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Income Tax Appellate Tribunal, AMRITSAR BENCH, AMRITSAR
Before: DR. M. L. MEENA & SH. ANIKESH BANERJEE
IN THE INCOME TAX APPELLATE TRIBUNAL AMRITSAR BENCH, AMRITSAR BEFORE DR. M. L. MEENA, ACCOUNTANT MEMBER AND SH. ANIKESH BANERJEE, JUDICIAL MEMBER
I.T.A. Nos. 30, 326 & 327/Asr/2017 & 2019 Assessment Years: 2013-14 to 2015-16
Goodwill Traders, Vs. I.T.O., Ward-(3) 1 Court Road, Srinagar Near Gurudwara Lal Chowk Srinagar [PAN: AAGFG 1104K] (Appellant) (Respondent)
Appellant by : Sh. P. N. Arora, Adv. Respondent by: Sh. S. M. Surendranath, Sr. DR & Sh. Satbir Singh, Sr. DR Date of Hearing: 20.04.2022 & 12.05.2022 Date of Pronouncement: 13.06.2022
ORDER Per Dr. M. L. Meena, AM:
These appeals have been filed by the Assessee against the order passed by the Ld. Commissioner of Income Tax (Appeals)-1, Ludhiana, in respect of the Assessment Years 2013-14, 2014-15 and 2015-16, Wherein the assessee has challenged the estimation of income by applying gross profit by invoking provisions of section 145(3) of the Income Tax Act.
ITA Nos.326&327/ASR/2019 2 ITA Nos.30/ASR/2017 Goodwill Traders v. ITO 2. Since, there is common issue of GP estimation, being involved on identical facts in all the three appeals and hence these appeals although heard on different dates but adjudicated by this common order for the sake of convenience and brevity. The assessee’s grounds of appeal are extracted from I.T.A. Nos. 326/Asr/2019 as under. “1. That having regard to the facts and circumstances of the case the Ld. A.O had grossly erred in law & on facts of the case by not accepting the actual gross profit of the assessee which was calculated as per the books of accounts of the assessee. 2. That having regard to the facts and circumstances of the case the Ld. A.O has grossly erred in law & on facts of the case by invoking the provisions of section 145(3) of the Act and applying 1.50% of gross profit rate on gross receipts which is bad in law, arbitrary and unjustified. 3. That having regard to the facts and circumstances of the case the Ld. A.O has erred in law & on facts of the case by applying a higher rate and the sae is treated as Income instead this being gross profit by disallowing the other expenses. 4. That the appellant craves the leave to alter and to substitute any grounds of appeal before or at the time of hearing.”
Briefly, facts of the case are that the appellant is a trading concern dealing in wholesale trade of Kiryana items including edible oils etc. The Assessing Officer has applied GP rate of 1.5% - 1.75% in different assessment years by rejecting books of account under provisions of section 145(3) of the Act, thereby making an addition to the Gross Profit by reducing the declared Gross Profit out of the estimated gross profit in respect of assessment year 2013-14 whereas in other assessment years while making the addition the AO has reduced the declared net profit from the estimated gross profit at higher rates being not satisfied with the explanation of the assessee. In appeal, the ld. CIT(A) has confirmed the
ITA Nos.326&327/ASR/2019 3 ITA Nos.30/ASR/2017 Goodwill Traders v. ITO findings of the Assessing Officer by applying uniform GP rate of 1.5% in respect of all the three assessment years. 3.1 The appeal in I.T.A. No. 30/Asr/2019 is restored vide Amritsar Bench order in M. A. No. 21/Asr/2019 by holding that as such there was no delay in filing the said appeal and that since the assessee’s reasons are accepted as genuine, reasonable and justified, the ex-parte order passed by tribunal dated 08.03.2019 in ITA No. 30/Asr/2017 for Assessment Year 2013-14 was recalled in the interest of natural justice to hear the appeal on merits. 4. The ld. counsel for the assessee submitted that the appellant is engaged in trading of Kiryana items on daily sale basis. He has stated that the assessee’s books of account have duly audited and the copy of trading profit and loss account and balance sheet as per Annexure (PB Page 6). He has further submitted that there has been loss of the books of account and stock of the assessee in flood and in that connection the copy of FIR is filed at PB Page 7 to 9 and that the copy of newspaper cutting is filed at PB Page 10 to 13. 5. Ld. counsel for the assessee has argued that the provisions of section 145(3) cannot be invoked in the case of assessee without pointing out any defect and deficiency therein. The AO applied GP rate of 1.5%- 1.75% which was sustained by the ld. CIT(A) at 1.5% without appreciation of the facts of the case. The counsel for the assessee has filed a comparative gross profit chart in respect of the assessment year 2010-11, 2011-12, 2012-13, and 2013-14 along with comparative working of the addition by the AO, as under:
