ACIT, Circle-49(1), Kolkata, Kolkata V. Bablu Das, North 24 Parganas

ITA 965/KOL/2017

• Counselvise Citation: [2019] 112 COUNSELVISE.COM (IT) 5058 (ITAT-KOLKATA)
• Duration Of Justice: 2 year(s) 6 month(s) 17 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 22-11-2019
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: C
• Next Hearing Date: 28-05-2019
• Assessment Year: 2012-2013
• Appeal Filed On: 05-05-2017
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Assessee Lawyers: SANGRAM DAS
• Section: 40(a)(ia); 133(6); 37(1); 194C; 201; 37; 144

Judgement Text

, C , IN THE INCOME TAX APPELLATE TRIBUNAL KOLKATA BENCH C KOLKATA BEFORE SHRI S.S.GODARA, JUDICIAL MEMBER AND DR. A.L. SAINI, ACCOUNTANT MEMBER ITA NO. 965 / KOL / 201 7 ASSESSMENT YEAR :2012-13 ACIT, CIRCLE-49(1), UTTARAPAN SHOPPING COMPLEX MANIKTALA CIVIC CENTRE, ULTADANGA, KOLKATA-700 054 V/S . BABLU DAS PROP. M/S B.S INTERNATIONAL PEADAPARA, BANGAON, 24- PARGANAS NORTH, PIN- 743235 [ PAN NO.ADZPD 6731 D ] /APPELLANT .. / RESPONDENT /BY APPELLANT SHRI SUPRIYO PAL, JCIT-SR-DR /BY RESPONDENT SHRI SANGRAM DAS, AR /DATE OF HEARING 07-11-2019 /DATE OF PRONOUNCEMENT 22-11-2019 / O R D E R PER S.S.GODARA, JUDICIAL MEMBER:- THIS REVENUES APPEAL FOR ASSESSMENT YEAR 2012-13 ARISES AGAINST THE COMMISSIONER OF INCOME TAX (APPEALS)-15 KOLKATAS O RDER DATED 27.02.2017 PASSED IN CASE NO.289/CIT(A)-15/14-15/CIR-49/KOL, I NVOLVING PROCEEDINGS U/S 144 OF THE INCOME TAX ACT, 1961; IN SHORT THE ACT . HEARD BOTH THE PARTIES. CASE FILE PERUSED. 2. THE REVENUE RAISED THE FOLLOWING TWIN SUBSTANTIV E GROUNDS IN THE INSTANT APPEAL:- 1. THAT ON THE FACTS AND IN RESPECT TO THE CIRCUMST ANCES OF THE CASE, THE LD. CIT(A) IS NOT JUSTIFIED IN LAW IN DIRECTING TO TAKE PROFIT OF EXPORT BUSINESS AT RS.78,75,893/- ITA NO.965/KOL/2018 A.Y. 2012-13 ACIT CIR-49(1), KOL. VS. BABLU DAS PAG E 2 ( BEING 1,0075% ) OF THE TURNOVER) INSTEAD OF RS.2,34,51,790/- ( BEING 3% OF TURNOVER ) AS ADOPTED BY THE ASSESSING OFFICER IN HIS ASSES SMENT ORDER. 2. THAT ON THE FACTS AND IN RESPECT TO THE CIRCUMST ANCES OF THE CASE, THE LD. CIT(A) IS NOT JUSTIFIED IN DELETING DISALLOWANCE OF RS.57,12, 319/- HOLDING THAT WHEN THE BOOKS OF ACCOUNTS ARE REJECTED AND PROFIT WAS ESTIMATED NO F URTHER DISALLOWANCE U/S 40(A)(IA) IS JUSTIFIED, THOUGH SUCH DISALLOWANCES WERE MADE O N TECHNICAL GROUNDS ON THE BASIS OF DETAILS AVAILABLE ON RECORD. 