Sh. Hans Raj Kalra, Kurukshetra V. Addl. CIT, Kurukshetra

ITA 907/CHANDI/2013

• Counselvise Citation: [2014] 140 COUNSELVISE.COM (IT) 77010 (ITAT-CHANDIGARH)
• Duration Of Justice: 7 month(s) 2 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 21-04-2014
• Appeal Filed By: Assessee
• Order Result: Partly Allowed
• Bench Allotted: B
• Next Hearing Date: 24-03-2014
• Assessment Year: 2008-2009
• Appeal Filed On: 18-09-2013
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Department Lawyers: J S NAGAR
• Assessee Lawyers: K R CHHABRA

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL CHANDIGARH BENCHES B CHANDIGARH BEFORE SHRI T.R. SOOD, ACCOUNTANT MEMBER AND MS. SUSHMA CHOWLA, JUDICIAL MEMBER ITA NO. 907/CHD/2013 ASSESSMENT YEAR: 2008-09 VS. THE ACIT SH. HANS RAJ KALRA, THE ADDL. CIT, PROP. M/S PARBHAT SEED TRADERS, KURUKSHETRA RANGE , KURUKSHETRA KURUKSHETRA PAN NO. ABCPK3857A (APPELLANT) (RESPONDENT) APPELLANT BY : SHRI K.R. CHHABRA RESPONDENT BY : SHRI J.S. NAGAR DATE OF HEARING : 24/03/2014 DATE OF PRONOUNCEMENT : 21/04/2014 ORDER PER T.R.SOOD, A.M. THIS IS AN APPEAL FILED BY THE ASSESSEE AGAINST THE ORDER DATED 03.06.2013 OF CIT (APPEALS), KARNAL. 2. IN THIS APPEAL THE ASSESSEE HAS RAISED THE FOLLO WING GROUNDS:- 1. ORDERS PASSED BY LND. ADDL. CIT AND CIT(A) ARE ILLE GAL, ARBITRARY AND BAD IN LAW. 2. ON FACTS AND IN CIRCUMSTANCES OF THE CASE LND. ADDL . CIT AND CIT(A) WERE NOT JUSTIFIED IN APPLYING THE PROVISION OF SECTION 145(3) OF THE I.T.ACT. 3. ON FACTS AND IN CIRCUMSTANCES OF THE CASE LND. CIT( A) WAS NOT JUSTIFIED IN CONFIRMING THE ADDITION OF RS. 8,5 5,551/- ON 2 ACCOUNT OF FAL IN G.P. RATE AS COMPARED WITH IMMEDI ATELY PRECEDING FINANCIAL YEAR. 4. ON FACTS AND IN CIRCUMSTANCES OF THE CASE LND. CIT( A) WAS NOT JUSTIFIED IN CONFIRMING THE ADDITION OF RS. 30, 000/- IN ACCOUNT OF SALARY PAID TO SH. RITESH KALRA BY INVOK ING THE PROVISION OF SECTION 40A(2)(B) OF THE I.T. ACT. 5. ON FACTS AND IN CIRCUMSTANCES OF THE CASE LND. CIT( A) WAS NOT JUSTIFIED IN CONFIRMING THE ADDITION OF RS. 20, 000/- ON ACCOUNT OF DISALLOWANCE OUT OF INWARD FREIGHT. 3. GROUND NO.1 IS OF GENERAL NATURE AND DOES NOT RE QUIRE SEPARATE ADJUDICATION. 4. GROUND NOS. 2 & 3: AFTER HEARING BOTH THE PARTIE S WE FIND THAT ASSESSEE IS ENGAGED IT THE BUSINESS OF PROCESSING AND SALE OF S EEDS. IT WAS NOTICED DURING THE ASSESSMENT PROCEEDINGS THAT DURING THE YEAR THE GP RATE AS WELL AS NP RATE HAS FALLEN TO THE EARLIER YEARS AND IN THIS REGARD THE ASSESSING OFFICER HAS GIVEN THE FOLLOWING CHART:- SR. NO. YEAR ENDING GROSS TURNOVER G.P. G.P. RATE N.P. N.P. RATE 1. 