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Facts
The assessee, an AOP engaged in liquor and royalty business, had its books of accounts rejected, and income assessed under Section 143(3) by applying a 1% net profit rate on sales. Following extensive litigation and a remand from the Hon'ble High Court, the assessee consistently failed to produce the required documents to the Assessing Officer (AO), leading to significant additions to its income and disallowance of expenses, which were subsequently confirmed by the Ld. CIT (A).
Held
The Tribunal dismissed the appeals filed by the assessee, thereby confirming the orders passed by the lower authorities. The decision was primarily based on the assessee's persistent non-compliance with the High Court's directions and the AO's requests to furnish audited financials and books of accounts, which rendered the verification of the assessee's claims impossible.
Key Issues
Whether the lower authorities were justified in rejecting the books of accounts, applying a 1% net profit rate, and making additions/disallowances in the absence of documentary evidence, given the High Court's remand and the assessee's continued non-compliance with directions to produce documents.
Sections Cited
250, 143(3), 145(3), 142(1), 260A, 68
AI-generated summary — verify with the full judgment below
Income Tax Appellate Tribunal, JAIPUR BENCH “A”, JAIPUR
Before: Dr. S. SEETHALAKSHMI & SHRI GAGAN GOYAL
These two appeals by the assessee are directed against the order of NFAC, Delhi dated 21/02/2025 & 25/02/2025 passed u/s. 250 of the Income Tax Act, 1961 (in short ‘the Act’).. the assessee has raised the following grounds of appeal:-
1. Ld. CIT(A) has erred in law and on facts in sustaining trading addition of Rs. 1,00,11,249/- by application of 1 per cent net profit on declared sale of Rs. 1,14,59,72,041/- in this second consecutive year, of the liquor contract which was higher by Rs.2.45 crore than first years' when fulfilment rates are based on quantity of liquor purchased whereas the contract area had more or less same liquor customers in both years with same contact areas which was also facing stiff competition at its Border areas from other liquor contractor who were selling liquor at very lower rates. 2. without prejudice to ground no. (1), Ld. CIT (A) acted against the accounting principles that trading addition should be restricted to sales estimated {XXVII TAX WORLD 521 (JP)). Therefore no addition could have been made as sales declared were accepted by both lower authorities.
3. Ld. CIT has further erred in avoiding the finding of this Hon'ble ITAT in assessee's own case vide order dated 30.05.2014 wherein 1 per cent N.P. was confirmed with direction to allow deduction of Short License fee paid.
4. Ld. CIT (A) was not justified in sustaining addition of Rs. 1, 91,683/-, which was on estimate basis i.e. disallowance on adhoc basis @ 10 per cent of total expenses in Royalty business.
Brief facts of the case are that the assessee is an AOP and involved in the business of liquor contract for Sikar District and collection of Royalty Business on & 604/JP/2025 Birbal Ram Rajendra Poonia & Party behalf of State Government, filed its return of income on 31.10.2005 declaring total income at Rs. 22,19,226/-. The case of the assessee was assessed u/s. 143(3) of the Act on 26.12.2007 at a figure of Rs. 1,27,45,600/- after rejecting the books of accounts u/s. 145(3) of the Act and N.P. was applied @ 1% on total sales.
3. After a long period and rounds of litigation the matter reached the Hon'ble High Court for the second time and the Hon'ble High court remitted the matter back to the AO with specific directions. In compliance to specific directions given by the Hon'ble High Court to the assessee to produce all the documents before the AO on which they wanted to rely on, several statutory notices were issued by the AO to the assessee requiring it to furnish all the documents relied upon by it. In response, the assessee neither filed any reply nor were any documents / details furnished before the AO in support of its claim. Thus, the AO had no other option but to complete the assessment on the basis of facts available on record and the set-aside proceedings were completed by passing an order u/s. 143(3) of the Act dated 26.12.2018, making an addition of Rs. 1,22,30,475/-& Rs. 1,91,683/-, and assessing the total income at Rs. 1,25,53,918/-. The assessee being aggrieved preferred an appeal before the ld. CIT (A), who in turn dismissed the appeal of the assessee and confirmed the order of the AO. The assessee being further aggrieved preferred the present appeal before us.
