LAXMI NARAYAN HIMMATRAMKA,JAIPUR vs. ITO, JHUNJHUNU

आयकर अपीलीय अधिकरण] जयपुर न्यायपीठ] जयपुर IN THE INCOME TAX APPELLATE TRIBUNAL, JAIPUR BENCHES (SMC), JAIPUR Jh HkkxpUn] ys[kk lnL; ds le{k BEFORE: SHRI BHAGCHAND, ACCOUNTANT MEMBER vk;dj vihy la-@ITA No. 973/JP/2016 fu/kZkj.k o"kZ@Assessment Year : 2010-11 cuke Late Shri Laxmi Narayan Himmatramka The ITO Vs. Th.L/h Shri Jhandi Prasad Himmatramka Ward- 2, Jhunjhunu P.O. Chirawa -333 026 LFkk;h ys[kk la-@thvkbZvkj la-@PAN/GIR No.: AACPH 7931 B vihykFkhZ@Appellant izR;FkhZ@Respondent fu/kZkfjrh dh vksj ls@Assessee by: Shri Manish Agarwal, CA jktLo dh vksj ls@ Revenue by :Smt. Poonam Rai, DCIT-. DR lquokbZ dh rkjh[k@ Date of Hearing : 13/04/2017 ?kks"k.kk dh rkjh[k@ Date of Pronouncement : 18 /04/2017 vkns'k@ ORDER PER BHAGCHAND, AM The assessee has filed an appeal against the order of the ld. CIT(A)-35, New Delhi (Camp Office at Jaipur), dated 29-09-2016 for the assessment year 2010-11 raising therein following grounds:- 1. On the facts and in the circumstances of the case the ld. CIT(A) erred in upholding the rejection of books of account by AO by invoking provisions of Section 145(3) of the I.T. Act, 1961. Appellant prays the rejection of books of account may please be held bad in law.

2 ITA No.973/JP/2016 Late Shri Laxmi Narayan Himmatramka vs. ITO, Ward- 2 , Jhunjhunu . 1.1 That the ld. CIT(A) has erred in upholding the trading addition of Rs. 83,689/- made by AO by applying gross profit rate of 4% as against gross profit rate of 3.73%% declared by assessee by ignoring the past history which is favourale to assessee . Appellant prays addition so made may please be deleted.

2.1 Apropos Ground No. 1 and 1.1 of the assessee, brief facts of the

case are that during the year under consideration the assessee is engaged

in the business of trading of Kirana goods on wholesale basis in the name

and style of M/s. Chirangi Lal Laxmin Narayan at Chirawa. The AO on

perusal of the books of account of the assessee noticed that the assessee

during the year under consideration had declared the gross profit of Rs.

11,60,840/- on declared total sales of Rs. 3,11,13,214/- in trading account

by showing a gross profit rate of 3.73% which is very low in this line of

business. The AO on scrutiny of books of account noticed various defects

that the assessee had not maintained day to day stock register and

quantity-wise details of items. The AO further noted that the assessee had

not furnished complete bills and vouchers regarding purchase expenses in

trading account. The AO noted that the auditor in audit report had

3 ITA No.973/JP/2016 Late Shri Laxmi Narayan Himmatramka vs. ITO, Ward- 2 , Jhunjhunu . commented that expenses debited are partly vouched and the assessee had

not provided the quantity details. The AO observed that in the absence of

these defects, trading results declared by the assessee cannot be

ascertained and true gross profit and closing stock cannot be deduced. In

such a situation, the assessee was offered opportunity by the AO to show

cause as to why provisions of Section 145(3) of the Act may not be

invoked and gross profit @ 4% may not be applied on declared turnover

of Rs. 3,11,13,214/-. The assessee submitted the reply before the who

observed the reply of the assessee as routine reply and it had no force.

The AO also noted that the assessee had neither produced the day to day

stock register nor quantitative details of the commodities. In such a

situation, the AO had invoked the provisions of Section 145(3) of the Act

and applied the gross profit rate @ 4% on total turnover of Rs.

3,11,13,214/-. The AO thus worked out the gross profit at Rs. 12,44,529/-

instead of Rs. 11,60,840/- declared by the assessee. The AO thus added

the difference amount of Rs. 83,689/- to the total income of the assessee.

2.2 Being aggrieved, the assessee carried the matter before the ld.

CIT(A) who has confirmed the action of the AO by observing as under:-

‘’4.8 In the present case justification for G.P. rate has not been provided. Moreover, the appellant company has not maintained bills/vouchers, stock register which can

4 ITA No.973/JP/2016 Late Shri Laxmi Narayan Himmatramka vs. ITO, Ward- 2 , Jhunjhunu . substantiate its various claims. In the circumstances AO has no option but to estimate the trading account. Moreover, the AO has estimated G.P. of 4% considering the nature of trade. I find the action of the AO as reasonable. In view of the above discussion Ground No. 2 is dismissed.’’

