DCIT, Trichy V. Smt. U.Srilakshmi, Trichy

ITA 676/CHNY/2011

• Counselvise Citation: [2011] 134 COUNSELVISE.COM (IT) 4721 (ITAT-CHENNAI)
• Duration Of Justice: 2 month(s) 29 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 11-07-2011
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: D
• Assessment Year: 2007-2008
• Appeal Filed On: 12-04-2011
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: K E B RENGARAJAN JR
• Assessee Lawyers: S SRIVATSAN
• Keywords: Gross profit estimation
• Section: 40A(3)

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL CHENNAI BENCH D : CHENNAI [BEFORE DR. O.K. NARAYANAN, VICE-PRESIDENT AND SHRI HARI OM MARATHA, JUDICIAL MEMBER] I.T.A NO. 676/MDS/2011 ASSESSMENT YEAR : 2007-08 THE DY. CIT CIRCLE I(2) TRICHY VS SMT. U.SRILAKSHMI NO.25, PANDAMANGALAM AGRAHARAM, WORAIYUR TRICHY 620 003 [PAN AAFPU4705R ] (APPELLANT) (RESPONDENT) APPELLANT BY : SHRI K.E.B RENGARAJAN, JR. STANDING COUNSEL RESPONDENT BY : SHRI S.SRIVATSAN, CA O R D E R PER HARI OM MARATHA, JUDICIAL MEMBER: THIS APPEAL OF THE REVENUE, FOR ASSESSMENT YEA R 2007-08, IS DIRECTED AGAINST THE ORDER OF THE LD. CIT(A), TIRUC HIRAPALLI, DATED 11.1.2011. 2. BRIEFLY STATED, THE FACTS OF THE CASE ARE THAT T HE ASSESSEE IS A WHOLESALER IN COVERING JEWELLERY (IMITATION). FOR ASSESSMENT YEAR 2007-08, SHE FILED HER RETURN OF INCOME DECLARING T OTAL INCOME OF ` ITA 676/11 :- 2 -: 55,62,520/- BUT THE ASSESSMENT WAS MADE AT ` 1,66,51,934/-. TO ARRIVE AT THE ABOVE TOTAL INCOME OF THE ASSESSEE, T HE ASSESSING OFFICER HAS MADE THE FOLLOWING ADDITIONS: ADDITION DUE TO LOW GROSS PROFIT ` 26,36,502 DISALLOWANCE U/S 40A(3) FOR ALLEGED CASH PAYMENTS EXCEEDING ` 20,000 TOWARDS PURCHASES ` 83,40,497 ALLEGED UNACCOUNTED PURCHASES ` 2,98,907 3. AGGRIEVED, THE ASSESSEE PREFERRED FIRST APPEAL AND GOT THE DESIRED RELIEF AGAINST WHICH THE REVENUE IS IN APPE AL. 4. THE FIRST ISSUE OF THIS APPEAL RELATES TO ADDIT ION MADE ON ACCOUNT OF ESTIMATED GROSS PROFIT ON DECLARED SALES . THE FACTS APROPOS THIS ISSUE ARE THAT THE ASSESSING OFFICER, DURING S CRUTINY ASSESSMENT, NOTICED THAT THE ENTIRE PURCHASES HAVE BEEN MADE WI THOUT REGULAR BILLS, BUT ON THE SUPPORT OF BOUGHT NOTES MADE BY THE ASSESSEE. IN THE ABSENCE OF PROPER BILLS AND DOUBTING THE 'BOUGH T NOTES', THE ASSESSING OFFICER CAME TO THE CONCLUSION THAT EITHE R THE PURCHASES WERE FROM FICTITIOUS AND NON-EXISTENT PERSONS OR PS EUDONYMOUS PERSONS. THEREFORE, HE REJECTED THE BOOKS OF ACCOU NT AND ADOPTED THE GROSS PROFIT RATE OF 14.9% AS AGAINST 9.09% SHOWN B Y THE ASSESSEE. THE ASSESSEES DECLARED GROSS PROFIT RATE IN THE PR EVIOUS ASSESSMENT ITA 676/11 :- 3 -: YEAR AT 12.5% HAD BEEN ACCEPTED BY THE ASSESSING OF FICER. HOWEVER, THE LD. CIT(A) HAS DELETED THE IMPUGNED ADDITION MA INLY ON THE PREMISE THAT THE ASSESSING OFFICER HAS NOT DISPUTED THE PURCHASES, BUT HAS SIMPLY DISPUTED THE PURCHASE BILLS WHICH ARE ST ATED TO BE NOT PROPERLY VOUCHED. 