Ramesh Kumar Khandelwal, Bareilly V. Jt. Commissioner of Income Tax, Bareilly

ITA 709/LKW/2016

• Counselvise Citation: [2018] 121 COUNSELVISE.COM (IT) 6592 (ITAT-LUCKNOW)
• Duration Of Justice: 1 year(s) 5 month(s) 10 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 17-05-2018
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: B
• Next Hearing Date: 16-05-2018
• Assessment Year: 2012-2013
• Appeal Filed On: 07-12-2016
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: YOGESH AGRAWAL SHRI R K V
• Keywords: Gross profit estimation; Rejection of books of accounts

Judgement Text

I.T.A. NO.709/LKW/2016 ASSESSMENT YEAR:2012-13 1 IN THE INCOME TAX APPELLATE TRIBUNAL LUCKNOW BENCH B, LUCKNOW BEFORE SHRI T. S. KAPOOR, ACCOUNTANT MEMBER AND SHRI PARTHA SARATHI CHAUDHURY, JUDICIAL MEMBER ITA NO.709/LKW/2016 ASSESSMENT YEAR:2012-13 SHRI DIPESH KHANDELWAL, (LEGAL HEIR SHRI RAMESH KUMAR KHANDELWAL) C/O SUGAR SALES AGENCIES, SHYAMGANJ, BAREILLY. PAN:ANBPK 0670 Q VS. JT. C.I.T., RANGE-II, BAREILLY. (APPELLANT) (RESPONDENT) O R D E R PER T. S. KAPOOR, A.M. THIS IS AN APPEAL FILED BY THE ASSESSEE AGAINST TH E ORDER OF LEARNED CIT(A) DATED 29/09/2016. THE ASSESSEE HAS TAKEN TH E FOLLOWING GROUNDS OF APPEAL: I. THE LEARNED COMMISSIONER OF INCOME TAX (APPEALS ), BAREILLY [HERE-IN-AFTER REFERRED TO AS THE LD. CIT (A)'S] GROSSLY ERRED ON FACTS AND IN LAW IN HOLDING THE AC TION OF THE ASSESSING OFFICER AS JUSTIFIED FOR REJECTION OF BOOKS OF ACCOUNTS U/S 145(3) WITHOUT SPECIFYING ANY DEFECTS THEREIN AND IN NOT APPRECIATING THE FACT THAT THE O RDER IS BAD-IN-LAW AND THUS NEEDS TO BE QUASHED. WITHOUT PREJUDICE TO GROUND NO. I ABOVE :- II. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE PR ESENT CASE THE LD. CIT(A)'S ERRED IN CONFIRMING THE ADDITION O F APPELLANT BY SHRI YOGESH AGRAWAL, ADVOCATE RESPONDENT BY SHRI R. K. VISHWAKARMA, D. R. DATE OF HEARING 16 / 05 /201 8 DATE OF PRONOUNCEMENT 17 / 05 /201 8 I.T.A. NO.709/LKW/2016 ASSESSMENT YEAR:2012-13 2 RS.25,79,033/- MADE ON ACCOUNT OF ALLEGED LOW GROSS PROFIT AND IN NOT APPRECIATING THE FACT THAT THE AP PELLANT HAD SUBSTANTIAL INCREASE IN TURNOVER AND ALSO THE F ACT THAT COMMISSION INCOME EARNED HAD MULTIPLIED BY ALMOST F OUR TIMES FROM LAST YEAR AND THUS THE ADDITION SO CONFI RMED BY APPLYING AN ARBITRARY RATE OF 2.46% TOWARDS ALLE GED DIFFERENCE IN GROSS PROFIT IS BAD-IN-LAW AND THUS T HE ADDITION BEING BASED OF NOTIONS, CONJECTURES AND SURMISES MAY KINDLY BE ORDERED TO BE DELETED. III. IN CONFORMING THE ADDITION OF RS.25,79,033/- T HE LD. CIT (A)'S FURTHER ERRED BY HOLDING THAT THERE IS NO STO CK REGISTER AND WHICH WAS DULY FURNISHED IN ASSESSMENT PROCEEDINGS AND ALSO THE FACT THE SALES ARE DULY VE RIFIABLE AND THUS THE ADDITION SO CONFIRMED ON WHIMS AND FAN CIES MAY KINDLY BE ORDERED TO BE