Income Tax Appellate Tribunal - Panji
Manoj Kumar Johari, Jaipur vs Acit, Sikar on 27 July, 2017
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IN THE INCOME TAX APPELLATE TRIBUNAL, JAIPUR BENCHES, JAIPUR
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BEFORE: SHRI KUL BHARAT, JM & SHRI VIKRAM SINGH YADAV, AM
vk;dj vihy la-@ITA No. 495/JP/2016
fu/kZkj.k o"kZ@Assessment Year :2012-2013
Sh. Manoj Kumar Johari, cuke The ACIT, Circle, Sikar.
Prop. of The Art Palace, Vs.
Zee Bhawan, Subhash
Chowk, Ramgarh-
Shekhawati, Sikar.
LFkk;h ys[kk la-@thvkbZvkj la-@PAN/GIR No.: ADWPT8870A
vihykFkhZ@Appellant izR;FkhZ@Respondent
vk;dj vihy la-@ITA No. 487/JP/2016
fu/kZkj.k o"kZ@Assessment Year :2012-2013
The ACIT, Circle, Sikar. cuke Sh. Manoj Kumar Johari, Prop. of
Vs. The Art Palace, Zee Bhawan,
Subhash Chowk, Ramgarh-
Shekhawati, Sikar.
LFkk;h ys[kk la-@thvkbZvkj la-@PAN/GIR No.: ADWPT8870A
vihykFkhZ@Appellant izR;FkhZ@Respondent
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s Assessee by : Shri Vikas Rajvanshi (C.A.)
jktLo dh vksj ls@ Revenue by : Shri R.A. Verma (Addl.CIT)
lquokbZ dh rkjh[k@ Date of Hearing : 12/07/2017
mn?kks"k.kk dh rkjh[k@Date of Pronouncement: 27/07/2017
vkns'k@ ORDER
2 ITA No. 495 & 487/JP/2016 Sh. Manoj Kumar Johari Vs. ACIT, Sikar PER: VIKRAM SINGH YADAV, A.M. These are cross appeals filed by the assessee and the Revenue against the order of Ld. CIT (A)-III, Jaipur dated 26.02.2016 for A.Y. 2012-13 wherein the respective grounds of the appeal are as under:-
495/JP/16 (Ground of Assessee's appeal):
"Ground No. 1: The Ld. A.O. and CIT(A-III), Jaipur has erred in law as well as in fact in wrongly rejecting the books of accounts u/s 145(3) of the Income Tax Act, 1961 and applied 15% GP rate (Ld. AO assessed @ 17.20% on the basis of 7 years old irrelevant GP rate) against the declared genuine GP rate of 13.19% without comparing the composition of trading account and present conditions of business of the assessee and ignored the immediate past history.
Ground No. 2: The Ld. A.O. and CIT(A)-III, Jaipur has erred in law as well as in fact in arbitrarily disallowing and sustaining of Rs. 1,31,036/- u/s 40(a)(ia) on account of non-deduction of TDS payment made to Export Promotion council for Handicraft working under Ministry of Commerce and Industry under Government of India for Export Trade Fair organized by Government of India not liable for TDS u/s 196.
Ground No. 3: The Ld. A.O. and CIT(A)-III, Jaipur has erred in law as well as in fact in arbitrarily adding up and sustaining the unexplained cash deposit u/s 69A of Rs. 37,34,500 in bank by the assessee whereas the assessee has duly disclosed such amount in his personal Balance Sheet not in business Balance Sheet. Even personal Cash Book with supporting evidence was provided before them. Ld. CIT(A-III) wrongly considered it as additional evidence under Rule 46A whereas these details were available at the time of assessment and duly submitted to Ld. CIT(A-III)."3 ITA No. 495 & 487/JP/2016
Sh. Manoj Kumar Johari Vs. ACIT, Sikar 487/JP/16 (Ground of Revenue's appeal):
"1. On the facts and in the circumstances of the case, the CIT(A) has erred in allowing the relief of Rs. 34,55,489/- without considering the finding of the AO in the assessment order.
2. On the facts and in the circumstances of the case, the CIT(A) has erred in reducing GP rate from 17.20 to 15% even though she has confirmed the action of invocation of section 145(3) of the Act, 1961."
