Loading judgment…
No AI summary yet for this case.
Income Tax Appellate Tribunal, INDORE BENCH, INDORE
Before: SHRI SIDDHARTHA NAUTIYAL & SHRI B.M. BIYANI
आदेश / O R D E R
Per B.M. Biyani, A.M.:
Feeling aggrieved by appeal-order dated 31.08.2020 passed by Ld. Commissioner of Income-Tax (Appeals)-2, Bhopal [“Ld. CIT(A)”], which in turn arises out of assessment-order dated 17.12.2018 passed by Ld. DCIT- 5(1), Bhopal [“Ld. AO”] u/s 143(3) of Income-tax Act,1961 [“the Act”] for Assessment Year [“AY”] 2016-17, the revenue has filed this appeal on following grounds:
“1. Whether on facts and circumstances of the case, the Ld. CIT(A) was justified in deleting the addition not considering the fact that the assessee has not been able to establish the true sales figures and not submitted sales bills and vouchers and quantitative details.
Vanisha Minerals P. Ltd. Assessment Year 2016-17 2. Whether on facts and circumstances of the case, the ld. CIT(A) was justified holding that estimation of sales and profit made by the AO based on the decision of the Hon'ble Jurisdictional High court in the case of Badri Prasad Bhagwan Das & Co. (MCC No.202 of 1985, 11.10.1994), is unjustified.”
Briefly stated the assessee-company is engaged in the business of retail sale of country liquor and foreign liquor. For the relevant assessment- year, the assessee submitted return of income on 15.10.2016 declaring a loss of Rs. 3,93,04,468/-. The case was selected under complete-scrutiny and statutory notices u/s 143(2)/142(1) of the Act were issued from time to time which were complied with by assessee. During assessment-proceeding, the Ld. AO was not satisfied with the correctness and completeness of books of account and therefore, rejected books of account by invoking section 145(3) of the Act. Ld. AO, thereafter, estimated the sales and net profit of assessee at Rs. 45,75,27,240/- and Rs. 2,28,76,362/- respectively as against sales of Rs. 20,75,00,239/- and loss of Rs. 3,93,04,468/- disclosed by assessee, following the decision of Hon’ble Jurisdictional High Court of Madhya Pradesh in Badri Prasad Bhagwan Das & Co. Vs. CIT MCC No. 202 of 1985, dated 11.10.1994. Accordingly, Ld. AO made addition.
Being aggrieved, the assessee filed appeal to Ld. CIT(A). During appellate-proceeding, the assessee made a detailed submission. On consideration of the same, the Ld. CIT(A) deleted the entire addition by concluding thus:
“4.2 The Appellant had filed his return for A.Y 2016-17 declaring loss of Rs. 39304468 /-. The Ld AO rejected books by invoking provisions of section 145(3) of the Act for the reasons mentioned in Para 4 above. The ld. A.O relying upon the Judgment of Hon'ble high court of M.P in case of Badri Prasad Bhagwan das & Co.(supra) estimated Sales at 2.5 times of the License fees and net Profit at 5% on the estimated sales. No specific item has been pointed out by the ld. AO showing incorrectness in the books of account. All the purchases are from Excise department of State Govt. of M.P. T.C.S has been collected properly. The Ld. AO did not doubted purchases. No expenditure has been found bogus. The expense Vouchers along with copy of ledger were also examined by the ld. AO. The ld. AO has mentioned that without bills sales cannot be verified and which makes the books Page 2 of 12
Vanisha Minerals P. Ltd. Assessment Year 2016-17 of account incomplete and unreliable. The ld. AO has further mentioned that the sales of the appellant could not be tallied which is very important to ascertain the completeness and correctness of the books and without that sales verification, the completeness and correctness of the books is questionable and is liable to be rejected. The Appellant submitted that the general practice is noting the sales figure and totaling it at the closure of the shop and thereafter, providing the same to the accountant for books keeping. Thus, the sales register was also maintained on excel sheet and the same was prepared after the sales of the day are over on the basis of loose sheets received from the shops. This excel sheet is used for recording the sales in the Tally. In case of the Appellant, since the MRP has been fixed by State Excise Department meaning thereby the sales price of liquor on upper side has already been fixed. Further, in the Appellant's case, purchases have not been doubted. The sales recorded in the excel sheets should have been called for and quantitative details should have been tallied with purchases details obtained from the State Excise Department during the course of assessment proceedings