Income Tax Appellate Tribunal - Mumbai
Laxmi Auto Plaza P. Ltd , Mumbai vs Department Of Income Tax on 11 December, 2014
IN THE INCOME TAX APPELLATE TRIBUNAL,
MUMBAI BENCH "A", MUMBAI
BEFORE SHRI D. KARUNAKARA RAO, ACCOUNTANT MEMBER AND
SHRI SANJAY GARG, JUDICIAL MEMBER
ITA No.2542/M/2010
Assessment Year: 2006-07
Income-tax Officer 9(2)-2, M/s. Laxmi Auto Plaza Pvt.
Aayakar Bhavan, Ltd.,
R.No.225, 2nd Floor, Suraj Building,
Vs.
M.K. Road, Gajdhar Bandh Road,
Mumbai - 400 020 Santaruz (W),
Mumbai - 400 052
PAN: AAACL3678A
(Appellant) (Respondent)
Assessee by : Shri Prakash Jhunjhunwala, A.R.
Revenue by : Shri Asghar Zain VP, D.R
Date of Hearing : 09.10.2014
Date of Pronouncement : 11.12.2014
ORDER
Per Sanjay Garg, Judicial Member:
The present appeal has been preferred by the Revenue against the order dated 25.01.10 of the Commissioner of Income Tax (Appeals) [(hereinafter referred to as CIT(A)] relevant to assessment year 2006-07.
2. The Revenue has taken the following grounds of appeal:
"On the facts and in the circumstances of the case and in law the Id. CIT(A) erred in restricting the disallowance at 3% i.e. at Rs.29,42,380/- as against the 10% i.e. at Rs.1,02,63,160/- made by the assessing officer relying on the assessee's records for subsequent year. The Ld. CIT (A) erred in appreciating the fact that the assessment is made a best judgment u/s. 144 of the IT Act, and the assessee itself is to be blamed for not submitting proper accounts. It is to be noted that every assessment is sui generis and no res-judicata is applicable and accordingly earlier or subsequent assessment will have no binding effect on the assessment made for the year under consideration unless and until the facts ITA No.2542/M/2010 2 M/s. Laxmi Auto Plaza Pvt. Ltd are same or similar.
2. On the facts and in the circumstances of the case in law the Ld. CIT (A) erred in appreciating the fact that in assessee's own for the Asstt. Year 2005- 06, the Ld. CIT(A) restricted the estimation of income at 10% of the turnover which too was not accepted by the department and second appeal is filed before the Hon'ble ITAT.
3. On the facts and in the circumstances of the case and in law the Ld. CIT(A) erred in restricting the estimation at 3% of turnover as against 10% without any reasonable and cogent reasons, and failed to appreciate the fact that the assessee had adopted a recalcitrant attitude of non-compliance, by not furnishing even the rudimentary details called for during the assessment proceedings.
4. The appellant prays that the order of the CIT(A) on the grounds be set aside and that of the Assessing Officer be restored.
5. The appellant craves leave to amend or alter any grounds or add a new ground which may be necessary."
3. The brief facts of the case are that the assessee is engaged in the business of trading in secondhand vehicles both as stockist and consignee. The assessee returned its income at Rs.10,50,780/-. Due to various discrepancies in the accounts of the assessee and also due to non compliance of the directions & non furnishing of the requisite details, the Assessing Officer (hereinafter referred to as the AO) completed the assessment on best judgment basis under section 144 of the Income Tax Act (hereinafter referred to as the Act) determining the total income of the assessee at Rs.1,02,63,160/-. While doing so, the AO compared the audit accounts of the year under consideration with that of the immediately preceding year and thereafter observed that the cost of goods sold had increased to 97% of the sales during the year under consideration as compared to that at 83.41% in the last year for which no explanation was offered by the assessee. The AO noted that the assessment in the immediately preceding year was made in similar circumstances and on appeal, the Ld. CIT(A) had directed the AO to take 10% of the turnover as ITA No.2542/M/2010 3 M/s. Laxmi Auto Plaza Pvt. Ltd income of the assessee. The AO observed that the business activities of the assessee remained the same during the year under consideration. He accordingly estimated the income at the rate of 10% of the total turnover for this year also. The AO adopted the total turnover at Rs.10,26,31,581/- which included other income of Rs.45,52,251/- and assessed the income of the assessee at Rs.1,02,63,160/-.
