Income Tax Appellate Tribunal - Panji
Sh. Imran Farooq Sheikh,, Srinagar vs The Income Tax Officer, Srinagar on 4 October, 2017
IN THE INCOME TAX APPELLATE TRIBUNAL
AMRITSAR BENCH; AMRITSAR
BEFORE SH. T.S. KAPOOR, ACCOUNTANT MEMBER AND
SH. N.K.CHOUDHRY, JUDICIAL MEMBER
I.T.A No.506(Asr)/2015
Assessment Year:2010-11
Sh. Imran Farooq Sheikh, Vs. Income Tax Officer,
Prop. M/s. Classic Enterprises Ward-3(1),
5-Nowpora Tang Bagh, Raj Bagh, Srinagar.
Khayam Chowk,
Srinagar, Kashmir.
PAN:BBJPS-9361P
(Appellant) (Respondent)
Appellant by: Sh. Bashir Ahmed Lone (Ld. CA)
Respondent by: Sh. Rahul Dhawan (Ld. D.R)
Date of hearing:09.08.2017
Date of pronouncement: .10.2017
ORDER
PER N.K.CHOUDHRY:
The instant appeal has been preferred by the assessee, on feeling aggrieved against the order dated 10.06.2015 passed by the Ld. CIT(A), Jammu, for Asst. Year:2011-12.
2. The assessee has raised the following grounds of appeal.
"1. That the assessment order passed by ITO-Ward 3(1) is bad in law.
2. That the CIT(Appeals) erred in both facts & laws by confirming addition of Rs.89,24,178.00 as unexplained deposits/investment, when the said Bank Account does not belong to assessee.
3. That the Ld. CIT(Appeals) has erred in both facts & laws by confirming the turnover of assessee as Rs.505,32,668.00 which is inclusive of VAT, instead of Rs.46,393,024.00 & also upheld application of Net Profit rate of 3% on said turnover.
4. The upholding of the additions by CIT (Appeals) is illegal & arbitrary.2 ITA No.506 (Asr)/2015
Asst. Year:2011-12
5. The appellant craves leave to amend, alter or add any ground of appeal before the same is heard & disposed off.
Therefore, it is prayed that the grounds urged above may please be considered due and the penalty may please be deleted in full."
3. The brief facts of the case are as under:
That the assessee is an individual by status and has been carried out wholesale trading/business of food items like Oils, Biscuits, Milk, Juices etc and has declared gross sales of Rs.4,63,93,024/- for the period 01.04.2010 to 31.03.2011. The assessee has declared a gross profit of Rs.11,59,826/-. During the assessment year:2011-12 has filed its return of income and declared income of Rs.8,58,361/-. Later on, the case of the assessee was selected for scrutiny and the assessment was completed u/s 143(3) of the I. T. Act, 1961 by making an addition of Rs.96,75,851/- by the ITO, Ward-3(1), Srinagar.
The A.O worked out the application of NP rate 3% on gross receipts which worked out at Rs. 15,15,980/- and further added Rs.89,24,178/- as unexplained cash deposits/ investments by ignoring the income declared by the assessee to the tune of Rs.8,58,361/- only.
4. The assessee preferred the first appeal before the Ld. CIT(A) who while rejecting the application for admission of additional evidence u/s 46A of the I.T. Rules, partly allowed the relief of the assessee by observing as under:
"4.2 Ground of Appeal No.1 is general in nature, required no adjudication and accordingly dismissed.
