MUKESH KUMAR MEENA,JAIPUR vs. ITO, JAIPUR

PER SHRI KUL BHARAT, JM.

The appeal by the assessee is directed against the order of Ld. CIT(Appeals)-

2, Jaipur dated 22.03.2016 pertaining to Assessment Year 2011-12.

The assessee has raised the following grounds of appeal:-

“1. That the learned CIT[A] erred in sustaining the rejection of books of accounts u/s.145(3) of the I.T. Act, 1961, which sustenance of rejection of books of accounts u/s.145(3) of the I.T. Act is most arbitrary, unjust and untenable in law.

scrutiny assessment and the assessment u/s 143(3) of the Income Tax Act, 1961

(hereinafter referred to as the Act) was framed vide order dated 28/03/2014. While

framing the assessment the Assessing Officer rejected the books of accounts on the

ground that the assessee did not issue separate bill in respect of each sale. As per

practice adopted by the assessee, for the sales made during a day, one consolidated

entry of sale is made in the cash book. Thus, the cash sales recorded in the books

depends on the sweet will of the assessee. As such possibility of leakage of revenue

by recorded less sales, cannot be ruled out. Further, the Assessing Officer observed

that no stock register or quantity details of the goods traded are available. In the

absence of daily stock records it cannot be ascertained whether whole of the goods

purchased during the year have been included in sales or not? Assessing Officer

observed that there is a difference in the figure of sales uploaded while filing the e-

return and the figure of sales recorded in the audited books of a/c. Therefore, he

was of the view that books of accounts maintained by the assessee are not reliable

and the correct profits of business cannot be deduced therefrom and proceeded to

estimate the profits. The Assessing Officer adopted 20% of the gross profits against the gross profits of 17.40% declared by the assessee. The assessing Officer further

made addition by invoking the provisions of Section 69A of Rs. 24,00,000/-, Rs.

5,00,000/- and Rs. 3,00,000/- in respect of the loans received from Shri O.P. Gupta,

Shri Vijay Kumar Meena, Shri Hawa Singh Meena and Smt. Sunita Devi. The

Assessing Officer further made addition on account of unexplained cash credit of Rs.

2,40,000/- u/s 68 and made addition of Rs. 1,40,000/- on account of disallowance

out of expenses for personal use. Against this, the assessee preferred an appeal

before Ld. CIT(A), who after considering the submissions partly allowed the appeal.

Thereby, the disallowances which were made for the personal use were restricted to

10% as against Rs. 1,40,000/- added by the Assessing Officer, rest other additions

were sustained. Now, the assessee is in further appeal before this Tribunal.

against adopting the gross profit @ 20% as against 17.40%. Since both grounds

are inter-connected hence are being disposed of together.

3.1 Ld. Counsel for the assessee reiterated the submissions as made in the

written submissions. He contended that assessee has regularly kept and maintained

books of accounts and on the basis of these books of accounts final accounts i.e.

Balance sheet, trading account, profit & loss account etc. have been prepared and

the same stand filed before the lower authorities. He further contended that the

books of accounts were audited by the Chartered Accountant and tax audit report in

form No. 3CB, 3CD with schedules and annexure were also filed with the AO. He

contended that each and every entry in the books of accounts is supported by bills &

vouchers. He submitted that assessee being a dealer of liquor is regulated by the Excise Department, the maximum retail selling price for IMFL and beer is also fixed

by the State Excise Department. He further contended that sale of liquor by the

assessee is subject to frequent check by the authorities of the State Excise

Department. Besides statements with regard to sale and purchase are periodically

submitted by the assessee to the Excise Department. There is neither change nor

variation in the system of accounting maintained by the assessee in the year under

appeal. He further submitted that the assessing Officer has not recorded a clear

finding that the, accounts so filed suffers from specific defects. In the absence of

specific defects, the AO ought not to have rejected the trading results. Moreover,

the AO failed to appreciate the fact that during the year under appeal there was

increase in sale. Hence, the gross profit fell little bit. He submitted that it is a

settled position of law that merely non-maintenance of stock register is not a

sufficient reason to reject the books of accounts.

3.2 On the contrary, Ld. D/R opposed the submissions and submitted that the

Assessing Officer who justified in adopting the past year’s results declared by the

Assessee.

