KANHAIYA LAL OM PRAKASH , BARAN V. INCOME TAX OFFICER, BARAN

ITA 717/JPR/2017

• Counselvise Citation: [2018] 126 COUNSELVISE.COM (IT) 2218 (ITAT-JAIPUR)
• Duration Of Justice: 3 month(s) 10 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 05-01-2018
• Appeal Filed By: Assessee
• Order Result: Dismissed
• Bench Allotted: B
• Assessment Year: 2011-2012
• Appeal Filed On: 25-09-2017
• Result in Favour of: Revenue
• Court: TRIBUNAL
• Department Lawyers: NEENA JEPH JCIT DHK
• Keywords: Rejection of books of accounts; Corroborative evidences
• Section: 143(3)

Judgement Text

VK;DJ VIHYH; VF/KDJ.K] T;IQJ U;K;IHB] T;IQJ IN THE INCOME TAX APPELLATE TRIBUNAL, JAIPUR BENCHES, JAIPUR JH FOT; IKY JKO] U;KF;D LNL; ,OA JH HKKXPAN] YS[KK LNL; DS LE{K BEFORE: SHRI VIJAY PAL RAO, JM & SHRI BHAGCHAND, A M VK;DJ VIHY LA-@ ITA NOS. 717, 718 & 719/JP/2017 FU/KZKJ.K O'K Z@ ASSESSMENT YEAR : 2011-12, 2012-13 & 2013-14 KANHAIYA LAL OM PRAKASH, SHOP NO. 38-39, MANDI YARD, BARAN. CUKE VS. I.T.O., BARAN LFKK;H YS[KK LA-@THVKBZVKJ LA-@ PAN/GIR NO.: AAHFK 2583 P VIHYKFKHZ@ APPELLANT IZR;FKHZ@ RESPONDENT FU/KZKFJRH DH VKSJ LS@ ASSESSEE BY : SHRI ROHIT GUPTA (CA) JKTLO DH VKSJ LS@ REVENUE BY : SMT. NEENA JEPH (JCIT) LQUOKBZ DH RKJH[K@ DATE OF HEARING : 04/01/2018 MN?KKS'K.KK DH RKJH[K @ DATE OF PRONOUNCEMENT : 05/01/2018 VKNS'K@ ORDER PER: BENCH ALL THE THREE APPEALS ARE FILED BY THE ASSESSEE EM ANATES FROM THE SEPARATE ORDERS OF THE LD. CIT(A), KOTA DATED 17/07/ 2017 AND 14/07/2017 FOR THE A.Y. 2011-12, 2012-13 AND 2013-14. 2. ALL THESE APPEALS WERE HEARD TOGETHER AND FOR THE SAKE OF CONVENIENCE AND BREVITY BEING DISPOSED OFF BY A COM MON ORDER. 3. ITA NO. 717/JP/2017. ITA 717 TO 719/JP/2017_ KANHAIYA LAL OM PRAKASH VS ITO 2 THE ASSESSEE IS ENGAGED IN THE BUSINESS OF SALE AND PURCHASE OF AGRICULTURAL PRODUCE. THE RETURN OF INCOME WAS E-FILE D ON 30/09/2011 DECLARING TOTAL INCOME OF RS.13,40,650/-. THE CASE WA S SELECTED FOR SCRUTINY. THE ASSESSMENT U/S 143(3) OF THE INCOME TA X ACT, 1961 (IN SHORT THE ACT) WAS FINALIZED ON 21/3/2014 AT AN INCO ME OF RS. 27,08,190/- . THE LD. CIT(A) HAS PARTLY ALLOWED THE APPEAL OF THE ASSESSEE. 4. NOW THE ASSESSEE IS IN APPEAL BEFORE ITAT BY TAKIN G FOLLOWING GROUNDS OF APPEAL: 1. