Income Tax Appellate Tribunal - Amritsar
Chopra Agencies, Phagwara vs Assessee on 11 June, 2013
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I.T.A. No. 105 (Asr)/2013
Assessment Year: 2007-08
IN THE INCOME TAX APPELLATE TRIBUNAL
AMRITSAR BENCH; AMRITSAR.
BEFORE SH. H.S. SIDHU, JUDICIAL MEMBER
AND SH. B.P. JAIN, ACCOUNTANT MEMBER
I.T.A. No. 105 (Asr)/2013
Assessment year: 2007-08
PAN: AAEFC4255F
M/s Chopra Agencies, Vs. Income Tax Officer,
Backside Old Sabji Mandi, Ward-I, Phagwara
Phagwara
(Appellant) (Respondent)
Appellant by: Sh. Piyush Bansal, C.A.
Respondent by: Sh. R.L. Chhanalia, D.R.
Date of hearing: 11.06.2013
Date of pronouncement: 13.06.2013
ORDER
PER BENCH
1) The assessee has filed the present appeal against the impugned order dated 30.11.2012 passed by learned CIT(A), Jalandhar, on the following grounds:
i. The learned CIT(A) has erred in law and facts in confirming the action of learned A.O. to reject the books of account. ii. The learned CIT(A) has erred in law and on facts in estimating the G.P. rate of 9% instead of 6% as declared by the assessee. 2
I.T.A. No. 105 (Asr)/2013 Assessment Year: 2007-08 iii. That the estimation of G.P. @ 9% is made without any justification and without any material placed on record.
iv. That as claimed in above grounds of appeal, the order of Commissioner of Income Tax (Appeals), Jalandhar, confirming the rejection of books and estimating the G.P. @ 9% be set-aside and the returned income be accepted.
v. That the appellant craves leave to add, alter, amend, modify, substitute, delete and/or rescind all or any of the Grounds of Appeal on or before the final hearing, if necessity so arises.
2) The assessee-firm filed its return of income on 31.10.2007 declaring an income of Rs 5,392/-, which was processed under Section 143(1) of the Income-tax Act, 1961 (in short "the Act"). The case of assessee was selected for scrutiny and accordingly notice under Section 143(2) of the Act was issued on 26.09.2008 which was served upon the assessee. Assessing Officer also issued statutory notices to the assessee, in compliance which, the authorized representative of the assessee appeared from time to time and filed information/documents along with books of account etc., which were checked by the Assessing Officer. The Assessing Officer examined the case of the assessee in detail and asked the assessee to file quantity, quality and value-wise details of opening stock (Rs. 31,40,808/-) and closing stock (Rs. 42,97,510/-) vide the office questionnaire dated 08.05.2009. The Assessing Officer also asked the assessee vide order-sheet entry dated 29.10.2009 to produce quantity and value-wise closing stock as valued and certified by partners on 3 I.T.A. No. 105 (Asr)/2013 Assessment Year: 2007-08 31.03.2007 and also the copy of stock statement given to the Bank for hypothecation for obtaining loan. In compliance to the same, the assessee has not filed any details as asked by the Assessing Officer. The Assessing Officer vide order-sheet entry dated 22.12.2009 asked the assessee to show-cause and explain as to why its books of account be not rejected in these circumstances and G.P. be not computed @ 18% as done in the case of similar concern i.e. Bhatia Departmental Store, Phagwara, having same trade i.e. trading in plastic and crockery goods etc. which was showing G.P. @ 18%. In response to the same, assessee filed its reply which the Assessing Officer has reproduced at page nos. 2 and 3 of his assessment order. Assessee mainly contended that his books of account could not be rejected on account of low G.P. rate or for non-maintenance of stock register because the duly audited accounts of the assessee-firm has been accepted by a qualified Chartered Accountant, who has reported that the financial statements are in agreement with the books.
