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Income Tax Appellate Tribunal, “C” BENCH : KOLKATA
Before: Hon’ble Sri N.V.Vasudevan, JM & Shri Waseem Ahmed, AM]
Date of Hearing : 16.11.2017. Date of Pronouncement : 22.11.2017 ORDER Per N.V.Vasudevan, JM This is an appeal by the Assessee against the order dated.18.01.2016 of. C.I.T.(A)-21, Kolkata relating to A.Y. 2008-09.
2. Ground Nos. 1 and 2 raised by the assessee read as follows :- “1. For that in view of the facts and circumstances of the case the Ld. CIT(A) was wholly wrong and unjustified in dismissing the appeal and confirming the arbitrary addition of gross profit in the trading a/c and estimated adhoc disallowance of expenses made in the assessment but disputed in appeal, without any application of mind and looking into the proper facts and merit of the case and also without giving adequate and reasonable opportunity of hearing to the assessee Firm. The perverse orders of both the Assessing Officer and the Ld. CIT(A) should be reversed.
For that in view of the facts and circumstances of the case the Ld. CIT(A) was wholly wrong and unjustified in confirming the arbitrary and baseless addition of gross profit ( in short G.P ) of Rs. 9,47,000/- in the trading a/c made in assessment owing to the alleged failure of the assessee firm to furnish the item- wise details of valuation of closing stock, completely overlooking or otherwise deliberately ignoring that the item-wise value of the closing stock of the goods/ products have been duly furnished along with the Tax Audit Report U/S 44AB of the Act in the form of a detailed Chart contained in Annexure - IV to the Tax Audit Report filed in course of assessment vide letter dt 17.06.2010 in M/s. Quick Energy A.Y.2008-09 2
compliance to the A.O's notice U/S 142(1) dt. 30.09.2009 & 07.06.2010, and surprisingly for the alleged failure the G.P rate of the preceding year was blindly & unscrupulously adopted for making the addition. The arbitrary addition made should be wholly deleted.”
The Assessee is a partnership firm and carries on business as dealer in foreign liquor. For A.Y.2008-09, the assessee filed return of income showing total income of Rs.16,50,800/-. In the course of assessment proceedings, the AO noticed that the assessee had shown gross profit at Rs.37.71 lakhs on a turnover of Rs.1110.27 lakhs which resulted in gross profit percentage of 3.40%. The AO noticed that in the immediately preceding assessment year i.e. A.Y.2007-08, the assessee had declared gross profit rate at 4.25% on a turnover of Rs.1356.92 lakhs. The AO was of the view that there was a steep fall in the gross profit rate. The AO further observed in the order of assessment that the assessee had not furnished item-wise valuation of closing stock. According to the AO, the assessee furnished only item-wise details of closing stock but had not furnished their value. He was of the view that in the circumstances it can be inferred that the closing stock was improperly valued to show less gross profit. The AO thereafter applied the gross profit rate at 4.25% on the turn over and made an addition of Rs.9,47,000/- to the income of the assesee as follows :- “Sale Rs.1110.27 lakhs GP rate taken 4.25% The amount of GP comes to Rs.1110.27 x 4.25/100=Rs.47,18,000/- Thus, the addition on account of GP comes to Rs.(47,18,000 – 37,71,000) = Rs.9,47,000/-.”
4. Before CIT(A) the assessee pointed out that the entire details of value of items of closing stock was available in the Tax Audit Report. Copy of the said Tax Audit Report in Form.3CD is available at page no.10 to 24B of the assesee’s paper book. Pages 24A and 24B give the breakup of closing stock as on 31.03.2008 their value item-wise. The assessee submitted before CIT(A) that the AO has proceeded on a totally wrong basis to come to a conclusion that the value of closing stock has not been properly disclosed by the assessee. Besides the above the assessee submitted that the lower margin in the present assessment year was because of licence being granted to a large number of shops, who sell Indian made foreign liquor. As a result there was M/s. Quick Energy A.Y.2008-09 3 a competition and the assessee had to compromise on its margin. The CIT(A) did not agree with the submissions made by the assessee. He held that the assesee failed to establish that the gross profit rate shown in the return is correct. The CIT(A) therefore confirmed the order of AO..
Aggrieved by the order of CIT(A) the assessee has raised ground nos. 1 and 2 before the Tribunal.
We have heard the rival submissions. The ld. Counsel for the assessee reiterated the submissions as were made before CIT(A). It was further argued by him that the AO had not resorted to rejection of books of accounts u/s 145(3) of the Income Tax ct Act, 1961 (Act). It was argued that without rejecting books of accounts it was not possible to estimate the income. It was also argued by him that no defects whatsoever have been pointed out by the AO in the books of accounts so as to dis-regard the book results. Our attention was drawn to the decision of the Hon’ble Rajasthan High Court in the case of Principal C.I.T. vs Bhawani Silicate Industries (2016) 65 Taxmann.com 196 (Rajasthan). In the aforesaid decision it was held by the Hon’ble Rajasthan High Court that merely because there was some deficiency in quality wise record in the books of accounts, it cannot be a ground to reject the books of account. Reference was also made by ITAT, Kolkata bench in the case of Squar Concern vs ITO (2015) 68 SOT 23 (Kolkata-Trib.)wherein it was held that when defects in the books of account maintained by the assesee are not pointed out the provision of section 145 cannot be invoked.
The ld. DR relied on the order of CIT(A) and submitted that the assesee failed to substantiate the reasons for fall in the gross profit rate.
