SHRI BABU LAL GUPTA, JAIPUR V. INCOME TAX OFFICER, JAIPUR

ITA 910/JPR/2017

• Counselvise Citation: [2018] 126 COUNSELVISE.COM (IT) 2005 (ITAT-JAIPUR)
• Duration Of Justice: 3 month(s) 18 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 19-03-2018
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: B
• Assessment Year: 2012-2013
• Appeal Filed On: 01-12-2017
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: J C KULHARI
• Assessee Lawyers: RAM SWAROOP JAJOO
• Keywords: Rejection of books of accounts
• Section: 145

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; IKWY JKO] U;KF;D LNL; ,OA JH FOE FLAG ;KNO] YS[KK LNL; DS LE{K BEFORE: SHRI VIJAY PAL RAO, JM & SHRI VIKRAM SINGH YADAV, AM VK;DJ VIHY LA-@ ITA. NO. 910/JP/2017 FU/KZKJ.K O'K Z@ ASSESSMENT YEARS : 2012-13 BABU LAL GUPTA C/O RAM SWAROOP JAJOO, D-42, AMBABARI, JAIPUR CUKE VS. ITO WARD 3(3), JAIPUR LFKK;H YS[KK LA-@THVKBZVKJ LA-@ PAN/GIR NO.: ACIPG3949E VIHYKFKHZ@ APPELLANT IZR;FKHZ@ RESPONDENT FU/KZKFJRH DH VKSJ L S@ ASSESSEE BY : SHRI RAM SWAROOP JAJOO JKTLO DH VKSJ LS @ REVENUE BY : SHRI J. C. KULHARI (JCIT) LQUOKBZ DH RKJH[ K@ DATE OF HEARING : 08/03/2018 MN?KKS'K.KK DH RKJH[ K@ DATE OF PRONOUNCEMENT : 19/03/2018 VKNS'K@ ORDER PER: VIKRAM SINGH YADAV, A.M. THIS IS AN APPEAL FILED BY THE ASSESSEE AGAINST TH E ORDER OF LD. CIT(A)-1, JAIPUR DATED 10.08.2017 FOR ASSESSMENT YE AR 2012-13 WHEREIN THE ASSESSEE HAS CHALLENGED THE ACTION OF L D. CIT(A) IN CONFIRMING THE ACTION OF THE AO IN REJECTING THE BO OKS RESULTS AND ESTIMATING THE INCOME BY APPLYING ADHOC GP RATE OF 6% AS AGAINST 4.46% OFFERED BY THE ASSESSEE IN HIS RETURN OF INCO ME. 2. BRIEFLY STATED, THE FACTS OF CASE ARE THAT THE A SSESSEE IS ENGAGED IN TRADING OF SPICES/PAN MASALA AND MANUFACTURING O F SING DANA FROM ITA NO. 910 /JP/2017 SHRI BABU LAL GUPTA, JAIPUR VS. ITO, JAIPUR 2 GROUNDNUT. THE ASSESSING OFFICER REJECTED THE BOOKS OF ACCOUNTS U/S 145(3) OF THE ACT HOLDING THAT THE ASSESSEE HAS NOT MAINTAINED ANY STOCK REGISTER, PROPER RECORDS REGARDING DIRECT EXP ENSES DEBITED TO MANUFACTURING & TRADING ACCOUNT AND NO RECORD OF PA CKING MATERIAL PURCHASED, CONSUMED OR REMAINING AS CLOSING STOCK. FURTHER, FREIGHT AND OTHER EXPENSES COULD ALSO NOT BE FULLY SUBSTANT IATED AND THE VOUCHERS RELATING TO WAGES WERE INTERNALLY SUPPORTE D ONLY WITH INCOMPLETE DETAILS WHICH ARE NOT SUBJECT TO VERIFIC ATION AND NO PROPER EXPLANATION HAS BEEN SUBMITTED BY THE ASSESSEE FOR INCREASE IN WAGES. UNDER THESE CIRCUMSTANCES, THE CORRECT PROFITS CANN OT BE DEDUCED FROM THE BOOKS OF ACCOUNTS AND HE ACCORDINGLY REJECTED T HE BOOKS OF ACCOUNTS U/S 145(3) OF THE ACT. THE AO, THEREAFTER OBSERVING THAT THE ASSESSEE HAS DISCLOSED GP RATE OF 4.47% DURING THE YEAR UNDER CONSIDERATION AND 4.73% IN AY 2010-11, ESTIMATED GP RATE OF 6% AND APPLIED THE SAME TO THE DECLARED TURNOVER OF RS. 13 ,38,63,166/- AND TRADING ADDITION OF RS. 2,05,09,33/- WAS MADE IN TH E HANDS OF THE ASSESSEE. 