3) Assessing Officer vide order-sheet entry dated 24.12.2009 again asked the assessee to explain the verification on account of bills regarding certain retail wholesale items. In response to the same, the assessee filed its reply stating that sometimes the parties who buying goods in wholesale are having total turnover less than 10 lacs, so they do 4 I.T.A. No. 105 (Asr)/2013 Assessment Year: 2007-08 not maintain Books and accordingly they buy goods in cash. And also admitted that assessee is doing both wholesale as well as retail trade but the quantum of retail trade is quite less as compared to whole trade. The Assessing Officer did not accept the explanation of the assessee and held that assessee has not maintained its stock register and failed to produce quantity, quality and value-wise details of the opening and closing stocks. Assessing Officer also pointed out that in column 28(a) of the audit report, it is clearly mentioned that "As explained to us because of the number of items involved it is not possible to maintain Stock Records". Assessee has also not submitted opening stock as on 01.04.2006. Copy of closing stock as valued and certified by partners on 31.03.2007 and copy of stock statement given to the Bank for hypothecation for obtaining loans have also not been produced by the assessee. The Assessing Officer has pointed out almost fifteen deficiencies in the accounts of the assessee which the Assessing Officer has mentioned at pages 3 to 5 of the assessment order and lastly the Assessing Officer held that in the absence of stock register, failure of the assessee to produce the opening stock details and inability on his part to tally/verify the closing stock details for valuation purpose with purchase/sale bills, fall in the gross profit rate as compared to the 5 I.T.A. No. 105 (Asr)/2013 Assessment Year: 2007-08 previous year and low gross profit rate shown as compared to similar concern i.e. M/s Bhatia Departmental Store, Phagwara, he was not satisfied about the correctness and completeness of the accounts of the assessee. Thus, he was left with no alternative but to reject the trading results of the assessee as per the provisions of Section 145(3) of the I.T. Act, 1961. Considering the totality of facts and circumstances of the case as discussed in detail in the assessment order, he found that it is fair and reasonable to compute the Gross Profit at the rate of 18% and accordingly, he made an addition of Rs. 11, 34,648/- to the trading results in the case of the assessee and completed the assessment on 24.12.2009 under Section 143(3) of the Act.
4) Aggrieved by the assessment order dated 24.12.2009, assessee filed an appeal before the learned First Appellate Authority who vide impugned order dated 30.11.2012 partly allowed the appeal of the assessee by reducing the G.P. rate to 9% from 18% as determined by the Assessing Officer and given almost 50% relief to the assessee on the basis of increase of sales in the business of assessee and on the basis of other comparable business. Now, again aggrieved by the order of learned First Appellate Authority, the assessee filed the present appeal. 6
I.T.A. No. 105 (Asr)/2013 Assessment Year: 2007-08
5) Learned counsel for the assessee contended that the Revenue Authority has wrongly rejected the books of account in spite of the fact that the assessee has produced complete books consisting of cash book, ledger, purchase and sale vouchers as and when asked by the Revenue Authority. He further stated that the Books are duly audit by a qualified Chartered Accountant and learned CIT(A) has not pointed even a single item either in purchases or sales from where it can be proved that these are not correctly recorded. No particular expenditure shown in the account books has been disallowed by the Assessing Officer. In fact, no defect has been pointed out in the books of account. He further stated that the same system of accounting has been regularly followed by the assessee over the years. There is no change in his system of accounting and also there is no change in the method of valuation of closing stock. The same method is being employed to value stock as was in earlier years. The only reason for rejecting the books of account is non- maintenance of stock register and fall in G.P. He further stated that there is no need to maintain the stock register by the assessee and rejection of books of account on this ground is totally wrong. In support of his contention, he has cited the decision of Hon'ble Punjab and Haryana High Court in the case of Pandit Brothers Vs. CIT (026 ITR 159). He finally 7 I.T.A. No. 105 (Asr)/2013 Assessment Year: 2007-08 stated that learned First Appellate Authority has also wrongly estimated the G.P. @ 9% without any justification and without considering the material on record and the past history of assessee. Lastly, he requested that the trading results of the assessee may be accepted by allowing the appeal filed by the assessee.
6) Learned D.R. relied upon the order passed by learned First Appellate Authority and stated that the Assessing Officer has pointed out many deficiencies in the books of account maintained by the assessee which are not verifiable and the assessee has also not filed any documentary evidence supporting its claim. He finally stated that the assessee has not maintained any stock register which is very much necessary to determine the exact profit in the business. Therefore, the appeal filed by the assessee may be dismissed.
