Loading judgment…
No AI summary yet for this case.
Income Tax Appellate Tribunal, DELHI BENCH “D”: NEW DELHI
Before: SHRI BHAVNESH SAINI & SHRI PRASHANT MAHARISHI
O R D E R PER PRASHANT MAHARISHI, A. M. 1. This is an appeal filed by the revenue against the order of the ld CIT(A)-30, New Delhi dated 22.05.2015 for the Assessment Year 2011-12. 2. The revenue has raised the following grounds of appeal:- “1. Whether on the facts and circumstances of the case, the ld CIT(A) has erred in law and on facts in deleting the addition of Rs. 6,94,08,967/- made on account of extra profit by applying GP Rate at 6% on the basis of average gross profit of other entities engaged in the trade of wholesale liquor business.
2. The order of the CIT(A) is erroneous and is not tenable on facts and in law.”
3. Brief facts of the case shows that assessee is a company engaged in the business of distribution of potable liquor both Indian made foreign liquor and country liquor. The assessee is part of „Chaddha Group”. Such under section 132 of the income tax act was initiated on that group on 1/2/2012. Therefore, the notice u/s 153A of the act was issued on 10/4/2013. The assessee filed return of income on 22/5/2013 showing taxable income of INR 1 96770190/–. During the course of assessment proceedings, the learned assessing officer observed that the assessee company has shown its Page | 1 gross profit at 4.75 percentages during the financial year 2010 – 11. He further noted that it is a matter of record that other entities engaged in the trade of wholesale liquor business are having average gross profit of more than 6% for the financial year 2010 – 11. Therefore, the assessee was questioned to explain the difference in the gross profit rate and to show cause as to why the same income should not be enhanced by INR 69,400,000. The assessee explained that that complete books of accounts have been maintained by the assessee in case of each of these entities on day-to-day basis, which have been audited as per the provisions of section 44AB of the income tax act. It was further stated that in case of other entities which are compared by the AO for comparison of gross profit dealing in country liquor and whereas some of the comparable companies are also dealing involved shall trading of Indian made foreign liquor and therefore the gross profit rate of those companies are not comparable with the assessee. The assessee explained that the learned AO has compiled the entities which are dealing involved shall trading of Indian made foreign liquor whereas the assessee is dealing in IMFL only. It was further stated that the gross profit ratio worked out by the learned assessing officer was after considering the discount received from distilleries and discount given to the customers. Thereafter the assessee also submitted a comparative statement after considering the discount factor and stated that the gross profit rate of the companies, which are compared by the learned assessing officer, is considerably low to the gross profit ratio of the assessee. The assessee also submitted detailed reasons for difference in the gross profit of the comparable company cited by the learned assessing officer and stated that there is a geographical difference, difference of turnover, the methodology of accounting of discount, surrounding areas populated with many other outlets, product mix with respect to brands et cetera. The learned assessing officer rejected the explanation of the assessee and made an addition of INR 6 9408967/– holding as under:- “6. The submission of the AR of the assessee company has been considered and is found to be devoid of any merit. The AR of the assessee company has tried to substantiate the difference in gross profit by holding that the company had to give higher discount in comparison to other entities, which lowered its gross profit as the discounts are reduced from the sales. Interestingly, there is no such arrangement or any such agreement, which could be treated as a matter of policy as to whom the discount is to be given. According to the AR of the assessee, the matter of discount depends upon the area of operation as well as upon the parties were enjoying hold in the business of liquor having large number of retail shops in various districts. This very submission of the AR of the assessee company does not hold water as for the assessment year 2012 – 13 in the assessee‟s own case, the sales have been increased by 2 times as compared to assessment year 2011 – 12 and amazingly the discount given by the assessee company in the fight 2011 – 12 relevant to AYs 2012 – 13 has been decreased by nearly 34% which clearly demonstrates that the assessee company had suppressed its sales for assessment year 2011 – 12 through raising us suspicious claim in the form of discount allowed. Also, it is a matter of fact that in every business when there is increase in sales, there is also increasing the so- called discounts. Moreover, the AR of the assessee has merely produced the copy of the parties to whom discounts have been allowed without adducing any other corroborative evidence to substantiate its claim. Therefore, as the AR of the assessee company has not furnished complete details with documentary evidence in support of its claim of discount allowed, I am constrained to recalculate the gross profit at the rate of 6% in case of the assessee company keeping in view the average gross profit rate of other entities indulged in the same business. The gross profit works are at 4.75% is calculated from the profit and loss account for the period 1/4/2010 – 31/3/2011. The assessee company has shown only because sales of rupees 5552717397/– in its audited profit and loss account. In the circumstances, I make an addition of INR 6 9408967/– the extra profit earned at the rate of 1.25% being the difference on application of gross profit rate at 6% in place of 4.75% as disclosed by the assessee company.” Consequently the total income of the assessee was computed at Rs. 266179160/– and the assessment order was passed under section 153A of the income tax act of 19/3/2014.
