Income Tax Appellate Tribunal - Chandigarh
Chaman Lal & Co. vs Income Tax Officer (Ito V. Chaman Lal & ... on 8 June, 1995
Equivalent citations: (1995)53TTJ(CHD)241
ORDER
N.K. AGRAWAL, J.M. :
Since the issues involved in these cross-appeals relating to two assessees, for the same asst. yr. 1989-90, are common, these were heard together and are being disposed of by this consolidated order, for the sake of convenience.
2. In the case of Chaman Lal & Co., return had been filed showing total income at Rs. 23,190. Gross profit had been shown at Rs. 53,273 on total sales amounting to Rs. 31,26,863. The Assessing Officer (AO) was of the view that the assessee had not maintained sale vouchers and the sales were not verifiable. The assessee was dealing in country liquor as a wholesaler and as a L-13 licensee. The assessee was required to produce the sale vouchers but since no such voucher had been maintained at all, the assessee could not comply with the direction of the AO. Therefore, the sales were estimated at Rs. 46,50,000. The assessee went in appeal and the sale was reduced to Rs. 39,00,000. Thus, the addition made by the AO at Rs. 15,23,137 was reduced to Rs. 7,73,137.
3. In the case of Rattan Lal & Co., the assessee had filed return showing total income at Rs. 67,370. Gross profit had been shown at Rs. 1,00,586, on total sales amounting to Rs. 60,75,742. In this case also, the assessee has not maintained the sale vouchers and, therefore, the AO was of the view that the sales were not verifiable. Sales were, therefore, estimated at Rs. 90 lakhs. The assessee went in appeal and the estimate of sales was reduced to Rs. 80 lakhs (Rs. eighty lakhs only). Thus, the addition made by the AO at Rs. 29,24,258 was reduced to Rs. 19,24,258.
4. The learned counsel has submitted that the assessee, being a L-13 licensee, was required to make supply of country liquor to the retailers at the price fixed by the Excise & Taxation Commissioner under the Excise Policy of the Himachal Pradesh Government. It is stated that the quantity as well as the price had both been fixed by the excise department and there was no occasion for the assessee to make any sales except under the authorisation issued by the Excise authorities. Supplies were made to the retailer against the excise passes issued by the excise inspector. The assessee could not carry any supply on the basis of sale vouchers unless there was an excise pass against the supply. The stock register had been maintained and had been checked from time to time by the excise authorities. Whenever a supply was made, details were duly recorded in the stock register and pass was also entered therein. The pass was prepared by the excise inspector in duplicate, a copy of which was retained by the Inspector himself and the other handed over to the retailer for obtaining supply from L-13 licensee. The learned counsel has submitted that there was no scope for the assessee to make any sale outside the stock register and the books of account could not be rejected only because sale vouchers had not been maintained. It has been explained that the assessee was new to the whole-sale business in country liquor and since it was the first year of business, they did not maintain sale vouchers. In subsequent year, they took care to prepare sale vouchers against all the supplies and the sales have been accepted not only in assessment made under S. 143(1) but also under S. 143(3). The books of account are said to be audited. The learned counsel has also stated that all the purchases were duly vouched and the assessee was required to make purchases from the distillery under authorisation issued by the Excise authorities. The AO did not choose to reject the purchases but simply estimated the sales without there being any basis. It is contended that the cash book as well as ledger had been duly maintained, wherein purchases and sales have been entered. Since the purchases were not rejected or doubted, there was no occasion to enhance sales without giving any finding about the rate of gross profit. The assessee had shown the gross profit at 1.66%. The learned counsel has pointed out that the sale price was fixed by the Excise Commissioner under the Excise policy of the Govt. and that price consisted of three constituents, namely, purchase price payable to the distillery, Excise duty payable to the Govt. and the surcharge for meeting various expenses, like godown rent, transport charges and also the element of profit of the wholesaler. The learned counsel had vehemently argued that when the quantity as well as the price had been duly fixed under law, there was no occasion to raise a presumption that the assessee could derive a higher profit than what had been determined by the Excise authorities. It is also pointed out that no defects were found in the books of account and mere absence of sale vouchers was not sufficient to apply S. 145(1). Reliance has been placed on the decision of the Patna High Court in the case of Md. Umer vs. CIT (1975) 101 ITR 525 (Pat). That was also a case where the assessee was a dealer in country liquor and sales were not verifiable because the assessee had not maintained cash memos. The transactions had been noted in the books of account in lump sum. It was held that the books could not be rejected under S. 145(1) because no finding had been recorded as to the unacceptability of the method and irregularity of the account kept by the assessee.