DELETED. IV. THE LD. CIT (A)'S FURTHER ERRED ON FACTS AND IN LAW IN CONFIRMING THE ADDITION OF RS.40,71,050/- BEING COMMISSION PAID WITHOUT ANY COGENT REASON DESPITE T HE FACT THAT COMPLETE DETAILS AND CONFIRMATIONS WERE AVAILABLE ON RECORD BY CRYPTICALLY HOLDING THAT THE APPELLANT HAS NOT ADDUCED ANY DOCUMENT TO JUSTIFY T HE NATURE OF SERVICES RENDERED BY THE PERSONS TO WHOM THE COMMISSION HAS BEEN PAID AND THUS THE CONFIRMATION OF ADDITION BEING WHOLLY AGAINST ALL SETTLED PRINCIPLE S OF LAW MAY KINDLY BE ORDERED TO BE DELETED. V. THAT THE LD. CIT (A)'S DID NOT AFFORD THE APPELL ANT ANY PROPER OR SUFFICIENT OPPORTUNITY TO HAVE HIS SAY OR MAKE NECESSARY COMPLIANCE OF THE REASONS RELIED UPON BY HIM IN PASSING THE PRESENT ORDER AND THUS THE ORDER PAS SED WITHOUT AFFORDING ADEQUATE OPPORTUNITY MAY KINDLY B E ORDERED TO BE QUASHED. 2. AT THE OUTSET, LEARNED A. R. ARGUED THAT THE ASS ESSING OFFICER HAS WRONGLY REJECTED THE BOOKS OF ACCOUNT U/S 145(3) OF THE ACT WITHOUT SPECIFYING ANY DEFECT THEREIN AND THEREFORE, ORDER OF THE ASSESSING OFFICER ITSELF NEEDS TO BE QUASHED. OUR ATTENTION WAS INVI TED TO COPY OF ASSESSMENT ORDER PLACED IN THE APPEAL FILE AND IT WAS SUBMITTE D THAT THE ASSESSING OFFICER REJECTED THE BOOKS OF ACCOUNT OF THE ASSESS EE MERELY ON THE BASIS I.T.A. NO.709/LKW/2016 ASSESSMENT YEAR:2012-13 3 THAT GROSS PROFIT DECLARED BY THE ASSESSEE WAS LOWE R THAN EARLIER YEARS. IT WAS SUBMITTED THAT THE ASSESSING OFFICER HAS MENTIO NED THAT STOCK REGISTERS WERE NOT MAINTAINED WHEREAS THE FACT IS THAT THE ST OCK REGISTERS WERE DULY MAINTAINED AND IN THIS RESPECT OUR ATTENTION WAS IN VITED TO COPY OF REPLY FILED BY THE ASSESSEE PLACED AT PAPER BOOK PAGES 13 TO 15 WHEREIN AT PAGE NO. 14, THE ASSESSEE HAD MENTIONED THAT ASSESSEE MA INTAINS COMPUTERIZED STOCK REGISTER INTEGRATED WITH FINANCIAL RECORDS AN D IT WAS ALSO MENTIONED THAT THE QUANTITATIVE DETAILS HAVE ALREADY BEEN FUR NISHED IN TAX AUDIT REPORT. THEREFORE, IT WAS ARGUED THAT THE FINDINGS OF THE A SSESSING OFFICER ARE NOT BASED UPON FACTS. WITHOUT PREJUDICE IT WAS ARGUED THAT EVEN IF IT IS PRESUMED THAT STOCK REGISTERS WERE NOT MAINTAINED, THE BOOKS OF ACCOUNT CANNOT BE REJECTED AS HELD IN THE CASE OF RENU INDU STRIES VS. COMMISSIONER OF SALES TAX AND ANOTHER. SIMILARLY, RELIANCE WAS PLACED IN THE CASE OF SRI RAM JIWAN LAL VS. CIT. ON MERITS, LEARNED A. R. SU BMITTED THAT THE ASSESSING OFFICER HAD ESTIMATED THE PROFITS OF THE ASSESSEE BY APPLYING HIGHEST RATE OF GROSS PROFIT IN THE EARLIER THREE Y EARS. OUR ATTENTION WAS INVITED TO THE ORDER OF LEARNED CIT(A) AT PAGE 5 WH ERE LEARNED CIT(A) HAS NOTED THE FIGURES OF GROSS PROFIT, TURNOVER AND NET PROFIT. IT WAS SUBMITTED THAT THE TURNOVER OF THE ASSESSEE DURING THE YEAR U NDER CONSIDERATION INCREASED TO 12.75 CRORES AGAINST RS.7.73 