4.3 Ground of appeal No.2 relates to addition of Rs.89,24,178/- on account of unexplained cash deposits in the bank account. The A.O during 3 ITA No.506 (Asr)/2015 Asst. Year:2011-12 the course of assessment proceedings found that the appellant is maintaining a saving bank account with J&K Bank Ltd, Bogal Branch, New Delhi which has not been reflected in his books of accounts. The appellant could not explain the source of deposits in the said account and 'accordingly the addition is made in the hands of appellant on account of unexplained deposits. The appellant has argued that the bank authority has opened a bank account in his name without his knowledge and he is not aware of the transactions in the said bank account. The appellant has also argued that an amount of Rs.42,69,763/- has also been withdrawn fraudulently by the bank authorities The appellant has argued that he has filed a complaint before the Consumer court in this regard. It is observed that the bank account is in the name of the appellant and cash amounting to Rs.89,24,178/- has been deposited in this account and the appellant could not explain the reason as to why the bank authority will open an account in his name to deposit an amount of Rs 89,24,178/- in cash in his account. The position would have been different if some cheques in the name of the appellant were withdrawn by opening an account in his name. The bank authorities have categorically submitted to the Hon'ble Consumer court that the allegation made by the appellant is false and malicious and the account under question is opened by the appellant himself and all the transaction in the said account were made with the authority of the appellant. The bank authority has also informed that the brother of the appellant has availed a cash credit facility in the said Bogal Branch in the name of M/s Classical Enterprises and the appellant is a guarantor for such facility. The appellant has transferred various amounts through cheque to the saving account and cash credit account of his brother during the financial year 2011-12 which the appellant is claiming to have been withdrawn by the bank fraudulently. On the perusal of submission of the appellant and assessment order, it is observed that the appellant has failed to provide any valid documentary evidence to justify his contention that the bank account under consideration does not belong to him. Mere filing of a complaint before an authority does not prove that the bank account under question does not belong to the appellant specially when the bank authorities have categorically refuted his claim. This ground of appeal of the appellant is dismissed.
4.4. Ground of appeal no 3 & 4 relates to application of net profit rate of 3% after rejecting books of accounts u/s 145(3) of the Act on increased turnover of Rs.5,05,32,668/-. The appellant has declared a turnover of Rs.4,63,93,024/- in his return, however the AO observed that the deposits in the bank account for the period are more than the turnover declared. The appellant argued that the turnover has been declared as per books of accounts and the excess credits are on account of vat collected which has not been routed through trading account. The appellant has also provided the copy of sales tax returns to justify the amount of sales and output tax as reflected in the return of income. It is observed that aggregate figure of sales and vat output as provided by the appellant comes to Rs.5,03,61,365/-. Although, there is still a difference of Rs.1,71,303/-, the plea of the appellant is accepted and the turnover of the appellant is held at Rs.5,03,61,365/- (i.e. sales amount of Rs.4,63,93,024/- and vat output of Rs.39,68,341/-) as also supported by sales tax returns. This plea of the appellant is accepted. However, it is also important to mention that the' net 4 ITA No.506 (Asr)/2015 Asst. Year:2011-12 profit rate is to be applied on turnover which is inclusive of sales tax/vat and not on the net sales figure. A guidance note on section 44AB of the Act .was issued by the Institute of Chartered Accountants and it was clarified that the 'turnover' would include the excise duty and sales tax even if the assessee has no t included the same in profit & loss account. Further, u/s 145A of the Act, it is specif ically me ntio ned that the valuation of purchase and sales of goods and inventory for the purpo se of de ter mining the income chargeable under the head profits and gains of bus iness and prof ess ion shall include the amount of any tax, duty, cess or fee actually paid or inclined by the assessee. Thus, the net profit rate is to be applied on the turnover inclusive of sales tax.
Further, the appellant has argued that the AO is not justified in rejecting the book results and applying a net profit rate of 3% which is on a very higher side. It is observed that the AO has pointed out difference in turnover which was not explained to the AO and further, appellant was not able to produce the documentary evidence in respect of various expenses claimed by him, the AO was left with no option but to make a best judgment assessment by application of net profit rate. The appellant has argued that he has declared lower net profits in the earlier years. It is seen that the appellant has filed a return of income declaring an income of Rs.8,83,973/- whereas the receipts from commission income and other income which was deposited in the bank account apart from trading activity was Rs.24,83,805/-. Therefore, in my opinion, the net profit of 3% applied by the AO which cones to even less than the commission & other income of the appellant cannot be said to be on higher side. Therefore, this ground of appeal is partly allowed and a relief of Rs.5140/- is allowed to the appellant.