3. BOTH THE LEARNED REPRESENTATIVES TAKES US TO THE CIT(A)S DETAILED DISCUSSION DIRECTING ASSESS THE TAXPAYERS EXPORT P ROFITS AT 78,75,893/- @ 1.0075% OF THE TURNOVER AS AGAINST THE ASSESSING OF FICERS ACTION ASSESSING THE SAME @ 3% AMOUNTING TO 234,51,790/- AS UNDER:- 3.2 GROUNDS OF APPEAL NO.3 & 4: ASSESSEE IS ENGAGED IN THE BUSINESS OF EXPORT OF FRESH FRUITS, FRESH FISH, FABRICS, AUTO PARTS, LEAT HER SHOES AND RICE TO BANGLADESH. BESIDES ASSESSEE HAD ALSO EARNED SOME INCOME IN JUT E TRADING AND HIRE CHARGES ON HIS OWN LORRY. ASSESSEE HAD ALSO EARNED INTEREST IN COME. DURING ASSESSMENT PROCEEDINGS,. NOTICES U/S 133(6) WERE ISSUED TO SO ME OF THE PARTIES ON TEST CHECK BASIS. HOWEVER, THESE PARTIES WERE NOT FOUND ON THE ADDRESSES PROVIDED BY THE ASSESSEE. DUE TO SOME PROBLEM IN THE SOFTWARE, BOOK S OF ACCOUNTS COULD ALSO NOT BE PRODUCED FOR VERIFICATION. HENCE, BOOKS OF ACCOUNTS WERE REJECTED U/S 145(3) AND PROFIT WAS ESTIMATED @ 3% OF THE TOTAL TURNOVER ( OF RS. 78,17,26,346/ -), AT RS.2,34,51,790/-. IN APPEAL PROCEEDINGS ASSESSEE HAS SUBMITTED THAT D URING ASSESSMENT PROCEEDINGS, AUDITED BALANCE SHEET ALONGWITH TAX AUDIT REPORT, V ARIOUS STATEMENTS SUCH AS PARTY WISE PURCHASES, SALES AND EXPENSES LEDGERS WERE PRO DUCED. HOWEVER, HARD COPIES OF BOOKS OF ACCOUNTS WERE NOT PRODUCED AS THE HARD DISK HAD CRASHED. IT IS FURTHER SUBMITTED THAT A.O. HAS ARBITRARILY ESTIMATED NET P ROFIT @ 3% OF TURNOVER, WHEREAS AUDITED ACCOUNTS ARE SHOWING PROFIT @ 0.31 % OF THE TURNOVER, FOR THE CURRENT YEAR. IF AVERAGE OF 5 YEARS ARE TAKEN THEN ALSO AVERAGE NET PROFIT RATIO COMES TO 0.86% OF THE TURNOVER. THAT ENTIRE ADDITION HAS BEEN MADE ON GUE SS BASIS. ASSESSEE IS ENGAGED IN EXPORT AND ANY DISALLOWANCES OF PURCHASES WOULD ALSO RENDER THE CORRESPONDING EXPORT AS BOGUS. ASSESSEE HAS CITED VARIOUS JUDGEME NTS/DECISIONS WHICH SAY THAT ESTIMATION SHOULD BE BASED ON NET PROFIT TREND AND THE ESTIMATION SHOULD BE BASED ON THE AVAILABLE MATERIAL ON RECORD AND SHOULD HAVE A REASONABLE NEXUS TO THE AVAILABLE MATERIAL AND CIRCUMSTANCES OF THE CASE. IT IS FURTH ER SUBMITTED THAT NO DEFECT HAS BEEN POINTED OUT IN THE BOOKS OF ACCOUNT AND THE AC COUNTS WERE AUDITED BY THE AUDITORS. IT IS ALSO TRUE THAT NO SALES AND PURCHAS ES WERE FROM OUTSIDE THE BOOKS OF ACCOUNT. ALL PURCHASES ARE BEING EXPORTED AND THE S UPPLIERS HAVE BEEN PAID BY RTGS/ ALE PAYEE CHEQUES THROUGH PROPER BANKING CHAN NELS. THAT ALL THE EXPORTS HAVE BEEN MADE AFTER COMPLYING WITH ALL THE RULES/R EGULATIONS/LAWS OF THE LAND I.E. CUSTOMES DEPARTMENTS, D.G.F.T., EXCHANGE CONTROL RU LES & REGULATIONS OF RESERVE BANK OF INDIA BANKS. AFTER REJECTING THE BOOK RESUL TS, THE A.O. DOES NOT GET UNFETTERED POWERS TO MAKE ASSESSMENT OF ANY INCOME. HE IS SUPP