Shri Ramesh Kumar Rajpal, Ujjain V. ACIT1(1) , Ujjain

ITA 91/Ind/2018

• Counselvise Citation: [2019] 112 COUNSELVISE.COM (IT) 4428 (ITAT-INDORE)
• Duration Of Justice: 1 year(s) 9 month(s) 14 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 27-11-2019
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: SMC
• Assessment Year: 1999-2000
• Appeal Filed On: 13-02-2018
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: K G GOYAL
• Assessee Lawyers: GAGAN TIWARI A RS
• Keywords: Gross profit estimation; Rejection of books of accounts; Commercial expediency
• Section: 37(1)

Judgement Text

[ITA NO.91/IND/2018] [SHRI RAMESH KUMAR RAJPAL, UJJAIN] , , IN THE INCOME TAX APPELLATE TRIBUNAL INDORE SMC BENCH, INDORE BEFORE SHRI KUL BHARAT, JUDICIAL MEMBER ITA NO.91/IND/2018 ASSESSMENT YEAR: 1999-2000 SHRI RAMESH KUMAR RAJPAL PROP. M/S. RAMESH MEDICAL STORES BAGADIA TOWER KOTWALI ROAD UJJAIN / VS. ACIT - 1(1) UJJAIN ( APPELLANT ) ( REVENUE ) P.A. NO. AADFB3454E APPELLANT BY SHRI SUMIT NEMA & SHRI GAGAN TIWARI, A.RS RESPONDENT BY SHRI K.G. GOYAL, SR. D.R. DATE OF HEARING: 21.11.2019 DATE OF PRONOUNCEMENT: 27.11.2019 / O R D E R PER KUL BHARAT, J.M: THIS APPEAL BY THE ASSESSEE IS DIRECTED AGAINST ORDER O F THE CIT(A), UJJAIN DATED 13.11.2017 PERTAINING TO THE ASSESSMENT YEAR 1999-2000. THE ASSESSEE HAS RAISED FOLLOWING GROUNDS OF APPEAL: [ITA NO.91/IND/2018] [SHRI RAMESH KUMAR RAJPAL, UJJAIN] 2 1. THAT THERE IS NO JUSTIFICATION IN LAW OR ON FACTS FOR THE LD. CIT(A) TO SUSTAIN THE ADDITION OF RS.4,29,234 MADE BY THE LD. A.O. FOR ALLEGED LOW GROSS PROFIT IN INDORE BRANCH OF THE APPELLANT AS COMPARED TO UJJAIN HEAD OFFICE. 2. THAT THE ADDITION IN RESPECT OF ENHANCEMENT OF GROS S PROFIT OF RS.4,29,234 BY TAKING IT AS 3.5% INSTEAD OF 2.2% SH OWN IN THE BOOKS OF THE INDORE BRANCH OF THE APPELLANT HAS BEE N MADE WITHOUT ANY FINDING ABOUT THE CORRECTNESS OR COMPLETENESS O F THE BOOKS AS REQUIRED U/S 145(3) AND THUS THE ENTIRE ADDITION IS 3. THAT THERE IS NO JUSTIFICATION EITHER IN LAW OR ON FACTS FOR THE LD. CIT(A) TO SUSTAIN THE ADDITION OF RS.4,06,142 MADE BY THE LD. A.O. FOR ALLEGED EXCESS COMMISSION PAID BY INDORE BRANCH AS COMPARED TO UJJAIN HEAD OFFICE. 4. THAT THE ADDITION OF RS.4,06,142 AS ALLEGED EXCESS COMMISSION BY INDORE BRANCH IS NOT BASED ON ANY VIOLATION OF SECT ION 37(1) OR ON ANY ADVERSE EVIDENCE BUT IS MERELY ON ARITHMETICAL JUGGLERY AND SUSPICION OF THE A.O. AND THUS SUCH AN ADDITION DES ERVES TO BE DELETED. 