SANJAY JAIN vs. A C I T CIRCLE-5 JAIPUR

By way of this appeal the appellant has assailed the judgment and order of the Tribunal whereby the Tribunal has rejected the appeal of the assessee confirming the order of AO as well as CIT(A).

This Court while admitting the matter framed the following questions of law:- “i) Whether on the facts and material available on record the ld. ITAT was justified in holding that after rejection of books of accounts the principle of consistency would not apply and at the same time the principle of res judicata would not apply to Income Tax Proceedings. ii) Whether on the facts and material available

Counsel for the appellant has taken us to para 4.1, 4.8 & 4.9 of the memo of appeal which reads as under:- “4. 1. That in the orders assailed before the ld. ITAT for the A.Y.’s 2006-2007, 2007-2008 & 2009-2010 the ld. ITAT has estimated a reasonable NP Rate and has rejected the NP Rate levied by the ld. AO. The past history of the assessee appellant after rejection of books of accounts is as under:- Particulars 2006-2007 2007-2008 2008-2009 2009-2010 Freight Receipts 205,251,882 214,863,667 172,610,403 153,153,579 Net Profit before Depreciation 6,925,378 8,797,630 9,576,573 10,438,086 % w.r.t. Freight Receipt 3.37% 4.09% 5.55% 6.82% Net Profit after Depreciation 3,656,906 3,182,426 2,060,555 2,964,664 % w.r.t. Freight Receipt 1.78% 1.48% 1.19% 1.94% Net Profit Rate levied by ld. AO after rejection of books of accounts 3.40% 3.40% 3.40% 3.40% Net Profit Rate upheld by ld. ITAT after rejection of books of accounts 2.00% 1.75% 1.50% 3.40% Addition Sustained after order of ld. ITAT 448,132 577,688 528,601 2,242,558

That the expenses incurred by it towards Freight paid is reasonable and justifiable. In fact it is the lowest during the year under consideration which (3 of 18) [ITA-164/2016] will be clear from the following chart: Particulars 2006-2007 2007-2008 2008-2009 2009-2010 Freight Receipts 205,251,882 214,863,667 172,610,403 153,153,579 Freight Paid 167,436,031 150,796,460 113,019,359 80,021,464 % w.r.t. Freight Receipt 81.58% 70.18% 65.48% 52.25% Self Freight Received 37,815,851 64,067,207 59,591,044 73,132,115 % w.r.t. Freight REceipt 18.42% 29.82% 34.52% 47.75%

That the expenses incurred by the assessee appellant towards repairs & maintenance, trip expenses & tyre expenses are reasonable and justifiable. In fact since the major thrust of the assessee appellant was on conducting business through its own trucks and the expenses in relative terms have increased which in fact was inevitable because the assessee appellant is required to incur from its own resources whereas earlier the same wasn’t transporters. However, ultimately the NP Rate (after depreciation & before depreciation) has been the highest in the year under consideration. The position will be clear from the following chart: Particulars` 2006-2007 2007-2008 2008-2009 2009-2010 Freight Receipts 205,251,882 214,863,667 172,610,403 153,153,579 Repairs & Maintenance 1,741,754 3,333,193 7,120,527 10,590,161 % w.r.t. Gross Freight Receipts 0.85% 1.55% 4.13% 6.91% Trip Expenses 16,674,284 42,015,931 6,411,930 9,201,739 % w.r.t. Freight Receipt 8.12% 19.55% 3.71% 6.01% Tyre Expenses 3,526,109 4,280,907 4,298,558 5,976,562 % w.r.t. Freight Receipt 1.72% 1.99% 2.49% 3.90%

He contended that the AO while deciding the matter has acted contrary to law inasmuch as while for the assessment year which is subject matter of appeal, on 28th December, 2011, two judgments of the Tribunal which are binding on the AO for the assessment year 2006-07 was delivered on 29th October, 2010 and for assessment year 2007-08, the judgment was delivered on 11th February, 2011 and ignoring the same he has come out with the reasoning which reads as under:- “1. 4. Regarding the net freight receipts of Rs. 7,31,32,115

