PRADEEP KUMAR 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. 140/JP/2017 fu/kZkj.k o"kZ@Assessment Year : 2010-11 cuke Shri Pradeep Kumar Himatramka The ITO Vs. P.O. Chirawa -333 026 Ward- 2, Jhunjhunu LFkk;h ys[kk la-@thvkbZvkj la-@PAN/GIR No.: AACPH 7933 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 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 13-10-2016 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.140/JP/2017 Shri Pradeep Kumar Himmatramka vs. ITO, Ward- 2 , Jhunjhunu . 1.1 That the ld. CIT(A) has further erred in not appreciating the fact that assessee has maintained day today stock records which were produced before AO and no defect whatsoever was pointed out in the same, thus the observation of the AO and ld. CIT(A) that the assessee has not maintained stock records deserves to be excluded and ignored

1.2 That the ld. CIT(A) has erred in upholding the trading addition of Rs. 2,22,042/- made by AO by applying gross profit rate of 3.52% instead of 2.56% declared by assessee. Appellant prays addition so made may please be deleted.

2.1 That the ld. CIT(A) has further erred in confirming disallowance out of depreciation claimed on car which is a legal disallowance and thus could not be disallowed.

2.1 Apropos Ground No. 1 to 1.2 of the assessee, brief facts of the case

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

the business of trading of sugar, building material and arrangement of

vehicles in the name and style of M/s. Pradeep Kumar Bansal Traders and

3 ITA No.140/JP/2017 Shri Pradeep Kumar Himmatramka vs. ITO, Ward- 2 , Jhunjhunu . M/s. Shyam Marbles 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. 5,93,203/- on declared

total sales of Rs. 2,31,60,371/- in M/s. Pradeep Kumar Bansal Traders

trading account by showing a gross profit rate of 2.56%% which is very

low as compared to last year’s declared gross profit rate @ 3.52%. The

AO on scrutiny of books of account noticed various defects that the

assessee had not maintained day to day stock register. 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 commented that no internal vouchers had been

maintained for cash expenses. 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 @ 3.52% as declared in last year may not be

applied on declared turnover of Rs. 2,31,60,371/-. The assessee

submitted the reply before the AO who observed the reply of the assessee

as routine reply and it had no force. The AO also noted that the assessee

4 ITA No.140/JP/2017 Shri Pradeep Kumar Himmatramka vs. ITO, Ward- 2 , Jhunjhunu . 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

@ 3.52% on declared turnover of Rs. 2,31,60,371/-. The AO thus

worked out the gross profit at Rs. 8,15,245/- instead of Rs. 5,93,203/-

declared by the assessee. The AO thus added the difference amount of Rs.

2,22,042/- ( Rs. 8,15,245 minus Rs. 5,93,203) to the total income of the

assessee which in first appeal the ld. CIT(A) has confirmed the action of

the AO.

2.2 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 . The ld. AR of the assessee submitted that the assessee is engaged in

the trading of sugar for the last 15 years. The books of account are

audited and the auditors have not made any adverse remark in particular

nor have they questioned the reliability of the books of account of the

assessee. He submitted that though no separate stock register was

maintained yet a complete stock tally was available and the same was

duly filed before both the AO and the ld. CIT(A) (APB 22 and 25). The

ld. AR further submitted that the AO while rejecting the plea of the

assessee has neither pointed out a specific discrepancy in the quantitative

5 ITA No.140/JP/2017 Shri Pradeep Kumar Himmatramka vs. ITO, Ward- 2 , Jhunjhunu . 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:-

Particulars A.Y. 2008-09 A.Y. 2009-10 A.Y. 2010-11 Sales 2,09,02,160 69,97,165 2,31,60,371 Gross profit 3,33,478 2,46,345 5,93,203 G.P. Rate 1.59% 3.52% 2.56%

The ld. AR of the assessee relied on following case laws:- 1. Malani Ramjivan Jagannath Vs.Asst. CIT (Raj.) (2009)316 ITR 120 2. Haridas Parikh V ITO [2009] 29 SOT 13 (JODH.)(URO) 3. Ashok Kumar & Co. v. ITO [2004] 2 SOT 518 (Asr.) (SMC) 4. CM. Francis & Co. (P.) Ltd. v. CIT [77 ITR 449] (Ker) 5. Asstt. CIT v. L.M.P. Tractors (P.) Ltd. [2005] 148 Taxman 52 (Mag.) (Ahemdabad) 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 of Rs. 2,22,042/- made by the AO by

6 ITA No.140/JP/2017 Shri Pradeep Kumar Himmatramka vs. ITO, Ward- 2 , Jhunjhunu . estimating the gross profit rate at 3.52% as against 2.56% as declared by

the assessee may be directed to be deleted.