OSED TO BE GUIDED EITHER BY THE PREVIOUS RESULTS OF THE ASSESSEE OR SOME COMPAR ABLE CASES. IN THE INSTANT CASE, THE AO ESTIMATED THE NP @ 3% OF SALES TURNOVER WITH OUT ANY COGENT MATERIAL WHEREAS THE AVERAGE NET PROFIT FOR LAST FIVE YEARS IS ONLY 0.86%. THAT AD HOC ESTIMATE OF NP IS DIVORCED FROM THE RELEVANT FACTS. THAT THE APPELLANT IS ENGAGED IN BUSINESS OF EXPORT OF FABRICS, RICE, FRUITS & VEGETABLES, MA CHINERY PARTS ETC. AND DUE TO FLUCTUATION OF FOREIGN CURRENCY & COMMODITY PRICE A ND FIXING THE EXPORT PRICE BY THE ITA NO.965/KOL/2018 A.Y. 2012-13 ACIT CIR-49(1), KOL. VS. BABLU DAS PAG E 3 GOVT. ETC., THE APPELLANT RECORDS INCONSISTENT PROF IT MARGIN ON YEAR TO YEAR BASIS. APPELLANT HAS ALSO SUBMITTED THE LEDGER ACCOUNTS OF ALL PURCHASES, WHICH ALSO SHOW THAT PAYMENTS HAVE BEEN MADE EITHER THROUGH CHEQUES OF RTGS. I HAVE CAREFULLY CONSIDERED THE FACTS OF THE CASE A ND THE SUBMISSIONS OF THE ASSESSEE. AS THE SUPPLIERS WERE NOT FOUND AT THE AD DRESSES AND ASSESSEE WAS ALSO UNABLE TO PRODUCE THE BOOKS OF ACCOUNTS, A.O. IS JU STIFIED IN REJECTING THE BOOKS U/S 145(3) AND ESTIMATING PROFIT OF THE BUSINESS. HOWEV ER, AT THE SAME TIME, I ALSO AGREE WITH THE VIEW OF THE ASSESSEE THAT ESTIMATION OF PR OFIT SHOULD BE FAIR AND BASED ON THE INFORMATION AVAILABLE ON RECORD. ASSESSEE IS AN EXP ORTER. ALL HIS RECEIPTS ARE DULY RECORDED IN THE BOOKS AND HAVE BEEN RECEIVED THROUG H BANKING CHANNELS. QUANTITATIVE DETAILS OF THE EXPORTED ITEMS MATCHES WITH THE PURCHASES. HENCE, THERE IS NO DOUBT ABOUT THE CORRESPONDING PURCHASES MADE. NOW THE ONLY ISSUE WHICH IS TO BE SETTLED IS THE NET PROFIT EARNED BY ASSESSEE. A. O. HAS ESTIMATED NET PROFIT @ 3% OF THE TURNOVER BUT HE HAS NOT DISCUSSED THE BASIS OF ADOPTING THIS RATIO, NEITHER HAS HE CITED ANY COMPARABLE CASES. UNDER THE CIRCUMSTANCES , THE NET PROFIT RATIO ADOPTED BY THE A.O. IS OPEN TO DEBATE AND MODIFICATION. THE IT EMS IN WHICH ASSESSEE IS DEALING ARE MOSTLY PERISHABLE ITEMS (FRUITS, FISH ETC.) AND ALSO SOME NON-PERISHABLE ITEMS. BUT ALL THESE ITEMS ARE TRADING ITEMS AND NONE OF THESE HAVE BEEN MANUFACTURED BY ASSESSEE. UNDER THE CIRCUMSTANCES, EXPORT OF THESE ITEMS FACE HEAVY COMPETITION FROM THE OTHER EXPORTERS. UNDER THE CIRCUMSTANCES P ROFIT MARGIN CANNOT BE HUGE. BUT IN THE ABSENCE OF ANY COMPARABLE FIGURES, QUANTUM O F NET PROFIT RATIO SHOULD BE TAKEN BY OBSERVING THE NET PROFIT RATIO TREND OF THE PROC EEDING YEARS. IN THE PRECEDING YEARS ALSO BOOKS WERE AUDITED. APPELLANT HAS INTIMATED TH E FOLLOWING NET PROFIT RATIO OF THE 5 YEARS: SI NO. ASSESSMENT YEAR NET