INDER KUMAR GUPTA,JAIPUR vs. ITO, WARD 4-2, JAIPUR

आयकर अपीलीय अधिकरण] जयपुर न्यायपीठ] जयपुर IN THE INCOME TAX APPELLATE TRIBUNAL, JAIPUR BENCHES (SMC), JAIPUR Jh Hkkxpan] ys[kk lnL;] ds le{k BEFORE: SHRI BHAGCHAND, ACCOUNTANT MEMBER vk;dj vihy la-@ITA No. 528/JP/2015 fu/kZkj.k o"kZ@Assessment Year : 2010-11 cuke Inder Kumar Gupta, Income Tax Officer, Vs. N-11/1, LIC Flats, Sector-6, Ward- 4(2), Vidhyadhar Nagar, Jaipur. Jaipur. LFkk;h ys[kk la-@thvkbZvkj la-@PAN/GIR No.: AJUPG 9462 D vihykFkhZ@Appellant izR;FkhZ@Respondent fu/kZkfjrh dh vksj ls@ Assessee by : Shri Manish Agarwal (CA) jktLo dh vksj ls@ Revenue by : Smt. Poonam Roy (DCIT) lquokbZ dh rkjh[k@ Date of Hearing : 23/06/2017 mn?kks"k.kk dh rkjh[k@ Date of Pronouncement : 25/07/2017 vkns'k@ ORDER

PER: BHAGCHAND, A.M.

This is an appeal filed by the assessee emanates from the order of the ld. CIT(A)-2, Jaipur dated 17/03/2015 for the A.Y. 2010-11, wherein

the assessee has raised following grounds of appeal:- “1. On the facts and in the circumstances of the case the Ld. C1T(A) has grossly erred in passing the impugned order u/s 144 of the Income Tax Act. 1961 without providing adequate opportunity to the assessee, hence the order so passed deserves to be quashed.

ITA 528/JP/2015_ 2 Inder Kumar Gupta Vs ITO

2.1 On the facts and in the circumstances of the case the Ld. CIT(A) has grossly erred in sustaining an addition of 4,23,833/-/- by applying G.P. rate @ 2.75% as against 2.49% declared by assessee arbitrarily on estimation basis without appreciating the fact that assessee has declared better results as compared to previous years, thus addition sustained deserves to be deleted.

4.1 That the Ld. CIT(A) has further erred in ignoring the fact that provision of sec 194C does not cover the case of the assessee as all the payments were made were of less than Rs.20,000/- in a day and less than 50,000 in whole year to one single party, thus addition so sustained deserves to be deleted.

proprietor of M/s Shivalik Steels engaged in the business of trading in

Iron goods on wholesale basis. For the year under appeal the assessee

had filed his return of income declaring total income of Rs. 6,16,510/-.

ITA 528/JP/2015_ 3 Inder Kumar Gupta Vs ITO

The assessment was completed u/s 144 of the Income Tax Act, 1961 (in

short the Act), wherein total income of assessee was assessed at Rs.

44,38,020/- by making trading addition of Rs.9,16,277/- , the addition of

Rs. 15,62,006/- u/s 40(a)(ia), the addition of Rs.8,22,356/- u/s 68 as

unexplained credit and a lump sum addition of Rs. 5,00,000/- by way of

disallowance of various expenses claimed in the Profit & Loss Account.

therefore, the same is dismissed as not pressed.

application of provisions of Section 145(3) of the Act and sustaining the

addition of Rs. 4,23,833/- by applying G.P. rate @ 2.75% as against

2.49% declared by the assessee. The ld. CIT(A) has restricted the

addition by holding as under:-

“2.3 I have perused the facts of the case, the assessment order and the submissions of the appellant. The assessee is engaged in the trading of iron goods & scrap. During the course of assessment proceedings, it was seen that the assessee had not maintained stock register and also had not maintained quantitative and qualitative details of opening stock and closing stock. The assessee also did not produce the books of accounts although numerous opportunities were given to him. The appellant has not been able to controvert the above findings of the Assessing Officer. On the basis of the above defects, the books of accounts are rejected u/s 145(3). The assessee has disclosed a G.P. rate of 2.49%, as against 1.29% in the preceding year, while its

