SHRI SUNDER LAL ADVANI,KOTA vs. INCOME TAX OFFICER, KOTA

PER SANDEEP GOSAIN, J.M.

This is an appeal by the assessee against the order of ld. CIT (Appeals), Kota dated 15.01.2018 for the assessment year 2017-18. The grounds raised by the assessee are as under :-

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The appellant craves leave to add, alter, modify or amend any ground on or before the date of hearing.

Mahalaxmi Enterprises and engaged in the business of sale of edible oils on whole

sale basis as well as on retail basis. The assessee filed his return of income declaring

income of Rs. 7,03,950/- on 17.08.2012. The case of the assessee was selected for

scrutiny under CASS and accordingly notice under section 143(2) of the Income Tax

Act, 1961 dated 06.08.2013 was issued and served on the assessee on 13.08.2014

through notice server. The assessee was also served notice under section 142(1)

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along with questionnaire dated 14.03.2014 which was served on the assessee on

18.03.2014. The assessee was further issued notices under section 143(2)/142(1)

dated 10.10.2014 which were served on the assessee on 13.10.2014. In compliance

to the notices, the assessee furnished cash book, bank book, ledger, journal,

purchase and sale register consisting of stock details and other subsidiary records.

The books of accounts are audited by a Chartered Accountant and audit report under

section 44AB and report in Form No. 3CB were submitted before the AO. The AO

completed the assessment under section 143(3) of the IT Act, 1961 on 18.03.2015 at

total income of Rs. 61,38,672/- by making various additions after rejecting the books

of accounts of the assessee by invoking provisions of section 145(3) of the IT Act,

1961 and estimated the income thereafter. Aggrieved by the order of AO, the

assessee preferred appeal before the ld. CIT (A). The ld. CIT (A) after taking into

consideration the details furnished by the assessee partly allowed the appeal of the

assessee. Being aggrieved, now the assessee has preferred appeal before us.

Ground nos. 1 & 2 are inter-related and relates to challenging the order of

ld. CIT (A) in upholding the trading addition made by the AO.

before the lower authorities and also relied upon the submissions as under :-

“ 1. The ld. Assessing Officer has rejected the books of accounts and has

made an ad-hoc addition of Rs. 52,34,436/- by taking the average gross profit of 3

years.

1.1. Trading Chart of last 3 years in this regard may kindly be perused :-

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A.Y. Sales Incremental Growth Gross Profit G.P Ratio 2012-2013 341087587 3330.50% 3497406 1.03% 2011-2012 9942796 -77.97% 593142 5.97% 2010-2011 45132149 301625 0.67%

1.2 It is submitted for kind consideration:

 That Id. Assessing officer merely on the basis of cash withdrawal by the assessee during the year under consideration has rejected the books of account when all the cash withdrawal is only and purely for the purpose of day-to-day business activities. That assessee regularly maintained the cash book and same was submitted during the assessment proceeding before the Id. Assessing officer. Cash withdrawal is incurred for business needs. Similar withdrawals are there in the past. Entire endeavour of the Assessing Officer was to somehow refer some defect, howsoever small or flimsy or irrelevant it may be, so as to somehow reject the books of accounts and make Trading Addition in the hands of the assessee appellant.

 No defect whatsoever has been pointed out in the Opening Stock, Purchases made during the year, Sales made during the year and Closing Stock; however, for petty reasons entire books of accounts have been rejected and Trading Additions have been made.

 Verification was got done by the Assessing Officer at the back of the assessee from some of the parties (without confronting them to the assessee's) in 2015, whereas, business transactions were done during F.Y. 2011-2012, i.e., after a period of 3 years. How can assessee be made answerable if some of them close their business. Average daily sales are Rs. 9.35 lacs per day.

 Transactions of sales and incurring of expenses in cash is not a SIN nor is there any restriction under the Act.

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 That further, preceding year results are not comparable with year under consideration. That on perusal of Trading Chart it can be noticed that A.Y. 2012-13 was an exceptional year in so far as the turnover during the year was extraordinarily high as compared to preceding years and thus past years figures cannot be made a benchmark. Thus, it can be seen that there has been extraordinary jump in the turnover of the assessee and it has increased almost 34 times during the year under consideration. When such substantial increase in business is there, GP is bound to fall. Thus, the trading results of the assessee is not at all comparable from the preceding year and the results are to be seen specifically with regard to circumstances prevailing during the year.

