Sreegopal Periwal, Cuttack V. ITO, Cuttack

ITA 72/CTK/2012

• Counselvise Citation: 7222114 RSA 2012
• Duration Of Justice: 7 month(s) 18 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 14-09-2012
• Appeal Filed By: Assessee
• Bench Allotted: DB
• Next Hearing Date: 13-08-2012
• Assessment Year: 2008-2009
• Appeal Filed On: 27-01-2012
• Court: TRIBUNAL
• Department Lawyers: A BHATTACHARJEE
• Assessee Lawyers: R N SAMAL
• Keywords: Principle of natural justice

Judgement Text

, , IN THE INCOME TAX APPELLATE TRIBUNAL, CUTTACK BENCH, CUTTACK ( ) BEFORE . . , , HONBLE SHRI K.K.GUPTA, ACCOUNTANT MEMBER. /AND . . . , H ONBLE SHRI K.S.S.PRASAD RAO, JUDICIAL MEMBER / I.T.A.NO. 72/CTK/ 2012 / ASSESSMENT YEAR 200 8 - 09 SREEGOPAL PERIWAL, PROP. SREEGOPAL NANDKISHORE, AT: PITHAPUR, P.O.BUXI BAZAR, CUTTACK PAN:ABCPP 2652 E - - - VERSUS - INCOME - TAX OFFICER, WARD 2(3), CUTTACK. ( /APPELLANT ) ( / RESPONDENT ) / FOR THE APPELLANT : / SHRI R.N.SAMAL, AR / FOR THE RESPONDENT: / SHRI A.BHATTACHARJEE, DR / DATE OF HEARING: 13 .08.2012 / DATE OF PRONOUNCEMENT: 14.09.2012 / ORDER . . , , SHRI K.K.GUPTA, ACCOUNTANT MEMBER. THIS APPEAL BY THE ASSESSEE IS ON THE SOLITARY GROUND THAT THE ESTIMATION OF GROSS PROFIT COMPUTED BY THE ASSES SING OFFICER IN HIS ORDER U/S.144 OF THE I.T.ACT,1961 WAS NOT IN ACCORDANCE WITH THE FACTS BROUGHT ON RECORD INSOFAR AS THE LEARNED CIT(A) AS WELL HAS NOT CONSIDERED THE REASONS BROUGHT ON RECORD BY THE ASSESSING OFFICER FOR RECONSIDERING THE ESTIMATION OF GROSS PROFIT DECLARED BY THE ASSESSEE AT 3.18% FOR ENHANCEMENT A T 6% WAS MERELY ON THE BASIS OF UN - COMPARABLE CASES BROUGHT ON RECORD BY THE AO . 2. THE LEARNED COUNSEL FOR THE ASSESSEE INITIATING HIS ARGUMENTS NARRATED THE BRIEF FACTS OF THE ISSUE INVOLVE D THAT THE ASSESSEE IS A WHOLES ALE CLOTH DEALER IN LOW PROFIT CL OTH I.E. SAREE, DHOTI CATERING T O THE NEEDS OF RURAL PEOPLE. IT CARRIES ON BUSINESS SINCE ABOUT 30 YEARS. IT MAINTAINS CASHBOOK, I.T.A.NO. 72/CTK/ 2012 2 LEDGER INCLUDING PURCHASE AND SALES REGISTER, PURCHASE INVOICES , SALES MEMOS, BANK ACCOUNT, EXPENDITURE VOUCHER ETC. THE BOOKS OF ACCOUNT ARE AUDITED U/S.44 AB OF INCOME TAX ACT, SINCE ABOUT TWO DECADES OR SO. THE ASSESSEE REGULARLY AND CONSISTENTLY MAINTAINS THESE BOOKS OF ACCOUNTS ON MERCANTILE BASIS. HIS PURCHASES ARE ENTERED IN PURCHASE REGISTER AND THE SALES ARE LIKEWISE ENTERED IN SALES REGISTER. THE PURCHASE AND SALES ARE SUPPORTED BY DOCUMENTS I.E. PURCHASE INVOICES AND SALES MEMOS. IT PRODUCED ALL THE BOOKS OF ACCOUNT AS MAINTAINED REGULARLY BEFORE THE INCOME TAX OFFICER WARD - 2(3), CUTTACK, WHEN ASSESSMENT PROCEEDINGS WERE TAKEN UP AND THE LEARNED ASSESSING OFFICER EXAMINED THOSE BOOKS OF ACCOUNT. THE DEPARTMENT, IN ALL THE