RAM BABU KESARWANI,ALLAHABAD vs. IT OFFICER, ALLAHABAD

This appeal, filed by assessee, being 09.10.2013 in Appeal No.35/ITO/R-1(3)/Alld/10-11 passed by learned Commissioner of Income Tax (Appeals,) Allahabad(hereinafter called "the CIT(A)"),for assessment year(ay)2008-09, the appellate proceedings had arisen before learned CIT(A) from assessment order dated 27.09.2010 passed by learned Assessing Officer (hereinafter called "the AO") u/s 143(3)of the Income-tax Act, 1961 (hereinafter called "the Act") for ay: 2008-09. We have heard both the parties through video conferencing mode through virtual court.

The grounds of appeal

The brief facts of the case that the assessee is engaged in the business, wherein the AO was of the view that the assesse is engaged in the business of Paan and cold drinks. The assessee on its part is contending that he is only engaged in the business of cold drinks , wherein he is re-selling cold drinks of Pepsico and also selling ‘Masala Drink’ made by adding Masala to cold drinks of Pepsico which fetches higher profits/margin compared to simply re-selling bottles of Pepsico. The assessee is having proprietary concern under the name and style of ‘Lallu Pan Bhandar’ and is having retail outlet in Civil Lines Area in Allahabad The case of the assessee was selected for scrutiny by Revenue under CASS and statutory notices u/s 143(2) and 142(1) of the 1961 Act were issued by AO from time to time during the course of assessment proceedings which were admittedly duly served on the assessee. The assessee on his part has participated in assessment proceedings conducted by AO and submitted replies to the queries raised by AO from time to time during the course of assessment proceedings. There were three additions which are subject matter of appeal before the tribunal. The first addition was made by the AO wherein there was an enhancement of profit ratio to 25% as against profit ratio declared by the assessee to the tune of 20% , which addition was later confirmed by ld. CIT(A). There was no dispute so far as quantum of sales are concerned of cold drinks. The AO had observed that the assessee has purchased cold drinks and later on there was mixing of some masalas to these cold drinks which were later sold as ‘Masala Drinks’ at higher price which gives a profit margin of 33% , but profit ratio was enhanced by the AO to 25% while framing assessment against the assessee . The AO had observed that proper books of accounts were not maintained by the assessee , as detailed in the assessment Assessment Year: 2008-09 Ram Babu Kesarwani order which led to rejection of books of accounts by the AO . Section 145(3) of the 1961 Act was invoked by the AO and accordingly higher profit margin was adopted by the AO while assessing income of the assessee, as detailed above. The ld. CIT(A) rejected the contentions of the assessee and confirmed the additions as were made by the AO. Before us, the ld. Counsel for the assessee has vehemently argued that no addition was justified, even in the case books of accounts are rejected , since the assessee is engaged in the business of retail sales of cold drinks , the profit margin ought to be restricted to 5% of the turnover as provided u/s 44AF of the 1961 Act. The learned counsel for the assessee also submitted that the assessee had declared turnover with the authorities which has been accepted by the authorities including VAT department, and hence no additions are justified. On the other hand, the ld. DR has submitted that the assessee had not maintained proper books of accounts as detailed in the orders of the authorities below, and even stock registers were not produced and hence AO was justified in rejecting books of accounts and additions were rightly made by invoking provisions of Section 145(3) of the 1961 Act , which needed to be confirmed by tribunal by dismissing appeal of the assessee on this ground. It was submitted by learned DR that there is no question of resorting to Section 44AF of the 1961 Act as the assessee had declared higher ratio of profit itself in the return of income filed with the Revenue. The Bench directed learned counsel for the assessee to file complete details of profit margin declared by the assessee in the preceding years and whether the same was accepted by Revenue , which the learned counsel for the assesse agreed to send the said details on the date of hearing itself by email to tribunal with copy of learned DR. The learned counsel for the assesse has now filed the details of comparative profit margins declared by assesse in succeeding years by email, but unfortunately no details were filed as were called by the Bench of the preceding years . The learned counsel has also not filed the status of acceptability by Revenue of profit margin declared by assesse in the return of income filed by him with Revenue. We have heard both the parties and perused the 4 Assessment Year: 2008-09 Ram Babu Kesarwani material on record. In our considered view after hearing both the parties , it is observed that the assessee is purchasing cold drinks of Pepsico for which it had entered into an agreement with Pepsico India Holdings Private Limited on 01.01.2007. The assessee is having a shop outlet in Civil Lines, Allahabad. The assessee is making masala drinks after adding Masala into Pepsico to add value to the cold drinks purchased of Pepsico. The assessee has declared profit margin of 20% , which has been enhanced to 25% by the AO as in view of the AO , the purchase price of cold drinks is Rs. 9 for 300 ml bottle which sale price of masala drink is Rs. 12 for 300ml , fetching gross margin of 33%, but the profit margin were enhanced by AO to 25% as against declared profit margin of 20%. The assessee is contending that he has not sold the entire cold drinks purchased during the year in the form of Masala Drinks but only portion of sales of cold drinks were in the form of Masala Drinks which had yielded higher income. The assessee on its part has not filed complete details , nor stock records were filed as well balance sheet were not filed. The authorities below have detailed in their orders about non submission of records by the assesse. The details called for by the Bench has also not been filed for the profits declared in the preceding years and its acceptability by Revenue for those years. Under these circumstances, it is important to compare profit ratio declared by the assessee in the earlier years and the acceptability of the same by the Department in those years. The learned counsel for the assesse was directed by the Bench to file complete details of the profit ratios of the preceding years declared by the assesse and its acceptability by Revenue for those years , but the same is not filed before us rather details of succeeding years are filed. Under these circumstances, we are remitting the matter back to AO for fresh enquiry as to profit declared by the assessee in the earlier three years and its acceptability by Revenue and if the same were accepted by Revenue in those three years and similar business is carried on by the assessee in the impugned ay, then in that situation, the AO is directed to adopt average of the profits for the last three years or the profits declared by the assessee for the impugned ay which ever is 5 Assessment Year: 2008-09 Ram Babu Kesarwani higher However, in case suppression is detected by AO keeping in view peculiar/specific facts(evidences) and circumstances in the year under consideration, then the onus is on the AO to bring on record profit earned by other persons in the similar businesses, and then based upon the same, the profit of the assessee be computed by Revenue for impugned ay. Thus, the matter is remitted back to the AO for denovo determination of the issue on merits in accordance with law, as directed by us as above. The AO shall give proper and adequate opportunity of being heard to the assessee in accordance with principles of natural justice and evidences in support of contentions filed by the assessee in denovo proceedings shall be admitted by the AO and adjudicated on merits in accordance with law. These ground of appeal