3.3 We have heard the rival contentions, perused the material available on

record. The Assessing Officer rejected the books of accounts and estimated the

profit by observing as under:-

“3.2 I have considered the averments made by the Ld. A/R. It is a common practice in liquor trade that entire sales are made in cash for which no individual sale bills are issued. The consolidated sale of a day recorded in the cash book does not have particulars of the goods sold Even though purchases have been made from govt. undertaking, sales made by the assessee are not open to verification. On this ground alone various Tribunals and High Courts have held that provision of section 145(3) do apply in liquor cases. The cases relied upon by the Id. A/R are not relating to liquor cases and hence not relevant as far as the case of assessee is concerned.

3.3 As regards legal position on the subject, in the case of Action Electricals vs. DCIT (258 ITR 188), Hon'ble Delhi High Court has observed as under:-

"We are unable to persuade ourselves to agree with Ld. Counsel for the assessee. Section 145(2) of the Act empowers the Assessing Officer to make a best judgment assessment when he is not satisfied about the correctness or completeness of the accounts of the assessee. It is not possible to categorize various types of defects which may render rejection of books of account of an assessee on the ground that the accounts are not complete or correct. Each case has to be considered on its own peculiar effects, having regards "to the nature of business. Though it is to that the absence of stock register in a given situation may not per se lead to an inference that the accounts are incomplete or false: The absence of such a register, coupled with other factor like fall in profits, etc. may lead to an inference that the accounts are not correct."

The Hon'ble Allahabad High Court in the case of Awdhesh Pratap Singh Abdul Rehman and Brothers vs. CIT (210 ITR 406) has held —

"where the absence of a stock register, cash memos, etc., coupled with other factors like vouchers in support of the expenses and purchases made not being forthcoming and the profits being low, may give rise to a legitimate inference income that all is not well with the books and the same cannot be relied upon to assess the income, profits or gains of an assessee. In such a situation, the authorities would be justified to reject the account books under section 145(2) of the Act and to make the assessment in the manner contemplated in those provisions."

The Hon'ble Supreme Court in the case of Chhabil Das Trubhuwandas Shah Vs. CIT 59 ITR 733 (SC) has held that in absence of quantitative tally, the fall in margin of profit cannot be explained. The Rajasthan High Court in the case of Ghasiram Todarmal Vs. CIT reported in 196 ITR 329 has held that if the stock register maintained by the assessee does not reflect the true state of affairs of the articles consumed or produced, the action of rejection of Books of account ;s just. Here, the assessee even does not maintain the stock register.

3.4 Now coming to estimation of gross profit, in the cases of Kansara Bearings Pvt. Ltd. vs. ACIT (270 ITR 235)(Raj) and Ajay Goyal vs. ITO (99 TTJ 164) it has been held that Past year profit declared by the assessee is the best guide for application of GP/ NP rate. As mentioned above in just preceding year the assessee had declared gross profits @ 19.41% on sales of Rs. 1,36,26,368/-. Even those gross profits have not been subjected to scrutiny u/s 143(3) of the I T Act. As per the govt. policy while fixing the M.R.P. of the products, retailers margin is considered at 20% of the sale price by the RSBCL and SGSSM through whom IMFL and CL is supplied to retailers. Considering all the relevant facts the sales of assessee are estimated at Rs. 1,75,00,000/- on which GP rate of 20% is applied to estimate assessee's profits of business. This will provide gross profits of Rs. 35,00,000/- against the declared profits of Rs. 29,52,155/-. The difference of Rs. 5,47,845/- is added to the income of the assessee.”

