SHRI TARA CHAND JAIN, TONK V. INCOME TAX OFFICER, WARD, TONK

ITA 889/JPR/2017

• Counselvise Citation: [2019] 117 COUNSELVISE.COM (IT) 3603 (ITAT-JAIPUR)
• Duration Of Justice: 1 year(s) 5 month(s)
• Appeal Type: Income Tax (International Taxation) Appeal
• Pronouncement Date: 29-04-2019
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: SMC
• Assessment Year: 2012-2013
• Appeal Filed On: 28-11-2017
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: J C KULHARI JCIT DHK
• Assessee Lawyers: M IQBAL S
• Keywords: Rejection of books of accounts; Set aside

Judgement Text

VK;DJ VIHYH; VF/KDJ.K] T;IQJ U;K;IHB] T;IQJ IN THE INCOME TAX APPELLATE TRIBUNAL, JAIPUR BENCHE S, JAIPUR JH FOT; IKY JKWO] U;KF;D LNL; ,O A JH HKKXPUN ] YS[KK LNL; DS LE{K BEFORE: SHRI VIJAY PAL RAO, JM & SHRI BHAGCHAND, A M VK;DJ VIHY LA- @ ITA NO. 889/JP/2017 FU/KZKJ.K O'K Z @ ASSESSMENT YEAR : 2012-13. SHRI TARA CHAND JAIN, PROP. M/S. MAHAVEER TRADING CO., TEHSIL PIPLOO, DISTT. TONK. CUKE VS. THE INCOME TAX OFFICER, WARD-TONK, TONK. LFKK;H YS[KK LA-@THVKBZVKJ LA-@ PAN/GIR NO. ABHPJ 4466 F VIHYKFKHZ@ APPELLANT IZR;FKHZ@ RESPONDENT FU/KZKFJRH DH VKSJ LS@ ASSESSEE BY : SHRI SIDDHARTH RANKA AND SHRI M. IQBAL (ADVOCATES) JKTLO DH VKSJ LS@ REVENUE BY : SHRI J.C. KULHARI (JCIT) LQUOKBZ DH RKJH[K@ DATE OF HEARING : 20.06.2018. ?KKS'K .KK DH RKJH[K @ DATE OF PRONOUNCEMENT : 21/06/2018. VKNS'K@ ORDER PER VIJAY PAL RAO, J.M. THIS APPEAL BY THE ASSESSEE IS DIRECTED AGAINST TH E ORDER DATED 28 TH SEPTEMBER, 2017 OF LD. CIT (A)-3, JAIPUR FOR THE AS SESSMENT YEAR 2012-13. THE ASSESSEE HAS RAISED THE FOLLOWING GROUNDS OF APPEAL :- 1. THAT ON THE FACTS AND IN CIRCUMSTANCES OF THE CASE, THE LD. LOWER AUTHORITIES GROSSLY ERRED IN REJECTING THE BO OKS OF ACCOUNTS OF THE ASSESSEE APPELLANT U/S 145(3) OF TH E INCOME-TAX ACT, 1961. 2 ITA NO. 889/JP/2017 SHRI TARA CHAND JAIN, TONK. 2. THAT ON THE FACTS AND IN CIRCUMSTANCES OF THE CA SE, THE LD. LOWER AUTHORITIES GROSSLY ERRED IN MAKING A TRADING ADDITION OF RS. 10,96,511/- BY APPLYING GP% OF 10.21% AS AGAINS T 6.49% DECLARED BY THE ASSESSEE APPELLANT WITHOUT ANY PROP ER AND COGENT REASONS. 3. THE APPELLANT CRAVES LEAVE TO ADD, ALTER, MODIFY OR AMEND ANY GROUND ON OR BEFORE THE DATE OF HEARING. GROUND NO. 1 IS REGARDING REJECTION OF BOOKS OF ACC OUNTS UNDER SECTION 145(3) OF THE IT ACT. 2. THE ASSESSEE IS A SOLE PROPRIETOR OF M/S. MAHAVE ER TRADING COMPANY AND ENGAGED IN THE BUSINESS OF TRADING OF COMMODITIES A S WELL AS IRON SHEETS. DURING THE ASSESSMENT PROCEEDINGS, THE AO HAS NOTED THAT T HE GROSS PROFIT DECLARED BY THE ASSESSEE FOR THE YEAR UNDER CONSIDERATION IS SUBSTA NTIALLY LOW IN COMPARISON TO THE EARLIER YEARS. THE AO ACCORDINGLY ASKED THE ASSESSE E TO PREPARE SEPARATE TRADING ACCOUNT OF ITS TRADING ACTIVITIES IN DIFFERENT COMM ODITIES. THE AO