VINOD KUMAR MITTAL, Kota V. ITO, Kota

ITA 806/JPR/2016

• Counselvise Citation: [2017] 128 COUNSELVISE.COM (IT) 2164 (ITAT-JAIPUR)
• Duration Of Justice: 7 month(s) 11 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 20-04-2017
• Appeal Filed By: Assessee
• Order Result: Partly Allowed
• Bench Allotted: SMC
• Assessment Year: 2007-2008
• Appeal Filed On: 08-09-2016
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Department Lawyers: POONAM RAI DCIT DR DHK
• Assessee Lawyers: MADHUKAR GARG
• Keywords: Gross profit estimation; Business income

Judgement Text

VK;DJ VIHYH; VF/KDJ.K] T;IQJ U;K;IHB] T;IQJ IN THE INCOME TAX APPELLATE TRIBUNAL, JAIPUR BENCHES (SMC), JAIPUR JH HKKXPUN] YS[KK LNL; DS LE{K BEFORE: SHRI BHAGCHAND, ACCOUNTANT MEMBER VK;DJ VIHY LA-@ ITA NO. 806/JP/2016 FU/KZKJ.K O'K Z@ ASSESSMENT YEAR : 2007-08 SHRI VINOD KUMAR MITTAL KRISHI UPAJ MANDI SAMITI YARD RAMGANJMANDI CUKE VS. THE ITO WARD- 1(1) KOTA LFKK;H YS[KK LA-@THVKBZVKJ LA-@ PAN/GIR NO .: AFTPM 8746 F VIHYKFKHZ@ APPELLANT IZR;FKHZ@ RESPONDENT FU/KZKFJRH DH VKSJ LS@ ASSESSEE BY: SHRI MADHUKAR GARG, CA JKTLO DH VKSJ LS@ REVENUE BY :SMT. POONAM RAI, DCIT-. DR LQUOKBZ DH RKJH[K@ DATE OF HEARING : 12/04/2017 ?KKS'K .KK DH RKJH[K@ DATE OF PRONOUNCEMENT : 20/04/2017 VKNS'K@ ORDER PER BHAGCHAND, AM THE ASSESSEE HAS FILED AN APPEAL AGAINST THE ORDER OF THE LD. CIT(A), KOTA DATED 26-04-2016 FOR THE ASSESSMENT Y EAR 2007-08 RAISING THEREIN FOLLOWING GROUND:- ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE AND IN LAW THE LD. CIT(A) ERRED IN UPHOLDING THE ACTION OF ITO IN APPLYING THE PROVISIONS OF SECTION 145(3) AND ESTIM ATING THE GROSS PROFIT RATE TO THE EXTENT OF 3% AND CONFIRMIN G THE ADDITION TO THE EXTENT OF RS. 3,72,233/- WITHOUT AP PRECIATING THE FACT THAT THE PROVISIONS OF SECTION 145() ARE N OT APPLICABLE ON THE ASSESSEE. ITA NO.806/JP/2016 SHRI VINOD KUMAR MITTAL VS. ITO, WARD- 1(1) KOTA . 2 2.1 APROPOS SOLITARY GROUND OF THE ASSESSEE, THE FA CTS AS EMERGES FROM THE ORDER OF THE LD. CIT(A) IS AS UNDER:- I HAVE GONE THROUGH ASSESSEE'S SUBMISSIONS AND AOS FINDINGS. AS REGARDS REJECTION OF THE BOOKS OF ACCOUNT IS CONCERNED, THE AO MAY PROCEED UNDER SECTION 145( 3) UNDER ANY OF THE FOLLOWING CIRCUMSTANCES. (A) WHERE HE IS NOT SATISFIED ABOUT THE CORRECTNESS OR COMPLETENESS OF THE ACCOUNTS. (B) WHERE METHOD OF ACCOUNTING CASH OR MERCANTILE HAS NOT BEEN REGULARLY FOLLOWED BY THE ASSESSEE; OR ACCOUNTING STANDARDS AS NOTIFIED BY THE CENTRAL GOVERNMENT