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Income Tax Appellate Tribunal, DELHI BENCH : F : NEW DELHI
Before: SHRI R.K. PANDA & SHRI N.K. CHOUDHRY
BEFORE SHRI R.K. PANDA, ACCOUNTANT MEMBER AND SHRI N.K. CHOUDHRY, JUDICIAL MEMBER Assessment Year: 2010-11 R.L. Traders, Vs ITO, 2046, Katra Tobacco, Ward-29(1), Khari Baoli, New Delhi. New Delhi. PAN: AAAFR5508C (Appellant) (Respondent) Assessee by : Shri K.R. Manjani, Advocate Revenue by : Shri Gayasuddhin Ansari, Sr. DR Date of Hearing : 28.01.2020 Date of Pronouncement : 31.01.2020 ORDER
PER R.K. PANDA, AM:
This appeal filed by the assessee is directed against the order dated 9th December, 2016 of the CIT(A)-16, New Delhi, relating to assessment year 2010- 11.
This is the second round of litigation before the Tribunal.
The facts of the case, in brief, are that the assessee is a partnership firm and is engaged in the manufacturing of hing and trading of dry fruits. It filed its return of income on 23rd February, 2010 declaring the total income at Rs.3,15,210/-. During the course of assessment proceedings, the AO noted from the audit report in Form 3CD, Column No.8(a) that the auditors have remarked that the assessee “has not produced the stock register for verification. However, the physical stock has been verified and certified by the partners. The auditors have given the quantitative details of the items of goods traded, the details of which are as under:- Item Opening Stock Closing stock Gum NIL Rs.3,68,381/- Hing NIL Rs.1,26,76,945/-
He further noted that in column No.28(b) the auditor has written “not applicable.” The AO, therefore, asked the assessee to explain as to why there is no manufacturing account since there is no manufacturing account in the books of account. The ld. AR of the assessee who appeared along with the partners confessed that it is not possible to provide manufacturing account as it cannot be made. The AO noted that the assessee makes a mixture of hing, gum, starch and oil to make adulterated hing which is sold in the market. The proportion of four items in the mixture is not fixed or specified. The proportion of these items to create this mixture depends on how much money is being paid by the customer. He, therefore, inferred that the proportions of the four items to make the mixture of the adulterated hing varied from customer to customer and according to the rate it 2 fetch. Since the books of account are not clear about this aspect and the audit report is also silent about the manufacturing account, the AO rejected the book results. He analysed the GP shown by the assessee for the last four years as well as the current year which are as under:- Asstt. Year Turnover GP GP % 2007-08 Rs.3,67,29,334/- Rs.25,73,711/- 7.00% 2008-09 Rs.4,21,97,665/- Rs.20,79,832/- 4.92% 2009-10 Rs.8,32,00,757/- Rs.54,50,177/- 6.55% 2010-11 Rs.6,14,84,607/- Rs.21,94,447/- 3.57%
Applying the rate of GP at 10%, the AO made addition of Rs.39,54,014/- to the total income. The AO further disallowed interest payable amounting to Rs.12,23,461/- in absence of filing confirmation. The assessee approached the CIT(A), who reduced the GP rate to 6.5% and, accordingly, confirmed the addition of Rs.21,22,220/-. On further appeal by the assessee, the Tribunal dismissed the appeal. The assessee carried the matter to the Hon’ble High Court and the Hon’ble High Court, vide order dated 9th March, 2015, restored the issue to the file of the CIT(A) by observing as under:-
“8. This Court has carefully considered the submissions both before the CIT(Appeals) as well as the ITAT. The assessee categorically appears to have submitted that a quantitative tally of all the raw materials consumed in the making/preparation of the final marketable product was being maintained. Even though CIT(Appeals) noticed this contention as a matter of fact, the said authority did not render any finding. The ITAT instead went by the findings of the lower authority and merely based its conclusion on the interpretation of Section 145(2) of the Income Tax Act, 1961. In fact, there is an assumption in para 9 that the assessee did not maintain quantitative details of ingredients such as mixing gum, starch and oil.
This Court is of the opinion that having regard to the assessee's stand that such details were forthcoming both by way of books as well as through a quantitative tally, the CIT (Appeals) should have addressed himself to the issue and rendered clear findings. Failure to have done so has prejudiced the assessee. Consequently, the impugned order is hereby set aside. The matter is remitted back to the CIT (Appeals) for fresh examination of the books of accounts, specifically with regard to whether the quantitative tally was undertaken of the raw material used by the assessee in its business activities and if so, the inference is to be drawn from it and the other available material on the record. All rights and contentions of the parties are reserved.”
