF RS.1,30,00,000/- AND THE NET PROFIT RATE WAS DIRECTED TO BE ADOPTED AT 5% BY THIS OFFICE. THE SAID ORDER PASSED BY THIS OFFICE HAAS BEEN AFFIRMED BYD THE HON'BLE ITAT INDORE BENCH IN ITA 325/IND/2011 (APPEAL FILED BY THE ASSESSEE ) AND ITA 359/IND/2011 (APPEAL FILED BY THE DEPARTMENT) PER ORDER DATED 5.06.2012 DISMISSING BOTH THE CORSS APPEALS HOLDING THAT THE ESTIMATES MADE BY THIS OFFICE WERE REASONABLE. THE FACTS OF THE PRESENT CASE ARE ALMOST SIMILAR AND THE BASIS OF ADDITION MADE BY THE A.O. IS ALSO MORE OR LESS THE SAME, MATERIAL DEPARTURE IN THE FACTS, BEING THAT THE TURNOVER IN THE PRESENT CASE IS ITA NO.587/IND/3012 & CO 4/IND/2013 ACIT VS. GURUMUKH DAS & CO. 28 SUBSTANTIALLY HIGHER ATALMOST 20 TIMES AT RS.2230.65 LACS AS AGAINST RS.117.30 LACS IN THE CASE OF VIJAY KANT JAISWAL. IT MAY ALSO BE NOTED THAT IT IS NOT POSSIBLE TO HAVE CONSTANT GROSS PROF IT OR NET PROFIT IN ANY TRADE. 4.4.5 IT IS ALSO NOTICED THAT IN THE PRESENT CASE THAT THE APPELLANT HAD SHOWN NET PROFIT OF 2.20% ON A TURNOVER OF 2273.91 LACS FOR THE IMMEDIATELY PRECEDING YEARS AS AGAINST THE NP RATE OF 1.94% IN THE IMPUGNED YEAR ON A TURNOVER OF RS.2464.09 LACS. THE BOOK RESULTS OF THE APPELLANT HAVE BEEN ACCEPTED IN 143(3) PROCEEDINGS FOR THE A.Y. 2006- 07 WHERE THE NET PROFIT RATE WAS AT 2.24% ON A TURNOVER OF 662.85. THE APPELLANT HAS PLACED RELIANCE ON VARIOUS DECISIONS OF JURISDICTIONAL ITA T WHERE THE HON'BLE ITAT HAS ACCEPTED THE NET PROFIT RATE OF 2.35% ON THE TOTAL SALES SHOWN AT ITA NO.587/IND/3012 & CO 4/IND/2013 ACIT VS. GURUMUKH DAS & CO. 29 RS.2,36,12,683/-, NET PROFIT BEFORE SALARY TO PARTNERS WAS RS.5,53,645/- GIVING A NP RATE OF 2.35% IN ACIT 1(1) BHOPAL VS. GULMOHAR TRADERS (ITA 115/IND/2011) A.Y. 2007-08. SIMILARLY IN THE CASE OF ASSISTANT COMMISSIONER OF INCOME TAX V. M/S AVINASH CHALANA & COMPANY (ITA 78/IND/2010) A.Y. 2006-07 THE ASSESSEE FIRM SHOWED TOTAL SALES AT RS.8,89,09,784/- AND BEFORE ALLOWING SALARY TO PARTNERS THE NET PROFIT WAS SHOWN AT RS.15,70,760/- RESULTING INTO NET PROFIT RATE OF 1.77% BEFORE ALLOWING SALARY TO PARTNERS WHICH STAND ACCEPTED BY THE HON'BLE ITAT INDORE BENCH. IN ANOTHER CASE OF ACIT 2(1) BHOPAL VS. M/S SUREWIN MARKETING PVT. LTD. (ITA 605/IND/2010) A.Y. 2007-08 THE ASSESSEE HAD SHOWN TOTAL SALES OF RS.13.76 CRORES AND A NET PROFIT RATE OF 1.2% WHICH WAS ESTIMATED AT 3# BY ITA NO.587/IND/3012 & CO 4/IND/2013 ACIT VS. GURUMUKH DAS & CO. 30 THE A.O. THE CIT(A) IN THIS CASE HAS DIRECTED TO ACCEPT THE BOOK RESULTS. IN THIS CASE THE HON'BLE ITAT MODIFIED BOTH THE ORDERS OF THE LOWER AUTHORITIES AND ESTIMATED THE NET PROFIT RATE AT 1.50% AGAINST 1.2% DECLARED BY THE ASSESSEE. 4.4.6 THUS, THE NET PROFIT SHOWN BY THE PRESENT APPELLANT AT 1.94% ON AN TURNOVER OF 2464.09 LACS COULD NOT BE SAID TO BE LOWER THAN THE PREVAILING RATE ACCEPTED/ESTIMATED BY THE HON'BLE ITAT IN OTHER CASES. THE FACT THAT THE SALES HAVE TO BE MADE BELOW MSP AS MAY BE NECESSITATED OUT OF BUSINESS COMPULSIONS CANNOT BE OVERLOOKED AND ALSO THE FACT THAT AT TIMES SALES ARE MADE ABOVE THE MSP CANNOT BE DENIED. CONSIDERING THIS PRACTICAL ASPECT AND ALSO CONSIDERING THAT THE A.O. HAS WORKED OUT