FURTHER NOTED THAT THE ASSESSEE HAS RECORDED PURCHASE OF MUSTARD SEEDS IN THE MONTH OF MARCH, 2012 FROM VIKRAY PARCHI AT A RATE WHICH IS HIGHER IN COM PARISON TO THE RATE AT WHICH THE CORRESPONDING SALE HAS BEEN MADE. THE SALES ARE DO NE AT AN AVERAGE RATE OF RS. 3400/- PER QUINTAL WHEREAS THE CLOSING STOCK WAS VA LUED BY THE ASSESSEE AT RS. 3500/- PER QUINTAL. THE AO FOUND THAT THE PURCHASE S WHICH WERE MADE IN CASH FROM AGRICULTURISTS ARE AT ENORMOUSLY HIGH RATE OF RS. 4 000/- PER QUINTAL. ACCORDINGLY, THE AO QUESTIONED THE CORRECTNESS OF THE ASSESSEES BOO KS OF ACCOUNTS AND PARTICULARLY THE HIGHER PURCHASE PRICE OF RS. 4000/- PER QUINTAL AS AGAINST THE CORRESPONDING SALE AT RS. 3400/- PER QUINTAL. THE AO NOTED THAT SUCH A SIGNIFICANT DIFFERENCE IN THE PURCHASE PRICE IS NOT VERIFIABLE IN THE ABSENCE OF COMPLETE ADDRESS OF THE AGRICULTURISTS AND ABSENCE OF ANY LAB-RECEIPTS ETC. ACCORDINGLY, THE AO REJECTED THE 3 ITA NO. 889/JP/2017 SHRI TARA CHAND JAIN, TONK. BOOK RESULTS BY INVOKING THE PROVISIONS OF SECTION 145(3) AND ADOPTED THE AVERAGE GP RATE OF LAST THREE YEARS ARRIVED AT 10.21% FOR E STIMATING THE INCOME OF THE ASSESSEE. THE ASSESSEE CHALLENGED THE ACTION OF TH E AO BEFORE THE LD. CIT (A), HOWEVER, COULD NOT SUCCEED. 3. BEFORE US, THE LD. A/R OF THE ASSESSEE HAS SUBMI TTED THAT THE AO HAS NOT POINTED OUT ANY DEFECT IN THE BOOKS OF ACCOUNTS BUT ONLY DOUBTED THE PURCHASE PRICE AND SALE PRICE OF MUSTARD SEEDS WHICH IS NOT IN THE CONTROL OF THE ASSESSEE BUT IS GONE BY THE MARKET CONDITIONS. THE ASSESSEE HAS PR ODUCED THE DOCUMENTARY EVIDENCE IN SUPPORT OF THE PURCHASE PRICE WHICH IS DOUBTED BY THE AO AND, THEREFORE, MERELY THERE IS VARIANCE IN THE PURCHASE PRICE WHICH IS HIGHER THAN THE SALE PRICE, THE SAME CANNOT BE A REASON FOR REJECTI ON OF BOOKS OF ACCOUNTS. THE LD. A/R HAS FURTHER SUBMITTED THAT THE ASSESSEE HAS PRO DUCED THE LAB TEST REPORTS REGARDING THE QUALITY OF THE COMMODITY AND DUE TO T HE VARIANCE IN THE QUALITY, THE RATES OF PURCHASE PRICE AS WELL AS SALE PRICE VARY FROM TIME TO TIME. THUS THE LD. A/R HAS SUBMITTED THAT THE ASSESSEE PRODUCED ALL THE SU PPORTING EVIDENCES TO SHOW THE CORRECTNESS OF THE PURCHASE PRICE, SALE PRICE AND V ALUATION OF THE CLOSING STOCK. IN SUPPORT OF HIS CONTENTION, HE HAS RELIED UPON A SER IES OF DECISIONS AND SUBMITTED THAT MERELY BECAUSE THE GP RATE IS DECLARED LOW DUR ING THE YEAR UNDER CONSIDERATION, THE SAME CANNOT BE A REASON FOR REJECTION OF BOOKS OF ACCOUNTS. HE HAS POINTED OUT THAT THE TURNOVER OF THE ASSESSEE FOR THE YEAR UNDE R CONSIDERATION HAS INCREASED TO MORE THAN TWO TIMES FROM THE IMMEDIATELY PRECEDING YEAR AND MORE THAN THREE TIMES FOR THE ASSESSMENT YEAR 2010-11. THEREFORE, THE DECLINE IN GP IS A NATURAL OUTCOME WHEN THE ASSESSEE HAS SUBSTANTIALLY INCREAS ED HIS TURNOVER. 