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Income Tax Appellate Tribunal, INDORE BENCH, INDORE
Before: HONBLE KUL BHARAT & HONBLE MANISH BORAD
आदेश / O R D E R PER MANISH BORAD, A.M: This appeal by Assessee pertaining to A.Y. 2011-12 is directed against the order of Ld. Commissioner of Income Tax(Appeals)-II Indore, (in short ‘CIT(A)’), dated 27.02.2017 which is arising out of the order u/s 143(3) of the Income Tax Act 1961(hereinafter called as the ‘Act’) framed on Girishkumar Tayal ITANo.397/Ind/2017 18.03.2014 by DCIT, 5(1) Indore. The assessee has raised following grounds of appeal: A.That the addition of Rs. 2,43,63,545/- made by the AO by adopting profit@5% on sales and sustained by the CIT(A) is arbitrary and without justification on account of the following legal and factual errors : 1.Arbitrary rejection of the books of account by the AO and CIT(A) : The Ld. CIT(A) failed to appreciate that the Ld. AO was not justified in rejecting the books merely on the basis of credit purchases of Cotton from farmers who were duly paid for such purchases after a few days. Both the facets of credit purchases and payment there-for were duly recorded in the books and merely on' the basis of a third party statement without any cross verification from tilt' farmers no rejection of books of accounts could have been made by the AO. 2.Defect of date of payment to farmers is merely on presumption and suspicion and cannot be a ground to reject the books : The AO has accepted the entire quantum of sale and purchases and also the expenses in the audited books. The vouchers are also not doubted. The only" allegation was that of date of payment to the farmers which was not based (, any evidence but was on mere suspicion and without any corroborative evidence from the farmers. Thus books of accounts could not have been rejected. 3.Failure of AO to grant cross examination of the Krishi Mandi Secretary to the assessee inspite of specific request made by the assessee: The Ld. CIT (A) failed to appreciate that without any opportunity of cross examination of Krishi Mandi Secretary Mr. K.R. Pagare being given to the assessee no adverse inference therefrom could have been drawn against the assessee. 4.Failure of AO to issue summons to the farmers Girishkumar Tayal ITANo.397/Ind/2017 inspite of specific request made by the assessee: The Ld. CIT(A) failed to appreciate that a specific request was made by the appellant before the AO to summon the farmers and a list of such farmers were duly submitted and the complete failure of the AO to summon the farmers an, verify the facts from them is contrary to the established judicial principles and in particular the jurisdictional High Court decision in Prakash Chand Nahata CIT (2008) 301 ITR 134 MP and thus the entire assessment is vitiated in law and deserves to be quashed. 5.Failure of the AO and CIT(A) to appreciate the correct scope an ambit of Krishi Upaj mandi Adhiniyam. : The Ld. CIT(A) failed to appreciate that reliance placed by the AO on the provision of Krishi Upaj Mandi Adhiniyam is misplaced because the said At' does not bar credit purchases and the fact that all farmers were duly paid by t1 assessee within a short span of 5 to 10 days shows that no discrepancy can be attributed to the books of accounts which recorded the transaction as the happened and merely on suspicion the books have been rejected by the AO. 6.Failure of the authorities to understand the distinction between "sales invoice and "payment receipt": The Ld. CIT(A) failed to appreciate that the entire assessment is based on "Bikri Pramank" i.e. the sales invoice which is only the evidence of date of sale without considering that the "bhuktan Pramank" i.e. payment receipt which is issue ( later on is the actual evidence of date of payment. 7.Application of rate of profit on entire sales is arbitrary: Without prejudice to the aforesaid grounds , the ld. AO and the Ld. CIT (A) were not justified either in law or on facts in making/ sustaining the addition of Rs 2,43,63,545/ - by adopting 5% rate of profit on sale.
Girishkumar Tayal ITANo.397/Ind/2017 The sales were not at all doubted and hence the application of gross profit on sales is ill conceived and contrary to the facts. 8.The adoption of rate of 5% is also arbitrary: Without prejudice to the aforesaid grounds, in any case the application of profit @ 5% on sales is arbitrary, excessive and high under the facts and circumstance of the case. B. This round is without prejudice to the rounds A: 1 to and will arise only if the addition/ some portion thereof is sustained.) Failure to compute and allow deduction of 80IB on the estimated profit:
Though, the above referred grounds are descriptive and argumentative in nature but the grievance against finding of the Ld. CIT(A) is two fold i.e. confirming the action of the assessing officer rejecting the book results u/s 143(3) of the Act and estimating net profit @ 5% of the gross sales.