3. BEING AGGRIEVED, THE ASSESSEE CARRIED THE MATTER IN APPEAL BEFORE THE LD. CIT(A). THE LD. CIT(A) CONFIRMED THE ACTION OF THE AO IN REJECTING THE BOOKS OF ACCOUNTS U/S 145(3) OF THE A CT FIRSTLY, HOLDING THAT THE ASSESSEE HAS NOT STATED ANYTHING ABOUT THE REJECTION OF ITS BOOKS OF ACCOUNTS U/S 145 (3) OF THE ACT AND THE AS SESSEE HAS SUBMITTED ONLY THE REASONS FOR DECREASE IN THE GP R ATE AS WELL AS COMPARATIVE CASES WHERE G.P. RATE WAS MUCH LOWER AS COMPARED WITH THE GP RATE DECLARED BY THE ASSESSEE COMPANY. THE L D. CIT(A) FURTHER OBSERVED THAT IN MOST OF THE MONTHS, THE YIELD FROM MANUFACTURING ITA NO. 910 /JP/2017 SHRI BABU LAL GUPTA, JAIPUR VS. ITO, JAIPUR 3 ACTIVITY WAS 75% WHEREAS IN THE MONTH OF MARCH, 201 2, THE YIELD WAS SHOWN AT 63.5% WITHOUT ANY JUSTIFICATION. IT WAS FU RTHER OBSERVED BY THE LD. CIT(A) THAT THE ASSESSEE COMPANY HAS CLAIME D REDUCTION IN THE STOCK OF GROUNDNUT AT 406 QUINTALS EACH IN THE MONT H OF FEBRUARY AND MARCH, 2012 ON ACCOUNT OF MOISTURE. THE LD. CIT(A) OBSERVED THAT HOW THERE CAN BE SHORTAGE DUE TO MOISTURE IN TWO CONSEC UTIVE MONTHS AND IN NOT IN ANY OF THE EARLIER MONTHS. THE LD. CIT(A) WAS THEREFORE OF THE VIEW THAT THE ASSESSEE HAS SOLD 406 QUINTALS OF GRO UNDNUT OUTSIDE HIS BOOKS OF ACCOUNTS OR THE CORRESPONDING SING DANA PR ODUCED ON ACCOUNT OF CONSUMPTION OF 406 QUINTALS OF GROUNDNUT HAS NOT BEEN DISCLOSED IN THE BOOKS OF ACCOUNTS. ACCORDINGLY, LD. CIT(A) OBSE RVED THAT THE ASSESSEE HAS SUPPRESSED HIS PRODUCTION AND THE BOOK S OF ACCOUNTS INCLUDING THE STOCK RECORDS ARE MANIPULATED AND THE SAME DOES NOT REVEAL THE TRUE STATE OF AFFAIRS AND HE ACCORDINGLY CONFIRMED THE AOS ACTION OF REJECTION OF BOOKS OF ACCOUNTS U/S 145(3) OF THE ACT AS WELL AS GP RATE OF 6% AS AGAINST GP RATE OF 4.47% DECLARED BY THE ASSESSEE. 4. BEING AGGRIEVED, THE ASSESSEE IS IN APPEAL BEFOR E US. THE LD AR SUBMITTED THAT COMPLETE BOOKS OF ACCOUNTS HAVE BEEN MAINTAINED AND DULY AUDITED U/S 44AB OF THE ACT AND THE TRADING RE SULTS OF THE ASSESSEE SHOULD BE ACCEPTED. IT WAS SUBMITTED THAT THE GP RA TE DECLARED BY THE ASSESSEE IS BETTER THAN OTHER COMPARATIVE CASES INV OLVED IN THE SAME LINE OF BUSINESS WHICH HAS BEEN TOTALLY IGNORED BY THE LOWER AUTHORITIES. IT WAS FURTHER SUBMITTED THAT FALL IN THE GP RATE I S IN ACCOUNT OF INCREASE IN COMPETITION AS WELL AS INCREASE IN THE SALARY AN D WAGES WHICH IS ON ACCOUNT OF HIRING OF CITY BASED WORKERS WHO DEMAND HIGHER WAGES AS AGAINST WORKERS FROM VILLAGES WHO WERE HIRED IN THE EARLIER YEARS. IT ITA NO. 910 /JP/2017 SHRI BABU LAL GUPTA, JAIPUR VS. ITO, JAIPUR 4 WAS FURTHER SUBMITTED THAT 406 QUINTAL OF GROUNDNUT AS OBSERVED BY THE LD. CIT(A) IS ON ACCOUNT OF SHORTAGE ON ACCOUNT OF MOISTURE, SOIL, BLANK GROUNDNUT ETC. WHICH IS REASONABLE IN THIS LINE OF BUSINESS. 