We have heard the rival submissions. It is clear from the perusal of the order of AO that the only reason given by the AO for disbelieving the profits declared by the assessee is that item-wise value of closing stock had not been given by the assessee.
M/s. Quick Energy A.Y.2008-09 4 As rightly pointed out by the ld. Counsel for the assessee, these details were available in the Tax Audit Report which was filed along with the return of income. The same is at page 24A and 24B of the assessee’s paper book. Therefore the fundamental basis on which the AO came to the conclusion that the gross profit declared by the assesee was low was erroneous. Apart from this, the AO has not rejected the book results while invoking the provision of section 145(3) of the Act. Rejection of books of accounts is a sine quo non for disregarding the profits shown in the books of account. Under section 145(3) of the Act, the AO can reject the book results only, if he is not satisfied with the completeness and correctness of the books of accounts maintained by the assessee or the method of accounting followed by the assessee is not in accordance with the provision of section 145(2) of the Act or income has not been computed in accordance with the accounting standard u/s 145(2) of the Act. A perusal of the order of assessment shows that no reasons whatsoever have been assigned by the AO for disregarding the book results. Hence the action of the AO in estimating the income of the assessee from business and consequent addition made to the total income cannot be sustained. The decision on which the ld. Counsel placed reliance before us fully supports the plea raised by the assessee. For the reasons given above, we delete the addition on account of gross profit of Rs.9,47,000/- made by the AO. Ground Nos. 1 and 2 are accordingly allowed.
Ground Nos. 3 and 4 raised by the assessee read as follows :- “3. For that in view of the facts and circumstances of the case the Ld. CIT(A) was wholly wrong and unjustified in confirming the arbitrary and estimated adhoc disallowance of expense of Rs. 1,59,4151- @ 50% of the total expense of Rs. 3,18,8301- claimed under the head " Carriage Outward" made in assessment merely on assumption and presumption without considering the facts and the details of that a/c furnished and instead simply comparing preceding year's result without bringing on record any convincing material and/or evidence legally justifying the disallowance. The actions of both the Assessing Officer and the Ld. CIT(A) were wholly unjustified, uncalled for and bad in law.
For that in view of the facts and circumstances of the case the Ld. CIT(A) was wholly wrong and unjustified in confirming the arbitrary and estimated adhoc disallowance of expense of Rs. 83,512/- @ 50% of the total expense of Rs. 1,67,024/- claimed under the head." Unloading charges" made in assessment M/s. Quick Energy A.Y.2008-09 5
merely on assumption and presumption without considering the facts and the details of that a/c furnished and instead simply comparing preceding year's result without bringing on record any convincing material and 1 or evidence legally justifying the disallowance. The actions of both the Assessing Officer and the Ld. CIT(A) were wholly unjustified, uncalled for and bad in law.
The AO noticed that the carriage outward expenses of the assessee were claimed at Rs.3,18,830/- compared to Rs.1,20,610/- claimed in the earlier A.Y.2007- 08. Since he turnover of the assessee was less than the earlier year, the AO was of the view that the increase in carriage outward expenses was not justified. He also found that these expenses were not properly vouched. The AO therefore disallowed 50% of the expenses claimed under the head “carriage outward” which resulted in addition of Rs.1,59,415/- to the total income of the assessee.
Similarly the assessee claimed unloading expenses at Rs.1,67,023/-. The AO found that in the earlier assessment year there was no claim of expenses under the head “unloading expenses “. He also found that unloading expenses was not supported by proper vouchers and bills. The AO therefore disallowed 50% of the unloading expenses which resulted in an addition of Rs.83,512/- to the total income of the assessee.
On appeal by the assessee against the aforesaid addition, the CIT(A) confirmed the order of AO holding that the assessee failed to substantiate increase in expenses under the aforesaid heads.
Aggrieved by the order of CIT(A) the assessee has raised ground Nos. 3 and 4 before the Tribunal.
We have head the submissions of the ld. Counsel for the assessee and the ld. DR. The ld. Counsel for the assessee submitted that carriage outward expenses are incurred when there are bulk sales. It was submitted by him that during the previous year the bulk sales were much more than in A.Y.2007-08 and therefore there was an M/s. Quick Energy A.Y.2008-09 6 increase in carriage outward expenses. Similarly for unloading expenses the ld. Counsel pointed out that due to traffic congestion, the stocks are not received in the business premises of the assessee and had to be unloaded and brought to the shop from the trucks which are parked at a little distance from the business premises of the assessee. This was the reason why unloading expenses were not claimed in the past and being claimed only in this assessment year.
After considering the rival submissions, we are of the view that there is some merit on the plea put forth on behalf of the assessee. We are however of the view that the increase in the amount of carriage outward charges and quantum of unloading expenses are disproportionate. Nevertheless taking into account the reasons given by the assessee before, us we are of the view that disallowance of 50% of the expenses is on the higher side. Keeping all facts and circumstances in mind, we are of the view that disallowance of 25% of the expenses would be just and fair. We hold and direct accordingly and allow partly ground nos. 3 and 4. In the result the appeal by the assesee is partly allowed.
Order pronounced in the Court on 22.11.2017. Sd/- Sd/- [Waseem Ahmed] [ N.V.Vasudevan ] Accountant Member Judicial Member Dated : 22.11.2017. [RG Sr.PS] Copy of the order forwarded to: 1.M/s. Quick Energy, 46, Strand Road, Kolkata-700007. 2. D.C.I.T., Circle-43, Kolkata. 3. C.I.T. (A)-21, Kolkata. 4. C.I.T.-15, Kolkata. 5. CIT(DR), Kolkata Benches, Kolkata.