7) We have heard both the parties and perused the relevant record available with us especially the order passed by the Revenue Authority as well as the arguments advanced by learned counsel for both the parties. We are of the considered view that the Assessing Officer has given sufficient opportunity to the assessee to file quantity, quality and value- wise details of opening stock and closing stock. Neither assessee nor his authorized representative has filed these details before the Revenue 8 I.T.A. No. 105 (Asr)/2013 Assessment Year: 2007-08 Authority. Assessee has also not produced stock statement given to the Bank duly certified by the partners on 31.03.2007 for hypothecation for obtaining loans. Assessing Officer has given a notice to the assessee and asked to show-cause the reason for falling of G.P. rate by 1 % i.e. from 7% to 6% as compared to previous year and also compare to the other similar concern i.e. Bhatia Departmental Store, Phagwara, having the same trade i.e. trading in plastic and crockery goods etc. which was showing G.P. @ 18% but the assessee has not given any logic to the query of the Assessing Officer and only stated that the books of account cannot be rejected on account of low G.P. and for non-maintenance of stock register.
8) We have thoroughly gone through the order passed by the Revenue Authority especially the assessment order and found that the Assessing Officer has given fifteen reasons for rejecting the contention of the assessee which are at pages 3 to 5 of the assessment order. For the sake of convenience, the same are reproduced as under:-
i. As per the Trading account the assessee is having Opening stock at Rs. 31,40,808/- as on 01.04.2006 and Closing stock at Rs. 42,97,510/- as on 31.03.2007.
ii. No stock register is being maintained by the assessee. Further, the assessee has failed to produce quantity, quality and value-wise details of the Opening and Closing stocks. In column 28(a) of the audit report it is clearly mentioned that "As explained to us 9 I.T.A. No. 105 (Asr)/2013 Assessment Year: 2007-08 because of the items involved it is not possible to maintain Stock Records."
iii. Till date, no Opening stock details as on 01.04.2006 have been submitted by the assessee.
iv. Copy of the Closing Stock as valued and certified by partners on 31.03.2007 and also copy of Stock Statement given to the Bank for hypothecation for obtaining loans has not been produced by the assessee, so far.
v. Even the Closing Stock details filed cannot be verified/tallied with the Purchase bills/Sale bills for the purpose of valuation as no quality/demarcation of various items is there in the Closing Stock list submitted by the assessee.
vi. Thus the Opening stock and Closing stock details cannot be verified in view of the facts detailed above.
vii. The Gross profit rate shown by the assessee for A.Y. 2007-08 is 6% as compared to Gross profit rate of 7% shown by the assessee for A.Y.s 2006-70 & 2005-06, thereby showing decrease of 1%. viii. Moreover, another concerned M/s Bhatia Departmental Store, Phagwara, which is also carrying on similar business i.e. Trading in Plastic and Crockery items etc. is showing Gross profit rate of 18%.
ix. Assessee's contention regarding being a wholesaler is not correct.
During the course of assessment proceedings the sale bills were examined in detail and even photocopies of some of these bills have been obtained and placed on record. Further, after examination of Sale bills (VAT and others), it has been found that the assessee is doing both retail and wholesale business. It is difficult to quantify between Retail and wholesale items sold as majority of bills are cash invoices and even otherwise the amount is petty varying between Rs. 100 to Rs. 5,000/-, which in no way can be termed as wholesale trade.
x. Even the examination of ledger account reveals that the majority of the sales of the assessee are Cash sales ranging between Rs. 100/- to Rs. 5,000/- only.
xi. Further, out of total purchase of Rs. 98.84 lacs, the Sundry creditors are at Rs. 46.15 lacs and out of total sales of Rs. 94.55 lacs, the Sundry debtors are only Rs. 7.11 lacs. This clearly establishes that the assessee is not a wholesaler but is also doing retail business as well.