which has not been done. Thereafter, defects in the audited books of account should have been pointed out by the ld. A.O. The Appellant has shown Opening and closing stock at NIL. Despite extensive examination of voluminous information submitted, no specific defects could be pointed out by the ld. A.O. Some general observations and suggestions to the appellant has been given in the assessment order. No comparable case of the similar trade has been discussed for assessing income of the appellant and also historical comparison of G.P. or N.P. of appellant's own case has been made. The AO has not drawn any comparable instance of contemporary cases while estimating sales on the basis of license fee paid by the Appellant. It is found that the Purchases were around 85 % of the sales and Net Profit rate was between 1.64 % to 3.01 % in the succeeding years. Such financial results should have been compared with the results of the similar nature of trade to arrive at justifiable income. The estimation of sales @ 2.5 times of the license fee and applying net profit rate of 5% on the sales so arrived is based on the Judgment of Hon'ble M.P. High Court in case of Badri Prasad Bhagwan das (supra). The assessment order was passed in year 1976-77. The Ld. AO has failed to consider all the aspects which are entirely different in Appellant's case from Badri Prasad Bhagwandas & Co. At that time the excise policy was totally different. There was no control of the Government over the sales price and the Licensee was free to sale liquor at the price as per the prevailing market but now the situation has been changed. Now State Government has issued excise policy in case of liquor and accordingly, fixed MSP i.e minimum selling price and MRP i.e. Maximum retail price. This policy is effective since 15 January 2008 and 15.01.2009. The retailer cannot charge any amount to the customer at its will. The basic License fees has nothing to do with the purchase quantity. License fees is Page 3 of 12
Vanisha Minerals P. Ltd. Assessment Year 2016-17 determined by the Government looking to the prospects of sales in the area and it has to be paid by the dealer even if he do not purchase and lift even a single bottle of liquor. Due to this policy only some time Bidders suffer heavy losses in case their estimation of sales fails on account of choosing a Particular area at one end. Similarly there may be gain also in case the retailer gets sales exceeding their estimation from particular area. Ld. AO has, while estimating sales, totally ignored this fact. The ld. AO has considered the purchase price as being total of basic license fees plus water cost, ceiling charges and excise duty and determined sales of 2.5 times of the cost as per the judgment of Hon'ble High court of M.P which is totally unjustified in the present scenario when the State Government has published its Excise policy regarding MSP and MRP. The appellant has argued that "It is further submitted that the Terminology MSP and MRP works on the basis of purchases only and that too on the basis of quantity lifted which is worked out on the basis of Water cost, ceiling and excise duty paid by the dealer …… We are producing herewith the Maximum Retail price which is given hereunder: S.No.Name of Shop Licence No. Foreign MRP(Rs.) Liquor/country liquor Bhopal i. Gandhi 15/2015-16 Foreign Liquor 79545528 Nagar Bhopal Ii Govindpura, 29/15-16 Country 54081000 Bhopal Ujjain Foreign and country i. Baledi C-79/2015-16 Country Liquor 5689687 12573000 Ii Chikli C-38/2015-16 Country Liquor 4354125 11893500 iii Narshingla Country liquor 1899750 3593250 iv. Indoriya Foreign Liquor 25877616 Total 19,95,07,456 As per above calculation on the basis of Maximum Retail Price, maximum sales comes to Rs. 19,95,07,456/-. The above sales price is the maximum price on which a dealer can sale his goods whereas the Ld. AO has estimated the same at Rs. 45,75,27,240/-. It does not appear justifiable from any point of view. The ld. Assessing Officer has totally ignored the prevailing excise policy of the Government. Therefore, estimation of sales and profit on the basis very old excise policy on which the judgment of Hon’ble M.P. High court is based, is unjustified. The ld. Assessing Officer ignored various factors as discussed earlier Page 4 of 12
Vanisha Minerals P. Ltd. Assessment Year 2016-17 while estimating the income of the appellant. In view of the above, such addition cannot be sustained. Therefore, the addition made by the Ld. Assessing Officer is hereby deleted. This ground of appeal is allowed.”
