Sh. Arun Kumar Dani, Delhi V. ITO, New Delhi

ITA 5913/DEL/2012

• Counselvise Citation: [2014] 140 COUNSELVISE.COM (IT) 81523 (ITAT-DELHI)
• Duration Of Justice: 1 year(s) 8 month(s) 17 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 14-08-2014
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: A
• Next Hearing Date: 11-06-2014
• Assessment Year: 2009-2010
• Appeal Filed On: 27-11-2012
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: Y KAKKAR
• Keywords: Gross profit estimation; Rejection of books of accounts
• Section: 145

Judgement Text

INCOME TAX APPELLATE TRIBUNAL DELHI BENCH A : NEW DELHI BEFORE SHRI J.S. REDDY , ACCOUNTANT MEMBER AND SHRI A. T. VARKEY, JUDICIAL MEMBER ITA NO. 5912 /DEL/ 2012 (ASSESSMENT YEAR: 2008 - 09 ) & ITA NO. 5913 /DEL/ 2012 (ASSESSMENT YEAR: 2009 - 10 ) ARUN KUMAR D ANI C - 37, RADHEY PURI DELHI PAN: AFNPD3883J VS. ITO WARD - 35(2) NEW DELHI (APPELLANT) (RESPONDENT) APPELLANT BY : ANIL SHARMA, ADV. RESPONDENT BY : SMT. Y. KAKKAR, SR. DR O R D E R PER A. T. VARKEY , JUDICIAL MEMBER TH ESE ARE APPEAL S PREFERRED BY THE ASSESSEE AGAINST THE ORDER OF THE LD C IT (A) - XXVIII, NEW DELHI DATED 17.09.2012 FOR THE AY 20 08 - 09 AND 2009 - 10 . 2. IN THIS APPEAL THE ASSESSEE HAS RAISED THE FOLLOWING GROUNDS: - 1. THE ASSESSEE FILED INCOME TAX RETURN DECLARING INCOME RS. 3,98,898/ - WHILE LD ASSESSING OFFICER ASSESSED AT RS. 11,36,720/ - WHICH IS COMPLETE HARDSHIP WITH INNOCENT ASSESSES. 2. LD ASSESSING OFFICER HAS MADE AN ADDITION OF RS. 6,26,631/ - ON ACCOUNT OF INCOME FROM BUSINESS AND PROFESSIONAL WHICH IS AGAINST THE FACTS OF THE CASE AND ON WRONG FOOTINGS. 3. LD ASSESSING OFFICER HAS MADE AN ADDITION OF RS. 1,80,112/ - ARBITRARILY ON ACCOUNT OF INCENTIVE RECEIVED AND TREATED AS INCOME FROM BUSINESS AND PROFESSION WHICH IS BAD IN THE EYES OF LAW. 3. APROPOS GROUND NO. 1 WHICH IS GENERAL AND THEREFORE REJECTED. 4. APROPOS GROUND NO.1, REGARDING ADDITION OF RS. 6,26,631/ - ON ACCOUNT OF INCOME FROM BUSINESS. 5. BRIEF FACTS OF THE CASE ARE THAT THE ASSESSEE IS A WHOLE - SALE DISTRIBUTOR OF MILK , APPOINTED BY GUJARAT CO - OPERATIVE MILK FEDERATION . FOR THE RELEVANT ASSESSMENT YEAR HE HAS DECLARED SALES OF RS. 4.70 CRORES AND GROSS PROFIT OF RS. PAGE NO. 2 2,75,898/ - GIVING AN YIELD OF RS. 0.58% AS COMPARED TO AN YIE LD OF 2.21% ON TURN - OVER OF RS. 1.33 CRO R ES IN THE PRECEDING ASSESSMENT YEAR. THE AO OBSERVED THAT M/S. GUJARAT CO - OPERATIVE MILK MARKETING FEDERATION (G.C.M.M.) IN SHORT HAS PAID A MARGIN OF RS. 4.80 ON ALL THE VARIANTS OF ITS PRODUCTS DISTRIBUTED BY THE ASSESSEE. AO WAS THUS OF THE OPINION THAT SINCE THE ASSESSEE HAS SOLD RS. 1,87,622 CRATES OF MILK AND AS SUCH, THE ASSESSEE SHOULD HAVE EARNED A GROSS PROFIT OF