SMT. TASBEER DEVI,JAIPUR vs. INCOME TAX OFFICER, WARD-6-5, JAIPUR

During the course of hearing, the ld. AR submitted that the appellant is a window lady and proprietor of M/s Shahid Basti Ram Filling Centre, Jaipur, a Petrol Pump which was allotted to her in F.Y. 2002-03 by IOCL, on compassionate ground being widow of Kargil War Martyr. As the appellant is a widow lady with a village background, she had no business acumen to carry out the business operations personally. In the circumstances, she had to carry out these business activities through her "employees' only. It was submitted that all the sales and purchases and other over-head expenses were being accounted for and vouched meticulously and were subjected to close and periodical checking at various levels by the appellant, besides regular and periodically checking by the Petroleum Authorities from time to time. The turn-over is regulated through computerized machines only. In the circumstances, all the sales, 2 Smt. Tasbeer Devi, Jaipur Vs. ITO, Ward-6(5), Jaipur purchases and other expenses etc. were fully and properly vouched and verifiable as there is no scope for any pilferage or tempering of the stocks etc. for any reason including the 'evaporation shortages' etc. with the help of Marketing Discipline Guidelines' issued by Indian Oil. During the course of the assessment proceedings, these facts were brought home explicitly which were found to be correct in the assessment proceedings. The ld. AO was however not willing to accept such explanation on the ground that the GP rate shown was comparatively low and the loss of quantities of the stock due to evaporation was also erratic month-wise. There was downfall in the GP rate during the year and the loss of quantities by evaporation was also erratic month-wise. Accordingly, the ld. AO had proceeded to reject the books results u/s 145(3) of the Act and applied GP rate of 1.95% on the declared turnover as against 1.5% declared by the assessee and made an addition of Rs.11,26,017/-. Further, addition of Rs.3,12,055/- was also made by disallowing certain P&L Expenses on the ground that these were not properly vouched and verifiable. On part, part relief has been given by the ld CIT(A) and against the said findings, the assessee is now in appeal before the Tribunal.

It was submitted by the ld AR that the book results have been incorrectly rejected u/s 145(3) of the Act ignoring the past history of the case. In the past and in subsequent years, the book results had never been rejected u/s 145(3) of the Act and no trading addition had ever been made. No mistake or any discrepancy was pointed out in the quantities of turn-over and the rates of sales or purchases. In absence of any such mistake, or discrepancy, no trading addition is legally maintainable. Low GP rate should not be basis of the rejection of the books as held by the Hon’ble Rajasthan High Court in the case of M/s Hues India Pvt. Ltd. In the Asstt. Yr. 2009-10, the declared GP of 1.56% had been 3 Smt. Tasbeer Devi, Jaipur Vs. ITO, Ward-6(5), Jaipur accepted by the Department without making any trading addition. Thus the GP shown during this year @ 1.5% is very much comparable and acceptable. During this year, though the GP rate had gone down as compared to the preceding year for the valid and honest reasons, yet the NP rate was far better. The NP during the year was 0.48% as against 0.44% in the two immediate preceding years. In the circumstances, the fall in GP during the year is not detrimental as adversely viewed by the authorities below. Again the authorities below have incorrectly observed that there was 'Excess Weight Loss’ during this year which had caused the low GP rate. In fact, during this year, there was no 'excess weight loss' as alleged by the Authorities Below. As per chart submitted during the assessment proceedings, during this year, the weight loss was 0.55% & 0.18% in Petrol and Diesel respectively as against 0.60% and 0.20% in the past. The Authorities Below did not dispute such figures. Thus this finding is factually incorrect, warranting no adverse view. Lastly, while giving the instance of inconsistent weight loss by evaporation in the months of December 773 litres as compared to 717 in the month of March, they had opined that no proper record of the weight loss had been kept, necessitating the rejection of book results u/s 145(3) of the Act. In fact, such findings are factually and practically incorrect. The variation in the weight loss in the months of December and March may be for hundred and one reasons; depending upon the temperature and handling manner etc. More-over these figures are not correct as pointed out in the written submissions. And lastly, the alleged inconsistent variation in weight loss is very insignificant i.e. about 56 liters worth Rs. 3,909/- hardly justifying such huge addition to the tune of Rs. 10 lac or so. Obviously such huge addition is devoid of merits and deserves to be deleted. Smt. Tasbeer Devi, Jaipur Vs. ITO, Ward-6(5), Jaipur 4. It was further submitted that the ld. CIT(A) had upheld the rejection of the books u/s 145(3) of the Act on the basis of the findings of the ld. AO that the shortage claimed is higher than normal & the GP had gone down during the year. Both the reasons as assigned by the ld. CIT (A) to confirm the rejection of book results u/s 145(3) of the Act are 'factually' and 'legally' incorrect as evident from the above findings itself. In fact, the above findings are self-contradictory. In first para of the findings, she had observed that shortage claimed was higher than normal and in the second para of the findings, she had herself admitted that during this year, the percentage of the shortage had reduced from 0- 60% to 0.55%. Thus it had been admitted that during the year, shortage occurred due to evaporation had reduced from 0.60% to 0.55%. In the circumstances, the first reason as assigned by the ld. CIT (A) is factually incorrect. More-over, the percentage of shortage claimed in the preceding year had been duly accepted and assessed by the Revenue. In the circumstances, rejection of book results on this account are not warranted. The second reason as assigned by the ld. CIT (A) is also not legally maintainable as held by the Honorable Rajasthan High Court in the case of M/s Hues India Pvt. Ltd. (vide appeal No. 56/2015 dated 30.7.2015). The Honorable High Court have observed that for low GP rate, book results should not be rejected u/s 145(3) of the Act. This judgment has direct bearing on the facts of the present case. Thus both the reasons as assigned by ld. CIT (A) to reject the book results are factually and legally incorrect so the findings on the point deserve to be quashed summarily.

