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Income Tax Appellate Tribunal, DIVISION BENCH ’A’, CHANDIGARH
Before: SHRI SANJAY GARG & DR. B.R.R. KUMAR
per order dated 21 .08.2009. However, the CIT as per its order dated
12.03.2013 set-aside the order of assessment with the directions to make
fresh assessment de-novo after conducting proper enquiry
and verifying and analyzing seized material and comments of the Special
Auditor.
6.3 The Assessing Officer, as per Para 11.3 of its order dated
28.03.2013 made a further addition of Rs. 20,42,575/- with the following
observations:-
" 11.3 Now on having a fresh look to the fact and circumstances of the case having particular regard to the observation made by the special Auditor and Worthy CIT, (Central), Ludhiana through his order u/s 263 dated 12.02.2012, it is decided that books of the assessee is unreliable in absence of the basis documents. However, one cannot afford to loose sight of the meticulousness with which the books have been maintained and produced. I am of the opinion that the books as produced verification at this end. could have been manufactured without having the aid of basic documents. Thus, taking into consideration all these facts I am of the consider opinion that G.P. rate of 15% may be adopted for arriving at the true Gross profit of the assessee on manufacturing items. Similarly, G.P rate of 3% be adopted for ascertaining gross profit on trading items."
6.4 It was argued before us by the Ld. AR that the Assessing Officer,
though did not categorically held the basis for arriving at the conclusion
of adopting the Gross Profit ratio of 15% from Manufacturing Items and 3%
from Trading Items but adopted the same and completed the assessment
accordingly. This is against the settled principle of law.
6.5 The Ld. AR argued that further, as per order, in such business, the
gross profit @8% from manufacturing items and 1% from trading items not
held as unreasonable. The Gross Profit ratio adopted by the Assessing
Officer is without basis and based merely on conjecture, surmises, and as
such, is not sustainable in the eye of law.
6.6 It was argued that the assessee, at the time of initial assessment,
keeping in view the nature of business, had agreed to be assesseed @ 8%
from manufacturing items and 1% from trading items of the turnover to
buy peace of mind otherwise there was no extra income from such
business. However, the Assessing Officer, as per order dated 28.03.2013
has made a further addition of Rs. 20,42,575/-(now stands at Rs.
14,49,382/- after order of the CIT(A)) by enhancing the gross profit ratio
at 15% from manufacturing items and 3% from trading items though the
assessee is maintaining regular books of account in respect of his business
of rice Sheller and these books of accounts had already been audited u/s
44AB of the Act. and the assessee in its return of income had declared
Gross profit @ 2.40% and Net Profit @ 0.09% out of its sale proceeds.
6.7 It was argued that in the course of assessment proceedings, the
assessee produced the books of accounts but some of the supporting
vouchers could not produce due to the reason that these have been lost
in transit and in support of its contention; the assessee produced a copy
of the FIR registered with the police authorities.
6.8 The ld. AR argued that in the given circumstances, as per settled
law, it is the duty-of the Ld. Assessing Officer to estimate the profit in a fair
and reasonable manner either by following the history of the assessee’s
own case or by following the comparable cases of the area. As is evident
from the assessment order itself, the estimation of profit based neither on
the assessees' own case nor on the comparable cases of the area. The
gross profit of 2.40% declared by the assessee is quite reasonable and is in
accordance with the gross profit ratio normally expected out of such
business. The assessee, at the time of initial assessment, keeping in view
the nature of business, had agreed to be assesseed at such profit ratio of
the turnover to buy peace of mind otherwise there was no extra income
from such business to that as declared in the return of income.
6.9 Hence , it was argued that the assessing officer has enhanced the
estimation of gross profit in revised assessment made in pursuant of
directions u/s 263 from 8% to 15% in case of Mfg turnover and 3% in case
of trading turnover with out any independent enquiry or comparative
results of third party ought to be deleted.