4. Dissatisfied with the order of Ld. CIT(A), the revenue has now filed this appeal and now before us.
5. We think it more appropriate to first deal with Ground No. 2 and thereafter Ground No. 1 instead of going in seriatim.
Ground No. 2:
This Ground reads as under:
2. Whether on facts and circumstances of the case, the ld. CIT(A) was justified holding that estimation of sales and profit made by the AO based on the decision of the Hon'ble Jurisdictional High court in the case of Badri Prasad Bhagwan Das & Co. (MCC No.202 of 1985, 11.10.1994), is unjustified.
Apropos this Ground, Ld. DR placed heavy reliance on the observations made by Ld. AO. He submitted that the assessee is engaged in liquor business and the assessee has neither issued sales invoices to the buyers nor maintained quantitative-details of the goods sold. He submitted that the assessee has claimed to have maintained sales data on excel-sheets on daily basis and used them as basis for recording sales in the books of account. He submitted that in absence of proper sales invoices and quantitative details, financial results of assessee do not have authenticity, necessitating the Ld. AO to invoke section 145(3) and thereby reject the books of accounts and estimate taxable income of assessee. He carried us to the following working made by Ld. AO on Page No. 18 of the assessment- order and submitted that the Ld. AO has estimated sales and net profit of assessee’s business strictly in accordance with the formula adopted by Hon'ble Jurisdictional High Court of M.P. in Badri Prasad Bhagwandas & Co. (supra):
Total licenses fees paid by the assessee company Rs.18,30,10,896/- during the A.Y.2016-17 (Rs.10,67,42,134+ Page 5 of 12
Vanisha Minerals P. Ltd. Assessment Year 2016-17 Rs.7,62,68,762) Estimated the sales of the assessee company = 2.5 Rs.45,75,27,240/- times of license fees = 2.5* Rs.18,30,10,896/- Estimated net profit at 5 per cent of sales = 5% of Rs. Rs.2,28,76,362/- 45,75,27,240/- Ld. DR argued that the working made by Ld. AO is, therefore, not faulty and the same must be accepted without any interference.
Per contra, Ld. AR submitted that the decision of Badri Prasad Bhagwandas (supra) is plainly distinguishable and hence not applicable to the assessee at all. Emphasizing the observations made by Ld. CIT(A) in appeal-order, Ld. AR submitted that the said decision was given in relation to AY 1976-77 when the facts were entirely different. Ld. AR submitted that at that time, the excise policy of Govt. was totally different. There was no control of the Government over the sales price and the Licensee was free to sale liquor to customers at the price as per his will, but now the situation has totally changed. Now, State Government has issued excise policy for sale of liquor, according to which there is a price band of fixed MSP (Minimum selling price) and MRP (Maximum retail price). This policy is effective since 15.01.2008 / 15.01.2009 and the assessee has filed a copy of Gazette to Ld. CIT(A), which is very clear from appeal-order passed by Ld. CIT(A) itself. Now as per new policy, a retailer cannot charge more than MRP from customer. Therefore, according to Ld. AR, the decision of Badri Prasad Bhagwandas (Supra) was rendered in the pre-policy era and the same is not applicable. Ld. AR submitted that the Ld. CIT(A) has taken note of this material difference and thereafter rightly held that the said decision is not applicable.
We have considered rival submissions of both sides. We observe that the above submissions made by Ld. AR are fully incorporated in the appeal- order of Ld. CIT(A). We further observe from Page No. 12 of the appeal-order of Ld. CIT(A) that the assessee has duly filed a copy of the gazette to demonstrate the new excise policy to Ld. CIT(A). On a careful reading of the Page 6 of 12
Vanisha Minerals P. Ltd. Assessment Year 2016-17 order of Ld. CIT(A), we find that the Ld. CIT(A) has considered the submissions of assessee at length and after a careful consideration, came to accept that the decision in Badri Prasad Bhagwandas (supra) is not applicable to assessee. We further observe that the Ld. DR representing the revenue could not rebut the findings of Ld. CIT(A) with respect to non- applicability of the decision. Being so, we do not find any merit in the Ground raised by revenue. Accordingly, we are inclined to dismiss Ground No. 2.