2. A SURVEY ACTION WAS CARRIED OUT ON THE PREMISES OF THE ASSESSEE ON 24.2.1999. SUBSEQUENTLY, CASE WAS SELECTED FOR SCRUTINY ASSESSMENT. WHILE FRAMING THE ASSESSMENT , THE A.O. MADE ADDITION IN RESPECT OF ESTIMATION OF P ROFIT AMOUNTING TO RS.4,29,234/- AND EXCESS COMMISSION OF RS.4,06,142/- APART FROM THE OTHER ADDITIONS ON ACCOUNT OF EXCESS OF CLOSING STOCK OF RS.7,59,589/-, UNSECURED LOAN OF RS.6,60,000/-, INTEREST ON LOAN OF RS.22,289/- AND OT HER EXPENDITURE DISALLOWED. AGAINST THIS, THE ASSESSEE [ITA NO.91/IND/2018] [SHRI RAMESH KUMAR RAJPAL, UJJAIN] 3 PREFERRED AN APPEAL BEFORE THE LD. CIT(A), WHO AFTER CONSIDERING THE SUBMISSIONS PARTLY ALLOWED THE APPEAL. THEREBY, THE ADDITION IN RESPECT OF ESTIMATION OF PR OFIT WAS CONFIRMED AND ALSO THE EXCESS COMMISSION. AGAINST THE SE TWO ADDITIONS, THE PRESENT APPEAL HAS BEEN FILED BY TH E ASSESSEE. 3. GROUND NOS.1 & 2 ARE INTER-RELATED AND ARE AGAINST ADDITION MADE ON ACCOUNT OF ESTIMATION OF GROSS PROFIT . 4. LD. SR. COUNSEL FOR THE ASSESSEE ARGUED THAT THE A .O. HAS NOT POINTED OUT ANY DEFECT IN THE ACCOUNTS OF THE ASSESSEE. MOREOVER, THE ACCOUNTS HAVE NOT BEEN REJECT ED, THEREFORE, THE A.O. WAS NOT JUSTIFIED IN ESTIMATING THE PROFIT WITHOUT REJECTING THE BOOKS OF ACCOUNTS. IN SUPPORT OF THIS CONTENTION, LD. COUNSEL FOR THE ASSESSEE HAS RELIED O N THE DECISION OF THE COORDINATE BENCH OF THIS TRIBUNAL REN DERED IN THE CASE OF MAYANK KUMAR NATWARLAL SONI VS. ADDL. CIT [ITA NO.91/IND/2018] [SHRI RAMESH KUMAR RAJPAL, UJJAIN] 4 (2019) 111 TAXMANN.COM 6 (AHMEDABAD-TRIB). THE LD. COUNSEL ALSO PLACED RELIANCE ON THE JUDGEMENT OF HON'B LE MADRAS HIGH COUIRT RENDERED IN THE CASE OF PCIT CHENN AI VS. MARG LTD. (2017) 84 TAXMANN.COM 52. 5. THE LD. D.R. OPPOSED THESE SUBMISSIONS AND SUPPORTED THE ORDER OF THE A.O. 6. I HAVE HEARD THE RIVAL SUBMISSIONS, PERUSED THE MATERIALS AVAILABLE ON RECORD AND GONE THROUGH THE ORDERS OF THE AUTHORITIES BELOW. UNDISPUTEDLY, THE A.O. HAS NOT REJECTED THE BOOKS OF ACCOUNTS AND ESTIMATED THE GROS S PROFIT. THE BASIS FOR DISTURBING THE GROSS PROFIT BY THE A.O. IS THAT THE ASSESSEE HAS DISCLOSED GROSS PROFIT AT UJJAI N OFFICE HIGHER THAN THE INDORE OFFICE. THE A.O. ADOPT ED THE GROSS PROFIT DECLARED AT UJJAIN. HENCE, ESTIMATED GROS S PROFIT AT 3.5% AND ADDED A SUM OF RS.4,29,234/- I.E. T HE IMPUGNED ADDITION HEREIN. LD. SR. COUNSEL APPEARING O N [ITA NO.91/IND/2018] [SHRI RAMESH KUMAR RAJPAL, UJJAIN] 