SITROCS ZENETICA INDIA PVT. LTD., Jaipur V. ACIT, Jaipur

ITA 994/JPR/2013

• Counselvise Citation: [2016] 132 COUNSELVISE.COM (IT) 5324 (ITAT-JAIPUR)
• Duration Of Justice: 2 year(s) 4 month(s) 26 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 13-05-2016
• Appeal Filed By: Assessee
• Order Result: Partly Allowed
• Bench Allotted: B
• Assessment Year: 2008-2009
• Appeal Filed On: 18-12-2013
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Department Lawyers: MRS NEENA JEPH JCIT DHK
• Keywords: Opportunity of being heard
• Section: 143(3); 145

Judgement Text

VK;DJ VIHYH; VF/KDJ.K] T;IQJ U;K;IHB] T;IQJ IN THE INCOME TAX APPELLATE TRIBUNAL, JAIPUR BENCHES, JAIPUR JH DQY HKKJR] U;KF;D LNL; ,OA JH VH-VKJ-EHUK] YS[KK LNL; DS LE{K BEFORE: SHRI KUL BHARAT, JM & SHRI T.R.MEENA, AM VK;DJ VIHY LA -@ ITA NO. 994/JP/2013 FU/KZKJ.K O'K Z @ ASSESSMENT YEAR : 2008-09. M/S SITROCS ZENETICA INDIA PVT. LTD., JAIPUR, NOW SCORTICS HEALTHCARE INDIA PVT. LTD., 2 ND FLOOR, 28, SCORTICS ENCLAVE, SHOPPING CENTRE, AMBA BARI, JAIPUR. CUKE VS. ACIT, CIRCLE-4, JAIPUR. LFKK;H YS[KK LA-@THVKBZVKJ LA-@ PAN/GIR NO. AAJCS 4668 J VIHYKFKHZ@ APPELLANT IZR;FKHZ@ RESPONDENT FU/KZKFJRH DH VKSJ LS@ ASSESSEE BY : SHRI RAJEEV SOGANI (CA) & SHRI ROHAN SOGANI (CA) JKTLO DH VKSJ LS@ REVENUE BY : MRS. NEENA JEPH (JCIT) LQUOKBZ DH RKJH[K@ DATE OF HEARING : 27/04/2016. MN?KKS'K .KK DH RKJH[K @ DATE OF PRONOUNCEMENT : 13/05/2016. VKNS'K@ ORDER PER T.R. MEENA, A.M. THIS IS AN APPEAL FILED BY THE ASSESSEE AGAINST THE ORDER DATED 24/09/2013 PASSED BY THE LD. CIT(A)-II, JAIPUR FOR T HE A.Y. 2008-09 WHEREIN THE ASSESSEE RAISED FOLLOWING GROUNDS. ITA NO. 994/JP/2013 M/S SITROCS ZENETICA INDIA PVT. LTD. V S ACIT 2 1. IN THE FACTS AND CIRCUMSTANCES OF THE CASE AND IN LAW THE ID. CIT (A) HAS ERRED IN CONFIRMING THE ACTION O F THE ID. AO IN REJECTING THE BOOKS OF ACCOUNT OF THE ASS ESSEE BY INVOKING THE PROVISIONS OF SECTION 145(3) AND THEREAFTER MAKING A TRADING ADDITION OF RS. 3,00,35 1/-. THE ACTION OF ID. CIT (A) IS ILLEGAL, UNJUSTIFIED, AR BITRARY AND AGAINST THE FACTS OF THE CASE. RELIEF MAY PLEAS E BE GRANTED BY QUASHING THE REJECTIONS OF BOOKS OF ACCO UNT AND DELETING THE TRADING ADDITION OF RS. 3,00,351/- . 