MANORAMA DEVI,SAMBALPUR vs. ITO,WARD-1, JHARSUGUDHA

First, we shall decide the appeal of the assessee in 2014-2015.

Brief facts of the case are that the assessee is an individual, engaged in the business of trading in Foreign Liquor (IMFL). The return of income was filed on 13.12.2014 declaring total income at Rs.13,80,450/- and the case was taken up for complete scrutiny. The AO vide its order 2 dated 09.12.2016 has invoked the provisions of Section 145(3) of the Act after observing many defects in the books of accounts and had applied 5% profit rate on the turnover of Rs.11,18,54,650/-. Against the said order, the assessee preferred an appeal before the ld. CIT(A), whereby the ld. CIT(A) has dismissed the appeal of the assessee. Therefore, the present appeal is filed before us.

During the course of hearing, ld. AR submitted that the assessee is engaged in the business of IMFL and the entire goods have been purchased from Odisha Beverages Corporation Ltd.( a State Govt. enterprises) and necessary TCS has been made at the time of purchase of goods. The AO has not doubted the sales made by the assessee and had applied 5% profit rate on estimation basis without considering the past history of the assessee nor any comparable case has been brought before applying such high rate of profit in the case of the assessee.

During the course of hearing, it is submitted by the ld.AR that in preceding years, the assessee was also engaged in the same line of business and the turnover of the assessee had increased from Rs.5.53 crores in A.Y.2010-11 to Rs.11.18 crores in the year under appeal and the assessee despite of increase in turnover has been able to achieve the progressive profit rate. In support of this claim, he has placed a chart of past years’ history which is available in the paper book at page 214 and the same is reproduced as under :-

3 Manorama Devi PAN No.ABPPD6262M Assessment Year 2014-2015 CHART SHOWING NET PROFIT FROM AY 2010-11 TO 2013-14 Assessment Assessment Turnover Net Profit Percentage( Year U/s.143(1)/ (In Rs.) (In Rs.) %) 143(3) 2010-11 143(1) 5,53,81,485/- 5,96,127/- 1.07% 2011-12 143(1) 7,45,38,431/- 8,44,664/- 1.13% 2012-13 143(3) 7,45,51,670/- 10,00,312/- 1.34% 2013-14 143(3) 8,99,98,575/- 12,91,985/- 1.43% Note: Copy of 143(3) assessment is appearing at page no.157 to 164 of this paper book 6. Ld. AR, thus, submitted that since in the immediately preceding years, the department in the assessment completed u/s.143(3) of the Act has accepted net profit rate as declared by assessee ranging from 1.34% to 1.43%, therefore, application of such a high rate in the year under appeal at rate of 5%, is very excessive and he requested that results declared by it be accepted.

On the other hand, ld. Sr. DR supports the order of the lower authorities and submitted that there were many defects observed by the AO in the assessment order and after considering the said errors and omissions in the books of accounts of the assessee, the AO reached to the conclusion that the books of accounts of the assessee is not ascertainable and verifiable, therefore, he applied the provisions of Section 145(3) of the Act. He further submitted that in past years no such error/defects were notified in the books of account of assessee, thus, such orders cannot be followed.

With regard to the estimation of profit @5%, ld. Sr. DR submitted that looking to the quantum of defects in the books of accounts and also there was a negative cash balance in the cash book, the estimation made by the AO at 5% is quite reasonable. Accordingly, the ld. Sr. DR prayed for confirmation of the orders of the lower authorities.

We have considered the rival submissions. In the present case, admittedly, the AO has invoked the provisions of Section 145(3) of the Act which is not challenged by the assessee before us. Thus, the parties have accepted that the results declared based on such books of accounts are not sacrosanct. The assessee is dealing in IMFL and all the purchases have been made from the Government Undertaking i.e. Odisha Beverages Corporation, therefore, the purchases made cannot be doubted. However, the assessee has failed to produce the sales register and sales vouchers, therefore, the sale price charged from the customers cannot be verified. The assessee’s claim is that she had forced to sell the goods at lower rates in order to reach the target does not come to save because in the absence of the sales bills, such contentions cannot be verifiable more particularly looking to the fact that there were negative cash balance in the cash book which further proves that there were many wrong entries. Further the assessee has not maintained any record of sales made on day-to-day basis. In the instant case, the assessee has provided its past history of preceding four years wherein two years the assessment were completed u/s.143(3) of the Act by accepting the profit rate ranging between 1.34 to 1.43%, however, in those years, the 5 turnover was only of Rs.7.45 crores and Rs.8.99 crores, respectively. It is settled law that for making estimation of income, past history of the assessee is the best guide. As is observed in the instant case, the assessee has never declared net profit as high as 5% as was applied by the AO. Thus, looking to the peculiar facts of the case and also considering the nature of defects as pointed out by the ld. AO, in our opinion, it would be fair and reasonable if the profit rate of 2.25% is applied on the turnover of Rs.11,18,54,650/- to meet the end of justice. Therefore, we direct the AO to apply the net profit @2.25% instead of 5%. Accordingly, the grounds of appeal