HAVE NOT BEEN REGULARLY FOLLOWED BY THE ASSESSEE. THOUGH THE BROAD PARAMETERS HAVE BEEN LAID DOWN IN THE SECTION ITSELF UNDER WHICH THE PROVISIONS ARE R EQUIRED TO BE INVOKED FOR REJECTION OF BOOKS OF ACCOUNT IN A P ARTICULAR CASE YET A DEFINITE GROUND WORK IS SINE QUA NON ON PART OF THE ASSESSING OFFICER BEFORE RESORTING TO THE PROVISION S OF SECTION. IT IS NOTED THAT IN A LARGE NUMBER OF CASE S THE PROVISIONS OF SECTION ARE INVOKED ON THE PRETEXT OF FALL IN GROSS PROFIT RATE. THOUGH THE FALL IN GROSS PROFIT RATE DEFINITELY PROVIDES A GROUND TO THE ASSESSING OFFIC ER FOR INVOCATION OF THE PROVISIONS OF SECTION 145(3) YET IT IS NOT A SUFFICIENT CONDITION. THE ASSESSING OFFICER IS REQU IRED TO ANALYSE VARIOUS OTHER PARAMETERS WHICH HAVE THE EFF ECT ON THE GROSS PROFIT RATE OF THE ASSESSEE FOR THE RELEV ANT PERIOD BEFORE DRAWING ANY CONCLUSION ON THE MERIT OF SUCH CLAIM. THE FALL IN GROSS PROFIT RATE MIGHT BE A SYMPTOM OF MALICE WITH WHICH THE ASSESSEE'S ACCOUNT WOULD BE SUFFERIN G. HOWEVER, IT IS THE DUTY OF THE ASSESSING OFFICER TO PIN POINT THE MALICE AND BRING IT OUT IN THE ASSESSMENT ORDER BY MARSHALLING THE FACTS ENCOMPASSING THE SAME. IN THE CASE OF LOW GROSS PROFIT RATE, THERE COULD BE INFLATED PURC HASES OR UNRECORDED SALES BESIDES MANIPULATION IN THE VALUAT ION OF ITA NO.806/JP/2016 SHRI VINOD KUMAR MITTAL VS. ITO, WARD- 1(1) KOTA . 3 CLOSING STOCK. THEREFORE, THE COURTS EXPECT THAT TH E ASSESSING OFFICER SHALL BRING ON RECORD SPECIFIC DE FECTS IN THE BOOKS OF ACCOUNT OF THE ASSESSEE BEFORE INVOKIN G THE PROVISIONS OF SECTION 145(3). THE REJECTIONS OF BOO KS OF ACCOUNT SIMPLY ON LOWER GROSS PROFIT RATE IN COMPAR ISON TO EARLIER YEARS OR WITH OTHER ASSESSEES PLACED ON SIM ILAR CIRCUMSTANCES WOULD NOT SUFFICE AND WILL NOT STAND THE TEST OF APPEAL. WHERE THE ASSESSEE IS UNABLE TO RECONCILE THE QUANTITIES HANDLED BY IT AS BETWEEN PURCHASES AND S ALES SUBJECT TO ADJUSTMENT AS BETWEEN THE OPENING AND CL OSING STOCKS OR WHERE NO QUANTITY ACCOUNTS AS KEPT, THE A CCOUNTS ARE TO BE TAKEN AS UNPROVED, SO THAT THE INCOME RET URNED MAY8 WELL BE REJECTED AND INCOME ESTIMATED, IF THE GROSS PROFIT DECLARED IS LOW. IN A CASE DECIDED BY THE TR IBUNAL IN ITO VS. GIRISH M MEHTA (2008), 296 ITR (AT) 125 (RA JKOT), IT WAS POINTED OUT THAT THE PRE-CONDITION FOR ESTIM ATING BUSINESS INCOME OF THE ASSESSEE WHERE AN ASSESSEE K EEPS ACCOUNTS IS THAT THE ASSESSEE'S BOOKS SHOULD HAVE B EEN FOUND TO BE UNRELIABLE OR OTHERWISE NOT CAPABLE OF PROVIN