Briefly stated facts as culled out from the records are that the assessee is an individual running sole proprietorship concern in the name of M/s Pradeep Cotex Industries which is engaged in the business of Ginning & pressing. Income of Rs. 50,45,440/- was declared in the e- return filed on 26.09.2011. Case was selected for scrutiny followed by serving of notices u/s 143(2) & 142(1) of the Act. Ld. AO examined the books of account and other details on various aspects. However we are confined to the Girishkumar Tayal ITANo.397/Ind/2017 issue of rejection of book results and estimation of net profit. In this regard Ld. AO called for the details of purchases with supporting documents and observed that at various places that the cash has been claimed to have been paid for purchases to the farmers but in the cash book the transactions of paying cash is not appearing. Riding on this observation Ld. AO concluded that books of accounts maintained by the assessee are not reliable and are thus liable to be rejected. He further placing reliance on the decision of Coordinate Bench Indore in the case of Shri Amar Agrawal in dated 20.08.2013, computed the net profit @ 5% of the gross sales which worked out to Rs. 2,43,63,545/- and computed the income accordingly after making other addition as mentioned in the impugned assessment order. 4. Aggrieved the assessee preferred an appeal before the Ld. CIT(A) but failed to succeed on the grounds of rejection of book results and estimation of net profit. 5. Now the assessee is in appeal before the Tribunal. Ld. Senior counsel for the assessee referring to the written submissions filed before the Ld. CIT(A) prayed for setting aside issues raised in this appeal to the file of the Ld. AO for afresh adjudication on account of the following reasons: 5 Girishkumar Tayal ITANo.397/Ind/2017 (i) Opportunity for cross-examining the Krishi Mandi Secretary, was not granted on whose statement addition has been made. (ii) Alleged documents referred by the Ld. AO in the assessment order as “Bhugtan Patrak” are actually “Bikari Pramanak” meaning thereby that the proof of sale of goods has been wrongly interpreted as payment proof. (iii) Failure on the part of the Ld. AO to issue summons to the farmers who are alleged to have not received any cash payment for sale of crop inspite of specific request made by bay assessee. (iv) Ld. AO erred in applying the decision of Coordinate Bench, Indore in the case of Shri Amar Agrawal (supra) even when the assessee’s facts were not same.
Per contra Ld. DR vehemently argued supporting the order of both the lower authorities.
We have heard the rival contentions and perused the record placed before us. The assessee is aggrieved with the finding of the Ld. CIT(A) confirming the action of the assessing officer for rejecting book results and estimating income by applying 5% net profit rate on the gross sales.
We observe that the assessee is engaged in the business of Ginning & pressing factory, Oil Mill and Cotton Trading. 6 Girishkumar Tayal ITANo.397/Ind/2017 The assessee purchases Kapas from farmers on a regular basis. The assessee is registered with Madhya Pradesh Krishi Upaj Mandi Adhiniyam. At the time of purchase receipt is issued by Krishi Upaj Mandi Samiti in which name of the purchaser i.e. assessee and name of the seller i.e. farmer is mentioned along with serial no. of agreement to purchase, vehicle no. weight and value. Ld. AO while examining the transactions of purchase came across “Bikri Pramanak” which is part of serial no. book of Krishi Upaj Mandi Samiti. Ld. AO compared some of these Bikri Pramanak with the cash book but could not find the exact transactions of cash payment in the cash book. Taking this variation as sufficient evidence Ld. AO rejected the books of accounts and the book results and estimated net profit @5% of the gross sales.
From perusal of the paper book and other details we find that the Ld. AO took the statement of the Mr. K. R. Pagare Mandi Secretary copy of which is placed at pages 26 to 29 of the paper book. However, there is a letter issued by the Secretary of Krishi Upaj Mandi to the assessing officer on 09.12.2013 placed at page 23 of the paper book. It was issued in reply to the information called u/s 133(6) of the Act and this letter is before the date of the assessment i.e. 7 Girishkumar Tayal ITANo.397/Ind/2017 18.03.2014. In this letter it has been clearly mentioned that it is not mandatory to make the cash payment immediately at the time of making the purchases. It is only when the seller demands the amount. There are rules and regulations to prevent the farmers in case he/she do not receive the payment thereby directing the purchaser to pay the interest on delayed payments. It is also mentioned in this letter that there is no such complaint in the office of the Krishi Upaj Mandi against the assessee of not making payment to the farmers. The above letter issued by the Secretary, Krishi Upaj Mandi Samiti has not been considered by the Ld. AO.
It is also not disputed that the assessee has not been granted any opportunity to cross-examine the Krishi Upaj Mandi Samiti, Secretary. Further, we find that the list of farmers alleged to have not received payment for purchase was provided by the assessee but the ld. AO was not inclined to issue summons to the farmers to verify whether they have received the payment or not.
In these given facts and circumstances of the case wherein except for the mismatch of the cash payment transactions in the cash book viz-a-viz the documents issued by the Krishi Upaj Mandi, there is no other error 8 Girishkumar Tayal ITANo.397/Ind/2017 pointed out by the Ld. AO. We find that the Ld. AO has not conducted the assessment proceedings on principles of natural justice as reasonable opportunity was not provided to the assessee to cross examine the person whose statement was used against him, no summons were issued to the farmers for verifying the transactions in spite of specific request prayed by the assessee. Also there is failure on the part of the assessing officer to distinguish the sale invoice (Bikri Pramanak) with the payment receipts i.e. Bhugtan Patrak.
We, therefore, set aside all the issues raised in this appeal to the file of the Ld. AO who will examine all the issues afresh after providing reasonable and proper opportunity of being heard as well as providing opportunity of cross-examination (if requested). Ld. AO should also bring on record the Bhugtan Pramanak i.e. payment receipt which has been wrongly termed in the assessment order in the place of sales invoice i.e. Bikri Pramanak. Further, looking to the records we find that the assessee has not cooperated the assessing officer at the time of the remand report being called by the ld. CIT(A) and did not attend on various occasions and also did not file the details required by the assessing officer. The assessee should 9 Girishkumar Tayal ITANo.397/Ind/2017 therefore ensure to cooperate in the set aside proceedings and in case if assessee do not attend the hearing or fail to place the requisite material on record as required then the assessing officer will be at liberty to decide the issues as per the provisions of law. 13. In the result, appeal of the assessee is allowed for statistical purposes. Order was pronounced in the open court on 29 .04.2019.