2. IN THE FACTS AND CIRCUMSTANCES OF THE CASE AND I N LAW THE ID. CIT (A) HAS ERRED IN CONFIRMING THE ACTION O F THE ID. AO IN DISALLOWING THE SUM OF RS. 2,39,977/- OUT OF SELLING, DISTRIBUTION AND PROMOTION EXPENSES. THE AC TION OF ID. CIT (A) IS ILLEGAL, UNJUSTIFIED, ARBITRARY A ND AGAINST THE FACTS OF THE CASE. RELIEF MAY PLEASE BE GRANTED BY QUASHING THE SAID DISALLOWANCE OF RS. 2,39,977/-. 3. IN THE FACTS AND CIRCUMSTANCES OF THE CASE AND I N LAW THE ID. CIT (A) HAS ERRED IN CONFIRMING THE ACTION O F THE ID. AO IN DISALLOWING THE SUM OF RS. 33,267/- OUT OF SAMPLE, DISTRIBUTION, BREAKAGE AND EXPIRY EXPENSES. THE ACTION OF ID. CIT (A) IS ILLEGAL, UNJUSTIFIED, ARBIT RARY AND AGAINST THE FACTS OF THE CASE. RELIEF MAY PLEASE BE GRANTED BY QUASHING THE SAID DISALLOWANCE OF RS. 33,267/-. 2. THE ASSESSEE FILED RETURN OF INCOME DECLARING TOT AL LOSS OF RS. 23,67,320/- ON 28/09/2008. THE CASE WAS SCRUTINIZED U/S 143(3) OF THE INCOME TAX ACT, 1961 (IN SHORT THE ACT). THE ASSESSEE IS ENGAGED IN THE BUSINESS OF MARKETING OF MEDICINE. THE FIRST GROUND OF THE APPEAL IS AGAINST INVOKING THE PROVISIONS OF SECTION 145(3) A ND THEREAFTER MAKING A ITA NO. 994/JP/2013 M/S SITROCS ZENETICA INDIA PVT. LTD. V S ACIT 3 TRADING ADDITION OF RS. 3,00,351/-. THE LD ASSESSING OFFICER OBSERVED THAT DURING THE YEAR UNDER CONSIDERATION, THE GROSS PROF IT @ 36.83% ON TURNOVER OF RS. 1,40,68,130/- WAS SHOWN, WHICH WAS 38.9 6% IN A.Y. 2007-08 ON TURNOVER OF RS. 164.48 LACS. THE LD ASSES SING OFFICER FURTHER OBSERVED THAT THE ASSESSEE HAS NOT MAINTAINED STOCK REGISTER OR EVEN QUANTITY DETAILS. THE LD ASSESSING OFFICER GAVE REA SONABLE OPPORTUNITY OF BEING HEARD BUT THE ASSESSEE SUBMITTED THAT IT IS N OT POSSIBLE TO MAINTAIN QUANTITATIVE AND QUALITATIVE STOCK. HOWEVER, THE CL OSING STOCK AS ON 31/3/2007 HAD BEEN PHYSICALLY VERIFIED.THE LD ASSESS ING OFFICER PROPOSED TO APPLY PROVISIONS OF SECTION 145(3) OF THE ACT, WH ICH WAS REPLIED BY THE ASSESSEE VIDE LETTER DATED 07/12/2010. AFTER CONSID ERING THE ASSESSEES REPLY, THE LD ASSESSING OFFICER HELD THAT THE HON'B LE SUPREME COURT IN THE CASE OF CHHABIL DAS TRUBHUWANDAS SHAH VS CIT 59 ITR 733 (SC) HAS HELD THAT IN ABSENCE OF QUANTITATIVE TALLY, THE FAL L IN MARGIN OF PROFIT CANNOT BE EXPLAINED. THE HONBLE RAJASTHAN HIGH COURT IN TH E CASE OF GHASIRAM TODARMAL VS. CIT 196 ITR 329 HAS HELD THAT IF THE STOC K REGISTER MAINTAINED BY THE ASSESSEE DOES NOT REFLECT THE TRU E STATE OF AFFAIRS OF THE ARTICLES CONSUMED OR PRODUCED, THE ACTION OF REJECT ION OF BOOKS OF