6.10 It was argued that in addition the Assessing officer has estimated net profit
@ 20%. It is an established accounting / assessment principle that only net profit
is assessable in case of estimation of income so gross profit addition in uncalled
for hence the gross profit addition ought to be deleted.
6.11 Ld. DR in addition to placing reliance on the orders of the lower
authorities has submitted his further arguments in written form which are
as under:
“ In the above case, it is humbly submitted the date of search is 12.10.2006 and FIR referred and heavily relied by the Assessee in all the cases is dated 13.11.2006. This FIR is post search and is referring to "all the relevant documents of vehicle and SOME other valuable documents were in the vehicle". No list of such documents was reported to the police. It is clear from the wording i.e. SOME other valuable documents were in the vehicle that filing of FIR is after thought and misleading. No result of FIR was ever submitted before any authority below. Supporting documents were not produced before the AO and the CIT (A). Hence, CIT (A) has rightly upheld the addition on account of GP and NP. It is further submitted that the following decisions may kindly be considered with regard to addition on account of GP/NP rate:
Smt Davawanti Vs CIT [2016] 75 taxmann.com 308 (Delhi)/r20171 245 Taxman 293 (Delhi)/r20171 390 ITR 496 (Delhi)/r20161 290 CTR 361 (Delhi) (Copy
Enclosed) where Hon'ble Delhi High Court, in para 22 of its order, upheld order of Hon'ble ITAT estimating GP @15% and estimating sales at Rs.1 crore.
Kachwala Gems Vs CIT [20071 158 Taxman 71 (SC)/r20071 288 ITR 10 (SC)/r20061 206 CTR 585 (SO (Copy Enclosed) Assessing Officer, on finding that assessee had not maintained and kept any quantitative details/stock register for goods traded in by it; that there was no evidence on record or document to verify basis of valuation of closing stock shown by assessee; and that GP rate declared by assessee during assessment year did not match result declared by assessee itself in previous assessment years, rejected assessee's books of account and resorted to best judgment assessment under section 144. Hon'ble Supreme Court held that since cogent reasons had been given by Assessing Officer for doing so, there was no reason to take a different view .
6.12 We have heard the arguments of both the parties and gone through
the orders of the lower authorities. The following facts emerged from the
perusal of the records.
6.13 The assessee has filed his return declaring total profits @ 3.75%
During the assessment proceedings the assessee has offered 1% on
trading goods and 8% on manufacturing goods. The Ld. CIT invoked
jurisdiction of Section 263 and in the consequent order the profit was
estimated @3% on trading goods and 15% on manufacturing goods. The
assessee could not submit books of account in the subsequent
proceedings before the Assessing Officer which necessitated the
estimation of profits. A definite ground work is sine-quanon on part of the
Assessing Officer before resorting to the provisions of section.
6.14 Where the assessee is unable to reconcile the quantities handled by it as
between purchases and sales, subject to adjustment as between opening and
closing stocks or where no quantity accounts are kept, the accounts are to be
taken as unproved, so that the income returned may well be rejected and
income estimated. In the case of ITO v. Girish M Mehta [2008] 296 ITR (AT) 125
(Rajkot), it was pointed out, that the pre-condition for estimating business
income of the assessee, where an assessee keeps accounts is that the
assessee’s books should have been found to be unreliable or otherwise not
capable of proving the assessee’s income.
6.15 We have considered the profit percentage of the assessee in the earlier
years as declared in the regular returns. And also the case law cited by the Ld.
DR in the case of Dayawanti Vs. CIT wherein the assessee in the business of
perfumery used in production of Gutka declared G.P. of 8.6% to 10.7% the
Hon’ble High Court directed to estimate G.P. @ 15%. Similarly in the case of
Kachwala Gems Vs. JCIT 288 ITR 10 (Supreme Court) the Hon’ble Supreme Court
upheld the estimation of G.P. in the absence of any other material and held
that the estimation should be honest and fair and should not be arbitrary though
it contains certain degree of guess work.