5. BEFORE US, SIMILAR STAND WAS TAKEN. WE ARE ALSO O F THE VIEW THAT THE REJECTION OF THE BOOKS OF ACCOUNT IS BASED ONLY ON THE SUSPICION OF ASSESSING OFFICER. A SUSPICION HOWSOE VER GRAVE AND STRONG CANNOT TAKE THE PLACE OF PROOF. AFTER REJEC TING THE BOOKS, HAD THE ASSESSING OFFICER ALSO REJECTED THE PURCHASES, HIS ACTION WOULD HAVE BEEN JUSTIFIED. THE REJECTION OF BOOKS ONLY B Y MENTIONING IN SO MANY WORDS IS NOT ENOUGH. THE BOOKS CAN BE REJECTE D ONLY ONE SPECIFIC INSTANCE LEADING TO MATERIAL DEFECT IN THE TRADING RESULTS, PARTICULARLY WITH REFERENCE TO PURCHASES AND SALES, ARE FOUND ON RECORD. THIS IS A CASE WHERE THE ASSESSEE HAD MADE TOTAL PURCHASES DURING THE PERIOD AT ` 4,17,02,487/-. SHE HAS MADE PURCHASES THROUGH 'BOUGHT NOTES' . THE FAMILY OF THE ASSESSE E IS ENGAGED IN THE PURCHASE AND SALE OF IMITATION JEWELLERY UNDER THE BRAND NAME OF KALYANI COVERING. THE FAMILY IS A WHOLESALE DEAL ER. IN THE FAMILY THERE ARE RETAILERS ALSO. THE BUSINESS OF THIS ASS ESSEE WAS A RETAILERS BUSINESS, WHO WOULD MAKE PURCHASES FROM THE FAMILY BUSINESS THROUGH ITA 676/11 :- 4 -: 'BOUGHT NOTES'. THE ASSESSEE HAS BEEN GETTING CONS ISTENTLY THE GROSS PROFIT RATE OF 9.09%. THE ASSESSING OFFICER HAS A CCEPTED THE TOTAL PURCHASES AND HE HAS NOT DISTURBED THE SAME. HENCE , IN OUR OPINION, WHEN THE LD. CIT(A) HAS FOLLOWED ASSESSEES OWN PRE VIOUS HISTORY IN COMING TO THE CONCLUSION THAT THE GROSS PROFIT RATE ADOPTED BY THE ASSESSING OFFICER IS NOT CORRECT, WE CANNOT INTERFE RE IN HIS CONCLUSION PARTICULARLY IN THE GIVEN FACTS AND CIRCUMSTANCES O F THE CASE. THEREFORE, WE DECIDE THIS ISSUE IN FAVOUR OF THE AS SESSEE. 6. THE SECOND ISSUE IS REGARDING MAKING ADDITION U/S 4 0A(3) OF THE ACT IN RESPECT OF PAYMENTS ALLEGEDLY HAVING BEEN M ADE TO SAME PERSON OF AMOUNT EXCEEDING ` 20,000/- ON EVERY OCCASION IN CASH. AS PER THE ASSESSING OFFICER, REGARDING INDIVIDUAL PUR CHASES, EVERY PURCHASE WAS AROUND FOR ` 50,000/-, HOWEVER, THE 'BOUGHT NOTES' WERE PREPARED IN SUCH A MANNER THAT THE AMOUNT SHOWN THE REIN WOULD COME TO LESS THAN ` 20,000/- TO CIRCUMVENT THE PROVISIONS OF SECTION 40A(3). THIS ADDITION HAS BEEN DELETED BY THE LD. CIT(A) ON THE PREMISE THAT WHEN THE ASSESSING OFFICER REJECTS THE BOOKS OF ACCOUNT, NO ADDITION U/S 40A(3) CAN BE MADE AND FOR THAT MAT TER, HE HAS RELIED ON THE DECISION OF THE HON'BLE MADRAS HIGH COURTS DECISION RENDERED IN THE CASE OF CIT VS MOHAMMED DHURABUDEEN, 4 DTR 2 18 (MAD). ITA 676/11 :- 5 -: 7. AFTER HEARING BOTH SIDES, WE FIND THAT THERE IS NO DISPUTE WITH REGARD TO THE FACTS OF THE ISSUE. IT IS ALSO A KNO WN FACTOR THAT HON'BLE MADRAS HIGH COURT HAS TAKEN A VIEW THAT AFTER REJEC TION OF BOOKS OF ACCOUNT NO FURTHER ADDITION CAN BE MADE U/S 40A(3). THEREFORE, BY FOLLOWING THE HON'BLE JURISDICTIONAL HIGH COURTS D ICTUM, THE LD. CIT(A) HAS CORRECTLY DELETED THE ADDITION MADE ON THIS ACC OUNT. 8. IN THE ALTERNATIVE, IT WAS ARGUED BY THE LD.DR THAT WHEN THE ADDITION HAS BEEN MADE AFTER DELETING THE ADDITION MADE ON ACCOUNT OF GROSS PROFIT ADDITION THEN IN THAT CASE, THE OTHER ADDITION MADE U/S 40A(3) WOULD AUTOMATICALLY SURVIVE. IN THIS REGARD , WE HAVE ALREADY MENTIONED THAT THE DICTUM OF THE HON'BLE JURISDICTI ONAL HIGH COURT IS THAT ONCE THE BOOKS OF ACCOUNT ARE REJECTED, NO ADD ITION U/S 40A(3) CAN BE MADE. HENCE, WE CANNOT ALLOW THIS ALTERNATI VE PLEA. 9. IN THE RESULT, THE APPEAL OF THE REVENUE STANDS DISMISSED. ORDER PRONOUNCED IN THE OPEN COURT ON 11.7.2011. SD/- SD/- (DR. O.K. NARAYANAN) VICE-PRESIDENT (HARI OM MARATHA) JUDICIAL MEMBER DATED: 11 TH JULY, 2011 RD COPY TO: APPELLANT/RESPONDENT/CIT(A)/CIT/DR