ACCOUNT IS JUSTIFIED. THE ASSESSEE HAS NOT MAINTAINED STOCK REGISTER, THEREFORE, HE APPLIED THE PROVISIONS OF SECTION 145 AND REJECTED THE BOOK RESULT BY ITA NO. 994/JP/2013 M/S SITROCS ZENETICA INDIA PVT. LTD. V S ACIT 4 CONSIDERING THE HONBLE ORISSA HIGH COURT DECISION REPORTED AT 11 ITR 923 (ORISSA), 114 ITR 671 (BOM) AND 38 ITR 579 (SC). HE F URTHER HELD THAT IN THE CASE OF KANSARA BEARING PVT. LTD. VS ACIT 270 IT R 235 (RAJ) AND AJAY GOYAL VS ITO 99 TTJ 164, IT HAS BEEN HELD THAT PAST YEAR PROFIT DECLARED BY THE ASSESSEE IS THE BEST GUIDE FOR APPLICATION O F GP/NP RATE. THE HONBLE ITAT, JAIPUR BENCH, JAIPUR IN THE CASE OF AD DL.CIT VS LAKHANI SHOES LTD. 34 TW 32 AND IN THE CASE OF J.C. SHARMA V S. ITO 33 TW 80 HAS HELD THAT PAST HISTORY IS THE BEST GUIDE. THEREF ORE, HE APPLIED GP RATE @ 38.96% AND MAKING TRADING ADDITION OF RS. 3,00,351 /-. 3. BEING AGGRIEVED BY THE ORDER OF THE ASSESSING OF FICER, THE ASSESSEE CARRIED THE MATTER BEFORE THE LD CIT(A), WHO HAS CONF IRMED THE REJECTION OF BOOKS OF ACCOUNT. AS REGARD TRADING ADDITION OF RS. 3,00,351/- IS CONCERNED, THE ITAT, JODHPUR IN THE CASE OF AJAY GO YAL VS ITO 99 TTJ 164 HAD HELD THAT THE POSITION OF LAW IS WELL SETTL ED THAT THE BEST GUIDE FOR ESTIMATION OF THE TRADING RESULTS AFTER REJECTING T HE BOOKS IS EITHER THE PAST HISTORY OF THE ASSESSEE OR ANY OTHER COMPARABLE CAS E. THE PAST HISTORY OF THE ASSESSEE TAKES PREFERENCE OVER A COMPARABLE CAS E. THE APPELLANT HAD SHOWN GP OF 38.96% IN A.Y. 2007-08 AND 36.83% IN CUR RENT YEAR. THE TURNOVER OF THE ASSESSEE HAS DECLINED SUBSTANTIALLY . THE DEFECTS NOTICED IN ITA NO. 994/JP/2013 M/S SITROCS ZENETICA INDIA PVT. LTD. V S ACIT 5 BOOKS OF ACCOUNT WERE SERIOUS ENOUGH, THEREFORE, HE SUSTAINED THE ADDITION MADE BY THE ASSESSING OFFICER. 4. NOW THE ASSESSEE IS APPEAL BEFORE US. THE LD AR O F THE ASSESSEE HAS SUBMITTED THAT IN A.Y. 2007-08, THERE WAS A LUMP SUM ADDITION MADE BY THE ASSESSING OFFICER AT RS. 2 LACS, WHICH HAS B EEN SUSTAINED BY THE HONBLE ITAT AT RS. 1.00 LAC. THE ASSESSEE HAS ENGAGE D IN THE WHOLESALE TRADING OF MEDICINES AND IS COVERED BY THE STRINGEN T PROVISIONS OF THE DRUGS AND COSMETICS ACT, 1940 AND DRUGS AND COSMETI CS RULES, 1945. THE ASSESSEE CANNOT PURCHASE AND SALE OF THE MEDICIN ES WITHOUT BILL EVEN THE BATCH NUMBER OF THE MEDICINE AS SPECIFIED AT TH E TIME OF PURCHASE, WHICH IS BEING MENTIONED