We have gone through the order of the AO, the order of the ld. CIT (A) and submissions of the assessee along with grounds taken before us. For sake of clarity and factual record, we are reproducing para no. 4A of the assessment order as under:-
4A. In compliance to directions given by the Hon'ble High Court, notice u/s. 142(1) of the I.T. Act was issued to the assessee on 26.10.2017 requiring it to furnish all the documents relied upon by it. The notice was duly served upon the assessee. In compliance to notice issued, the A/R of the assessee attended the office on 13.11.2017 and sought adjournment. The case was adjourned for 15.12.2017. On 15.12.2017, nobody attended nor was any reply filed in this office. On change of incumbent, notice u/s. 142(1) alongwith query letter was issued on 12.11.2018 and case was fixed for hearing on 19.11.2018. Till date, neither the assessee submitted reply nor any documents/details were furnished in support of its claim. In the order of the Hon'ble High Court in compliance to which this order is being made there were specific directions to the assessee to produce all the documents before this office on which they want to rely upon. The initial notice issued u/s. 142(1) of the I. T Act was duly served upon the assessee and in compliance to that notice adjournment of time was sought for furnishing the documents of which assessee want to place its case, but on the date to which the case was adjourned neither any details were furnished nor any further adjournment was taken. On 12.11.2018 again notice u/s. 142(1) was issued fixing the case on 19.11.2018. On this date also neither anyone attended nor were any details filed. Even till date no details/ documents have been filed. The assessee has not produced relevant details and evidences in support of its claim. The assessee was given sufficient opportunity, almost one year. But the assessee failed to produce any of the documents in support of its claim. In view of the above, there is no option this office but to complete the assessment proceedings on the basis of facts of the case and material available on record. The assessee has not uttered any word about the rejection of books of accounts. No books of accounts were produced and the assessee has not litigated the findings of the Assessing Officer of original assessment order, the books of account of the assessee are rejected.”
In addition to the above, we have thoroughly observed the order of the ld. CIT (A) also. It was observed by the ld. CIT (A) that the tax auditor of the assessee also made adverse comments in the audit report regarding non production of bills and vouchers. During the year under consideration, the assessee had disclosed sale of Rs. 1,14,59,72,041/- and on this sale, the assessee had disclosed gross profit of @ 3.34% calculating the gross profit of Rs. 3,82,33,603/-. The assessee in the immediately preceding year had disclosed gross profit @16.43%. Similarly, the assessee had disclosed net profit @ 0.18% in this year in comparison to the net & 604/JP/2025 Birbal Ram Rajendra Poonia & Party profit rate of 0.54% shown in the immediately last year. The AO was of the view that the assessee had drastically reduced the net profit for the year under consideration, but had not mentioned any specific reason for the decline. The AO considering the issue that the tender fee for the year under consideration had increased in comparison to last year, applied net profit @1% on total turnover shown by the assessee i.e. net profit from the liquor business of the assessee was calculated @1% of Rs. 1,14,59,72,041/- which comes to Rs. 1,14,59,720/- and after considering the other income, the income from business was calculated at Rs. 1,22,30,475/- (i.e. Net Profit - Rs. 1,14,59,720/-, Interest on FDR- Rs. 3,00,332/- and Interest on IT Refund Rs. 4,70,423)/-. For the year under consideration i.e. A.Y. 2005-06, the assessee had shown net profit of Rs. 1, 31,760/- from royalty business. Further, the AO disallowed Rs. 3,83,365/- out of expenses viz. General Expenses, jeep & Vehicle Expenses, Office Expenses and Staff & Labour Expenses. The Ld. CIT (A) had restricted the same to Rs.1, 91,683/-. The AO added the same to the total income of the assessee. The AO completed the set-aside proceedings by passing an order u/s. 143(3) dated 26.12.2018, making an addition of Rs. 1,22,30,475/- as income from liquor business & Rs. 1,91,683/- i.e. disallowance from expenses, assessing the total income at Rs. 1,25,53,918/-.
