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Income Tax Appellate Tribunal, ‘SMC’ BENCH PUNE
Before: HON’BLE SHRI G. D. PADMAHSHALI & SHRI VINAY BHAMORE
IN THE INCOME TAX APPELLATE TRIBUNAL, ‘SMC’ BENCH PUNE BEFORE HON’BLE SHRI G. D. PADMAHSHALI, ACCOUNTANT MEMBER AND SHRI VINAY BHAMORE, JUDICIAL MEMBER ITA No. 890 & 891/PUN/2024 Assessment Year : 2016-17 & 2017-18 M/s Shreyas Wines, At Post Nachanwell, Tq.: Kannad, Aurangabad-431101. PAN: ABCFS3729H. . . . . . . . Appellant V/s The Income Tax Officer, Ward-1(4), Aurangabad. . . . . . . . Respondent Appearances Assessee by : Mr Shivam Jaiswal [‘Ld. AR’] Revenue by : Mr Umesh Phade [‘Ld. DR’] Date of conclusive Hearing : 01/08/2024 Date of Pronouncement : 06/08/2024 ORDER PER G. D. PADMAHSHALI, AM; These twin appeals instituted u/s 253(1)(a) of the Act by the assessee are assailed against separate orders passed u/s 250 of the Income-tax Act, 1961 [‘the Act’ hereinafter] by the National Faceless Appeal Centre [‘NFAC’ hereinafter] which in turn arisen out of orders of assessment passed u/s 143(3) of the Act by the Income Tax Officer, Ward-1(4), Aurangabad [‘AO’ hereinafter] for assessment year 2016-17 and 2017- 18 [‘AY’ hereinafter].
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M/s Shreyas Wines Vs ITO ITA No. 890 & 891/PUN/2024 AY 2016-17 & 2017-18 2. Since facts and substantive issue arising in these twin appeals are identical, on the request of rival parties, for the sake of succinctness these appeals are heard together for consolidated & common order. 3. Tersely stated the facts of the case are that; 3.1 The assessee is a partnership firm engaged in retail trading business of Foreign & Country Liquor. The return of income filed by the assessee declaring total income of ₹2,85,170/- & ₹2,60,320/-for the AY 2016-17 & 2017-18 respectively were by service of separate statutory notices selected for scrutiny assessment u/s 143(3) of the Act. 3.2 In the event of assessee’s failure to produce stock records and evidential documents in support of NIL closing stocks held and profit claimed to have been earned by it, the Ld. AO rejected the books of the assessee u/s 145(3) of the Act and estimated the gross profit [‘GP’ hereinafter] to the best of his judgement @8% of total turnover as reported in the tax audit report [‘TAR’ hereinafter] issued by the Chartered Accountant and accordingly framed the assessments. Aggrieved assessee unsuccessfully contested the rejection of books and determination of profit on estimation/presumptive basis in separate appeals before the first appellate authority. Failing to which the assessee firm filed these two appeals on the common grounds numbered from A
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M/s Shreyas Wines Vs ITO ITA No. 890 & 891/PUN/2024 AY 2016-17 & 2017-18 to D. Since these grounds are vague, argumentative in nature and inconsonance with the rule 8 of Income Tax Appellate Tribunal Rules, 1963 [‘ITAT, Rules’ hereinafter], hence deemed unfit for their reproduction here. Nevertheless, it shall suffice to state that, these grounds collectively assailed against (a) validity of rejection of books u/s 145(3) of the Act and (b) veracity of estimation of gross profit @8% of total turnover. 4. We have heard rival submission and subject to the provisions of rule 18 of Income Tax Appellate Tribunal Rules, 1963 [for short ‘ITAT, Rules’] perused the material placed on records and considered the facts in the light of settled legal position. We observed that, the assessee is a registered dealer for retail trading of Country Liquor & Forigne Liquor [‘CL-FL’ hereinafter] and under the Maharashtra State Excise Rules & Maharashtra State Country Liquor Rules was required to maintain certain stock/inventory registers. In the course of assessment by service of notices dt. 12/06/2018 16/07/2018 & 11/10/2018 u/s 142(1) of the Act the appellant assessee was called upon to produce details of stock, purchases, sales, debtors & creditors, TDS deductions made, TCS collected, proof of Excise License Fees paid, and records maintained as per Excise Department in Form No. CL(15)XV, VAT
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M/s Shreyas Wines Vs ITO ITA No. 890 & 891/PUN/2024 AY 2016-17 & 2017-18 returns/records/audit report etc. When these notices went unattended, the assessee by service of show cause notices [‘SCN’ hereinafter] issued to it vide dt. 25/10/2018, 15/12/2018 & 24/12/2018 was further provided with multiple opportunities to make good the non-compliance, this exercise however could yield no effective compliance from the assessee. In the absence of trading & stock records, NIL closing stock details reported u/c 35(a) of TAR & having regards to % of profit shown by the assessee, the Ld. AO rejected the books u/s 145(3) of the Act holding them to be incomplete & incorrect. During the course of hearing, the Ld. AR submitted that the required details of closing stock held by the appellant was to be reported u/c 35(a) of TAR were indeed inadvertently reported in u/c 35(bB) of TAR placed on records. On vouching the same the bench queried ‘as to how the liquor shop runs with NIL closing stock as at the closure of financial year?’, which the appellant could hardly answer by breaking the silence. In first appellate proceedings, the appellant brought on record certain documents which were in the nature of additional evidences. In the absence of application/affidavit and explanation regarding sufficiency of reasons/cause beyond not producing them in the course of assessment proceedings, the Ld. NFAC rejected to admit the same and consequently upheld the twofold action of Ld. AO viz; (a) rejection of books and (b) framing the assessment to the ITAT-Pune Page 4 of 8
M/s Shreyas Wines Vs ITO ITA No. 890 & 891/PUN/2024 AY 2016-17 & 2017-18 best of judgement by determining the gross profit @8% of total reported turnover by the assessee.