5 BEHALF OF THE ASSESSEE MADE TWO FOLD SUBMISSIONS THAT T HE A.O. HAS NOT POINTED OUT ANY DEFECTS IN THE ACCOUNTS O F THE ASSESSEE AND SECONDLY HE CONTENDED THAT G.P. INDORE IS BOUND TO BE LOWER ON ACCOUNT OF THE HIGH COMPETITION , THEREFORE, THE A.O. IS NOT JUSTIFIED IN INCREASING THE GROSS PROFIT OF THE INDORE OFFICE. ADMITTEDLY, IN THIS C ASE, THE A.O. HAS NOT REJECTED BOOKS OF ACCOUNTS BUT PROCEEDED TO DISTURB THE GROSS PROFIT. SO FAR THE QUESTION OF EST IMATION BY THE A.O., THERE IS NO QUARREL THAT HE IS EMPOWERED TO DO SO, WHERE THE ACCOUNTS AND OTHER MATERIAL PLACED BEFORE HIM IS NOT GIVING TRUE AND FAIR PICTURE OF THE PROFIT EARNED BY THE ASSESSEE. IN MY VIEW, THERE HAS TO BE CLEAR FI NDING IN THIS REGARD, BASED UPON THE MATERIAL EVIDENCE. THE A.O. DID NOT VERIFY THE FACT OF CASH DISCOUNTS, WHICH AS PE R THE ASSESSEE WAS ONE OF THE REASON FOR VARIANCE OF PROFIT AT INDORE AND UJJAIN RESPECTIVELY. FURTHER, THE A.O. AL SO FAILED TO MAKE INDEPENDENT ENQUIRY FROM THE MARKET AT INDORE [ITA NO.91/IND/2018] [SHRI RAMESH KUMAR RAJPAL, UJJAIN] 6 AND UJJAIN. IT IS SETTLED PRINCIPLE OF LAW THAT THE E STIMATION OF PROFIT SHOULD BE MADE AFTER CONSIDERING THE FACTORS THAT INFLUENCED THE PROFIT. IN A GIVEN MARKET CONDITION, IF COMPETITION IS HIGH, THE NATURAL CONSEQUENCE WOULD BE LOWER PROFIT MARGINS AND WHERE THERE IS NO SUCH COMPETITION, NATURALLY THE TRADERS WOULD FETCH DESIRED MARGINS. THIS IS THE REASON WHY IT IS EXPECTED FROM THE A.O. THAT HE SHOULD CONSIDER THE FACTOR THAT MIGHT INFLUENCE THE MARGINS BEFORE MAKING A FAIR ESTIMATION OF THE PROFIT. IN THE PRESENT CASE, THE A.O. DID NOT M AKE NECESSARY ENQUIRY, WHICH WOULD HAVE ENABLED HIM TO MAKE A FAIR ESTIMATION OF PROFIT. HENCE, ACTION OF THE A.O. CANNOT BE SUSTAINED. THE A.O. IS THEREFORE DIRECTED TO DEL ETE THE ADDITION. 7. GROUND NOS.3 & 4 ARE IN RESPECT OF DISALLOWANCE OF EXCESS COMMISSION. LD. SR. COUNSEL TO THE ASSESSEE SUBMITTED THAT THE DISALLOWANCE OF COMMISSION IS PURE LY [ITA NO.91/IND/2018] [SHRI RAMESH KUMAR RAJPAL, UJJAIN] 7 BASED ON CONJECTURES AND SURMISES. NO ADVERSE MATERIAL IS GATHERED TO CONTRADICT THE CLAIM OF THE ASSESSEE. HE SUBMITTED THAT THE A.O. FAILED TO APPRECIATE THE FACT T HAT THERE IS A TOUGH COMPETITION AT INDORE AND HENCE, THE ASSESSEE HAD TO PART WITH HIS MARGINS WITH THE DEALERS. THE EXPENDITURE WAS CERTAINLY OUT OF COMMERCIAL EXPEDIENCY. HE FURTHER SUBMITTED THAT THERE IS NO F INDING THAT THE PAYMENT OF COMMISSION IS NOT VERIFIABLE AND AL SO THE COMMISSION IS NOT TREATED AS BOGUS. HE SUBMITTED THAT THE A.O. HAS NOT BROUGHT ANY SUCH MATERIAL ON RECORDS. 