Income Tax Officer, Barabanki V. Shri Arvind Kumar Jain, Barabanki

ITA 674/LKW/2015

• Counselvise Citation: [2016] 132 COUNSELVISE.COM (IT) 4390 (ITAT-LUCKNOW)
• Duration Of Justice: 8 month(s) 5 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 05-07-2016
• Appeal Filed By: Department
• Order Result: Allowed
• Bench Allotted: B
• Next Hearing Date: 24-05-2016
• Assessment Year: 2012-2013
• Appeal Filed On: 30-10-2015
• Result in Favour of: Revenue
• Court: TRIBUNAL
• Department Lawyers: RAKESH MISHRA
• Keywords: Gross profit estimation

Judgement Text

1 IN THE INCOME TAX APPELLATE TRIBUNAL LUCKNOW BENCH B, LUCKNOW BEFORE SHRI P.K. BANSAL, ACCOUNTANT MEMBER AND SHRI MAHAVIR PRASAD JUDICIAL MEMBER ITA NO.674/LKW/2015 ASSESSMENT YEAR 2012-13 SH. ARVIND KUMAR JAIN, PROP. M/S BAHUBALI TRADERS, BAHAMANI TOLA, FATEHPUR, BARABANKI. PAN AOMPJ 0761 R VS INCOME TAX OFFICER-5(4), B-5/263, BEGUMGANJ, CIVIL LINES, BARABANKI (RESPONDENT) (APPELLANT) SHRI AMIT NIGAM, DR APPELLANT BY SHRI RAKESH MISHRA, ADVOCATE RESPONDENT BY 24/05/2016 DATE OF HEARING 05 / 0 7 /201 6 DATE OF PRONOUNCEMENT O R D E R PER: MAHAVIR PRASAD, JM. THIS APPEAL IS PREFERRED BY THE REVENUE AGAINST THE ORDER OF LD. CIT(A)-II, LUCKNOW DATED 13.08.2015 FOR THE ASSESSM ENT YEAR 2012-13. 2. THE SOLE GROUND OF THE ASSESSEE IS AS UNDER:- THE COMMISSIONER OF INCOME TAX (APPEALS), LUCKNOW HAS ERRED IN LAW AND ON FACTS OF THE CASE IN RESTRICTIN G THE DISALLOWANCES TO 0.1% I.E. RS.11,63,855/- OF TOTAL TURNOVER AS AGAINST THE ADDITION OF RS.66,54,087/- MADE AT THE RATE OF 0.65% OF GP BY ASSESSING OFFICER AFTER REJECTING TH E BOOKS OF ACCOUNTS OF THE ASSESSEE, WITHOUT GIVING ANY BASIS OR JUSTIFICATION. 2 3. DURING THE COURSE OF ASSESSMENT PROCEEDINGS, THE ASSESSEE A TRADER IN MENTHOL WAS ASKED TO EXPLAIN THE REASONS FOR SHORT FALL IN GP & NP. THE ASSESSEE SUBMITTED BEFORE THE AO THAT THE GP AND NP RATES OF FIRM DURING THE YEAR WERE 0.07% AND 0.06% RESPECTIV ELY. THE ASSESSEE FURTHER STATED THAT THE BUSINESS OF MENTHOL OIL TRA DING AND SUPPLY WAS MAINLY EXPANDED IN THE DISTRICT OF BARABANKI AND SI TAPUR AND THAT THE SUPPLY WAS DONE IN SOME OTHER DISTRICTS AS WELL. H E ALSO STATED THAT AS THIS BUSINESS WAS COST BASED ON MCX AND THUS DUE TO RESULTANT RISE IN THE COMPETITION LEVEL, THE PROFIT WAS VERY NOMINAL. IT WAS ALSO STATED THAT THE TRADING WAS DONE IN MANY LOCAL DISTRICTS S O CONSIDERABLE EXPENSES WERE MADE ON LOADING/UNLOADING, TRANSPORTI NG ETC AND THAT IN THIS TYPE OF BUSINESS VAT AND MANDI TAX WAS ALSO IN CLUDED. IT WAS ALSO CONTENDED THAT IN THIS TYPE OF FIRMS, GROSS PROFIT AND NET PROFIT RATE WERE ALMOST THE SAME FOR ALL THE FIRMS BUT IN HIS F IRM, THE MAXIMUM SUPPLY WAS DONE TO A SINGLE FIRM, RESULTING IN LOW GROSS PROFIT AND NET PROFIT AS COMPARED TO OTHER FIRMS, WHICH HAD TRADIN G BUSINESS IN LOCAL AREAS. IT WAS ALSO ARGUED THAT HE HAD THE TRADING T IE UP OUTSIDE FIRMS AND THAT IS