Income Tax Appellate Tribunal - Jaipur
Sitrocs Zenetica India Pvt. Ltd., ... vs Assessee on 13 May, 2016
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IN THE INCOME TAX APPELLATE TRIBUNAL, JAIPUR BENCHES, JAIPUR
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BEFORE: SHRI KUL BHARAT, JM & SHRI T.R.MEENA, AM
vk;dj vihy la-@ITA No. 994/JP/2013
fu/kZkj.k o"kZ@Assessment Year : 2008-09.
M/s Sitrocs Zenetica India Pvt. Ltd., cuke ACIT,
Jaipur, Vs. Circle-4,
Now Scortics Healthcare India Pvt. Jaipur.
Ltd., 2nd floor, 28, Scortics Enclave,
Shopping Centre, Amba Bari,
Jaipur.
LFkk;h ys[kk la-@thvkbZvkj la-@PAN/GIR No. AAJCS 4668 J
vihykFkhZ@Appellant izR;FkhZ@Respondent
fu/kZkfjrh dh vksj ls@ Assessee by : Shri Rajeev Sogani (CA)
& Shri Rohan Sogani (CA)
jktLo dh vksj ls@ Revenue by : Mrs. Neena Jeph (JCIT)
lquokbZ dh rkjh[k@ Date of Hearing : 27/04/2016.
mn?kks"k.kk dh rkjh[k@ Date of Pronouncement : 13/05/2016.
vkns'k@ ORDER
PER T.R. MEENA, A.M.
This is an appeal filed by the assessee against the order dated 24/09/2013 passed by the ld. CIT(A)-II, Jaipur for the A.Y. 2008-09 wherein the assessee raised following grounds.
2 ITA No. 994/JP/2013
M/s Sitrocs Zenetica India Pvt. Ltd. Vs ACIT "1. In the facts and circumstances of the case and in law the Id. CIT (A) has erred in confirming the action of the Id. AO in rejecting the books of account of the assessee by invoking the provisions of section 145(3) and thereafter making a trading addition of Rs. 3,00,351/-. The action of Id. CIT (A) is illegal, unjustified, arbitrary and against the facts of the case. Relief may please be granted by quashing the rejections of books of account and deleting the trading addition of Rs. 3,00,351/-.
2. In the facts and circumstances of the case and in law the Id. CIT (A) has erred in confirming the action of the Id. AO in disallowing the sum of Rs. 2,39,977/- out of selling, distribution and promotion expenses. The action of Id. CIT (A) is illegal, unjustified, arbitrary and against the facts of the case. Relief may please be granted by quashing the said disallowance of Rs. 2,39,977/-.
3. In the facts and circumstances of the case and in law the Id. CIT (A) has erred in confirming the action of the Id. AO in disallowing the sum of Rs. 33,267/- out of sample, distribution, breakage and expiry expenses. The action of Id. CIT (A) is illegal, unjustified, arbitrary and against the facts of the case. Relief may please be granted by quashing the said disallowance of Rs.
33,267/-."
2. The assessee filed return of income declaring total loss of Rs. 23,67,320/- on 28/09/2008. The case was scrutinized U/s 143(3) of the Income Tax Act, 1961 (in short the Act). The assessee is engaged in the business of marketing of medicine. The first ground of the appeal is against invoking the provisions of Section 145(3) and thereafter making a 3 ITA No. 994/JP/2013 M/s Sitrocs Zenetica India Pvt. Ltd. Vs ACIT trading addition of Rs. 3,00,351/-. The ld Assessing Officer observed that during the year under consideration, the gross profit @ 36.83% on turnover of Rs. 1,40,68,130/- was shown, which was 38.96% in A.Y. 2007-08 on turnover of Rs. 164.48 lacs. The ld Assessing Officer further observed that the assessee has not maintained stock register or even quantity details. The ld Assessing Officer gave reasonable opportunity of being heard but the assessee submitted that it is not possible to maintain quantitative and qualitative stock. However, the closing stock as on 31/3/2007 had been physically verified.The ld Assessing Officer proposed to apply provisions of Section 145(3) of the Act, which was replied by the assessee vide letter dated 07/12/2010. After considering the assessee's reply, the ld Assessing Officer held that the Hon'ble Supreme Court in the case of Chhabil Das Trubhuwandas Shah Vs CIT 59 ITR 733 (SC) has held that in absence of quantitative tally, the fall in margin of profit cannot be explained. The Hon'ble Rajasthan High Court in the case of Ghasiram Todarmal Vs. CIT 196 ITR 329 has held that if the stock register maintained by the assessee does not reflect the true state of affairs of the articles consumed or produced, the action of rejection of books of account is justified. The assessee has not maintained stock register, therefore, he applied the provisions of Section 145 and rejected the book result by 4 ITA No. 994/JP/2013 M/s Sitrocs Zenetica India Pvt. Ltd. Vs ACIT considering the Hon'ble Orissa High Court decision reported at 11 ITR 923 (Orissa), 114 ITR 671 (Bom) and 38 ITR 579 (SC). He further held that in the case of Kansara Bearing Pvt. Ltd. Vs ACIT 270 ITR 235 (Raj) and Ajay Goyal Vs ITO 99 TTJ 164, it has been held that past year profit declared by the assessee is the best guide for application of GP/NP rate. The Hon'ble ITAT, Jaipur Bench, Jaipur in the case of Addl.CIT Vs Lakhani Shoes Ltd. 34 TW 32 and in the case of J.C. Sharma Vs. ITO 33 TW 80 has held that past history is the best guide. Therefore, he applied GP rate @ 38.96% and making trading addition of Rs. 3,00,351/-.