CRORES IN THE IMMEDIATE PRECEDING YEAR. IT WAS SUBMITTED THAT THE GROSS PROFIT RATE, AS DISCLOSED DURING THE YEAR UNDER CONSIDERATION, THOUGH DECREASED BUT NET PROFIT RATE HAD INCREASED. IT WAS SUBMITTED THAT DURING ASSESSMENT PROCEEDINGS THE FINANCIAL STATEMENTS OF S. K. TRADERS, WHO WAS OPER ATING IN SIMILAR AREA AND WHO HAD DECLARED GROSS PROFIT OF 0.28%, WAS NOT CON SIDERED BY THE ASSESSING OFFICER AND THEREFORE, IT WAS PRAYED THAT SINCE THERE WAS NO DEFECT IN THE BOOKS OF ACCOUNT, THE REJECTION OF BO OKS OF ACCOUNT WAS NOT JUSTIFIED AND APPLICATION OF HIGHEST GROSS PROFIT R ATE OF EARLIER YEARS WAS NOT JUSTIFIED. IT WAS SUBMITTED THAT THE ASSESSING OFF ICER DID NOT FIND ANY WRONG I.T.A. NO.709/LKW/2016 ASSESSMENT YEAR:2012-13 4 IN THE PURCHASE, SALES, CLOSING STOCK AND OPENING S TOCK OF THE ASSESSEE AND THEREFORE, IT WAS PRAYED THAT THE GROSS PROFIT RATE DECLARED BY THE ASSESSEE SHOULD BE UPHELD. 2.1 AS REGARDS OTHER ISSUE OF DISALLOWANCE OF COMMI SSION, WHICH THE ASSESSEE HAD PAID TO VARIOUS PERSONS, HE SUBMITTED THAT COMPLETE DETAILS OF PERSONS TO WHOM THE COMMISSION WAS PAID WAS PROVIDE D TO THE ASSESSING OFFICER AND A COPY OF WHICH WAS PLACED AT PAPER BOO K AGES 74 TO 77. IT WAS SUBMITTED THAT DUE TAX AT SOURCE WAS DEDUCTED AND Q UARTERLY RETURN IN FORM 26Q WAS ALSO FILED, A COPY OF WHICH WAS PLACED AT P APER BOOK PAGES 79 ONWARDS. IT WAS FURTHER SUBMITTED THAT COPY OF INV OICE AND BILLS FOR COMMISSION SUBMITTED BY VARIOUS PERSONS WAS PLACED AT PAPER BOOK PAGES 85 TO 97 AND FURTHER THE SUMMARY OF COMMISSION PAID , TRANSACTION-WISE AND QUANTITY-WISE WAS PLACED IN PAPER BOOK PAGES 98 TO 110 AND THEREFORE, THE DISALLOWANCE OF COMMISSION PAID TO COMMISSION AGENT S WAS NOT JUSTIFIED. 3. LEARNED D. R., ON THE OTHER HAND, SUBMITTED THAT THERE WAS A DRASTIC DECREASE IN GROSS PROFIT AS COMPARED TO EARLIER YEA R AND THEREFORE, THE ASSESSING OFFICER HAD RIGHTLY REJECTED THE BOOKS OF ACCOUNT OF THE ASSESSEE AND HAD RIGHTLY APPLIED GROSS PROFIT RATE BASED UPO N EARLIER YEAR. AS REGARDS COMMISSION PAYMENTS, LEARNED D. R. SUBMITTED THAT A SSESSEE COULD NOT ESTABLISH THE NEXUS BETWEEN THE COMMISSION PAID AND THE SERVICES RENDERED BY THE PAYEES THEREFORE, THE AUTHORITIES BELOW HAVE RIGHTLY MADE THE ADDITION. 4. WE HAVE HEARD THE RIVAL PARTIES AND HAVE GONE T HROUGH THE MATERIAL PLACED ON RECORD. WE FIND THAT IN THIS CASE SHRI RAMESH KUMAR KHANDELWAL PROPRIETOR SUGAR SALES AGENCIES HAS EXPIRED AND THE REFORE, THE LEGAL HEIR DIPESH KHANDELWAL HAS BEEN TAKEN AS LEGAL HEIR OF T HE DECEASED ASSESSEE. WE FIND THAT DURING THE ASSESSMENT PROCEEDINGS THE ASSESSING OFFICER I.T.A. NO.709/LKW/2016 ASSESSMENT YEAR:2012-13 5 OBSERVED THAT THE GROSS PROFIT DECLARED BY THE ASSE SSEE WAS ON LOWER SIDE THEREFORE, THE ASSESSEE WAS REQUIRED TO FILE BUSINE SS ANALYSIS OF