WHY HIS TURNOVER WAS MUCH MORE AND GROS S PROFIT AND NET PROFIT RATE WERE LOW. IT WAS ALSO SUBMITTED THAT M /S PARSWA TRADERS HAD THE TURNOVER OF RS.212,12,49,125/- AND IN WHICH THE GROSS PROFIT WAS 0.30% AND NET PROFIT RATE WAS 0.10% RESPECTIVEL Y. BUT IN COMPARISON, HE HAD VERY LOW GROSS PROFIT AND NET PR OFIT BECAUSE HE HAD TRADING WITH ONLY ONE FIRM, YIELDING THEREBY A LOW MARGIN. IT WAS, ACCORDINGLY REQUESTED DURING THE ASSESSMENT PROCE EDING TO ACCEPT THE TRADING RESULTS OF HIS BUSINESS. THE AO, HOWEVER, R ELYING UPON THE COMPARATIVE BOOK RESULTS OF FOLLOWING ASSESSEES; WH O WERE IN THE SAME LINE OF BUSINESS IN THE SAME VERY FINANCIAL YEAR, R EJECTED THE BOOK 3 RESULTS OF THE ASSESSEE AND APPLIED THE AVERAGE G.P . RATE OF THESE ASSESSEES, WHILE MAKING THE IMPUGNED ADDITION:- S.NO. NAME TURNOVER GP% NP% 1. SH. RAKESH KUMAR, PROP, JAI MATADI TRANDERS 22,55,23,666/- 1.00% 0.45% 2. SH. PREM KISHOR, PROP VERMA TRADING COMPANY 21,26,22,016/ - 1.04% 0.40% 3. SH. ARVIND KUMAR JAIN, PROP. BAHU BALI TRADING COMPANY 1,16,38,55,100/ - .08% 0.007% 4. SH. BALRAM GUPTA, PROP. GUPTA TRADERS 45,45,83,627/ - 0.56% 0.11% 5. SH. KAPOOR BAB, PROP. GUPTA SUPPLIERS 36,42,97,790/ - 0.96% 0.25% 6. SH.SACHIN JAIN PROP. M/S PARSWA TRADERS, FATEHPUR, BARABANKI 2,12,12,49,125/ - 0.30% 0.10% 4. WE NOTED THAT THE ASSESSEE HAS SHOWN GP RATE OF 0 .08% WHICH WAS MUCH LOWER IN COMPRISED OF AVERAGE GP RATE TAKE N OF SIX ASSESSEE TURNOVER IN MENTHE OIL TRADING WHICH WAS 0.65%. THE TRADING RESULT WAS NOT ACCEPTED. AFTER REJECTING BOOKS OF ACCOUNT U/S 145(3) OF THE ACT, GP RATE OF 0.65%WAS APPLIED ON TOTAL TURNOVER OF RS.1, 16,38,55,100/- WHICH COMES TO RS.75,65,058/-.THE DIFFERENCE RS.66, 54,087/-WAS ADDED TO THE INCOME OF THE ASSESSEE. ACCORDINGLY, THE ASS ESSING OFFICER HAS MADE THE ADDITION OF RS.66,54,087/-. 5. AGAINST THE SAID ASSESSMENT ORDER, ASSESSEE HAS PREFERRED AN APPEAL BEFORE THE CIT(A) WHO HAS RESTRICTED THE DI SALLOWANCES TO 0.1% I.E. 11,63,855/- OF TOTAL TURNOVER AS AGAINST THE A DDITION OF RS.66,54,087/- MADE AT THE RATE OF 0.65% OF GP BY T HE ASSESSING OFFICER AFTER REJECTING THE BOOKS OF ACCOUNT OF THE ASSESSEE. THE RELEVANT OBSERVATION OF THE CIT(A) WHICH READS AS U NDER:- 4 I HAVE VERY CAREFULLY GONE THROUGH THE ASSESSMENT ORDER AND THE ARGUMENTS MADE BY THE LD. COUNSEL OF THE APPELLANT AND AM OF THE VIEW THAT THE CORNPARABLES ADOPTED BY THE LD. AO ARE NOT APPROPRIATE IN AS MUCH AS THERE ARE MARKED DIFFERENCES IN TERMS OF TURNOVER AND OTHER PECULIAR CONDITIONS SPECIFIC TO THE APPELLANT. IT CANNOT BE DENIED THAT THE TURNOVER OF THE APPELLANT IS FAR MORE THAN THE TURNOVERS OF SHRI RAKESH KUMAR, SHRI BALRAM GUPTA AND SHRI KAPOOR BABU, WHER EAS THE TURNOVER OF SHRI SACHIN JAIN IS NEARLY TWICE THE AP PELLANTS' TURNOVER. IT MAY ALSO BE NOTED HERE THAT THE APPELL ANT IS BOUND BY A TIE-UP WITH M/S NEPTUNE AND THEREFORE, D ID NOT HAVE THE SAME FREEDOM TO NEGOTIATE