3. Being aggrieved by the order of the Assessing Officer, the assessee carried the matter before the ld CIT(A), who has confirmed the rejection of books of account. As regard trading addition of Rs. 3,00,351/- is concerned, the ITAT, Jodhpur in the case of Ajay Goyal Vs ITO 99 TTJ 164 had held that the position of law is well settled that the best guide for estimation of the trading results after rejecting the books is either the past history of the assessee or any other comparable case. The past history of the assessee takes preference over a comparable case. The appellant had shown GP of 38.96% in A.Y. 2007-08 and 36.83% in current year. The turnover of the assessee has declined substantially. The defects noticed in 5 ITA No. 994/JP/2013 M/s Sitrocs Zenetica India Pvt. Ltd. Vs ACIT books of account were serious enough, therefore, he sustained the addition made by the Assessing Officer.
4. Now the assessee is appeal before us. The ld AR of the assessee has submitted that in A.Y. 2007-08, there was a lump sum addition made by the Assessing Officer at Rs. 2 lacs, which has been sustained by the Hon'ble ITAT at Rs. 1.00 lac. The assessee has engaged in the wholesale trading of medicines and is covered by the stringent provisions of the Drugs and Cosmetics Act, 1940 and Drugs and Cosmetics Rules, 1945. The assessee cannot purchase and sale of the medicines without bill even the batch number of the medicine as specified at the time of purchase, which is being mentioned in each and every sale invoice. Any violation of the Drugs and Cosmetic Rules, which resulted into heavy penalty and prosecution. Pharmaceutical industry cannot be equated with any other sector. Since the assessee company deals in large quantities of different medicines, it is not practical for it to maintain day wise stock register. If any difference is found in the stock, it is mitigated by physical verification at the time of closing date. The ld Assessing Officer has rejected the book result on the basis of not maintaining stock register and applied the GP rate. During the year, the management of the company underwent 6 ITA No. 994/JP/2013 M/s Sitrocs Zenetica India Pvt. Ltd. Vs ACIT change which not only resulted in decrease in the turnover by 15% but also resulted into shrinking of the margins. Therefore, he prayed to reverse the order of the ld CIT(A).
5. At the outset, the ld DR has vehemently supported the order of the ld CIT(A).
6. We have heard the rival contentions of both the parties and perused the material available on the record. The assessee admitted that he has not maintained day to day stock register. The sale as well as margin of GP has gone down compared to preceding year. The reasons given by the assessee before the lower authorities are not sufficient to accept the book result as such. The assessee is governed by various Drugs and Cosmetics Act but in absence of any stock register, the assessee's income for the year cannot be deduced correctly. Therefore, the ld CIT(A) upheld the order of the ld Assessing Officer U/s 145(3) of the Act. When books of account has been rejected, the Assessing Officer is to estimate the income fairly by keeping in view of the past history of the assessee. This suggests that the additions were made in the past, which has been confirmed by the ITAT. Therefore, we confirm the lump sum addition of Rs. 1.00 lac under this head and remaining addition is deleted.
7 ITA No. 994/JP/2013
M/s Sitrocs Zenetica India Pvt. Ltd. Vs ACIT
7. The 2nd ground of the appeal is against not allowing the selling, distribution and promotion expenses at Rs. 2,39,977/-. The ld Assessing Officer observed that the assessee has debited total expenses of Rs. 23,99,771/- under this head. He found that the assessee has claimed this expenditure on self/handmade vouchers without any supporting evidences. They were not having complete narration or complete addresses of the persons to whom it was paid. Only name of persons have been mentioned in it. Therefore, verification of correctness is not possible. Further he held that some of the expenses vouchers were not found to be incorrect for business purposes, therefore, he disallowed expenses at Rs. 2,39,977/- out of total expenses.
