Income Tax Appellate Tribunal - Jaipur
Shri Prem Chand Jain, Jaipur vs Income Tax Officer, Jaipur on 26 November, 2018
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IN THE INCOME TAX APPELLATE TRIBUNAL, JAIPUR BENCHES"B", JAIPUR
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BEFORE: SHRI VIJAY PAL RAO, JM & SHRI VIKRAM SINGH YADAV, AM
vk;dj vihy la-@ITA No. 86/JP/2018
fu/kZkj.k o"kZ@Assessment Year :2014-15
Prem Chand Jain, cuke ITO,
8/314, Vidhyadhar Nagar, Vs. Ward 4(2),
Jaipur. Jaipur
LFkk;h ys[kk la-@thvkbZvkj la-@PAN/GIR No.: ADSPJ 9255 D
vihykFkhZ@Appellant izR;FkhZ@Respondent
fu/kZkfjrh dh vksj ls@ Assessee by : Shri P.C. Parwal (CA)
jktLo dh vksj ls@ Revenue by : Smt. Roshanta Meena (JCIT)
lquokbZ dh rkjh[k@ Date of Hearing : 13/11/2018
mn?kks"k.kk dh rkjh[k@ Date of Pronouncement : 26/11/2018
vkns'k@ ORDER
PER: VIJAY PAL RAO, J.M. This appeal by the assessee is directed against the order dated 10/11/2017 of ld. CIT(A)-2, Jaipur for the A.Y. 2014-15. The assessee has raised following grounds of appeal:
"1. The ld. CIT(A) has erred on facts and in law in confirming the trading addition of Rs. 19,98,043/- by applying the g.p. rate of 1.67% as against g.p. rate of 0.93% declared by the assessee.
2. The ld. CIT(A) has erred on facts and in law in confirming the lump sum disallowance of Rs. 2,21,361/- out of indirect expenses.
3. The assessee craves to amend, alter and modify any of the grounds of appeal.
2 ITA 86/JP/2018_ Prem Chand Jain Vs ITO
4. The appropriate cost be awarded to the assessee."
2. Ground No. 1 of the appeal is regarding trading addition made by the Assessing Officer by applying G.P. rate of 1.67% as against the G.P. declared by the assessee at 0.93%. The assessee did not produce books of account before the Assessing Officer for verification and submitted that the same were lost in transit. An FIR was also lodged for the said loss of the books of account. Since the books of account were not produced for verification, accordingly, the Assessing Officer rejected the book result by invoking the provisions of Section 145(3) of the Income Tax Act, 1961 (in short the Act) and then proceeded to estimate the income of the assessee by taking G.P. rate of 1.94% being average for the past three years. On appeal, the ld. CIT(A) restricted the G.P. at 1.67% being the G.P. declared by the assessee for the immediate preceding year.
3. Aggrieved by the order of the ld. CIT(A), the assessee has raised this ground. Before us, the ld AR of the assessee has submitted that when the assessee has explained the reasons for decline in the G.P. for the year under consideration being the market conditions and unavoidable reasons then the addition made by the Assessing Officer and sustained by the ld. CIT(A) is not justified. The ld AR has further 3 ITA 86/JP/2018_ Prem Chand Jain Vs ITO contended that the books of account were lost even prior to issuing the notice U/s 143(2) of the Act dated 31/8/2015 as the assessee had already registered an FIR for loss of the books on 30/3/2015. Therefore, the assessee has duly explained the reasons for non-production of books of account and also produced all relevant details as computerized record of books of account before the Assessing Officer. The quantitative details of the goods traded by the assessee were explained and can be verified with the earlier assessment years. The ld AR has thus submitted that the assessee is dealing in the various commodities and price of the same depending on the various factors including the market conditions whether conditions of crop season etc. , therefore, the decline in the G.P. cannot be a reason for addition to be made. He has further contended that for the A.Y. 2013-14, the assessee declared G.P. at 1.67% as against the G.P. rate of 3.22% in the A.Y. 2012-13. The Assessing Officer while passing the assessment order U/s 143(3) of the Act for the A.Y. 2013-14 accepted the G.P. declared by the assessee and the only addition made on account of labour and freight expenses. Thus, the ld AR has submitted that the decline in the G.P. cannot be a basis of rejection of books of account and addition.
4 ITA 86/JP/2018_ Prem Chand Jain Vs ITO
4. On the other hand, the ld DR has submitted that the assessee has undisputedly failed to produce books of account for verification before the Assessing Officer, therefore, the Assessing Officer has rightly rejected the books of account which has not been challenged by the assessee either before the ld. CIT(A) or before this Tribunal. The ld. DR has thus contended that once the books of account are rejected U/s 145(3) of the Act then the only course of action for estimation of income of the assessee is to apply a proper and reasonable basis. The Assessing Officer has taken average G.P. of three years which is a proper and reasonable basis for estimation of the income for the year under consideration. The ld. CIT(A) has though granted relief by adopting the G.P. declared by the assessee for the immediately preceding year i.e. 2013-14. However, the action of the Assessing Officer is justified when he has applied an average G.P. of three years. Thus, the ld DR has submitted that the assessee has no merits or substance in the ground raised before the Tribunal.