4.5. Ground of appeal no 5 is general in nature, require no adjudication and accordingly dismissed. The appeal is partly allowed.
5. On feeling aggrieved against the order passed by the Ld. CIT(A), the assessee by filing the instant appeal and in support of ground No.2 argued before us, that addition of Rs.89,24,178/- was made as unexplained cash deposits/investment credited in the Bank Account No.0409040100000735 maintained with J&K Bank Ltd. Branch Bogal, New Delhi during the Financial Year 2011-12 by holding to be not disclosed in assessee financial statements. Further the said addition was confirmed by the Ld. CIT(A). The Ld. AR drawn our attention to the following facts.5 ITA No.506 (Asr)/2015
Asst. Year:2011-12 (1) The assessee during the year was carrying business of sale & purchase of FMCG goods & was also super stockiest/ CFA of few leading companies for Srinagar namely Cargil India Private Limited, Asian Lake Health Foods Private Limited, VRS Foods Limited, Boon Food Industries (from last 12 years) & was maintaining his usual business account with Jammu &Kashmir Bank Ltd.
Branch Office Air Cargo Srinagar & was availing cash credit facility of 68 Lacs. The assessee was entirely carrying his business through this account & the said Bank account stands duly declared in the financial statements submitted to tax authorities.
(2) The Branch authorities of Jammu & Kashmir Bank Ltd. Branch Office Bogal New Delhi have fraudulently opened a saving bank account with account No.0409040100000735 in the name of assessee without his knowledge nor the assessee has approached the said branch for opening any bank account. In addition to above, the said bank has also raisecl a personal loan of Rs.5.00 Lacs in the name of the assessee & the same stands credited in the said Bank account. During the assessment proceedings, when the Ld. AO confronted the assessee regarding non reflection of bank account (No.0409040100000735 maintained with Jammu & Kashmir Bank Ltd. Branch Office Bogal New Delhi in financial statements. The assessee informed the Ld. AO in writing that the said bank account does not belong to him nor he has carried any transaction in the said bank account & the same stands opened by bank authorities without assesses knowledge & in confirmation of said fact, the assessee submitted following documents before Ld AO.
a. Undertaking in writing denying the said Bank account.
b. Affidavit by assessee. c. Copy of compliant filed u/s 15 read with 16 of J&K State Consumers
Protection Act. before Honorable State Consumer Protection commission under J&K Consumer Protection Act. by the assessee. The assessee filed compliant before the Court even before the assessee has received notice u/s 143(2) of the Income Tax Act 1961 for the said assessment year.
d. Petition filed by the assessee before Honorable court of Additional district judge (Bank cases) at Srinagar in terms of order 8 Rule 8A of Code of Civil Procedure (CPC) for directing the defendants to produce the documents upon which they rely in terms of the statement before the Honorable court.
Despite submission of above mentioned documents, the Ld. AO proceeded & made an addition of Rs.89,24,178.00 by treating the entire cash deposits made in the said bank account as unexplained investments by treating the said bank account as assesses bank account, which is not the fact.
The appellate also submitted the following documents before the Commissioner of Income Tax (Appeals) a. Copy of compliant filed u/s 15 read with 16 of J&K State Consumers Protection Act. Before Honorable State Consumer Protection Commission under J & K Consumer Protection Act. By assessee.
b. Copy of reply filed by J & K Bank before Honorable State Consumer Protection Commission denying the assesses allegations.
c. Petition filed by assessee before Honorable court of Additional district judge (Bank cases) at Srinagar in terms of order 8 Rule 8A of Code of Civil 6 ITA No.506 (Asr)/2015 Asst. Year:2011-12 Procedure (CPC) for directing the defendants to produce the documents upon which they rely in terms of the statement before the Honorable court.
d. Expert opinion dated 23-04-2014 sought by Court regarding signature/ Withdrawal & account opening verification given by Forensic Lab (IFS Pune) in favor of assessee.
e. Second Expert opinion dated 03/03/2015 again sought by Court regarding signature/ Withdrawal & account opening verification given by SIFS India Pvt. Ltd .New Delhi in favor of assessee.