Counsel for the appellant shown us the following table for (5 of 18) [ITA-164/2016] different assessment years:- Particulars 2006-2007 2007-2008 2008-2009 2009-2010 Total Freight Receipts 20,52,51,882 21,48,63,667 17,26,10,403 15,31,53,579 74,58,79,531 Net Profit declared by Assessee 36,56,906 31,82,426 20,60,555 29,64,664 1,18,64,551 Net Profit % declared by Assessee 1.78% 1.48% 1.19% 1.94% 1.59% Net Profit levied by Assessing Officer 69,78,564 73,05,365 58,68,754 52,07,222 2,53,59,905 Net Profit Rate levied by Assessing Officer 3.40% 3.40% 3.40% 3.40% 3.40% Addition made by Assessing Officer 33,21,658 41,22,939 38,08,199 22,42,558 1,34,95,354 Net Profit Rate upheld by ITAT 2.00% 1.75% 1.50% 3.40% wherein it has been held as under:- “The assessee was a dealer in marble. The Assessing Officer, while finalising assessment for the assessment year 1986-87, noticed that the GP rate had been consistently reduced and the assessee was not having quantiative and qualitative stock details. The Assessing Officer invoked the provisions of section 145 and made a trading addition of Rs. 3.35 lakhs by increasing GP rate. The assessee’s contention that maintenance of accounts was on the same lines as in earlier years which had been accepted by (6 of 18) [ITA-164/2016] the department, was rejected. On appeal, the Commissioner (A) upheld the invocation of section 145(1) but sustained the addition of Rs. 34,000 only, holding that the amount added was on higher side. On further appeal, the Tribunal upheld resort to section 145(1) but deleted the addition sustained by the Commissioner (A) holding that Commissioner (A) had not given any basis for sustaining the addition of Rs. 34,000.”

He has relied upon the decision in the case of CIT vs. Dr. A.P. Bahal (2010) 322 ITR 71 (Raj.) wherein it has been held as under:- “We have heard the learned Counsel for both the parties. The learned Counsel for the revenue submitted that the learned Commissioner (Appeals), so also the learned Tribunal have gone wrong in expecting the existence of positive material with the assessing officer, while making assessment under Section 145 (sic- 144). The learned Counsel for the assessee has relied upon the judgment of this Court in CIT v. Gotan Lime Khanij Udhyog MANU/RH/0625/2001, wherein it has been held that Section 145 only provides the basis, on which computation of income is to be made for the purpose of determining the amount of tax. The provision, by itself, does not deal with addition or deletion to the income. Therefore, mere rejection of, or some deficiency in, the books of account, would not mean that it must necessarily lead to additions to the returned income. It has also been held therein that the conclusions arrived at in this regard, are findings of fact.”

He has relied upon the decision in the case of CIT vs. Gupta, K.N. Construction Co. (2015) 59 taxman. Com 293 wherein it has been held as under:- “In our view, no substantial question of law can be said to arise out of the impugned order as it is essentially a finding of fact by the two appellate authorities. It is admitted fact that the provisions of section 145(3) of the Act have rightly been invoked by the Assessing Officer so also upheld by the appellate authorities but in a case where the (7 of 18) [ITA-164/2016] provisions of section 145(3) are invoked, one has to consider either the past history of the assessee or history of similarly situated other businessmen/traders. However, on a perusal of the assessment order, we notice that the Assessing Officer is absolutely silent as to justifying the net profit rate to the extent of 13.7 per cent whether the addition/disallowance made by the Assessing Officer can be said to be appropriate. The assessment order is totally silent about similarly situated other traders/businessmen showing the net profit over and above what the assessee had shown and compared by the Assessing Officer and no evidence has been brought on record as to how the Assessing Officer was justified in applying the net profit rate at 13.7 per cent. In our view, while comparing with the past history, if the results are fair and reasonable then invariably no addition need to be made. It would be appropriate to reproduce the trading results of the assessee for the year under appeal including the last five years, which reads as under: Year Turnover NP declared Percentage of NP declared Percentage applied in assessment done by AO Appeal effect 2009-10 123257523 6629223 5.38 13.7 5.78 by ad hoc add of Rs. 5 lakhs 2008-09 106227305 5338548 5.02

02 Accepted without scrutiny 2007-08 48834743 2389297 5.10

10 Accepted without scrutiny 2006-07 21090878 1056688 5.01 6 5% by ITAT 2005-06 12632146 471641 3.73 6 5% by ITAT 2004-05 24003129 852775 3.55 8 5% by ITAT

He has relied upon the decision in the case of CIT vs. Garment Crafts (2016) 68 taxmann.com 222 (Raj.) wherein it has been held as under:- “34. Insofar as the trading addition is concerned,