G THE ASSESSEE'S INCOME. WITHOUT THIS FIRST STEP, THE FAT THAT THE GROSS PROFIT IS LOW AS COMPARED TO OTHERS IN COMPAR ISON TO EARLIER YEARS, CANNOT BY ITSELF BE A GROUND FOR TAK ING A VIEW THAT IT IS OPEN TO THE ASSESSING OFFICER TO MAKE GO OD THE ALLEGED DEFICIENCY IN GROSS PROFIT. HOWEVER, IT IS ALSO CORRECT THAT IN THIS CASE, THE AO HAS NOTICED CERTAIN SHORT COMINGS IN THE ACCOUNTS AND POINTED THEM OUT TO THE ASSESSEE. BASED ON THE REPLIES, IT CAN BE CONTENDED THAT THE ASSESSEE WAS NOT ABLE TO DETAIL QUALITY BASED PRICING OR JUSTIFY THE LOW GROSS PROFIT RATE AS COMPARED TO OTHER ENTITIES IN THE ID ENTICAL TRADE. TO THAT EXTENT, THE BOOK RESULTS WERE NOT SA TISFACTORY IN VIEW OF THE AO. ACCORDINGLY I AM OF THE OPINION THAT THE AO WAS JUSTIFIED IN REJECTING THE BOOKS OF ACCOUNT U/S 145(3) AND FRAMING A BEST JUDGEMENT ORDER. HOWEVER, IT IS WELL KNOWN THAT IN THE CASE OF BEST JUDGEMENT WHERE RESORT IS TAKING TO SECTION 144, TH E ASSESSING OFFICER EXERCISING HIS JURISDICTION CANNO T ACT ARBITRARILY OR CAPRICIOUSLY. THE ASSESSMENT MUST PR OCEED ON ITA NO.806/JP/2016 SHRI VINOD KUMAR MITTAL VS. ITO, WARD- 1(1) KOTA . 4 JUDICIAL CONSIDERATIONS IN THE LIGHT OF RELEVANT MA TERIAL THAT MAY BE BROUGHT ON RECORD. THE HON'BLE ALLAHABAD HI GH COURT IN THE CASE OF CIT VS. SURJEET SINGH MAHESHKU MAR (1994) 210 ITR 83 HAS HELD THAT IN EVERY CASE OF BE ST JUDGEMENT, THE ELEMENT OF GUEST WORK CANNOT BE ELIM INATED SO LONG AS BEST JUDGEMENT HAS A NEXUS WITH MATERIAL ON RECORD AND DISCRETION IN THAT BEHALF HAS NOT BEEN EXERCISED ARBITRARILY OR CAPRICIOUSLY. IN THIS CASE FROM THE DETAILS OF THE FACTS BROUGHT ON RECORD, IT IS OBSERVED THAT WHILE THE ASSESSEE'S GROSS PROFIT RATE IS BETTER AS COMPARED TO PRECEDING TWO YEARS, STILL THE ASSESSING OFFICER HAS BASED HI S DECISION TO ESTIMATE THE G.P. ON ANOTHER CONCERN. HOWEVER, IT IS SEEN IN THE ORDER THAT IN THE COMPARABLE CASES CITED, TH E CONCERN M/S. CHATTER & CO. HAD RETURNED A GROSS PROFIT RATE OF 3.69% WHICH IS LOWEST AMONG THE THREE CASES CITED. THUS THE AO HAS TAKEN A REASONABLE APPROACH. HOWEVER, CONSIDERI NG THE EXPLANATION OF THE ASSESSEE WHICH WERE NOT CONSIDER ED EARLIER AND TO ELIMINATE ANY BIAS ON THIS ASPECT, I T CONSIDERED REASONABLE TO ESTIMATE THE G.P. AT 3% AS AGAINST 3. 69% TAKEN BY THE AO. THIS COMES TO RS. 12,66,880/- AS AGAINST RS. 8,94,647/- SHOWN BY THE ASSESSEE. THUS AN ADDITION OF RS. 3,72,233/- IS ONLY UPHELD. THE BALANCE ADDITION OF RS. 2,91,382/- OUT OF THE TOTAL ADDITION OF RS. 6,63,61 5/- IS ACCORDINGLY DIRECTED TO BE DELETED. THIS GROUND OF APPEAL IS AS PARTLY ALLOWED. 