Further, the AO is himself not clear, under what section the AO is making additions, rather has deemed the entire cash deposit as unexplained investment.
The said bank account does not belong to assessee at all & if we presume, that the said bank account belong to assessee and the assessee has not disclosed the said Bank account in the financial statements, still entire Cash deposits/Bank credits of Rs 89,24,174.00 cannot be treated as income of the assessee. Since, the said sum represents, bank credits/cash deposits, out of which with-drawls stands also made and there remains a peak credit of Rs.17236.00 on 10/05/2010 . Under normal circumstances, in case of non- disclosure of Bank account in financial statements owned by the assessee, either addition on account of peak credit is made or the undisclosed transactions are added to turnover and net profit rate is applied. Further on the date of credit, the entire amount stands withdrawn, which can be verified from the Bank statements and there hardly remains any credit in the Bank.
In the following cases, the entire cash deposits have not been added, rather peak credits stands treated as undisclosed income.
• ITO ward- 51(4) Kolkata Vs. Deb Kumar Jana Kolkata before ITAT Bench "C", Kolkata • ITO Ward 3(3) Mathura Vs. Shri Rajeev Kumar Gupta Mathura Before ITAT Agra Bench, Agra • ITO 9( Appellant) Vs. M/s Murlidhar Ice Cream& Sweet Parlor • ITO ward -1 Gobindgarh Vs. Smt. Satya Bhama Bindal Mandi Gobindgarh Before ITAT Chandigarh Benches "A", Chandigarh • ITO Ward -1, Nadyal Vs. Mr. C. Vamsi Mohan Nandyal Before ITAT Hyderabad Benches "A", Hyderabad.
• ITO 6(4) Lucknow Vs. Shri Vishan Lai Lucknow Before ITAT Lucknow Bench "A", Lucknow • ITO 23(2) Mumbai Vs. Jagdish N.Thakkur Mumbai Before ITAT Mumbai Bench "]" Mumbai Finally the Ld. AR submitted that the said account does not belong to the assessee and the deemed addition based on the 7 ITA No.506 (Asr)/2015 Asst. Year:2011-12 presumption amounting to Rs.89,24,178/- is liable be deleted in full or alternatively the additions on account of peak credit may be held.
With regard to ground No.3 qua addition of Rs.7,51,673/-, the Ld. AR filed Written Submission , which are reproduced as under:
The Ld AO has also applied Net profit rate of 3% and also enhanced turnover of the assessee on following presumptions
(a) Excess Bank credits of Rs 41,39,644.00 in the assessee regular Bank Accounts compared to sales declared by assessee.
(b) Increase in establishment, wages & freight & carriage expenses during the year, compared to last year.
(c) Non maintenance of stock register.
In this regard, following submissions are made, which stands also made before CIT (Appeals)
(a) The application of Net Profit rate of 3% & treating the assesses sales as Rs.505,32,668.00 instead of Rs.4,63,93,024.00 is unjustified, unwarranted & based on presumptions rather than on any concrete material. The assessee is a super stockiest /CPA of few leading companies for Kashmir valley & entire purchases are made from these companies. The assessee produced complete books of accounts comprising of ledger, cash book, vouchers & VAT returns in support of sales & purchases made by the assessee during the year before AO. Regarding excess bank credits amounting to Rs.41,39,644.00 (Rs.5,05,32,668 - Rs.4,63,93,024) as pointed out by Ld. AO, out of which Rs.39,68,341.00 represents output tax collected by the assessee & the sales are shown as net of output tax in the Profit & Loss account by the assessee, which is an allowed practice as per accounting norms. . The assessee duly provided the details of said output tax to the Ld. AO during the assessment proceedings before AO, however the Ld. AO has not considered the same, while framing assessment order. Further the assessee's assessment for the said assessment year stands also made by commercial tax department Srinagar, which have confirmed sales & purchase of the assessee. The copy of VAT returns, details of output tax & copy of VAT assessment copy stands also submitted before CIT (Appeals).