5. THE LD. DR IS HEARD WHO HAS SUBMITTED THAT THE A SSESSEE HAS NOT CHALLENGED THE REJECTION OF BOOKS OF ACCOUNTS AND R EGARDING ESTIMATION OF GP RATE, GIVEN THE DISCREPANCIES SO OBSERVED BY THE LOWER AUTHORITIES, THE ESTIMATION SO MADE BY THE AO WAS J UST AND REASONABLE AND WHICH HAS BEEN RIGHTLY CONFIRMED BY THE LD CIT( A). THE LD DR FURTHER RELIED ON THE FINDINGS OF THE LOWER AUTHORI TIES. 6. WE HAVE HEARD THE RIVAL CONTENTIONS AND PERUSED THE MATERIAL AVAILABLE ON RECORD. THE REJECTION OF BOOKS OF ACCO UNTS U/S 145(3) IS NOT DISPUTED BY THE ASSESSEE. THE LIMITED ISSUE UNDER C ONSIDERATION RELATES TO WHAT SHOULD BE THE REASONABLE GROSS PROFIT RATE ONCE THE BOOKS OF ACCOUNTS HAVE BEEN REJECTED. THE AO HAS ESTIMATED GP RATE OF 6% WHICH HAS BEEN CONFIRMED BY THE LD CIT(A) AS AGAINS T 4.47% DECLARED BY THE ASSESSEE. WE HOWEVER FIND THAT THERE IS NO B ASIS WHICH HAS BEEN SPECIFIED BY THE AO WHILE ESTIMATING THE G.P RATE. SIMILARLY, THE LD CIT(A) HAS MERELY CONFIRMED THE SAID ESTIMATION WIT HOUT SPECIFYING HOW THE SAME IS FOUND REASONABLE IN THE INSTANT CASE. T HE LD AR HAS SUBMITTED THAT THE ASSESSEE HAS DECLARED A G.P OF 4 .73% IN AY 2009-10 AND G.P OF 4.26% IN AY 2010-11 AND CONSIDERING THE PAST HISTORY, THE G.P OF 4.47% DECLARED FOR THE IMPUNGED ASSESSMENT Y EAR SHOULD BE ACCEPTED. THE HONBLE RAJASTHAN HIGH COURT IN CASE OF CIT VS GUPTA K.N CONSTRUCTION CO. 116 DTR 377 AS WELL AS OTHER R ECENT DECISIONS IN SIMILAR CASES HAS HELD THAT THE BEST GUIDE IN CASE OF FAIR ESTIMATION IS ITA NO. 910 /JP/2017 SHRI BABU LAL GUPTA, JAIPUR VS. ITO, JAIPUR 5 PAST HISTORY OF THE ASSESSEE AND HAS DIRECTED TO AP PLY LAST FIVE YEARS AVERAGE FOR THE PURPOSES OF DETERMINATION OF FAIR E STIMATION OF PROFITS. APPLYING THE SAME IN THE INSTANT CASE, AVERAGE OF L AST FIVE YEARS G.P RATE WHICH HAS ATTAINED FINALITY SHOULD BE CONSIDER ED FOR DETERMINING THE AVERAGE G.P. WHERE THE DECLARED G.P RATE OF 4.4 7% IS HIGHER THAN THE AVERAGE G.P SO DETERMINED, NO FURTHER ADJUSTMEN T WILL BE REQUIRED TO THE DECLARED PROFITS EVEN WHERE THE BOOK RESULTS OF THE ASSESSEE HAVE BEEN REJECTED. GIVEN THAT ONLY G.P OF LAST TW O YEARS ARE AVAILABLE ON RECORD, THE MATTER IS SET-ASIDE TO THE FILE OF T HE AO TO DETERMINE THE AVERAGE G.P OF LAST FIVE YEARS, COMPARE IT WITH DEC LARED G.P AND DETERMINE THE ADJUSTMENT, IF SO REQUIRED, TAKING IN TO CONSIDERATIONS ABOVE DISCUSSIONS. IN THE RESULT, THE APPEAL OF THE ASSESSEE IS ALLOWE D FOR STATISTICAL PURPOSES. ORDER PRONOUNCED IN THE OPEN COURT ON 19/03/2018. SD/- SD/- FOT; IKWY JKO FOE FLAG ;KNO (VIJAY PAL RAO) (VIKRAM SINGH YADAV) U;KF;D LNL;@ JUDICIAL MEMBER YS[KK LNL;@ ACCOUNTANT MEMBER TK;IQJ@ JAIPUR FNUKAD@ DATED:- 19/03/2018. * GANESH KR. VKNS'K DH IZFRFYFI VXZSFKR@ COPY OF THE ORDER FORWARDED TO: 1. VIHYKFKHZ@ THE APPELLANT- SHRI BABULAL GUPTA, JAIPUR 2. IZR;FKHZ@ THE RESPONDENT- ITO, WARD 3(3), JAIPUR 3. VK;DJ VK;QDR@ CIT ITA NO. 910 /JP/2017 SHRI BABU LAL GUPTA, JAIPUR VS. ITO, JAIPUR 6 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. 910/JP/2017} VKNS'KKUQLKJ@ BY ORDER, LGK;D IATHDKJ@ ASST. REGISTRAR