Ground No. 1:
This Ground reads as under:
1. Whether on facts and circumstances of the case, the Ld. CIT(A) was justified in deleting the addition not considering the fact that the assessee has not been able to establish the true sales figures and not submitted sales bills and vouchers and quantitative details.
As noted earlier, Ld. DR submitted that the assessee is engaged in the liquor business and the assessee has neither issued sales invoices to the buyers nor maintained quantitative-details of the sales. Ld. DR submitted that the assessee has claimed to have maintained excel-sheets of the sales on daily basis and used them as basis for recording sales in the books of account. He submitted that in absence of proper sales-invoices and quantitative-details, the books of account are incomplete / incorrect. Referring to Page No. 12 of the assessment-order, Ld. DR submitted that the Ld. AO has also stated “Further, during the course of assessment- proceedings, it is seen that the assessee company has claimed large expenses on various head and not properly maintained bills and vouchers. The most of the vouchers are self-made ad supporting bills are not enclosed with vouchers.” Therefore, in such circumstances, the Ld. AO was quite justified in invoking section 145(3); rejecting the books of accounts; estimating sales at Rs. 45,75,27,240/- and net profit at Rs. 2,28,76,362/-; and thereby making addition in taxable income. Ld. DR vehemently argued that the Vanisha Minerals P. Ltd. Assessment Year 2016-17 addition made by Ld. AO was very much proper in the circumstances and must be upheld.
Per contra, Ld. AR submitted that the assessee is a company and its books of accounts were duly audited in terms of Companies Act as well as section 44AB of the Income-tax Act, 1961 and the audited accounts were submitted along with return of income, wherein no adverse remarks or discrepancies have been reported by the auditors. Ld. AR submitted that (i) the business of assessee is strictly regulated by government; (ii) the sale prices are fully controlled; (iii) the purchase is fully controlled and never doubted by revenue; (iv) the assessee could sell only that much of quantity as is procured from Govt. and nothing more, hence there should not be any doubt on quantitative-details; and (v) the Ld. AO has not cited even a single instance of bogus expenditure having been claimed by assessee, the observations made by Ld. AO with regard to expenses-vouchers are just general and passing remarks. Ld. AR submitted that the liquor business carried on by assessee is such that there are large number of products of different brands and packs and as submitted during assessment-proceeding a rough estimate is that more than 1073501 bottles (Page No. 6 of the assessment-order) might have been sold during the year to different buyers due to which it is practically not possible to issue invoices but, however, the assessee has maintained excel-sheets on daily basis and the same are used for recording sales in the books of account. Ld. AR submitted that having regard to the practical difficulties involved in issuing sales-invoices and maintaining quantitative-details, coupled with the fact that the business of assessee is perfectly regulated by Govt., the system of excel-sheets adopted by assessee should not be viewed otherwise. Therefore, according to Ld. AR, the Ld. AO was not justified to reject the books of assessee by invoking section 145(3).
Ld. AR submitted that even if the Ld. AO has rejected books of account, the addition made by Ld. AO on the basis of formula adopted in Badri Prasad Bhagwandas (supra) cannot be given credence because the Page 8 of 12
Vanisha Minerals P. Ltd. Assessment Year 2016-17 said decision is not applicable to the assessee. Ld. AR further submitted that since the new excise policy gives MRP (Maximum Retail Price) and the license is issued by Govt. on year to year basis for one year only, one can easily compute the maximum possible sales of a year on the basis of MRP. Ld. AR carried us to Page No. 13 & 14 of the order of Ld. CIT(A) and pointed out that the assessee has suo moto, in order to assist the revenue, obtained details from Excise Department by filing application under RTI, according to which the maximum possible sale of the year 2016-17 under consideration would be Rs. 19,95,07,456/-. Ld. AR submitted that the assessee has disclosed sale of Rs. 20,75,00,239/- in the P&L A/c, which is very close to as well as slightly higher than the sales of Rs. 19,95,07,456/- computed as per data of Excise Department. Therefore, the revenue must accept the sale of Rs. 20,75,00,239/- as disclosed by assessee and there is no justification in making a whopping estimate at Rs. 45,75,27,240/-. Having said so, Ld. AR submitted that once the sale of assessee is accepted, the net loss of Rs. 3,93,04,468/- as declared by assessee should also be accepted because the purchase is not in doubt and the Ld. AO has not observed any kind of specific deficiency in the expenditure side. Ld. AR made a very bold submission that the books of account have been rejected doubting the sale of asessee but not on the basis of purchase / expenses claimed by assessee. Ld. AR submitted that Ld. CIT(A) has rightly observed “Despite extensive examination of voluminous information submitted, no specific defects could be pointed out by the ld. A.O. Some general observations and suggestions to the appellant has been given in the assessment order.” To buttress his argument further, Ld. AR also raised a contention that the revenue has not taken any specific ground in Appeal-Memo to rebut the finding of Ld. CIT(A), which is sufficient enough to demonstrate that the revenue is no more insisting that the rejection of books of account was a valid action of Ld. AO.