THE SALES AT MSP OF COUNTRY LIQUOR ITA NO.587/IND/3012 & CO 4/IND/2013 ACIT VS. GURUMUKH DAS & CO. 31 AT RS.6,81,66,416/- AND THAT OF IMFL AT RS.20,72,38,073/- TOTALING TO RS.27,54,04,489/- AND ALSO CONSIDERING THE OVERALL FACTS AND ALSO THE FACT THAT SALES MAY BE OCCASIONALLY MADE BLOW THE MSP AND ALSO AT TIMES ABOVE THE MSP AND ALSO CONSIDERING THAT SOME OF THE CALCULATIONS MADE IN THE ASSESSMENT ORDER ARE BASED ON ASSUMPTIONS AND THAT THE APPELLANT HAS ALSO POINTED OUT CERTAIN MISTAKES IN THE CALCULATION OF MSP OF IMFL THE TOTA L SALES OF THE APPELLANT ARE ESTIMATED AT RS.2750 LACS. FURTHER CONSIDERING THE ESTIMATED TURNOVER OF THE APPELLANT AS ALSO THE NET PROFIT DECLARED BY TH E APPELLANT AND ACCEPTED BY THE DEPARTMENT IN EARLIER YEARS AND ALSO CONSIDERING THE NET PROFITS APPROVED BY THE HON'BLE JURISDICTIONAL ITAT IN OTHER CASES, THE NET PROFIT RATE OF 3.5% SHALL BE F AIR ITA NO.587/IND/3012 & CO 4/IND/2013 ACIT VS. GURUMUKH DAS & CO. 32 AND REASONABLE IN THIS CASE. THUS THE APPELLANTS TOTAL INCOME IS ESTIMATED AT RS.96,25,000/- FOR THIS YEAR AS AGAINST THE RETURNED INCOME OFRS.48,37,972/-. 9. WE HAVE HEARD BOTH THE SIDES. WE HAVE ALSO GONE THROUGH VARIOUS CASE LAWS RELIED UPON AND THE FACTUAL ASPECT OF THE CASE. WE AGREE WITH THE ESTIMATION OF SAL ES AT RS.27.50 CRORES WHICH IS BASED ON MINIMUM SELLING PR ICE AND THIS MINIMUM SELLING PRICE TAKEN FOR ESTIMATING TH E SALES IS REASONABLE AND PROXIMATE. THE ASSESSEES CLAIM THAT SOME OF THE SALES ARE BELOW THE MSP BUT THERE ARE SALES WHICH ARE MORE THAN MSP ALSO. THEREFORE, THE FACTO R OF FEW SALES BELOW MSP IS EQUAL OUT BY THE FACT THAT SOM E SALES ARE ON MORE THAN MSP ALSO. IN VIEW OF THESE FACT S, WE UPHOLD THE ESTIMATING THE SALES AT RS.27.50 CRORES. T HE SUPPLY OF COUNTRY LIQUOR AS WELL AS FOREIGN LIQUOR IS ITA NO.587/IND/3012 & CO 4/IND/2013 ACIT VS. GURUMUKH DAS & CO. 33 CONTROLLED BY THE EXCISE DEPTT. THEREFORE, THE PURC HASED DEBITED IN THE BOOKS OF ACCOUNTS WHICH HAVE BEEN ACCEP TED CANNOT BE DOUBTED. THE SALES HAVE BEEN ESTIMATED ON TH E QUANTITATIVE DETAILS SUPPLIED BY THE ASSESSEE OF DIFFERE NT TYPES OF LIQUORS SOLD BY HIM DURING THE YEAR THEN TH ERE IS NO REASON AS TO WHY TO ENHANCE THE PURCHASES DEBITED I N THE BOOKS OF ACCOUNTS AT RS.24,64,09,010/-. SINCE PURCHASERS ARE FROM REGULATED MACHANISM, THERE IS NO SCOPE TO ENHANCE THE COST OF PURCHASES. THEREFORE, WE ALLOW THIS GROUND OF THE REVENUES APPEAL FOR NOT APPLYING N P RATE OF 3.5%. SINCE THE EXPENSES HAVE BEEN DEBITED IN THE BOOKS OF ACCOUNTS, THEREFORE, THE DIFFERENCE IN THE ESTIMAT ED SALES AND THE EXPENSES DEBITED IN THE BOOKS SHALL BE THE TA XABLE INCOME OF THE ASSESSEE AND WE ORDER ACCORDINGLY. ITA NO.587/IND/3012 & CO 4/IND/2013 ACIT VS. GURUMUKH DAS & CO. 34 10. GROUND NO 3 IN THE REVENUES APPEAL AND GROUND NO. 4 IN THE CROSS OBJECTION ARE GENERAL IN NATURE AND DO NOT REQUIRE ANY ADJUDICATION. 11. IN THE RESULT, THE APPEAL OF THE REVENUE STANDS PAR TLY ALLOWED AND CROSS OBJECTION OF THE ASSESSEE IS DISMISS ED. PRONOUNCED IN OPEN COURT ON 21 ST DECEMBER, 2015 SD/- SD/- (D.T. GARASIA) (B.C. MEENA) JUDICIAL MEMBER ACCOUNTANT MEMBER 21 ST DECEMBER, 2015 DN/-