2. Firstly regarding ground No. 1 of the assessee and both the grounds taken by the Revenue, briefly the facts of the case are that during the course of assessment proceedings, the AO after review of the assessee's books of accounts issued a show cause to the assessee referring to the following observations of the auditors who have audited the books of accounts of the assessee company as under:-
"(i) Valuation of Inventory at cost which is not in accordance with accounting standard (AS-2) issued by ICAI( Impact on profit not ascertained).
(ii) Stock and consumption record have not been maintained.
(iii) Regarding accounting foreign currency transaction which is not in accordance with accounting standard (AS-11) (Impact on profit not ascertained).
(iv) Regarding accounting certain income and expenses on yearly basis (impact on profit not ascertained."
3. In response to the show-cause, the assessee vide its letter dated 12.03.2015 submitted as under:
4 ITA No. 495 & 487/JP/2016Sh. Manoj Kumar Johari Vs. ACIT, Sikar Valuation of inventory, stock and consumption record:-
(a) As usual, the assessee values its stock on the date of closure of the year on cost price. As already submitted before your predecessors at the time of finalization the old assessments the procedure to value the stock is during last week of closure of accounting year, separate inventory of various stock in hand are prepared by the staff of the assessee under supervision and the stock is valued on cost price.
(b) Further in this line of trade of assessee, it is not possible to maintain the quantity records on daily basis as required by accounting standard (AS-2).
(c) Further the assessee is an exporter and does not affect any sale in India. Under such circumstances, all the sales are compulsorily accounted for and similarly remitted through banking channel only.
(d) However the assessee has produced his books of accounts before your honor and today also producing its books of accounts for your kind verification. Your honors may see that books of accounts are regularly maintained and also all the transaction are accounted for and true profit and loss can be determined thereby.
Accounting of foreign currency:-
In this respect it is submitted that though the auditor, has observed that accounting of foreign currency is not according to accounting standard (AS-11) but the auditor has not taken pains to determine or calculate its' effect on profit of the assessee. Infect, if your honors sees profit and loss account, it is clear that assessee has shown an income of 5 ITA No. 495 & 487/JP/2016 Sh. Manoj Kumar Johari Vs. ACIT, Sikar Rs. 9,95,761.95 on account of increase in the rate of foreign exchange. Increase in foreign currency is duly accounted for and is credited to profit and loss account. I am enclosing herewith a copy of margin in currency account which clarifies this matter.
Accounting of certain Income and expenses on yearly basis:-
In this observation/objection also, the auditor has not tried as to which are the expense and income accounted for on yearly basis and how this had effected the profits of the assessee. The effect of this system has not been calculated. The assessee is producing books of accounts before your honour for this verification also."
4. The Assessing Officer didn't find the submission of the assessee acceptable. The relevant findings of the AO are contained in para 3.3 and 3.4 of his order which are reproduced are as under:-
"3.3 Non-maintenance of records of quantitative details renders the accounts of assessee incomplete. Preparation of the Inventory at the end of year but not keeping it on record and not producing such Inventory for scrutiny can only lead to the inference that accounts are not correct. Quantitative tally of items traded and manufactured by assessee is not only possible but also the requirement of proper accounting system. Today when books are maintained on computer and advanced software like tally are available and used, maintenance of quantitative details is very easy and convenient. Assessee's failure to provide the quantitative details is thus deliberate. Assessee is not maintaining day to day stock register. He has not maintained inventory of closing stock. Assessee deals in manufacture/trading of wooden furniture items. Purchases of wood are in volume i.e. cft/m cube measurement but sales are in nos. of various items. [Adoption of 6 ITA No. 495 & 487/JP/2016 Sh. Manoj Kumar Johari Vs. ACIT, Sikar different standards for receipts and production in stock, accounts can justify rejection of accounts:- If the stock received are shown in the books by one standard and goods produced from those stocks are shown by another standard it is quite clear that profits cannot be correctly deducted. In such cases the assessing officer would be justified in rejecting the method and in estimating the income- Howrah Trading Co (P) Ltd. V.CIT(1968) 67 ITR 582 (Cal).] There is no record of yield, shortage. Such books of account and such system of accounting cannot be considered so sacrosanct that trading result cannot be disturbed when the circumstances suggest otherwise. Assessee has done trading business with purchases of more than Rs. 9.62 crores but even in respect of such trading business quantitative details or inventory of stock is not produced.