PROFIT RATIO (%) 1 2008-2009 0.11 2 2009-2010 1.13 3 2010-2011 2.01 4 2011-2012 0.78 5 2012-2013 0.28 AVERAGE NET PROFIT RATIO 0.86% ASSESSEE HAS INCLUDED CURRENT YEAR'S PROFIT RATIO A LSO WHILE ARRIVING AT THE NET PROFIT RATIO. HOWEVER, ENTIRE EXERCISE IS BEING CARRIED OU T FOR ARRIVING AT THE PROFIT MARGIN OF THE CURRENT YEAR. HENCE, PROFIT RATIOS OF ONLY THE PRECEDING YEARS SHOULD BE CONSIDERED. HENCE, CONSIDERING THE PROFIT RATIO OF THE PRECEDING 4 YEARS, AVERAGE NET PROFIT RATIO IS 1.0075% OF THE TURNOVER. HENCE, APP LYING THIS RATIO, NET PROFIT OF THE CURRENT YEAR IS COMPUTED AT RS.78,75,893/-. THEREFO RE, INSTEAD OF RS.2,34,51, 790/-, A.O. IS DIRECTED TO TAKE PROFIT OF EXPORT BUSINESS AT RS.78,75,893. 3.3 GROUNDS OF APPEAL NO. 5 & 6: AFTER ESTIMATING N ET PROFIT, A.O. HAS OBSERVED THAT ASSESSEE DID NOT DEDUCT TAX AT SOURCE ON PAYMENTS M ADE TO TRANSPORTERS. HENCE, PROVISIONS OF SECTION 194C ARE VIOLATED. A.O. HAS F URTHER DISALLOWED RS.57,12,319/- U/S 40(A)(IA). ASSESSEE HAS CONTESTED THIS DISALLOW ANCE ON TWO GROUNDS. FIRST, ASSESSEE HAS SUBMITTED THAT THERE WAS NO CONTRACT B ETWEEN THE ASSESSEE AND THE TRANSPORTERS AND SECONDLY, ONCE NET PROFIT OF THE B USINESS IS ESTIMATED ANY FURTHER DISALLOWANCE EITHER U/S 40(A)(IA) OR U/S 37(1) CANN OT BE MADE. IN SUPPORT OF HIS PROPOSITION, ASSESSEE HAS RELIED UPON THE FOLLOWING JUDGEMENTS/DECISIONS: A) INDWELL CONSTRUCTIONS VS CIT (1998) 232 ITR 776 (AP H.C) B) DABROS INDUSTRIAL CO. PVT. LTD. VS CIT (1997) 10 8 ITR 424 (CALCUTTA H.C) ITA NO.965/KOL/2018 A.Y. 2012-13 ACIT CIR-49(1), KOL. VS. BABLU DAS PAG E 4 C) CIR VS BANWARILAL BANSIDHAR (1998) 229 ITR 229 ( ALLAHABAD H.C.) D) COSMOPOLIAN TRADING CORPORATION VS ITO, ITA NO.2 98/JP/20 13 (ITAT JAIPUR). E) CIT, KOLKATA-XVII, VS SHRI ARJUN BHOWMICK GA NO. 2683 OF 2014, (CALCUTTA H.C). F) ITO VS KENARAM SAHA AND SUBHASH SAHA 301 ITR (AT ) 17 (SPECIAL BENCH, KOLKATA ITAT IN THE JUDGEMENTS/DECISIONS MENTIONED ABOVE IT HAS BEEN HELD THAT ONCE THE NET PROFIT RATE IS ESTIMATED AFTER REJECTING THE BOOKS OF ACCOUNTS, AO CANNOT RELY ON THE SAME BOOKS FOR MAKING ANY FURTHER DISALLOWANCES. IN THE CASE OF SHRI ARJUN BHOWMICK (SUPRA), HON'BLE ITAT HAD HELD THAT AO CAN NOT BASE HIS DISALLOWANCE ON THE SAME BOOKS OF ACCOUNTS FOR THE PURPOSES OF INVO KING THE PROVISIONS OF SECTION 40(A)(IA) OR GENERAL DISALLOWANCES U/S 37 OF THE IN COME TAX ACT, ONCE THE BOOKS OF ACCOUNTS ARE REJECTED AND NET PROFIT IS ESTIMATED. HENCE RESPECTFULLY FOLLOWING THE JUDGEMENTS/DECISIONS, AS CITED ABOVE, IT IS HELD TH AT FURTHER DISALLOWANCES U/S 40(A)(IA) IS NOT JUSTIFIED WHEN THE BOOKS OF ACCOUN TS IS REJECTED AND PROFIT WAS ESTIMATED. HENCE, DISALLOWANCE OF RS.57,12,319/- IS DELETED . 