PAST YEARS, ACCEPTED THE METHOD OF MAINTENANCE OF ACCOUNTS AND FOR THE PRECEDING YEAR I. E. ASSESSMENT YEAR 2007 - 2008, THE LEARNED I.T.O. ALSO ACCEPTED THE METHOD OF MAINTENANCE OF ACCOUNTS AND COMPLETED ASSESSMENT. FOR THIS RELEVANT YEAR THE ASSESSING OFFICER CHANGED HIS MIND AND COMPLETED ASSESSMENT ADDING 17,59,942 REJECTING THE BOOKS OF A CCOUNT IN RESPECT OF RETURNED GROSS PROFIT AND ESTIMATING THE SAME AT MUCH HIGHER FIGURE. THE ASSESSING OFFICER EST IMATED GROSS PROFIT AT 6% ON 6,22,03,078 AS AGAINST RETURNED FIGURE AND CITED SOME INSTANCES OF PARALLEL CASES WITHOUT DISCLOSING FACTS, MA TERIALS THE NATURE AND QUALITIES OF COMMODITIES AND WITHOUT ANY OPPORTUNITY TO EXPLAIN AWAY THE CIRCUMSTANCES WHICH HE HAD IN HIS MIND TO UTILISE AGAINST THE A SSESSEE . 2.1. ON APPEAL, THE LEARNED CIT (A) CONFIRMED THE ACTION OF THE ASSESSING OFFICER, THOUGH HIS KIND ATTENTION WAS BROUGHT TO THE FIGURES, AND LOW QUALITIES OF COMMODITIES DEALT IN AND ALSO THE VIOLATION OF NATURAL JUSTICE IN NOT GRANTING OPPORTUNITY TO CONFRONT THE MATERIAL ETC. FORMING THE BASIS OF THE ESTIMATION OF THE GROSS PROFIT AT HIGHER SIDE AS MADE BY THE ASSESSING I.T.A.NO. 72/CTK/ 2012 3 OFFICER. THE LEARNED COUNSEL FOR THE ASSESSEE ARGUED THAT THE ASSESSING OFFICER DISREGARDING THE BOOKS OF ACCOUNT MAINTAINED CONSISTENTLY AND REGULARLY, ERRED IN LAW, TO ESTIMATE GROSS PROFIT AT MUCH HIGHER RATE. THE LEARNED C IT(A) CONFIRMED THE ADDITION CONSEQUENTLY MADE THERE UNDER. THE PURCHASES AND SALES REGISTERS WERE PRODUCED WITH PURCHASE INVOICES, SALES MEMO WHICH WERE EXAMINED WITH REFERENCE TO CASH BOOK AND BANK ACCOUNT. THE ASSESSEE FOLLOWS MERCANTILE SYSTEM AND CONS ISTENTLY FOLLOWS THIS TYPE OF BOOKS OF ACCOUNT OVER 30 YEARS. THE DEPARTMENT HAS ACCEPTED THIS SYSTEM AND ALSO THE DEPARTMENT ACCEPTING THIS METHOD COMPLETED ASSESSMENTS. THE GROSS PROFIT NORMALLY COMES AROUND THE RETURNED RATE IN THE CASE OF LOW PROFIT SA REE AND CLOTH WHICH ARE REQUIRED BY THE RURAL PEOPLE. THE ASSESSEE DEALS IN SUCH TYPES OF GOODS SINCE HE STARTED ITS CAREER. SUCH DOCUMENTS WERE PRODUCED BEFORE THE FIRST APPELLATE AUTHORITY. THE ADDITION OF DIFFERENCE BETWEEN THE ESTIMATED GROSS PROFIT AN D RETURNED PROFIT AMOUNTING TO 17,59,942 , BEING UNREASONABLE AND UNWARRANTED IN THE TYPE OF COMMODITIES DEALT WITH IN VIEW OF RURAL REQUIREMENTS, IS FIT FOR DELETION OR REDUCED TO THE RETURNED FIGURE WHICH OTHERWISE STOOD SUSTAINED BY THE LEARNED CIT (A) . APPEALS. THE LEARNED COUNSEL FOR THE ASSESSEE FURTHER CONTENDED THAT THE ASSESSING OFFICER AS WELL AS THE LEARNED CIT(A) BOTH HAVE ERRED IN LAW IN ASMUCH AS THE PARALLEL CASES CITED STOOD BEHIND THE ASSESSEE AND UTILIZED AGAINST THE ASSESSEE BY THE LEARNED A.O. WITHOUT GIVING OPPORTUNITY TO ADVANCE