5. We have considered the rival submissions as well as the relevant material on record. The main contention of the assessee is that when the assessee has explained the reasons for decline in G.P. for the year under consideration then merely because the books were rejected dud 5 ITA 86/JP/2018_ Prem Chand Jain Vs ITO to unavoidable reasons, the addition is not justified. We do not agreement with the contention of the ld. AR simply because of the reason that for the A.Y. 2013-14, the assessee produced books of account for verification and the Assessing Officer did not find any major defect in the books and consequently the books results were accepted by the Assessing Officer except the disallowance of certain expenses on the ground of personal element but those expenses were beyond the trading account. Therefore, the said decision of the Assessing Officer for the A.Y. 2013-14 cannot be applied as res judicata when the assessee failed to produce the books of account and the Assessing Officer invoked the provisions of Section 145(3) of the Act for the year under consideration. It is a substantial distinguishing facts for the year under consideration as the books results were rejected by the Assessing Officer U/s 145(3) of the Act and the said decision of the Assessing Officer is not under challenged, hence, once the books of account were rejected U/s 145(3) of the Act, the Assessing Officer is duty bound to estimate the income of the assessee and pass the order on best judgment basis. It is settled proposition of law that the past history of G.P. declared by the assessee is a proper and reasonable guidance for estimation of income for the year under consideration after rejection of books of account. The average of G.P. declared by the assessee in the 6 ITA 86/JP/2018_ Prem Chand Jain Vs ITO past years which is accepted or attend the finality will be a reasonable and proper basis for estimation of income. Hence, we find that the Assessing Officer was very reasonable and just in estimating the income on the basis of the average of the G.P. declared by the assessee for last three years. The ld. CIT(A) has restricted the addition by applying the G.P. for the immediate preceding year and the revenue has not challenged the same, therefore, we do not find any reason to interfere with the impugned order of the ld. CIT(A) qua this issue. The explanation of the assessee for declining of G.P. due to the market condition can be considered only when it is supported by the books of account. Therefore, once the books of account are rejected then this contention of the assessee cannot be accepted.
6. Ground No. 2 of the appeal is regarding the disallowance of 10% of the expenditure for want of supporting evidence. The Assessing Officer has made a disallowance of 10% of the expenses amounting to Rs. 2,21,361/- booked by the assessee in the P&L account other than the depreciation, bank charges, interest and insurance.
7. The assessee challenged the action of the Assessing Officer before the ld. CIT(A) but could not succeed.
7 ITA 86/JP/2018_ Prem Chand Jain Vs ITO
8. Before us, the ld AR of the assessee has submitted that the Assessing Officer has made disallowance of 10% of the expenses of Rs. 22,13,614/- comprising of audit fee, rent, salary, freight outward expenses, telephone expenses and bardana expenses, total amounting to Rs. 17,92,564/-. When the assessee has given details of specific expenses under each head which are verifiable from the independent source then the ad hoc disallowance of 10% is not justified. In support of his contention, he has relied upon the various decisions including the decision of the Delhi Benches of the Tribunal in the case of ACIT Vs. Ganpati Enterprises Ltd. (2013) 142 ITD 118 (Delhi)(Trib), decision of Hon'ble Delhi High Court in the case of CIT Vs. Oracle India (P) Ltd. 199 Taxman 181 (Del)(HC). Thus, the ld AR has submitted that the disallowance made by the Assessing Officer on ad hoc basis is not justified when the assessee has given the details of each expenditure which can be verified independently.
9. On the other hand, the ld DR has relied upon the orders of the authorities below and submitted that the Assessing Officer has specifically pointed out that the claim of expenditure is not verifiable in absence of vouchers and evidence and therefore, 10% disallowance is very reasonable and justified.
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10. We have considered the rival submissions as well as relevant material on record. The Assessing Officer has made disallowance of 10% of the expenditure for want of supporting evidence. We find that though the assessee could not produce the supporting evidence due to the reason that the books of account and record were lost and an FIR was filed with the police, however, when the claim of expenditure is not found to be excessive or unreasonable keeping in view of the turnover for the year under consideration as compared to the earlier years then the Assessing Officer without specifying the reasons of each and every head of expenditure is not supposed to make disallowance on ad hoc basis. We find that the liability of the expenditure of which 10% was disallowed by the Assessing Officer pertains to audit fee, rent, salary expenses, freight and telephone expenses etc., therefore, the audit fee, rent, salary expenses are very much verifiable and can be compared with the earlier years being recurring in nature. These expenditures are also verifiable independently from the recipients. Hence, the expenditure for audit fee, rent, salary and telephone expenses which are verifiable from the record cannot be disallowed in the manner, the Assessing Officer has made an ad hoc disallowance. Hence, to the extent of the expenditure on these accounts being audit fee, rent, salary and telephone expenses is deleted. The rest of the expenditure for which 9 ITA 86/JP/2018_ Prem Chand Jain Vs ITO 10% was disallowed for want of supporting evidence is consequently upheld. Accordingly we modify the orders of the authorities below qua this issue. The Assessing Officer is directed to rework the disallowance of 10% on remaining items of expenditure.
11. In the result, the appeal of the assessee is partly allowed.
Order pronounced in the open court on 26th November, 2018.
Sd/- Sd/-
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(VIKRAM SINGH YADAV) (VIJAY PAL RAO)
ys[kk lnL;@Accountant Member U;kf;d lnL;@Judicial Member
Tk;iqj@Jaipur
fnukad@Dated:- 26th November, 2018
*Ranjan
vkns'k dh izfrfyfi vxzsf'kr@Copy of the order forwarded to:
1. vihykFkhZ@The Appellant- Shri Prem Chand Jain, Jaipur.
2. izR;FkhZ@ The Respondent- The ITO, Ward 4(2), 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. 86/JP/2018) vkns'kkuqlkj@ By order, lgk;d iathdkj@Asst. Registrar