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I.T.A. No. 105 (Asr)/2013 Assessment Year: 2007-08 xii. The case of Bhatia Departmental Store was also under scrutiny for A.Y. 2007-08 and the examination of the sale bills revealed the same statement of affairs i.e. it is also doing Wholesale and Retail business.
xiii. In view of the facts detailed above the assessee's contention that he is a Wholesaler and thereby showing low Gross profit rate as compared to similar concern M/s Bhatia Departmental Store, Phagwara, is incorrect.
xiv. Further, the facts of the case law cited by the assessee are totally different form that of the assessee's case.
xv. Thus the trading results shown by the assessee are not verifiable from the accounts maintained by the assessee and hence correct income cannot be computed from these.
9) At last, the Assessing Officer has said that the Officer is going to accept the system of accounting regularly employed by the assessee. The correctness of which had not been questioned in the past but there is no estoppels in these matters and the officer is not bound by the method followed in the earlier years. Section 145 of the Act confers sufficient powers upon the officer - may it imposes a duty upon him - to make such computation in such manner as he determines for deducing the correct profits and gains. And lastly, the Assessing Officer has rightly held that in the absence of stock register, failure of the assessee to produce the opening stock details and inability on his part to tally/verify the closing stock details for valuation purpose with purchase/sale bills, fall in the gross profit rate as compared to the previous year and low gross profit rate shown as compared to similar concern i.e. M/s Bhatia 11 I.T.A. No. 105 (Asr)/2013 Assessment Year: 2007-08 Departmental Store, Phagwara, he was not satisfied about the correctness and completeness of the accounts of the assessee. Thus, he was left with no alternative but to reject the trading results of the assessee as per the provisions of Section 145(3) of the Act. Considering the totality of facts and circumstances of the case as discussed in detail in the assessment order, he found that it is fair and reasonable to compute the Gross Profit at the rate of 18% and accordingly, he made an addition of Rs. 11, 34,648/- to the trading results in the case of the assessee.
10) Learned First Appellate Authority taking a lenient view and keeping in view the facts and circumstances of the present case as well as the previous history of the assessee's business, has reduced the G.P. to 9% for year under consideration. Learned First Appellate Authority has rightly appreciated the G.P. rate which has fallen in the present assessment year on the basis of increase in sales from Rs. 37,24,717/- in A.Y. 2005-06 to Rs. 47,48,703/- in A.Y. 2006-07 to Rs. 94,55,396/- in A.Y. 2007-08 is a factor which has to be weighed while estimating the G.P. for this year as increase in sales more than 2.5 times during two years had an effect of squeezing the profits.
11) Learned First Appellate Authority has also reduced the G.P. rate from 18% to 9% and appreciated the other comparable business 12 I.T.A. No. 105 (Asr)/2013 Assessment Year: 2007-08 mentioned by the Assessing Officer i.e. M/s Bhatia Departmental Store, Phagwara, and stated that M/s Bhatia Departmental Store, Phagwara, was purely a retail outlet whereas assessee is majorly a wholesaler, also operating as retailer at times. We appreciate the findings given by learned First Appellate Authority on the issue in dispute and find that learned First Appellate Authority has given sufficient relief to the assessee by reducing the G.P. rate from 18% to 9% and passed a detailed/reasonable order after considering the evidence produced by the parties. Therefore, no interference is called for in the well reasoned order passed by learned First Appellate Authority and we do not find any force in the argument advanced by the learned counsel for the assessee. Accordingly, we reject the same by upholding the order passed by learned First Appellate Authority and dismiss the present appeal filed by the assessee.
12) In the result, the appeal filed by the assessee is dismissed. Order pronounced in the open court on 13th June, 2013 Sd/./- Sd/./-
(B.P. JAIN) (H.S. SIDHU) ACCOUNTANT MEMBER JUDICIAL MEMBER Dated: 13th June, 2013 /RK/ Copy of the order forwarded to:
1. The Assessee: M/s Chopra Agencies, Backside Old Sabji Mandi, Phagwara.
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I.T.A. No. 105 (Asr)/2013 Assessment Year: 2007-08
2. Income Tax Officer, Ward-I, Phagwara.
3. The CIT(A), Jalandhar.
4. The CIT, Jalandhar
5. The SR DR, I.T.A.T., Amritsar.
True copy By order (Assistant Registrar) Income Tax Appellate Tribunal, Amritsar Bench: Amritsar.