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CA SE AND IN LAW, THE CIT(A), KOTA ERRED IN PARTLY ALLOWING THE APPEAL BY RESTRIC TING RS. 1,50,000/- ADDITION MADE BY THE ASSESSING OFFICER AND ONLY DEL ETING RS. 10,94,635/- ADDITION MADE BY THE ASSESSING OFFICER WITHOUT APPRECIATING THE FACT THAT RS. 1,50,000/- ADDITION MADE BY THE ASSESSING OFFICER WAS ALSO MADE ON TOTALLY ESTIMATED BASIS AL THOUGH BOOKS OF ACCOUNT WERE DULY AUDITED BY CHARTERED ACCOUNTANT. THE CIT(A), KOTA HAD ALSO ACCEPTED THE FACT IN THEIR RESPECTIVE ORDE R ITSELF THAT ADDITION MADE BY ASSESSING OFFICER WAS ON TOTALLY UNREASONAB LE BASIS. 2. THE APPELLANT PRAYS THAT THE ADDITION OF RS. 1,5 0,000/- WHICH WAS NOT DELETED BY THE CIT(A), KOTA BE DELETED. 5. THE ONLY ISSUE INVOLVED IN THE APPEAL IS RESTRICT ING THE ADDITION OF RS. 1,50,000/- BY THE LD. CIT(A). THE LD. CIT(A) HAS D ECIDED THE ISSUE BY HOLDING AS UNDER: I HAVE GONE THROUGH ASSESSEES SUBMISSION AND AOS FINDINGS. ITA 717 TO 719/JP/2017_ KANHAIYA LAL OM PRAKASH VS ITO 3 FROM A PERUSAL OF THE FACTS OF THE CASE, IT IS APP ARENT THAT THE ASSESSEE IS DEALING IN ALL TYPES OF AGRICULTURAL COMMODITIES, K IRANA ITEMS, EDIBLE OIL, ADAT ETC. THE ASSESSEE HAS SHOWN G.P. RATE OF 0.88% ON A TURNOVER OF 103.44 CRORES AS COMPARED TO 0.56% IN A.Y 2007-08 & 0.46% IN A.Y. 2008-09, 1.61% IN A.Y. 2009-10 & 2.11% IN A.Y. 2010 -11, SUBSTANTIAL EXPENSES HAVE BEEN CLAIMED ON ACCOUNT OF EXPENSES L IKE FREIGHT, HAMMALI ETC. THE A.O. HAD QUESTIONS ABOUT QUANTITATIVE TALLIES & INDIVIDUAL COMMODITY PROFITS/LOSSES. HE ALSO POINTED OUT DISCREPANCIES R ELATED TO FREIGHT EXPENSES BEING HIGHER & IN CASH ON SELF MADE VOUCHE RS WHICH COULD NOT BE FULLY VERIFIED. HE THEREFORE ALSO POINTED OUT A VIOLATION OF THE P ROVISIONS OF SECTION 40A (3) OF THE I.T. ACT. THE A.O., AFTER EXAMINATION OF THE BOOKS OF ACCOUN TS FOR LACK OF SUPPORTING EVIDENCES & VOUCHERS COMBINED WITH THE D ECLINE IN G.P, RATE COMPARED TO PREVIOUS A.Y. 2010-11, REJECTED THE SAM E 8S RESORTED TO ESTIMATION OF THE APPELLANTS INCOME @ 1% & MAKING AN ADDITION OF RS. 12,44,635/-. THUS, IT IS CLEAR FROM THE ASSESSMENT ORDER THAT T HE ASSESSEE HAS NOT BEEN ABLE TO PROVIDE COMPLETE INFORMATION DURING TH E PROCEEDINGS. THOUGH THE ACCOUNTS WERE DULY AUDITED, BUT SOME OF THE SUPPORTING DOCUMENTS WHICH WERE AN ESSENTIAL PART OF THE SCRUT INY EXAMINATION FOR REACHING A PROPER JUDGEMENT ON THE RESULTS SHOWN BY THE ASSESSEE, WERE NOT PRODUCED LIKE DETAILS OF MATERIAL STOCK RECORDS , AND PAYMENT OF HAMMALI, DISCOUNT EXPENSES