AS THE OTHER PAR TIES CHOSEN BY THE LD. AO. IN VIEW OF THESE PECULIAR SIT UATIONS APPLICABLE TO THE APPELLANT, THE ADOPTION OF AVERAG E GP OF 0.65% BY THE LD. ASSESSING OFFICER CANNOT BE SUSTAI NED MORE SO, WHEN THE ASSESSING OFFICER HAS NOT RECORDED ANY DEFECTS IN TERMS IN THE BOOKS OF ACCOUNTS MAINTAINED BY THE AP PELLANT. HOWEVER, THE GP OF 0.08% SHOWN BY THE APPELLANT, D OES NOT APPEAR REASONABLE AND CANNOT, THEREFORE, BE UPH ELD, BEING ON AN EXTREMELY LOW SIDE. ACCORDINGLY, I AM OF THE CONSIDERED VIEW THAT THE INTEREST OF JUSTICE WILL BE MET, IF A GP RATE OF 0.1% IS ADOPTED IN THE APPELLANTS CASE LOOKING TO THE PECULIAR SITUATION PREVALENT IN THE APPELLANTS CASE AND SUB STANTIALLY BETTER BOOK RESULTS SHOWN BY OTHER TRADERS IN THE S AME LINE OF BUSINESS. ACCORDINGLY, ADDITION TO THE EXTENT OF RS .11,63,855/- (@0.1% OF THE TURNOVER OF RS.1,16,38,55,100/) IS HE REBY CONFIRMED. 6. AGGRIEVED ASSESSEE PREFERRED AN APPEAL BEFORE US . WE NOTED THAT THE ASSESSING OFFICER HAS REJECTED THE BOOKS OF ACC OUNT U/S 145(3) OF THE ACT AND APPLIED G.P. RATE 0.65% ON TOTAL TURNOV ER OF RS.1,16,38,55,100/- WHICH COMES TO RS.75,65,058/-. THE DIFFERENCE RS.66,54,087/- (75,65,058-9,10,971) WAS ADDED TO TH E INCOME OF THE ASSESSEE. WE FURTHER NOTED THAT THE CIT(A) HAS APPL IED GP RATE OF 0.1% ON THE TOTAL TURNOVER WHICH COMES TO RS.11,63,855/- . THE DIFFERENCE RS.54,90,232/- (66,54,087-11,63,855) . THE CIT(A) H AS RESTRICTEDTHE DISALLOWANCES TO 0.1% I.E.RS.11,63,855/- OF TOTAL T URNOVER AS AGAINST THE 5 ADDITION OF RS.66,54,087/- MADE @ 0.65% BY ASSESSIN G OFFICER AFTER REJECTING THE BOOKS OF ACCOUNT OF THE ASSESSEE. 7. THE LD. D.R. HAS CONTENDED THAT THE ASSESSING OF FICER HAS ESTIMATED THE BUSINESS PROFIT AT 0.65% OF THE TOTAL TURNOVER, RESULTING INTO AN ADDITION OF RS.66,54,087/- AFTER REJECTING THE BOOKS OF ACCOUNT, BUT THE LD. CIT(A) HAS RESTRICTED THE DISALLOWANCES TO 0.1% I.E. RS.11,63,855/- OF TOTAL TURNOVER AS AGAINST THE ADD ITION OF RS.66,54,087/- MADE @ 0.65% OF GP BY ASSESSING OFFI CER. 8. WE HAVE CONSIDERED THE RIVAL SUBMISSIONS, GOING T HROUGH THE RELEVANT RECORD AND IMPUGNED ORDERS OF THE AUTHORIT IES BELOW. WE DO NOT AGREE WITH THE ARGUMENTS OF THE RESPONDENT AS M ENTHOL IS NOT A RESTRICTED ITEM WHICH CAN BE SOLD TO A PARTICULAR B UYER. IT IS AN OPEN COMMODITY AND WE AGREE WITH THE ARGUMENTS OF THE LD . DR OF THE REVENUE WHO HAS STATED THAT ASSESSING OFFICER HAS R IGHTLY ASSESSED THE INCOME AFTER DISCUSSING THE COMPARATIVE CHART OF SA ME BUSINESS AND IN SAME FINANCIAL YEAR. 9. IN THE RESULT, APPEAL OF THE DEPARTMENT IS ALLOW ED. (ORDER WAS PRONOUNCED IN THE OPEN COURT ON THE DATE MENTIONED ON THE CAPTION PAGE) SD/- SD/- (P.K. BANSAL) (MAHAVIR PRASAD) ACCOUNTANT MEMBER JUDICIAL MEMBER DATED: 05/07/2016 AKS COPY OF THE ORDER FORWARDED TO : 1.THE APPELLANT 2.THE RESPONDENT. 3.CONCERNED CIT 4.THE CIT(A) 5.D.R., I.T.A.T., LUCKNOW ASSTT. R EGISTRAR