KISHAN KUMAR SARAIWALA vs. C I T JAIPUR

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ITA/325/2011HC RajasthanRJHC02043587201029 August 20175 pages
AI SummaryPartly Allowed

What did the High Court hold?

The High Court held that for the assessment year 2006-07, the additions sustained by the ITAT were set aside, meaning the appeal was allowed in favour of the assessee for this year. However, for the assessment year 2005-06, the addition was sustained, meaning the appeal was dismissed for this year. The Court's reasoning involved considering its own recent view, which involved taking the average of five years' GP. The average GP for five years was calculated to be 3.91%. The Court stated that taking this average GP would lead to the appeals being allowed. The operative direction was to set aside the addition for AY 2006-07 and sustain it for AY 2005-06. The question regarding the implicit requirement of additions under Section 145(3) was answered in favour of the assessee for AY 2006-07.

What were the facts?

The appeals before the High Court concerned assessment years 2005-06 and 2006-07. The assessee, Shri Kishan Kumar Saraiwala, was found by the Assessing Officer (AO) to have not maintained stock registers qualitywise and weightwise, making verification of closing stock impossible. The AO invoked Section 145(3) and applied a gross profit (GP) rate of 10.50% on increased turnover and closing stock. The Income Tax Appellate Tribunal (ITAT) partly allowed the assessee's cross-objection and dismissed the department's appeal. The High Court admitted the appeals on substantial questions of law regarding the justification of trading additions when no material supported higher income.

What were the issues?

1. Whether it is implicit under Section 145(3) of the Income Tax Act, 1961, to make additions upon rejection of accounts when there is no material to support that the assessee earned higher income, and if so, whether trading additions of Rs. 2,86,783/- (for AY 2006-07) and Rs. 2,47,340/- (for AY 2005-06) were justified without supporting material? (Mixed question of law and fact, turning on Section 145(3)). Assessee's contentions: The appellant argued that the Tribunal itself, for a previous year, relied on the High Court's decision in CIT vs. Gotan Lime Khanij Udhyog (2002) 256 ITR 243, which held that additions made on an estimate basis without material are not sustainable. The assessee also relied on decisions in PR. Commissioner of Income Tax vs. Bhawani Silicate Industries (2016) and Jaytick Intermediates (P.) Ltd. vs. Assistant Commissioner of Income Tax (2016). The assessee presented a five-year statement showing fluctuating GP rates and increments. Revenue's contentions: The respondent contended that the AO rightly rejected the appeal of the department, but the analogy for calculating the GP rate applied for the previous year (5.24%) should not be disturbed.

Which sections of the Income-tax Act were involved?

Section 145(3)

AI-generated summary — verify with the full judgment below

Cause title — parties, addresses and appearances
HIGH COURT OF JUDICATURE FOR RAJASTHAN BENCH AT JAIPUR D.B. Income Tax Appeal No. 325 / 2011 Shri Kishan Kumar Saraiwala, S/o Late Sh. Surajmal Saraiwal, Aged About 35 Years, R/o Prop of M/s Kanhiya Lal Gulabchand Surani Bazar Srimadhopur Distt. Sikar ----Appellant Versus The Commissioner of Income Tax,-III, Jaipur CRB Building Statue Circle Jaipur ----Respondent Connected With D.B. Income Tax Appeal No. 338 / 2011 Shri Kishan Kumar Saraiwala, S/o Late Sh. Surajmal Saraiwal, Aged About 35 Years, R/o Prop. of M/s Kanhiya Lal Gulabchand, Surani Bazar Srimadopur Distt. Sikar ----Appellant Versus The Commissioner of Income Tax-III, Jaipur NCRB Building Statue Circle Jaipur ----Respondent _____________________________________________________ For Appellant(s) : Mr. Siddharth Ranka For Respondent(s) : Ms. Mahi Yadav for Mr. Sameer Jain _____________________________________________________ HON'BLE MR. JUSTICE K.S. JHAVERI HON'BLE MR. JUSTICE INDERJEET SINGH

Judgment 29/08/2017 1. In both these appeals common question of law and facts are involved hence they are decided by this common judgment.

(2 of 5) [ITA-325/2011]

2.