4 ITA NO. 889/JP/2017 SHRI TARA CHAND JAIN, TONK. 3.1. ON THE OTHER HAND, THE LD. D/R HAS RELIED UPON THE ORDERS OF THE AUTHORITIES BELOW AND SUBMITTED THAT THE ASSESSEE HAS NOT DISPU TED THE DISCREPANCY IN THE PURCHASE PRICE WHICH IS SHOWN RS. 4,000/- PER QUINT AL AS AGAINST THE CORRESPONDING SALE PRICE OF RS. 3400/- PER QUINTAL. THE CLOSING STOCK WAS ALSO VALUED AT ABOUT RS. 3,500/- PER QUINTAL WHICH IS ALSO NOT MATCHING EITH ER TO THE PURCHASE PRICE OR TO THE SALE PRICE AND EVEN IS NOT BASED ON THE ACCOUNTING PRINCIPLES OF COST OR REALIZATION VALUE WHICHEVER IS LESS. THUS THE LD. D/R HAS SUBM ITTED THAT WHEN THE AO HAS SPECIFICALLY DETECTED THE SIGNIFICANT VARIATION IN THE PURCHASE AND SALE PRICES AS WELL AS VALUATION OF CLOSING STOCK, THEN THE BOOKS OF AC COUNTS OF THE ASSESSEE WERE RIGHTLY REJECTED. 4. WE HAVE CONSIDERED THE RIVAL SUBMISSIONS AS WELL AS THE RELEVANT MATERIAL ON RECORD. DURING THE COURSE OF ASSESSMENT PROCEEDING S, THE AO NOTED THAT THE GP RATE FOR THE YEAR UNDER CONSIDERATION HAS DECLINED SIGNIFICANTLY IN COMPARISON TO THE EARLIER YEARS. THE COMPARATIVE DETAILS OF THE GP RA TES AND SALES ARE GIVEN BY THE AO IN PARA 3 AS UNDER :- S.NO. A.Y. SALES GROSS PROFIT GP RATE 1. 2012 - 13 RS. 2,94,55,164/ - RS. 19,10,861/ - 6.49% 2. 2011 - 12 RS. 1,20,08,335/ - RS. 12,37,076/ - 10.30% 3. 2010 - 11 RS. 80,35,378 RS. 10,91,550/ - 13.85% ACCORDINGLY, THE AO UNDERTOOK THE ENQUIRY TO FIND O UT THE REASONS FOR SUCH DECLINE IN THE GP RATE FOR THE YEAR UNDER CONSIDERATION. THE AO FOUND THAT THE ASSESSEE HAS SHOWN THE PURCHASE IN THE MONTH OF MARCH @ RS. 4000 /- PER QUINTAL OF MUSTARD SEEDS AND THE CORRESPONDING SALE HAS BEEN SHOWN BY THE ASSESSEE AT RS. 3400/- PER QUINTAL. SIMILARLY, THE ASSESSEE HAS VALUED THE CLO SING STOCK AT APPROXIMATELY RS. 3500/- PER QUINTAL. ALL THE THREE RATES FOR PURCHA SE, SALE AND CLOSING STOCK ARE AT 5 ITA NO. 889/JP/2017 SHRI TARA CHAND JAIN, TONK. VARIANCE AND THERE IS A SIGNIFICANT DIFFERENCE IN T HE PURCHASE PRICE AND SALE PRICE OF THE COMMODITY BEING MUSTARD SEEDS IN THE MONTH OF M ARCH ITSELF. IT IS PERTINENT TO NOTE THAT THE AGRICULTURAL COMMODITY IS PURCHASED O NLY DURING THE PROCUREMENT SEASON IN THE MONTHS OF MARCH AND APRIL AND THEREFO RE, THE PRICE OF PURCHASE IS GENERALLY AT LOWEST DURING THE MONTH OF MARCH. THU S WE FIND THAT THE AO HAS MADE OUT THE CASE OF SIGNIFICANT VARIATION IN THE PURCHA SE PRICE AND SALE PRICE OF MUSTARD SEEDS IN THE MONTH OF MARCH ITSELF WHICH IS AN UNUS UAL NATURE OF TRANSACTIONS. THEREFORE, WE FIND THAT THIS SIGNIFICANT VARIATION IN THE PURCHASE PRICE WHICH IS AROUND RS. 600/- PER QUINTAL HIGHER THAN THE SELLI NG PRICE DURING THE MONTH OF MARCH IS A SUFFICIENT REASON FOR DOUBTING THE CORRE CTNESS OF THE BOOKS OF ACCOUNTS OF THE ASSESSEE AND ACCORDINGLY WE UPHELD THE REJECTIO N OF BOOKS OF ACCOUNTS UNDER SECTION 145(3) OF THE ACT. GROUND NO. 2 IS REGARDING TRADING ADDITION MADE BY THE AO BY ADOPTING THE GP RATE AT 10.21% AS AGAINST THE DECLA RED GP RATE OF 6.49%. 