Income Tax Appellate Tribunal - Lucknow
Ramesh Kumar Khandelwal, Bareilly vs Jt. Commissioner Of Income Tax, ... on 17 May, 2018
I.T.A. No.709/Lkw/2016
1
Assessment Year:2012-13
IN THE INCOME TAX APPELLATE TRIBUNAL
LUCKNOW BENCH 'B', LUCKNOW
BEFORE SHRI T. S. KAPOOR, ACCOUNTANT MEMBER AND
SHRI PARTHA SARATHI CHAUDHURY, JUDICIAL MEMBER
ITA No.709/Lkw/2016
Assessment Year:2012-13
Shri Dipesh Khandelwal, Vs. Jt. C.I.T.,
(Legal heir Shri Ramesh Kumar Range-II,
Khandelwal) Bareilly.
C/o Sugar Sales Agencies,
Shyamganj, Bareilly.
PAN:ANBPK 0670 Q
(Appellant) (Respondent)
Appellant by Shri Yogesh Agrawal, Advocate
Respondent by Shri R. K. Vishwakarma, D. R.
Date of hearing 16/05/2018
Date of pronouncement 17/05/2018
ORDER
PER T. S. KAPOOR, A.M.
This is an appeal filed by the assessee against the order of learned CIT(A) dated 29/09/2016. The assessee has taken the following grounds of appeal:
"I. The Learned Commissioner of Income Tax (Appeals), Bareilly [here-in-after referred to as the Ld. CIT (A)'s] grossly erred on facts and in law in holding the action of the Assessing Officer as justified for rejection of books of accounts u/s 145(3) without specifying any defects therein and in not appreciating the fact that the order is bad-in-law and thus needs to be quashed.
Without Prejudice to Ground No. I above :-
II. On the facts and in the circumstances of the present case the Ld. CIT(A)'s erred in confirming the addition of I.T.A. No.709/Lkw/2016 2 Assessment Year:2012-13 Rs.25,79,033/- made on account of alleged low gross profit and in not appreciating the fact that the appellant had substantial increase in turnover and also the fact that commission income earned had multiplied by almost four times from last year and thus the addition so confirmed by applying an arbitrary rate of 2.46% towards alleged difference in gross profit is bad-in-law and thus the addition being based of notions, conjectures and surmises may kindly be ordered to be deleted.
III. In conforming the addition of Rs.25,79,033/- the Ld. CIT (A)'s further erred by holding that there is no stock register and which was duly furnished in assessment proceedings and also the fact the sales are duly verifiable and thus the addition so confirmed on whims and fancies may kindly be ordered to be deleted.
IV. The Ld. CIT (A)'s further erred on facts and in law in confirming the addition of Rs.40,71,050/- being commission paid without any cogent reason despite the fact that complete details and confirmations were available on record by cryptically holding that the appellant has not adduced any document to justify the nature of services rendered by the persons to whom the commission has been paid and thus the confirmation of addition being wholly against all settled principles of law may kindly be ordered to be deleted.
V. That the Ld. CIT (A)'s did not afford the appellant any proper or sufficient opportunity to have his say or make necessary compliance of the reasons relied upon by him in passing the present order and thus the order passed without affording adequate opportunity may kindly be ordered to be quashed."