The third addition agitated before tribunal vide ground numbers 5 to 7 are with respect to advance discount of Rs.5,00,000/- given by M/s Pepsico in the month of August 2007 to the assessee. The assessee has entered into an agreement dated 01.01.2007 with Pepsico India Holdings Private Limited for a period of 12 months ending on 31.12.2007, whereby the assessee has committed to purchase 14,000 crates of Pepsi ( and its other brands) . The assessee has been given purchase discount of Rs.5,00,000/- by Pepsico as per terms of the agreement in the month of August 2007 . The said amount being purchase discount was on trading account, as the assessee is in the business of selling cold drinks. The aforesaid amount of Rs. 5,00,000/- was received by the assessee in the previous year 2007-08 relevant to ay: 2008-09 ( credited in his bank account on 07-08-2007) but same has not been offered to tax by the assessee in ay:2008-09 , nor the same was offered to tax by assessee in ay: 2007-08. The assessee is following cash basis of accounting as stated by learned counsel for the assessee before us. There is no justification offered by the assessee in not offering to tax the said amount of Rs.5,00,000/- in ay: 2008-09. The assessee has conceded before Ld. CIT(A) that the said amount is taxable for impugned 7 Assessment Year: 2008-09 Ram Babu Kesarwani assessment year in the hands of the assessee , as this ground/issue was not pressed by assessee before learned CIT(A), who was pleased to dismiss this issue/ground as not being pressed and the said amount of Rs. 5,00,000/- was ordered to be brought to tax by learned CIT(A) in the hands of the assessee for impugned ay: 2008-09. Before us also there is no concrete argument backed with any evidence submitted by learned counsel for the assessee as to why the additions upheld by learned CIT(A) be not confirmed by us and under these circumstances we find that there is no justification that the said amount of Rs. 5,00,000/- should not be brought to tax in the hands of the assessee for impugned ay: 2008-09 . Thus we hold that Rs.5,00,000/- is taxable in the hands of the assessee for the impugned ay: 2008-09 under consideration and hence we confirm this additions as were made AO which were later confirmed by learned CIT(A) , and dismiss these ground of appeal