M/S. DASHANT SALES,NEW DELHI vs. DCIT, NEW DELHI

ORDER

PER AMIT SHUKLA, JUDICIAL MEMBER:

has raised following grounds which reads as under:-

1. The CIT (Appeals) erred in law and on facts in confirming an addition of Rs. 12,98,019/- a) by allowing only the employee and selling expenses @ 3% of the turnover as deduction and Page 1 of 10 b) by estimating the net profit @ 10.75% of the turnover as against 7% estimated by the AO though considering the same to be on higher side by holding that the appellant must suffer for all the infractions ignoring the reason explained for such infraction, the facts of the case and the net profit ratio of the earlier years. Thus the addition so made without any enhancement notice should be deleted.

2. Without prejudice to the above ground, if the profit of business is to be estimated, it should be estimated on the basis of net profit declared and assessed in the preceding years instead of computing the same on surmises and conjectures. Necessary directions in this regard may be issued.

2. The brief facts of the case qua the aforesaid issue of addition of profit rate are that, the assessee is a partnership firm, engaged in the business of distribution of the production of MDH spices and Dhoop batti, etc. and is one of distributor of ‘Dharam Leela Sales Corporation’. The entire purchases have been made from this party. The assessee gets the discount/commission of certain percentages on sales under various schemes of discounts floated by the Principal Company. The ld. Assessing Officer noted that the assessee like in the earlier assessment year has not filed its return of income for the relevant assessment year also and accordingly, notice u/s 142(1) dated 6.2.2014 along with the questionnaire was sent to the assessee. As note by him in the assessment order, on various dates, the assessee either did not appear before the Assessing Officer or made only part compliance to the various details required by him from time to time. Assessing Officer further found that the assessee is neither maintaining any books of account nor any details of Page 2 of 10 debtors, creditors, opening stock, closing stock or loans, etc. Under these facts and circumstances, he came to the conclusion that he has no alternative but to complete the assessment on the basis of material on record under best judgment assessment u/s 144. First of all, AO held that the assessee being a partnership firm is required to maintain proper books of account and also define and determine the share of profits. In absence of such a mandatory requirement as contained in section 184(5), AO held that no deduction on account of payment of interest, salary, bonus, etc. paid can be allowed out of the income assessed in the hands of the firm. He thus, proceeded to estimate the assessee’s business income after observing and holding as under:-

“ Last assessment year, the assessee had stated the total sales at Rs.2,01,07,479/- during the period from 1.4.2009 to 31.03.2010 relevant to asst, year under consideration the assessee claims the total sales at Rs.120,76,727/- as against the purchases of 1,02,43,702/- giving a G.P. rate of 17.89%. The decline in total sales from 201,07,479/- to a mere Rs. 120,76,727/- is neither believable or acceptable The Vat return showing sales of Rs.1,20,76,727/- is not a conclusive proof as the sales are not recorded in the proper books of account, the assessee s submission is not reported to even VAT Department. What is more, during the period under consideration a sum of Rs.2,00,000/- has been debited to Dashaant Sales account (as appearing in the books of account of M/s Dharam Leela Sales Corporation) as on 30.04.200& with a narration as "being Tempo purchased in Dashaant”. It indicates that the business of Dashaant Sales had been on the rise as compared to the last year. The assessee had felt the need for a new tempo to supply the goods. In the absence of books of account, purchase, sale party ledger and vouchers, the sales are not verifiable and hence the total sales this year are estimated at Rs.220,00,000/-, a 10% increase over the last year’s. Page 3 of 10

As regards the applicable net profit rate, last year the assessee produced documents showing a trade discount margin of 5% when the A.O. applied a net profit rate of 2.46% to the total sales. During the previous year, relevant to assessment year under consideration, the assessee through its counsel has submitted a copy of bill of Dharam Leela Sales Copr. drawn in favour of M/s Dashaant Sales(Invoice No.M0078) dated 25/05/2009 which states the following discounts to the dealer: Birthday Scheme @ 4.75% Trade Discount @ 6.00% Cash Discount @ 2.00% Thus a total of gross discount/commission of 12.75% is given to the distributor. Since assessee is not incurring any expenditure on maintenance of books of account & vouchers it would be very reasonable to assess net profit @ 7% resulting into taxable income of Rs. 15,40,000/-.”

3. Before the Ld. CIT (A), the assessee submitted that there were only two partners in the firm, Shri Dharampal Gulati; and Smt. Meenakshi Mohan (Managing Partner). Since the husband of managing partner (Smt. Meenakshi Mohan) was terminally ill for the considerable period of time, and had died during the pendency of assessment proceedings, therefore, proper compliance before the ld. Assessing Officer could not be made in that period. Accordingly, the assessee requested for admission of certain additional evidences under Rule 46A. The ld. CIT (A) looking to the fact that there was a reasonable cause for improper compliance, therefore, he admitted that the additional evidences filed by the assessee and called for remand report from the Assessing Officer. The main contention of the assessee before the AO in remand proceedings as well as before ld. CIT(A) was that, the assessee firm could not produce the books of account or could not get it audited for the reason that, the managing partner’s husband was suffering from heart problem who had later on died on 3.10.2012. That apart, in response to the notices issued to the Assessing Officer the assessee had submitted following documents:- “1. Sales tax/VAT return declaring turnover of Rs. 1,20,76,727/- 2. Copy of purchase account with Dharam Leela Sales Group. 3. Copy of sale purchase and VAT paid summary 4. Copy of one purchase bill from M/s. Dharamleela Sales Corp. 5. Copy of two purchase bill of similar distributor of MDH products (M/s. Sadhdeva Enterprises). ” It was submitted that, despite all these evidences the Assessing Officer has estimated the turnover at Rs. 2,20,00,000/- and not only that, it was pointed out that the G.P. rate of 6% and NP rate of 2.46% was assessed in the previous year under similar circumstances when there was same allegation of non maintenance of books of accounts. Instead of going by the precedence of the earlier, the Assessing Officer has estimated the G.P. rate of 12.75% and net profit rate of 7% of Rs. 2,20,00,000/- resulting into addition of Rs. 15,40,000/-.

2) By increase of the GP from 6% to 12.75% and NP from 2.46 to 7%. In support of the turnover, the assessee has furnished Sale tax assessment order, sale and vat return, copy of purchase account in Dharam Leela Sales Corporation, copy of purchase bill etc. After verification of the documents no adverse inference is drawn on the issue of turnover. In regard to GP and NP, the assessee has explained "that Birthday discount is given near the birthday of Mr. Dharam Pal Gulati, the Chairman ofMDH and not throughout the year. Further, this is passed on the customer as per the trade practice. This discount is not given on all the products but very limited products ofMDH. In this regard, the relevant scheme is being enclosed on page no. 40A of the Paper Book. As far as the cash discount is concerned, it is also passed on to the customer for realization of money from him. This is also not case that in every case, cash discount is given @4%. This depends upon the case to case depending upon early payment". The reply of the assessee has been duly considered. That the turnover may be accepted as per the sale tax order but the ratio of net profit may be kept at the rate of 1% of the turnover considering over all circumstances of the case.”

of account, and failed to get its account audited, for all these infractions, the appellant must suffer. The appellant has also failed to file particulars to support its claim of GROSS PROFIT & NP ratios and evidences to support its claim of expenses, therefore these rates are not to be accepted. Res judicata is not applicable to these proceedings. I lie income of the appellant chargeable under the head profits or gains from business or profession is held to be Rs. 12,98,019/-, The AO is directed to charge this amount to tax. This ground of appeal is disposed of in these terms.”