He has relied upon the decision in the case of CIT vs. Ashok Behi Bharat Sethi & Party (2013) 35 taxmann. Com 214wherein it has been held as under:- “This court while considering the appeal filed by the Revenue in the case of another liquor contractor being D.B. Income Tax Appeal No.145/2006 (Commissioner of Income Tax, Bikaner Vs. M/s. Jaimal Ram Kasturi and Partners) held as under:- "In our view, ultimately, the matter had been of putting a estimate on the profit of the assessee while recording the findings on facts. The CIT(A) has given cogent reason for not endorsing the approach of the AO in making assessment with reference to the case of another assessee after finding it to be not a directly comparable case and hence, not a safe guide more particularly, when assessee's past history was available and there was no material difference in the facts pertaining to the relevant assessment year and the past history year. The CIT(A), even while accepting past history as the relevant basis for assessment, proceeded to retain a part of the addition to the tune of Rs.10,65,928/- without cogent and sufficient reason therefor. The Tribunal, therefore, while endorsing the basis adopted by the CIT(A), has found no reason to sustain any addition and hence, deleted the addition altogether. In the totality of circumstances, the Tribunal cannot be faulted in accepting the profit rate as declared by the assessee while not approving the (9 of 18) [ITA-164/2016] rate as applied by the AO. The order as passed by the Tribunal does not appear suffering from any perversity or from the application of any wrong principle so as to call for interference.

He has also relied upon the decision in the case of CIT vs. Jaimal Ram Kasturi (2013) 33 taxmann.com 315 (Raj.) wherein it has been held as under:- “In our view, ultimately, the matter had been of putting a estimate on the profit of the assessee while recording the findings on facts. The CIT(A) has given cogent reason for not endorsing the approach of the AO in making assessment with reference to the case of another assessee after finding it to be not a directly comparable case and hence, not a safe guide more particularly, when assessee's past history was available and there was no material difference in the facts pertaining to the relevant assessment year and the past history year. The CIT(A), even while accepting past history as the relevant basis for assessment, proceeded to retain a part of the addition to the tune of Rs.10,65,928/- without cogent and sufficient reason therefor. The Tribunal, therefore, while endorsing the basis adopted by the CIT(A), has found no reason to sustain any addition and hence, deleted the addition altogether.”

He has further relied upon the decision in the case of CIT vs. Inani Marbles Pvt. Ltd. (2008) 175 taxmann 56 (Raj.) wherein it has been held as under:- “3. We have heard learned Counsel for the parties, and have gone through the impugned judgments. The assessing officer rejected the books of account for valid reasons, and invoked provisions of Section 145 of the Income Tax Act, and made assessment by applying gross profit rate of 15 per cent on the sales disclosed by the assessee, and accordingly additions were made to the different result. This matter relates to assessment year 2000-01. The assessing officer for arriving at this conclusion considered that the assessee had (10 of 18) [ITA-164/2016] disclosed gross profit rate of 2.30 per cent as compared to 2.51 per cent in 1999-2000, and 16.04 per cent in assessment year 1998-99. Against that order the assessee filed appeal, and the learned Commissioner upheld the invoking of Section 145, and examined the aspect of gross profit rate to be applied and considered that gross profit rate declared by the assessee during the year is far less than the G.P. Rate (gross profit rate) shown by the other assessees who are in the same line of business, and applied the G.P. Rate at 14.5 per cent. Against this the assessee filed appeal being Appeal No. 448 of 2004, and the revenue also filed appeal being Appeal No. 464 of 2004. The learned Tribunal negatived the contention of the assessee about challenge to invoking the provisions of Section 145. Then, the aspect of gross profit rate to be applied was considered in para 4 and it was found that the assessing officer considered certain cases as comparable applied G.P. Rate of 15 per cent which was reduced in appeal to 14.5 per cent but then it was considered that the assessing officer does not get unfettered powers to apply any G.P. Rate of his choice, and he is supposed to be guided either by the G.P. Rate declared by the assessee or the profit rates declared by the comparable cases. Then, it was considered that in resorting to the application of Gross Profit rate on the basis of comparable cases, it is necessary that those cases, should be, in fact, comparable with reference to the volume of business, location and other host of factors, and it was found that the objections raised by the assessee were not however dealt with, and therefore, in the absence of any change in the factual position normally the profit rate declared and accepted in the preceding year, constitutes a good basis for working out the Gross Profit.

He has further relied upon the decision in the case of CIT vs. Target Construction Co. Ltd. (2015) 55 taxmann.com 294 wherein it has been held as under:- “2. On 10.12.2012, a Co-ordinate Bench has admitted the first two appeals on the following substantial question of law:- (1) “Whether on facts and in the circumstances of the case, the 2 Tribunal

After hearing both the parties and on perusal of record, it appears that the A.O. has rejected the books of account under Section-145(3) of the Act and estimated the N.P. rate @ 10% on gross receipts. The same was upheld by the first appellate authority. However, the Tribunal has examined the past history of the assessee pertaining to the N.P. rate which is as under:- 2001-02 3.50 2002-03 5.15 2003-04 4.90

Further, the Tribunal observed that the assessee has received the construction work from the government department and assessee has not done any private work during the assessment years under consideration. So, The Tribunal has reduced the N.P. 3 rate @ 5%.