2.2 DURING THE COURSE OF HEARING, THE LD. AR OF THE ASSESSEE PRAYED THAT THE LD. CIT(A) HAS ERRED IN UPHOLDING THE ACTION OF THE AO BY APPLYING THE PROVISIONS OF SECTION 145(3) AND ESTIMATING THE GROSS PROFIT RATE OF 3% BY CONFIRMING THE ADDITION OF RS. 3,72,233/- WIT HOUT APPRECIATING THE FACTS OF THE CASE. THE LD. AR OF THE ASSESSEE FILED THE WRITTEN SUBMISSION WHICH HAS BEEN TAKEN INTO CONSIDERATION. ITA NO.806/JP/2016 SHRI VINOD KUMAR MITTAL VS. ITO, WARD- 1(1) KOTA . 5 2.3 ON THE OTHER HAND, THE LD. DR RELIED ON THE ORD ER OF THE LD. CIT(A). 2.4 I HAVE HEARD THE RIVAL CONTENTIONS AND PERUSED THE MATERIALS AVAILABLE ON RECORD. BRIEF FACTS OF THE CASE ARE TH AT THE ASSESSEE DERIVED INCOME FROM TRADING OF FOOD GRAINS AND COMMISSION A GENT. THE AO OBSERVED THAT DURING THE YEAR THE ASSESSEE HAD SHOW N GROSS PROFIT OF RS. 8,94,647/- ON THE TOTAL SALES OF DHANIA AT RS. 4,22 ,29,333/- GIVING A GROSS PROFIT RATE AT 2.11%. THE AO ON PERUSAL OF THE PURC HASE AND SALE BILLS OF DHANIYA OBSERVED THAT THE ASSESSEE MADE PURCHASES OF DHANIA AT DIFFERENT RATES ON SAME DAY AND SIMILAR POSITION WAS PREVAILI NG IN RESPECT OF THE SALES I.E. DHANIA WAS PURCHASED AND SOLD ON A PARTI CULAR DAY ON DIFFERENT RATES WHICH DETAILS ARE MENTIONED AT PAGE 2 OF THE ASSESSMENT ORDER. THE AO NOTICED THAT THE ASSESSEE HAD PURCHASED DHANIA A T DIFFERENT RATES ON A SINGLE DAY. SIMILARLY, THE ASSESSEE SOLD THE SAME G RAIN AT DIFFERENT RATES ON A SINGLE DAY WHICH ACCORDING TO THE AO THE ASSESSEE HAD DEALING IN VARIOUS QUALITY OF DHANIA ON EACH DAY AND RATE OF D HANIA VARIED ON THE BASIS OF ITS QUALITY AND QUANTITATIVE DETAILS. THE AO OBSERVED THAT THE ASSESSEE HAD NOT KEPT THE QUALITYWISE AND QUANTITAT IVE DETAILS OF DHANIA AND THE GROSS PROFIT RATE SHOWN BY THE ASSESSEE WER E NOT VERIFIABLE FROM THE RECORD PRODUCED BEFORE HIM. HENCE, THE GROSS PR OFIT RATE SHOWN BY THE ASSESSEE @ 2.11% WAS ON THE TOTAL SALES OF RS. 4,22 ,29,333/- WAS VERY ITA NO.806/JP/2016 SHRI VINOD KUMAR MITTAL VS. ITO, WARD- 1(1) KOTA . 