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Income Tax Appellate Tribunal, SMC BENCH, PATNA
Before: SHRI CHANDRA MOHAN GARG
आयकर अपीलीय अधिकरण, ‘एकल” न्यायपीठ, पटना IN THE INCOME TAX APPELLATE TRIBUNAL, SMC BENCH, PATNA BEFORE SHRI CHANDRA MOHAN GARG, JUDICIAL MEMBER आयकर अपील सं./ITA No.170/PAT/2018 (ननिाारण वर्ा / Assessment Year :2004-2005) Shri Shailendra Choudhary, Vs. ITO, Ward-2(1), Muzaffarpur Subh Kiran Complex, Gopalji Lane, Saraiyaganj, Muzaffarpur. स्थायी लेखा सं./PAN No. : ADBPC 5543 Q (अपीलाथी /Appellant) (प्रत्यथी / Respondent) ..
निर्धारिती की ओर से /Assessee by : Shri N.K.Lal, CA राजस्व की ओर से /Revenue by : Shri Supriya Biswas, JCIT-DR
सुनवाई की तारीख / Date of Hearing : 16/09/2019 घोषणा की तारीख/ : 18/09/2019 Date of Pronouncement आदेश / O R D E R
This appeal is filed by the assessee against the order passed by learned CIT(A), Muzaffarpur, dated 08.05.2018 for the assessment year 2004-2005 on the following grounds of appeal :- 1. For that the impugned order is bad in law as well as in facts. 2. For that the Id CIT (A) has exceeded his jurisdiction in passing the impugned order. 3. For that the Id CIT (A) has upheld the Id A.O.'s order on irrelevant grounds. 4. For that the Id CIT (A) has erred in not considering the assessee's submission. 5. For that the estimation of Gross Profit has been made on erroneous basis.
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For that trading liability has been treated as income without there being any evidence as to cessation thereof whereas evidence to the contrary was- produced by the assessee. 7. For that the Id CIT(A) has erred in passing a cryptic order. 8 . For that for any other grounds that may be urged at the tie of hearing. 2. First of all, ld. AR submitted that except ground Nos.5 & 6, other grounds are of general in nature, hence, he argued only on ground No.5 & 6 containing main two issues. 3. In ground No.5, ld. AR has challenged the estimation of gross profit on erroneous basis and the same has been confirmed by the ld. CIT(A) without assigning any reasonable and good reason. Ld. AR further submitted that as per estimation of GP made by the Assessing Officer, the GP rate comes at 13.71% as against 8.64% of turnover as shown by the assessee which is very excessive, high, arbitrary and unjust. Ld. AR submitted that no defect and discrepancy has been pointed out by the Assessing Officer in the books of accounts of the assessee. Therefore, gross profit @8.64% as has been shown by the assessee may kindly be accepted by deleting the addition. 4. Replying to the above, ld. DR strongly supported the assessment as well as first appellate order and submitted that the Assessing Officer has rejected the books of accounts of the assessee by invoking provisions of Section 145(3) of the Act and the assessee has not challenged the rejection of books of accounts in this appeal, therefore, estimation of profit made by the Assessing Officer and confirmed by the ld. CIT(A) may kindly be upheld.