6.16 Hence keeping in view the original profits, revised profits declared by the
assessee and the estimation done by the Assessing Officer and keeping in view
the history and the earlier profits declared by the assessee we hereby feel it fit
and justice would be met if the G.P is estimated at 2% for trading goods and
12% for manufacturing goods. The Assessing Officer is directed to recomputed
the profits @ 2% on trading goods and 12% on manufacturing goods.
6.17. This ground of appeal of the assessee is allowed for statistical purposes.
Ground No. 2 relates to addition of Rs. 5,33,886/- on account of
undisclosed Net Profit:
7.1 Brief facts of the issue are that the Ld. Assessing Officer has made a
further addition of Rs. 5,99,696/-( now stands at Rs. 5,33,886/- after the Ld.
CIT(A)’s order ) with the following observations:-
"12. Since, the assessee admitted of not having the ground documents on the basis of which the net p r of i t was arrived at, on estimation of net profit percentage is similarly called for. In the Profit & Loss A/c, the assessee disclosed net profit % with respect to gross profit of 3.75%. Having regard to the total facts and circumstances, it is decided to adopt a
figure of 20% which works out to Rs. 5,99,696/- (29,98,470 x 20%). This sum is added to the disclosed total income of the assessee.'' 7.2 Before us it was submitted by the Ld. AR that it would also not be
out of place to mention that at the time of initial assessment, as per order
dated 21.08.2009, an addition of Rs. 65,810/-was made by disallowing
various expenses debited to P&L Account. The Assessing Officer has made
further disallowance of expenses of Rs. 5,99,696/-. Thus, the disallowance
of total expenses debited to P&L comes to Rs. 6,65,506/- (65,810 +
5,99,696). Thus, apparently, the disallowance of expenses debited to P&L
Account unreasonable and not in consistent with its own findings, as
stated supra.
7.3 In this connection, it was argued that at the outset, the estimation
of net profit of 20% on the Gross Profit is without bringing any comparable
case in support thereof and /or bringing any positive evidence on record
to arrive at such ratio.
7.4 The Ld. AR vehemently argued that the income of the assessee from
the Rice Mill has assesseed on estimate basis by rejecting the books of
accounts of the assessee. Therefore, as per the settled principle of law,
when the assessees' books of accounts have rejected and a profit has
estimated, then, as per the accounting principle, no separate addition of
net profit percentage is called for.
7.5 Ld. DR relied on the order of the Assessing Officer and order of the
Ld. CIT(A).
7.6 We have heard the arguments of both the parties and perused the
facts on record.
7.7 In addition to the estimation of G.P. the Assessing Officer has also
further estimated Net Profit @ 20% on trading items. Regarding the
estimation of Net Profit in addition to G.P. we are unable to agree with
the arguments of Ld. DR and also the findings of the Ld. CIT(A) as the
double estimation of profits are contrary to the established accounting
principles and also contrary to the principles of estimation of profits in the
absence of books of accounts and even by invoking the provisions under
section 145(3) which can be invoked (a) where Assessing Officer is not
satisfied about the correctness or completeness of the accounts; or (b) where
method of accounting cash or mercantile has not been regularly followed by
the assessee ; (c) Accounting Standards as notified by the Central Government
have not been regularly followed by the assessee. Even this doesn’t give any
power to the Assessing Officer to estimate the Net Profit separately in addition to
estimation of gross profit. Hence the addition made by the Assessing Officer on
account of estimation of profits towards net profit on trading items is liable to be
deleted on merits as well as on established principles.
7.8 As a result ground no. 2 of the appeal of the assessee is allowed.
In the result appeal of the assessee is partly allowed for statistical
purposes.
Order pronounced in the open Court.
Sd/- Sd/- (SANJAY GARG) (DR. B.R.R. KUMAR) JUDICIAL MEMBER ACCOUNTANT MEMBER
Dated : 25/05/2018 AG
Copy to: 1. The Appellant, 2. The Respondent, 3. The CIT, 4. The CIT(A), 5. The DR