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Income Tax Appellate Tribunal, “C” BENCH : KOLKATA
Before: Hon’ble Shri N.V.Vasudevan, JM & Shri M.Balaganesh, AM ]
ORDER Per M.Balaganesh, AM
This appeal by the assessee arises out of the order of the Learned Commissioner of Income Tax (Appeals)-Jalpaiguri [ in short the ld CITA] in Appeal No. 35/CIT(A)/JAL/2013-14 dated 26.03.2015 against the order passed by the DCIT, Circle-2, Kolkata [ in short the ld AO] under section 143(3) of the Income Tax Act, 1961 (in short “the Act”) dated 26.03.2015 for the Assessment Year 2010-11.
The first issue to be decided in this appeal is as to whether the Ld. CIT(A) was justified in directing the Ld. AO to apply 6.75% of the total sales as estimated income from Cartage and Handling Charges of the assessee, in the facts and circumstances of the case.
2 Anandraj Jhawar A.Yr.2010-11 3. The brief facts of this issue is that the assessee is carrying on business of food grain and cartage work etc. under trade name M/s R.R. Agrotech at Delhi and also carrying food grain business in the trade name of M/s Anand Raj Jhawar, at Alipurduar and filed his return of income for the assessment year 2010-11 on 26.03.2011 declaring total income of Rs. 63,34,380/-. During the course of assessment proceedings, the Ld. AO observed that the assessee has shown net cartage and handling charges received to the tune of Rs. 10,32,153/- as under: Cartage and Handling charges received Rs. 2,63,04,653/- Less Cartage and Handling Charges paid Rs. 2,52,72,500/- Net Income Rs. 10,32,153/- The Ld. AO observed that this net income of Rs. 10,32,153/- works out to 3.92% of gross cartage and handling charges received. The Ld. AO observed that the assessee had reported net income from paddy handling contract at 8.15% in assessment year 2009-10 and 10.64% of net income from Wheat handling contract in assessment year 2009-10. Based on these observations and for want of any documentary evidences from the assessee, the Ld. AO resorted to estimate the profit from cartage and handling charges for the assessment year 2010-11 at 8% which worked out to Rs. 21,04,372/-. From this, sum of Rs. 10,32,153/- which was already offered by the assessee was deducted and remaining sum of Rs. 10,72,219/- was brought to tax by the Ld. AO.
The Ld. CIT(A) directed the Ld. AO to adopt net profit of 6.78% of cartage and handling charges received based on the average net profit disclosed by the assessee for assessment years 2008-09 and 2009-10 i.e. immediately preceding two years. Aggrieved the assessee is in appeal before us on the following grounds: 1. For that the Ld. CIT(A) ought to have properly appreciated the factual aspect of the case of the appellant and ought not to have directed the AO to apply 6.78% on the total sales to estimate the income from cartage and handling charges.
3 Anandraj Jhawar A.Yr.2010-11 2. For that the Ld. CIT(A) having appreciated the fact that the AO having not found any defect in the books of accounts and having not rejected the accounts, question of estimation of income did not arise at all and in this view of the matter the direction given by the Ld. CIT(A) to determine income from cartage and handling charges on estimate was wrong and uncalled for.
The Ld. AR prayed before us that the Ld. CIT(A) had merely adopted the average net profit reported in the earlier two years. He prayed for adoption of net profit of 5% during the year under appeal. In response to this, the Ld. DR vehemently objected to the same and stated that the Ld. CIT(A) had fairly determined the net profit based on the average in earlier two years.
We have heard the rival submissions. We find that the assessee had reported 3.92% of the gross receipts as net profit in the year under consideration. The average net profit of the earlier two years works out to 6.78%. We hold that adoption of net profit of 5% would meet the ends of justice in the facts and circumstances of the case. Accordingly, grounds no. 1 and 2 raised by the assessee are partly allowed.
The next issue to be decided in this appeal is as to whether the Ld. CIT(A) was justified in upholding the disallowance made in the sum of Rs. 27,07,104/- on account of forfeiture of earnest money in the facts and circumstances of the case.
The brief facts of this issue is that the assessee has claimed a sum of Rs. 27,07,104/- in its profit and loss account as earnest money forfeited (net). The assessee was asked to explain the same with necessary details and supporting evidences justifying the claim of deduction thereon. The assessee filed a copy of ledger account containing debit entries and credit entries mentioning name of one “ M/s Mangla Rice Mills U.K.” and stated that the earnest money forfeited and debited in the profit and loss account relates to business activity of the assessee and that has been occurred due to unavoidable circumstances. The Ld. AO observed that the assessee had failed to furnish full address 3
4 Anandraj Jhawar A.Yr.2010-11 of the contractee, contractual agreement and other relevant details. Accordingly, he proceeded to disallow the earnest money forfeited amount (net) of Rs. 27,07,104/- in the assessment. The Ld. CIT(A) passed a cryptic order by treating the said sum of Rs. 27,07,104/- as speculative loss incurred by the assessee. Aggrieved, the assessee is in appeal before us on the following grounds : 3. For that the Ld. CIT(A) erred in not properly considering the facts submitted by the appellant with regard to the forfeiture of earnest money of Rs. 27,07,104/- and in confirming the addition made by the AO on the alleged grounds.
We have heard the rival submissions. We find that the Ld. AR had placed the ledger account of earnest money forfeited wherein, in respect of Mangla Rice Mills U.K. a sum of Rs. 32,50,000/- was paid by cheque dated 11.01.2010 by the assessee for import of 5000 metric tonne of sugar. The Ld. AR stated that due to adverse market situation the assessee decided not to import the material from U.K and accordingly chose to get the advance paid forfeited which was duly debited to earnest money forfeited and written off as trading loss. Similarly there were two other parties from whom the assessee had received monies namely Krishna & Co. Kanpur (Rs. 4,68,452/-) and Sewak Industries (LKH) (Rs. 74,444/-) which were treated as no longer payable by the assessee and accordingly the same were written back to earnest money forfeited account. Accordingly, the net amount of Rs. 27,07,104/- was claimed as net expenditure by the assessee and consequential deduction thereon. He pleaded that this advance to M/s Mangla Rice Mills U.K. was made in the regular course of business by the assessee towards supplier payments. We find except making an oral statement there is absolutely no evidence brought on record by the Ld. AR to justify the fact that this advance was made in the regular course of business of the assessee. Hence, the request of the Ld. AR to remand this issue to the file of Ld. AO does not deserve any merit. Accordingly we dismiss the ground no.3 raised by the assessee.
5 Anandraj Jhawar A.Yr.2010-11 10. We find that the assessee has raised another ground towards disallowance of donation of Rs. 51,209/- which was dismissed by the Ld. CIT(A) for want of any details. We find no arguments were advanced by the assessee before us in this regard. Accordingly, we uphold the disallowance made by the Ld. CIT(A) and dismiss the ground no. 4 raised by the assessee.
The ground no. 5 raised by the is general in nature and does not deserve any specific adjudication.
In the result, the appeal of the assessee is partly allowed.
Order pronounced in the Court on 08.12.2017