4. Aggrieved with the order of the learned assessing officer assessee preferred an appeal before the Commissioner of income tax (appeals) – 30, New Delhi who deleted the whole addition. Therefore, the learned assessing officer aggrieved with that order has preferred an appeal before us.
The learned departmental representative vehemently referred to the order of the learned assessing officer and submitted that the assessee has shown a gross profit of only 4.75 percentage whereas the comparable companies have shown the gross profit rate at of 6% on the basis of turnover and therefore the learned assessing officer has made the addition to the total income of the assessee. It was further stated that the learned CIT – A is made deleted the addition merely on the basis of the submission of the assessee.
The learned authorised representative vehemently supported the order of the learned CIT – capital and submitted that when the books of accounts of the assessee are audited and there are no defects pointed out in the books of accounts, same cannot be rejected on the gross profit addition made by the learned assessing officer on the basis of the comparable companies which are distinguishable on the facts has rightly been deleted by the learned CIT – A.
We have carefully considered the rival contention and perused the orders of the lower authorities. In the present case, the learned assessing officer has made addition to the book results of the assessee without rejecting the books of accounts. To reject the books of accounts the learned assessing officer must find out latent, patent, and glaring defects in the books of accounts. In the present case, the learned assessing officer has not found any defect in the books of accounts. Merely on the basis of comparison of gross profit with other parties, he has made the addition to the gross profit of the assessee. The learned departmental representative could not point out any infirmity in the order of the learned CIT – A and further failed to justify that without rejecting the books of accounts by finding out the latent, patent and glaring defects in the books of accounts whether the book results which are audited can be disturbed or not. On perusal of the order of the learned assessing officer, we did not find that the learned assessing officer has pointed out any defect in the books of accounts of the assessee. The learned CIT – A has dealt with the whole issue as under:-
“7. From the above analysis it is evident that the assessment has been made under section 153A/143 (3) of the income tax act and not under section 153A/144 of the income tax act. The AO did not reject the audited book results or did not point out any mistake in the books of account. The only reason for making the addition was less a gross profit of the assessee in comparison to other entities. For which explanation tendered by the assessee that it is due to higher discount allowed, was not accepted. The AO did not call for the details of discount allowed to various parties. The AO asked for and was provided with copy of the parties to whom the discount was allowed. He was at liberty to make further confirmation from those parties, which he preferred not to do. He did not point out even a single instance, where the assessee‟s claim of discount was found to be incorrect or unverifiable.
He compared date of sales and discount of the subsequent year. He was silent on the fact that every assessment year is different assessment year. The assessee cannot be asked as to how he should carry out his business. On the basis of double of sale in the subsequent year and fall in amount of discount allowed, the AO drew a conclusion that the assessee company has suppressed its aims for assessment year 2011 – 12 through raising a suspicious claim in the form of discount allowed. Every expenditure is allowable u/s 37 of the income tax act, 1961, if they are not in capital in nature or not personal in nature and incurred wholly and truly for the purposes of business.
The allowability of any expenditure is governed by the provisions of section 37 of the income tax act. Our books of accounts and vouchers are to be maintained is governed by section 44AA of the income tax act. Unfortunately, no rules has been notified under section 44AA (3), in this regard. The AO did not give any finding that the expenditure incurred in claimed by the assessee whether capital in nature of personal in nature only exclusively not incurred for the purposes of business. His finding was also not that it is not verifiable.
It is also not the case of rejection of book results under section 145 (2) of the income tax act.
In the liquor business the geographical area of sale matters a lot. To increase its sales are to encourage a particular brand of liquor, the seller offers various discounts, once the brand is established, the quantum of discount is reduce substantially. This is the case of the assessee. The comparison of the AO with the subsequent figure of sale and discount is incorrect method.
The AO has not pinpointed any specific defect, much less any material defect, therein and not only has accepted the declared turnover but has also accepted the correctness of the books of accounts and the genuineness of the discount allowed. He is of the view that discount allowed is excessive; in support of his contention he did not brought any material on record. He is of the opinion that the discount is excessive because the gross profit of the assessee is lesser income paid to the gross profit of the other entity of the similar trade. He did not brought on record the geographical area of business of the other entities. Therefore, the comparison was incomplete and incorrect and cannot be relied upon.
The AO did not pointed out any defect in the books of account. He also did not invoke the provisions of section 145 (2) of the income tax act. No specific defect was pointed out in any amount of discount allowed. Merely the gross profit rate was lesser and the reasons furnished by the assessee were that the quantum of discount allowed is more, he simply believe that the assessee company has suppressed its sales for assessment year 2011 – 12 through raising a suspicious claim in the form of discount allowed. If the discount allowed were not for the purposes of the business and AO, then he should have pointed out even a single instance, where he was of the view that the discount allowed is not for the purposes of the business. But on these bases he cannot come to a finding that the sales have been suppressed. It is never establish during the assessment proceedings or on the basis of any document found during the course of search.