SH. NADEEM,MEERUT vs. ITO, MEERUT

This appeal is directed against the order of CIT (A), Meerut against confirmation of addition of Rs.21,92,965/- adopting the gross profit rate at 1.5% of the total sales along with the grievanceof natural justice.

Ground no 1 of the appeal is contending non-granting of enough opportunity of hearing by ld. CIT (A). This ground was not pressed and hence dismissed.

Brief facts of the case are that the assessee is engaged in the business of trading of meat during the year. During the assessment proceedings, it was found that the assessee had made purchase of meat of Rs.16,87,54,803/- and has also shown the meat sales of the same amount and no gross profit thereon has been worked out. Against this, the assessee has shown commission receipt ofRs.4,93,151/- and after deducting various expenses, the net profit of Rs.1,54,794/- was disclosed, which is 0.092% of turnover as against the net profit of 0.688% in the immediate preceding assessment year. During the assessment year, the assessee has purchased meat from various parties. However, the addresses of such parties were not furnished and therefore, the AO stated that the purchases are not verifiable. Regarding the verification of sales, the AO issued notice u/s. 133(6) to the buyers. However, no compliance was received. In absence of all these details, the AO estimated gross profit 1.5% on the turnover of Rs.16,87,54,803/- and determined the gross profit of Rs.25,31,322/- and deducted the expenses there from debited in the profit and loss account of Rs.3,38,357/- and made an addition of Rs.21,92,965/-. Against this, the assessee preferred appeal before the CIT (A), who in turn, confirmed the addition holding that the appellant had not Page | 2 furnished evidence regarding purchase and sales made. Further he held that as appellant also could not establish the commission @ 0.25% received from the purchaser, and in absence of any confirmation u/s. 133(6) received from various parties, he was of the view that the evidences submitted by the assessee are self-serving.

Before us, the ld. AR of the appellant submitted that the assessee has maintained proper books of accounts which are audited and supported by bank account. He further submitted that thecommission on meat is Rs.0.25 paisa per kg and the assessee is engaged in the business of sale and purchase on commission basis. The assessee is also engaged on supply of bones too on commission basis and therefore, the purchase and sales are bound to be same. The commission earned by the assessee is 0.25 paisa per kg. and the total commission earned by the assessee of Rs.4,93,151/- has been shown in the profit and loss account. It was also submitted that the commission is fixed per kg and it is not the percentage based on sales as understood by CIT (A). It was the contention of the AR that all the suppliers from whom the assessee is purchasing meat are illiterate and cannot have the documentation as accepted by the AO and therefore, the purchases are booked on the basis of self-made vouchers singed by those suppliers. Regarding the Page | 3 sale of goods, it was submitted that thesale is to the parties who are comparatively of large size and they might not have responded to 133(6) notices sent by theAO, but it cannot betaken adversely against the assessee. Against this, the assessee has submitted their copy of account which shows goods sold to them and payments received from them. He further submitted that for last many years, the rate of commission from the slaughter houses is 0.25 paisa per kg only. He further submitted that in the identical case, i.e., in the case of Shah Khalid in Appeal No. 391/11-12 dated 25.02.2013, where while deleting the addition of Rs.37.19 lacs estimating the income of assessee at 1% of gross sales, the CIT(A) has held that when suppliers do not raise bill, the assessee can only keep self-made vouchers. Further, the assessee cannot be faulted with for non-receipt of confirmation from the sellers and in the same manner commission @ 0.25 paisa per kg. Was accepted. Therefore, in the case of assessee also the addition of Rs.21,92,965/- is required to be deleted. He further submitted that on identical issue, Hon’ble ITAT in ITA No. 3961/Del./2014 in the case of Mohd. Fardeen, has set aside the issue to the file of CIT (A) for deciding the matter afresh.

The ld. DR supported-- the orders of the lower authorities vehemently and submitted that the addition has been rightly made and confirmed.

We have carefully considered the rival contentions and also the facts of the case. During this year, the assessee has made purchases of meat and sales of meat of Rs.16,87,54,803/- after showing the commission of Rs.4,93,151/- disclosed net profit of Rs.1,54,794/-. The net profit ratio of the assessee is 0.092% as against net profit ratio of 0.69% in the immediately preceding assessment year. In the immediately preceding assessment year, the sales of the assessee were of Rs.4,54,59,127/- and in this year it is Rs. 16,87,54,803/- and therefore, there is a jump of almost four times in the turnover of the assessee. The net profit disclosed in the year, therefore, declined by 0.6% of the sales. Looking to the nature of business carried on by the assessee,preparing self- madevouchers for purchase by assessee himself and confirmed by the suppliers is an acceptable practice where the assessee is dealing with the illiterate sellers of the goods. The goods are sold to various parties by preparing the bills of sales by the assessee. Therefore, the amount of purchase and sales is same and assessee accounts for commission @ 0.25 paisa per kg. Of goods traded. The CIT (A) has confused this rate of commission and decided the issue assuming that the rate of commission Page | 5 is 0.25% which is not correct, in fact it is Rs. 0.25 which is also evident from the orders placed before us in case of other assesses engaged in similar trade. Therefore, it is clear that the rate of commission has been stated by the assessee which is similar to other assesses in the same trader for same assessment year. On perusal of the assessment order, it is apparent that though the books of accounts are audited, the AO could not find any defect therein. The only reason for making the addition is that the assessee could not submit the addresses of the parties from whom thepurchases have been made and only one of the buyers of the assessee M/s. Indagra Foods Ltd., Kanpur to whom sales of Rs.14,00,82,168/- has been made out of total sales of Rs. 16.87 crores did not respond to notice u/s 133(6) of the act. In case of further five parties to whom 133(6) notices were sent, they confirmed the transactions. However, they did not send the copies of the bills in respect of the purchases made from the assessee. Hence, the addition is made estimating the gross profit ratio @1.5 % of turnover is incorrect when Ao has also accepted that the assessee is trading in purchase and sales of meat on commission basis as Ld. AO himself has issued show cause notice to assessee to estimate the commission @ Rs 1 per kg. Therefore we are of the view that income of the assessee needs to be Page | 6