Income Tax Appellate Tribunal - Indore
Manohar Sweets, Indore vs Assessee on 15 September, 2009
1
IN THE INCOME TAX APPELLATE TRIBUNAL,
INDORE BENCH, INDORE
BEFORE SHRI JOGINDER SINGH, JUDICIAL MEMBER
AND
SHRI R.C. SHARMA, ACCOUNTANT MEMBER
ITA Nos.555 & 556/Ind/2009
A.Ys. - 2005-06 & 2006-07
M/s. Manohar Sweets,
2, Jawahar Marg, Indore
PAN - AAFFM 4058 E ... Appellant
Vs
ITO-4(2), Indore ... Respondent
And,
ITA Nos.568 & 569/Ind/2009
A.Ys. - 2005-06 & 2006-07
ITO-4(2), Indore ... Appellant
Vs
M/s. Manohar Sweets,
2, Jawahar Marg, Indore
PAN - AAFFM 4058 E ... Respondent
Appellant by : Shri Akshat Singhai, CA
Respondent by: Shri Pradeep Kumar Mitra, Sr. DR
O R D E R
PER JOGINDER SINGH, Judicial Member
These cross-appeals are by the assessee as well as by the revenue against the common order of the learned CIT(A)-II, Indore, 2 dated 15.9.2009. The assessee has raised the following common grounds:-
i. That the learned Commissioner of Income Tax (Appeals) has erred in confirming the estimated sales at Rs. 210 lacs (A.Y. 2005-06) & Rs. 250 lacs (A.Y. 2006-07) as against disclosed sales of Rs. 186.97 lacs (A.Y. 2005-06) & Rs.227.68 lacs and G.P. @ 36% (A.Ys. 2005-06 & 2006-07) & thereby confirming addition of Rs. 13.74,610/- (A.Y.2005-06) & Rs.15,80,930/- (A.Y. 2006-07) to the trading results, respectively.
ii. That the learned Commissioner of Income Tax (Appeals) has erred in approving the A.O.'s action in invoking provisions of section 145(3) for both the assessment years.
iii. That the order is illegal and wrong. The Revenue has raised the following grounds in ITA No.568/Ind/2009 (A.Y. 2005-06):
i. On the facts and in the circumstances of the case, the order of the learned Commissioner of Income-tax (Appeals) is contrary to the facts and law.
ii. On the facts and in the circumstances of the case, the learned Commissioner of Income-tax (Appeals) erred in sustaining addition of only Rs.13,74,610/- as against addition of Rs.71,49,560/- made by the A.O. by adopting the G.P. rate at 38.5% on estimated sales of Rs.2.10 Crore.
The Revenue has raised the following grounds in ITA No.569/Ind/2009 (A.Y. 2006-07):3
i. On the facts and in the circumstances of the case, the order of the learned Commissioner of Income-tax (Appeals) is contrary to the facts and law.
ii. On the facts and in the circumstances of the case, the learned Commissioner of Income-tax (Appeals) erred in sustaining addition of only Rs.15,80,930/- as against addition of Rs.36,56,994/- made by the A.O. by applying provision of section 145(3) of the I.T. Act.
2. During hearing of these appeals, we have heard Shri Akshat Singhai, ld. Counsel for the assessee and Shri Pradeep Kumar Mitra, learned Sr. DR. The assessee moved application for adjournment on 21.1.2011 but at the time of hearing, the same was withdrawn, therefore, the application of the assessee is dismissed as withdrawn. First, we shall take up appeals of the assessee (ITA Nos.555 & 556/Ind/2009) wherein the first common ground raised is that the ld. first appellate authority erred in confirming the estimated sales against the disclosed sales and confirming the consequent addition of Rs.13,74,610/- and Rs.15,80,930/-, respectively, to the trading results. The crux of arguments on behalf of the assessee is that the estimation is excessive, arbitrary and illegal as no basis for the same was adopted by the ld. CIT(A). On the other hand, the ld. Sr. DR defended the impugned order by contending that the stand of the ld. CIT(A) is quite justified though the Revenue has also challenged the estimation of G.P. in its appeals. 4
3. We have considered the rival submissions of ld.
representatives of both sides and perused the material available on record. The brief facts are that the assessee firm deals in preparation of sweets and namkeen sold through retail counters and is a reputed food joint at Bhopal. The case of the assessee was selected for scrutiny, therefore, the notice was served upon the assessee which was challenged before the Hon'ble High Court. Before the Assessing Officer, the assessee was asked to produce sale bills and sale slips for FY 2004- 05 issued to the customers in respect of cash sales/credit sales. Only credit sale bills were produced. As per the Revenue, certain slips were impounded during the survey, which were only produced, therefore, the assessee could have proved the sanctity of sales. As per the Assessing Officer, the sales could not be proved with any evidence inspite of repeated requests made by him. The assessee was also having registrex machine so registering retail sales at the counter. The stand of the assessee was that each and every minute details are not being recorded in the books of the assessee. In the absence of such details, the assessee was asked to explain as to why the provisions of section 145(3) of the Act should not be applied. In its reply the stand of the assessee was that "in this line of business, where the assessee firm is churning out more than 100 items at any given time, it is extremely difficult to provide itemwise details, yield and wastage. Admittedly, the 5 stock register was not produced with the books and the cash sales were not evidenced and also there were no details of production. However, yield and wastages were produced during survey which is indicative of the fact that the assessee was maintaining these details, consequently, the provisions of section 145(3) of the Act were applied. The learned Assessing Officer analysed the preparation of Mawa sweets, other sweets, sweets made from ghee, dry fruits like Kaju and Badam, Namkeen and estimated the total sales at Rs.2,58,46,173/- out of which the sales to the tune of Rs. 1,86,96,613/- were already disclosed in the return thus the difference of Rs.71,49,560/- was added to the total income of the assessee. The income of the assessee was finally assessed at Rs.75,54,280/-. Likewise for the assessment year 2006-07 the income was assessed at Rs.46,21,865/-. The assessment by applying the conversion factor was completed which is summarized as under :-
A.Y. 2005-06 S.No. Variety of sweets Conversion Sales factor estimated A.Y.2005-06 (Rs.) A.Y. 2005-06 1 Mawa Sweets 4.69 49,35,057 2 Milk Bengali and other sweets 3.05 28,05,677 3 Sweets made from ghree 4.88 28,05,677 4 Sweets made from dry fruits 2.12 20,50,794 6 a. Kaju 2.26 2,93,761 b. Badam 5 Namkeens 3.00 14,34,141 Total 2,58,46,173 A.Y. 2005-06 S.No. Variety of sweets Conversion Sales factor estimated A.Y.2006-07 (Rs.) A.Y. 2006-07 1 Mawa Sweets 2.56 26,57,246 2 Milk Bengali and other sweets 3.20 1,40,84,588 3 Sweets made from ghree 4.09 46,23,508 4 Sweets made from dry fruits c. Kaju 1.92 29,14,212 d. Badam 2.56 5,82,039 5 Namkeens 3.00 15,45,615 Total 2,64,25,268 The learned Assessing Officer added the difference amount of sales disclosed by the assessee and estimated by him. Before the learned Commissioner of Income Tax (Appeals) detailed written submissions were furnished by the assessee contradicting the findings recorded in the assessment order along with comparative statement of sales which were forwarded to the learned Assessing Officer for remand report. In turn the learned Assessing Officer also furnished a detailed reply which was confronted to the assessee which has been analysed at page 6 7 onwards of the impugned order. Both the replies of the assessee as well as of the learned Assessing Officer were examined by the learned Commissioner of Income Tax (Appeals) and ultimately he upheld the rejection of books of accounts by invoking the provisions of section 143(3) of the Act and partly allowed appeals of the assessee sustaining the addition of Rs.13,74,610/- and Rs.15,80,930/- respectively which is under challenge before this Tribunal.
4. It is seen that while coming to a particular conclusion, the learned Commissioner of Income Tax (Appeals) has examined the conversion factor and the resultant sales which as per him were not proper by enumerating certain important factors which are as under :-
"i. Same ingredients/raw materials i.e. mawa and dry fruits are utilised in preparation of various sweets and neither mawa is confined to preparation of pure mawa sweets nor are the dry fruits confined to the usage in dry fruit sweets as is obvious and is common knowledge.
ii So is the position about ghee and oil is by and large used for almost all the preparations except Bengali sweets, in varying quantity and proportion.
iii. Milk as has been rightly pointed out by the appellant is again used in sweet preparations besides being converted into dahi and lassi as well for preparation of tea and coffee for staff members and it cannot be summarily held that the entire milk so purchased is sold or utilised for preparation of chhena or khoa and finally utilised in preparation of Bengali sweets. iv. Then there are other obvious factors like sweets being offered to customers for tasting purposes, shortage in mawa due to moisture factor, wastage of raw material in the sweet preparation process involving heating as well cleaning. So also, when sweets are sold over the counter, in different weights ranging from 100 - 200 gms to 1-5 kg, it has to be borne in mind that the weight cannot be very precise and accurate and for building up reputation, the appellant cannot 8 resort to delivery of under-weight goods and small difference in weight in various sales transactions in a day would add to a significant quantity at the end of the day.
v. Finally, it has also to be borne in mind as the A.O. has admitted that the appellant has built up a reputation for itself in the matter of quality of products and accordingly some of the final products being destroyed on account of such preparation not coming upto the mark also cannot be entirely ruled out. So also the fact that some of the sweet preparation which are not sold needs to be destroyed on account of souring or other natural factors after brief period of self life of such sweets has to be again borne in mind.
vi. Lastly, some part of other preparation being consumed by the employees of the organization has also to be taken into consideration while estimating sales.
In the light of the above, the ld. first appellate authority estimated the sales at Rs.2.10 crores and Rs.2.50 crores for respective Assessment Years against disclosed sales of Rs.186.97 lacs and Rs. 227.68 lacs.
The assessee disclosed gross profit at 41% on the sales of Rs.75.52 lacs (assessment year 1996-97), 37.25% and 39.2% for the assessment year 1997-98. The learned ld. first appellate authority has already considered the earlier decision of the Tribunal while accepting the trading results, consequently he adopted the gross profit rate of 36% on the sales by further placing reliance upon the decision of the Hon'ble jurisdictional High Court in the case of Brijlal Manilal & Company Vs. CIT (92 ITR 287). If the totality of facts is analysed, we find that the learned ld. first appellate authority has adopted a practical and reasonable approach in coming to a particular conclusion by examining the claim of the assessee along with the stand of the learned Assessing Officer, 9 therefore, already a reasonable view has been taken, therefore, no interference is required, consequently, the order of the learned Commissioner of Income Tax (Appeals) is upheld.
5. So far as the appeals of the revenue are concerned, since we have upheld the action of the learned Commissioner of Income Tax (Appeals) by dismissing the appeals of the assessee, therefore, there is no merit in the appeals of the revenue, consequently, the same are dismissed.
6. Finally, the appeals of the assessee as well as of the revenue are dismissed.
Order pronounced in open Court in the presence of learned counsel of both sides at the conclusion of hearing on 24.1.2011.
(R.C.SHARMA) (JOGINDER SINGH)
ACCOUNTANT MEMBER JUDICIAL MEMBER
Dated: 31.1.2011
Copy to: Appellant, Respondent, CIT, CIT(A), DR, Guard File !vyas!