31.03.2008 3,79,95,599 8035419 21.15% 387254 1.02% 2. 31.03.2007 2,42,65,866 5677495 23.4% 303140 1.25% 3. 31.03.2006 1,95,19,418 3909293 20.0% 276325 1.40% 5. IN RESPONSE TO THE QUERY REGARDING FALL OF THE G P, THE ASSESSEE HAS GIVEN REPLY VIDE LETTER DATED 23.9.2010 WHICH IS AS UNDER :- GP RATE IS BIT ON LOWER SIDE AS COMPARED WITH THE YEAR ENDING 31.03.2007, OTHERWISE IT IS ON HIGHER SIDE AS COMPA RED WITH THE EARLIER YEARS. THE FALL IN G.P. AS COMPARED WITH TH E YEAR ENDING 31.03.2007 IS DUE TO THE FACT OF OTHER NEW UNIT COM ING INTO EXISTENCE. THE ASSESSEE HAS INCREASED HIS TURNOVER BY 50% AS COMPARED WITH THE YEAR ENDING 31.03.2007 BY COMPETI NG THESE 3 UNITS. GOVERNMENT IS INCREASING THE SUPPORT PRICE O F WHEAT AND PADDY EVERY YEAR, WHICH IS ALSO ONE OF THE CAUSE FO R FALL IN GP RATE. THE ASSESSEE IS MAINTAINING THE INVENTORY OF STOCK AND KEEPING IN VIEW THE ABOVE FACTS THE COMPARISON OF GP RATE IS N OT MUCH RELEVANT. 6. THE ASSESSING OFFICER CALLED FOR MORE DETAILS AN D ULTIMATELY COMPARED THE AVERAGE PURCHASE RATE WITH THE AVERAGE RATE OF CLOS ING STOCK AND NOTED THAT DURING THE YEAR THE PADDY SEED OF PR VARIETY WAS VA LUED BY THE ASSESSEE @ OF RS. 1005.04. SIMILARLY, THE PB OF 1121 VARIETY OF SEED WAS VALUED @ 2320.89 AND CSR VARIETY @ RS. 3005.92 WHEREAS THE AVERAGE P URCHASE PRICE WAS RS. 1005.58, 3002.78 AND 3800/-. IN THIS REGARD HE MAD E FOLLOWING OBSERVATIONS:- 6. IF WE COMPARE THE RATE OF THE CLOSING STOCK WIT H THAT OF THE PURCHASES RAW OF VARIOUS VERITIES OF PADDY SEED S, THOUGH THE RATE OF CLOSING STOCKS ARE COMPARABLE HIGHER TH AN THE PURCHASE RATES, BUT IT CANNOT BE EITHER SAID OR PRO VED BY THE ASSESSEE THAT THE ENTIRE STOCK AT THE END OF THE YE AR WAS THAT OF RAW PURCHASES ONLY. THOUGH THE ASSESSEE IS MAINT AINING THE QUANTITATIVE DETAIL OF THE OPENING STOCK, PURCH ASES, SALES AND CLOSING STOCK BUT THE DETAILS AS TO HOW MUCH RA W SEEDS IS CONVERTED TO THE GROWN SEED IS NOT AVAILABLE WITH T HE ASSESSEE. 7. IN RESPECT OF WHEAT ALSO, EXCESSIVE SHORTAGE WAS NOTICED IN THE PROCESSING AND IN VIEW OF THESE FACTS AND LOWER GP THE ASSESSI NG OFFICER ESTIMATED THE GP AS SHOWN BY THE ASSESSEE IN THE PREVIOUS YEAR ENDIN G 31.3.2007 AND MADE ADDITION OF RS. 8,55,551/-. 8. ON APPEAL, IT WAS MAINLY STATED THAT ASSESSEE H AD FILED DETAILS OF PURCHASES AND SALE OF VARIOUS VARIETIES OF RAW PAD DY SEEDS AND ASSESSING OFFICER HAS IGNORED THE PURCHASE RATE OF RAW SEEDS WHICH WAS THE MAJOR QUANTITY PURCHASED. IT WAS ALSO SUBMITTED THAT ASSESSING OF FICER HAD ACCEPTED THE BOOKS OF ACCOUNT THEN NO ADDITION COULD HAVE BEEN MADE. ALL THESE DETAILS WERE SENT 4 TO THE ASSESSING