Income Tax Appellate Tribunal - Jodhpur
Shri Pramod Kumar Bazari, Nagaur vs Dcit, Circle, Nagaur on 8 May, 2019
IN THE INCOME TAX APPELLATE TRIBUNAL
JODHPUR BENCH, JODHPUR
BEFORE SHRI N.K.SAINI, VICE PRESIDENT AND
SHRI A.T. VARKEY, JUDICIAL MEMBER
ITA No.65/Jodh/2019
(ASSESSMENT YEAR-2012-13)
Shri Pramod Kumar Vs The DCIT, Circle,
Bazari, Nagaur
Village Mithari, Teh:
Ladnun Nagaur
(Appellant) (Respondent)
PAN: AAAWPB6423B
Revenue By Sh. P.K. Singi, DR
Assessee By Shri Raksha Birla, CA
Date of hearing 06.05.2019
Date of Pronouncement 08.05.2019
ORDER
PER N.K. SAINI, V.P. This is an appeal b y the assessee against the order dated 29.11.2018 of Ld. Commissioner of Income Tax (Appeals)-1, Jaipur.
2. The onl y grievance of the assessee in this appeal relates to the sustenance of the addition of Rs. 10 lacs out of the addition of Rs. 13,13,232/- made b y the Assessing Officer.
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3. Facts of the case in brief are that the assessee filed the return of income on 28.9.2012. Later, on the case was selected for scrutin y. The Assessing Officer during the course of assessment proceedings noticed that the assessee had declared GP rate of 0.89% and NP rate of 0.31% on the turnover of Rs. 31,26,74,332/- for the year under consideration while in the immediatel y preceding year it was 1.31% and 0.17% respectivel y on the turnover of Rs. 2,57,61,635/- . The Assessing Officer observed that the assessee had not produced books of accounts along with supporting evidences. He also observed that the assessee introduced capital of Rs. 43,14,000/- but had not given an y explanation. He made the addition of the said amount and also applied GP rate of 1.31% on the turn over declared b y the assessee for the year under consideration. Accordingl y, trading addition of Rs. 13,13,232/- was also made.
4. Being aggrieved, the assessee carried the matter to the Ld. C IT(A) and submitted as under:-
"4.1. The appellant's written submissions regarding this issue are reproduced as below:
"a] It is submitted that the assessee has maintained day to day books of accounts and entire sales & purchases and expenditure are duly recorded and supported from the bills & vouchers. The most of the payment made by the assessee through banking channel and the books of accounts so maintained by the assessee are subject to audit u/s 44AB of the Act.
b] The Id AO has mentioned in the assessment order that the assessee has not produced the books of accounts for verification 3 particularly when the assessee has submitted details of sales & purchases, bills etc before the Id AO and the Id AO has not pointed out any defect in this regard. Further the auditors who have audited the books of accounts has also not made any adverse comment in his report.
c] That the comparative position has established that during the year under consideration the gross profit rate was slightly reduced whereas the profit rate was increased.
Particulars AY 2012-13 AY 2011-12
Turnover 31,26,74,332/- 2,57,61,635/-
Gross Profit 28,13,017/- 3,42,051/-
GP Rate 0.89% 1.31%
Net Profit 9,64,708/- 44,715/-
NP Rate 0.31% 0.17%
d] That the assessee has submitted that due to following reasons the margin of gross profit was reduced:-
i. That during the year under consideration the assessee has achieved the total turnover more than 10 times. It is undisputed fact that when the assessee has increased the turnover than it should have reduced the margin of profit and due to such reason the gross profit rate was slightly reduced.
ii. That during the year under consideration out of total turnover, the turnover of Rs. 30,26,21,654/- was in the nature of sale in transit. This fact is available in the audit report. When more than 96% out of total turnover was in nature of transit sale and in such nature of sale the margin of profit was very low as compared to trading of business.
iii. Further in such line of business, there is neck to neck business competition and the prices are highly fluctuated and as such it 4 cannot be possible to maintain the Gross profit rate at constant level. The profit rate decreased by the assessee looking to volume of turnover is very reasonable.