 The nature of business in which assessee appellant deals, i.e., trading in Edible Oil can never have a consistent GP margin as the margins are dependent on market demand and supply, production, quality of production, very heavy fluctuation of price is there - which is not in the control of the assessee appellant, etc.

 The Assessing Officer has not bothered to refer to results of similar situated assessees as that of the assessee.

• Madhur Vegoils Pvt. Ltd. declared GP% of 1.07% during the year under consideration on which GP% has been applied by the AO @ 1.26% vide his assessment order dated 28.12.2018 on turnover of Rs. 106 crores. • Mohini Devi Advani Prop. M/s. Monika Trading Company declared GP% of 0.64% during the year under consideration on turnover of Rs. 57 crores, wherein CIT(A) restricted the GP% to 0.70%. • Meena Advani Prop. M/s. Shiv Traders declared GP% of 0.96% during the year under consideration on turnover of Rs. 22 crores.

 Assessee appellant maintains Stock Register which has not been doubted or disputed. Quantitative tally has been mentioned even in the Auditors report.

 Gross Profit in absolute numbers is highest over the last 3 year.

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 We wish to rely upon Sanjay Agarwal v. ITO dated 01.03.2021. ITA No. 351/JP/2019 (ITAT Jaipur Bench) wherein it has been held as under:

"23. We have heard the rival contentions and perused the material available on record. In this case, the AO has rejected the books of accounts and has estimated G.P. rate of 0.69% on declared turnover as against G. P rate of 0.38% declared by the assessee and made a trading addition of Rs. 49,56,217/- in the hands of the assessee. The AO has stated that when the books of accounts are rejected, it is duty of the AO to deduce true and fair income of the assessee and it is open to him to take a higher percentage consistent with the state of trade in the locality or with any special circumstances of the assessee which warrants higher rate of profits. Thereafter, he has referred to the discrepancies noticed in the books of accounts and stated that the assessee has failed to give evidence regarding payment of duties and taxes amounting to Rs 5,45,677/- and loss claimed in the profit/loss account amounting to Rs 36,96,691/- and thereafter went ahead and make an addition of Rs 49,56,217/- largely representing the aforesaid two figures which remain unverified. To our mind, the addition so made is neither reflective of state of trade in the locality nor demonstrate any special circumstances of the assessee rather the additions have been made basis the discrepancies found in the books of accounts which are more in the nature of unverified payment of taxes and claim of losses. Once the books of accounts are rejected, the AO has to estimate the profits based on his best judgment and either the past year results or comparative profits declared in similar line of trade in commodities could be a guiding factor. Regarding past year results, it is an admitted position of Revenue that past year results cannot be made a guiding factor and the assessee has also contended that given the exceptional circumstances where the turnover has increased by almost 130 times, the past year results are not reflective of state of affairs of current year. There is nothing on record in terms of comparative profits declared in similar line of trade in commodities. Further, the assessee has explained the substantial fall in G. P rate due to fall in prices of cardamom where the prices have reduced by almost half the rate at the end of the year as compared to

7 ITA No. 356/JP/2018 Shri Sunder Lal Advani, Kota.

beginning of the year: Therefore, we find that there is no rational basis for estimating the gross profit rate by the AO even where the books of accounts are rejected. In fact, in the remand report submitted to the Id CIT(A), the AO has admitted that there is no specific reason mentioned in the assessment order to estimate the gross profit rate of 0.69% as against declared gross profit rate of 0.38%. Further, the AO has acknowledged the fact that turnover has increased substantially during the year and the trading results are duly supported with documentary evidences. Regarding commodity and cardamom trading losses of Rs. 36,96,691/-, the Id CIT(A) has also recorded a finding that these are speculative losses and are not part of trading account of the assessee and thus, doesn't effect the trading results so declared by the assessee. In the results, the trading additions so made by the AO and confirmed by the Id CIT(A) is hereby directed to be deleted."