8. Being aggrieved by the order of the Assessing Officer, the assessee carried the matter before the ld CIT(A), who had also confirmed the addition after considering the assessee's submission made that sale promotion expenses is an established trade practice in pharma business. The company has to incur certain expenses on doctors for their travelling, conference expenses, electronics items for their hospitals/nursing homes, organizing freed health camps/test facility etc. The fact is so evident that it does not require any confirmation from the doctors. It is further 8 ITA No. 994/JP/2013 M/s Sitrocs Zenetica India Pvt. Ltd. Vs ACIT submitted that the total expenditure of Rs. 23,99,771/- expense amounting to Rs. 14,33,313/- had been paid through cheque only. Therefore, the assessee submitted before him to delete the addition or restrict it to a reasonable limit.
9. Now the assessee is in appeal before us. The ld AR of the assessee has submitted that the ld Assessing Officer had made an ad hoc disallowance of 10% on total expenditure towards selling, distribution and promotion expenses. During the year under reference, the assessee company incurred 60% of the total expenditure through cheques, which under no circumstance can be doubted. Therefore, it is prayed that the disallowance should be restricted to 10% of cash payment only, which is worked out at Rs. 96,645/-.
10. The ld DR has vehemently supported the order of the ld CIT(A).
11. We have heard the rival contentions of both the parties and perused the material available on the record. The ld AR reasonably accepted the default as the assessee had paid 60% of expenditure through the account payee cheques and remaining in cash, therefore, we confirm the lump sum addition of Rs. 96,645/-.
9 ITA No. 994/JP/2013
M/s Sitrocs Zenetica India Pvt. Ltd. Vs ACIT
12. The 3rd ground of the appeal is against disallowance of sum of Rs. 33,267/- out of samples distribution and expiry expenses. The ld Assessing Officer observed that the assessee has claimed sample distribution, breakage and expire expenses of Rs. 3,33,267/- this year. The samples were distributed to doctors and other related persons of profession to make them familiar with the company as well as the products sole by it. The ld Assessing Officer disallowed 10% out of total expenses of Rs. 33,267/- on account of no proper records were available, which has been confirmed by the ld CIT(A) on the ground that the AR has not controverted the finding of the Assessing Officer. The disallowance made by the Assessing Officer was considered to be fair and reasonable and does not call for any interference.
The assessee claimed before us that these are the expenses for distribution of various samples, medicines to the doctors. The ld Assessing Officer had disallowed these expenses only on account of no proper record but no specific defect has been pointed out in bills vouchers and the books of account. Therefore, he prayed to delete this disallowance.
The ld DR has vehemently supported the order of the ld CIT(A). 10 ITA No. 994/JP/2013
M/s Sitrocs Zenetica India Pvt. Ltd. Vs ACIT
13. We have heard the rival contentions of both the parties and perused the material available on the record. The ld Assessing Officer made ad hoc disallowance. It is practice in the medicine profession that samples are to be given to the doctors, which is business expenditure and incurred wholly and exclusively for the business purposes. Therefore, the addition confirmed by the ld CIT(A) is deleted.
14. In the result, appeals of assessee is partly allowed.
Order pronounced in the open court on 13/05/2016.
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(Kul Bharat) (T.R. Meena)
U;kf;d lnL;@Judicial Member ys[kk lnL;@Accountant Member
Tk;iqj@Jaipur
fnukad@Dated:- 13th May, 2016
Ranjan*
vkns'k dh izfrfyfi vxzsf'kr@Copy of the order forwarded to:
1. vihykFkhZ@The Appellant- M/s Sitrocs Zenetica India Pvt. Ltd., Jaipur, now Scortics Healthcare India Pvt. Ltd., Jaipur.
2. izR;FkhZ@ The Respondent- The ACIT, Circle-4, Jaipur
3. vk;dj vk;qDr@ CIT
4. vk;dj vk;qDr¼vihy½@The CIT(A)
5. foHkkxh; izfrfuf/k] vk;dj vihyh; vf/kdj.k] t;iqj@DR, ITAT, Jaipur
6. xkMZ QkbZy@ Guard File (ITA No. 994/JP/2013) vkns'kkuqlkj@ By order, lgk;d iathdkj@Asst. Registrar