M/S Manohar Namkeen, Bhopal V. THE ITO 3(2), Bhopal

ITA 755/IND/2016

• Counselvise Citation: [2016] 131 COUNSELVISE.COM (IT) 5770 (ITAT-INDORE)
• Duration Of Justice: 2 month(s) 4 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 08-09-2016
• Appeal Filed By: Assessee
• Order Result: Partly Allowed
• Bench Allotted: SMC
• Assessment Year: 2005-2006
• Appeal Filed On: 04-07-2016
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Department Lawyers: MOHD JAVED
• Assessee Lawyers: TRIBHUVAN SACHDEVA
• Keywords: Corroborative evidences
• Section: 133A

Judgement Text

M/S MANOHAR NAMKEEN ITA NO. 755/IND/2016 1 IN THE INCOME TAX APPELLATE TRIBUNAL INDORE BENCH, INDORE BEFORE SHRI D.T. GARASIA, JM & SHRI O.P. MEENA, AM ITA NO. 755/IND/2016 A.Y. 2005-06 M/S MANOHAR NAMKEEN BHOPAL PAN AALFM 2409A ::: APPELLANT VS INCOME TAX OFFICER 3(2) BHOPAL ::: RESPONDENT APPELLANT BY SHRI TRIBHUVAN SACHDEVA RESPONDENT BY SHRI MOHD. JAVED DATE OF HEARING 22.8.2016 DATE OF PRONOUNCEMENT 22.8.2016 O R D E R PER SHRI D.T. GARASIA, JM THIS IS AN APPEAL PREFERRED BY THE ASSESSEE AGAINST THE ORDER OF THE LEARNED CIT(A)-2, BHOPAL, DATED 2.3.2016 . 2. THE SHORT FACTS OF THE CASE ARE THAT THE ASSESSEE FIR M DEALS IN THE BUSINESS OF MANUFACTURE OF NAMKEEN AND M/S MANOHAR NAMKEEN ITA NO. 755/IND/2016 2 SWEET ITEMS AND SALE THEREOF ON WHOLESALE AND RETAIL. ON 27.10.2005 A SURVEY U/S 133A OF THE ACT WAS CARRIED OU T AT THE BUSINESS PREMISES OF THE ASSESSEE. IN THE COURS E OF SURVEY IT WAS FOUND THAT THE ASSESSEE HAS BEEN MAINTAINING COMPUTERISED BILLING SYSTEM. 3. GROUND NO. 1 TAKEN BY THE ASSESSEE IS THAT THE LEAR NED CIT(A) WAS NOT JUSTIFIED IN CONFIRMING ESTIMATION OF RETAIL SALES AT RS.30 LACS AND APPLYING A GP RATE OF 40% AND THEREBY MAKING AN ADDITION OF RS. 3,29,260/-. 4. DURING THE COURSE OF ASSESSMENT PROCEEDINGS THE ASSESSING OFFICER REQUIRED THE ASSESSEE TO PRODUCE DE TAILS REGARDING COST OF MANUFACTURING, SALE RATE OF WHOLESALE AN D RETAIL OF AALUCHIPS AND SONPAPDI, IN RESPONSE TO WHICH THE ASSESSEE SUBMITTED THAT THERE ARE NO SEPARATE ACCOUNTS FO R WHOLESALE AND RETAIL SALES MADE DURING THE YEAR AND AS SUCH IT IS NOT PRACTICABLE TO WORK OUT SEPARATE GROSS PROFIT RATES FOR WHOLESALE AND RETAIL SALES. IN THE ABSENCE OF ANY M/S MANOHAR NAMKEEN ITA NO. 755/IND/2016 3 SPECIFIC DETAILS WITH REGARD TO THE GROSS PROFIT FOR RETAIL SALES, THE ASSESSING OFFICER OBSERVED THAT THE GP RATE OF 34.15% AS SHOWN IN THE TRADING ACCOUNT IS INCLUSIVE OF THE RETAIL