The ld. A/R thus humbly submitted that the disallowance is based on whims, fancies,

surmises, without understanding the facts on record, without application of mind and

deserves to be deleted as submitted hereinabove.

authorities.

record and also gone through the orders of the lower authorities. From the record

we find that the assessee has derived income from refined oil business and the gross

profit in the year under appeal has fallen by over 4.9% as compared to the previous

year. Apart from this there was specific discrepancies highlighted by the AO in the

books of accounts, like, difference in cash balance, lack of proper supporting

evidence for diesel and petrol expenses, loading and unloading expenses claimed,

lack of confirmation of certain parties from whom credits are shown in cash etc.

8 ITA No. 356/JP/2018 Shri Sunder Lal Advani, Kota.

Whereas the ld. A/R submitted that assessee has maintained regular books of

accounts supported by cash book, bank book, ledger, journal, purchase and sale

registers (stock details are mentioned therein), other subsidiary records and the

accounts are audited by a Chartered Accountant and are having Audit Report under

section 44AB and Report in Form 3CB. The ld. A/R also relied upon the decision of

Coordinate Bench of the Jaipur Tribunal in the case of Sanjay Agarwal vs. ITO in ITA

No. 351/JP/2019 dated 01.03.2021. It was also submitted by the ld. A/R that on

perusal of trading chart it can be noticed that the year under consideration was an

exceptional year in so far as the turnover during the year was extraordinary high as

compared to preceding year and thus past years’ figures cannot be made a bench

mark. Thus it can be seen that there has been extraordinary jump in the turnover of

the assessee and it has increased almost 34 times during the year under

consideration. It was further submitted that when substantial increase in business is

there, then in that eventuality the Gross Profit is bound to fall.

5.1. The explanation thus given by the assessee has been considered. The decision

relied upon by the ld. A/R in the case of Sanjay Agarwal, supra, is not applicable to

the facts of the assessee’s case because the paramateria and the facts contained in

that case are altogether different. In the case of Sanjay Agarwal, supra, there was

substantial fall in the GP rate because of fall in the prices of cardamom where the

prices have reduced by almost half the rate. Therefore, ratio laid down in the case

of Sanjay Agarwal, supra, is not applicable. The other arguments raised by the

assessee are general in nature. However, we are of the view that when the books of

accounts are rejected by the AO by holding that there was difference in cash

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balance, lack of proper supporting evidence, lack of confirmation of certain parties

from whom credits are shown in cash etc. then in that eventuality it was burdened

duty of the AO to deduce true and fair income of the assessee consistent with the

state of trade in the locality. Therefore, the AO was under obligation to estimate the

profit based on his best judgment and with the past years results or comparative

profits declared in similar line of trade in commodities could be a guiding factor.

Before us, the copies of orders passed by the Revenue Authorities pertaining to Smt.

Meena Advani, Smt. Mohini Devi Advance and M/s. Madhur Vegoils Pvt. Ltd. have

been filed who are engaged in similar line of trade in commodities. Therefore, after

considering the over-all circumstances and also considering the comparative profit

declared in similar line of trade in commodities and also considering the

circumstances of increase in turnover for the year under consideration, we are

inclined to restrict the GP addition from 2.56% to 1.06% on estimated basis as being

just and reasonable.

Ground nos. 3 & 4 relate to disallowance made under section 40a(ia) for non

deduction of TDS on interest and disapproving the carried forward Speculation loss.

in his order. The ld. CIT (A) has dealt with the issues reasonably. The ld. A/R has

not been able to controvert the findings of the ld. CIT (A). We, therefore, find it

reasonable to uphold the order of the ld. CIT (A). The grounds of the assessee are

dismissed.

10 ITA No. 356/JP/2018 Shri Sunder Lal Advani, Kota. 7. Ground No. 5 has not been pressed. Therefore, the same is dismissed as not pressed.

Order pronounced in the open Court on 10/10/2022.

Sd/- Sd/- ¼lanhi xkslkbZ½ ¼ MkW- ehBk yky ehuk ½ ( DR. MITHA LAL MEENA ) (SANDEEP GOSAIN) ys[kk lnL;@Accountant Member U;kf;d lnL;@Judicial Member Tk;iqj@Jaipur fnukad@Dated:- 10/10/2022. das/ आदेश की प्रतिलिपि अग्रेf’ात@ब्वचल वf जीम वतकमत वितूंतकमक जवरू

सहायक पंजीकार@Aेेज. त्महपेजतंत

11 ITA No. 356/JP/2018 Shri Sunder Lal Advani, Kota.