In light of former factual matrix let’s first deal with rejection of books u/s 145(3) of the Act, for which we deem it apt to reproduce provision in verbum to gather meaning & intent thereof; Section 145 : Method of accounting. (3) Where the Assessing Officer is not satisfied about the correctness or completeness of the accounts of the assessee, or where the method of accounting provided in sub-section (1) or accounting standards as notified under sub-section (2), have not been regularly followed by the assessee, the Assessing Officer may make an assessment in the manner provided in section 144.'. (Emphasis supplied) 6. An austere reading of section 145(3) of the Act envisages existence of three situations where assessing officer can resort to rejection of books. And one of such situation with which we are concerned in the present twin appeals is satisfaction of the assessing officer about incorrectness or incompleteness of the accounts. The rejection on such ground however can only be triggered or considered when accounts are found substantially incorrect or incomplete, that is to say incorrectness or incompleteness of substantial accounts shall only form reasonable basis for rejection of books. Predominantly based upon books of accounts the taxable income of assessee is determined, wherein
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M/s Shreyas Wines Vs ITO ITA No. 890 & 891/PUN/2024 AY 2016-17 & 2017-18 the stock/inventory records undisputedly forms substantial part of books/accounts, hence in absence thereof any determination of income for taxation under the Act would be meaningless. 7. In the present twin cases, non-maintenance/production of product- wise trading/stock or inventory records coupled with NIL reporting u/c 35(a) in TAR [which was meant for Trading Concerns], formed solitary basis in holding accounts as incorrect or incomplete, which in turn triggered their rejection u/s 145(3) of the Act. Since the stock/inventory records/details forms significant part of accounts which severally capable of influencing the determination of total income of the assessee for the AYs under consideration hence the non-maintenance vis-à-vis non-production thereof in our considered view is capable of construing solitarily that accounts of the appellant were substantially incomplete & incorrect, thus valid reason for rejection of books u/s 145(3) of the Act. 8. The Hon'ble Jurisdictional Bombay High Court in ‘Dhondiram Dalichand Vs CIT’ [1970, 81 ITR 609] upheld the rejection of books holding that, the absence of the quantitative tally regarding the sales and purchases made by the assessee was such that it was necessary to exercise powers available for rejection of books and determine the income to the best of judgement. Similarly in ‘Bastiram Narayandas Vs
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M/s Shreyas Wines Vs ITO ITA No. 890 & 891/PUN/2024 AY 2016-17 & 2017-18 CIT’ [1994, 210 ITR 438] their Hon’ble Lordships have upheld rejection of books and framing of assessment to the best assessing officers judgment where the assessee Bidi manufacturer, failed to produce relevant inventory/stock records of its day-to-day manufacture of Bidis. A similar view can be traced in ‘Kachwala Gems Vs Jt. CIT’ [2007, 288 ITR 10 (SC)] wherein the Hon’ble Apex Court also espoused the rejection of books for incompleteness owning to non-maintenance of stock/inventory records. In view of the former judicial precedents, we upheld the rejection of books owning to non-production of inventory/stock records in the course of assessment proceedings. The respective grounds of appeal answered accordingly. 9. Now next comes the estimation of gross profit @8% of turnover to the best of assessing officer judgement and framing of assessment accordingly. In this context we observed that, after rejecting the books in wholesome the Ld. AO simply estimated the gross profit at the rate prescribed u/s 44AD disregarding the % of profit declared by the assessee and added differential figure as the income of the assessee. We note that, while doing so the Ld. AO did fail to bring on record (a) rationale in arriving the rate of 8% of turnover as GP (b) basis or material founded in arriving to such % of GP. The impugned first
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M/s Shreyas Wines Vs ITO ITA No. 890 & 891/PUN/2024 AY 2016-17 & 2017-18 appellate orders also did fail to narrate the justification in confirming arbitrary estimation of % of GP determined by the Ld. AO. Considering the facts and circumstances holistically we are constrained to accept the plea of the assessee for remand for determination of percentage (%) of gross profit margin having regard to retail liquor industry standards, operational size of the appellant, then prevailing local market conditions and level of competition prevailing during the respective assessment years under consideration. Ergo, we set-aside the impugned % of GP estimated and remand this limited issue to the file of Ld. AO who shall determine % of GP in the light of former determinant factors and framed the assessment accordingly, without the need of granting hearing to the appellant. The second issue, thus stands partly allowed for statistical purposes.
In result these twin appeals of the assessee are partly ALLOWED FOR STATISTICAL PURPOSES. In terms of rule 34 of ITAT Rules, the order pronounced in the open court on this Tuesday, 06th August, 2024.
-S/d- -S/d- VINAY BHAMORE G. D. PADMAHSHALI JUDICIAL MEMBER ACCOUNTANT MEMBER पुणे / PUNE ; दिन ांक / Dated : 06th August, 2024. आदेश की प्रतितिति अग्रेतिि / Copy of the Order forwarded to : 1.अपील र्थी / The Appellant. 2. प्रत्यर्थी / The Respondent. 3. The Pr. CIT Concerned. 4. The CIT(A)/NFAC Concerned. 5. DR, ITAT, ‘SMC’ Bench, Pune 6. ग र्डफ़ इल / Guard File. आिेश नुस र / By Order वररष्ठ दनजी सदिव / Sr. Private Secretary आयकर अपीलीय न्य य दिकरण, पुणे / ITAT, Pune.
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