In respect of aforesaid submissions made by appellate before CIT (Appeals). The Ld. CIT (Appeals) gave the said submissions a different twist to justify the Bank credits as sales by referring to Guidance Note on Section 44AB issued by Institute of Chartered Accountants of India, that"
turnover "would include excise duty and sales tax even if the assessee has not 8 ITA No.506 (Asr)/2015 Asst. Year:2011-12 included the same in profit and loss account. However, as per the said Guidance note, the turnover does not include excise duty or sales tax recovered if credited separately to excise duty or sales tax account and payments to the authority are debited in the same account, Therefore neither AO nor CIT (Appeals) is not justified in their actions.
(b) Regarding increase in establishment, wages , freight & carriage expenses during the year, compared to fast year. In order to increase business volumes, the assessee during the year was appointed as super stockiest of another 3 companies namely Shree Jee Food Products, Incite Home care ltd & Deep Trading co. During the year, the sales of assessee have increased by Rs.72.14 lacs & net profits have substantially increased by 5.78 lacs. The assessee has to incur additional expenses in the form of salaries & carriage outwards to push new products in the market by appointing new employees & approaching new dealers, accordingly the increase is justified. Further the assessee produced complete books of accounts & subsidiary details of these expenses during assessment proceedings & the Id. AO could not detect any defect in the accounts, rather acted on presumptions, which is against law.
( c) Regarding non maintenance of stock register, as the assessee is dealing in FMCG various items, it was not possible for assessee to maintain stock register, keeping in view large no. of items, dealt by assessee. It is well established law, that books of accounts cannot be rejected on non-maintenance of stock register, unless there are other evident factors available like substantial reduction in Gross Profit Rate/Net Profit Rate. The assessee has declared following Gross Profit & Net Profit rates of the last three years S. No Assessment Year Gross Profit Rate Net Profit Rate
1. 2009-10 2.50% 0.75%
2. 2010-11 2.50% 0.75%
3. 2011-12 2.50% 1.65% The assesses Gross Profit rate has remained constant during the current year as declared in proceeding two years & the profit rate has substantially increased during the current year compared to last years. The copies of financial statements along with copy of ITR of above mentioned years are enclosed.
Further, despite production of complete books of accounts & providing all possible cooperation by the assessee, the Ld. AO rejected the book results on following grounds.
a. Non - Disclosure of bank account maintained with JK Bank Bogal New Delhi. b. Excess credits of Rs.41, 39,644.00 in the bank account as compared to sales declared by assessee.
c. Increase in expenses like wages, establishment & freight.
d. Non - maintenance of stock register.
9 ITA No.506 (Asr)/2015
Asst. Year:2011-12
In addition to the aforementioned Written Submissions, the Ld. AR also submitted that despite production of complete books of accounts and providing all possible co-operation by the assessee, the Ld. AO while rejecting the books of account relied upon his own presumption and not supported by any concrete material, therefore, the rejection of book results is unjustified and results and application of net profit rate of 3% is not based on the facts and further confirmation by the Ld. CIT(A) is also against the justice.
6. On the other hand, the Ld. DR relied upon the order passed by the authorities below and submitted that the order specifically passed by the Ld. CIT(A) is well reasoned and logical order and does not requires to be interfered with.
7. We have gone through with the facts and circumstances of the case.
Grounds no. 1, 4 & 5 are formal in nature, hence does not requires specific adjudication.