IN EACH AND EVERY SALE INVO ICE. ANY VIOLATION OF THE DRUGS AND COSMETIC RULES, WHICH RESULTED INTO HE AVY PENALTY AND PROSECUTION. PHARMACEUTICAL INDUSTRY CANNOT BE EQUA TED WITH ANY OTHER SECTOR. SINCE THE ASSESSEE COMPANY DEALS IN LARGE Q UANTITIES OF DIFFERENT MEDICINES, IT IS NOT PRACTICAL FOR IT TO MAINTAIN D AY WISE STOCK REGISTER. IF ANY DIFFERENCE IS FOUND IN THE STOCK, IT IS MITIGAT ED BY PHYSICAL VERIFICATION AT THE TIME OF CLOSING DATE. THE LD ASSESSING OFFICE R HAS REJECTED THE BOOK RESULT ON THE BASIS OF NOT MAINTAINING STOCK REGIST ER AND APPLIED THE GP RATE. DURING THE YEAR, THE MANAGEMENT OF THE COMPAN Y UNDERWENT ITA NO. 994/JP/2013 M/S SITROCS ZENETICA INDIA PVT. LTD. V S ACIT 6 CHANGE WHICH NOT ONLY RESULTED IN DECREASE IN THE TU RNOVER BY 15% BUT ALSO RESULTED INTO SHRINKING OF THE MARGINS. THEREFO RE, HE PRAYED TO REVERSE THE ORDER OF THE LD CIT(A). 5. AT THE OUTSET, THE LD DR HAS VEHEMENTLY SUPPORTE D THE ORDER OF THE LD CIT(A). 6. WE HAVE HEARD THE RIVAL CONTENTIONS OF BOTH THE PARTIES AND PERUSED THE MATERIAL AVAILABLE ON THE RECORD. THE ASSESSEE A DMITTED THAT HE HAS NOT MAINTAINED DAY TO DAY STOCK REGISTER. THE SALE A S WELL AS MARGIN OF GP HAS GONE DOWN COMPARED TO PRECEDING YEAR. THE REASONS GIVEN BY THE ASSESSEE BEFORE THE LOWER AUTHORITIES ARE NOT SUFFIC IENT TO ACCEPT THE BOOK RESULT AS SUCH. THE ASSESSEE IS GOVERNED BY VARIOUS DRUGS AND COSMETICS ACT BUT IN ABSENCE OF ANY STOCK REGISTER, THE ASSES SEES INCOME FOR THE YEAR CANNOT BE DEDUCED CORRECTLY. THEREFORE, THE LD CIT(A) UPHELD THE ORDER OF THE LD ASSESSING OFFICER U/S 145(3) OF THE ACT. WHEN BOOKS OF ACCOUNT HAS BEEN REJECTED, THE ASSESSING OFFICER IS TO ESTIMATE THE INCOME FAIRLY BY KEEPING IN VIEW OF THE PAST HISTORY OF THE ASSESSEE. THIS SUGGESTS THAT THE ADDITIONS WERE MADE IN THE PAST, WHICH HAS BEEN CONFIRMED BY THE ITAT. THEREFORE, WE CONFIRM THE LUMP SUM ADDITION OF RS. 1.00 LAC UNDER THIS HEAD AND REMAINING ADDITION IS DELETED. ITA NO. 994/JP/2013 M/S SITROCS ZENETICA INDIA PVT. LTD. V S ACIT 7 7. THE 2 ND GROUND OF THE APPEAL IS AGAINST NOT ALLOWING THE SE LLING, DISTRIBUTION AND PROMOTION EXPENSES AT RS. 2,39,977 /-. THE LD ASSESSING OFFICER OBSERVED THAT THE ASSESSEE HAS DEBITED TOTA L EXPENSES OF RS. 23,99,771/- UNDER THIS HEAD. HE FOUND THAT THE ASSE SSEE HAS CLAIMED THIS EXPENDITURE ON SELF/HANDMADE VOUCHERS WITHOUT ANY