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Income Tax Appellate Tribunal, “B” BENCH: KOLKATA
Before: Shri Mahavir Singh, JM & Shri M. Balaganesh, AM]
ORDER
Per Shri Mahavir Singh, JM: These cross appeals by assessee and revenue are arising out of order of CIT(A), Siliguri vide Appeal No. 131/CIT(A)/Slg/08-09 dated 25.03.2011. Assessment was framed by Addl. CIT, Range-2, Siliguri u/s. 143(3) of the Income-tax Act, 1961 (hereinafter referred to as “the Act”) for Assessment Year 2006-07 vide his order dated 29.12.2008. 2. The only common issue in these cross appeals, of the assessee and that of the revenue, is as regards to estimation of turnover and application of profit rate on estimated turnover. 3. We have heard rival submissions and gone through facts and circumstances of the case. Briefly stated facts are that the assessee is engaged in the business of manufacturing and trading of sweets and namkins etc. During the Assessment year the assessee filed its return of income declaring total income at Rs.1,92,035/-. The assessee produced complete books of accounts, bank statement, sales and purchase registers and cash memos and other supporting documents for verification and examination before the AO. The AO noted that the assessee has disclosed total turnover at Rs.97,51,468 as against the consumption of raw material at Rs.74,86,654/-, thereby disclosing gross profit at Rs.22,66,835/- i.e. gross profit rate @ 24%. According to AO, the gross profit rate in the preceding year i.e. FY 2004-05 relevant to AY 2005-06 was at 27%. The AO 2 Makhan Bhog Food products (P) Ltd. AY 2006-07 after examining the books of account noted that the assessee throughout the year sold goods to Sinclair Hotels Ltd., Siliguri on 175 days in 190 cash memos and he brought out the complete detail in assessment order running from page 2 to 6. He also noted that the assessee’s shop remains open from 8AM
in the morning till 9 PM in the evening every day. The AO estimated sales to 300 customers minimum as against the declaration made by assessee at 70 customers on an average and he also estimated the average daily sale at Rs.370/- per cash memo. Accordingly, he estimated the unaccounted sales at Rs.3,99,60,000/- as under: “Average nos. of customers purchased goods from the assessee’s shop is considered at 300 as discussed above. Average sale to each customer as per the assessee’s own submission is of Rs.370/-. Therefore the daily av. Sale is arrived at Rs.1,11,000/- (Rs.370/- x 300). The assessee has shown rate of G.P at 24%. Taking into consideration of the said rate of GP the gross profit of the assessee’s business comes to Rs.95,90,400/-. The assessee has shown gross profit of Rs.22,66,835/-. So, there is suppression of total gross profit of Rs.73,23,565/-. This is added to the total income disclosed by the assessee.”
Accordingly, he assessed the suppressed gross profit of Rs.73,23,565/-. Aggrieved, assessee preferred appeal before CIT(A), who deleted the estimation of sales but applied profit rate i.e. net profit @ 8% on the turnover disclosed by the assessee at Rs.97,51,468/- by observing as under: “However, I am not ready to accept the argument of the AR that net profit rate as per the P&L A/c of the assessee may be applied to determine the income of the assessee. On a turnover of Rs.97,51,468/-, the assessee had shown net profit of Rs.1,92,035/-. Thus, the disclosed net profit rate was 1.96% only which is not only absurd but also unbelievable in the line of business, the assessee is engaged. Considering the line of business, result of the investigation of the AO and view by the different courts discussed hearing above, to meet the end of justice, the AO is directed to treat 8% (eight) of the turnover estimated by the Ld. AO as income of the assessee.”
Aggrieved against deletion of estimation of sales, revenue came in appeal before us and against estimation of profit rate @ 8% as against the declared profit rate of 1.96% by the assessee, the assessee came in appeal before us.
We find that the very basis for estimation of sales by the AO is based on incorrect estimation. The very basis of his estimation is on some machine generated order slips, which considered as cash memos issued by the assessee. The assessee had different counters for different items and different slips were issued to a single customer but finally, one cash memo is issued on the basis of all the order slips manually. We find that the AO also mentioned the same as cash memo/sale slip in his order. Some of the 3 Makhan Bhog Food products (P) Ltd. AY 2006-07 slips were mentioned as cash memos and some slips were without such heading as noticed by the AO that some inconsistencies in time of serial of some cash memos were there as from those slips it is found that at 1.09 PM sl. No. 284 was issued whereas on another date at 10.56 pm sl. No. 8 was issued. The assessee also before us argued that those were not actual cash memos but the cash memos recorded in the books of account which were duly audited are the actual cash memos. Before us Ld. Counsel for the assessee explained that in case of sales to Hotel Sinclair single order slip was issued, as it ordered for one or two items of sweets for their guests and sales were made on credit and payment was received by cheque. It was explained that the AO has verified the purchases of the assessee and no discrepancy whatever could be pointed out in case of any supply to any of the suppliers. We find that the AO has not rejected the books of account nor pointed out any defects in any of the vouchers, documents or the books of account. We further find that the entire basis of estimation and sales is just based on assumption, conjecture and surmises and nothing else. In view of the above facts and circumstances, we are of the view that the CIT(A) has rightly accepted the version of the assessee and accepted the sales made by the assessee at Rs.97,51,468/- against which the assessee has consumed raw material to the tune of Rs.74,86,654/-. Accordingly, this issue of revenue’s appeal is dismissed.
Coming to the estimation of profit rate by the CIT(A) i.e. net profit @ 8% on the total turnover of the assessee at Rs.97,51,468/-. Once it is held that the book results are correct and there is no discrepancy in the books of account, the CIT cannot reject the book results without any basis and estimate the profit. Once the AO or the first appellate authority i.e. the CIT(A) has not invoked the provisions of section 145(3) of the Act, none has business to adopt unfair approach for estimating the profit rate without rejecting the books results. In term of the above, we allow the appeal of assessee and revenue’s appeal is dismissed.
In the result, appeal of assessee is allowed and that of revenue is dismissed.
Order is pronounced in the open court on 20.01.2016. Sd/- Sd/- (M. Balaganesh) (Mahavir Singh) Accountant Member Judicial Member Dated : 20th January, 2016 Jd.(Sr.P.S.)
Copy of the order forwarded to: