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Income Tax Appellate Tribunal, “D” Bench, Mumbai
O R D E R Per B.R. Baskaran (AM) :-
The appeal filed by the Revenue is directed against the order dated 9.3.3004 passed by learned CIT(A)-XVII, Mumbai and it relates to A.Y. 1998- 99.
The Revenue is aggrieved by the decision rendered by learned CIT(A) on following issues :- a) addition on account of low gross profit b) addition on account of suppressed butter production c) addition on account of suppression of milk d) addition on account deposit received from milk suppliers.
We heard the parties and perused the record. The assessee is running a dairy farm by name M/s. Paliwal Dairy Farm. He was subjected to search operations on 15.12.1997. Accordingly, block assessment was framed in his hands from 1.4.1987 to 15.12.1997 u/s. 158BC of the Act. Assessment under 2 Shri Jamnalal N. Purohit Pro. M/s.Paliwal Diary Farm consideration pertains to the period from 16.12.1997 to 31.3.1998, which was completed u/s. 143(3) of the Act. The Assessing Officer completed the assessment by making various additions and in the appeal filed by the assessee, learned CIT(A) deleted the additions listed in the preceding paragraph. Aggrieved, the Revenue has filed this appeal before us.
First issue relates to the addition made on account of low gross profit. The assessee declared gross profit rate at 10.31% for the period under consideration. The Assessing Officer noticed that the assessee was assessed at the gross profit rate of 13.34% in A.Y. 1996-97 and 13.48% in A.Y. 1997-98. Since the assessee did not furnish proper reasons for fall in GP, the Assessing Officer estimated the gross profit rate 13.9% and accordingly made addition of ` 14,77,475/-.
Before learned CIT(A), the assessee contended that the Assessing Officer has assumed that the practice which was followed in the past has been continued to be followed in the subsequent period also and accordingly made impugned addition, without bringing any material on record and also without finding any defect in the books of account. The assessee further submitted that it has maintained quantitative details of products dealt by him. Further, it was submitted that the average gross profit rate has been worked out by the Assessing Officer on the basis of assessed income. The assessee also furnished details of gross profit rate declared by him in his books in the past years and submitted that the average rate of profit works out to 9.58% only. Details furnished by the assessee have been tabulated by learned CIT(A) as under :-
Astt. year Purchases GP (%) on Gross Profit Sales GP(%) purchases on sales 1994-95 47,478,612 10.35% 3,988,615 51,467,227 7.75% 1995-96 42,983,311 9.95% 4,276,839 47,260,150 9.05% 1996-97 59,349,049 10.02% 5,946,774 65,295,823 9.11% 1/4/96-15/12/97 19,969,423 161,159,313 12.39% Average Gross profit (%) 9.58%
3 Shri Jamnalal N. Purohit Pro. M/s.Paliwal Diary Farm Learned CIT(A) took the view that the Assessing Officer has made huge addition of ` 14.77 lakhs for the period of three and half months on the basis of assumptions and presumptions and the same turns out to be a high pitched addition. Learned CIT(A) noticed that during the course of search unaccounted investment in assets were found only to the extent of ` 72.28 lakhs. He further observed that the Assessing Officer has not given any finding in respect of completeness or correctness of the books of account or method of accounting followed by the assessee. Further, the Assessing Officer has not pointed out any discrepancy in the books of account. He also agreed with the contentions of the assessee that past trade practice cannot form the basis to estimate the income of the current year without bringing any material to support that the said practice was continued during the year under consideration also. Accordingly, he deleted the addition of ` 14.77 lakhs made by the Assessing Officer towards low gross profit.
The Ld D.R placed strong reliance on the assessment order and submitted that the year under consideration is the year of search and further the search proceeding has revealed many deficiencies. Accordingly he submitted that the AO was justified in estimating the Gross profit. On the contrary, the Ld A.R placed heavy reliance on the submissions made before Ld CIT(A).
A careful perusal of the table extracted above would show that the assessee’s gross profit has increased to 12.39% during the latest period, i.e, for 1.4.96 to 15.12.97. The assessment year under consideration consists of broken period from 16.12.1997 to 31.3.1998. In the normal situation, the assessee should have declared gross profit at the same range of 12.39%, where as he has declared the same at 10.31%. We notice that the assessee has not given any satisfactory explanation for the fall in the gross profit in the last quarter of the year. Since the year under consideration is broken period and since the search action revealed many deficiencies and defects like suppression of sale of milk and milk products, we are of the view that the AO
4 Shri Jamnalal N. Purohit Pro. M/s.Paliwal Diary Farm was justified in not placing reliance on the books of account. At the same time, we notice that the gross profit rate has been arrived at by the AO on the basis of assessed income of the past years, which we view as not correct. We have noticed that the assessee himself has shown a gross profit rate of 12.39% during the earlier part of the year and hence, we are of the view that the gross profit for the broken period under consideration may be taken at the same level of 12.39%. Accordingly, we set aside the order passed by Ld CIT(A) on this issue and direct the AO to adopt the G.P rate on sales at 12.39% and compute the addition accordingly.
The next two additions pertain to suppression of butter production and milk quantity. Since we have estimated the Gross profit rate, we are of the view the same shall take care of all the deficiencies related to purchase, production and sales. Accordingly, we are of the view that the Ld CIT(A) was justified in deleting these two additions.
The next issue relates to the assessment of deposits received from milk suppliers. The Ld CIT(A) has stated that the assessee has declared the same as liability in his books of account and the same is repayable in future. He has further observed that such kind of deposits received in the past has been repaid during the current period also. Accordingly, the Ld CIT(A) has held that there is no reason to assess the deposits as income of the assessee, as the same constitutes a liability repayable in future. On consideration of facts, we do not find any infirmity in the decision reached by Ld CIT(A) on this issue.
In the result, the appeal filed by the revenue is partly allowed.