SU PPORTING EVIDENCES. THEY WERE NOT HAVING COMPLETE NARRATION O R COMPLETE ADDRESSES OF THE PERSONS TO WHOM IT WAS PAID. ONLY NA ME OF PERSONS HAVE BEEN MENTIONED IN IT. THEREFORE, VERIFICATION OF COR RECTNESS IS NOT POSSIBLE. FURTHER HE HELD THAT SOME OF THE EXPENSES VOUCHERS WERE NOT FOUND TO BE INCORRECT FOR BUSINESS PURPOSES, THEREFORE, HE DISA LLOWED EXPENSES AT RS. 2,39,977/- OUT OF TOTAL EXPENSES. 8. BEING AGGRIEVED BY THE ORDER OF THE ASSESSING OF FICER, THE ASSESSEE CARRIED THE MATTER BEFORE THE LD CIT(A), WHO HAD ALS O CONFIRMED THE ADDITION AFTER CONSIDERING THE ASSESSEES SUBMISSIO N MADE THAT SALE PROMOTION EXPENSES IS AN ESTABLISHED TRADE PRACTICE IN PHARMA BUSINESS. THE COMPANY HAS TO INCUR CERTAIN EXPENSES ON DOCTORS FOR THEIR TRAVELLING, CONFERENCE EXPENSES, ELECTRONICS ITEMS FOR THEIR HO SPITALS/NURSING HOMES, ORGANIZING FREED HEALTH CAMPS/TEST FACILITY ETC. TH E FACT IS SO EVIDENT THAT IT DOES NOT REQUIRE ANY CONFIRMATION FROM THE DOCTO RS. IT IS FURTHER ITA NO. 994/JP/2013 M/S SITROCS ZENETICA INDIA PVT. LTD. V S ACIT 8 SUBMITTED THAT THE TOTAL EXPENDITURE OF RS. 23,99,7 71/- EXPENSE AMOUNTING TO RS. 14,33,313/- HAD BEEN PAID THROUGH CHEQUE ONLY. THEREFORE, THE ASSESSEE SUBMITTED BEFORE HIM TO DELE TE THE ADDITION OR RESTRICT IT TO A REASONABLE LIMIT. 9. NOW THE ASSESSEE IS IN APPEAL BEFORE US. THE LD AR OF THE ASSESSEE HAS SUBMITTED THAT THE LD ASSESSING OFFICER HAD MAD E AN AD HOC DISALLOWANCE OF 10% ON TOTAL EXPENDITURE TOWARDS SELL ING, DISTRIBUTION AND PROMOTION EXPENSES. DURING THE YEAR UNDER REFERENCE , THE ASSESSEE COMPANY INCURRED 60% OF THE TOTAL EXPENDITURE THROU GH CHEQUES, WHICH UNDER NO CIRCUMSTANCE CAN BE DOUBTED. THEREFORE, IT IS PRAYED THAT THE DISALLOWANCE SHOULD BE RESTRICTED TO 10% OF CASH PAY MENT ONLY, WHICH IS WORKED OUT AT RS. 96,645/-. 10. THE LD DR HAS VEHEMENTLY SUPPORTED THE ORDER OF THE LD CIT(A). 11. WE HAVE HEARD THE RIVAL CONTENTIONS OF BOTH THE PARTIES AND PERUSED THE MATERIAL AVAILABLE ON THE RECORD. THE LD AR REA SONABLY ACCEPTED THE DEFAULT AS THE ASSESSEE HAD PAID 60% OF EXPENDITURE THROUGH THE ACCOUNT PAYEE CHEQUES AND REMAINING IN CASH, THEREFORE, WE CONFIRM THE LUMP SUM ADDITION OF RS. 96,645/-. ITA NO. 994/JP/2013 M/S SITROCS ZENETICA INDIA PVT. LTD. V S ACIT 9 12. THE 3 RD GROUND OF THE APPEAL IS AGAINST DISALLOWANCE OF SUM OF RS. 33,267/- OUT OF SAMPLES DISTRIBUTION