ITA Nos.326&327/ASR/2019 4 ITA Nos.30/ASR/2017 Goodwill Traders v. ITO “M/s Goodwill Traders Court Road, Lal Chowk, Srinagar (Kashmir) Comparative Chart Showing Details of Sales, Gross Profit, G.P Rate & N.P Rate from Assessment Year 2010-11 to Assessment Year 2013-14
Particulars Assessment Assessment Assessment Assessment Year 2013-14 Year 2012-13 Year 2011-12 Year 2010-11
Sales 28,20,09,199/- 28,03,64,231/- 22,75,44,920/- 22,89,25,661/-
Gross Profit 14,10,046/- 1401821/- 1137725/- 11,44,651/- G.P Rate 0.50% 0.50% 0.50% 0.49% Net profit 204035/- 140180/- 101660/- 1,00,121/- N.P Rate 0.07% 0.05% 0.04% 0.04%
Particulars AY 2013-14 AY 2014-15 AY 2015-16
Sales Rs.28,20,09,199/- Rs.27,63,32,529/- Rs.23,64,13,669/- Gross Profit Rs. 14,10,046/- Rs.27,63,325/- Rs.21,27,723/- GP Rate 0.50% 0.99% 0.90% Net Profit Rs.2,04,035/- Rs.3,75,375/- Rs.94,982/- NP Rate 0.07% 0.13% 0.04% Addition by A.O. By applying GP Rate @ By applying GP Rate By applying GP Rate 1.75%’ @1.50% @ 1.50% 49,35,160/- 41,44,987/- 35,46,205/- (-) GP 14,10,046/- (-) NP 3,75,375/- (-) NP 94,982/-
35,25,115/- 37,69,607/- 34,51,225/-
ITA Nos.326&327/ASR/2019 5 ITA Nos.30/ASR/2017 Goodwill Traders v. ITO Ld. CIT(A) reduced the GP to 1.50% and after that addition sustained to (4230138-14100467) = Rs.28,20,091/-
The ld. counsel has filed a copy of the order passed u/s 39(5) of J&K VAT Act (2005) by the Assessing Officer of J&K VAT Department wherein the profit component of 1% on random verification with sale invoice was found genuine (APB Page no. 122). The counsel has also pointed out that the AO while working out the addition in respect of the assessment years 2014-15 and 2015-16 has deducted net profit declared by the assessee out of the estimated gross profit while computing the addition whereas while computing addition in respect of the assessment year 2013-14, gross profit declared by the assessee was correctly deducted out of the gross profit estimated by the AO as per the working by the then AO as per the above detailed comparative chart. 7. Per contra, the ld. DR stands by the order of the ld. CIT(A). 8. We have heard both the sides, perused the material on records and the judgments relied upon. It is undisputed fact that books of account are rejected by invoking provisions of Section 145(3) of the Act, pointing out that during the entire assessment proceedings no books of account were produced on any date. It is also not disputed that there has been loss of the books of account and stock of the assessee in flood and in that connection a copy of FIR is filed (APB Page 7 to 9) and that a copy of newspaper cutting is filed (APB Page 10 to 13). At the time of hearing before us, it was specifically stated that in absence of any challenge by the assessee to the rejection of accounts, the judicial guideline available on issue, is that the income of the assessee is to be estimated in the manner of assessment of
ITA Nos.326&327/ASR/2019 6 ITA Nos.30/ASR/2017 Goodwill Traders v. ITO income provided under the Law and for the purpose of such an exercise, history of the assessee and any comparable case is the best guide subject to parity in facts and circumstances. However, it is equally settled position in law that merely because provisions of section 145(3) are invoked and best judgement assessment is made the Assessing officer in all such cases acquires jurisdiction to reach a different figure of profit against what is disclosed by the assessee. 9. We agree with the submission of the counsel that estimation is a pure question of fact and to which position there is no challenge by any party. Similar view was adopted by the Hon’ble Allahabad High Court in the case of CIT Vs Sahu Construction (P) Ltd 362 ITR 609 (All.) wherein the Assessing Officer has made the additions on the estimate basis and CIT (A) has reduced the same on estimate basis and the Tribunal has further reduced on estimate basis. The Hon’ble High Court held that “Needless to mention that the estimate is question of fact as per the ratio laid down in the cases of Commissioner of Customs (Import) v. Stonemann Marble Industries, 2 SCC 758, Vijay Kumar Talwar v. CIT, 1 SCC 673; New Plaza Restaurant v. ITO 309 ITR 259 (HP); and Sanjay Oilcake Industries v. CIT 316 ITR 274 (Guj.).” Similar view was reiterated by the Allahabad High Court in plethora of cases to name a few CIT Vs Electra Jaipur (P) Ltd. 177 ITR 86 (All.) ; CIT Vs Surjit Singh 210 ITR 83 (All.) in which case the order of the Tribunal was upheld where it has applied flat rate of N.P based on past history and profit disclosed in comparable case operating in similar area. 10. We are reminded here that the Hon’ble Supreme Court in the case of CIT vs. Siamon Carves Ltd. 105 ITR 212 (SC) while guiding the