RS. 9,00,585/ - ON SALE OF MILK, WHEREAS, ASSESSEE HAS SHOWN PROFIT OF ONLY RS. 2,75,989/ - . THE ASSESSEE EXPLAINED THAT LOW GROSS PROFIT WAS ON ACCOUNT OF DISCOUNT/ MARGIN PASSED ON TO THE DISTRIBUTORS BY THE ASSESSEE. IT WAS SUBMITTED THAT INCREASE IN DISCOUNT TO THE RETAILERS LED TO INCREASE IN SALE AND REDUCTION OF DISTRIBUTION COST AND ALSO REDU CTION OF PILFERAGE OF MILK. THE ASSESSEE FURTHER SUBMITTED THAT TRANSACTION OF SALE OF MILK TAKES PLACE ON CASH BASIS AND IT WAS NOT POSSIBLE TO FURNISH PARTY WISE DETAILS OF EACH BUYER AS THERE WERE NUMBER OF BUYERS BUYING MILK FROM THE ASSESSEE. FURTHER IT WAS SUBMITTED BY ASSESSEE, SPECIFICALLY AS UNDER: - AVERAGE SALE OF MILK WAS MORE THAN 500 CRATES OF 12 LTD EACH. IT WE HAD DISTRIBUTION IN OUR HANDS, WE SHOULD HAVE REQUIRED THREE AU TO LOADING RICKSHAW OF THE COST OF MIN RS. 12,000/ - PER RICKSHAW PER MONTH TO COMPLETE THE SUPPLIES BEFORE 8 AM IN WALLED CITY. IN ADDITION TO IT, THREE SALES PERSONS WHO DISTRIBUTE AND COLLECT THE SALES PROCEEDS WITH TWO WHEELERS AND MOBILE PHONE WERE RE QUIRED. WHICH SHOULD HAVE COST NOT LESS THAN RS. 30,000/ - PER MONTH. DURING THE YEAR I HAVE HANDLED THE SALE WITH SHARES SHOP (UP TO 8AM) BY PAYING RENT OF ONLY RS. 12,000/ - FOR THE ENTIRE YEAR AND COMPLETED THE WORK WITHIN TIME. BY CUTTING THE EXPENSES I N RENT AND OTHER MISC WAYS I HAVE PASSED THE MAJOR PORTION OF THE MARGIN. IN IT THE SUPPLIER/ VENDER USED TO LIFT MILK FROM MY POINT OF RENDERING CASH AND EMPTY CRATES TO ME AT MY PLACE OF WORK BEFORE NO ENTRY TIME FOR COMMERCIAL VEHICLE. IT WAS A LABORIOU S AND TEDIOUS TASK. FUR SUCH SALE AT LEAST INDEPENDENT SHOP OF 100 SQ.FT. WAS REQUIRED WHICH SHOULD HAVE COST ME NOT LESS THAN RS. 1,00,000/ - PER YEAR. IT WAS POSSIBLE ONLY AFTER CUTTING THE COST ON RENT. IN FACT BY WAY OF COST CUTTING IN RENT AND MISC OTH ER WAYS I WAS ABLE TO PASS THE MARGIN. 6. APART FROM THE ABOVE EXPLANATION, THE ASSESSEE ALSO PLACED ON RECORD CONFIRMATION FROM VENDORS/ BUYERS, CONFIRMING THAT THEY HAVE TAKEN THE SUPPLIES AT A DISCOUNT OF RS. 3.50/ PER CRATE. THE AO HOWEVER FINDING THAT ASSESSEE IS NOT IN A POSITION TO FURNISH THE LIST OF PARTY WISE PURCHASES OF MILK HELD THAT THE ASSESSEE IS SUPPRESSING HIS INCOME AND THE BOOKS OF ACCOUNTS MAINTAINED BY PAGE NO. 3 HIM ARE NOT RELIABLE. AS REGARDS THE CON FIRMATIONS, HE HAS HELD THAT THE ASSESSEE HAS NOT PRODUCED THE PARTIES IN PERSON FOR VERIFICATION. HE THUS INVOKED SECTION 145(3) OF THE ACT AND REJECTED THE BOOKS OF ACCOUNT OF THE ASSESSEE AND MADE AN ADDITION OF RS. 6,26,631/ - I.E. (9,0 2 ,529(1,87,622/ - + 405) XRS . 4.80) - 2,75,898 = 6,26,631/ - ). 