3.4 The Hon'ble Supreme Court in the case of CIT Vs. McMillian & Company [1958] 33 ITR 182(SC) has held that Assessing Officer is not bound by the declared profits even when he accepts the assessee's method of accounting. The Hon'ble Supreme Court in another case of CIT Vs. British Paints India Ltd.[1991] 188 ITR 44(SC) has held that ITO is not bound to accept the system of accounting and it is the duty of the AO to consider whether or not the books disclosed the true state of accounts and the correct income. It is incorrect to say that Assessing Officer is bound to accept the system of accounting regularly employed by the assessee, the correctness of which had not been questioned in the past."
5. Further the Assessing Officer observed that the books of accounts of the assessee were rejected in A.Y. 2008-09 on similar grounds which has since been affirmed by the Tribunal. Following the same, he rejected the books of account u/s 145(3) of the Act. Being aggrieved the assessee carried the matter in appeal before the ld. AO who has confirmed the rejection of books of accounts.
7 ITA No. 495 & 487/JP/2016Sh. Manoj Kumar Johari Vs. ACIT, Sikar
6. Further Assessing Officer after rejection of books of accounts has estimated G.P. @17.20% as against G.P. @13.19% declared by the assessee and made an addition of Rs. 62,93,817/- to the declared income of the assessee. While doing so, the Assessing Officer followed the decision of the Tribunal in assessee's own case in A.Y. 2008-09 wherein the Tribunal confirmed the G.P. rate of 17.20% as against 14.11% declared by the assessee. The ld. CIT(A) noted that the past history of the assessee shows that G.P. rate declared by the assessee during the year is better than last 5 years except in A.Y. 2008-09 where the Tribunal upheld that the G.P. rate of 17.20% and thereafter considering the submission of the assessee in terms of increased of cost of raw material viz-a-viz in a sale price of the finished goods, she applied G.P. rate of 15% as against 17.20% applied by the Assessing Officer resulting in sustenance of trading addition of Rs. 28,38,328/- and relief of Rs. 34,55,489/-. Against the said order of the ld. CIT(A), both the assessee and Revenue are in appeal before us.
7. During the course of hearing, ld. AR submitted that the G.P. rate declared by the assessee is better than previous year G.P. rate of 12.96% and even if the books of accounts are rejected, no addition can be made, in view of the decision of Hon'ble Rajasthan High Court in case of CIT vs Gotan lime Khaniz Udhyog (256 ITR
243). Further, he relied on the Coordinate Bench decision in case of Shri Mukesh Kumar Jain Vs ITO tonk (ITA No. 1023/JP/2011) and Shri Padam Chand Jain Vs ITO Tonk (ITA No. 1024/JP/2011) wherein the Coordinate Bench has decided that average G.P. rate must be applied in place of highest G.P. rate. In this regard, the ld. AR 8 ITA No. 495 & 487/JP/2016 Sh. Manoj Kumar Johari Vs. ACIT, Sikar submitted that average of 5 years G.P. rate of the assessee is 12.29% as against 13.19% declared by the assessee accordingly the same should be accepted. The ld. AR also referred to the assessment order for A.Y. 2010-11 wherein G.P. rate of 8.48% was accepted by the AO except for a lump sum trading addition of Rs. 1 lacs. Further, the ld. AR submitted that the main reason for the decline in G.P. is increase in cost of raw material (wood) as against increase in the sale price of finished wood furniture which is exported and submitted a comparative analysis of cost of wood in financial year 2004-05 and financial year 2011-12 wherein the cost of wood increased by 54% and similarly comparative data for increase in sale price was referred wherein the sale price was increased by 25.67% during the same period.
8. The ld. DR relied on the order of the lower authorities in light of the specific observation of the auditors as well as non- maintenance of quantities details of goods traded and manufactured by the assessee and submitted that the books of accounts have been rightly rejected by the Assessing Officer and upheld by ld. CIT(A). Regarding estimation of G.P. rate, the ld. DR submitted that the AO has relied on the Tribunal order for A.Y. 2008-09 where G.P rate of 17.20% was upheld and given the similarity of facts in the year under consideration, the G.P. rate of 17.20% is justifiable and further there is no basis which has been given by the ld. CIT(A) whereby the GP rate has been reduced to 15%.