2.3 During the course of hearing, the ld. AR of the assessee submitted

that the AO has wrongly applied the provisions of Section 145(3) of the

Act as the assessee vide his letter dated 22-07-201 had submitted the final

quantitative tally in respect of the items dealt with by him giving

complete quantitative details of the goods involved. The ld. AR further

submitted that AO while rejecting the plea of the assessee had neither

pointed out a specific discrepancy in the quantitative details so submitted

nor he had given any comparable case wherein a higher gross profit rate

than the assessee had been shown. The ld. AR of the assessee relied on

the decision of Hon'ble Jurisdictional High Court in the case Bhawani

Silicate Industries , 236 Taxman 596. The ld. AR of the assessee

submitted the gross profit rate chart for the last three years as under:-

A.Y. Sales G.P. G.P. % 2010-11 3,11,13,214.00 1,16,084.00 3.73 2009-10 3,51,65,882.00 9,64,532.00 2.74 2008-09 3,05,87,851.00 21,855.00 0.71

5 ITA No.973/JP/2016 Late Shri Laxmi Narayan Himmatramka vs. ITO, Ward- 2 , Jhunjhunu .

The ld. AR of the assessee relied on following case laws:-

6 ITA No.973/JP/2016 Late Shri Laxmi Narayan Himmatramka vs. ITO, Ward- 2 , Jhunjhunu .

Conclusively, the ld. AR of the assessee prayed that the lower authorities

have wrongly invoked the provisions of Section 145(3) of the Act. He

further submitted that the results declared by the assessee may be

accepted and the trading addition made by the AO by estimating the gross

profit rate at 4% as against 3.73% as declared by the assessee may be

directed to be deleted.

2.4 On the other hand, the ld. DR relied on the orders of the lower

authorities.

2.5 I have heard the rival contentions and perused the materials

available on record. It is noted from the records that the assessee had not

maintained the day to day stock register or quantitative details of

commodities. It is also noted from the assessment order that the auditor in

the audit report had commented that the expenses debited by the assessee

are partly vouched and the assessee had not provided the quantitative

details. It is also noted that the assessee had not furnished complete bills

and vouchers regarding purchases claimed in trading account. The AO

thus invoked the provisions of Section 145(3) of the Act and applied the

gross profit rate of 4% on total turnover of Rs. 3,11,13,214/- declared by

the assessee on which gross profit comes to Rs. 12,44,529/-. However,

7 ITA No.973/JP/2016 Late Shri Laxmi Narayan Himmatramka vs. ITO, Ward- 2 , Jhunjhunu . the assessee had declared the gross profit rate at 3.73% on which gross

profit comes to Rs. 11,60,840/-. The AO thus added a difference of

Rs.83,689/- (Rs. 12,44,529 minus Rs. 11,60,840/-) which in first appeal

has been confirmed by the ld. CIT(A). In appeal before the Tribunal, it is

observed from the facts available on records that the lower authorities

have rightly invoked the provisions Section 145(3) of the Act. As regards

the sustenance of addition of Rs. 83,689/-, it is noted that the gross profit

rate of the assessee for the last three years i.e. 2008-09-, 2009-10 and

2010-11 are at 0.71%, 2.74% and 3.73% respectively. Thus looking to the

past history of the assessee and assessee being engaged in the trading of

Kirana goods, the addition is sustained to the extent of Rs. 15,000/-. Thus

the assessee will get the partial relief of Rs. 68,689/-.

3.1 Apropos Ground No. 2, brief facts of the case are that the AO

during the year under consideration had observed that the assessee had

debited a sum of Rs. 22,702/- on account of wages payment, debited a

sum of Rs. 14,700/- on account of general expenses and debited a sum of

Rs. 1,93,000/- on account of salary payment to staff in the profit and loss

account. The AO asked the assessee to submit the complete details /

documents and vouchers in respect of these expenses but the assessee

could not furnish complete bill, details/ vouchers/documents in support of

8 ITA No.973/JP/2016 Late Shri Laxmi Narayan Himmatramka vs. ITO, Ward- 2 , Jhunjhunu . these expenses claimed by him in the profit and loss account. The AO

observed that there are chances of inflating the expenses by the assessee

and in order to cover up any possible leakage on this account, he

disallowed 20% out of the above expenses i.e. Rs. 46,080/- (20% of Rs.

2,30,402/-, [22702+14700+193000] and added the same to the total

income of the assessee which in first appeal has been confirmed by the ld.