ITA 528/JP/2015_ 4 Inder Kumar Gupta Vs ITO

turnover has increased from Rs. 10.15 crore to Rs. 16.41 crore. The Assessing Officer applied the GP rate of a comparable case of Shri Sanjay Kabra, of 3.05%. The appellant has stated that its G.P. rate is progressive. Also, the nature of business of the two concerns is not comparable in so far as the quality of scrap dealt with by the comparable concern relates to ship breaking scrap. Looking to the above facts, more importantly that the assessee did not produce the books of accounts during assessment proceedings in spite of being given numerous opportunities, the G.P. rate is estimated at 2.75% of the sales. The trading addition made by the Assessing Officer, is restricted accordingly. This ground is partly allowed.

on behalf of the assessee has submitted as under:-

“It is humbly submitted that the Assessing Officer has neither rejected the books of accounts of assessee, nor has specified any justifiable reason for making the impugned trading addition. It is a well settled position that rejection of books of accounts u/s 145(3) is sine qua non for making trading addition however, the Ld. AO has straight away proceeded to make the trading addition without even invoking provisions of section 145(3). In the impugned assessment order there is no observation as to how the books of accounts of assessee are unreliable. It is very necessary for the Assessing Officer to establish as to how true profits cannot be deduced from the books of accounts of assessee which the Ld. AO has miserably failed to establish. It is submitted that the books of accounts of assessee were duly audited by a reputed firm of Chartered Accountants and the copy of Audit Report was also filed before the Ld. AO. Therefore, the Ld. AO could not have proceeded to make trading additions without invoking the provision of section 145(3).

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Without prejudice and even in the event the books of the assessee are rejected and provisions of sec 145(3) are applied, it is humbly submitted that it is a settled position of law that the best guide to estimate the profits is the past performance of the assessee. In this regard Kind attention of Your Honour is drawn to the fact that, the trading results of the assessee are better as compared to the preceding year. It must be appreciated that the gross turnover of assessee has increased manifold and so is the case with the gross profit. A comparison of the gross turnover, gross profit and GP rate of the immediately preceding years with that of the year under appeal is tabulated as under: Assessment Year G.P. Rate Gross Sales Gross Profit (Rs. In lacs) (Rs. in lacs) 2008-09 37.28 1.21 3.24% 2009-10 1015.37 13.07 1.29% 2010-11 1641.48 40.90 2.49%

The sales / turnover when compared with the preceding assessment years reveals that there has been an increase of about 62% and the GP rate also has increased from 1.29% to 2.49%. Thus, it can be seen that the GP was on the higher side and the sales also have increased with higher margin. In this connection, kind attention of the Hon’ble Bench is invited to the judgment of Hon’ble Rajasthan High Court in the case of Kansara Bearings Pvt. Ltd. vs. ACIT reported in 270 ITR 235 wherein it has been held that for the purpose of making the trading addition the best guide is the past history of the assessee. In the present case, since the assessee has already declared much better results as compared to the preceding year, therefore, no further trading addition could have been made. The Ld. AO had disturbed the trading results declared by assessee merely on ground that the GP rate was lower as compared to the assessment year 2008-09 and completely ignored the fact that the gross turnover as well as the gross profit were on a much higher side as compared to the preceding years and merely because the rate of gross profit happened to be lower

