PRAMOD KUMAR vs. COMMISSIONER OF INCOME TAX PANCHKULA

PDF · subscribers
ITA/250/2012HC Punjab & HaryanaPHHC01099328201228 January 2014Author: MR. JUSTICE SURINDER GUPTA,MR JUSTICE RAJIV SHARMA6 pages
AI SummaryDismissed

What did the High Court hold?

The High Court held that no substantial question of law arises from the ITAT's order. The Court found that the Assessing Officer, CIT(A), and the Tribunal were justified in rejecting the books of account of the assessee. The rejection was based on several deficiencies and discrepancies noted in the books, including underreporting of rice yield compared to figures provided to FCI, transfer of rice superfine from own stock, underreporting of paddy milling, undervaluation of husk sales based on prevalent yield percentage, and undervaluation of closing stock of bardana. The Court also noted that while sales increased by 29%, manufacturing expenses increased by 45.93%, suggesting inflated expenses or depressed sales. The Court dismissed the assessee's reliance on cited judgments, stating they were based on individual fact situations and did not apply to the present case. The appeal was dismissed.

What were the facts?

The assessee, Pramod Kumar, proprietor of M/s Lajja Rice and Oils Mills, engaged in commission agency, milling of paddy, and selling products like rice and rice bran, appealed against an order dated March 19, 2012, passed by the Income Tax Appellate Tribunal (ITAT). The ITAT had dismissed the assessee's appeal for assessment year 2007-08. The Assessing Officer (AO) had rejected the assessee's books of account under Section 145(3) of the Income Tax Act, 1961, citing various deficiencies, and made additions. The Commissioner of Income Tax (Appeals) [CIT(A)] partly allowed the appeal, reducing the quantum of additions but upholding the rejection of books. The ITAT concurred with the CIT(A). The assessee then filed this appeal before the High Court.

What were the issues?

1. Whether the books of account could be rejected solely on the ground that separate records for government paddy and own paddy were not maintained, especially in the absence of any specific defects in the books? 2. Whether an addition on account of low yield of rice is sustainable without comparable data and by disregarding the assessee's results from previous years? 3. Whether the authorities erred in making an addition for paddy milled outside the books by using the yield of bye-products as a benchmark for the main product, and without considering that supplies were made to government agencies who did not dispute the yield? 4. Whether the findings of the lower authorities are perverse and contrary to the evidence on record? Assessee's Contention: The assessee argued that a decline in the gross profit rate alone is not a sufficient ground for rejecting books of account, citing M. Durai Raj v. Commissioner of Income Tax. The assessee also relied on several other judgments, including International Forest Co. v. Commissioner of Income Tax, CIT v. Bharat Rice Mills, CIT v. R.K. Rice Mills, Jhandu Mal Tara Chand Rice Mills v. Commissioner of Income Tax, and CIT v. Bindals Apparels, to argue that the Tribunal's sustaining of additions was unwarranted and that substantial questions of law arise. Revenue's Contention: The revenue contended that the findings of fact by the lower authorities were based on an appreciation of evidence on record and did not warrant interference.

Which sections of the Income-tax Act were involved?

Section 145(3),Section 260A

AI-generated summary — verify with the full judgment below

IN THE HIGH COURT OF PUNJAB AND HARYANA AT CHANDIGARH Date of decision: 28.01.2014 Pramod Kumar Prop. M/s Lajja Rice and Oils Mills, Old Saharanpur Road, Jagadhari ……Appellant Vs. Commissioner of Income Tax, Panchkula …..Respondent CORAM: HON’BLE MR. JUSTICE AJAY KUMAR MITTAL HON’BLE MS. JUSTICE ANITA CHAUDHRY Present: Mr. Deepak Aggarwal, Advocate for the appellant. Ms. Savita Saxena, Advocate for the respondent. Ajay Kumar Mittal,J.

1.

This appeal has been preferred by the assessee under Section 260A of the Income Tax Act, 1961 (in short, “the Act”) against the order dated 19.3.2012, Annexure A.3 passed by the Income Tax Appellate Tribunal 'B' Bench, Chandigarh (in short, “the Tribunal”) in ITA No.264/CHD/2011, for the assessment year 2007-08, claiming following substantial questions of law (Annexure 'A' at Page 79 of the paper book):- “1. Whether the books of account could be rejected merely on the premises that separate record of Government paddy and Singh Gurbax 2014.03.18 17:08 integrity of this document High Court Chandigarh own paddy was not maintained that too in the absence of any specific defect in the books of account?

2.

Whether the addition on account of low yield of rice is sustainable without having any comparable stance and by disapproving the results of the appellant in earlier years?

3.

Whether the authorities mi irected in making addition on account of paddy milled outside books of account by taking the yield of bye product as benchmark to calculate the yield of main product, and without appreciating that the supplies were also made to Government agencies who never disapproved about the yield?

4.

Whether the findings recorded by the authorities below are perverse and contrary to the evidence available on record?

2.

The facts in brief, necessary for adjudicating the controversy involved, as narrated in the appeal, may be noticed. The assessee is deriving income from two concerns M/s Lajja Ram Pramod Kumar and M/s Lajja Rice & Oil Mills. He is engaged in the business of commission agent, milling of paddy and selling of the products namely rice, rice bran, husk and phak. During the assessment year 2007-08, the assessee had shown a gross profit of ` 24,75,369/- at the rate of 7.39%. Therefore, the assessee was asked to file the comparative figures of gross profit for the last year and while invoking the provisions of section 145(3) of the Act, the books of account of the assessee were rejected by the Assessing officer and additions had been made on different grounds vide order dated 18.11.2009, Annexure A.

1.