8. PER CONTRA, LD. D.R. OPPOSED THE SUBMISSIONS AND SUPPORTED THE ORDERS OF THE AUTHORITIES BELOW. HE SUBMITTED THAT ONUS WAS ON THE ASSESSEE TO PROVE THE REASONABLENESS OF THE COMMISSION PAID TO THE DEALERS. HE SUBMITTED THAT THE ASSESSEE HAS NOT FURNISHED SUCH EVIDENCES, WHICH COULD PROVE THAT THE COMMISSION PAID BY THE ASSESSEES IS AS PER THE PREVALENT MARKET PRACTICE. [ITA NO.91/IND/2018] [SHRI RAMESH KUMAR RAJPAL, UJJAIN] 8 9. I HAVE HEARD THE RIVAL SUBMISSIONS, PERUSED THE MATERIALS AVAILABLE ON RECORDS AND GONE THROUGH THE ORDER S OF THE AUTHORITIES BELOW. I FIND THAT THE A.O. HAS DI SALLOWED THE EXPENDITURE OF COMMISSION PAID BY THE ASSESSEE TO ITS DEALER. FOR THE SAKE OF CLARITY, THE FINDING OF THE A .O. IS REPRODUCED AS UNDER: UJJAIN BRANCH OFFICE INDORE BRANCH OFFICE TOTAL 1. SALES RS.3,21,77,573/- RS.3,37,71,430/- 6,59,49, 003/- 2. DISCOUNT ALLOWED RS. 11,01,504/- (3.42%) RS. 12,64,877/- (3.74% OF SALE) 23,66,381/- LESS: DISCOUNT RECEIVED RS. 3,22,368/- RS. 39,682/- 3,62,05 0/- TOTAL RS. 7,79,136/- RS. 12,25,195/- 20,04 ,331/- DISCOUNT ALLOWED (2.42% OF SALE) (3.62% OF SALE) 3. G.P. 20,06,755/- RS.7,44,802/- 27,51,557/- (6.22%) (2.22%) FROM THE TABLE GIVEN ABOVE, IT IS SEEN THAT ON THE SALE OF UJJAIN HEAD OFFICE THE TOTAL DISCOUNT ALLOWED IS RS.7,79,136/-, WHICH CONSTITUTES 2.22% OF THE SALE AND THEREAFTER G.P. COMES AT 6.22%. BUT IN THE CAS E OF INDORE BRANCH OFFICE ON THE SALE THE TOTAL DISCOUNT ALLOWED IS RS.12,25,195 /- WHICH CONSTITUTES 3.62% OF THE TOTAL SALE AND THEREAFTER G.P. COMES AT 2.22%. IT MEAN FIRSTLY THAT THE ASSESSEE HAS ALLOWED MORE DISCOUNT IN THE INDORE BR ANCH OFFICE. EVEN THEN THE SALE OF INDORE BRANCH OFFICE AND UJJAIN HEAD OFFICE IS SHOWN AT THE SAME LEVEL. SECONDLY, THE COMPANY MAKING THE SALE ALLOWED THE C OMMISSION OF RS.3,22,368/- TO UJJAIN HEAD OFFICE & RS.39,682/- T O INDORE BRANCH OFFICE. IT MEANS ALL COMPANIES ARE NOT ALLOWING COMMISSION BUT SOME COMPANIES ARE PROVIDING COMMISSION TO THE ASSESSEE, BUT THE ASSES SEE IS PROVIDING COMMISSION TO ALL ITS DEALERS. THIRDLY, THE ASSESSEE IS NOT A LLOWING COMMISSION AT THE UNIFORM RATE. FOURTHLY, THE ASSESSEE IS ALLOWING COMMISSIO N TO ITS DEALERS ON THE SALES IN RESPECT OF PURCHASES MADE FROM THE COMPANY WHO IS N OT ALLOWING COMMISSION TO [ITA