AND EXPIRY EXP ENSES. THE LD ASSESSING OFFICER OBSERVED THAT THE ASSESSEE HAS CL AIMED SAMPLE DISTRIBUTION, BREAKAGE AND EXPIRE EXPENSES OF RS. 3 ,33,267/- THIS YEAR. THE SAMPLES WERE DISTRIBUTED TO DOCTORS AND OTHER REL ATED PERSONS OF PROFESSION TO MAKE THEM FAMILIAR WITH THE COMPANY AS WELL AS THE PRODUCTS SOLE BY IT. THE LD ASSESSING OFFICER DISALL OWED 10% OUT OF TOTAL EXPENSES OF RS. 33,267/- ON ACCOUNT OF NO PROPER RE CORDS WERE AVAILABLE, WHICH HAS BEEN CONFIRMED BY THE LD CIT(A) ON THE GRO UND THAT THE AR HAS NOT CONTROVERTED THE FINDING OF THE ASSESSING OFFIC ER. THE DISALLOWANCE MADE BY THE ASSESSING OFFICER WAS CONSIDERED TO BE F AIR AND REASONABLE AND DOES NOT CALL FOR ANY INTERFERENCE. THE ASSESSEE CLAIMED BEFORE US THAT THESE ARE THE E XPENSES FOR DISTRIBUTION OF VARIOUS SAMPLES, MEDICINES TO THE D OCTORS. THE LD ASSESSING OFFICER HAD DISALLOWED THESE EXPENSES ONLY ON ACCOU NT OF NO PROPER RECORD BUT NO SPECIFIC DEFECT HAS BEEN POINTED OUT IN BILLS VOUCHERS AND THE BOOKS OF ACCOUNT. THEREFORE, HE PRAYED TO DELETE THIS DISALLOWANCE. THE LD DR HAS VEHEMENTLY SUPPORTED THE ORDER OF THE LD CIT(A). ITA NO. 994/JP/2013 M/S SITROCS ZENETICA INDIA PVT. LTD. V S ACIT 10 13. WE HAVE HEARD THE RIVAL CONTENTIONS OF BOTH THE PARTIES AND PERUSED THE MATERIAL AVAILABLE ON THE RECORD. THE LD ASSESSI NG OFFICER MADE AD HOC DISALLOWANCE. IT IS PRACTICE IN THE MEDICINE PROFESS ION THAT SAMPLES ARE TO BE GIVEN TO THE DOCTORS, WHICH IS BUSINESS EXPENDITU RE AND INCURRED WHOLLY AND EXCLUSIVELY FOR THE BUSINESS PURPOSES. THEREFORE , THE ADDITION CONFIRMED BY THE LD CIT(A) IS DELETED. 14. IN THE RESULT, APPEALS OF ASSESSEE IS PARTLY AL LOWED. ORDER PRONOUNCED IN THE OPEN COURT ON 13/05/2016. SD/- SD/- DQYHKKJR VH-VKJ-EHUK (KUL BHARAT) (T.R. MEENA) U;KF;D LNL;@ JUDICIAL MEMBER YS[KK LNL;@ ACCOUNTANT MEMBER TK;IQJ@ JAIPUR FNUKAD@ DATED:- 13 TH MAY, 2016 RANJAN* VKNS'K DH IZFRFYFI VXZSFKR @ COPY OF THE ORDER FORWARDED TO: 1. VIHYKFKHZ @ THE APPELLANT- M/S SITROCS ZENETICA INDIA PVT. LTD., JAIPUR, NOW SCORTICS HEALTHCARE INDIA PVT. LTD., JA IPUR. 2. IZR;FKHZ @ THE RESPONDENT- THE ACIT, CIRCLE-4, JAIPUR 3. VK;DJ VK;QDR @ CIT 4. VK;DJ VK;QDRVIHY @ THE CIT(A) 5. FOHKKXH; IZFRFUF/K] VK;DJ VIHYH; VF/KDJ.K] T;IQJ @ DR, ITAT, JAIPUR 6. XKMZ QKBZY @ GUARD FILE (ITA NO. 994/JP/2013) VKNS'KKUQLKJ @ BY ORDER, LGK;D IATHDKJ @ ASST. REGISTRAR