Before, we analyse the actions of the AO and ld. CIT (A), it is our utmost duty being final fact finding authority to examine, whether the assessee was cooperative and complying before the authorities below, in terms of directions issued by the Hon’ble Rajasthan High Court. As, none can take advantage of its own non-compliance/fault. As observed and reproduced (supra) that the assessee was non-compliant before the AO despite of fact that he was the petitioners 5 & 604/JP/2025 Birbal Ram Rajendra Poonia & Party before the Hon’ble High Court, still not followed the directions and now tried to play a victim card along with technical arguments.
During the hearing, the bench categorically asked for audited financials along with tax audit report of the assessee but the same was categorically denied by the ld. AR of the assessee. It is further observed that during the year under consideration, the assessee paid an extra amount to State Excise Department amounting to Rs. 2.45 Cr. and on this payment assumption goes against the assessee i.e. the assessee achieved more turn over which may or not became part of the sales of the assessee. Moreover, the assessee failed to produce the books of accounts before authorities below as well as before us despite of specific demand by the bench. In absence of books of accounts relied upon by the assessee, none of the authority in this world can examine the claims made by the assessee in its favour and at the cost of repetition again we would like to say that the assessee can’t claim arguments in its favour for his own non-compliance/fault.
We have gone through the paper book submitted by the assessee where it relied upon various case laws of the Co-ordinate Benches but in absence of audited financials for verification, same can’t be applied. In view of this, we do not see any strength in the arguments/grounds raised by the assessee, hence, the grounds raised by the assessee are dismissed and the orders of the authorities below are confirmed. the assessee has raised the following grounds of appeal:-
1. Ld. CIT(A), has erred in law and on facts in sustaining addition of Rs. 11,33,90,432/- as against returned loss of Rs. 2,76,86,920/-(taxable income of Rs. 8,57,03,512/-) by repeating same addition but without any renewed reasons or justified 6 & 604/JP/2025 Birbal Ram Rajendra Poonia & Party basis or providing any comparable case of relevant period and identical facts as of assessee's case.
2. Ld. CIT (A) acted against the law in dismissing the appeal thereby repeating the application of same profit margin/rate which were found during survey proceedings on 21.03.2003 as charged by retail liquor shops of Jaipur city ignoring the fact that year 2003-04 was under a different liquor policy of State Excise Department and that Jaipur liquor consumers never faced repercussions of drought as were faced by assessee's liquor consumers.
Ld. CIT(A) was not justified in ignoring but not appreciating the genuine facts for the loss suffered by the Assessee AOP due to the reasons (1) the year in appeal was of severe drought which was third consecutive year (2) It was facing stiff competition at the border areas where the adjacent liquor contactors were selling liquor nearing at half rates resulting in lower sales and consequently lower purchase of quantity of liquor for fulfilment of the monthly obligation of contract amount and (3) High payment of short license fees (Rs.18.48 crore) due to lower quantity of goods purchased as per monthly obligation.