The ld.CIT(A) dismissed the appeal of the assessee by observing as under:-
“I have carefully considered the history of the case and the observations of Assessing Officer, the CIT(A), the Hon. ITAT and Hon. High Court of Delhi. I have also considered the submission of the appellant submitted during the proceedings before me. I am of the opinion that the appellant is misusing the various appellate forums to gain some advantage. The fact of the matter is that the appellant, in spite of all his chest thumping with respect to the quantitative stock being maintained, the facts prove otherwise. Right from the first round of litigation the stand of the appellant has remained ambiguous. The appellant has been claiming that it is maintaining the qualitative and quantitative stock but the same was not found to be true by even Hon. ITAT. The appellant, again before me, has submitted the copies of ledger account of purchase of hing, gum, starch and oil. It records only the purchases in the respective account. However, what quantity was used to make which quality of hing, cannot be ascertained from this record. As Hon. ITAT, in its order, in miscellaneous application No.63/Del/2014 dated 25/09/2014 had observed that “maintaining quantitative details of manufacturing account and maintaining quantitative tally of purchases sales etc are different things.” I am afraid, that the facts and circumstances have not changed a bit, since then. There is nothing new in what the appellant is submitting as argument or evidence. Even before me during the appellate stage the ld AR has stated categorically that it was neither possible nor desirable to maintain the stock register from which the manufacturing account could be prepared. How and how much of an item of raw material is consumed can never be found out. As the Assessing Officer, has also pointed out that the raw material consists of perishable items, the same cannot be stored forever. The one which is purchased first must be consumed first (first in first out). The appellant has very conveniently brushed aside the FIFO or LIFO method of maintenance of stock without any logical assertion. Therefore, in the end I hold that the appellant is not maintaining the books of accounts in such a way so as to arrive at the manufacturing account, the stock register admittedly, has not been maintained. The mere recording of sale and purchases and opening and closing stock at the beginning and the end of the year is not sufficient. Hence I hold that the deficiency in the books of accounts is real. Therefore, I have no reason, argument or evidence to temper with the finding of my predecessor in his order No. 13/2013-14 dated 17/05/2013.”
Aggrieved with such order of the CIT(A), the assessee is in appeal before the Tribunal by raising the following grounds:- “
1. The learned CIT(A) has erred on facts as well as in law in sustaining the addition which is unjustified, unlawful and is based merely on surmises as is clear from his wrong observations made in page - 7 of his order in face of quantitative tally.
2. The learned CIT(A) is wrong in not referring to judgments of Hon’ble Delhi High Court and the learned Tribunals and not deliberating even though these judgments are binding on him.
3. Addition is arbitrary in face of no defect in books having been found specially in face of results having been accepted upto Hon’ble Delhi High Court in Appellant’s case as well as Appellant’s sister concern for last more than 30 years.
4. The CIT(A) has proceeded on surmises ignoring factum of quantitative tally in the ledger which is a sort of stock register because it contains purchases and sales in quantity. It is prayed that above addition of Rs.54,92,680/- may kindly be deleted.”
We have considered the arguments made by both the sides, perused the orders of the AO and the CIT(A) and the paper book filed on behalf of the assessee. We find the AO, in the instant case, rejected the book results and adopted 10% GP on the ground that the assessee was unable to provide the manufacturing account as it cannot be made. Further, according to the AO, the books of account are not clear regarding the preparation of the four items of raw materials, i.e., hing, gem, starch and oil to make the mixture of adulterated hing. Therefore, he rejected the books results and adopted the rate of GP at 10% which was reduced by the CIT(A) in the first round of litigation to 6.65%. We find, on appeal by the assessee, the Tribunal dismissed the appeal and on further appeal before the Hon’ble High Court, the Hon’ble High Court restored the matter to the file of the CIT(A) for fresh adjudication. We find, before the CIT(A), the assessee could not produce the quantitative and qualitative stock. The assessee has only submitted the copies of the ledger account for purchase of hing, gum, starch and oil. However, what quantity was used to make which quality of hing was not substantiated before the CIT(A) for which the ld.CIT(A) rejected the submissions made before him. The detailed reasoning for which the ld. CIT(A) rejected the book results has already been reproduced in the preceding paragraph. It is the submission of the ld. Counsel for the assessee that the accounts are audited and no defects were pointed out by the auditors; that due to dispute in the family, the turnover has come down and the GP has also fallen; and in subsequent years the business has been closed and, therefore, adoption of such high rate of GP is uncalled for and the addition sustained by the CIT(A) should be deleted. We do not find force in the argument of the ld. Counsel for the assessee, especially in absence of non-production of manufacturing account and non-furnishing of details to arrive at the actual value of items consumed and the value of closing stock. However, going by the past results and considering the totality of the facts of the case, we are of the considered opinion that adoption of 4% GP in the instant case 6 will meet the ends of justice. We, therefore, direct the AO to adopt the GP rate of 4% and recompute the disallowance. So far as the addition on account of disallowance of interest is concerned, neither any specific ground has been taken before the Tribunal nor anything was argued by the ld. Counsel for the assessee on this issue although the assessee in the general grounds of appeal has challenged the entire addition made by the AO. We, therefore, refrain from adjudicating the issue of disallowance of interest made by the AO in the original order. The grounds raised by the assessee are accordingly partly allowed.