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

authorities.

2.4 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. It is also noted from the

assessment order that the auditor in the audit report had commented that

no internal vouchers had been maintained for cash expenses. 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

3.52% on total turnover of Rs. 2,31,60,371/- declared by the assessee on

which gross profit comes to Rs. 8,15,245/-. However, the assessee had

declared the gross profit rate at 2.56% on which gross profit comes to Rs.

5,93,203/-. The AO thus added a difference of Rs.2,22,042/-

(Rs. 8,15,245 minus Rs. 5,93,203) 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

7 ITA No.140/JP/2017 Shri Pradeep Kumar Himmatramka vs. ITO, Ward- 2 , Jhunjhunu . sustenance of addition of Rs. 2,22,042/-, 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 1.59%, 3.52% and 2.56% respectively. Thus looking to the

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

sugar, building materials and arrangement of vehicles, the addition is

sustained to the extent of Rs. 50,000/- only. Thus the assessee will get the

partial relief of Rs. 1,72,042/-.

3.1 Apropos Ground No. 2 and 2.1, brief facts of the case are that AO

during the year under consideration had observed that the assessee had

debited a sum of Rs. 48,683/- on account of telephone expenses, debited

Rs. 27,852/- on account of traveling expenses, claimed Rs. 64,158/- on

account of depreciation of two cars and motor cycle and claimed Rs.

75,910/- on account of vehicle expenses. The AO observed that the

assessee had neither maintained the call register in respect of telephone

nor maintained the log book for running of cars. The AO further noted

that the assessee had not furnished complete bills, vouchers and

documents in support of claim of these expenses and thus the use of

telephone, cars & motor cycle and vehicle and traveling expenses

exclusively for business purposes could not ascertained.. The AO asked

the assessee to submit the complete details / documents and vouchers in

8 ITA No.140/JP/2017 Shri Pradeep Kumar Himmatramka vs. ITO, Ward- 2 , Jhunjhunu . respect of these expenses but the assessee could not furnish complete bill,

details/ vouchers/documents in support of these expenses claimed by him

in the profit and loss account. The AO further observed that in the

absence of complete details/ vouchers and considering the nature of these

expenses, personal usage of the same cannot be ruled out and thus 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. 43,321/- (20% of Rs. 2,16,603/-,

[48683+27852+64158+75910] 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:-

‘’5.6 Ground No. 3: is with respect to adhoc disallowance of Rs. 43,321/- on account of personal use. The appellant has submitted that: ‘’Standard of living is simple. There is no place at Chirawa where expenses can be incurred. Expenses are not excessive as compared to last year. During this year volume of business was increased 324% hence expenses are reasonable.’’ Regarding these disallowances, it is a common belief that, in absence of proper records, the possibility of involvement of personal usage in such type of expenses cannot be ruled out. The Hon'ble Rajasthan High Court in the case of Shri Kanhiya Lal Jangid (217 CTR 354) also approved the concept of adhoc disallowance on lump sum basis, if the relevant details are not found available to support of the expenses claimed by the assessee. Consequently, Ground No. 3 of appeal is dismissed.’’

9 ITA No.140/JP/2017 Shri Pradeep Kumar 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. 43,321/- 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 % of Turnover claimed Rs. 2,31,60,371/- Telephone expenses 48,683/- 0.00002% Depreciation on car and motorcycle 64,158/- 0.00002% Travelling expenses 27,852/- 0.00001%

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

10 ITA No.140/JP/2017 Shri Pradeep Kumar Himmatramka vs. ITO, Ward- 2 , Jhunjhunu . 3. S.A. Builders Ltd. vs. CIT , 288 ITR 1 (SC)

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

authorities.