Regarding trading addition of Rs.10,52,326/- as confirmed by the ld. CIT (A), it was submitted that she had sought to confirm this 'huge' addition mainly for the reason that during the year, there was fall in the GP rate as compared to the preceding years. As the quantity loss by way of Smt. Tasbeer Devi, Jaipur Vs. ITO, Ward-6(5), Jaipur evaporation had been erratic as evident from the monthly charts. In the monthly chart of MS, the shortage in the month of December was shown at 773 liters as against 717 liters shown in the month of March. Accordingly, she had opined that the quantity loss due to evaporation had been erratic. In the circumstances, the ld. CIT (A) had applied GP of 1.92% (i.e. average of last two years) as against 1.50% shown by the appellant during the year. Obviously working of profit in this manner is most unreasonable and un-fair for the following reasons:

It was further submitted that regarding the disallowance of Rs.1,55,880/- out of salary expenses as confirmed by the ld. CIT (A), it may be noted that the salary expenses were fully vouched and verifiable with the help of documentary evidences like ESI, P.F and Labor Records etc. as discussed at length in the written submissions made before the ld. CIT (A). It is noted that the authorities below had incorrectly mentioned that no signature of the employees was obtained in the salary sheets in support of such payments. In fact, such signatures were obtained separately on the vouchers as produced before the ld. CIT (A). The ld. CIT (A) was however not willing to accept its correctness on flimsy grounds. The ld. CIT (A) had mainly questioned the correctness of the salary payments to three employees; without specifying their names 8 Smt. Tasbeer Devi, Jaipur Vs. ITO, Ward-6(5), Jaipur and the details of salary payments allegedly paid to them. Both the Authorities had failed to mention such details. In absence of specific details and names of three employees, no valid addition could be made and the same deserves to be deleted summarily.

Regarding salary payment of Rs.78,000/- made to Shri Shushil Kumar Yadav, the son of the appellant, it was submitted that the ld. CIT (A) had disallowed the same without assigning any reason. In fact, Shri Shushil Kumar had been in the employment of the appellant for last many years and had been paid salary in the same vicinity. He is 22 years old and is a B.Com graduate. In the circumstances, the salary payments made to him were very fair and reasonable. During this year, he was paid about Rs.6,000/- per month totaling Rs.78,000/- (including bonus etc.). In the past also, salary payments made to him were accepted by the Department. The Authorities Below have no valid reason to deviate from the past history. More-over, he is regularly assessed to tax and had been showing such salary receipts in his Income Tax Returns. As the salary payments made to him are evident by the ESI LABOR, PF & Income Records etc. and had been accepted in the past, so the same could not be negated during this year on flimsy grounds as assigned by the ld. CIT(A). In the circumstances, the additions so confirmed by the ld. CIT(A) under this head are devoid of merits and the deserve to be deleted summarily.

Per contra, the ld DR submitted that the case of the assessee was selected for scrutiny under CASS for the reason that the assessee has shown low net profit from large gross receipts. During the course of assessment proceedings, the Assessing officer observed that the assessee has declared lower G.P rate of 1.5% and the AR of the assessee has not been able to justify and specify the reason to the satisfaction of the Assessing Officer for Smt. Tasbeer Devi, Jaipur Vs. ITO, Ward-6(5), Jaipur such fall in the G.P rate as compared to previous years. Further, on perusal of the stock records produced for verification, it was gathered by the Assessing Officer that shortages on account of evaporation was on higher side in the month of December, 2011 as compared to June, 2011 and in normal circumstances, evaporation during the month of June would have been higher than that of December but the assessee did not offer any satisfactory explanation. Further, the assessee failed to produce sales bills for petrol, diesel and lubricants. It was accordingly submitted that due to the aforesaid discrepancies, the book result were rejected by invoking section 145(3) of the Act and gross profit was estimated at 1.95% as against 1.5% declared by the assessee based on previous year results. It was further submitted that on appeal, ld. CIT(A) has already reduced the G.P rate to 1.9% and therefore, in the given facts and circumstances of the case, no further relief may be allowed to the assessee.