ETC. THIS WAS COMBINED W ITH LOWER RATE OF GROSS PROFIT SHOWN AS COMPARED TO EARLIER YEARS AS HELD BY THE A.O FOR WHICH NO PROPER EXPLANATION WAS THERE. ITA 717 TO 719/JP/2017_ KANHAIYA LAL OM PRAKASH VS ITO 4 THUS, THE ADMITTED FACTS OF THE CASE ARE THAT THE ASSESSEE WHO IS A FOOD GRAIN DEALER, DID NOT FURNISH PROPER AND RELEVANT S UPPORTING EVIDENCES OF HAMMALI, DISCOUNT EXPENSES BEFORE THE ASSESSING OFF ICER AS WELL AS STOCK DETAILS. UNDER THE CIRCUMSTANCES OF THE CASE, THE D ECISION OF THE A.O TO RESORT TO THE PROVISIONS OF SECTION 145(3) OF REJEC TING THE BOOKS OF ACCOUNTS CANNOT BE FAULTED. HOWEVER, EVEN IF THE FALL IN G.P, RATES & THE STOC K REGISTER NOT BEING MAINTAINED QUANTITY WISE ARE TO BE CONSIDERED AS DI SCREPANCIES FOR THE PURPOSES OF REJECTION OF BOOKS OF ACCOUNTS, THE BAS IS OF ESTIMATION OF PROFITS HAS TO BE REASONABLE AND NOT ARBITRARY. IN CASE OF MYSORE FERTILISER CO. V. CIT [1966] 59 ITR 268 (MAD.), IT WAS HELD THAT THE ITO SHALL MAKE THE ASSESSMENT TO THE BEST OF HIS JUDGMENT. IT MEANS THAT HE MUST MAKE IT ACCORDING TO THE RULE S OF REASON AND JUSTICE, NOT ACCORDING TO PRIVATE OPINION, BUT ACCO RDING TO LAW AND NOT HUMOR, AND THE ASSESSMENT IS TO BE NOT ARBITRARY, V AGUE AND FANCIFUL, BUT LEGAL AND REGULAR. UNDER THESE OVERALL FACTS HE THOUGHT THE BOOKS WER E NOT RELIABLE & ACCORDINGLY HE HAS REJECTED THE SAME U/S 145(3) & M ADE AN ESTIMATE OF G.P. & ENHANCED THE TRADING INCOME. THE ASSESSEE HAS ALSO MAINTAINED QUANTITY WISE DET AILS OF STOCKS. THE AO NEED NOT NECESSARILY ONLY EXAMINE THE GROSS MARGIN OF AN ASSESSEE WITH RESPECT TO ITS EARLIER PERFORMANCE. THERE ARE CYCLE S OF UPS AND DOWNS IN VARIOUS SECTORS OF ECONOMY AND IT IS IMPORTANT FOR THE OFFICER TO EXAMINE THIS ISSUE. A FALL IN GP FOR THE ASSESSEE MAY BE CO UPLED WITH A GENERAL RECESSION IN THAT SECTOR AND HENCE PROFITS OF ALL T HE PEERS MAY HAVE DIPPED. SIMILARLY, THE YEAR MAY REPRESENT AN EXCEPT IONAL YEAR WHEREIN ALL THE PEERS HAVE MADE EXCEPTIONAL PROFITS. HENCE, WHI LE EXAMINING GROSS ITA 717 TO 719/JP/2017_ KANHAIYA LAL OM PRAKASH VS ITO 5 MARGINS, THE ASSESSING OFFICER SHOULD NOT ONLY COMP ARE THE PAST MARGINS OF THE ASSESSEE BUT ALSO THE CURRENT YEAR MARGINS O F OTHER ASSESSES ENGAGED IN SIMILAR BUSINESS. THIS WOULD GIVE AN INS IGHT INTO THE ACTUAL PROFIT MARGINS DURING THE YEAR UNDER REFERENCE AND WOULD BE A CORRECT GUIDE FOR ESTIMATION OF PROFITS. IT