ACIT vs. SRI RAUSHAN AGRAWAL,

IN THE INCOME TAX APPELLATE TRIBUNAL PATNA BENCH, PATNA Before Sh. N_ K Saini, AM and Sh: Sudhanshu Srivastava, JM ITA No.88/Pat./2016, Asstt: Year 2010-11 ACIT, Circle-2,Muzaffarpur Vs Shri Raushan Agrawal,Gopalganj (APPELLANT) (RESPONDENT) PAN No. AQJPA8749C Assessee by Shri G.P Tulsiyan, C: A Revenue by Shri Kausik Kumar Das, Sr. D.R Date of Hearing 15.03.2018 Date of Pronouncement 16 03.2018 ORDER Per Sudhanshu Srivastava_JM: This appeal has been filed by the Department against the order dated 09.06.2016, by the Ld_ CIT (Appeals) - Muzffarpur for assessment year 2010-1 1 . 2 The brief facts of the case are that the assessee is a wholesaler of Brass utensils_ The return of income was filed declaring total income of Rs. 1,85,920 / -. The assessee's case was selected for scrutiny and during the course of assessment proceedings the Ao observed that the assessee had shown gross profit @ 1.6% and the net profit 0.72% _ During the course of assessment proceedings, the Ao also noted that the assessee had 2 ITA No.88/Pat /2016 shown sale of goods at profit rate of less than 1 % on purchases from M/s Yashvi Enterprises, at a loss of 7% on purchases from Mank Industrial and Trading Company, at a loss of 1 % on purchases from M/ s Ram Lala Metal Corp. and at a profit of 2.02% on goods imported from Nepal: 2.1 The AO further noted that as per the First In First Out (FIFO) method, the value of stock came to Rs.53,99,880 / - whereas the assessee had shown closing stock of Rs.54,36,588/- and, thus, there was a difference of Rs.36,709 /-_ The AO also noted that in one of the sales in the month of August, 2009 the assessee had sold of goods at a profit of 32% whereas the average GP was only 1.6%. Thereafter, the AO proceeded to reject the books of accounts of the assessee u/s 145 (3) of the Income- tax Act, 1961 and after applying a Gross profit rate of 32%, computed the assessee's income at Rs.8,06,18,171 /- 2.2 Aggrieved, the assessee approached the Ld; CIT (A) who held that the addition was not sustainable and deleted the addition 3 ITA No.88/Pat./2016 2.3 Now the Department has approached the ITAT and has challenged the action of the Ld: CIT (A)- 3. The Ld_ Sr . DR. submitted that the AO had pointed out inherent defects in the accounts of the assessee and the assessee was required to show cause and to explain the defects which was not done by the assessee and, therefore, the books had been rightly rejected_ It was also submitted that the gross profit rate had been estimated on the basis f similarly situated traders dealing in the same line of business and, therefore, the action of the AO was justified and the Ld. CIT (A) had erred in deleting the addition. It was also submitted that the AO had no other option than to estimate gross profit of the assessee as no explanation was offered by the assessee_ 4 In response, the Ld. AR placed reliance on the order of the Ld: CIT (A) and submitted that the Ld: CIT (A) had allowed relief to the assessee based on facts and the settled legal position and no interference was called for in this regard. 5_ We have heard the rival submissions and have also perused the material on record. A perusal of the impugned order shows that the assessee had explained the facts regarding variation in ITA No.88/Pat./2016 the gross profit in respect of the five instances quoted by the AO but the same had not been same considered by the AO at all. The relevant explanation of the assessee is reproduced hereunder for a ready reference: "From the perusal of the enclosed reply filed at the time of hearing it is clear that a solitary bill of 11.60 kg was purchased on 24.08.09 from M/ s Sawastik Vastra Bhandar @204/ - per kg: Out of this receipt a meagre quantity of 2.300 kg was sold Rs.300/ - per kg to obtain sales tax registration as the business was started on that very day. All other purchases after that date during 2009-10 where priced at Rs.202/ to Rs.205.87 per kg as evidence from stock register: The sale after the first sale was also made at a rate of varying from rs.204/ to Rs.212/ per kg (As per the stock register enclosed): Out of 1,24,490.300 kg of total sale; the bill value on which AO estimated GP was a solitary bill consisting of 2.30 kg which is insignificant: Therefore the estimation of the GP by the AO alleging large difference in sale and purchase price is totally biased and arbitrary: 5.1 The Ld. CIT (A) has noted that the gross profit rate of 47.05% was shown only an isolated sale of only 2.3 per kgs of utensils which was the first sale transaction of the business started by the assessee and barring this single sale all the other sales were between Rs.204 per Kg and Rs. 212 per Kg: 5.2 The Ld. CIT (A) has also given a categorical finding that the total sale of utensils during the year was 1.245 lakh kgs but the 5 ITA No.88/Pat./2016 AO had concluded that accounts of the assessee were fabricated based only on only five instances. 5.3 The Ld_ CIT (A) has also noted that the assessec had purchased 11.60 kg of utensils from M/ s Swastik Bartan Bhandar (@ Rs.204 per Kg out of which 2.3 Kg was sold at Rs.300 per Kg being the first sale and the balance quantity of 9.3 kg was sold at normal rates: 5.4 The Ld_ CIT (A) has also noted that the AO should have examined the purchases and sales if he considered the same to be suspicious but instead of making necessary investigation, the AO rejected the books of account: The Ld. CIT (A) has also observed that the books of account cannot be rejected solely on the ground that the Gross Profit Rate shown by him was less in comparison to other assesses. It has also been noted that the AO compared to gross profit rate of the assessee with the gross profit disclosed by M/s Mohan Lal of Siwan who had disclosed gross ITA No.88/Pat ./2016 profit rate of 1 1% but the AO adopted the GP rate of 32% in the assessee's case which was arbitrary on the part of the AO_ 5.5 We are in complete agreement with the observations of the Ld. CIT (A) in this regard: Although, the AO has pointed certain defects like excessive cash withdrawals, cash sales, cash purchases but it is a matter of record that the AO did not carry out any independent investigation in this regard SO as to verify the genuineness of these transactions but made it a ground to reject the books of accounts of the assessee. Similarly, an isolated sale bill which reflected a gross profit rate of 47.05% was used as an illustration to reject the books of accounts of the assessee. The AO also compared the gross profit rate with a similarly placed trading concern M/s Mohan Lal of Siwan who had disclosed the gross profit rate at 11% but ignoring this the AO proceeded to apply gross profit rate of 32% in the case of assessee without assigning reason for the same. Therefore, we agree with the findings of the Ld: CIT (A) that the action of the AO reflected arbitrariness on the part of the AO and books were rejected without bringing on record any serious defects in the ITA No.88/Pat./2016 maintenance of books of accounts: We also agree with the findings of the Ld: CIT (A) that the rejection of books of accounts and estimation of GP rate was void Accordingly, the grounds raised by the Department are dismissed. 6 _ In the result, the appeal filed by the Department is dismissed. (Order Pronounced in the Court on 16/03/2018) NK. Saini) (Sudhanshu Srivastava) JUDICIAL MEMBER ACCOUNTANT MEMBER Dated: 16 /03/2018 s.sinha*