We have considered rival submissions of both sides, perused the material held on record and considered the legal precedents cited before us. It is an admitted fact by assessee that the sales-invoices and quantitative Page 9 of 12
Vanisha Minerals P. Ltd. Assessment Year 2016-17 details are not maintained. Hence, suffice it to say, this is a significant lapse by assessee which makes the books of account incomplete, warranting rejection of books u/s 145(3). Therefore, we do not find any infirmity in the action of Ld. AO. Having said so, we now have to confine ourselves to the computation of profit of the business carried on by assessee. In this regard, we find weightage in the submission of assessee that the maximum possible sales of the year can be computed by using MRP. In fact, the Ld. AO has himself mentioned on Page No. 11 of the assessment-order:
“From the above reply it can be easily established that all the sales happening in the retail outlets is happening in a manner which cannot be verified. All the sale is recorded in loose papers and there are no bills and vouchers issued in the shop to establish the daily sale of the shop. Also, in liquor business price varies between MSP and MRP and without bills and vouchers it cannot be established the price at which sale is happening.” In the underlines findings, the Ld. AO has himself mentioned that the prices vary between MSP and MRP and it cannot be established the price at which sale is happening. By mentioning so, the Ld. AO clearly accepts that the MRP is the highest selling price. As a matter of fact, we also observe that it is not a case of revenue that the assessee has made any sale beyond MRP. Therefore, in this factual backdrop which is acceded to by Ld. AO himself, there can hardly be any reason to ignore the “maximum possible sales of the year” on the basis of MRP, which as mentioned in the order of Ld. CIT(A) was Rs. 19,95,07,456/-. Since the assessee has already declared sale of Rs. Rs. 20,75,00,239/-, which is slightly higher than the estimation of Rs. 19,95,07,456/-, we do not have any hesitation in accepting the sales declared by assessee. Now, we test another point very boldly argued by Ld. AR that the books of account have been rejected mainly for non-issuance of sale invoices and non-maintenance of quantitative details and not for the reason of expenditure side. We observe that in the whole assessment-order, the thrust is upon sales / quantitative-details only and not on expenditure side. We further observe that there is no single instance of deficient voucher quoted by Ld. AO in assessment-order. We observe that the Ld. CIT(A) has Vanisha Minerals P. Ltd. Assessment Year 2016-17 also mentioned a categorical finding “Despite extensive examination of voluminous information submitted, no specific defect could be pointed out by the Ld. AO. Some general observations and suggestions to the appellant has been given in the assessment order.” This being the position, we do not find any specific problem in expenditure side of assessee.
In view of a detailed discussion and for the reasons stated in foregoing paragraphs, we find that the sales of assessee is acceptable and there is no serious problem in the expenditure side too. Hence, we do not find any infirmity in the order of Ld. CIT(A) whereby Ld. CIT(A) has accepted the book-results of assessee and deleted the addition made by Ld. AO. Being so, we are persuaded to uphold the action of Ld. CIT(A) and inclined to dismiss Ground No. 1 raised by revenue.
In the result, this appeal of Revenue is dismissed.
Order pronounced as per Rule 34 of I.T.A.T. Rules, 1963 on 21/09/2022.