LAST THREE YEARS SUCH AS GROSS PROFIT RATE, NET PROFIT RATE AN D THE ASSESSEE WAS ALSO REQUIRED TO EXPLAIN THE REASON FOR FALL IN GROSS PR OFIT RATE. IN REPLY THE ASSESSEE SUBMITTED THAT THE RATE OF SUGAR DEPENDS U PON MARKET CONDITION AND HE WAS NOT HAVING ANY CONTROL ON THE PURCHASE/S ALE RATE AND HE WAS HAVING QUANTITATIVE RECORDS OF SALE AND PURCHASE AN D THEREFORE, WHATEVER THE GROSS PROFIT RATE WAS EARNED, HAS BEEN DECLARED . IT WAS FURTHER SUBMITTED THAT THE COMMISSION INCOME OF THE ASSESSE E HAD INCREASED SUBSTANTIALLY DURING THE YEAR UNDER CONSIDERATION A ND THEREFORE, NET PROFIT OVER ALL HAS INCREASED AS COMPARED TO EARLIER YEAR. ON A FURTHER QUERY BY THE ASSESSING OFFICER, THE ASSESSEE SUBMITTED THAT THE ASSESSEE WAS MAINTAINING BOOKS OF ACCOUNT AND INVENTORY RECORDS WHICH WAS VERIFIABLE. MONTHWISE SUMMARY OF STOCK RECORD WAS ALSO SUBMITTE D. IT WAS ALSO SUBMITTED THAT CLOSING STOCK HAS BEEN CORRECTLY VA LUED USING FIFO METHOD. THE ASSESSEE ALSO ENCLOSED AUDITED FINANCIAL STATEM ENTS OF S. K. TRADERS WHO WAS OPERATING IN THE SAME AREA DOING THE SAME B USINESS AND DECLARED GROSS PROFIT @28% AND THEREFORE, IT WAS SUBMITTED T HAT THE GROSS PROFIT DECLARED BY THE ASSESSEE WAS QUITE JUSTIFIED. THE ASSESSING OFFICER THOUGH NOTED THE SUBMISSIONS OF THE ASSESSEE HOWEVER, HE H ELD THAT THE RESULTS OF S. K. TRADERS WERE NOT COMPARABLE AS THAT CONCERN H AD DECLARED TURNOVER TO THE TUNE OF 16.99 CRORE AND COMMISSION INCOME OF RS .9.64 LAC WAS ALSO DECLARED AND WHEREAS IN THE CASE UNDER REFERENCE TO TAL TURNOVER WAS RS.12.75 CRORES AND COMMISSION INCOME OF RS.68.68 L AC HAS BEEN DECLARED. IN VIEW OF THE ABOVE FACTS AND CIRCUMSTANCES, THE A SSESSING OFFICER REJECTED THE BOOKS OF ACCOUNT AND APPLIED GROSS PROFIT RATE OF 2.46%. WE FIND THAT IN THE ASSESSMENT PROCEEDINGS THE ASSESSING OFFICER DISTINGUISHED THE TRADING RESULTS OF S. K. TRADERS WITH THE ASSESSEE ONLY BECAUSE OF THE FACT THAT THE ASSESSEE HAD COMMISSION INCOME OF RS.68.81 LAC WHEREAS S. K. I.T.A. NO.709/LKW/2016 ASSESSMENT YEAR:2012-13 6 TRADER HAD COMMISSION INCOME OF RS.9.64 LAC. THE A SSESSING OFFICER SHOULD HAVE CONSIDERED GROSS PROFIT RATE OF ASSESSEE VIS- -VIS THAT OF S. K. TRADERS WITHOUT TAKING INTO ACCOUNT THE COMMISSION INCOME W HICH HE HAS NOT DONE. WE FURTHER FIND THAT THE ASSESSEE HAD FILED COMPLET E COPIES OF ACCOUNTS OF SALES AND PURCHASES, THE COPY OF WHICH IS PLACED AT PAPER BOOK PAGES 23 TO 49. THE COPY OF VALUATION OF OPENING AND CLOSING ST OCK IS PLACED AT PAPER BOOK PAGES 52-55. THE MONTHLY STOCK SUMMARY WITH R ESPECT TO VALUE AND QUANTITY IS PLACED AT PAPER BOOK PAGE 56. DATE-WIS E QUANTITY ALONG WITH THEIR VALUATION IN THE FORM OF COMPUTERIZED STOCK R EGISTER IS PLACED AT PAPER BOOK PAGES 57 TO 63. ALL THESE DOCUMENTS WERE PLAC ED BEFORE THE ASSESSING OFFICER. THE