e] It is further relevant to mention here that the assessee has disclosed the net profit rate is better than in the past. The Hon'ble ITAT, Jodhpur Bench in the number of cases it has been held that when the gross profit rate slightly down and net profit rate increased no addition can be made.
f] The Hon'ble ITAT Jodhpur Bench in the case of ITO v/s Subhash Synthetics reported in 259 ITR 78(AT) held as under:-
"Income-Addition-Low net profit rate- AO applied net profit rate of 2.67 per cent on the basis of information collected from Central excise department as against 0.74 per cent declared by assessee-manufacturer-Not justified-CIT(A) found that in most of the cases the actual sale price was less than that estimated at the time of filing the declaration before the excise department-lncome cannot be estimated simply on the basis of the sale price given in the excise declaration statement and the net profit rate af 2.67 per cent arrived at by the AO was not correct-Further, AO has not pointed out any serious defect in the assessee's books of account for invoking the provisions of s. 145-Also, net profit rate declared during the relevant year is better than the net profit rate declared during the preceding two years-CIT(A) rightly deleted the addition."
g] Further the Hon'ble ITAT, Jodhpur Bench has followed the above referred decisions in the case of Lai Chand Chouhdary in which on identical facts the gross profit rate was slightly declined but the net profit rate was better as compared to immediately preceding years and the Hon'ble IT AT has accepted the declared result."
5. After considering the submissions of the assessee, the Ld . CIT(A) sustained the addition of Rs. 10 lacs b y observing in para 4.2 of the impugned order as under:-
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"4.2 I have considered the assessment order, appellant's submissions and documents on record. The AO noted that the G.P. rate reduced from 1.31% for AY 2011-12 to 0.89% this year, therefore he applied G.P rate of 1.31% as declared in the immediate preceding year which results in addition of Rs. 13,13,232/-. During the course of appellate proceedings the AR of the appellant contended that the appellant's gross profit has been increased substantially as compared to immediately preceding assessment year and the AO has not pointed out any specific defect in the books of accounts therefore the addition is not justified. He further contented that decline in gross profit rate was due to various factors such as increased turnover, tough competition in market, decreasing profit margin etc. I find some force in the appellant's arguments. It is seen that the turnover of the appellant has increased from Rs. 2,57,61,635/- last year to Rs. 31,26,74,332/- this year. With increase in turnover, the profit percentage is generally expected to decline. Although, the assessee had been provided various opportunities to produce books of account with point wise reply/details/information along with supportive evidences but the assessee did not provide the same during the course of assessment proceedings, nor during the course of appellate proceedings accordingly stand of the appellant stood rejected within the meaning of section 145(3) of the Act, which is held valid hereby. Keeping in view the various factors enumerated by the appellant for fall in the gross profit and particularly the fact that the turnover of the appellant had increased substantially during the year, the addition made at Rs.13,13,232/- appears to be on higher side. Keeping in view the overall facts and circumstances of the case and considering the nature and volume of the appellant's business, it is held that a lump sum addition of Rs. 10,00,000/- would be sufficient to cover up all possible leakages in the trading and profit & loss account. The addition made at Rs. 5,13,232/- is sustained to the extent of Rs. 10,00,000/-. The appellant gets partial relief. Ground Nos. 1 and 2 are treated as partly allowed."