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than the preceding year, it cannot be alleged that the trading results of the assessee are not reliable. ] In support of the above contentions reliance is placed on the following case laws: Past years profit is the best guide: Collector Ram SharmaVs. DCIT [ITAT fJPRt in ITA no. 771/Jp/2012 dated 10.11.2016 Relying on various jurisdictional decisions and decisions of this ITAT, held that when the books of the assessee have been rejected u/s 145( 3) of the Act, then the past history of the assessee is the best guide to estimate the profits. Prashant Oil mill Vs. ITO 172 Taxmann.com 136 (Gui)] When the Assessing officer found mistakes in the books of accounts of the assessee on verification and consequently rejected the same, then it ought not to have made additions by relying on the same books of accounts. Instead, the Assessing officer ought to have made the best judgement assessment on the basis of the history and nature of business and the net profit rate as shown by the assessee in the previous year. 99 TTJ 164 Ajay Goyal Vs. ITO (Jd.) May 9. 2005 Accounts - Rejection - GP rate - Best guide for estimation of the trading results after rejecting the books is either the past history of the assessee or any other comparable case - The past history of the assessee takes preference over a comparable case - Assessee having declared higher GP rate than the preceding year, its trading results require acceptance and trading addition requires deletion. It is further submitted that the case of business of Shri Sanjay Kabra with whom the case of assessee was compared was neither informed to the assessee, nor was any opportunity allowed for distinguishing the same. During the course of appellate proceedings, it was submitted before the Ld. CIT(A) that Shri Sanjay Kabra was engaged in the business of scrap of

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ship breaking units whereas the assessee was having the scrap collected from various industries which was coming as industrial waste out of their products. In other words, the nature of the business of Shri Sanjay Kabra may be referred to as that of steel scrap but not of the steel dealt with by the assessee. This contention of assessee was appreciated by the CIT(A) to observe that the nature of business of the two concerns is not comparable. But the Ld. CIT(A) sustained the trading addition by estimating the G P rate of the assessee @ 2.75% without any basis disclosed to the assessee. Therefore, in light of the submissions and judicial pronouncements, made above, it is prayed that the addition of Rs. 4,23,833/- sustained by the Ld. CIT(A), may kindly be directed to be deleted.”

the ld. CIT(A).

material available on the record and also gone through the orders of the

authorities below. The assessee’s turnover was of Rs. 16,41,48,351/-, on

this the assessee had derived G.P. rate @ 2.49% and N.P. rate of 0.43%.

The assessee has not maintained stock register and quantitative and

quantitative details of opening and closing stock. He had not produced

books of account before the authorities concerned, although numerous

opportunities were provided. The book results could not be verified. In a

comparable case, G.P. rate was 3.05%, ld. CIT(A) made adjustments for

part variation in nature of trade. The assessee was not able to controvert

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the findings of the ld. CIT(A) and also facts narrated in his order. The

assessee has disclosed GP rate of 2.49%, ld. CIT(A) confirmed only

2.75%. I am deleting other specific additions made and sustained. In

view of these facts, I hold that the ld. CIT(A) has passed a speaking and

reasoned order. I find no any infirmity in the order, therefore, I uphold

the same. Accordingly, ground No. 2 and 2.1 of the assessee’s appeal is

dismissed.

disallowance of Rs. 7,48,560/- U/s 40(a)(ia) and also ignoring the fact

that provisions of Section 194C does not cover the case of the assessee.

The ld. CIT(A) has allowed the appeal partly by holding as under:

“3.3 I have perused the facts of the case, the assessment order and the submissions of the appellant. The Assessing Officer has disallowed u/s. 40a(ia), freight expenses amounting to Rs. 14,14,263/- and unloading expenses (cartage) amounting to Rs. 1,48,243/-. The appellant has stated that the provisions of Section 194C are not applicable to unloading expenditure and therefore, he was not liable to deduct TDS on this expenditure. This contention of the appellant is correct. It has also been stated by the appellant that he was required to deduct TDS on freight only till 30.09.2009 and not thereafter. Such freight expenditure incurred till 30.09.2009 is only Rs. 7,48,560/-. It has also been stated that with respect to this freight expenditure, no expenditure has been incurred in excess of Rs. 20,000/- and expenditure to no one person is in excess of Rs. 50,000/- during the

