RAJA ZARDA STORES,MUMBAI vs. ITO WD 15(3)(1), MUMBAI

You are kindly requested to delete impugned estimation of net profit @ 1 % of turnover of sales as per the provisions of the Act and oblige."

Briefly stated facts are that the assessee is engaged in the business of distribution of chewing tobacco. The Income Tax Department conducted survey under section 133A of the Act on the office premises of the assessee at Ishwar Bhuvan on 23.10.2009, which includes residential premises of the Mr. Babulal Chaurasia and his family. The survey party did not find any books of account but one diary containing day to day purchase and sales was found for the period of 01.4.2009 to 23.10.2009 along with cash sales vouchers, which were impounded. The AO during the course of assessment proceedings noticed from the balance sheet that the assessee has declared Sundry Debtors to the tune of ₹ 8,97,959/-. According to AO, the debtors were doubtful and hence, the assessee was asked to furnish the names and address of the Debtors’ parties and relevant bills of which the payments are pending and confirmations. The assessee could not file the relevant information. The AO also noted from the comparative profits provided by the assessee, the assessee has declared net profit of 0.10% on the gross sale of ₹ 8,23,94,800/-. The AO considering the nature of the business, the cash sales, unverifiable overhead expenses, purchase being made from one party and other factors that the books were not maintained, applied net profit at 1.20%. The assessee has declared total income at ₹ 88,146 as against total income was assessed by the AO at ₹ 9,88,740/-. Aggrieved, assessee preferred appeal before CIT(A). The CIT(A) restricted the profit rate at 1% by observing in Para 4 and 4.1 as under: - “4. From the assessment order, the uncontroverted facts emerging are: i. Sales are mainly in cash but huge debtors were claimed and astonishingly, the appellant could not given names and addresses, bills and confirmation. ii. Multiple cash expenses (noted in Pr. 7 of AO’s order_ claimed by with nil documentation. iii. Facts noted in Pr. 3 of assessment order.

None is present from the assessee’s side on the date of hearing. We find from the case records and arguments of the learned Sr. DR that the assessee has declared net profit for AY 2009-10 at 0.47%, in AY 2010-11 at 0.52% and in AY 2011-12 at 0.53%. We also find that the Tribunal in assessee’s own case for AY 2010-11 in vide order dated 23.12.2015 deleted the addition made of cash payments exceeding ₹ 20,000/- and also observed as under: - “5. I am of the considered view, that when the cash payment exceeding Rs.20,000/- is permitted in Rule 6DD, no adverse inference can be drawn on this account. Regarding the Debtors issue, I am of the view that if the AO is doubting the quantum of sales, non-production of the ledger accounts of debtors and the corresponding bills and confirmations will be relevant but in the present case, the AO is not doubting the quantum of sales because the AO has accepted the turnover of the assessee and his books of accounts are also not rejected and he has simply applied NP rate on the disclosed sales and therefore, no adverse inference can be drawn on any of these two accounts and therefore, in my considered opinion, in the facts of the present case, there is no justifiable reason to make any addition to the income declared by the assessee particularly when the GP and NP rates in the present year are better when compared with these rates for AY 2009- 10 and entire addition made by the AO in AY 2009- 10 has been deleted by the CIT(A) and no difference in facts could be pointed out by the learned Departmental Representative in the present year.”

In view of the entirety of the facts, we are of the view that following the principle of consistency, we direct the AO to apply the profit rate of 0.53% as declared by the assessee in AY 2011-12.

In the result, the appeal of assessee is partly allowed.