ITA Nos.326&327/ASR/2019 7 ITA Nos.30/ASR/2017 Goodwill Traders v. ITO administration of justice has observed that the taxing authorities exercise quasi-judicial power. In doing so they must act in a fair and not a partisan manner. Although it is a part of their duty to ensure that no tax legitimately due from an appellant should remain un-recovered. They must also at the same time not act in a manner as might indicate that scales are weighed high against the appellant. The assessing authority has to look to the substance of the situation and decide the matter in such a manner that neither the Revenue is put to unreasonable loss nor is the assessee subjected to unreasonable hardship as held by the Hon’ble Calcutta High Court in the case of “CIT Vs Hazaribagh Coal Syndicate Pvt. Ltd.”, 177 ITR 135 (Cal.) 11. On perusal of the past history of trading results on GP and NP rate as per the aforementioned comparative chart, it is evident that there is no significant change in the turnover and GP Rate, which has been varying between Rs. 22,89,25,661/- to Rs.28,20,09,199/- and 0.49% to 0.99% respectively, in the last six year including the three assessment years under consideration. Therefore, reliance to past years trading results may be an appropriate guide. 12. It is seen that the Assessing Officer has applied GP rate of 1.75% for the turnover of Rs.28,20,09,199/- and 1.5 % for the turnover of Rs.23,64,13,669/- in respect of assessment years 2013-14 and 2015-16 which has been reduced to 1.5% by the Ld. CIT(A) accepting rejection of books of account under provisions of section 145(3) of the Act, where neither rof the authorities below had followed any guiding principle for estimation of GP such as past history of the assessee itself or comparable case on parity of facts. In our view, such an estimation of GP Rate for
ITA Nos.326&327/ASR/2019 8 ITA Nos.30/ASR/2017 Goodwill Traders v. ITO computation of income of the assessee without appreciating the facts of the case and without following the any guiding principle for estimation of GP is highly unjustified. Further, the working of the addition of the estimated income by the AO in respect of the Assessment years 2014-15 and 2015016 by way of reducing the declared net profit from the estimated gross profit is against the basic principles of accountancy and that the AO for the Assessment Year 2013-14 has correctly worked out the estimated income by reducing the declared gross profit from the estimated gross profit. The ld. CIT(A) has confirmed the findings of the Assessing Officer by uniformly applying GP rate of 1.5% in respect of all the three assessment years without pointing out the guiding principle and contradictory working of the estimated income by the AO. Which shows non application of mind by the ld. CIT(A). 13. In view of the order of the Assessing Officer of J&K VAT Department passed u/s 39(5) of J&K VAT Act (2005) wherein the profit component of 1%, on random verification with sale invoice was found genuine (APB Page no. 122) and considering the past history trading results of the assessee business, it would be just fair and reasonable to apply a GP Rate of 1.0% on the total turnover declared by the assessee in respect of each of the three assessment years under consideration. Accordingly, the AO is directed to adopt a GP Rate of 1.0% on the Turn over declared by the assessee, in respect of each assessment year under consideration and he is also directed to compute the estimated income by reducing the declared GP by the assess out of the estimated GP as directed above. 14. In the backdrop of the aforesaid discussion, all the three appeals of the assessee are allowed in the terms indicated.
ITA Nos.326&327/ASR/2019 9 ITA Nos.30/ASR/2017 Goodwill Traders v. ITO 15. In the result, these three appeals filed by the assessee are allowed.
Order pronounced in the open court on 13.06.2022.
Sd/- Sd/- (Anikesh Banerjee) (Dr. M. L. Meena) Judicial Member Accountant Member Date: 13.06.2022 Doc*
Copy of the order forwarded to: (1) The Appellant: (2) The Respondent: (3) The CIT(Appeals) (4) The CIT concerned (5) The Sr. DR, I.T.A.T