7. AGGRIEVED BY THE SAID ADDITION MADE BY THE AO, THE ASSESSEE PREFERRED AN APPEAL BEFORE THE LD CIT(A), WHO CONFIRMED THE ADDITION BY OBSERVING AS UNDER: - 12 I HAVE CAREFULLY CONSIDERED THE SUBMISSION OF THE AP PELLANT, THE OBSERVATIONS MADE BY THE AO IN THE AO AND THE FACTS OF THE CASE. AS FAR AS MARGIN OF THE APPELLANT IS CONCERNED, THERE IS NO DISPUTE REGARDING THE SAME AS THE SAME HAS BEEN CONFIRMED BY THE SUPPLIERS M/S. GUJARAT COOP MILK MARKETING FEDERATION BEING RS. 4.80 PER CRATE. THE CONTENTION OF THE APPELLANT FOR NOT SHOWING THE WHOLE OF THIS MARGIN AS HIS GROSS PROFIT IS THAT HE HAS TO PASS ON A PART OF THIS MARGIN TO THE BUYERS OF MILK TO REMAIN COMPETITIVE IN THE MARKET. HOWEVER, THERE IS NO EVIDENCE ON RECORD THAT THE APPELLANT HAS PASSED ON ANY PART OF THIS MARGIN TO HIS BUYERS. THE NORMAL PRACTICE OF THE APPELLANTS BUSINESS IS THAT VARIOUS RETAILERS WHO WISH TO BUY MILK ETC. APPROACH THE DISTRIBUTOR AT HIS DESIGNATED BOOTH AND TAKE DELIVERY OF THE PRODUCTS AFTER BUYING THE SAME IN CASH. THE RETAILERS MARGIN IS SEPARATELY PROVIDED FOR AS MENTIONED BY THE AO AT RS. 9.80 PER CRATE. MOREOVER, THE APPELLANT HAS NOT SHOWN ANY REBATE OR DISCOUNT ALLOWED BY HIM TO ANY SUCH BUYERS IN THE TRADING AND PROFIT AND LOSS ACCOUNT AS HAD BEEN SHOWN BY THE APPELLANT IN THE IMMEDIATELY PRECEDING YEAR I.E. FINANCIAL YEAR ENDING ON 31.03.2007 AS REPRODUCED ABOVE. THE CONFIRMATION FILED BY THE APPELLANT FROM FOUR PERSONS WERE ON PLAIN PAPER, NO PAN OF ANY OF THESE PERSO NS WAS MENTIONED IN THE CONFIRMATION, NO DETAILS OF AS TO HOW MUCH QUANTITY OF PRODUCTS HAD BEEN PURCHASE D BY THEM FROM THE APPELLANT IS MENTIONED NOR ANY DATE OF PURCHASE IS MENTIONED. THEREFORE, CONFIRMATION S FILED BY THE APPELLANT ARE NOT RELIABLE AND HAVE RIGHTLY BEEN REJECTED BY THE AO. MOREOVER NO BOOKS OF ACCOUNTS WERE PRODUCED BEFORE THE AO IN SPITE OF SPECIFIC REQUISITION IN THIS REGARD ON FOUR OCCASIONS AS MENTIONED IN THE PRECEDING PARAGRAPHS. 13. KE EPING IN VIEW ALL THESE FACTS, IT IS HELD THAT BOOKS ACCOUNTS OF THE APPELLANT HAVE RIGHTLY BEEN REJECTED BY THE AO AND THE GROSS PROFIT RATE OF RS. 4.80 PER CRATE HAS RIGHTLY BEEN APPLIED BY THE AO TO THE APPELLANTS SALES. THEREFORE, THE ADDITION OF RS. 6,26,631/ - MADE ON THIS ACCOUNT IS CONFIRMED. 8. AGGRIEVED BY THE AFORESAID ORDER OF THE LD CIT(A), THE ASSESSEE IS BEFORE US . PAGE NO. 4 9. THE LD AR, REITERATED THE SUBMISSION BEFORE THE LOWER AUTHORITIES AND ASSAILED THE FINDINGS OF THE LD CIT(A) AND PLEADS THAT THE IMPUGNED ORDER MAY BE SET - ASIDE. ON THE OTHER HAND THE LD DR, SUPPORTED THE ORDER OF THE LD CIT(A). 