Assessee AOP had liquor contract at Ajmer district (with townships of Kishangarh, Vijay Nagar, Beawar & Kekri) in Rajasthan in relevant period. Due to non-lifting of liquor to the extent of monthly guaranteed amount (because of consequent low sale), heavy payment was made under the head Short License fee (short fall) to the State Excise Department. The Short License fee paid by the appellant was Rs. 18, 48, 07,627/- in all the twelve months (relevant to A.Y. 2000- 01). In Rajasthan, the fulfillment of liquor contract (the policy remained in force up to 2005-06) was based mainly through purchase of goods (in terms of quantity) on monthly basis as under:
S. No. Type of Liquor Fulfilment of contract amount 1 Indian Made Foreign Liquor Rs. 675/- per bulk Litre* 2 Beer:
& 604/JP/2025 Birbal Ram Rajendra Poonia & Party Strong Beer Rs. 117/- per bulk Litre* Ledger Beer Rs. 78/- per bulk Litre* 3 Country Liquor Rs. 85% of issue price (*Bulk Litre = 12 Bottles)
The unfulfilled part of monthly obligation to purchase the liquor was payable/paid through bank challans and that too on monthly basis, termed as short License fee". Return of income was submitted at loss of Rs. 2, 76, 86,920/- with audited statement of accounts. The said loss was assessed at income of Rs. 9, 64, 86,310/- vide order dated 31.03.2003 under section 143(3) of IT Act by the AO. The income so assessed was reduced to Rs. 3,38,98,000/- in first appeal after considering the trading results of subsequent year (A.Y. 2001-02) and at loss of Rs. 2,34,88,920/- in second appeal by the Jaipur Bench of Income tax Tribunal. Against the order of the Hon'ble ITAT, the department and appellant both were in appeal under section 260A of IT Act who restored the total issues back to Hon'ble Tribunal. Against the second order of Hon'ble ITAT, again, the appellant as well as Department were in appeal under section 260A of IT Act. Hon'ble Rajasthan High Court, vide decision dated 21.08.2017 (with other bunch of liquor cases), restored the case of the appellant as well as of other liquor contractors, back to the Assessing Officer.
With reference to the order of the Hon’ble Rajasthan High Court, all the parties will produce all documents before the authority on which they want to rely upon and the Assessing Officer will hear both the sides and after giving reasonable opportunity of being heard and if any statement is to be relied upon, will also grant opportunity to cross examine. Consequently, fresh assessment order was framed by the AO under section 143(3)/260A of the I.T. Act dated 8 & 604/JP/2025 Birbal Ram Rajendra Poonia & Party 20.12.2018. In said assessment order, the AO repeated the same trading addition of Rs. 8,52,55,512/- which was original assessed vide order dated 31.03.2003 and addition of Rs. 4,48,000/- u/s. 68 of Income tax Act, which was sustained by the appellate authorities against original addition.
The AO observed that the appellant did not issue sale bills to its customers. As such the sales were not vouched and no quantitative tallies could be made. The appellant does not maintain any stock register. During the course of assessment proceedings, expenses vouchers were not fully produced for verification and the auditors have also stated in their report that expenses vouchers were produced for verification only in part. In view of the above mentioned inconsistencies, the AO rejected the books of accounts of the assessee and thereafter, proceeded to calculate the net profit of the assessee. In this case, the AO referred to a survey conducted in the case of liquor contractors of Jaipur on 21.3.2003 which revealed various details about the modus operandi of liquor contractors. The assessee is under obligation to prove that in the instant case, profit declared by the assessee is reasonable, either on account of higher expenditure incurred in this year or low sales. Ld. DR also relied upon the decision of ITAT Hyderabad Bench in the case of Mr. B.V. Ravindra Reddy vs. DCIT (ITA.No.326/Hyd./2016, dated 21.06.2016), wherein it was held that “the Ld. Counsel for the assessee submitted that same business continued in next year wherein lower gross profit adopted by the assessee was accepted by the A.O upon verification of the records i.e., in scrutiny proceedings. No such material was placed before the Tribunal except stating that assessee reduced the sale price to achieve sales targets prescribed by the Excise Department. Under these circumstances, I am of the view that the estimate of income at 5% is reasonable. It deserves to be mentioned that the decision cited by the Ld. Counsel for the assessee does not contain any reason as to why the income is estimated on the lower side. In fact it is the duty of 9 the Tribunal to verify as to what is the percentage adopted by the AO in the same area. It is the duty of the assessee to prove that specific constraints lead to earning less profit. In the absence of pointing out any such factors, I have no other alternative except to accept the estimate made by the Assessing Officer.”
In addition to the above the findings of this bench as discussed in para 6, 7 & 8 (supra) are also applicable mutatis mutandis. In view of this grounds raised by the assessee are dismissed and the orders of the authorities below are confirmed.
In the result, the appeals of the assessees above are dismissed with above directions.
The Order is pronounced in the open court on 20th Day of August 2025.