6. As regards to the addition on account of credit to the capital, the addition was deleted b y the Ld. CIT(A) b y observing in para 5.2 of the impugned order, which reads as under:-
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"5.2. I have considered the assessment order, appellant's submissions and documents on record. During the course of assessment proceedings the AO noticed that the assessee had introduced capital of Rs. 43,14,000/- during the year under consideration. The assessee had been provided various opportunities to provide details and source of capital but he failed to produce the same. Therefore the AO disallowed the same treating as unexplained and added back to the total income of the assessee. During the course of appellate proceedings the AR of the appellant contended the AO's action stating that the capital was introduced form assessee's individual account. It was further submitted that the all the capital was introduced through banking channel and affidavits from creditors could not be submitted before the AO due to paucity of time. In view of principle of natural justice, the affidavits/confirmations adduced by the appellant were sent to the AO to verify/investigate the appellant's claim. On perusal of the submissions and AOs subsequent report, I find that the assessee had taken loan from various parties in his individual capacity through banking channels. Further, he introduced that loan to the capital of his proprietorship concern from his individual account. To substantiate his claim, the appellant also produced bank statement and affidavits/confirmation of creditors. In addition to the loan taken from various parties, the assessee had also introduced capital of Rs. 4,30,000/- out of income from brokerage. Further, to increase capital of his proprietorship concern, the appellant made certain adjustment in respect of creditors from individual capacity to business account and business account to individual capacity. In view of facts as discussed above, the appellant has explained the source of capital, identity of creditors and genuineness of transaction, thus the addition of this account is not unjustified. I hereby delete the addition made by the Assessing Officer. Accordingly, the ground is treated as allowed. "
7. Now the assessee is in appeal.
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8. The Ld. counsel for the assessee submitted that in spite of 12 to 13 times increase in the turn over, the net profit of the assessee increased from 0.17% to 0.31% and slight decline in the GP rate was due to neck to neck business competition and fluctuation in the prices. It was further submitted that 96% of the total turnover was in the nature of transit sale wherein the margin of profit was very low as compared to the trading business. It was further stated that the assessee furnished the details of sales and purchase bills etc. before the Assessing Officer and the books of account were dul y audited, therefore, the Assessing Officer was not justified in making the trading addition without pointing out any specific defect. It was also stated that the Ld. C IT(A) accepted the contention of the assessee that the decline in the GP rate was due to various factors such as increase in the turn over, tough competition and decreasing profit margin, however, he sustained the addition of Rs. 10 lacs without an y basis.
9. In his rival submissions, the Ld. Sr. DR strongl y supported the impugned orders passed b y the Ld. C IT(A) and further submitted that the addition was sustained b y the Ld. C IT(A) to cover up all possible leakages in the trading and profit & loss account.
10. We have considered the submissions of both the parties and carefull y gone though the material available on record. In the present case, it is not in dispute that turnover of the assessee in the last year was at Rs. 2,57,61,635/- which increased to Rs. 31,26,74,332/- in the year under consideration. The 8 explanation of the assessee that the decrease in the GP rate was due to increased turn over, tough competition in the market and decrease in the profit margin etc., the said contention has not been rebutted and even the Ld. CIT(A) accepted in the impugned year that with the increase in turn over, the profit percentage is generall y expected to decline. At the same time, the assessee could not produce the books of account before the Assessing Officer, therefore, the provisions of section 145(3) of the Act were invoked. In m y opinion, the addition sustained by the Ld. CIT(A) appears to be on higher side particularl y when the net profit rate of the assessee increased to 0.31% in comparison to 0.17% in the preceding year. We, therefore, to meet the ends of justice, think it appropriate to sustain the addition to Rs. 5 lacs to cover up the leakages of Revenue, if an y.
11. In the result, the appeal of the assessee is partl y allowed.
(Order Pronounced in the Court on 08.05.2019)
Sd/- Sd/-
(A.T. VARKEY) (N.K. SAINI)
Judicial Member Vice President
Dated : 08 .05.2019
"आर.के."
Dated : 08.05.2019
"आर.के."
आदे शक त ल पअ े षत/ Copy of the order forwarded to :
1. अपीलाथ / The Appellant
2. यथ / The Respondent
3. आयकरआयु त/ CIT
4. आयकरआयु त (अपील)/ The CIT(A)
5. वभागीय त न ध, आयकरअपील!यआ धकरण, च$डीगढ़/ DR, ITAT, Jodhpur
6. गाड'फाईल/ Guard File 9 आदे शानस ु ार/ By order सहायकपंजीकार/ Assistant Registrar