This finding of the assessee was affirmed by the Ld. CIT(A). The Ld. CIT(A), has

decided this issue by observing as under:-

“In the present proceedings, the appellant's main submission was that the assessee is bound to purchase IMFL and beer only from Rajasthan State Beverage Corporation Ltd. and the prices are fixed. Further, the retail trade price of the above products is also fixed. As per the excise liquor policy the maximum retail selling price for IMFL and beer was also fixed by State Excise Department which in any way could not exceed 20% of margin/profit but retailer was free to sell it at a lower price. In view of the above, it was contended that gross profit could not exceed 16% (20/120x100). Further, the sale was subject to frequent check by the Inspectors and officers of the State Excise Department and monthly statement with regard to sale and purchase were submitted to the excise department. It was thus submitted that the assessee can realize a maximum of 16.68% of the RSBCL and hence the rejection and estimation of gross profit were not in order. It is a fact that the sales are not vouched by proper bills and are completely in cash. Further, no stock details were maintained by the assessee. In the absence of these two important aspects, the books of account could not reflect the correct position of the affair and the rejection of books of accounts under section 145(3) of the I.T. Act, 1961 are thus upheld. Now coming to the aspect of gross profit to be adopted, the past history of the case is considered the best indicator as held in a number of judicial decisions. The assessee has returned a gross profit of 19.41% in the previous year i.e. Assessment Year 2010-11. Further, the assessee's submissions that only 16.68% maximum gross profit could be achieved due to the excise policy of fixing the margin at 20% on the purchase price, in similar circumstances, in the previous year, the appellant itself has shown a gross profit of 19.41%. When asked how this was possible, the appellant had no answer. Therefore, this submission of the assessee cannot be accepted since, appellant himself had returned a profit percentage of 19.41% in the previous year. The estimation of gross profit at 20% for this year is upheld. It is seen that the turnover over has been estimated by the Assessing Officer at Rs. 1,75,00,000/- against Rs. 1,69,62,946/- returned by the assessee. This has no basis as Assessing Officer did not bring on record and material to justify the increased turnover adopted by him, the turnover shall be taken at the value as returned by the assessee and rate of 20% applied on it as held by the Assessing Officer. This ground of appeal is partly allowed.”

It is settled position of law that the Assessing Officer is empowered to reject the

books of accounts, in the event if he is not satisfied about the correctness or

completeness of the account of the assessee. The Assessing Officer may make an

assessment in the manner provided under section 144 of the Act.

In our view, the Assessing Officer requires to satisfy himself about the correctness

and completeness of the accounts. Admittedly, in the present case the assessee is

engaged in the business of liquor which is regulated by the concerned Excise

Department. The Assessing Officer has not made any enquiry from Excise

Department with regard to quantity of liquor sold by the assessee. Moreover, the

Assessing officer has not brought any material on record suggesting that the

assessee was involved in selling liquor and not recording the same. Since, the

purchase and sales are to be notified to State Excise Department as well, the AO has

not brought any material suggesting that the State Excise Department has adversely

reported about the sale and purchase. Under these undisputed facts, we are of the

view that the Assessing Officer was not justified in rejecting the books of accounts.

Further, even it is assumed that the books of accounts were not giving true picture

of profit. The AO u/s 144 of the Act is under statutory duty to find out the profit

declared by comparing with the similarly situated persons, if such information is not

available in that event the Assessing Officer is required to deduce profit on the basis

of average of last five years GP which is not done in this case. Hence, the action of

the Assessing Officer rejecting the books of accounts is not justified. We therefore,

direct the Assessing Officer to adopt gross profit @ 17.40% as declared by the assessee, as in this year there is an increase in sales. Ground no. 1 and 2 of the

assessee’s appeal are allowed.

the submissions as made in the written submissions. The submissions of the Ld.

Counsel for the assessee are reproduced as under:-

GROUND OF APPEAL NO. 3 & 4

“It is settled position that in cases of cash receipts there is increased burden of proof on the assessee which he has not discharged. In absence of proper evidence, the cash receipt shown in the name of Shri O.P. Gupta is held unexplained. Accordingly, addition of Rs. 24,00,000/- is made in the income of assessee u/s 69A of the I.T. Act.

GROUND OF APPEAL NO.5 1. That the assessee craves leave to reproduce verbatim para 6.3 of the assessee's assessment order for the year under appeal i.e. 2011-12 which is as under:

"in view of categorical denial by Shri Vijay Kumar Meena, it is clear that he had not given any cash to the assessee. The facts being so the amount of Rs.5,00,000/- shown in the cash book in his name is held to be unexplained and added to the income of assessee u/s. 69A of the I.T. Act"

i) Vijay Kumar Meena Rs.5,00,000/- ii) Hawa Singh Meena Rs.5,00,000/- iii) Smt.Sunita Devi Rs.3,00,000/-

NOTE: Addition of Rs.5,00,000/- on account of credit of Rs.5,00,000/- in the name of Hawa Singh Meena stands deleted by the learned CIT[Appeals] and the department is not in appeal against this relief given to the assessee by the learned CIT[A].

4.1 On the contrary, Ld. D/R opposed the submissions.

4.2 We have heard the rival contentions, perused the material available on

record. The authorities below in respect of the addition made of Rs. 24,00,000/- by

invoking the provision of Section 69A of the Act did not accept the explanation of the

assessee that the said amount belonged to Shri O.P. Gupta. It is contended by the

Ld. Counsel for the assessee that the amount is duly reflected in the books of

accounts.