OFFICER FOR HIS REMAND REPORT. THE ASSESSING OFFICER IN HIS REMAND REPORT DATED 30.5.2012 ACCEPTED THAT ASSESSE E HAS PURCHASED MORE RAW SEEDS THEN THE BREEDER SEEDS, HOWEVER, IT WAS FURTH ER POINTED OUT THAT ASSESSEE WAS NOT MAINTAINING THE SEPARATE RECORDS FOR OPENIN G AND CLOSING STOCK OF THE BREEDER SEEDS AND RAW SEEDS , THEREFORE, VALUATION OF THE CLOSING STOCK WAS ALSO NOT VERIFIABLE. 9. THE LD. CIT(A) AFTER CONSIDERING THE SUBMISSIONS AND THE REMAND REPORT OBSERVED THAT IT WAS THE CONTENTION THAT ASSESSEE P URCHASED THE BREEDER SEEDS AND IMMEDIATELY SELLS THEM TO THE FARMERS AT ALMOST THE PURCHASE PRICE CANNOT BE ACCEPTED AS NO PROOF IN RESPECT OF THE SAME WERE FU RNISHED. IT WAS FURTHER OBSERVED THAT VALUATION OF CLOSING STOCK HAS NOT BE EN PROPERLY DONE. FURTHER, THE EXCESSIVE LOSS IN WHEAT WAS NOT SATISFACTORILY EXPLAINED AND IN THIS BACKGROUND HE CONFIRMED THE ACTION OF THE ASSESSING OFFICER. 10. BEFORE US, LD. COUNSEL FOR THE ASSESSEE REITERA TED THE SUBMISSION MADE BEFORE THE CIT(A) AND HE EMPHASIZED THAT THERE WERE MORE PURCHASES OF THE RAW SEEDS WHICH HAS BEEN WRONGLY IGNORED. HE ALSO SUBMI TTED THAT GP IS COMPARABLE TO THE ASSESSMENT YEAR 2006-07. HOWEVER, HE FAILED TO EXPLAIN THE FALL IN NET PROFIT RATE IN COMPARISON TO THE ASSESSMENT YEAR 20 06-07 AS WELL AS 2007-08. 11. ON THE OTHER HAND, THE LD. DR SUPPORTED THE ORD ER OF CIT(A). 12. AFTER CONSIDERING THE RIVAL SUBMISSIONS CAREFUL LY WE FIND THAT ASSESSEE COULD NOT EXPLAIN THE FALL IN NET PROFIT RATE FROM 1.4% IN ASSESSMENT YEAR 2006- 07 AND 1.25% IN ASSESSMENT YEAR 2007-08 TO 1.02% IN THE PRESENT YEAR. THE ASSESSEE COULD NOT EXPLAIN THE VALUATION OF CLOSING STOCK BEFORE THE LOWER AUTHORITIES. HOWEVER, WE FIND SOME FORCE IN THE CON TENTION THAT PROFIT HAS FALLEN MAINLY BECAUSE THE TURN OVER OF THE ASSESSEE HAS IN CREASED DURING THE YEAR FROM 5 1.95 CRORES AND 2.24 CRORES IN ASSESSMENT YEARS 20 06-07 AND 2007-08 TO 3.79 CRORES DURING THE YEAR. THEREFORE, KEEPING THE OV ER ALL CIRCUMSTANCES OF THE CASE WE FEEL THAT ADDITION HAS BEEN MADE ON HIGHER SIDE ON ACCOUNT OF FALL IN GP AND ACCORDINGLY WE RESTRICT THE ADDITION ON LOWER P ROFIT TO RS. 4 LAKHS. THEREFORE, WE SET ASIDE THE ORDER OF LD. CIT AND DI RECT THE ASSESSING OFFICER TO MAKE ADDITION OF RS. 4 LAKHS TO COVER UP LEAKAGE OF REVENUE TO LOWER NET PROFIT RATE AS WELL AS OTHER DEFECTS POINTED OUT. 13. GROUND NO.4: AFTER HEARING BOTH THE PARTIES WE FIND THAT DURING ASSESSMENT PROCEEDINGS THE ASSESSING OFFICER NOTIC ED THAT ASSESSEE HAS PAID SALARY AMOUNTING TO RS. 1,20,000/- TO SHRI RITESH K ALRA WHO IS SON OF THE ASSESSEE. HE COMPARED THIS SALARY TO THE SALARY PAI D TO A FIELD OFFICER WHICH WAS ONLY RS. 82,000/-. ACCORDING TO HIM THE SALARY PAID TO THE SON WAS EXCESSIVE AND, THEREFORE, A SUM OF RS. 30,000/- WAS ADDED TO THE INCOME OF THE ASSESSEE U/S 40A)2)(B). 