EXPLANATIONS AND EVIDENCES AGAINST THE WRONG ASSUMPTION AS HELD FOR ESTIMATING HIGHER GROSS PROFIT. THIS IS VIOLATIVE OF NATURAL JUSTICE AND PROVISION OF LAW. CONCLUDING HIS ARGUMENTS, HE SUBMITTED A PAPER BOOK W HICH INTER ALIA INCLUDES THE AUDITED BALANCE SHEET FOR THE EARLIER PERIODS AND HAS FURNISH ED THE FOLLOWING COMPARABLE S VARIATION IN THE I.T.A.NO. 72/CTK/ 2012 4 GROSS MARGIN ON ACCOUNT OF NON - MAINTENANCE OF STOCK REGISTER INDICATING THAT BY NO STRETCH OF IMAGINATION CAN THE PERCEN TAGE OF GROSS MARGIN BE ENHANCED INSOFAR ON ACCOUNT THE PECULIAR CASE OF THE ASSESSEE DUE TO LOCATION ETC., AND THE NATURE OF GOODS DEALT WITH BY THE ASSESSEE WHICH WAS NOT THE CASE OF THE ASSESSING OFFICER TO ENHANCE THE SAME MERELY ON THE FINDING THAT NO STOCK REGISTER WAS MAINTAINED. 3. THE LEARNED DR SUPPORTED THE ORDER OF THE LEARNED CIT(A) INSOFAR AS THE ASSESSING OFFICER HAD EXAMINED THAT NO STOCK BOOK HAD BEEN MAINTAINED BY THE ASSESSEE AND NO QUANTITATIVE DETAILS WERE PRODUCED BEFORE THE AUDITORS . INVOKING THE PROVISIONS OF SECTION 145(1) THEREFORE WAS THE CONSTRAINT WHICH LED THE ASSESSING OFFICER TO BRING ON RECORD COMPARABLE CASES FOR THE IMPUGNED ASSESSMENT YEAR WHO HAVE DECLARED GROSS MARGIN RANGING FROM 6.07% TO 7.59%. HE FULLY SUPPORTED THE ORDERS OF THE AUTHORITIES BELOW FOR HIS PART OF THE SUBMISSIONS. I.T.A.NO. 72/CTK/ 2012 5 4. WE HAVE HEARD THE RIVAL PARTIES AND PERUSED THE MATERIAL AVAILABLE ON RECORD. CONSIDERING THE FACTS AND CIRCUMSTANCES OF THE CASE, WE ARE OF THE CONSIDERED VIEW THAT THE ASSESSEE HAS NOT BEEN ABLE TO ESTABLISH BEYOND DOUBT AS TO HOW THE COMPARABLE CASES DID NOT REFLECT THE MARGIN IN DEALING WITH CLOTH WHETHER SYNTHETICS OR OTHERWISE COULD LEAD TO LOW MARGIN OF 3% ONLY AS PER THE CHART ABOVE. IN ORDER TO DIFFERENTIA TE THE UN COMPARABLE CASES WITH THE NATURE OF CLOTH DEALT WITH THE COMPARABLE CASES VIS - - VIS AS DEALT WITH BY THE ASSESSEE BEING COARSE CLOTH AND SAREES MEANT MAINLY FOR RURAL WOMEN FOLK. THE ASSESSEE WAS TO ESTABLISH THAT HE WAS NOT CHARGING HIGHER MARGIN BETWEEN 3.74% TO 3.18% I N THE IMPUGNED ASSESSMENT YEAR. THE LEARNED COUNSEL FOR THE ASSESSEE HAS SUBMITTED THE AUDITED FINANCIAL BALANCE SHEET WHEN THE AUDITORS REPORTED IN THEIR AUDIT REPORT THAT IT IS NOT POSSIBLE TO MAINTAIN QUANTITATIVE DETAILS ON ACCOUNT OF THE DIFFERENCE BE TWEEN THE QUALITY OF THE CLOTH, THE RATE AND THE S H ELF LIFE OF SAREES ETC., WHICH COULD BE GIVEN A PARTICULAR RATE OF RETURN AS A TRADER. WE ARE OF THE CONSIDERED VIEW THAT DEALING IN CLOTH NOT HAVING S H ELF LIFE OF MORE THAN ONE AND HALF MONTHS AS PER TURN OVER DECLARED BY THE ASSESSEE CLEARLY INDICATES THAT THE NON - MAINTENANCE OF QUANTATIVE DETAILS WOULD NOT HAVE RESULTED IN MORE MARGIN OF GROSS