SALES AS WELL AS THE WHOLESALE SALES. AS PER THE RECORDS THE ASSESSEE HAS SHOWN THAT AROUND 62% OF THE TOTAL SALE WAS WHOLESALE AND THE REMAINING 38% WAS RETAIL SALE. IN THE ABSENCE OF DETAILS, THE ASSESSING OFFICER PRESUMED THAT THE RETAIL SALE WAS EXECUTED AT THE GROSS PROFIT RATE AT 40%. FURTHER IN THE ABSENCE OF ANY SUPPORTING EVIDENCE WITH REGARD TO THE DAILY RETAIL SAL ES, THE ASSESSING OFFICER PRESUMED THAT THERE IS EXTRAPOL ATION OF SALES AND IN VIEW OF THE ABOVE DISCUSSION AND CONSIDERING ALL THE LACUNAE, THE ASSESSING OFFICER EST IMATED THE RETAIL SALES AT RS. 30 LACS WITH GROSS PROFIT RATE O F 40%. THE ASSESSING OFFICER FURTHER OBSERVED THAT THE ASSES SEE HAS ALREADY SHOWN RETAIL SALE OF RS.21,76,849/- AND AS SUCH THE ENHANCEMENT OF RETAIL SALE IS ESTIMATED AT M/S MANOHAR NAMKEEN ITA NO. 755/IND/2016 4 RS.8,23,151/- (RS.30,00,000 (-) RS.21,76,849/-). I N THIS WAY, THE 40% GP RATE ON THE ENHANCED RETAIL SALE WAS WORKED OUT BY THE ASSESSING OFFICER AT RS.3,29,260/- WHICH WAS ADDED TO THE TOTAL INCOME OF THE ASSESSEE. 5. AGGRIEVED WITH THE ABOVE ACTION OF THE ASSESSING OFFICER, THE ASSESSEE PREFERRED FIRST APPEAL BEFORE T HE LEARNED CIT(A). IT WAS SUBMITTED BY THE ASSESSEE THAT THE WITHOUT REJECTING THE BOOKS OF ACCOUNTS OF THE ASSESS EE, THE ASSESSING OFFICER HAS MADE THE ADDITION ON ESTIMATE WHI CH WAS LEGALLY NOT JUSTIFIED. HOWEVER, THE LEARNED CIT(A ) CONFIRMED THE ACTION OF THE ASSESSING OFFICER. NOW T HE ASSESSEE IS IN APPEAL BEFORE THE TRIBUNAL. 6. BEFORE US, THE LEARNED COUNSEL FOR THE ASSESSEE STRONGLY SUBMITTED THAT WITHOUT REJECTING THE BOOKS OF ACCOUNTS, THE ASSESSING OFFICER HAS NO JURISDICTION T O ESTIMATE THE GROSS PROFIT AT A HIGHER RATE. THE LEARNED COUNSEL FOR THE ASSESSEE ALSO SUBMITTED THAT IN THE LI NE OF M/S MANOHAR NAMKEEN ITA NO. 755/IND/2016 5 BUSINESS THE ASSESSEE IS CARRYING ON, IT IS NOT PRACTI CABLE TO MAINTAIN STOCK REGISTER OR CASH MEMOS OF RETAIL SALES. THE LEARNED COUNSEL FOR THE ASSESSEE SUBMITTED THAT EXCEPT FOR THE ASSESSMENT YEAR 2004-05 WHEN THE GROSS PROFIT WAS 36.85%, IN ALL OTHER YEARS THE GROSS PROFIT HAS BEEN I N THE RANGE OF 31.52% TO 34.15%. THE LEARNED COUNSEL FOR TH E ASSESSEE VEHEMENTLY SUBMITTED THAT SURVEY WAS CONDUCTE D AT THE PREMISES OF THE ASSESSEE ON 27.10.2005 RELEVANT TO THE ASSESSMENT YEAR 2006-07 AND AS SUCH NO ADDITION COULD BE MADE ON THE BASIS THEREOF IN THE ASSESSMENT Y EAR UNDER CONSIDERATION I.E. 2005-06. HE FURTHER SUBMITT ED THAT THE ASSESSING OFFICER APPLIED