Needless to mention that A.O. has made the addition on estimate basis. The same was uphold by the C.I.T.(A), but the Tribunal has again examined the books of account and estimated N.P. @ 5% on estimation basis.

Needless to mention that books of account were rejected. The A.O. made the addition on estimate basis. which was upheld by C.I.T(A). But the Tribunal again examined the books of account and deleted the addition on estimate basis. It may be mentioned that in T.T.R. No. 106 of 2006 (The (12 of 18) [ITA-164/2016] Commissioner Trade Tax, Lucknow Vs. M/s Herbochem Industries, Barabanki) decided on 06.08.2009; as well as in T.T.R. No. 163 of 2007 (CTT Vs. M/s Chaudhary Brick Field, Gonda) decided on 30.07.2009, this Court has taken a view that question of estimation is a question of fact. Further, in the following cases it was also observed that estimation is question of fact. I. New Plaza Restaurant Vs. I.T.O. 309 ITR 259 (H.P); II.Sajay Oil Cake Vs. C.I.T. 316 ITR, 274 (Guj.); III.Vijay K. Talwar Vs. C.I.T. (2011) 1SCC 673 ; and Rajinder Parshad Jain (2015) 61 taxmann.com 310 (P&H) wherein it has been held as under:- “8. The Tribunal has applied a net profit rate of 6 per cent as it was in consonance with the past history of the assessee. At the time of initial hearing, we had called upon counsel for the appellant-Revenue to apprise the court about the net profit rate applied to the assessee in years previous and subsequent to the assessment year in dispute. Counsel for the appellant fairly concedes, on instructions that in the preceding as well as the following year a net profit rate of 6.75 per cent and 5 per cent, respectively, was applied by the Assessing Officer and has also placed on record the order for the assessment year 2009-10 where a net profit rate of 5 per cent, has been applied to the assessee. We, therefore, find no error in the discretion exercised by the Tribunal in applying a net profit rate of 6 per cent.”

He has relied upon the decision in the case of Prashant Oil been held as under:- “6. We have heard learned counsel appearing on behalf of both the sides. It is a matter of fact that the Assessing Officer rejected the books of accounts of the assessee but, has made additions by relying upon the same books of accounts. The facts in these cases are similar to the facts

Counsel for the respondent has supported the order of the Tribunal and contended that in view of the increase in the expenses for the tyre, trip and repairing proportionately, the authority has not committed any error inasmuch for earlier year, the expenses were not on higher side therefore, he has relied upon the decision of Supreme Court in case of M/s Radhasoami under:- “18. We are aware of the fact that strictly speaking res judicata does not apply to income- tax proceedings. Again, each assessment year being a unit, what is decided in one year may not apply in the following year but where a fundamental aspect permeating through the different assessment years has been found as a (17 of 18) [ITA-164/2016] fact one way or the other and parties have allowed that position to be sustained by not challenging the order, it would not be at all appropriate to allow the position to be changed in a subsequent year.”

We have heard counsel for both the sides.

We have gone through the detailed submissions made by counsel for the both the sides while considering the matter. It is true that expenses has gone up but nonetheless if we look at the total percentage of profit, looking to the change in trips earlier which was given to the third party when the trips are taken by the owner of his own truck naturally on vehicle used it has to go up.

In that view of the matter, the repairing work of their own vehicle alongwith the tyre expenses and the trip expenses to the driver and other staff is an industrial expenses in view of the fact that his own expenses above the income on the personal level which was earlier has tremendously increased on higher side correspondingly and ultimately the profit has also increased.

In that view of the matter, in our considered opinion, all the authorities have really committed an error in not considering the heavily rate on which the expenses incurred on the trip, repairing and tyre expenses. In that view of the matter, in view of the settled legal principle, either of the authorities ought to have gone on the basis of the average profit of the industry.

Taking into consideration the total percentage by AO is 3.40% and ITAT is 2% for the year 2006-07, for 2007-08 at 1.75% and 2008-09 at 1.5% and for the year 2009-10 it is 1.94% and taking into consideration the average will come to 2.12%.

In that view of the matter, both the issues are required to be answered in favour of the assessee and against the department. However, we assesse on the basis of principal average as 2.12%.

The appeal is accordingly allowed. (VIJAY KUMAR VYAS),J. (K.S. JHAVERI),J. A.Sharma/23