5. The learned Departmental Representative has, in reply, submitted that the absence of sale vouchers constituted a sufficient ground to attract application of proviso to S. 145(1). In the absence of vouchers, sales were not at all verifiable and since the correctness of the sales were found to be doubtful, sales were rightly estimated. It is also stated that the G.P. rate of 1.66% was too low and estimate of sales was made in view of low G.P. rate shown by the assessee. The learned Departmental Representative has also pointed out that whatever entries were recorded in the stock register, these were not sufficient for the purposes of verification of sales because the sale price had not been entered in the stock register.
6. We have considered the rival contentions and we are of the view that the AO was not right in applying S. 145(1) on the ground that the sale vouchers had not been maintained. The assessee had maintained four books of account and the most important document was the stock register. It contained the supplies received from the distilleries and the supplies made to the retailers against Excise passes. All the necessary details were recorded on day-to-day basis in the stock register. Whatever verification was required to be made, that could easily be made with the help of the purchase vouchers as well as stock register. There is no denial to the assessees case that no supply could be made against sale vouchers unless there was an Excise pass accompanying the stock being supplied to the retailers. Mere absence of sale vouchers does not appear to be sufficient to warrant application of proviso to S. 145(1).
7. So far as estimate of sale is concerned, neither the AO nor the first appellate authority has assigned any reason or basis on which the estimate has been made. Once the purchases have been accepted and have not been doubted, the sales could only be enhanced either on the ground that particular G.P. rate was found to be inappropriate or for the reason that certain unaccounted sales have been detected. Neither of the two things has been discussed by either of the two Revenue authorities. The AO has simply observed that the G.P. rate shown by the assessee was quite low. It is not cleat as to what G.P. rate was adopted so as to make the enhancement in sales. The expenses have also not been doubted. The assessee could make the purchases under the authorisation only and the purchases were duly verifiable from the vouchers and on enquiry from the distillery.
8. As regards sales, these could be verified from the stock register and also on enquiry from the retailers. It appears that the AO did not make any enquiry either for verification of the purchases or for looking into the correctness of the sales. No defects have been pointed out. In these circumstances, we are of the view that the sales estimated in the case of Chaman Lal & Co. at Rs. 39 lakhs, have no basis. Similarly, in the case of Rattan Lal & Co., the estimate finally made at Rs. 80 lakhs also appears to be without basis. No comparable case has been cited in either of the two cases for adopting the estimate of sales. It is an admitted fact that the assessee had maintained cash book and ledger. It is also not challenged that the quantity as well as sale price are fixed by the Excise authorities and the assessee had to make supplies accordingly. The profit, which was a part of the surcharge fixed by the Excise authorities could not be said to be higher unless there was some material on record to indicate that the assessee did charge higher profit than what had been determined by the Excise authorities while fixing the price of the supply. It is also noted that the sale price has been treated to be income in the hands of the assessee. It is difficult to agree as to how the entire sale proceeds would be deemed to be the profit. If the assessee did make supply by over-charging, the element of profit in the sale price could alone be treated to be the assessees additional income. The entire sale proceeds cannot be said to be the income/profit in the hands of the assessee. The stock register maintained by the assessee has not been doubted. And it will not be appropriate to draw a conclusion that the supplies recorded in the stock register were not correctly entered. It is correct that this was the first year of the business and the assessee failed to maintain the sale vouchers. In the subsequent year, the assessee started issuing sale vouchers against the supplies and sales have been accepted. It is thus clear that the sales have not been doubted in subsequent year because sales were made against vouchers. In the year under appeal, the sales have been rejected only because vouchers had not been issued. The purchases, the expenses and other payments have not been doubted at all. The stock register has been maintained as required under the Excise Rules. The AO could have examined the stock register so as to verify, if the supplies recorded were in order, or not. It is not so done. The estimate made in both the cases has no basis at all. If purchases have been accepted, the sales could not be enhanced unless there was a finding that a specific profit rate is found to be applicable in this line of trade. Neither the AO nor the first appellate authority has adopted any specific profit rate. The enhancement appears to be arbitrary and on ad hoc basis. Moreover, as already seen, the entire sale proceeds could not be treated to be profit in the hands of the assessee. In these circumstances, we find that the assessees appeals deserve to be accepted and the Revenues appeals, against the reduction in enhancement made by the first appellate authority are liable to be rejected.
9. In the result, the assessees appeals are allowed and the Revenues appeals are dismissed.