NO.91/IND/2018] [SHRI RAMESH KUMAR RAJPAL, UJJAIN] 9 THE ASSESSEE. ALL THIS IS BEING DONE BY THE ASSESS EE IN ORDER TO REDUCE THE INCOME BEING EARNED BY HIM. 10. FROM THE ABOVE FINDING OF THE A.O. IT IS CLEAR TH AT HE HAD DISALLOWED THE EXPENDITURE WITHOUT VERIFYING VERAC ITY OF CLAIM BY MAKING PROPER ENQUIRY. THE FINDING IS PURE LY BASED ON GUESS WORK AND CONJECTURES. THERE IS NOTHIN G ON RECORD SUGGESTING THAT THE COMMISSION WAS PAID EXCESSI VE OF WHAT WAS PREVALENT AT THE TIME OF TRANSACTIONS WERE EXECUTED. THE SOLE GROUND OF DISALLOWANCE IS THAT ASSE SSEE PAID LOWER COMMISSION AT A DIFFERENT LOCATION I.E. UJJAI N AND INDORE. IN MY CONSIDERED VIEW, THE A.O. OUGHT TO H AVE ARRIVED AT A DEFINITE CONCLUSION ABOUT THE PAYMENT OF COMMISSION. ADMITTEDLY, PAYMENT OF COMMISSION IS N OT TREATED AS A BOGUS. THE A.O. HAS NOT BROUGHT ANY ADVERS E MATERIAL SUGGESTING THAT THE COMMISSION WAS NOT PAID OR PAYMENT SO MADE WAS RECEIVED BACK BY THE ASSESSEE. IT IS ALSO NOT THE CASE THAT THE PAYMENTS HAVE BEEN MADE TO THE RELATED PARTIES. THE DECISION IN RESPECT OF QUANTUM OF [ITA NO.91/IND/2018] [SHRI RAMESH KUMAR RAJPAL, UJJAIN] 10 COMMISSION TO BE PAID WOULD CERTAINLY BE AN ISSUE TO B E DECIDED BY THE BUSINESS MEN. THERE IS NO LAW REGUL ATING THE PAYMENT OF COMMISSION OR RESTRICTING THE PAYMEN T OF COMMISSION BY TRADER TO ITS DEALERS. MERELY BECAUSE MANUFACTURING COMPANY IS NOT MAKING PAYMENT OF COMMISSION TO THE ASSESSEE CANNOT BE THE SOLE GROUND FOR DISALLOWING THE CLAIM OF EXPENDITURE RELATED TO PAYMEN T OF COMMISSION. AT SAME TIME, THE BUSINESS MEN, TO HAVE A DOMINANT POSITION IN MARKET, MAKES SUCH KIND OF COMMISSION OR DISCOUNTS, WHICH IS NOT PROHIBITED BY ANY LAW. IT IS THE BUSINESSMEN WHO CAN DECIDE THAT WHAT PERCENTAGE OF COMMISSION IS REQUIRED TO BE PAID CONSIDERING THE COMMERCIAL EXPEDIENCY. IN THE ABSENC E OF MATERIAL, MERELY A STATEMENT IS MADE THAT ASSESSEE MADE EXCESSIVE COMMISSION TO REDUCE ITS TAX LIABILITY WHI CH IS NOT SUFFICIENT TO REJECT CLAIM OF THE ASSESSEE. I THEREF ORE, DIRECT [ITA NO.91/IND/2018] [SHRI RAMESH KUMAR RAJPAL, UJJAIN] 11 THE A.O. TO DELETE ADDITION. BOTH THE GROUNDS RAISED BY THE ASSESSEE ARE ALLOWED. 11. IN THE RESULT, THE APPEAL OF THE ASSESSEE IS ALLOWE D. ORDER WAS PRONOUNCED IN THE OPEN COURT ON 27 . 11.2019. SD/- (KUL BHARAT) JUDICIAL MEMBER INDORE; DATED : 27/11/2019 VG/SPS COPY TO: ASSESSEE/AO/PR. CIT/ CIT (A)/ITAT (DR)/GUAR D FILE. BY ORDER ASSISTANT REGISTRAR, INDORE