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year, as this freight payment has been made to different truck owners who bring goods to the go-down of the assessee. I have perused the freight account of the appellant. It is not clear whether this freight account was submitted during the assessment proceedings. The contention of the appellant that freight expenditure to no one person, during the year is in excess of Rs. 50,000/- cannot be verified since freight has been incurred in cash and no vouchers were produced during assessment or appeal proceedings. Therefore, it is held that the disallowance u/s. 40a(ia) has been correctly made on freight expenditure of Rs. 7,48,560/- till 30.09.2009. No disallowance u/s. 40a(ia) can be made on freight expenditure after 30.09.2009. Therefore, the disallowance of freight and cartage made by the Assessing Officer u/s. 40a(ia) is restricted to Rs. 7,48,560/-. Ground No. 2 is partly allowed.”

hearing, the ld AR of the assessee has submitted as under:-

In this regard it is submitted that, the provisions of section 194C in respect of payment of freight is not applicable to the payments which are below Rs. 20,000/- in a single payment and where the payment in aggregate is below Rs. 50,000/-, then also the provisions of section 194C are not applicable. Thus, where the payments are within the aforesaid limits, then no TDS is required to be made. This position has neither been doubted by the Ld. AO nor by the Ld. CIT(A), who has sustained the addition merely by alleging that the expenses were incurred in cash no evidence was produced in this regard.

However, the Ld. CIT(A) has completely ignored the fact that the payment made to the transporters towards freight was duly recorded by the assessee and the copies of relevant accounts were submitted

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before the Ld. CIT(A) (copy enclosed). These expenses were made in cash every day and were paid to the truck owners who do not raise any bill and prefer to be paid in cash only. Further, with regard to the cartage expenses on account of unloading of goods it is submitted that the same are not covered within the provisions of section 194C and therefore, no disallowance on account of the same could have been made.

Therefore, in light of the facts narrated above it is submitted that none of the payments made by assessee required any deduction of tax at source inasmuch as the provisions of section 194C are not attracted. Therefore, it is prayed that the entire addition of Rs. 7,48,560/- be directed to be deleted.

the ld. CIT(A).

material available on the record and also gone through the orders of the

authorities below. The provisions of Section 194C of the Act for payment

of freight are not applicable where payments are below Rs. 20,000/- in a

single payment and the aggregate is below to Rs. 50,000/-. Wherever,

the payments are within the aforesaid limits, then no TDS is required to

be made. From perusal of the chart regarding freight inward expenses,

which is available from the date i.e. 10.04/2009 to 31/03/2010, it is

noted that there is no single payment of more than Rs. 20,000/- in cash.

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Expenses were made in cash every day and were paid to the truck

owners who do not raise any bill and prefer to be paid in cash only. In

this case, the payments are within limits, therefore, provisions of Section

194C of the Act are not attracted. In view of the above facts and

circumstances, I delete the addition confirmed by the ld. CIT(A).

Accordingly, ground No. 4 and 4.1 of the appeal is allowed.

disallowances of Rs. 5,00,000/- made out of various expenses claimed in

the P&L account. The ld AR of the assessee has submitted that the said

addition of Rs. 5,00,0000/- was made merely on the basis of

assumptions and presumptions. It is submitted that while making

disallowance ld. AO has alleged that assessee has claimed expenses in

the profit and loss a/c and since he did not produce the vouchers for

verification. The ld. AR submitted that the total amount of expenses

claimed in the P/L a/c is Rs. 33,87,360/-, which comprises of various

administrative expenses, depreciation, bank charges etc. This forms only

a meagre percentage of 2.06% of the total turnover, which is in no way

excessive, and there was no reason to doubt the same.

CIT(A).

ITA 528/JP/2015_ 12 Inder Kumar Gupta Vs ITO 14. I have heard the rival contentions of both the parties, perused the

material available on the record. I have already sustained the addition on

account of rejecting the books of account and estimating the gross profit,

therefore, I delete the lump sum addition confirmed by the ld. CIT(A).

Order pronounced in the open court on 25/07/2017.

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