5. WE HAVE HEARD THE LD. A/R AS WELL AS THE LD. D/R AND CONSIDERED THE RELEVANT MATERIAL ON RECORD. AT THE OUTSET, WE NOTE THAT TH E AVERAGE GP WHICH IS ADOPTED BY THE AO FOR THE ASSESSMENT YEARS 2010-11 TO 2012-13 COMES TO 8.56% INSTEAD OF 10.21% TAKEN BY THE AO. THEREFORE, THERE IS A MIST AKE IN COMPUTING THE AVERAGE GP FOR THESE THREE YEARS. FURTHER, WE NOTE THAT TH E AO HAS ASKED THE ASSESSEE TO PREPARE THE SEPARATE TRADING ACCOUNT FOR EACH SEGME NT OF TRADING COMMODITY WHICH WAS PRODUCED BY THE ASSESSEE AND THE AO FOUND DEFEC T ONLY IN RESPECT OF THE TRADING ACTIVITY OF MUSTARD SEEDS AND NO OTHER DEFE CT OR DISCREPANCY WAS FOUND BY THE AO REGARDING THE TRADING ACTIVITY OF THE ASSESS EE IN OTHER COMMODITIES. THUS IN THESE PECULIAR FACTS AND CIRCUMSTANCES OF THE CASE, THE GP RATE DECLARED BY THE 6 ITA NO. 889/JP/2017 SHRI TARA CHAND JAIN, TONK. ASSESSEE IN RESPECT OF THE TRADING SEGMENT OF MUSTA RD SEEDS HAS TO BE TAKEN INTO CONSIDERATION AND THE AVERAGE GP RATE TO BE ADOPTED FOR ESTIMATION OF INCOME IS ALSO TO BE CONSIDERED ONLY FROM THE MUSTARD SEEDS TRADIN G SEGMENT OF THE ASSESSEE FOR THE PAST ASSESSMENT YEARS AS WELL AS CURRENT ASSESS MENT YEAR. AFTER COMPUTING THE AVERAGE GP RATE FOR THE THREE YEARS AS APPLIED BY T HE AO IN RESPECT OF THE TRADING IN MUSTARD SEEDS SEGMENT, THE INCOME OF THE ASSESSEE H AS TO BE ESTIMATED BY APPLYING THE SAID AVERAGE GP ON THE TURNOVER OF THE MUSTARD SEEDS TRADING. THE REMAINING RESULTS OF THE ASSESSEE ON OTHER TRADING SEGMENTS N EED NOT TO BE DISTURBED. ACCORDINGLY, WE SET ASIDE THIS ISSUE TO THE RECORD OF THE AO TO RE-COMPUTE THE INCOME OF THE ASSESSEE ON ESTIMATION BASIS BY TAKIN G THE AVERAGE GP ONLY IN RESPECT OF MUSTARD SEEDS TRADING SEGMENT AND APPLYING THE S AME ON THE TURNOVER OF THE MUSTARD TRADING SEGMENT. THE ADDITION IN THE INCOM E OF THE ASSESSEE HAS TO BE COMPUTED ONLY BY TAKING THE AVERAGE GP OF MUSTARD S EEDS TRADING SEGMENT. 6. IN THE RESULT, APPEAL OF THE ASSESSEE IS PARTLY ALLOWED FOR STATISTICAL PURPOSES. ORDER PRONOUNCED IN THE OPEN COURT ON 21/06/2018 . SD/- SD/- HKKXPUN FOT; IKY JKWO (BHAGCHAND) ( VIJAY PAL RAO ) YS[KK LNL;@ ACCOUNTANT MEMBER U;KF;D LNL;@ JUDICIAL MEMBER TK;IQJ@ JAIPUR FNUKAD@ DATED:- 21/06/2018. DAS/ 7 ITA NO. 889/JP/2017 SHRI TARA CHAND JAIN, TONK. VKNS'K DH IZFRFYFI VXZSFKR@ COPY OF THE ORDER FORWARDED TO: 1. VIHYKFKHZ@ THE APPELLANT- SHRI TARA CHAND JAIN, TONK. 2. IZR;FKHZ@ THE RESPONDENT- THE ITO WARD TONK, TONK. 3. VK;DJ VK;QDR@ CIT 4. VK;DJ VK;QDR@ CIT(A) 5. FOHKKXH; IZFRFUF/K] VK;DJ VIHYH; VF/KDJ.K] T;IQJ@ DR, ITAT, JAIPUR 6. XKMZ QKBZY@ GUARD FILE {ITA NO. 889/JP/2017} VKNS'KKUQLKJ@ BY ORDER, LGK;D IATHDKJ@ ASST. REGISTRAR