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 assessee had debited a

sum of Rs. 48,683/- on account of telephone expenses, debited a sum of

Rs. 27,852/- on account of traveling expenses, claimed a sum of Rs.

64,158/- on account of depreciation on two cars and motor cycle and

claimed a sum of Rs. 75.910/- on account of vehicle expenses. 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.

2,16,603/- which comes to Rs. 43,321/- 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 various case laws including

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

11 ITA No.140/JP/2017 Shri Pradeep Kumar Himmatramka vs. ITO, Ward- 2 , Jhunjhunu . 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 telephone expenses, depreciation

on car and motorcycle, traveling expenses and vehicle expenses is not

justified.. Hence, looking to the present facts and circumstances of the

case, I direct to delete the adhoc disallowance of Rs. 43,321/- confirmed

by the ld. CIT(A). Thus Ground No. 2 and 2.1 of the assessee are

allowed.

4.1 Apropos Ground No. 3 of the assessee, it is noted that the ld.

CIT(A) has dismissed this ground of the assessee raised before him by

observing as under:-

‘’5.9. Ground No. 6: The order of the AO does not speak of any acceptance of rebate of capital gain of Rs. 49,674/- u/s 54 of the Act. Hence, this ground is dismissed. ‘’

4.2 During the course of hearing, the ld. AR of the assessee prayed that

the ld. CIT(A) has grossly erred in not allowing the necessary credit

claimed u/s 54 of the Act and upheld the capital gains of Rs. 49,574/- as

assessed by the AO. The ld. AR of the assessee filed the following written

submission which has been taken into consideration.

12 ITA No.140/JP/2017 Shri Pradeep Kumar Himmatramka vs. ITO, Ward- 2 , Jhunjhunu . ‘’Brief fact of the matter is that the appellant had shown a Long term capital gain of Rs. 49,674/- on sale of land in his return of income. The said LTCG was inadvertently taxed @ 20%, without claiming the eligible exemption u/s 54B of the Act, available due to an agricultural land purchased by the appellant from the sale of the above land. Therefore during the assessment proceedings, the said claim of exemption u/s 54B was made vide an undated letter, duly filed before the ld. AO [APB 23-24]. However, in the assessment order, no reference was made by the ld. AO regarding the claim made by the appellant. Also further that, while computing the assessed income, the LTCG was wrongly included in the returned total income taxable at normal rates (i.e.30%). Aggrieved, the appellant raised the issue before the Ld. CIT(A), which was again not adjudicated, by referring to its omission in the assessment order. In this regard, it is humbly prayed that the issue may kindly be restored back to the file of the ld. AO for proper adjudication.’’

4.3 On the other hand, the ld. DR relied on the order of the ld. CIT(A). 4.4 I have heard the rival contentions and perused the materials

available on record. It is noted from the order of the ld. CIT(A) that the

AO did not speak of any acceptance of rebate of capital gain of Rs.

49,674/- u/s 54 of the Act and thus the ld. CIT(A) dismissed the above

ground of the assessee. However, in the interest of equity and justice the

issue in question is restored to the file of the AO to decide it afresh by

providing reasonable opportunity of being heard to the assessee. If the

claim of the assessee appears genuine at the level of the AO on

verification of the relevant records/ documents then the benefit of Section

54 of the Act may be extended to the assessee by the AO. Thus Ground

No. 3 of the assessee is allowed for statistical purposes.

13 ITA No.140/JP/2017 Shri Pradeep Kumar Himmatramka vs. ITO, Ward- 2 , Jhunjhunu . 5.0 In the result, the appeal of the assessee is partly allowed for statistical purposes. 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 vihykFkhZ@The Appellant- Shri Pradeep Kumar Himatramka 1. izR;FkhZ@ The Respondent- The ITO, Ward- 2, Jhunjhunu 2. 3. vk;dj vk;qDr¼vihy½@ CIT(A). vk;dj vk;qDr@ CIT, 4. 5. विभागीय प्रतिनिधि] आयकर अपीलीय अधिकरण] जयपुर@क्त्ए प्ज्Aज्ए Jंपचनत xkMZ QkbZy@ Guard File (ITA No. 140/JP/2017 ) 6. vkns'kkuqlkj@ By order,

सहायक पंजीकार@ Aेेपेजंदज. त्महपेजतंत