Income Tax Appellate Tribunal - Hyderabad
Aitha Kasi Visweswara Rao,, Warangal vs Assessee on 8 April, 2015
IN THE INCOME TAX APPELLATE TRIBUNAL
HYDERABAD BENCH 'B'(SMC), HYDERABAD
BEFORE SHRI P.M.JAGTAP, ACCOUNTANT MEMBER
ITA No.992/Hyd/14 : Assessment year 2009-10
Shri Aitha Kasi Visweswara Rao, V/s. Income Tax Officer Ward-1,
Kothagudem Kothagudem
(PAN - ABCPA 4993 M)
(Appellant) (Respondent)
Appellant by : Shri G.Manikya Prasad
Respondent by : Smt. G.Aparna Rao
Date of Hearing 27.03.2015
Date of Pronouncement 08.04.2015
ORDER
This appeal filed by the assessee is directed against the order of the learned Commissioner of Income-tax, Vijayawada dated 27.3.2104 passed under S.263 of the Income Tax Act,1961.
2. The assessee in the present case is an individual who is engaged in the business of dealing in FMCG goods as a whole sale distributor in the name and style of his proprietary concern, M/s. Sri Laxmi Agencies. The return of income for the year under consideration was filed by him on 29.9.2009 declaring total income of Rs.2,00,130. In the assessment completed under S.143(3) vide order dated 18.5.2011, the total income of the assessee was determined by the Assessing Officer at Rs.3,16,285 after making a disallowance of Rs.1,16,155 under S.40A(3) on account of payment of certain expenses made in cash exceeding the threshold limit of Rs.20,000.
3. The record of the assessment subsequently came to be examined by the learned Commissioner of Income-tax and on 2 ITA No.992/Hyd/2014 Shri Aitha Kasi Visweswara Rao Kothagudem such examination, he was of the opinion that the assessment order passed by the Assessing Officer under S.143(3) suffered from the following errors, which rendered the assessment prejudicial to the interest of the Revenue-
"(i) It is observed that the gross turnover was shown at Rs.1,77,25,885/- and the net profit was arrived at Rs.2,47,369 which is very low in this line of business and the Assessing Officer has not substantiated the reasons for admitting such low profit while completing the assessment proceedings.
(ii) As per the Annexure to 3CD report, it is observed that the secured loans have been increased from Rs.2,47,016/- to Rs.8,22,810/- when compared to the last year and the Assessing Officer has not verified the details of loans obtained during the year which attracts the provisions of section 14A of the IT Act,1961. Further, there is no material evidence submitted in respect of sundry creditors and details of chit loss of Rs.1,36,231/- as appeared in the Balance Sheet. This aspect was not verified by the AO."
4. The learned Commissioner therefore, issued a notice under S.263 pointing out the above errors and requiring the assessee to show cause as to why the assessment order passed by the Assessing Officer under S.143(3) should not be revised. In reply, the following point-wise explanation was offered by the assessee.
3 ITA No.992/Hyd/2014Shri Aitha Kasi Visweswara Rao Kothagudem
(i) Low net profit:
''The assessing officer was verified out books of accounts and also raised question of low profit margin across the table. The AO was satisfied with out reply and completed the assessment. Our assessee is dealing with agency goods, and these companies were giving averagely 3% margin, on all FMCG goods. In the case of 4% taxable goods we have shown 6.27% GP and in 12.5% goods shown 3% GP. The assessee was doing business with heavy competition in the market. We have shown averagely 1.20% net profit and the same was verified by the AO and satisfied after verification of supporting books, vouchers, sale bills etc."
(ii) Sundry Creditors ''All creditors appear in the Balance Sheet are trade creditors.
Due to lack of time at the time of scrutiny proceedings, we have not submitted the material evidence with regard to the sundry creditors appear in the balance Sheet. We are herewith submitting the confirmation letters from our Trade Creditors."
(iii) Chit Loss "The Assessee joined in Shri Ram Chits Rs.5,00,000/- group (Chit No.KGVS-21). This chit was bided in instalment No.11 (dt.19.07.2008) with a chit loss of RS.1,61,000./0, This chit loss belongs to remaining period of the chit (i.e. 50 months - 11 months = 39 months). This chit loss was divided for 39 months (Rs.1,61,000/39 months = chit loss per month Rs.4,128/-). The chit loss pertains to the financial year 2008-09 was Rs.24,768/- (i.e. Rs.4128 * 6 months) was shown in P&L account and the balance Rs.1,36,231/- was shown in Assets side of the balance sheet with a narration of the chit loss to be adjusted for future months. The same transaction was also explained to the AD at the time of scrutiny proceedings across the table and the AD was satisfied with out reply. The copy of the Shri Ram Chits is herewith enclosing for your ready reference."