4. It was submitted by the assessee before the Ld. CIT(A) that the facts of earlier year were altogether different from the year under consideration. During the current year, the assessee had shifted its business into 'consignment business' i.e. without maintaining stock, whereas in earlier year the assessee's business was of stockist of vehicles. The diversion of assessee's business from stockist of vehicles into consignment of vehicle had led to an increase in sales turnover of over seven times from 135.72 lakhs to Rs.980.79 lakhs. It was also submitted that the profit margin in consignment business was much lower i.e. at the rate of 1-2% as compared to stockist business. It was also explained that since there was no involvement of funds and risk was negligible, hence the profit margin was lower. It had also been submitted before the Ld. CIT(A) that in scrutiny assessment for subsequent assessment year i.e. 2007-08 the AO had assessed the total income at Rs.94,470/- after making the addition of Rs.1,00,000/- due to fall in G.P/N.P rate which was at only 0.75% of sales. After considering the submissions of the Ld. representative of the assessee, the Ld. CIT(A) estimated the income of the assessee at the rate of 3% of the sales at Rs.29,42,380/- against Rs.1,02,63,160/- assessed by the AO at the rate of 10% of the turnover. The relevant part of the order of the Ld. CIT(A) is reproduced as under:
"5. I have cons ide red t he dispute. The appellant company is e ngaged in the business of trading in 2 nd hand vehicles as stockists in which it buys ITA No.2542/M/2010 4 M/s. Laxmi Auto Plaza Pvt. Ltd and sales such vehicles; and on consignment basis in which the purchase and sale take place through the suppliers of the vehicles. The consignment business does not require much capital as it does not involve investment in stock-in--trade, after sales service and registration of vehicles. The AO has merely relied on the assessment completed last year and the %age profit adopted consequent to order of the CIT(A). It is to be noted that earlier assessment will not have a binding effect in subsequent years if the facts are not same or similar. The A.O while estimating total income @ 10% of turnover ignored the fact that sale turnover in the current year had multiplied seven times. The net profit is not expected to increase in the same proportion. Further a fixed rate of 10% of the turnover cannot be applied for estimating the income when the turnover comprised mainly consignment sales this year. This can be seen from the table below:
Particulars A.Y. 2005-06 A.Y. 2006-07 A.Y. 2007-08 (Rs.in Lacs) (Rs. in Lacs) (Rs. in Lacs) Sales 135.72 980.79 1290.23 Less : Cost of 113.22 951.43 1252.02 goods sold GP Rs. 22.50 29.36 38.21 GP (% on sales) 16.58% 3.00% 2.96% Add: Other 27.79 45.52 14.08 business Income Operating 50.29 74.88 52.29 Income Less: Expenses 47.52 64.93 41.22 Book Profit 2.77 9.95 11.07 (Rs.) % on sales 2.04% 1.01% 0.86% Assessee income 13.57 102.63 9.44 (Rs.) % on sales 10 10.5 0.7
5.2 The table above shows the figures of the succeeding assessment year as the AO has completed the assessment on 14-12-2009 during pendency of this appeal. It is seen from the assessment order that the AO has assessed the appellant's income at Rs.9,44,970 after making addition of Rs.1,00,000 to the returned income on account of fall of G.P./N.P. rate. The assessed income is only 0.7% ITA No.2542/M/2010 5 M/s. Laxmi Auto Plaza Pvt. Ltd 0 of the sales which again comprises mainly consignment sales. In other words, the facts of the subsequent year are similar to those of the current year. Still the AO made assessment almost accepting the book profit of Rs.0.86% on sales as declared in the return. It is thus clear that the AO has made estimation in the current year on assumptions and surmises without bringing any material to justify that the appellant would have earned a huge income of Rs.1,02,63,160 as against Rs.10,50,780 disclosed in the return of income.
5.3 It is well-settled that in a best judgment assessment there is always a certain degree of guess work. No doubt the AO concerned should try to make an honest and fair estimate of the income even in a best judgment assessment, and should not act totally arbitrarily, but there is necessarily some amount of guess work involved in a best judgment assessment, and it is the assessee himself who is to blame as he did not submit proper accounts [see Kachwala Gems vs JClT 288 ITR 10 (SC)]. However, in this case there is arbitrariness on the part of the AO if the facts of the current year are compared with those of the last year and again with those of the succeeding year. There is no justification to adopt 10% of turnover as income this year w hen the AO has assessed the income of the appe lla nt in the same circumstances at 0.7% of the turnover in the subsequent year. However, given the fa cts that the appella nt is only to blame for the guess w ork , it w ill not be unreasonable it the income is assessed at the rate of 3% of the sales turnover of the current year in the light of book profit declared at the rate of 2.04% on sales last year even though the sales comprised mainly on account of trading as stockists. In the result, I estimate the income of the current year at Rs.29,42,380 @ 3% of sales of Rs.9,80,79,330 instead of Rs.1,02,63,160 assessed by the AO. The appellant gets relief of Rs.73,20,780.
6. In the result, the appeal is partly allowed."
4.1 Aggrieved by the order of the Ld. CIT(A), the Revenue has come in appeal before us.
5. We find that the order of the Ld. CIT(A) is well reasoned. The assessee has explained that the facts and circumstances for the year under consideration were altogether different from that of preceding year. The assessee had diverted its business from being stockist of vehicles into consignee of the vehicles. Since there was not much requirement of investment of funds in consignment business, hence the risk factor involved was negligible. The turnover for the year under consideration had considerably increased in ITA No.2542/M/2010 6 M/s. Laxmi Auto Plaza Pvt. Ltd comparison to last year. It is commonly observed that when turnover is increased the profit margin is generally decreased. The assessed income of the assessee for the year under consideration even at the rate of 3% of the turnover at Rs.29.40 lakhs was much more than the assessed income at the rate of 10% of the turnover of the preceding year at Rs.13.57 lakhs. The Ld. CIT(A), after taking into consideration the facts and circumstances of the case and also taking into consideration the assessed income of the assessee in the subsequent year, has directed the assessment of income at the rate of 3% of the total turnover. We do not find any infirmity in the well reasoned order of the Ld. CIT(A) and hence the same is upheld.
6. In the result, the appeal of the Revenue is hereby dismissed.
Order pronounced in the open court on 11.12.2014.
Sd/- Sd/-
(D. Karunakara Rao) (Sanjay Garg)
ACCOUNTANT MEMBER JUDICIAL MEMBER
Mumbai, Dated: 11.12.2014.
* Kishore, Sr. P.S.
Copy to: The Appellant
The Respondent
The CIT, Concerned, Mumbai
The CIT (A) Concerned, Mumbai
The DR Concerned Bench
//True Copy// [
By Order
Dy/Asstt. Registrar, ITAT, Mumbai.