9 ITA No. 495 & 487/JP/2016Sh. Manoj Kumar Johari Vs. ACIT, Sikar
9. We have heard the rival contentions and perused the material available on record. In view of the specific observations of the auditors in terms of inconsistency in maintaining the books of account and not following the well accepted accounting principles and the Coordinate Bench decision in assessee's own case for A.Y. 2008-09 wherein on similar basis the books of accounts were rejected, we see no reason to interfere with the order of the lower authority in terms of rejection of the books of accounts.
10. Regarding estimation of G.P. rate, wherein the books of accounts are rejected, a fair estimate is required to be made by the Assessing Officer. The principle of average taking into consideration last 5 years past history is clearly a robust and fair basis of estimation to determine the gross profits for the year under consideration. The ld. AR has submitted that average G.P rate of last 5 years comes to 12.29% as against declared G.P. rate of 13.19% in the year under consideration. On perusal of records, the track record of declared Gross profit by the assessee and gross profit as upheld either by AO or by higher appellate authorities is as under:-
Assessment 2007-08 2008- 2009- 2010- 2011- 2012- year 09 10 11 12 13
G.P% 13.85 14.11 12.03 8.48 12.96 13.19
(as declared)
G.P% 17.2 17.2 12.03 8.52 12.96
(as affirmed,
where
applicable)
10 ITA No. 495 & 487/JP/2016
Sh. Manoj Kumar Johari Vs. ACIT, Sikar
In light of above, the average G.P rate of last 5 years as finally affirmed comes to 13.58%. The AO is accordingly directed to apply the G.P. rate of 13.58% as against G.P rate of 13.19% declared by the assessee. The respective grounds of appeal are accordingly disposed off.
11. In respect of ground No. 2, the assessee has challenged the addition of Rs. 1,31,036/- u/s 40(a)(ia) on account of non-deduction of TDS on payment made to Export Promotion Council for handicraft working under Ministry of Commerce and Industry for export trade fair. The principle contention of the ld. AR is that the said payment is not liable for TDS in terms of provisions of section 196 which provides that no deduction of income tax shall be made by any person from any sum payable to a Cooperation, established by or under any Central Act which is under any law for time being in force, exempt from Income Tax on its income. We find that no information was submitted before the Assessing Officer on the nature of payment. The Ld. CIT(A) upheld disallowance stating that the assessee has not filed any receipt/document which suggested that the payment is towards registration cum membership charges.
Before this Bench, the assessee has submitted that the payment has been made to Export Promotion Council of which assessee is a member for booking of stall area at New Delhi and the payment is not liable for TDS in terms of section 196 of the Act. Alternatively it was submitted that the payment is liable for TDS u/s 194(I) and since the payment is less than the threshold of Rs. 1.8 lace. There is 11 ITA No. 495 & 487/JP/2016 Sh. Manoj Kumar Johari Vs. ACIT, Sikar no liability towards TDS and accordingly the addition made by the Assessing Officer may be deleted.
12. In our view, firstly regarding the applicability of section 196 of the Act, there is nothing on record to suggest that Export Promotion Council is exempt from payment of income tax. Hence, in absence of the same, we are unable to accede to the contention of the ld. AR that no TDS is liable on the subject payment. Regarding the alternative contention of the ld. AR regarding applicability of section 194(I) of the Act, the assessee is taking varying contention regarding exact nature of payment. No evidence is available on record to determine the exact nature of payment - whether its towards membership fees or towards participation in trade fair and stall booking or both. Accordingly, we are setting aside the matter to the file of the AO to examine the exact nature of payment and decide the matter a fresh as per law. Hence, the ground no. 2 of the assessee's appeal is allowed for statistical purposes.
13. Now coming to ground No. 3 of the assessee's appeal wherein the assessee has challenged the addition u/s 69A of the Act in respect of cash deposit in personal saving bank account maintained by the assessee.