PROFIT. THE ASSESSEE WAS MORE INCLINED TO MAKE SALES THAN TO HOARD STOCK FOR THE PURPOSE OF MAKING MORE MARGIN. T HE S H ELF LIFE OF THESE GOODS DECREASE TO THE PROPORTION OF MARGIN OF PROFIT. IN OTHER WORDS, MAINTAINANING THE STOCK OF ONE AND HALF MONTHS GOODS COULD NOT BE ESTIMATED BY INVOKING THE PROVISIONS OF SECTION 145(1) INSOFAR AS THE LEARNED CIT(A) HAS NOT FOUN D ANY CONTROVERTING MATERIAL TO ESTABLISH THAT THE ASSESSEE HAD BEEN RENDERING LOW MARGIN IN THE PRECEDING 5/6 YEARS WEE ACCEPTABLE TO THEM . WE DO FIND THAT THE ASSESSEE HAS TO PAY INTEREST TO THE I.T.A.NO. 72/CTK/ 2012 6 BANK ON HYPOTHECATION OF GOODS WHICH DEFINITELY, IS MORE TH AN THE GROSS MARGIN RETURNED BY THE ASSESSEE. THEREFORE, IN OUR CONSIDERED VIEW THE ESTIMATION FROM UNCOMPARABLES WAS ON A HIGHER SIDE. THE LEARNED COUNSEL F OR THE ASSESSEE ON A SPECIFIC Q UERRY FROM THE BENCH WHETHER COULD ESTABLISH THE MARGIN BY IDENTIFYI NG A PARTICULAR ITEM SOLD BETWEEN THE MARGIN FROM 3 % TO 5% STATED ITS INABILITY INSOFAR AS THE VERY REASON THAT THE STOCK REGISTER COULD NOT BE MAINTAINED DUE TO MAGNITUDE OF QUANTITY AND QUALITY OF GOODS , THE AUDITORS HAD TO QUALIFY THEIR REPORT INDICATIN G NON VERIFICATION OF STOCK REGISTER , IF ANY , MAINTAINED . WE, THEREFORE IN THE INTEREST OF JUSTICE, REDUCE THE ESTIMATION OF GROSS MARGIN FROM 6% TO 5% (FIVE PERCENT), WHICH IN OUR CONSIDERED VIEW IS REASONABLE IN THE CASE OF THE ASSESSEE. ON THE FACTS AND CIRCUMSTANCES MENTIONED ABOVE. 5. IN THE RESULT, THE APPEAL OF THE ASSESSEE IS PARTLY ALLOWED. SD/ - SD/ - ( . . . ) , (K.S.S.PRASAD RAO), JUDICIAL MEMBER ( . . ) , , (K.K.GUPTA), ACCOUNTANT MEMBER. ( ) DATE: 14.09.2012 - COPY OF THE ORDER FORWARDED TO: 1. / THE APPELLANT : SREEGOPAL PERIWAL, PROP. SREEGOPAL NANDKISHORE, AT: PITHAPUR, P.O.BUXI BAZAR, CUTTACK 2 / THE RESPONDENT: INCOME - TAX OFFICER, WARD 2(3), CUTTACK. 3. / THE CIT, 4. ( ) / THE CIT(A), 5. / DR, CUTTACK BENCH 6. GUARD FILE . / TRUE COPY, / BY ORDER, ( ), (H.K.PADHEE), SENIOR.PRIVATE SECRETARY. I.T.A.NO. 72/CTK/ 2012 7 APPENDIX XVII SEAL TO BE AFFIXED ON THE ORDER SHEET BY THE SR. P.S./P.S. AFTER DICTATION IS GIVEN 1. DAT E OF DICTATION 11.09.2012.. 2. DATE ON WHICH THE TYPED DRAFT IS PLACED BEFORE THE DICTATING MEMBER 12.09.2012OTHER MEMBER . 3. DATE ON WHICH THE APPROVED DRAFT COMES TO THE SR. P.S./P.S. 4. DATE ON WHICH THE FAIR ORDER IS PLACED BEFORE THE DICTATING MEMBER FOR PRONOUNCEMENT.... 5. DATE ON WHICH THE FAIR ORDER COMES BACK TO THE SR. P.S./P.S 14.09.2012 6. DATE ON WHICH THE FILE GOES TO THE BENCH CLERK 7. DATE ON WHICH THE FILE GOES TO THE HEAD CLERK .. 8. THE DATE ON WHICH THE FILE GOES TO THE ASSISTANT REGISTRAR FOR SIGNATURE ON THE ORDER ................ 9. DATE OF DESPATCH OF THE ORDER ..