6 LOW WHEREAS THE SAME LINE OF BUSINESSMAN IN THE SAM E LOCALITY OF THE ASSESSEE ARE SHOWING BETTER GROSS PROFIT RATE IN CO MPARISON TO THE ASSESSEE. THE AO HAS GIVEN THE COMPARATIVE CHART OF OTHER ASSESSEE'S. NAME OF COMPARATIVE CASES A.Y. TOTAL SALES OF DHANIA G.P. RATE M/S. CHATTER & COMPANY, RAMGANJ MANDI 2007-08 5.02 CRORE 3.69% M/S. JIVRAJ BAJRANG LAL, RAMGANJ MANDI 2007-08 1.20 CRORE 6.27% M/S. BAPNA TRADERS, RAMGANJ MANDI 2007-08 1.99 CROR E 7.04 THE AO ASKED THE ASSESSEE TO EXPLAIN THE ABOVE DISC REPANCIES FOR WHICH THE ASSESSEE SUBMITTED THE REPLY. HOWEVER, THE AO D ID NOT ACCEPT THE REPLY OF THE ASSESSEE WITH FOLLOWING OBSERVATIONS. I HAVE CAREFULLY CONSIDERED THE WRITTEN SUBMISSIO N OF THE ASSESSEE AS WELL AS THE FACT OF THE CASE. REPLY OF THE ASSESSEE IS NOT ACCEPTABLE BECAUSE THE ASSESSEE PUR CHASED DHANIYA OF DIFFERENT QUALITY ON DIFFERENT RATE ON E ACH DAY DURING THE YEAR AND SOLD THE SAME AT DIFFERENT RATE ON A SINGLE DAY. THE ASSESSEE HAS TOTALLY FAILED IN PROVING THA T WHAT QUALITY OF DHANIYA WAS SOLD BY HIM THOUGH A PARTICU LAR SALE BILL AND ON WHICH RATE SUCH QUALITY OF DHANIA WAS P URCHASED. IN ABSENCE OF COMPLETE RECORDS, THE GROSS PROFIT RA TE ON THE SALE OF DHANIA IS AWAY FROM THE VERIFICATION. OTHER ASSESSEE'S OF SAME LINE OF BUSINESS AND SAME QUALITY HAS SOWN HIGHER GROSS PROFIT RATE IN COMPARISON TO THE ASSESSEE. HE NCE, REPLY OF THE ASSESSEE IS NOT ACCEPTABLE. THE AO CONSEQUENTLY OBSERVED THAT IN ABSENCE OF CO MPLETE DETAILS, GROSS PROFIT SHOWN BY THE ASSESSEE CANNOT BE VERIFIED AND CORRECT PROFIT CANNOT BE COMPUTED ON THE BASIS OF DEFECTIVE RECORDS OF TH E ASSESSEE AND THUS HE INVOKED THE PROVISIONS OF SECTION 145(3) OF THE ACT BY REJECTING THE ITA NO.806/JP/2016 SHRI VINOD KUMAR MITTAL VS. ITO, WARD- 1(1) KOTA . 7 BOOKS OF ACCOUNT OF THE ASSESSEE. THE AO RELIED ON THE DECISION OF THE HON'BLE KERALA HIGH COURT IN THE CASE OF VAZHAKKAL A ESTATE (P) LTD. VS. STATE OF KERALA, 209 ITR 464 THAT GROSS PROFIT RATE CAN BE APPLIED ON THE BASIS OF COMPARATIVE CASES. HE ALSO RELIED ON THE D ECISION OF HON'BLE HIGH COURT IN THE CASES OF CIT VS. EASTERN COMMERCIAL EN TERPRISES,210 ITR 103,111 (CAL.) AND LAL CHAND WALLAITI RAM VS. CIT, 111 ITR 224 (P&H). THE AO THUS FOLLOWING THE ABOVE DECISIONS OF HON'BL E HIGH COURTS APPLIED THE GROSS PROFIT RATE OF 3.69% IN THE CASE OF THE ASSESSEE ON THE SALES OF COMMODITY OF DHANIA ON THE BASIS OF COMPAR ATIVE CASES. THE AO THUS MADE AN ADDITION OF RS. 6,63,615/- AND ADDED T HE SAME TO THE TOTAL INCOME OF THE ASSESSEE BY OBSERVING AS UNDER:- .THERE IS LOWEST G.P. 3.69% IN THE CASE OF M/S. CHATTER & CO. RAMGANJ MANDI OUT OF THREE COMPARATIVE CASES. TAKING LIBERAL ATTITUDE AND FOLLOWING THE PRINCIPLES OF NEUTRAL JUSTICE, I APPL Y G.P. @ 3.69% ON THE TOTAL SALES OF DHANIA AT RS. 4,22,29,333/- AND ON WHICH GROSS PROFIT COMES TO RS . 