4. IT IS VEHEMENTLY CONTENDED ON THE REVENUES BEHE ST THAT THE ASSESSING OFFICER HAD RIGHTLY REJECTED THE ASSESSEES BOOKS U /S 145(3) OF THE ACT SINCE THE LATTER HEAD FAILED TO PRODUCE SOME OF THE PARTI ES ON TEST CHECK BASIS REGARDING ITS PURCHASES MADE INVOLVING FRESH FRUITS , FRESH FISH, FABRICS, AUTO PARTS, LEATHER SHOES AND RICE BANGLADESH. THE ASSES SEE IS FAIR ENOUGH IN NOT QUESTIONING THE ASSESSING OFFICERS ACTION REJECTIN G ITS BOOKS OF ACCOUNT. WE OBSERVE IN THIS BACKDROP OF RIVAL PLEADINGS THAT TH E ASSESSING OFFICER HAD RIGHTLY REJECTED THE ASSESSEES BOOKS. 5. NEXT COMES THE ISSUE BETWEEN PARTIES ABOUT RATE OF ASSESSEES NET PROFIT VIS-A-VIS ITS SALE TURNOVER. IT HAS COME ON RECORD THAT THE ASSESSEES NET PROFIT RATIO VARIES FROM 0.11% TO 2.01% FROM ASSESS MENT YEARS 2008-09 TO 2012-13 AS PER CIT(A)S TABULATION AVERAGE AND AVER AGE OF THE NET PROFITS COMES TO 0.86% ONLY. THE CIT(A) HAS ADMITTEDLY ASSE SSED THE ASSESSEES NET PROFIT RATIO @ 1.0075% OF THE TURNOVER. THIS IS NOT THE REVENUES CASE THAT THE IMPUGNED ASSESSMENT YEAR INVOLVES ANY DISTINGUISHIN G FACTS AS PER ITS PLEADINGS IN FORMER SUBSTANTIVE GROUND. WE CONCLUDE IN THIS FACTUAL BACKDROP THAT THE CIT(A) HAS RIGHTLY TAKEN THE ASSESSEES NE T PROFIT RATIO @1.0075% OF THE TURNOVER. THE REVENUES INSTANT FORMER SUBSTANT IVE GROUND FAILS ACCORDINGLY. ITA NO.965/KOL/2018 A.Y. 2012-13 ACIT CIR-49(1), KOL. VS. BABLU DAS PAG E 5 6. THE REVENUES LATTER SUBSTANTIVE GRIEVANCE SEEKI NG TO REVIVING U/S 40(A)(IA) DISALLOWANCE HAS NO LEGS TO STAND SINCE T HE ASSESSEES BOOKS OF ACCOUNT STAND REJECTED IN THE ASSESSMENT AS UPHELD IN THE CIT(A)S ORDER. WE FIND THAT A CATENA OF CASE LAW (SUPRA) ALREADY HOLD THAT THE IMPUGNED DISALLOWANCE DOES NOT COME INTO PLAY IN CASE OF REJ ECTION OF BOOKS. WE THEREFORE DECLINE THE REVENUES INSTANT LATTER SUBS TANTIVE GROUND AS WELL. 7. THIS REVENUES APPEAL IS DISMISSED. ORDER PRONOUNCED IN THE OPEN COURT 22/ 11/2019 SD/- SD/- ( %) (' %) ( A.L.SAINI) (S.S.GODARA) (ACCOUNTANT MEMBER) (JUDICIAL MEMBER) KOLKATA, *DKP (- 22 / 11 /201 9 / COPY OF ORDER FORWARDED TO:- 1. /APPELLANT-ACIT, CIR-49(1), UTTARAPANA SHOPPING COM PLEX, MANIKTALLA CIVIC CENTRE, ULT ADANGA, KOLKAT-54 2. /RESPONDENT-BABLU DAS, PROP. M/S B S INTERNATIONAL PEADAPARA, BANGAON 24-PARGANAS NORT H, PIN-743235 3. 3 4 / CONCERNED CIT KOLKATA 4. 4- / CIT (A) KOLKATA 5. 7 ''3, 3, / DR, ITAT, KOLKATA 6. < / GUARD FILE. BY ORDER/ , /TRUE COPY/ 3,