Ground no. 2 relates to the addition of Rs.89,24,178/- as added by the AO as unexplained cash deposits/investment credit in the bank account of the assessee with J&K Bank Ltd., Branch Bogal, New Delhi. During the financial year 2011-12, it was not disclosed in assessee's financial statement as it reflects from the orders passed by the authorities below. The Ld. AR brought to the knowledge to the Revenue Authorities that the said bank account does not belongs to him nor he had carried out any transaction in the said bank account and the same stands opened by bank authorities without assessee's knowledge and in confirmation of said fact, the assessee submitted following documents before the Ld. AO.
10 ITA No.506 (Asr)/2015Asst. Year:2011-12
(a) Undertaking in writing the said bank account.
(b) Affidavit (c) Copy of complaint filed u/s 15 r.w. 16 of J&K State Consumers Protection Act
before the Hon'ble State Consumer Protection Commission under J&K Consumer Protection Act by the assessee.
The assessee filed complaint before the Hon'ble Court even before the assessee has received notices u/s 143(2) of the Income Tax Act, 1961 for the said assessment order.
(d) Petition filed by assessee before Hon'ble Court of Additional District Judge (Bank Cases) at Srinagar in terms of order 8 Rule 8A of Code of Civil Procedure (CPC) for directing the defendants to produce the documents upon which they rely in terms of the statement before the Hon'ble Court.
Even during the appellate proceedings pending before the Ld. CIT(A) the assessee in addition to the aforesaid documents while relying upon the following documents.
(a) Expert opinion dated 23.04.2014 sought by Hon'ble Court regarding signature/ withdrawal & account opening verification granted by Forensic Lab (IFS Pune) in favour of assessee.
(b) Second Expert opinion dated 03.03.2015 again sought by Hon'ble Court regarding signature/withdrawal and account opening verification given by SIFS Pvt. Ltd., New Delhi, in favour of assessee.
Alternatively, the Ld. AR, argued that even if it is presumed that the said bank account belongs to the assessee and the assessee has not disclosed the said bank account in the financial statement still entire cash deposits/Bank credit of Rs.89,24,174/- cannot be treated as income of the assessee. Since, the said sum represents, bank credits/cash deposits, out of which withdrawals also made and there remains a peak credit of Rs.17,236/- as on 10.05.2010. Under normal circumstances, in case of non disclosure of Bank account in financial statements owned by the assessee, either addition on account of peak 11 ITA No.506 (Asr)/2015 Asst. Year:2011-12 credit is made or the undisclosed transactions are added to turn over and net profit rate is applied. However, on the date of credit, the entire amount stands withdrawn, which can be verified from the bank statements and there hardly remains any credit in the Bank.
Let us to peruse the report of the IFS (Forensic Science Department, Pune) which is reproduced herein below:-
On the cumulative effect of all the above reasons and observations taken together, we are of the opinion that, 1) The questioned signature sample marked as (Q-1) seems that has not been written by the same writer who have written the admitted signature sample marked as (S-1) or Vice versa.; 2) The questioned signature sample marked as (Q-2) seems that has not been written by the same writer who have written the admitted signature sample marked as (S-2) or Vice versa.; 3) The questioned signature sample marked as (Q-3) seems that has not been written by the same writer who have written the admitted signature sample marked as (S-3) or Vice versa.; 4) The questioned signature sample marked as (Q-4) seems that has not been written by the same writer who have written the admitted signature sample marked as (S-4) or Vice versa.; 5) The questioned signature sample marked as (Q-5) seems that has not been written by the same writer who have written the admitted signature sample marked as (S-5) or Vice versa.; 6) The questioned signature sample marked as (Q-6) seems that has not been written by the same writer who have written the admitted signature sample marked as (S-6) or Vice versa.; 7) The questioned signature sample marked as (Q-7) seems that has not been written by the same writer who have written the admitted signature sample marked as (S-7) or Vice versa. Completely stability should be prove if sufficient length more admitted signatures available from the different source, having similar date/interval and from original document etc. these results may be affected by the certain factor as stated in observations, time interval, analysis, etc. For more accuracy various chemicals tests etc can be performed in forensic labs on original documents. It is always suggested that opinion of other two-three experts on same samples should be taken for maximum accuracy and strong opinion.