WAS OBSERVED BY HONBLE COURT IN CASE OF ALUMIN IUM INDUSTRIES (P.) LTD. V. CIT [1995] 80 TAXMAN 184 (GAUHATI) THAT ADDITION S TO THE PROFITS OF THE ASSESSEE MADE SOLELY ON THE GROUND THAT IT WAS LOW WITHOUT GIVING A SPECIFIC FINDING THAT THE ACCOUNTS OF THE ASSESSEE WERE NOT CORRECT AND COMPLETE, OR THAT THE INCOME COULD NOT BE PROPERLY DETERMINED AND DEDUCED FROM THE ACCOUNTING METHOD EMPLOYED BY THE ASSESSEE, IS NOT JUSTIFIED. THE MERE FACT THAT THERE WAS A LESS RATE OF GROSS PROFIT DECLARED BY AN ASSESSEE AS COMPARED TO THE PREVIOUS YEAR WOU LD NOT BY ITSELF BE SUFFICIENT TO JUSTIFY THE ADDITION. IN A LANDMARK DECISION, THE HONBLE DELHI HIGH COU RT HAS DEALT WITH THE ISSUE ELABORATELY. IN THE CASE OF CIT VS SMT. POONA M RANI [2010] 192 TAXMAN 167 (DELHI), WHEREIN THE OFFICER HAD REJECTE D THE BOOKS BECAUSE OF THE QUANTITATIVE VARIATION IN THE WEIGHT OF THE OUTPUT PRODUCTS AS AGAINST INPUT ITEMS, THE HIGH COURT REJ ECTED THE ADDITION MADE ON ESTIMATE BASIS BECAUSE NO DEFECT WAS POINTE D OUT IN THE ACCOUNTS AND THERE WAS NO BASIS FOR ESTIMATION. FIRST OF ALL COMING TO THE ESTIMATION RESORTED BY THE A.O IN THIS CASE. HE DID NOT REFER ANY OTHER CASES OF SIMILAR TRADE. SEC ONDLY, HE DID NOT CLARIFY THE BASIS ON WHICH HE RESORTED TO THE ADOPTION OF H IS ESTIMATE, BUT MECHANICALLY ADOPTED THE AVERAGE OF PREVIOUS YEARS G.P RATE. THUS WHILE CONSIDERING THE NATURE OF THE ASSESSEE'S BUSINESS B EING THAT OF A FOOD GRAIN DEALER, HE SHOULD HAVE MENTIONED ABOUT BETTER MARKET CONDITIONS, WORKED OUT SPECIFIC OTHER DIRECT EXPENSE COMPARABLE S AND THEN SHOULD ITA 717 TO 719/JP/2017_ KANHAIYA LAL OM PRAKASH VS ITO 6 HAVE RESORTED TO HIS BEST ESTIMATE OF PROFITS IN MY OPINION BECAUSE THE FOOD GRAIN BUSINESS IS HIGHLY VOLATILE AND PRICES A RE QUITE FLUCTUATING YEAR TO YEAR BASED ON CROPPING SUCCESS, MONSOONS AND SEV ERAL OTHER FACTORS INVOLVED. IN THESE CIRCUMSTANCES, JUST INCREASING THE GROSS PROFIT BASED ON SOME AVERAGE OF EARLIER YEARS RATES WITHOUT ANY REASONA BLE BASIS WAS UNCALLED FOR. UNDER THE FACTS AND CIRCUMSTANCES OF THE CASE, I D O NOT AGREE WITH THE A.OS ESTIMATION AND HOLD THAT THE ADDITION MADE NE EDS TO BE RESTRICTED TO RS. 1,50,000/ - TO COVER UP FOR THE POSSIBILITY OF CERTAIN EXPENSES BEING UNVOUCHED OR FULLY FOR BUSINESS PURPOSES. THE BALAN CE ADDITION OF RS. 10,94,635/- IS DIRECTED TO BE DELETED. SINCE THE ADDITION IS BEING MADE TO THE NET PROFIT OF THE ASSESSEE, THE DISALLOWANCES IN OTHER EXPENSES SHALL BE DEEMED TO BE COVERED IN THIS ADDITION AS THE REJECTION OF THE BOOKS OF ACCOUNTS HAS BEEN CONFIRMED. THIS GROUND OF APPEAL IS PARTLY ALLOWED. 