2. At the outset, Learned A. R. argued that the Assessing Officer has wrongly rejected the books of account u/s 145(3) of the Act without specifying any defect therein and therefore, order of the Assessing Officer itself needs to be quashed. Our attention was invited to copy of assessment order placed in the appeal file and it was submitted that the Assessing Officer rejected the books of account of the assessee merely on the basis I.T.A. No.709/Lkw/2016 3 Assessment Year:2012-13 that gross profit declared by the assessee was lower than earlier years. It was submitted that the Assessing Officer has mentioned that stock registers were not maintained whereas the fact is that the stock registers were duly maintained and in this respect our attention was invited to copy of reply filed by the assessee placed at paper book pages 13 to 15 wherein at page No. 14, the assessee had mentioned that assessee maintains computerized stock register integrated with financial records and it was also mentioned that the quantitative details have already been furnished in tax audit report. Therefore, it was argued that the findings of the Assessing Officer are not based upon facts. Without prejudice it was argued that even if it is presumed that stock registers were not maintained, the books of account cannot be rejected as held in the case of Renu Industries vs. Commissioner of Sales Tax and Another. Similarly, reliance was placed in the case of Sri Ram Jiwan Lal vs. CIT. On merits, Learned A. R. submitted that the Assessing Officer had estimated the profits of the assessee by applying highest rate of gross profit in the earlier three years. Our attention was invited to the order of learned CIT(A) at page 5 where learned CIT(A) has noted the figures of gross profit, turnover and net profit. It was submitted that the turnover of the assessee during the year under consideration increased to 12.75 crores against Rs.7.73 crores in the immediate preceding year. It was submitted that the gross profit rate, as disclosed during the year under consideration, though decreased but net profit rate had increased. It was submitted that during assessment proceedings the financial statements of S. K. Traders, who was operating in similar area and who had declared gross profit of 0.28%, was not considered by the Assessing Officer and therefore, it was prayed that since there was no defect in the books of account, the rejection of books of account was not justified and application of highest gross profit rate of earlier years was not justified. It was submitted that the Assessing Officer did not find any wrong I.T.A. No.709/Lkw/2016 4 Assessment Year:2012-13 in the purchase, sales, closing stock and opening stock of the assessee and therefore, it was prayed that the gross profit rate declared by the assessee should be upheld.
2.1 As regards other issue of disallowance of commission, which the assessee had paid to various persons, he submitted that complete details of persons to whom the commission was paid was provided to the Assessing Officer and a copy of which was placed at paper book ages 74 to 77. It was submitted that due tax at source was deducted and quarterly return in Form 26Q was also filed, a copy of which was placed at paper book pages 79 onwards. It was further submitted that copy of invoice and bills for commission submitted by various persons was placed at paper book pages 85 to 97 and further the summary of commission paid, transaction-wise and quantity-wise was placed in paper book pages 98 to 110 and therefore, the disallowance of commission paid to commission agents was not justified.
3. Learned D. R., on the other hand, submitted that there was a drastic decrease in gross profit as compared to earlier year and therefore, the Assessing Officer had rightly rejected the books of account of the assessee and had rightly applied gross profit rate based upon earlier year. As regards commission payments, Learned D. R. submitted that assessee could not establish the nexus between the commission paid and the services rendered by the payees therefore, the authorities below have rightly made the addition.
4. We have heard the rival parties and have gone through the material placed on record. We find that in this case Shri Ramesh Kumar Khandelwal proprietor Sugar Sales Agencies has expired and therefore, the legal heir Dipesh Khandelwal has been taken as legal heir of the deceased assessee. We find that during the assessment proceedings the Assessing Officer I.T.A. No.709/Lkw/2016 5 Assessment Year:2012-13 observed that the gross profit declared by the assessee was on lower side therefore, the assessee was required to file business analysis of last three years such as gross profit rate, net profit rate and the assessee was also required to explain the reason for fall in gross profit rate. In reply the assessee submitted that the rate of sugar depends upon market condition and he was not having any control on the purchase/sale rate and he was having quantitative records of sale and purchase and therefore, whatever the gross profit rate was earned, has been declared. It was further