CIT(A) by observing as under:-

‘’4.11 Ground No. 5: is with respect to disallowance on account of expenses out of wage payment, general expenses, salary payment to staff (Office expenses). From the assessment order, it is observed that the AO has made such adhoc additions to cover up the element of personal uses of such assets and facilities. Regarding these additions, it is a common belief that, in absence of proper records, the possibility of involvement of personal usage in such type of expense cannot be ruled out. The Hon'ble Rajasthan High Court in the case of Shri Kanhailal Jangid (217 CTR 354) also approved the concept of adhoc addition on lump sum basis, if the relevant details are not found available to support of the expenses claimed by the assessee. In view of the same, I find the disallowances which is only 20% of these expenses as justified. Consequently, Ground No. 3 of appeal is dismissed.’’

9 ITA No.973/JP/2016 Late Shri Laxmi Narayan Himmatramka vs. ITO, Ward- 2 , Jhunjhunu . 3.2 During the course of hearing, the ld. AR of the assessee prayed for

deletion of adhoc disallowance of Rs. 46,080/- confirmed by the ld.

CIT(A). The ld. AR of the submitted that during the course of assessment

proceedings, the books of account were submitted before the AO who had

not pointed out any specific defect and generalized the same by

disallowing the expenses. The expenses were incurred wholly and

exclusively for the purpose of business and under the business

expediency. The ld. AR of the assessee further submitted that the

proportion of expenses to the total turnover declared and accepted also

reveals that the same are quite reasonable and there is no room for any

personal expenses being included in the same for which he submitted the

details as under:-

Name of Expenses Amount claimed % of Turnover Rs. 3,11,13,214/- Wages 14,700.00 0.047% General expenses 22,702.00 0.073% Salary to staff 1,93,000.00 0.62%

3.3 On the other hand, the ld. DR relied on the orders of the lower

authorities.

10 ITA No.973/JP/2016 Late Shri Laxmi Narayan Himmatramka vs. ITO, Ward- 2 , Jhunjhunu . 3.4 I have heard the rival contentions and perused the materials

available on record. It is noted from the assessment records that the

assessee during the year under consideration had debited a sum of Rs.

22,702/- on account of wages payment, debited a sum of Rs. 14,700/- on

account of general expenses and debited a sum of Rs. 1,93,000/-on

account of salary payment to staff in the profit and loss account. The AO

for want of complete bills, details/ vouchers, documents and considering

the nature of these expenses disallowed 20% of the total expenses of Rs.

2,30,402/ which comes to Rs. 46,080/- and in first appeal the ld. CIT(A)

has confirmed the action of the AO. In appeal before the Tribunal, it is

noted that since the books of account of the assessee has been rejected,

therefore, the estimated addition has been made. It is also noted that the

ld. AR of the assessee to this effect relied on the decision of Hon'ble

Supreme Court in the case of S.A. Builders vs. CIT , 288 ITR 1 and

Empire Jute Co. Ltd. vs. CIT,124 1. Therefore, In view of above

decisions and various others decisions of Hon'ble High Court, no separate

adhoc disallowance out of the expenses debited in the profit and loss

account under the heads wages, general expenses and salary to staff is

not justified. Hence, looking to the present facts and circumstances of the

11 ITA No.973/JP/2016 Late Shri Laxmi Narayan Himmatramka vs. ITO, Ward- 2 , Jhunjhunu . case, I direct to delete the adhoc disallowance of Rs. 46,080/- confirmed by the ld. CIT(A). Thus Ground No. 2 of the assessee is allowed. 4.0 In the result, the appeal of the assessee is partly allowed. Order pronounced in the open court on 18 /04/2017. Sd/- ¼HkkxpUn½ (Bhagchand) ys[kk lnL;@Accountant Member Tk;iqj@Jaipur fnukad@Dated:- 18 /04/ 2017 *Mishra आदेश की प्रतिलिपि अग्रेषित@ब्वचल वf जीम वतकमत वितूंतकमक जवरू 1. vihykFkhZ@The Appellant- Late Shri Laxmi Narayan Himmatramka through L/h Shri Jhandi Prasad Himatramka izR;FkhZ@ The Respondent- The ITO, Ward- 2, Jhunjhunu 2. 3. vk;dj vk;qDr¼vihy½@ CIT(A). vk;dj vk;qDr@ CIT, 4. विभागीय प्रतिनिधि] आयकर अपीलीय अधिकरण] जयपुर@क्त्ए प्ज्Aज्ए Jंपचनत 5. xkMZ QkbZy@ Guard File (ITA No. 973/JP/2016 ) 6. vkns'kkuqlkj@ By order,

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