Income Tax Appellate Tribunal - Pune
Radheshyam Bherulal Bhandari, Satara vs Department Of Income Tax on 7 October, 2009
IN THE INCOME TAX APPELLATE TRIBUNAL
PUNE BENCH " B", PUNE
BEFORE SHRI I C SUDHIR, JUDICIAL MEMBER
AND SHRI G.S. PANNU, ACCOUNTANT MEMBER
ITA No 55/PN/10
(Asstt. Year: 2006-07)
Dy.Commissioner of Income-tax, .. Appellant
Satara Cir., Satara
Vs.
Shri Radheshyam B Bhandari .. Respondent
Market Yard, Satara
PAN ABHPB7882R
Appellant by : Smt Ann Kapthuama
Respondent by : Shri M K Kulkarni
ORDER
PER G.S.PANNU, A.M:
This appeal by the Revenue is directed against the order of the Commissioner of Income-tax (Appeals)-III, Pune dated 7.10.2009 which, in turn, has arisen from the order dated 27.6.2008 passed by the Assessing Officer passed under section 143(3) of the Income-tax Act, 1961 (in short "the Act") for the assessment year 2006-07.
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2. The first issue raised in this appeal by the Revenue is that the Commissioner of Income-tax (Appeals) erred in deleting the addition of Rs 15,11,878/- on account of fall in gross profit in Ghevda account. The facts leading to this addition are that on perusal of the accounts and details filed, the Assessing Officer found that during the relevant assessment year, the assessee made purchases and sales in as many as 27 items which included, Dhana, Ghevada, Moong, Udid, Matki, Rice, Wheat, Jawari, Pavata, etc. As per the Trading Account for the year in question, the opening stock of Ghevada as on 1.4.2005 was Rs 2,08,12,500/- and purchases during the year were of Rs 16,41,99,343/-. On sales of Ghevada of Rs 15,91,45,087/-, the assessee showed a gross profit of Rs 47,57,243/-. The closing stock was shown at 13,20,000 Kg. and the gross profit percentage to sales was shown at 2.99%. On these facts, the Assessing Officer observed that the nature and activities of the assessee as far as Ghevada trading is concerned, it remained almost identical as in the assessment year 2005-06 wherein addition on account of the discrepancies pointed out therein has been made. Accordingly for the detailed reasons given in the assessment order for the year 2005-06 and by adopting the said reasoning, the Assessing Officer calculated the gross profit percentage in respect of Ghevada at 3.94% which resulted in an addition of Rs 15,11,878/-. Accordingly, the Assessing Officer made an addition of Rs 15,11,878/- in the Ghevada account.
3. In appeal, the Commissioner of Income-tax (Appeals) deleted the addition by following his order in the assessee's case for the preceding assessment year 2005-06. Being aggrieved, the Revenue is in further appeal before us.
4. Before us, the learned Departmental Representative, appearing for the Revenue, has pointed out that the Commissioner of Income-tax (Appeals) has deleted the addition following his order on a similar issue in assessee's own case for the preceding assessment year 2005-06. It was also submitted that no appeal 3 was filed by the Revenue against the order of the Commissioner of Income-tax (Appeals) for the assessment year 2005-06 for the reason that the tax effect was below the limits prescribed by the CBDT for preferring appeals before the Tribunal. For the said reason, it is sought to be made out that non-filing of appeal by the Revenue in the assessment year 2005-06 cannot be construed as acceptance of the Commissioner of Income-tax (Appeals)'s decision on merits and the same would not operate as a precedent.