10. WE HAVE HEARD BOTH THE PARTIES AND HAVE PERUSED THE RECORDS , WE FIND THAT THE UNDISPUTED FACTS ARE THAT THE ASSESSEE, IS ENGAGED IN THE DISTRIBUTIO N OF MILK AND HE HAD SOLD 1,87,622 CRATES OF MILK (ONE CRATE=12 LITER OF MILK) AND 405 BOXES OF DAHI . AS PER INFORMATION RECEIVED FROM THE GUJARAT COOP. MILK MARKETING FEDERATION, IT WAS NOTICED THAT THE APPELLANT WAS ALLOWED A MARGIN OF RS. 0.40 PER LITER ON ALL THE VARIANTS I.E. 4.80/ - PER CRATE. HOWEVER, THE ASSESSEE DECLARED GROSS PROFIT OF RS. 2,75, 898/ - ON SALES OF RS. 4.70 CRORES GIVING A GP RATE OF 0.58%. THE AO IN THE ABSENCE OF PARTY - WISE DETAILS REJECTED THE BOOKS OF ACCOUNTS OF THE ASSESSEE U/S 145 OF THE ACT AND APPLIED THE GP RATE OF RS. 4.80 PER CRATE/ BOX AND ARRIVED AT A GROSS PROFIT OF R S. 9,02,529/ - . AS THE APPELLANT HAD ALREADY SHOWN GROSS PROFIT OF RS. 2,75,898/ - AN ADDITION OF RS. 6,26,631/ - WAS MADE TO THE APPELLANTS INCOME ON THIS ACCOUNT. 11 . IN OUR OPINION, THE CONCLUSION OF THE AO, TO REJECT THE BOOKS OF ACCOUNTS MERELY ON THE GROUND OF NON - FURNISHING OF LIST OF PARTIES TO WHOM SALES HA VE BEEN MADE IN CASH CANNOT BE A SOLITARY BASIS TO REJECT THE BOOKS OF ACCOUNT. THE ASSESSEE HAS PLACED ON RECORD, THE AUDITED BOOKS OF ACCOUNTS, IN WHICH NO D ISCREPANCY HAS BEEN POINTED OUT BY TH E AO. MOREOVER, THE ASSESSEE HAS EXPLAINED THAT THE LOW GROSS - PROFIT IS ON ACCOUNT OF INCEN TIVE PASSED ONTO THE RETAILERS, AND DEMONSTRATED THAT SUBMISSION BY INVITING OUR ATTENTION TO THE EXPENDITURE INCURRED BY THE ASSESSEE THIS YEAR AND THE PRECEDING YE AR TO SHOW THE FALL IN EXPENSES ON ACCOUNT OF REBATE AND RENT. IT WAS POINTED OUT THAT THE EXPENSES OF REBATE WERE OF RS. 1,53,000/ - IN THE PRECEDING YEAR, APART FROM CARTAGE AND DISTRIBUTION EXPENSES OF RS.57,000/ - ON A TURNOVER OF RS.1.33 CRORES. HOWEVER, WE TAKE NOTE THAT NO EXPENSES WERE INCURRED BY THE ASSESSEE IN THE RELEVANT ASSESSMENT YEAR, AS THE ASSESSEE OPTED TO AVOID COMPLETE DISTRIBUTION COST AND PASS ON THE MARGIN AND INCENTIVE TO THE CUSTOMERS. NO DOUBT , THAT APPROACH HAS RESULTED INTO REDUCTION OF EXPENSES INCLUDING RENT FROM RS.36,000/ - FOR 5 MONTHS TO RS. 12,000/ - FOR THE ENTIRE YEAR. PAGE NO. 5 12 . HOWEVER, WE FEEL THAT THE SAID EXPLANATION TOO, CANNOT BE A SOLE BASIS TO ACCEPT THE DECLARED RESULT. IN SUCH CIR CUMSTANCES, WE DEEM IT APPROPRIATE TO REMIT THE MATTER BACK TO THE FILE OF AO, FOR RE - CONSIDERATION, OF THE TRADING RESULTS DECLARED BY THE ASSESSEE, IN THE LIGHT OF THE EXPLANATION TENDERED BEFORE US. THEREFORE THE IMPUGNED ORDER IS SET - ASIDE AND THE AO I S DIRECTED TO RE - EXAMINE THE MATTER AS DIRECTED ABOVE. NEEDLESS TO SAY THAT THE AO MUST GIVE ADEQUATE OPPORTUNITY TO THE ASSESSEE BEFORE DECIDING THE ISSUE AND THE ASSESSEE IS GIVEN LIBERTY TO ADDUCE EVIDENCES IN SUPPORT OF ITS CONTENTION. 13 . APROP OS GRO UND NO. 3 ADDITION OF RS. 1,80,112/ - IN RESPECT OF INCENTIVE RECEIVED AND NOT DECLARED BY THE ASSESSEE. 