GROSS PROFIT RATE O F 40% IN THE ASSESSMENT YEAR 2006-07 WHICH WAS REDUCED IN APPEAL BY THE LEARNED CIT(A) TO 35.50%. THE LEARNED COUNSEL FOR THE ASSESSEE, THEREFORE, STRONGLY PLEADED THAT THE AUTHORITIES BELOW WERE NOT JUSTIFIED IN ESTIMATIN G RETAIL SALES AT RS. 30 LACS IN PLACE OF RS.21.76 LACS AND M/S MANOHAR NAMKEEN ITA NO. 755/IND/2016 6 ESTIMATING THE GP RATE OF 40%, THEREBY ADDING A SUM OF RS.3.29 LACS TO THE INCOME OF THE ASSESSEE. 7. ON THE OTHER HAND, THE LEARNED DR RELIED UPON T HE ORDERS OF THE AUTHORITIES BELOW. 8. WE HAVE CONSIDERED THE SUBMISSIONS OF BOTH THE SI DES. AFTER GOING THROUGH THE MATERIAL AVAILABLE ON RECORD AND ALSO TAKING INTO CONSIDERATION THE SUBMISSIONS OF THE PARTIES, IN OUR OPINION, IT WOULD MEET THE ENDS OF J USTICE IF ON THE SALES OF RS. 22 LACS, THE GP RATE OF 35.50% IS APPLIED. WE DIRECT ACCORDINGLY. 9. THE NEXT GROUND OF APPEAL IS THAT THE LEARNED CIT(A ) HAS ERRED IN CONFIRMING THE DISALLOWANCE OF THE PARTNER S SALARY PAID TO MURLIDHAR HARWANI (HUF). 10. BRIEF FACTS ARE THAT SHRI MURLI HARWANI (HUF) IS A PARTNER IN THE ASSESSEE FIRM. AS PER PARTNERSHIP DEED DATED 13.4.2002, SHRI MURLIDHAR HARWANI (HUF) HAS BEEN SHOW N M/S MANOHAR NAMKEEN ITA NO. 755/IND/2016 7 AS AN ACTIVE PARTNER AND FOR THIS PURPOSE, HE IS SHOWN T O HAVE BEEN PAID AN AMOUNT OF RS.60,000/- AS SALARY. THE ASSESSING OFFICER WAS OF THE VIEW THAT ANY PAYMENT MADE TO HUF THROUGH KARTA IS INADMISSIBLE AS PER SECTION 40( B) READ WITH EXPLANATION 4 OF THE ACT. THE ASSESSING OFF ICER, THEREFORE, DISALLOWED THE SALARY PAID TO SHRI MURLIDHAR HARWANI (HUF). 11. BEING AGGRIEVED, THE ASSESSEE CARRIED THE MATTER IN APPEAL BEFORE THE LEARNED CIT(A) BUT TO NO AVAIL. NOW T HE ASSESSEE IS IN APPEAL BEFORE THE TRIBUNAL. 12. BEFORE US, THE LEARNED COUNSEL FOR THE ASSESSEE SUBMITTED THAT AS PER THE DECISION OF ITAT, INDORE BE NCH, IN THE CASE OF M/S FOUZDAR FARM EQUIPMENTS, HOSHANGABAD VS. ACIT; (2008) 11 ITJ 464 (TRI), WHERE IN IT WAS HELD THAT THE SALARY PAID TO PARTNER IN THE CAPACITY OF KARTA, REPRESENTING HIS HUF IN FIRM, IS ALLOWABLE, REL YING UPON THE DECISION OF THE HON'BLE ANDHRA PRADESH HIGH M/S MANOHAR NAMKEEN ITA NO. 755/IND/2016 8 COURT IN THE CASEOF A. RAMAKRISHNA B. NARAYAN AND CO. VS. CIT (1994) 209 ITR 156. 13. THE LEARNED DR, ON THE OTHER HAND, WHILE SUPPORT ING THE ORDERS OF THE AUTHORITIES BELOW, RELIED UPON THE DECISION OF THE HON'BLE KARNATAKA HIGH COURT IN THE CASE OF CIT V S. A.P. MATPADI AND BROS.; 230 ITR 160. 