14. Briefly, the facts of the case are that during the course of assessment proceeding, on perusal of banks statement of the saving bank account maintained by the assessee with Axis Bank, the Assessing Officer noticed that the assessee has made cash deposits 12 ITA No. 495 & 487/JP/2016 Sh. Manoj Kumar Johari Vs. ACIT, Sikar on various dates totalling to Rs. 37,34,500/- in his saving bank account. Thereafter a show cause notice was issued dated 28.02.2015 wherein the assessee was asked to explain the source of such cash deposits. The Assessing Officer noted that on 9th March, 2015, the assessee failed to file any reply in respect of cash deposits. Thereafter on the next date of hearing i.e. 12.03.2015, the ld. AR of the assessee attended and file reply in regard to rejection of books of account and details of C&F charges but again failed to file any explanation in respect of unexplained money deposited in his saving bank account. Accordingly, in absence of the necessary explanation furnished by the assessee, an addition of Rs. 37,34,500/- was made u/s 69A of the Act considering the deposit in saving bank account as unexplained money from undisclosed source of income.
15. Being aggrieved, the assessee carried the matter in appeal before the ld. CIT(A) and submitted that the cash deposits in his bank account is fully verifiable from personal cash deposit and balance sheet. The ld. CIT(A) held that since the personal cash book and balance sheet were not filed during the assessment proceedings and the assessee did not file any application for admission of additional evidence under Rule 46A of the Act this additional evidence cannot be accepted. Further the cash book shows receipt of cash from various persons for which no supporting evidence was filed by the assessee. Accordingly, the ld CIT(A) confirmed the addition made by the AO. Being aggrieved, the assessee in this appeal before us 13 ITA No. 495 & 487/JP/2016 Sh. Manoj Kumar Johari Vs. ACIT, Sikar
16. The ld. AR submitted that there was no necessity to file any application under Rule 46A before the ld CIT(A) for the simple reason that AO himself stated in para-1 of his order that "produced books of accounts consisting of cash book, ledger, bank statement which were test checked and the case was discussed with him" which clearly shows that complete books of accounts were present before the ld. AR. The ld. AR further submitted that the assessee has properly recorded the deposits made in bank in his personal balance sheet and there is sufficient balance in his personal cash book and the assessee has offered the necessary explanation in its reply dated 12.03.2015 along with supporting to the ld. AO and ld CIT(A) who has not been conceded properly.
17. On perusal of assessee's reply dated 12.03.2015 available at APB 21-23, it is noted that at para-4 the assessee has submitted as under:-
"(iv) We are also producing complete books of accounts and personal balance sheet of the assessee along with cash book, bank book, and supporting agreement for source of cash deposit in bank for the financial year 2011-12."
18. In light of above, we are setting aside this matter to the file of the AO to examine the above books of accounts to determine the source of cash deposit in the personal bank account of the assessee. We are not getting into the merit of the matter and the contentions raised by the assessee explaining the source of deposits as the same has not been examined by the AO. The appellant is at liberty to raise its said contentions before the AO and the AO will examine the same 14 ITA No. 495 & 487/JP/2016 Sh. Manoj Kumar Johari Vs. ACIT, Sikar and give his findings as per law. In the result, the ground is allowed for statistical purposes.
In the result, the appeal of the assessee and the Revenue are disposed off with above directions.
Order pronounced in the open court on 27/07/17
Sd/- Sd/-
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(Kul Bharat) (Vikram Singh Yadav)
U;kf;d lnL;@Judicial Member ys[kk lnL;@Accountant Member
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fnukad@Dated:- 27/07/2017.
*Santosh.
vkns'k dh izfrfyfi vxzfs 'kr@Copy of the order forwarded to:
1. vihykFkhZ@The Appellant- Sh. Manoj Kumar Johari, Prop. of The Art Palace, Sikar.
2. izR;FkhZ@ The Respondent- ACIT, Circle, Sikar.
3. vk;dj vk;qDr@ CIT
4. vk;dj vk;qDr@ CIT(A)
5. foHkkxh; izfrfuf/k] vk;dj vihyh; vf/kdj.k] t;iqj@DR, ITAT, Jaipur.
6. xkMZ QkbZy@ Guard File {ITA No. 495&487/JP/2016} vkns'kkuqlkj@ By order, lgk;d iathdkj@Asst. Registrar