COMMISSIONER OF INCOME TAX CENTRAL GURGAON vs. M/S BRINSAR FOODS PVT LTD

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ITA/192/2015HC Punjab & HaryanaPHHC01109821201503 August 2015Bench: MR. JUSTICE M.M. AGGARWAL,MR. JUSTICE A.B. CHAUDHARI3 pages
AI SummaryDismissed

What did the High Court hold?

The High Court held that the orders of the CIT (Appeals) and the Tribunal could not be considered perverse. The Court found that the AO's decision to apply a 20% GP rate was based on his personal knowledge and an unsubstantiated 'visit' and 'similar cases' without providing any particulars or referring to them. Crucially, these grounds were not even put to the assessee for their response. The Tribunal's reliance on the Privy Council judgment in CIT Vs Laxmi Narain Badridas, which prohibits the AO from acting capriciously on personal or local knowledge, was deemed appropriate. The Court concluded that the ITAT's view was a possible view and that no substantial question of law arose from the ITAT's order. Therefore, the additions made by the AO were deleted by the ITAT, and this deletion was upheld by the High Court.

What were the facts?

The appeals by the Commissioner of Income Tax (Central), Gurgaon, are against a common order dated 31.10.2014 passed by the Income Tax Appellate Tribunal (ITAT) for assessment years 2005-2006, 2006-2007, 2007-2008, and 2008-2009. A search under Section 132 of the Income Tax Act, 1961, was conducted on 30.06.2010. The assessee, M/s Brinsar Foods Pvt. Ltd., failed to produce its books of account, citing a dispute between directors regarding their custody. The assessee disclosed Gross Profit (GP) rates of 11.82%, 6.58%, 12.06%, and 8.8% for the respective assessment years. The Assessing Officer (AO), solely because the books were not produced, applied a GP rate of 20%, stating that the normal GP rate in the poultry farming business ranges between 20% to 22%. The AO's assessment order mentioned a 'visit' and 'similar cases' but provided no particulars or references, nor were these points put to the assessee.

What were the issues?

1. Whether, in law and facts, the ITAT was justified in deleting the additions of `1,01,36,286/-, `80,31,236/-, `89,18,808/-, and `99,45,783/- made by the AO under Section 132, when the assessee did not produce books of account and the AO applied a gross profit rate on an estimated basis using available information and best judgment? 2. Whether the ITAT erred in law by holding that the gross profit rate declared by the assessee should be accepted, despite such rate having no basis? 3. Whether the impugned order of the ITAT is unsustainable in law, not maintainable, and perverse in the facts and circumstances of the case? Assessee's Contentions: The assessee contended that the GP rates declared by it should be accepted. The ITAT relied on the Privy Council judgment in CIT Vs Laxmi Narain Badridas, 5 ITR 170, holding that the AO cannot act capriciously based on personal knowledge or local knowledge, especially when such information was not even put to the assessee. The ITAT and CIT (Appeals) noted the absence of incriminating evidence and comparable cases for the AO's GP rate. Revenue's Contentions: The revenue argued that the AO was justified in making additions based on a higher GP rate because the assessee failed to produce books of account. The AO applied a GP rate of 20% based on his observation of the normal GP rate in the poultry farming business, which he stated ranges between 20% to 22%.

Which sections of the Income-tax Act were involved?

Section 132

AI-generated summary — verify with the full judgment below

IN THE HIGH COURT OF PUNJAB AND HARYANA AT CHANDIGARH

ITAs-192-204-224-225-2015 Date of decision:- 03.08.2015

Commissioner of Income Tax (Central), Gurgaon ...Appellant Versus

M/s Brinsar Foods Pvt. Ltd. ...Respondent

CORAM: HON'BLE MR. JUSTICE S.J. VAZIFDAR, ACTING CHIEF JUSTICE

HON’BLE MR. JUSTICE G.S. SANDHAWALIA

Present: Mr. Rajesh Sethi, Advocate,

for the appellant. * * * * S.J. VAZIFDAR, A.C.J. (ORAL) These appeals are against a common order dated 31.10.2014 passed by the Income Tax Appellate Tribunal in respect of the four assessment years i.e. 2005-2006, 2006-2007, 2007-2008 and 2008-2009 respectively. 2. The appellant contends that the following substantial questions of law arise in these appeals:- “(i) Whether as per law and in the facts and circumstances of the case, the Hon’ble ITAT is justified in deleting the additions of ` 1,01,36,286/-, ` 80,31,236/-, ` 89,18,808/- and ` 99,45,783/- respectively made by the Assessing Officer under circumstances when assessee did not produce books of account and the Assessing Officer applied gross profit rate on estimate basis of information available on record and while making best judgement?

(ii) Whether ITAT has erred in law by holding that gross profit rate declared by the assessee should be accepted whereas such gross profit rate had no basis?

(iii) Whether the impugned order dated 31.10.2014 passed by ITAT is neither sustainable in the eyes of law nor maintainable AMODH SHARMA 2015.08.04 12:41 I attest to the accuracy and authenticity of this document chandigarh

ITAs-192-204-224-225-2015

in the facts and circumstances of the case and is perverse in nature?”

Similar questions of law had been raised in respect of all the assessment years. 3. A search was conducted under Section 132 of the Income Tax Act, 1961 on 30.06.2010. The respondent/assessee was directed to produce the books of account. Admittedly, they failed to do so. It appears that there was a dispute between the Directors of the company each one blaming the other for the custody of the books. Be that as it may, the fact is that the books were not maintained and admittedly were not in the registered office where they ought to have been maintained. The question in these appeals is the GP rate to be applied. The assessee disclosed GP rates of 11.82%, 6.58%, 12.06% and 8.8% for the assessment years 2005-2006 to 2008-2009. The Assessing Officer only on the ground that the books had not been produced adopted a rate of 20%. The Assessing Officer observed that in the trade in which the respondent is engaged, namely, poultry farming the GP rate normally varies between the range of 20% to 22%. In the assessment order, it is stated as under:- “The GP rate shown by the assessee varies from 6.58% to 12.06%. The company is in the business of poultry farm and I had the occasion to visit to GP rate shown in the similar case where the assessment had been completed last year and I had found that the GP rate shown was in the range of 20% to 22%.”

4.

However, no particulars either of the “visit” or of the assessment order in such cases were furnished or even referred to. The same were not put to the assessee. 5. The CIT (Appeals) and the Tribunal rightly observed that there was no incriminating evidence against the respondent and no comparable AMODH SHARMA 2015.08.04 12:41 I attest to the accuracy and authenticity of this document chandigarh

ITAs-192-204-224-225-2015

cases had been cited for arriving at the GP rate of 20% to 22%. A judgement of the Privy Council in CIT Vs Laxmi Narain Badridas, 5 ITR 170 was relied upon by the Tribunal, where it was held that the Asssessing Officer cannot act capriciously and on the basis of his personal knowledge of previous returns and local knowledge. In the present case, in any case, the same was not even put to the assessee. 6. In these circumstances, the orders of the CIT (Appeals) and the Tribunal cannot be said to be perverse. It is to say the least a possible view. No question of law arises. 7. The appeals are accordingly dismissed.

(S.J. VAZIFDAR) ACTING CHIEF JUSTICE

(G.S. SANDHAWALIA)

JUDGE 03.08.2015 Amodh AMODH SHARMA 2015.08.04 12:41 I attest to the accuracy and authenticity of this document chandigarh

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