COPY OF STOCK REGISTER PLAC ED AT PAPER BOOK PAGES 57 TO 63 CLEARLY DEMONSTRATE THAT THE ASSESSEE WAS MAI NTAINING STOCK REGISTERS WHEREIN THE QUANTITY ALONG WITH THE VALUE HAS BEEN MENTIONED. THE VALUE OF OPENING STOCK AS PER TRADING ACCOUNT PLACED AT P APER BOOK PAGE 10 IS RS.25,14,000/- WHICH MATCHES WITH THE VALUE OF STOC K IN THE STOCK REGISTER AS ON 01/04/2012 WHICH IS APPARENT FROM PAPER BOOK PAGE 57 AND SIMILARLY THE CLOSING STOCK CALCULATED THROUGH COMPUTER ON TH E BASIS OF FIFO METHOD, AS PER STOCK REGISTER, IS RS.10,71,843/- WHICH MATC HES WITH THE CLOSING STOCK FIGURE AS TAKEN IN THE TRADING ACCOUNT WHICH IS APP ARENT FROM PAPER BOOK PAGE 10. SIMILARLY THE PURCHASE AND SALES BOOKED I N THE PROFIT & LOSS ACCOUNT MATCHES WITH THE PURCHASE AND SALE LEDGER A CCOUNT PLACED AT PAPER BOOK PAGES 23 TO 51. THE ASSESSING OFFICER DID NOT FIND ANYTHING WRONG IN THE BOOKS OF ACCOUNT. EVEN THE STOCK REGISTER WHIC H HE HAS MENTIONED TO HAVE NOT BEEN MAINTAINED BY THE ASSESSEE HAS DULY B EEN MAINTAINED AND IS PLACED AT PAPER BOOK PAGES 57 TO 63. MOREOVER, DUR ING ASSESSMENT PROCEEDINGS THE ASSESSEE VIDE REPLY DATED 29/01/201 5 HAD SUBMITTED THAT HE WAS MAINTAINING COMPUTERIZED STOCK REGISTER INTE GRATED WITH FINANCIAL RECORD WHICH FACT IS VERIFIABLE FROM THE COPY OF ST OCK REGISTER WHICH MENTIONS THE STOCK IN QUANTITATIVE TERMS AS WELL A S IN RUPEE TERMS. I.T.A. NO.709/LKW/2016 ASSESSMENT YEAR:2012-13 7 THEREFORE, THE REASON FOR REJECTING THE BOOKS OF AC COUNT AND ESTIMATING THE GROSS PROFIT RATE ON HIGHER BASIS IS NOT AT ALL JUS TIFIED IN THE FACTS AND CIRCUMSTANCES OF THE CASE. THEREFORE, THE ACTION O F ASSESSING OFFICER OF REJECTING THE BOOKS OF ACCOUNT IS REVERSED AND THER EFORE, WE DELETE THE ADDITION WHICH THE LEARNED CIT(A) HAS SUSTAINED ON THE BASIS OF LOWER GROSS PROFIT RATIO. 4.1 AS REGARDS THE COMMISSION PAID TO VARIOUS PERSO NS, WE FIND THAT THE ASSESSEE HAD PAID COMMISSION AND THE DETAILS OF THE COMMISSION EXPENSES WERE SUBMITTED TO THE ASSESSING OFFICER WHEREIN THE PAN ALONG WITH PAYMENTS MADE ALONG WITH THE TAX DEDUCTED THEREFROM WAS MENTIONED. THE ASSESSEE ALSO FURNISHED COPY OF INVOICES RAISED BY VARIOUS PERSONS, A COPY OF WHICH IS PLACED AT PAPER BOOK PAGES 85 TO 9 7. THE COPIES OF BILLS SPECIFICALLY MENTION THE COMMISSION PAID ON NUMBER OF BAGS. THEREFORE, IN VIEW OF THE ABOVE FACTS AND CIRCUMSTANCES, THERE IS NO JUSTIFICATION FOR MAKING DISALLOWANCE ON ACCOUNT OF COMMISSION. IN V IEW OF THE ABOVE, THIS ISSUE IS ALSO DECIDED IN FAVOUR OF THE ASSESSEE. 5. IN THE RESULT, THE APPEAL OF THE ASSESSEE IS ALL OWED. (ORDER PRONOUNCED IN THE OPEN COURT ON 17/05 /2018) SD/. SD/. (PARTHA SARATHI CHAUDHURY) ( T. S. KAPOOR ) JUDICIAL MEMBER A CCOUNTANT MEMBER DATED:17/05/2018 *SINGH 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