Further, the expert opinion of SAFS (Forensic Science Organization) is as under:
"After doing the in dept analysis of the provided documents, we have observed dissimilarities in the signatures which are significant and sufficient to reach a definite conclusion. All the described dissimilarities are unique in nature and beyond the range of natural variation and the writing habits between the signatures leads to a conclusion that the signatures of both the questioned and admitted written by the different writers."12 ITA No.506 (Asr)/2015
Asst. Year:2011-12 On perusal of the aforesaid handwriting experts/forensic science laboratory opinion, we are considered opinion that the prima facie the account does not belong to the assessee and even many proceedings are pending before various legal forms with regard to the controversy of the Bank account. Once the assessee has taken stands that the said account does not belong to the assessee and from the various complaints lodged by the assessee to different authorities and specifically expert opinions given by the forensic experts department as well as by SAFS in favour of the assessee. From the documents, expert opinions and complaints of the assessee to many authorities, goes to show that there is a dispute with regard to the account under scrutiny which seems to be suspicious and it is settled law that the addition can not be made on suspicion and surmises , hence, for the disputed account, the liability of the assessee cannot be fastened. As we realize that the Ld. CIT(A) has not considered the expert opinion reports issued by the Forensic Science Department, Pune, Govt. of Indian and by SAFS (Forensic Science Organization, India) and the same has not been disputed by the Department, hence, we find the order passed by the Ld. CIT(A) for confirmation of the addition of Rs.89,24,178/- as perverse, improper and irregular. Hence, we deleted the said addition. Ground no.2 stands allowed.
Ground No.3 relates to the confirmation of the turnover of assessee as Rs.5,05,32,668/- which is inclusive of VAT, instead of Rs.4,63,93,024/- and also upholding of application of NPA @ 3% on said turnover by the Ld. CIT . Assessing Officer applied NPA @ 3% , by adding excess bank credits of Rs.41,39,644/- in the assessee regular books of account compared to sales declared by the assessee and also increase in establishment, wages, freight and carries expenses during the year, compared to last year and non maintenance of stock register the said net profit rate @ 3% was confirmed by the Ld. CIT(A) by 13 ITA No.506 (Asr)/2015 Asst. Year:2011-12 observing that the net profit rate is to be applied on turn over which is inclusive of sales tax/VAT and not on the net sale figure. The guidance Note of Sec.44AB of the Act was issued by the Chartered Accounts of India, and it was clarified that the "turn over" would include the excise duty and sales tax even if the assessee has not included the same in P&L Account.
The Ld. AR had drawn our attention to the Guidance Note on tax audit u/s 44AB of the Income Tax Act, 1961, the turn over has been defined under clause 5.7 which is reproduced herein below.
"5.7 The term 'turnover' for the purposes of this clause may be interpreted to mean the aggregate amount for which sales are effected or services rendered by an enterprise. If sales tax and excise duty are included in the sale price, no adjustment in respect thereof should be made for considering the quantum of turnover. Trade discounts can be deducted from sales but the commission allowed to third parties. If, however, the Excise duty and/ or sales tax recovered are credited separately to Excise Duty or Sales tax Account (being separate accounts) and payment to the authority are debited in the same account, they would not be included in the turnover. However, sales of scrap separately under the heading 'miscellaneous income 'will have to be included in turnover."