Regarding disallowance of various expenses made by the Assessing Officer, it was submitted that the ld. CIT(A) has already reduced such disallowance to 10% and given that the expenses are not fully verifiable, the said findings of the ld. CIT(A) should be confirmed. Regarding the salary expenditure, our reference was drawn to the findings of the ld. CIT(A) wherein it has been sated that no signature of recipient were obtained in salary-sheet and some vouchers were produced during the appellate proceedings which seems prepared in a single sitting narration etc. It was accordingly submitted that there is no infirmity in the finding of ld. CIT(A) and the same should be confirmed.

We have heard the rival submissions and purused the material available on record. We find that the case of the assessee was selected for scrutiny on account of low net profit rate. In this regard, we refer to the following comparative N.P. chart for last years and the year under consideration: 10 Smt. Tasbeer Devi, Jaipur Vs. ITO, Ward-6(5), Jaipur Asstt. Sales Gross Profit Net Profit G.P. Rate N.P. Rate Year 2012-13 24,55,40,818/- 36,62,028/- 11,66,563/- 1.50% 0.48% 2011-12 19,64,34,172/- 38,26,733/- 8,59,672/- 1.94% 0.43% 2010-11 17,02,32,332/- 32,35,796/- 7,53,218/- 1.90% 0.44% On perusal of aforesaid figures, we find that the assessee has declared a higher net profit rate of 0.48% as compared to 0.43% for A.Y 2011-12, and 0.44% for A.Y 2010-11. Therefore, as far as comparative position vis-à-vis past years is concerned, the assessee has declared a better net profit rate during the year under consideration.

Now, coming to the reasons for rejection of books of accounts and invocation of provisions of section 145(3) of the Act. In this regard, on perusal of the assessment order, we find that the assessee is a proprietor of M/s Shahid Basti Ram Filling Centre, Jaipur, an IOCL Petrol Pump which was allotted to her in F.Y. 2002-03 where the quantity and price of various petroleum products are regulated by IOCL and there is thus no dispute regarding the purchases, the sales, the opening and closing stock as shown by the assessee in the profit/loss account and stock records have been maintained and verified during the assessment proceedings. The Assessing officer has however disputed the shortages on account of evaporation claimed by the assessee and has compared the evaporation shortages for two months i.e, June and December and has come to a conclusion that the evaporation shortages so claimed for the whole year is not acceptable. We find that there may be fluctuation in evaporation loss on month-on-month basis, however, if we look at the comparative yearly shortage percentage vis-à-vis past years as under: Smt. Tasbeer Devi, Jaipur Vs. ITO, Ward-6(5), Jaipur Asstt. Petrol (Ltrs.) Diesel (Ltrs.) Year Sale Shortage Rate of Sale Shortage Rate of Shortage Shortage 2010-11 1567964 9412 0.60% 1624439 3245 0.20% 2011-12 1468456 8807 0.60% 1654733 2990 0.18% 2012-13 1520239 8359 0.55% 1955831 3550 0.18% we find that the assessee has claimed shortage of 0.55% in Petrol during the year as against 0.60% in the past two years and similarly, the assessee has claimed 0.18% in Diesel during the year which is comparable to A.Y 2011-12 and better than 0.20% claimed in A.Y 2010-11. The same provides a more realistic and rationale basis as compared to monthly comparison and will factor-in the climatic and other factors prevailing throughout the year resulting in such shortages. Even where the Assessing officer intends carrying out monthly comparison, then the shortages claimed in the month of June 2011 should have been compared with shortages in the month of June 2010 and likewise, for other month which however, has not been done in the instant case. In any case, the comparative shortages for two months is not reflective of any inconsistent claim of such shortages for the whole year and it is even not the case of the Revenue that similar discrepancies are found in remaining months. We therefore find that the shortages so claimed by the assessee are lower than what has been claimed and allowed by the Revenue in past two years for which the requisite data is available on record and therefore, the same being found comparable cannot be form a rational basis for rejection of books of accounts so maintained by the assessee. In the result, the rejection of books of account is hereby set-aside and the consequent trading addition is hereby deleted. In the result, the matter is Smt. Tasbeer Devi, Jaipur Vs. ITO, Ward-6(5), Jaipur decided in favour of the assessee and against the Revenue and the ground of appeal is allowed.