By way of these appeals, the appellant has assailed the judgment and order of the Tribunal whereby Tribunal has partly allowed the cross objection filed by the assessee and dismissed

the appeal of the department.

3.

This court while admitting the appeals framed following substantial questions of law:-

3.

1 Appeal No.325/2011 admitted on 3.5.2012 “Whether it is implicit under the provisions of S.145(3) of the Act, 1961 to make some additions on rejection of accounts when there is no material to support that assessee has earned higher income and under these circumstances whether the trading additions of Rs.2,86,783/- was justified when the same was not supported by any material on record?”

3.

2 Appeal no.338/2011 admitted on 15.9.2011 “Whether it is implicit under the provisions of S.145(3) of the Act, 1961 to make some additions on rejection of accounts when there is no material to support that assessee has earned higher income and under these circumstances whether the trading additions of Rs.2,47,340/- was justified when the same was not supported by any material on record?”

4.

The facts of the case are that the assessee has not maintained the stock register qualitywise as well as weightwise. However, the stock register is maintained in terms of the bags only from which it is not possible to workout the stock weightwise and quantiywise. No details of Churi, Cattlefeed, Khal etc. were (3 of 5) [ITA-325/2011]

furnished by the assessee in support of his claim. The assessee explained to the AO that valuation is made on qualitywise of goods whereas he does not maintain qualitywise record of the goods traded. In the absence of qualitative details, commodities purchases/sales and its quantitative details in weight, it is not possible for the AO to verify the value of the closing stock. The AO has invoked the provisions of Section 145(3) of the Act and applied the gross profit rate of 10.50% on increased turnover as under:- “Likewise, the appeal of the Revenue before the Tribunal has been rejected on the ground of having invoked the provisions of Section 145 by adopting a methodology of his own. The Assessing Officer by rejecting the explanation furnished by him for returning the income at the reduced gross profit rate has made additions on estimate basis. The Commissioner of Income-tax (Appeals) while substantially accepting the explanation furnished by the assessee for reduction in gross profit rate over its turnover during the year in question, was justified in not sustaining the additions made by the Income-tax Officer and having come to that conclusion the formation of estimation fell within the domain of the Commissioner of Income-tax (Appeals). That part of the order of the Income-tax Appellate Tribunal, in our opinion, does not give rise to any question of law.

(4 of 5) [ITA-325/2011]

12.

As a result of the aforesaid discussion, our answer to question No. 1 is that there was no error in the order of the Tribunal in deleting the entire additions to the trading results after holding that the proviso to Section 145 was applicable. That being the position, question No. 1 is answered in the affirmative, i.e., in favour of the assessee and against the Revenue.”

5.

1 He also relied upon the two decisions; one of Rajasthan High which reads as under:- Particulars Assessment Year 2002-03 2003-04 2004-05 2005-06 2006-07 Turnover 79,92,455/- 89,77,593/- 1,35,10,598/- 1,53,85,440/- 1,95,65,833/- % Increment(YOY) -- 12.33% 50.49% 13.88% 27.17% Gross Profit 3,64,456/- 4,70,130/- 4,25,368/- 5,19,414/- 7,75,903/- % Increment (YOY) -- 28.99% -9.52% 22.11% 49.38% G.P. Rate by the Assessee 4.56% 5.24% 3.15% 3.37% 3.97% G.P. Rate by the AO -- 9.00% -- 10.50% 9.00% G.P. Rate by the ITAT -- 5.24% -- 5.24% 5.24%

(5 of 5) [ITA-325/2011]

6.

Counsel for the respondent contended that AO has rightly taken into consideration the contentions and rejected the appeal of the department but at the same time the analogy for calculating GP rate which has been applied for previous year 5.24% is not required to be disturbed.

7.

We have heard counsel for the parties.

7.

1 Taking into consideration our own recent view, the average of five years GP is to be taken into consideration which comes to 3.91%.

7.

2 In that view of the matter, taking average of previous five years GP as 3.91%, the appeals stand allowed.

7.

For the assessment year 2006-07, the addition sustained by the ITAT is set aside however for the assessment year 2005-06, the addition is sustained. (INDERJEET SINGH),J. (K.S. JHAVERI),J. Brijesh 5-6.

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