As the ld. AR argued that the excise bank credits of Rs.41,39,600/- as pointed out by the Ld. AO in fact inclusive of Rs.39,68,341/- which represents out put tax calculated by the assessee and sales are shown as net of out put tax in the P & L Account by the assessee, which is allowed practice as per accounting norms and the assessee duly provided the details of said out put tax to the Ld. AO during the assessment proceedings. However, he has not paid any head to the same.
We have gone through with the facts and circumstances, and also given thoughtful consideration to the order passed by the authorities below and the submissions of the parties while going 14 ITA No.506 (Asr)/2015 Asst. Year:2011-12 through the Guidance Note on Sec.44AB issued by Institute of Chartered Accountant of India , it emerged that the turn over does not include excise duty or sale tax recovered if the same are credited separately to excise duty or sales tax account (being separate account) and payments to the authority are debited in the same account, as in the instant case, the assessee's claim of Rs.39,68,341/- out of excess bank credits amount of Rs.41,39,644/- as out put tax collected by the assessee and total sales have been shown as Rs.4,63,93,024/- which excluding the out put tax, which is shown separately by the assessee and even Commercial Tax Department, Srinagar, also made assessment for the year under consideration and confirmed the sales and purchase of the assessee on the aforesaid reasoning. We are in concurrence with the submissions of the assessee that the excise duty and/ or sales tax credited separately in separate account and payments to the authority are debited in the same account, then would not be included in the turn over. With the aforesaid observation, we direct the Assessing Officer to exclude the VAT out put tax from the total sales of the assessee.
Considering the substantial increase of the net profit rate from 0.75 to 1.65% in the financial year under consideration as the Ld. AR has submitted that the during the year under consideration, the assessee was appointed as super stockiest of another three companies namely Sh. Jee Food Products, Incite Home Care Ltd. and Deep Trading Co. thereafter, the sale of assessee has increased by Rs.72.14 Lacs and net profit have substantially increased by 5.78 Lacs. The assessee has to incur additional expenses in the form of salaries and carriage outwards to push new products in the market by appointing new employees & approaching new dealers, accordingly, the increase is justified.
15 ITA No.506 (Asr)/2015Asst. Year:2011-12 We found force in the contention of the assessee as he was appointed as super stockiest of another three companies as referred above, then certainly there must be additional expenses which are supposed to be incurred for marketing the new products for its circulations.
Further with regards to the estimate the net profit rate @ 3%. In the instant case, the book of accounts was rejected by the Assessing Officer on the grounds that there are differences in turn over and reason of same was not explained by the assessee and further the assessee was not able to produce the documentary evidence in respect of various expenses claimed by him, therefore, the AO was left with no option but to make best assessment by application of net profit rate.
We are in agreement with the conclusion drawn by the A.O. as well as Ld. CIT (A) for rejection of the books of account, however, once the books of accounts has been rejected then the A.O.is supposed to make a best judgment assessment but subject to certain parameters of the previous history of the assessee as the assessee has declared following gross and Net profit rates of the last three years.
S. No. Asst. Year Gross Profit Rate Net Profit Rate
1. 2009-10 2.50% 0.75%
2. 2010-11 2.50% 0.75%
3. 2011-12 2.50% 1.65% Therefore, considering the peculiar facts and peculiar circumstances of the instant case and average NPA of previous years, we feel it appropriate to apply net profit rate @ 2.25%, hence, we direct the A.O. to apply NPA Rate @ 2.25%. In result, Ground No.3 of the assessee stands allowed.
16 ITA No.506 (Asr)/2015Asst. Year:2011-12 In the result, the appeal filed by the assessee is stands allowed.
Order pronounced in the open Court on 04.10.2017.
Sd/- Sd/-
(T. S. KAPOOR) (N.K.CHOUDHRY)
ACCOUNTANT MEMBER JUDICIAL MEMBER
Dated: 04.10.2017.
/PK/ Ps.
Copy of the order forwarded to:
(1) The Assessee:
(2) The
(3) The CIT(A),
(4) The CIT,
(5) The SR DR, I.T.A.T.,
True copy
By order