Therefore, he contended that the Assessing Officer has wrongly invoked the

provision of Section 69A of the Act and the Ld. CIT(A) affirmed the action of the

Assessing Officer without considering the fact that the impugned receipt is reflected

in the books of accounts of the assessee. We find that the Ld. CIT(A) has rejected

the contentions by stating that the assessee has only given some facts but no

evidences. The AO made addition on the basis that no confirmation by Shri O.P.

Gupta. It is seem that the assessee has filed a copy of Power of Attorney given by

Shri O.P. Gupta in favour of the assessee. The assessee has also filed bank’s

statements reflecting the debit entry about the money re-paid to Shri O.P. Gupta.

It is also noticed that the Assessing Officer has not issued any summon to Shri O.P.

Gupta for the purpose of verification the correctness of claim of assessee. In the

absence of proper enquiry by the Assessing Officer, in our view, the addition is

unjustified. Therefore, after considering the totality of the fact we deem it

appropriate to set aside this issue to the file of the Assessing Officer for the purpose

of verification afresh. Therefore, these grounds are allowed for statistical purpose.

the written submissions. The submissions of the assessee are as under:-

GROUND OF APPEAL NO.6 1. That the assessee craves leave to reproduce verbatim para 8.2 of the assessee's assessment order for the year under appeal i.e. 2011-12 which is as under: "Copy of allotment letter of liquor shop in the name of Smt. Sunita Devi Meena for the year 2009-10 has been filed during assessment proceedings. She has filed the ITR for AY 2011-12 manually on 31.3.2012 in ITR-4. It implies that the turnover of liquor shop run by her during the relevant period was not auditable u/s.44AB of the I.T. Act. It is highly unbelievable that a person running a govt. allotted liquor shop does not have turnover of even sixty lac rupees and even does not have a bank account. Since she has not been produced, verification of facts regarding her capacity and genuineness of the transaction could not be carried out. Since availability of cash balance of Rs.3,00,000/- in her hands has not been proved, the amount of Rs.3,00,000/- shown in the cash book in her name is held to be unexplained and added to the income of assessee u/s.69A of the I.T. Act. "

i) Vijay Kumar Meena Rs.5,00,000/- ii) Hawa Singh Meena Rs.5,00,000/- iii) Smt.Sunita Devi Rs.3,00,000/- NOTE: Addition of Rs.5,00,000/- on account of credit of Rs.5,00,000/- in the name of Hawa Singh Meena stands deleted by the learned CIT[Appeals] and the department is not in appeal against this relief given to the assessee by the learned CIT[A].

5.1 Ld. D/R opposed the submissions.

5.2 We have heard the rival contentions, perused the material available on

record. It is seem that the addition was made by invoking the provisions of section

69A of the Act. It is demonstrated by the assessee that this transaction is duly

reflected in the books of accounts. The assessee has also filed income tax return of

Smt. Sunita Devi. Therefore, we are of the view that authorities below were not

justified in making the addition. The AO is directed to delete the addition. Thus,

Ground no. 6 is allowed.

the submissions as made in the written submissions. Ld. Counsel for the assessee

submitted that there is a petty transaction. The assessee has duly filed the relevant

evidences.

6.1 Ld. D/R opposed the submissions.

6.2 We have heard the rival contentions; we find that the assessee has not

furnished any supporting evidences. Therefore, these grounds of the assessee’s

appeal are dismissed.

7.1 Ld. Counsel for the assessee reiterated the submissions as made in the

written brief. He contended that the disallowance is made on adhoc basis and

highly excessive.

7.2 Ld. D/R opposed the submissions and supported the order of the authorities

below.

18 ITA No. 657/JP/2016. Shri Mukesh Kumar Meena, Jaipur.

7.3 We have heard the rival contentions, it is seen that the assessing Officer has

made disallowance on the basis of surmises. Since, the disallowance is made on the

basis of conjecture and surmises without basing the disallowance on material

evidence. Therefore, we direct the AO to delete the addition. Ground no. 9 & 10

are disposed of in the terms indicated herein above.

Sd/- Sd/- ( HkkxpUn ½ ( dqy Hkkjr) ( BHAGCHAND) ( KUL BHARAT ) ys[kk lnL;@Accountant Member U;kf;d lnL;@Judicial Member Jaipur Dated:- 30/11/2017. Pooja/ आदेश की प्रतिलिपि अग्रेषित@ब्वचल वf जीम वतकमत वितूंतकमक जवरू

vkns'kkuqlkj@ By order,

सहायक पंजीकार@ Aेेपेजंदज. त्महपेजतंत