The Commissioner Of Income Tax vs. Avinash Chawla And Company

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ITA/150/2012HC Madhya Pradesh20 June 2014Bench: HON'BLE SHRI JUSTICE RAJENDRA MENON4 pages
For Petitioner: Sanjay Lal
AI SummaryDismissed

What did the High Court hold?

The Tribunal held that the Assessing Officer (AO) erred in disbelieving the assessee's books of account solely on the ground that sales vouchers were not maintained. The Tribunal noted that the sales of liquor are regulated by the Excise Department, and no discrepancies in stock or quantitative details were found by the AO or the Excise Department. Therefore, the absence of sales vouchers alone could not be a basis to reject the books of accounts. The Tribunal also found that the net profit of 1.77% shown by the assessee was reasonable for the trade, and the AO had not brought any material on record to demonstrate that sales were understated or made outside the books. The Tribunal agreed that non-issuance of cash memos is a prevalent practice in the liquor trade and does not per se indicate incorrect or incomplete accounts. Since the AO had not pointed out any other defect or deficiency in the books of accounts, there was no sufficient ground for invoking Section 145(3). Consequently, the AO was not justified in estimating sales at a higher figure and applying a higher net profit. The Tribunal found the AO's approach unreasonable and the Tribunal's approach reasonable, thus seeing no substantial question of law.

What were the facts?

The respondent assessee, a firm engaged in the retail sale of Indian Made Foreign Liquor (IMFL), filed its return of income for the assessment year 2007-08 showing a total income of Rs. 22,29,453/-. During scrutiny, the Assessing Officer (AO) invoked Section 145(3) and estimated sales at Rs. 22,01,74,560/-, applying a profit rate of 3% to arrive at a net profit of Rs. 6,60,537/-. The AO disbelieved the assessee's books of account primarily because sales were not supported by proper vouchers. The Income Tax Appellate Tribunal (ITAT) allowed a deduction, leading to the net profit being worked at 1.77% of sales, resulting in a deletion of Rs. 41,75,784/-. The Revenue appealed this deletion.

What were the issues?

1. Whether the Tribunal committed an error in calculating the profit at 1.77% against the 1.43% assessed by the Assessing Officer, and whether the Tribunal erred in interfering with the AO's decision to disbelieve the books of account solely on the ground that sales were not supported by vouchers, when the AO had invoked Section 145(3)? Assessee's Contentions: The assessee argued that the non-maintenance of sales vouchers is a general and accepted practice in the liquor trade. The sales are controlled and regulated by the Excise Department, and no discrepancies were found in the stock registers or by the Excise Department. The net profit of 1.77% shown by the assessee was reasonable considering prevailing trade rates. No material was brought on record to show that sales were made outside the books or that the sales amount was understated. Revenue's Contentions: The Revenue contended that the AO was justified in disbelieving the books of account because sales were not supported by proper vouchers, leading to the invocation of Section 145(3). The Tribunal's interference with this decision was erroneous.

Which sections of the Income-tax Act were involved?

Section 145(3),Section 260-A

AI-generated summary — verify with the full judgment below

1 ITA No.150/2012 20/6/2014. Shri Sanjay Lal, learned counsel for the appellant. This is Revenue's Appeal under Section 260-A of the Income Tax Act, 1961 calling in question tenability of an order passed by Income Tax Appellate Tribunal on 13.4.2012 in the matter of permitting certain deduction to the respondent. Respondent assessee is a firm and had submitted return of income on 29.10.2007 showing a total income of Rs.22,29,453/-. The matter was taken up in scrutiny and it was found that assessee is engaged in retail sale of Indian made foreign liquor in the District of Balaghat, Bhopal and Raisen and for the year in question certain sales and profits was shown. After taking note of all the circumstances, the Assessing Officer invoke the provisions of Section 145(3) and applying the profit rate of 3% on the estimated sale of Rs.22,01,74,560/-. The net profit was worked at Rs.6,60,537/- . Appeals were filed and in an appeal the net profit was worked at Rs.1.77% of the sale and a sum of Rs.41,75,784/- was deleted. Challenging this deletion, this appeal has been filed and the only ground raised is that the Tribunal committed error in calculating the profit at 1.77% against 2 ITA No.150/2012 1.43% as assessed by the Assessing Officer and further as the sales were not supported by respective voucher the Assessing Officer disbelieved the books of account which question has been interfered with by the Tribunal. On the ground that Tribunal has unnecessarily interfered into the matter , this appeal is filed. Having heard learned counsel for the parties and on a perusal of the record it is seen that the Tribunal has found that the Assessing Officer has disbelieved the Account book submitted by the assessee mainly on the ground that sales are not supported by proper vouchers. However, it is found by the Tribunal that the sales are controlled and regulated by Excise Department and as there is no discrepancy in the stock registered maintained and the Excise Department did not find any discrepancy, learned Assessing Officer committed an error in disbelieving the Account book only on the ground that sales vouchers has not proper. The Tribunal dealt with the matter in the following manner :- "Since the quantity of the liquor is regulated by the Excise Department and no discrepancy in stock or quantitative details was found by the Assessing Officer, non maintenance of sales voucher could not alone be a basis to reject the books of accounts. 3 ITA No.150/2012 It is also noticed in this case that the appellant had shown net profit of 1.77% which was claimed by the appellant to be reasonable considering the prevailing rate in the trade of country liquor and IMFL. It may also be noted that it is not possible to have constant gross profit or net profit in a trade. Since no material was brought on record to show that the sales were made outside the books of accounts of the appellant or the amount of sale was understated, the sales shown by the appellant cannot be disturbed. I am in agreement with the submission of the appellant that non issuing of cash memo is a general practice in the line of trade and is generally an accepted and prevalent practice. It may be noted that absence of cash memo in a given situation like liquor trade may not per se lead to an interference that the accounts are incorrect or incomplete. Here in the case of appellant, the Assessing Officer had not pointed out any defect or deficiency in the books of accounts and therefore, there was no sufficient ground with the Assessing Officer for 4 ITA No.150/2012 invoking provisions u/s 145(3) of the I.T. Act. Since provisions of Section 145(3) of the I.T. Act are not applicable in this case and the books of accounts have not been validly rejected, the Assessing Officer was not justified in estimating the sales at a higher figure and applying a higher net profit than declared by the appellant." (Emphasis Supplied) Keeping in view the aforesaid findings recorded by the Tribunal and finding the approach of the Tribunal to be a reasonable one, we see no substantial question of law involved in the matter warranting reconsideration. Appeal is therefore, dismissed. (Rajendra Menon) (Sushil Kumar Gupta) Judge Judge

mrs.mishra

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