14 . BRIEF FACTS OF THE CASE IS THAT THE AO HAS MADE THE ADDITION ON THE BASIS OF ENTRIES FOUND IN THE LEDGER ACCOUNTS OF M/S. GUJARAT CO - OPERATIVE M ILK F EDERATION , WHICH REVEALED THAT THE ASSESSEE HAS RECEIVED AN INCENTIVE OF RS. 1,80,112/ - WHICH WAS NOT DULY REFLECTED IN THE BOOKS OF ACCOUNT OF THE ASSESSEE AND THEREFORE HE MADE THE IMPUGNED ADDITION TO THE INCOME OF THE ASSESSEE . 15 . THE LD CIT(A) HAS CONFIRMED THE ADDITION BY HOLDING AS UNDER: - 14. WITH REGARD TO THE INCENTIVE OF RS. 1,80,112/ - , THE SAME WAS ADMITTEDLY RECEIVED BY THE APPELLANT AND WAS NOT SHOWN IN THE PROFIT AND LOSS ACCOUNT. THE EXPLANATION OF THE APPELLANT IN THIS REGARD THAT THE IN CENTIVE HAD BEEN PASSED ON TO THE RETAILERS IS NOT VERIFIABLE AND NO EVIDENCE HAS BEEN FILED BY THE APPELLANT IN THIS REGARD. THEREFORE, ADDITION OF RS. 1,80,112/ - MADE BY THE A O ON THIS ACCOUNT IS CONFIRMED. 16 . THE LD AR RELIED UPON THE EXPLANATION TEND ERED BEFORE THE AUTHORITIES BELOW THAT INCENTIVE HAS BEEN PASSED ONTO TH E CUSTOMERS TO BOOST THE SALES AND SAID INCENTIVE PERTAINS TO THE EARLIER YEAR AND NOT OF THE RELEVANT ASSESSMENT YEAR. THE LD DR HOWEVER SUPPORTED THE ORDER OF THE LD CIT(A). 17 . HAVING REGARD TO THE FACTS OF THE CASE, SINCE WE ARE REMITTING BACK THE MATTER TO THE FILE OF THE AO, WE SET - ASIDE THE ORDER OF THE AO ON THIS ISSUE AND DIRECT THAT HE MAY ASCERTAIN THE VERACITY OF THE CLAIM OF THE ASSESSEE THAT THE IMPUGNED INCENTIVE PERT AINS TO THE EARLIER ASSESSMENT YEAR AND NOT RELEVANT TO THE ASSESSMENT YEAR UNDER CONSIDERATION. IF THE SAID CLAIM OF THE ASSESSEE IS FOUND CORRECT, THEN THE IMPUGNED ADDITION MAY BE DELETED OTHERWISE IT MAY BE UPHELD. IN THE RESULT THE APPEAL IS ALLOWED F OR STATISTICAL PURPOSES. PAGE NO. 6 18 . IN THE RESULT THE APPEAL IS ALLOWED FOR STATISTICAL PURPOSE. FOR ASSESSMENT YEAR 2009 - 10 19 . ONLY EFFECTIVE GROUND IS GROUND NO.2, WHICH IS AN ADDITION OF RS. 9,54,822/ - BY REJECTING THE BOOKS RESULTS AND ADOPTING A PROFIT MA RGIN @RS. 4.80/ - PER CRATE AND THUS COMPUTING PROFIT AT RS. 14,62,675/ - AS AGAIN ST DECLARED PROFIT OF RS. 5,07,833/ - ON A TURN OVER BASIS OF RS. 8.15 CRORES. 20 . THE ISSUE BEFORE US IS IDENTICAL WITH THAT OF GROUND NO.2 OF ASSESSMENT YEAR 2008 - 09, WHEREIN WE SET ASIDE THE IMPUGNED ORDER, AND REMITTED THE ISSUE BACK TO THE FILE OF AO , AS HAS BEEN HELD ABOVE IN TERMS OF ORDER IN ITA NO 5912/DEL/2012 FOR ASSESSMENT YEAR 2008 - 09. 21 . IN THE RESULT THE APPEAL IS ALLOWED FOR STATISTICAL PURPOSE. ORDER PRONOUNCED IN THE OPEN COURT ON 1 4 . 08 .2014. - SD / - - SD / - ( J. S. REDDY ) (A. T. VARKEY) ACCOUNTANT MEMBER JUDICIAL MEMBER DATED : 1 4 / 08 / 2014 A K KEOT COPY FORWARDED TO 1. APPLICANT 2. RESPONDENT 3. CIT 4. CIT (A) 5. DR:ITAT ASSISTANT REGISTRAR ITAT, NEW DELHI