14. ON APPEAL, IT WAS SUBMITTED THAT SHRI RITESH KA LRA WAS MORE QUALIFIED THEN THE FIELD OFFICER. IT WAS FURTHER SUBMITTED TH AT SALARY PAID TO THE FIELD OFFICER WAS ONLY FOR 10 MONTHS. THE LD. CIT(A) DID NOT FIND FORCE IN THESE SUBMISSIONS AND CONFIRMED THE DISALLOWANCE OF RS. 30,000/-. 15. BEFORE US LD. COUNSEL FOR THE ASSESSEE REITERAT ED THE SUBMISSIONS MADE BEFORE LD. CIT(A) AND FURTHER POINTED OUT THAT THAT SHRI RITESH KALRA IS GRADUATE AND THEREFORE, SALARY OF RS. 10,000/- PER MONTH WAS JUSTIFIED. 16. ON THE OTHER HAND, THE LD. DR STRONGLY SUPPORTE D THE ORDER OF CIT(A) . 17. AFTER CONSIDERING THE RIVAL SUBMISSIONS WE FIND THAT SALARY OF RS. 10,000/- PER MONTH SEEMS TO BE REASONABLE AND CANNOT BE CALL ED EXCESSIVE. MOREOVER THE 6 ASSESSING OFFICER HAS IGNORED THE FACT THAT THE SAL ARY OF RS. 82,000/- WAS PAID TO THE FIELD OFFICER WAS FOR 10 MONTHS WHICH WILL MAKE IT OF RS. 82,00/- PER MONTH. THE SALARY OF RS. 10,000/- CANNOT BE CALLED EXCESSI VE IN CASE OF GRADUATE AND, THEREFORE, WE DELETE THIS ADDITION. 18. GROUND NO.5: AFTER HEARING BOTH THE PARTIES WE FIND THAT DURING ASSESSMENT PROCEEDINGS THE ASSESSING OFFICER NOTICE D THAT AS HAS CLAIMED A SUM OF RS. 2,14,401/- TOWARDS INWARD FREIGHT EXPENSES. IT WAS FURTHER NOTICED THAT ONLY INTERNAL CASH VOUCHERS WERE THERE AND, THEREFO RE, A LUMSUM AMOUNT OF RS. 20,000/- WAS DISALLOWED. ON APPEAL, THE ACTION OF THE ASSESSING OFFICER WAS CONFIRMED BY THE LD. CIT(A). 19. BEFORE US, LD. COUNSEL FOR THE ASSESSEE SUBMITT ED THAT ADDITION HAS BEEN MADE ON ADHOC BASIS WHICH IS NOT PERMISSIBLE IN THE LAW. 20. ON THE OTHER HAND, THE LD. DR STRONGLY SUPPORTE D THE ORDER OF LD. CIT(A). 21. AFTER CONSIDERING THE RIVAL SUBMISSIONS WE FIND THAT NO DOUBT THE ADDITION HAS BEEN MADE ON ADHOC BASIS BUT AT THE SAME TIME I T IS NOT DENIED THAT PROPER EVIDENCE IS NOT AVAILABLE FOR THESE EXPENSES. AFTE R CONSIDERING THE OVERALL CIRCUMSTANCES, WE RESTRICT THIS ADDITION TO RS. 150 00/-. ACCORDINGLY, WE SET ASIDE THE ORDER OF LD. CIT(A) AND DIRECT THE ASSES SING OFFICER TO MAKE ADDITION OF RS. 15,000/- TOWARDS INWARD FREIGHT EXPENSES. 22. IN THE RESULT, THE APPEAL IS PARTLY ALLOWED. ORDER PRONOUNCED IN THE OPEN COURT ON THIS 21/04/20 14 SD/- SD/- (SUSHMA CHOWLA) (T.R.SOOD) JUDICIAL MEMBER ACCOUNTANT MEMER DATED : 21 ST APRIL, 2014 RKK COPY TO: 1.THE APPELLANT 2.THE RESPONDENT 3.THE CIT 4.THE CI T(A) 5.THE DR