5. In our view, the learned Departmental Representative is correct in her assertion having regard to the provisions of sub-section (2) of section 268A of the Act. In this view of the matter, the learned Departmental Representative referred to the assessment order for the instant assessment year wherein the relevant discussion of the assessment order in the preceding assessment year 2005-06 has been extracted. The reasoning adopted by the Assessing Officer in the instant year is based on a discussion made in the earlier assessment year 2005-
06. As per the learned Departmental representative, the Assessing Officer was justified in rejecting the trading results declared by the assessee with regard to the trading in Ghevada, inasmuch as the assessee could not furnish the requisite variety-wise quantitative details of the closing stock. Further, it was pointed out that there is a variation in the gross profit rate within the various varieties of Ghevada purchased and sold during the year. Quantity-wise working of the Ghevada remaining in the closing stock was not available from the records maintained and, therefore, the gross profit declared was found unacceptable. During the year gross profit rate declared on trading of Ghevada was shown at 2.99% whereas the Assessing Officer applied a gross profit rate of 3.94% based on the average gross profit rate for the assessment years 2003-04 and 2004-05 and, therefore, addition of Rs 15,11,878/- on this count was justified. In the course of her submissions, the learned Departmental Representative relied upon the judgment of the Hon'ble Supreme Court in the case of Namasivayam 4 Chethiar v CIT 38 ITR 577(SC) to contend that in the absence of the stock register, the trading results declared by the assessee were liable to be rejected.
6. On the other hand, the learned Counsel for the respondent-assessee vehemently submitted that the Assessing Officer was not justified in making the disallowance because no defects were found in the books of account. The assessee had filed his return of income on the basis of audited accounts. Even otherwise, it is sought to be pointed out that the reasoning adopted by the Commissioner of Income-tax (Appeals) in the assessment year 2005-06 is fair and proper and the same covers the controversy in this year also. According to the learned Counsel once the reliability of the account books is not disputed, a selective rejection of gross profit of a particular item of trading cannot be done. It is also pointed out that the disallowance has been made on mere surmises and presumptions and there is no material or evidence to show that any profit has been earned by the assessee outside the books of account on Ghevada trading.
7. We have carefully considered the rival submissions Factually speaking, the assessee in the present case is engaged in the activity of trading in various items, viz. Dhana, Ghevada, Moong, Udid, Matki, Rice, Wheagt, Jawari, Pavata, etc. One of the major commodities traded by the assessee is Ghevada. The books of account and other details produced by the assessee revealed that it was maintaining distinct details of the trading done in different items. The Assessing Officer examined the Trading account in relation to sale and purchase of Ghevada. The Assessing Officer noticed that different varieties of Ghevada were purchased and sold by the assessee and that the prices of various varieties were different. The Assessing Officer noticed that the level of gross profit earned by the assessee on different varieties of Ghevada was different and the same was not identical. With regard to the stock register, assessee contended that the ledger maintained by him narrated the details of purchases and sales as well as the stock of particular commodity the assessee had traded. The Assessing 5 Officer found fault with the said, because according to him, no such details and workings were available as far as the different varieties of Ghevada purchased and sold by the assessee was concerned. According to the Assessing Officer, because of such lack of details, an exercise to determine the valuation of closing stock of Ghevada in terms of different varieties was not possible. For all the above reasons, which were also existing in preceding assessment year 2005-06, the Assessing Officer rejected the gross profit declared with regard to the Ghevada trading. Instead, he applied an average of the gross profit rates for assessment years 2003-04 and 2004-05 in order to compute the gross profit in Ghevada for the year under consideration, which resulted in an addition of Rs 15,11,878/-.