5. The above explanation offered by the assessee was not found acceptable by the learned Commissioner. According to him, the Assessing Officer had neither obtained the relevant material which could establish the genuineness of the low profit rate declared by the assessee nor evaluated any other material and conducted any enquiry to ascertain the prevailing trade results in the same line of business. He held that low profit rate declared by 4 ITA No.992/Hyd/2014 Shri Aitha Kasi Visweswara Rao Kothagudem the assessee was accepted by the Assessing Officer without making proper and sufficient enquiry and without applying his mind to the relevant facts and material. He also held that similarly sundry creditors shown by the assessee were accepted by the Assessing Officer without obtaining their confirmation. As regards the chit loss of Rs.1,36,231 reflected in the Balance Sheet of the assessee, the learned Commissioner held that although the details in respect of the said loss were called for by the Assessing Officer, there was nothing on record to show that such details were furnished by the assessee. He held that this issue thus was also not examined by the Assessing Officer by making proper and sufficient enquiry while completing the assessment under S.143(3) . Accordingly, the learned Commissioner set aside the assessment order passed by the Assessing Officer under S.143(3), treating it as erroneous as well as prejudicial to the interests of the Revenue by exercising the powers conferred under S.263, with a direction to the Assessing Officer do the same de novo, after examining properly the issues pointed out by him by following the established procedure. Aggrieved by the order of the learned Commissioner passed under S.263, assessee has preferred this appeal before this Tribunal .
6. I have heard the arguments of both the sides and also perused the relevant material on record. It is observed that the G/P rate of 3.2% on the total turnover was declared by the assessee and the learned Commissioner in his impugned order has not given any reason or basis to consider the same as a low G.P rate. He has not cited any comparable case where any assessee carrying on similar type of business has shown G.P. rate of more than 3.2% declared by the assessee. It is no doubt true that the case of the assessee was selected for scrutiny by the Assessing Officer on the ground that the net profit of Rs.2,47,379 was 5 ITA No.992/Hyd/2014 Shri Aitha Kasi Visweswara Rao Kothagudem inclusive of other income of Rs.1,53,363 and if the same was excluded, the net profit shown by the assessee was only Rs.91,016 which gave a net profit rate of 0.5% of the total turnover. However, as pointed out by the learned counsel for the assessee at the time of hearing before me, other income mainly comprising of discounts received was in the nature of business income of the assessee, and the same therefore, could not be excluded while computing the net profit rate of his business declared by the assessee.
7. As regards the increase in secured loans from Rs.2,47,016 to Rs.8,22,810, the learned counsel for the assessee has invited my attention to the Balance Sheet of the assessee to show that he said increase was in the loan amounts taken from bank and the learned Commissioner in his impugned order has not spelt out what sort of enquiry the Assessing Officer should have conducted on this issue. He has also not given any reason or basis to show as to how the provisions of S.14A could be attracted in respect of this issue involving increase in bank loan. Similarly, the sundry creditors declared in the Balance Sheet of the assessee represented all trade creditors. In this regard, I really fail to understand as to how the failure of the Assessing Officer to obtain the confirmations of the regular trade creditors would make his assessment order erroneous as well as prejudicial to the interests of the Revenue, especially when the books of account of the assessee reflecting all the relevant transactions pertaining to the said creditors were duly verified by the Assessing Officer during the course of assessment proceedings.
8. Even in respect of chit loss of Rs.1,36,231, which was reflected in the balance Sheet of the assessee, the learned Commissioner has not given specifically any enquiry which 6 ITA No.992/Hyd/2014 Shri Aitha Kasi Visweswara Rao Kothagudem Assessing Officer ought to have made in the facts and circumstances of the case. As a matter of fact, the details of chit loss of Rs.1,36,231 reflected in the Balance Sheet were duly furnished by the assessee before the learned Commissioner during the course of proceedings under S.263, but the learned Commissioner without appreciating or ascertaining the correctness of the same, tried to raise an altogether different issue in his impugned order on the basis of the amount of chit loss debited by the assessee in the Profit & Loss Account, which was not at all the issue raised by him in the notice issued under S.263.
9. Having regard to all the facts and circumstances of the case as discussed above, I am of the opinion that there was no error in the order of the Assessing Officer passed under S.143(3), as alleged by the learned commissioner calling for any revision under S.263. In that view of the matter, I set aside the impugned order passed by the learned Commissioner and restore that of the Assessing Officer passed under S.143(3).
10. In the result, appeal of the assessee is allowed.
Order pronounced in the court on 8th April, 2015 Sd/-
(P.M.Jagtap)
Accountant Member
Dt/- 8th April, 2015
7 ITA No.992/Hyd/2014
Shri Aitha Kasi Visweswara Rao
Kothagudem
Copy forwarded to:
1. Shri Aitha Kasi Visweswara Rao (Kothagudem) C/o. M/s. G.S.Madhava Rao & Co., Chartered Accountants, Sudharma Buildings, M.G.Road, Warangal.,
2. Income Tax Officer Ward 1 Kothagudem l
3. Commissioner of Income-tax, Vijayawada
4. Departmental Representative, ITAT, Hyderabad.
B.V.S