submitted that the commission income of the assessee had increased substantially during the year under consideration and therefore, net profit over all has increased as compared to earlier year. On a further query by the Assessing Officer, the assessee submitted that the assessee was maintaining books of account and inventory records which was verifiable. Monthwise summary of stock record was also submitted. It was also submitted that closing stock has been correctly valued using FIFO method. The assessee also enclosed audited financial statements of S. K. Traders who was operating in the same area doing the same business and declared gross profit @28% and therefore, it was submitted that the gross profit declared by the assessee was quite justified. The Assessing Officer though noted the submissions of the assessee however, he held that the results of S. K. Traders were not comparable as that concern had declared turnover to the tune of 16.99 crore and commission income of Rs.9.64 lac was also declared and whereas in the case under reference total turnover was Rs.12.75 crores and commission income of Rs.68.68 lac has been declared. In view of the above facts and circumstances, the Assessing Officer rejected the books of account and applied gross profit rate of 2.46%. We find that in the assessment proceedings the Assessing Officer distinguished the trading results of S. K. Traders with the assessee only because of the fact that the assessee had commission income of Rs.68.81 lac whereas S. K. I.T.A. No.709/Lkw/2016 6 Assessment Year:2012-13 Trader had commission income of Rs.9.64 lac. The Assessing Officer should have considered gross profit rate of assessee vis-à-vis that of S. K. Traders without taking into account the commission income which he has not done. We further find that the assessee had filed complete copies of accounts of sales and purchases, the copy of which is placed at paper book pages 23 to
49. The copy of valuation of opening and closing stock is placed at paper book pages 52-55. The monthly stock summary with respect to value and quantity is placed at paper book page 56. Date-wise quantity along with their valuation in the form of computerized stock register is placed at paper book pages 57 to 63. All these documents were placed before the Assessing Officer. The copy of stock register placed at paper book pages 57 to 63 clearly demonstrate that the assessee was maintaining stock registers wherein the quantity along with the value has been mentioned. The value of opening stock as per trading account placed at paper book page 10 is Rs.25,14,000/- which matches with the value of stock in the stock register as on 01/04/2012 which is apparent from paper book page 57 and similarly the closing stock calculated through computer on the basis of FIFO method, as per stock register, is Rs.10,71,843/- which matches with the closing stock figure as taken in the trading account which is apparent from paper book page 10. Similarly the purchase and sales booked in the profit & loss account matches with the purchase and sale ledger account placed at paper book pages 23 to 51. The Assessing Officer did not find anything wrong in the books of account. Even the stock register which he has mentioned to have not been maintained by the assessee has duly been maintained and is placed at paper book pages 57 to 63. Moreover, during assessment proceedings the assessee vide reply dated 29/01/2015 had submitted that he was maintaining computerized stock register integrated with financial record which fact is verifiable from the copy of stock register which mentions the stock in quantitative terms as well as in rupee terms.
I.T.A. No.709/Lkw/2016 7 Assessment Year:2012-13 Therefore, the reason for rejecting the books of account and estimating the gross profit rate on higher basis is not at all justified in the facts and circumstances of the case. Therefore, the action of Assessing Officer of rejecting the books of account is reversed and therefore, we delete the addition which the learned CIT(A) has sustained on the basis of lower gross profit ratio.
4.1 As regards the commission paid to various persons, we find that the assessee had paid commission and the details of the commission expenses were submitted to the Assessing Officer wherein the PAN along with payments made along with the tax deducted therefrom was mentioned. The assessee also furnished copy of invoices raised by various persons, a copy of which is placed at paper book pages 85 to 97. The copies of bills specifically mention the commission paid on number of bags. Therefore, in view of the above facts and circumstances, there is no justification for making disallowance on account of commission. In view of the above, this issue is also decided in favour of the assessee.
5. In the result, the appeal of the assessee is allowed.
(Order pronounced in the open court on 17/05/2018) Sd/. Sd/.
(PARTHA SARATHI CHAUDHURY) ( T. S. KAPOOR )
Judicial Member Accountant Member
Dated:17/05/2018
*Singh
Copy of the order forwarded to :
1. The Appellant
2. The Respondent.
3. Concerned CIT
4. The CIT(A)
5. D.R., I.T.A.T., Lucknow