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On careful consideration of above submissions and from the observations of the Assessing Officer recorded at page 2 of the assessment order, I observe that the Assessing Officer has rejected the books of accounts of the assessee considering the discrepancies/defects in the books of accounts of the assessee. In this appeal, the assessee has not challenged the rejection of books of accounts, therefore, I safely presume that the action of Assessing Officer in rejecting the books of accounts of the assessee has been accepted by the assessee without any dispute. After rejection of books of accounts which is necessary to estimate the gross profit rate by considering the surrounding circumstances such as GP declared and accepted by the department during the earlier and subsequent assessment years and GP rate adopted by the department in the similar nature of business activities. In the present case, the ld. AR could not assist us regarding earlier and subsequent years GP rate of the assessee nor the GP rate of any other similar business has been submitted before the authorities below or before the Tribunal. During arguments it being asked by the bench, ld. AR drew our the attention of bench at page 17 of the assessee’s paper book, wherein item by GP rate has been shown and the basis of the GP rate taken by the assessee for estimating 13.71% GP has been shown. 6. As noted by the ld. CIT(A) in para 3 of the appellate order, I observe that the assessee is in the business of sale of mosquito coils, biscuit, shampoo on wholesale basis and assessee also earns commission income from other concerns. Keeping in view the entire facts and
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circumstances of the case, I am of the considered opinion that in the event of rejection of books of accounts on account of discrepancies/defects found in the books of accounts of the assessee, the GP rate declared by the assessee in the return of income cannot be accepted as bench-mark. At the same time, I also observe that for a wholesaler on items like mosquito coils, biscuits and shampoo etc. the GP rate of 31.71% of turnover as adopted by the Assessing Officer is also very high and excessive, which cannot be approved. Therefore, after considering the stand of Assessing Officer, explanation of the assessee and nature of business activities of the assessee, I am of the considered opinion that the GP rate @10% of total turnover is sufficient to cover all possible leakage of Revenue and the Assessing Officer is directed to recalculate the GP accordingly. Consequently, ground No.5/1st issue of the assessee is partly allowed with a direction to the Assessing Officer as given hereinabove. 7. In next ground i.e. Ground No.6, the assessee has challenged the action of Assessing Officer wherein the Assessing Officer has made addition u/s.41(1) of the Act on account of cession of liability of Rs.2,81,656/-. This addition has been confirmed by the CIT(A) without any justified reason and findings. 8. Ld. AR strenuously contended that the ledger account of another company i.e. M/s S.B.Consumer Products, Hyderabad from which the assessee had made purchases, was submitted before the Assessing Officer and both the companies are sister concern and he had made
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advance payments to the tune of Rs.1,56,251/-, which was adjusted in the ledger and only amount of Rs.1,25,405/- was shown in the liability, therefore, the addition on entire amount including advance payment cannot be made u/s.41(1) of the Act on cessation of liability. 9. Replying to the above, ld. DR strongly supported the assessment as well as first appellate order and submitted that the Assessing Officer was right in making addition u/s.41(1) of the Act. 10. On careful consideration of above rival submissions, I am of the view that the Assessing Officer has taken a very hyper-technical approach by invoking provisions of Section 41(1) of the Act. In third para at page 3 of the assessment order, the Assessing Officer noted that in the reply the assessee submitted ledger account of M/s S.B.Consumer Products, Hyderabad from which he had made purchases and in top para at page 4 of the assessment order, the Assessing Officer noted that the adjustment claimed by the assessee of Rs.1,56,251/- is not supported by any evidence and there is no iota of discussion regarding ledger account submitted by the assessee. In view of the above, I am of the considered opinion that the Assessing Officer has not controverted the fact that the adjustment claimed by the assessee on account of advance payment against proposed purchases, therefore, the amount of advance cannot be treated as liability of the assessee on the closing date of financial year and, thus, I can safely presume that the actual liability figure after adjustment of advance payment at the end of the financial year was Rs.1,25,405/- (2,81,656 – 1,56,251). Therefore, the addition made by the
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Assessing Officer on account of cessation of liability u/s.41(1) of the Act is reduced to the said amount. Accordingly, the assessee gets relief of Rs.1,56,251/- and the Assessing Officer is directed to recalculate the amount accordingly. Ground No.6 of the assessee is partly allowed. 11. In the result, the appeal of the assessee is partly allowed on both the issues. Order pronounced in the open court on 18/09/2019. Sd/- (C.M.GARG) न्यानयक सदस्य / JUDICIAL MEMBER पटना /Patna; दिनांक Dated 18/09/2019 Prakash Kumar Mishra, Sr.P.S.(on tour) आदेश की प्रनिललपप अग्रेपर्ि/Copy of the Order forwarded to : अपीलाथी / The Appellant- 1. प्रत्यथी / The Respondent- 2. आयकि आयुक्त(अपील) / The CIT(A), 3. 4. आयकर आयुक्त / CIT 5. निभधगीय प्रनतनिनर्, आयकि अपीलीय अनर्किण, पटना / DR, ITAT, Patna 6. गार्ड फाईल / Guard file. सत्यापपत प्रतत //True Copy// आदेशानुसार/ BY ORDER, (Senior Private Secretary) आयकर अपीलीय अधिकरण, पटना / ITAT, Patna