Aggrieved by the order, the assessee filed appeal before the Commissioner of Income Tax (Appeals) [CIT(A)]. The CIT(A) vide order dated 31.1.2011, Annexure A.2 partly allowed the appeal while upholding all the additions though reduced in quantum and rejecting the books of Singh Gurbax 2014.03.18 17:08 integrity of this document High Court Chandigarh account. Still not satisfied with the order, the assessee filed appeal before the Tribunal. Vide order dated 19.3.2012, Annexure A.3, the Tribunal concurred with the findings recorded by the CIT (A) and dismissed the appeal. Hence the present appeal by the assessee.

3.

Learned counsel for the appellant-assessee submitted that the decline of growth profit rate by itself cannot be a ground for rejection of books of account. Reliance was placed on judgment in M.Durai Raj v. Commissioner of Income Tax, (1972) 83 ITR 484 (Ker.) in support of the submission. Learned counsel further relied upon judgments in International Forest Co. v. Commissioner of Income Tax, (1975) 101 ITR 721 (J&K), CIT v. Bharat Rice Mills, (2001) 250 ITR 584 (P&H), CIT v. R.K.Rice Mills, (2009) 319 ITR 173 (P&H), Jhandu Mal Tara Chand Rice Mills v. Commissioner of Income Tax, (1969) 73 ITR 192 (P&H) and CIT v. Bindals Apparels, (2011) 332 ITR 410 to submit that the findings recorded by the Tribunal sustaining the additions made by the authorities below were uncalled for and therefore substantial questions of law as claimed arise in the appeal.

4.

On the other hand, learned counsel for the respondent submitted that the findings of fact recorded by the authorities below did not call for any interference as they were based on appreciation of evidence on record.

5.

After hearing learned counsel for the parties, we do not find any merit in the petition.

6.

The primary issue that arises for consideration relates to whether the assessing authority was justified in rejecting the books of Singh Gurbax 2014.03.18 17:08 integrity of this document High Court Chandigarh account which was upheld by CIT(A) and the Tribunal. The Assessing Officer while rejecting the books of account has made comparison with regard to financial results for the assessment year 2006-07 and current year 2007-08 as under:- A.Y.2006-07 A.Y.2007-08 Paddy Consumption (own) 20020 Qtls 31925.58 Qtls Yield percentage 13049.45 Qtyls 65.18% 20813.43 Qtls 65.19% Custom milling 27156 Qtls 15983.60 Qtls Yield (Rice SF) 17704 10419.75 Total

paddy milling 47176 Qtls 47909.18 Qtls Percentage increase/decrease over previous year - 01.55% Sales ` 2,56,45,196/- ` 3,31,07,268/- Percentage increase/decrease - 29% Closing stock ` 92,94,527/- ` 67,14,215/- Manufacturing expenses ` 24.12,535/- ` 35,20,766/- Percentage increase/decrease - 45.93% Custom milling charges 7,26,371/- 3,74,931/-

From the above figures it is clear that during the year under consideration, the assessee has milled almost equal paddy in comparison to previous year, sales have increased by 29% but manufacturing expenses have increased by 45.93%. the increase in the figures of sales is partly due to opening stock at ` 92,94,527/- for which no manufacturing expenses have been incurred as there is no paddy in the opening stock. Had there been no sales out of opening stock, the increase in sales would have been even lower. It shows that either the assessee has inflated the expenses or depressed the sales. Further, the assessee's contention that he had to pay Singh Gurbax 2014.03.18 17:08 integrity of this document High Court Chandigarh `8,92,106/- to farmers as 'bonus' is not convincing at all as it is a part of purchase price, the assessee has paid it and passed it on to the buyer of its finished product i.e. Rice and the sale price is all set to rise accordingly. The assessee's argument (B) above needs no comments as it will only reduce the gross profit which will again go against the assessee. Thus, the assessee's submission for low G.P. is dismissed.” Further the reasons for rejecting the books of account were noticed as under:- “Besides low G.P. there are other deficiencies in the books of accounts which have been dealt with in the following paragraphs in detail. However, the same are discussed briefly as under:- a. The assessee has underreported yield of rice @ 65.19% as against 67% given to FCI. Para 4 b. The assessee has transferred rice superfine to FCI at 289.28 qtls. from own stock – para 5 c. The assessee has underreported paddy milling – para 6 d. The assessee has undervalued sales of husk according to prevalent yield percentage – para 7 e. The assessee has undervalued the closing stock of bardana. Para 8.”

7.

The CIT(A) while partly accepting the appeal granted relief in the form of reduction in quantum of additions but upheld the rejection of books of account. The Tribunal while dismissing the appeal had affirmed the findings recorded by CIT(A). In view of the aforesaid deficiencies and discrepancies noticed in the books of account maintained by the assessee, it is concluded that the Assessing Officer, CIT(A) and the Tribunal were justified in rejecting the books of account of the assessee. Singh Gurbax 2014.03.18 17:08 integrity of this document High Court Chandigarh

8.

Referring to the judgments relied upon by learned counsel for the appellant, it may be observed that those cases were based on individual fact situation involved therein and the Court in view of the findings of fact recorded had declined to interfere. Consequently, the said judgments do not come to the rescue of the appellant.

9.

In view of the above, no substantial question of law arises. The appeal being devoid of any merit is hereby dismissed. (Ajay Kumar Mittal) Judge January 28, 2014 (Anita Chaudhry) 'gs' Judge Singh Gurbax 2014.03.18 17:08 integrity of this document High Court Chandigarh

More judgments on Section 145(3)

All 3,640 judgments and leading authorities on Section 145(3) →

Recent GST High Court judgments

Search GST case law →