14. WE HAVE HEARD BOTH THE SIDES. LOOKING TO THE FACT S AND CIRCUMSTANCES OF THE CASE, WE FIND THAT IN THE INSTANT CASE, THE SALARY HAS BEEN PAID TO KARTA OF HUF AND THE KARTA OF HUF IS A WORKING PARTNER OF THE ASSESSEE FIRM AS PER TH E PARTNERSHIP DEED AND CONDUCTING THE BUSINESS THE INDIVIDUAL. THEREFORE, AS PER THE DECISION OF THE HON 'BLE KARNATAKA HIGH COURT IN THE CASE OF CIT VS. A.P. NATPADI AND BROS (SUPRA), WHEREIN IT IS HELD THAT WHEN THE HI NDU UNDIVIDED FAMILY IS A PARTNER IN THE PARTNERSHIP FIRM, SECTION 40(B) RECOGNIZES REPRESENTATIVE CAPACITY AS A PARTNER IN CASE OF PAYMENT OF INTEREST. ONCE THE JOIN T FAMILY M/S MANOHAR NAMKEEN ITA NO. 755/IND/2016 9 IS RECOGNIZED AS REAL PARTNER OF THE FIRM, THE LAW DE BARS FROM ITS ORIGINAL POSITION OF RECOGNIZING ONLY AN IND IVIDUAL AS PARTNER. CONSEQUENTLY, SALARY PAID TO INDIVIDUAL NOT BEING THE INCOME OF THE FIRM, THE SAME CANNOT BE TAKEN THE SHARE OF PROFIT OF PARTNER AND THE SALARY PAID TO PARTNER CANNOT BE DISALLOWED. WE RESPECTFULLY FOLLOWING THE S AME, OPINE THAT THE SALARY TO THE FIRM IS TO BE ALLOWED TO THE KARTA. SUBJECT TO THAT, THE SALARY MAY BE ASSESSED IN THE HANDS OF SHRI MURLIDHAR HARWANI IN HIS INDIVIDUAL CAPACI TY AS HE REPRESENTS THE HUF. THE ASSESSING OFFICER IS D IRECTED ACCORDINGLY. THIS GROUND IS, THEREFORE, ALLOWED. 15. GROUND NO. 3 IS THAT THE LEARNED CIT(A) HAS ERRED IN DISALLOWING THE PARTNERS SALARY PAID TO NEHA HARWANI AND SMT. SADHANA HARWANI U/S 40(B) OF THE ACT. 16. DURING THE COURSE OF ASSESSMENT PROCEEDINGS THE ASSESSING OFFICER OBSERVED THAT SALARY OF RS. 48,000/- AND RS. 30,000/- HAS BEEN PAID TO SMT. SADHNA HARWANI AND M/S MANOHAR NAMKEEN ITA NO. 755/IND/2016 10 KU. NEHA HARWANI, RESPECTIVELY. THE ASSESSING OFFICER ASKED THE ASSESSEE TO EXPLAIN THE SAME AS THEY WERE NOT ACTIVELY ENGAGED IN THE BUSINESS. IN REPLY THE ASSESSE E SUBMITTED THAT AS PER THE PARTNERSHIP DEED, THESE PERS ONS WERE PAID SALARY AS THEY WERE WORKING ON PART TIME BASIS . HOWEVER, THE ASSESSING OFFICER WAS OF THE VIEW THAT T HE PARTNERSHIP DEED PRESCRIBES THAT THESE PARTNERS ARE NOT BOUND FOR PERSONAL ATTENDANCE DOES NOT MEAN THAT THEY WOULD NOT REPORT FOR DUTY IF AND WHEN REQUIRED. THE ASSESSING OFFICER WAS, THEREFORE, OBSERVED THAT THE P AYMENT OF SALARY TO THESE TWO PARTNERS IS ONLY A METHOD TO RED UCE THE TAX LIABILITY OF THE FIRM. THE ASSESSEES CLAIM WAS THAT SMT. SADHNA HARWANI IS IN-CHARGE OF QUALITY CONTROL WORK OF EATABLES MANUFACTURED AND HENCE DOES NOT HAVE TO BE PRESENT