6. WHILE PLEADING ON BEHALF OF THE ASSESSEE, THE LD . AR HAS REITERATED THE ARGUMENTS AS MADE BEFORE THE LD. CIT(A). ON THE OTHER HAND, THE LD DR HAS RELIED ON THE ORDERS OF THE AUTHORITIES BELO W. 7. THE BENCH HAVE HEARD BOTH THE SIDES ON THIS ISSUE . FROM PERUSAL OF RECORD, IT IS NOTED THAT THE LD. CIT(A) HAS PASSED A SPEAKING ORDER AND NO CONTRARY MATERIAL WHATEVER REPORTED BY LD. A.R.. THER EFORE IN ABSENCE OF ANY SUCH MATERIAL AGAINST THE FINDINGS OF THE LD. C IT(A), WE CONCUR WITH THE FINDINGS OF THE LD. CIT(A), THEREFORE, THE BENCH UPHOLD THE ORDER OF ITA 717 TO 719/JP/2017_ KANHAIYA LAL OM PRAKASH VS ITO 7 THE LD. CIT(A) ON THIS ISSUE. ACCORDINGLY, THE GROU ND OF ASSESSEES APPEAL IS DISMISSED. 8. ITA NO. 718 & 719/JP/2017. IN BOTH THESE APPEALS, THE ASSESSEE HAS TAKEN SIMI LAR IDENTICAL GROUNDS AS WERE TAKEN IN ITA NO. 717/JP/2017. THE LD AR OF THE ASSESSEE HAS ALSO REITERATED THE ARGUMENTS AS MADE IN ITA NO . 717/JP/2017. SINCE, THE ASSESSEE HAS FAILED TO CONTROVERT THE F INDINGS OF THE LD. CIT(A), HENCE ITA NO. 717/JP/2017 IS DISMISSED. THER EFORE, SIMILAR IDENTICAL FINDINGS IN ITA NOS. 718 & 719/JP/2017 SH ALL ALSO APPLY IN THESE APPEALS MUTATIS MUTANDIS. ACCORDINGLY, IN BOTH THES E APPEALS, THEREFORE ORDER OF THE LD. CIT(A) IS UPHELD. HENCE, BOTH THE APPEALS OF THE ASSESSEE ARE DISMISSED. 9. IN THE RESULT, ALL THE THREE APPEALS OF THE ASSE SSEE ARE DISMISSED. ORDER PRONOUNCED IN THE OPEN COURT ON 05/01/2018.. SD/- SD/- FOT; IKY JKO FOT; IKY JKO FOT; IKY JKO FOT; IKY JKO HKKXPAN HKKXPAN HKKXPAN HKKXPAN (VIJAY PAL RAO) (BHAGCHAND) U;KF;D LNL;@ JUDICIAL MEMBER YS[KK LNL;@ ACCOUNTANT MEMBER TK;IQJ@ JAIPUR FNUKAD@ DATED:- 05TH JANUARY, 2018 *RANJAN VKNS'K DH IZFRFYFI VXZSFKR @ COPY OF THE ORDER FORWARDED TO: 1. VIHYKFKHZ @ THE APPELLANT- M/S KANHAIYA LAL OM PRAKASH, BARAN. 2. IZR;FKHZ @ THE RESPONDENT- THE ITO, BARAN. ITA 717 TO 719/JP/2017_ KANHAIYA LAL OM PRAKASH VS ITO 8 3. VK;DJ VK;QDR @ CIT 4. VK;DJ VK;QDRVIHY @ THE CIT(A) 5. FOHKKXH; IZFRFUF/K] VK;DJ VIHYH; VF/KDJ.K] T;IQJ @ DR, ITAT, JAIPUR 6. XKMZ QKBZY @ GUARD FILE (ITA NO. 717 TO 719/JP/2017) VKNS'KKUQLKJ @ BY ORDER, LGK;D IATHDKJ @ ASST. REGISTRAR