8. Pertinently, the Assessing Officer has noticed that he was not rejecting the books of account as a whole, but he deemed it appropriate to interfere with the gross profit declared with regard to Ghevada trading. In our considered opinion, section 145(3) of the Act empowers the Assessing Officer to disregard book results and make an assessment in the manner provided under section 144 of the Act to the best of his judgment. However, the said power of the Assessing Officer is circumscribed on his being satisfied about the incorrectness or incompleteness of the accounts of the assessee, or where the method of accounting provided in section 145(1) or Accounting Standards as notified under section 145(2) have not been regularly followed by the assessee. Ostensibly, in this case the only plausible provision invoked by the Assessing Officer is with regard to not being satisfied about the correctness or completeness of the accounts of the assessee qua the trading of Ghevada. In so far as the method of accounting is concerned, the assessee had asserted before the lower authorities that it was maintaining accounts in similar fashion consistently and there is no dispute to the aforesaid assertion. It is also not a case where any of the accounting standards notified under section 145(2) is shown not to have been followed by the assessee. Therefore, one has to examine whether in the present 6 case, there was enough material and evidence with the Assessing Officer to be satisfied about the incorrectness or incompleteness of the accounts of the assessee so as to empower him, in terms of section 145(3), to determine the assessment to the best of his judgment per section 144 of the Act. Having perused the impugned assessment order coupled with the reasoning adopted by the Assessing Officer from his order for the assessment year 2005-06, it emerges that the only reason to disregard trading results qua the Ghevada trading is the variation in the gross profit in different assessment years. Quite clearly and, as has been noticed by the Assessing Officer, there are various varieties of Ghevada being purchased and sold by the assessee. Therefore, in the absence of any analysis of the mix of varieties of Ghevada purchased and sold in different years, comparing gross profit rates would be a misnomer. Moreover, the assessee rightly explained before the lower authorities that level of profits in trading in food grains was governed by the volatility of the market forces and cannot be static in each year. All these aspects, in our view, have to be kept in mind as an explanation for varying gross profit rates in different years. In so far as the plea of the Department that necessary stock records for different varieties of Ghevada traded were not available and, therefore, trading results were liable to be rejected in terms of the judgment of the Hon'ble Supreme court in the case of Namasivayam Chethiar (supra), we have carefully perused the said judgment and find that it does not lay down an absolute proposition that in absence of the requisite stock records trading results have necessarily to be rejected. In fact, it has been noticed by the Hon'ble Supreme court that want of stock register has to be coupled with all other materials to ascertain whether correct profits of the business are deducible or not. In the present case, apart from the assertion of the Revenue that the closing stock of different varieties of Ghevada cannot be checked , there is no other infirmity or defect pointed out in the trading activity qua the accounts of the Ghevada trading carried out by the assessee. In fact variation in the gross profit rate can at best be taken as an indicator to investigate 7 the accounts of the assessee further, but that by itself cannot be considered as a defect so as to be satisfied about the incompleteness or incorrectness of the accounts of the assessee. Notably, there is no evidence of the assessee having carried out any sale or purchase of Ghevada outside books of account and, therefore, in the absence of any specific defect or infirmities, the trading results of Ghevada trading could not have been rejected by the Assessing Officer. In our view, under these circumstances, the Commissioner of Income-tax (Appeals) made no mistake in deleting the addition. The order of the Commissioner of Income-tax (Appeals) is, therefore, affirmed. Thus, on this Ground, the Revenue fails.
9. The next issue raised by the Revenue in its appeal relates to the disallowance of Rs 64,608/- made out of travelling and shop expenses. During the course of assessment proceedings, the Assessing Officer disallowed 10% of the amount of expenditure incurred on travelling expenses (Rs 5,23,687/-) and shop expenses (Rs 1,22,395/-) for the reason that element of personal expenses of the assessee and relatives cannot be ruled out and most of the expenses were supported by self-made vouchers. In appeal, the Commissioner of Income-tax (Appeals) deleted the disallowance made by the Assessing Officer. Being not satisfied with the said action of the Commissioner of Income-tax (Appeals), the Revenue is in further appeal before us.
10. After considering the submissions of rival parties, we are of the considered opinion that no interference is called for in the impugned order of the Commissioner of Income-tax (Appeals). We fully endorse the finding of the Commissioner of Income-tax (Appeals) that the disallowances have been made without giving even a single illustration in support of the Assessing Officer's observation that personal expenses are debited under the head 'travelling expenses' and 'shop expenses'. We accordingly affirm the decision of the 8 Commissioner of Income-tax (Appeals) and dismiss the Ground of appeal of the Revenue.
11. In the result, the appeal of the Revenue is dismissed.
Decision pronounced in the open Court on this 30th day of August, 2011.
Sd/- Sd/-
(I.C. SUDHIR) (G.S. PANNU)
JUDICIAL MEMBER ACCOUNTANT MEMBER
Pune: Dated: 30th August, 2011
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Copy of the order is forwarded to :
1. Shri Radheshyam B Bandari, Satara
2. The DCIT, Satara Cir. Satara
3. The CIT(A)-III Pune
4. The CIT- III Pune
5. The D.R, 'B' Bench, Pune
6. Guard File
"True copy"
By order
Assistant Registrar
ITAT, Pune Benches, Pune