THROUGHOUT THE DAY DURING THE WORKING HOURS . SHE VISITS THE PREMISES AS AND WHEN HER SERVICES ARE REQUIR ED. KU. NEHA HARWANI IS SUPERVISING THE STAFF ON PERIODICAL M/S MANOHAR NAMKEEN ITA NO. 755/IND/2016 11 BASIS. THEREFORE, THE SALARY MAY BE ALLOWED. HOWEVER, T HE ASSESSING OFFICER WAS NOT SATISFIED WITH THE SUBMISSI ON OF THE ASSESSEE AND DISALLOWED THE SAME. THE MATTER WAS CARRIED IN APPEAL BEFORE THE LEARNED CIT(A) WHO CONFIRM ED THE ACTION OF THE ASSESSING OFFICER. NOW THE ASSESSEE IS IN APPEAL BEFORE THE TRIBUNAL. 17. BEFORE US, THE LEARNED COUNSEL FOR THE ASSESSEE SUBMITTED THAT SMT. SADHNA HARWANI IS LOOKING AFTER THE QUALITY CONTROL AND KU. NEHA HARWANI, MBA, IS LOOKING AFTER THE HUMAN RESOURCE MANAGEMENT. THEREFORE, THEIR DAILY PERSONAL ATTENDANCE IS NOT REQUIRED. THE LEARNED COUNSEL FOR THE ASSESSEE SUBMITTED THAT AS SUCH SALARY PAID TO THEM DESERVES TO BE ALLOWED. ON THE OTHER HAND , THE LEARNED DR RELIED UPON THE ORDERS OF THE AUTHORIT IES BELOW. 18. WE HAVE HEARD BOTH THE SIDES. AFTER GOING THROUGH THE ORDERS OF THE AUTHORITIES BELOW IN VIEW OF THE SUBMI SSIONS M/S MANOHAR NAMKEEN ITA NO. 755/IND/2016 12 MADE BEFORE US BY BOTH THE SIDES, WE FIND THAT THE ASSESSING OFFICER MADE THE DISALLOWANCE OF SALARY OF RS.48,000/- AND RS. 30,000/- PAID TO SMT. SADHNA HARWANI AND KU. NEHA HARWANI, RESPECTIVELY, WHO WERE CLAIMED TO BE WORKING PART TIME AND LOOKING AFTER THE QUALITY CONTROL. WE FIND THAT THE ASSESSING OFFICER HAS MADE THE DISALLOWANCE ON THE BASIS OF CLAUSE 8 OF THE PARTNERSHIP DEED WHICH SAYS THE PARTY OF THE RECORD PART AND PARTY OF THE THIRD PART SHALL GIVE AS MUCH ATTE NTION AS THEY THINK PROPER AND SHALL NOT BE BOUND FOR PERSON AL ATTENDANCE. THE ASSESSING OFFICER, THEREFORE, HELD THAT BOTH THESE PARTNERS ARE NOT WORKING PARTNERS AND AS SUCH THE ASSESSING OFFICER DISALLOWED THE SALARY PAID TO THE M. WE FIND THAT THE LEARNED CIT(A) HAS RIGHTLY HELD THAT THE A.O. WAS JUSTIFIED TO DISALLOW SALARY PAID TO HUF AS AN HU F CANNOT BE A WORKING PARTNER AS ENVISAGED U/S 40(B) OF T HE ACT FOR DRAWING REMUNERATION. WE, THEREFORE, CONFIRM THE M/S MANOHAR NAMKEEN ITA NO. 755/IND/2016 13 FINDINGS OF THE LEARNED CIT(A). THEREFORE, THIS GROU ND OF THE ASSESSEE IS DISMISSED. 19. IN THE RESULT, THE APPEAL OF THE ASSESSEE STANDS P ARTLY ALLOWED. PRONOUNCED IN OPEN COURT ON 22 ND AUGUST, 2016 SD/- SD/- (O.P. MEENA) (D.T. G ARASIA) ACCOUNTANTMEMBER JUDICIAL MEMB ER 7 TH SEPTEMBER, 2016 DN/- M/S MANOHAR NAMKEEN ITA NO. 755/IND/2016 14