15,58,262/- AS AGAINST DECLARED OF RS. 8,94,647/-. CONSEQUENTLY I MAKE A TRADING ADDITION OF RS. 6,36,615 (15,58,262 8,94,647) IN DHANIA SALE AND SAME IS ADDED IN THE TOTAL INCOME OF THE ASSESSEE. THE LD. CIT(A) IN FIRST APPEAL HAS CONFIRMED THE AD DITION OF RS. 3,72,233/- ESTIMATING THE GROSS PROFIT RATE OF 3% A S AGAINST 3.69% TAKEN BY THE AO BY OBSERVING AS UNDER:- ITA NO.806/JP/2016 SHRI VINOD KUMAR MITTAL VS. ITO, WARD- 1(1) KOTA . 8 THUS THE AO HAS TAKEN A REASONABLE APPROACH. HOWEVER, CONSIDERING THE EXPLANATION OF THE ASSESSE E WHICH WERE NOT CONSIDERED EARLIER AND TO ELIMINATE ANY BI AS ON THIS ASPECT, IT CONSIDERED REASONABLE TO ESTIMATE THE G. P. AT 3% AS AGAINST 3.69% TAKEN BY THE AO. THIS COMES TO RS. 12,66,880/- AS AGAINST RS. 8,94,647/- SHOWN BY THE ASSESSEE. THUS AN ADDITION OF RS. 3,72,233/- IS ONLY UPHELD. THE BALANCE ADDITION OF RS. 2,91,382/- OUT OF THE TOTAL ADDITION OF RS. 6,63,615/- IS ACCORDINGLY DIRECTED TO BE DELETE D. THIS GROUND OF APPEAL IS AS PARTLY ALLOWED. THIS BENCH HAS TAKEN INTO CONSIDERATION THE SUBMISS IONS OF THE ASSESSEE AS WELL AS THE ORDERS OF THE LOWER AUTHORITIES AND FEEL THAT THE LOWER AUTHORITIES HAVE RIGHTLY INVOKED THE PROVISIONS OF SECTION 145(3) OF THE ACT FOR NOT MAINTAINING THE QUALITYWISE QUANTITAT IVE DETAILS OF DHANIA AND HENCE THE GROSS PROFIT RATE WAS NOT VERIFIABLE FROM THE RECORDS. AS REGARDS CONFIRMING THE ADDITION OF RS. 3,72,233/- B Y THE LD. CIT(A) ESTIMATING THE GROSS PROFIT RATE AT 3% BY TAKING IN TO CONSIDERATION THE ASSESSMENT ORDER AND SUBMISSIONS OF THE ASSESSEE BE FORE HIM, THE BENCH FEELS THAT IN ORDER TO MAINTAIN EQUITY AND JUSTICE THE LUMPSUM ADDITION OF RS. 2.00 LACS (RS. TWO LACS) ONLY IS SUSTAINED. THU S THE APPEAL OF THE ASSESSEE IS PARTLY ALLOWED. ITA NO.806/JP/2016 SHRI VINOD KUMAR MITTAL VS. ITO, WARD- 1(1) KOTA . 9 3.0 IN THE RESULT, THE APPEAL OF THE ASSESSEE IS P ARTLY ALLOWED. ORDER PRONOUNCED IN THE OPEN COURT ON 20/04/2017. SD/- HKKXPUN ( BHAGCHAND) YS[KK LNL;@ ACCOUNTANT MEMBER TK;IQJ@ JAIPUR FNUKAD@ DATED:- 20 /04/ 2017 *MISHRA VKNS'K DH IZFRFYFI VXZSF'KR@ COPY OF THE ORDER FORWARDED TO: 1. VIHYKFKHZ@ THE APPELLANT- SHRI VINOD KUMAR MITTAL, RAMGANJMAND I 2. IZR;FKHZ@ THE RESPONDENT- THE ITO, WARD- 1(1), KOTA 3. VK;DJ VK;QDRVIHY@ CIT(A). 4. VK;DJ VK;QDR@ CIT, 5. FOHKKXH; IZFRFUF/K] VK;DJ VIHYH; VF/KDJ.K] T;IQJ@ DR, ITAT, JAIPUR 6. XKMZ QKBZY@ GUARD FILE (ITA NO. 806/JP/2016 ) VKNS'KKUQLKJ@ BY ORDER, LGK;D IATHDKJ @ ASSISTANT. REGISTRAR