Income Tax Appellate Tribunal - Chandigarh
Shree Balaji Industires , Khanna vs Income Tax Officer, Khanna on 3 January, 2017
IN THE INCOME TAX APPELLATE TRIBUNAL
'SMC' BENCH, CHANDIGARH
BEFORE SHRI BHAVNESH SAINI, JUDICIAL MEMBER
ITA No. 1226/CHD/2016
Assessment Year: 2011-12
M/s Shree Balaji Industries, Vs The ITO,
Village - Lalheri, Ward-IV,
Khanna. Khanna.
PAN: ABLFS1859B
(Appellant) (Respondent)
Appellant by : Shri Sudhir Sehgal
Respondent by : Shri S.K.Mittal, DR
Date of Hearing : 28.12.2016
Date of Pronouncement : 03.01.2017
O R D E R
This appeal by assessee has been directed against the order of ld. CIT(Appeals)-2 Ludhiana dated 03.06.2016 for assessment year 2011-12 on the following grounds :
I That the Worthy Commissioner of Income Tax (A) has erred in upholding the action of the Assessing Officer in assessing the income at Rs. 4,30,223/- against the income of Rs. 30,580/- returned by the assessee.
2. That the Worthy CIT (A) has further erred in upholding the addition of Rs. 3,99,643/- made by the Assessing Officer in the returned income by adopting sales rate of Rice Flour at Rs. 985/- per quintal from the month of April 2010 to September 2010/ in respect of 5400.59 quintal of Rice Flour against the rates of Rs. 911/- per quintal, as shown by the assessee.2
3 That the Worthy CIT (A) has erred in not considering that the addition of Rs. 3,99,643/- in the trading results has been made by the Assessing Officer on presumption and guess work without finding or pin pointing any discrepancy in the regular maintained books of account and without rejecting the books of accounts u/s 145 (3) of the Income Tax Act.
4. That the addition has been sustained by the Worthy CIT (A) against the facts and circumstances of the case.
5. That the submissions filed during the course of hearing before the Assessing Officer and Worthy CIT(A) has not been considered properly.
2. Brief facts of the case are that assessee is in the business of flour and rice nakku and trading of paddy, husk etc. during the year. During the course of assessment proceedings, the Assessing Officer noted trading results of assessment year under appeal as well as preceding assessment years. The assessee was asked to explain the reasons for decline in turnover and NP rate and amount of net profit during the year as compared to earlier years. The assessee was also asked to justify item-wise sale rates and valuation of closing stock with supporting evidence. No satisfactory explanation or supporting documents were offered by the assessee. The Assessing Officer noted certain irregularities in para 3 of the assessment order. Further, the Assessing Officer, after detailed examination of trading results made disallowance of Rs. 3,99,643/- on account of valuation of stock. The Assessing Officer has observed that while examining the trading results, it was observed that opening stock of rice flour has been valued @ Rs. 1150/- per quintal and 3 closing stock has been valued @ Rs. 1400/- per quintal. Thus, average cost or market rate, whichever is lesser of rice flour was Rs. 1275/- per quintal but the assessee has made sales at the average rate of Rs. 911/- per quintal. The assessee was asked to justify as to why sales have been made at the below cost of market rate. Further, it was noticed that rice nakku has been purchased by the assessee at the average rate of Rs. 938/- but after grinding it, flour rice has been sold at the average rate of Rs. 911/-. Besides, it was noticed that rice nakku has been purchased at average rate of Rs. 938/- per quintal but 1952.70 quintal of rice nakku has been sold at the average rate of Rs. 857.62 per quintal. In view of this, the assessee was asked to justify the sales at less than cost price with complete evidence. The assessee explained that it is manufacturer of rice flour from rice nakku and average price per quintal of rice nakku in the hands of the assessee was Rs. 879.475. It is, therefore, clear that average price per quintal of rice nakku in the hands of the assessee was Rs. 879.47. On the other hand, rice flour has been sold at average sale price of Rs. 911/- per quintal. Besides, the law does not force to assessee to make sales either at average cost or market rate, whichever is less. The assessee has made the sales at the rate prevailing in the market at the time of sales. The Assessing Officer, however, did not accept contention of 4 the assessee and noted that assessee has not correctly shown sales rate of rice flour during the year and made under-billing. Therefore, it was held that assessee had understated/suppressed sale rate of rice flour. The Assessing Officer, therefore, by adopting sale of rice flour at Rs. 985/- per quintal, sales rate of the assessee enhanced to (Rs. 985/-Rs. 911/-) Rs. 74/- per quintal and made the addition of Rs. 3,99,643/-.
3. The assessee challenged the addition before ld. CIT(Appeals) and written submission of the assessee is reproduced in the impugned order in which the assessee briefly explained that books of account of the assessee are audited in which no defects have been pointed out by the Assessing Officer and even books have not been rejected. Complete books of account have been produced before Assessing Officer. The genuineness of the sale cannot be doubted. All the purchases and sales are duly vouched and payments have been made to the parties from whom goods have been purchased by Account Payee Cheques and sales rate have been verified by the Assessing Officer. The Assessing Officer did not find any evidence regarding inflation of expenses or purchases and sales outside the books of account. The addition is made on estimate basis by enhancing the sale rates which is baseless. The assessee relied upon several orders of the Tribunal in support of contention and also relied upon order of ITAT Chandigarh Bench in 5 the case of Shri Manpreet Singh Dhillon Vs ITO (ITA 69/2009) in which on similar circumstances, addition has been deleted which have been followed by the Tribunal in the case of Shri Satinder Kumar Vs ITO in ITA 436/2012 vide order dated 30.08.2012, copy of which is also placed on record.
4. The ld. CIT(Appeals) in his findings has agreed with the contention of the assessee, but ultimately dismissed the appeal of the assessee.
5. I have heard ld. Representatives of both the parties and perused the material on record. The dispute is with regard to adoption of higher sales rate for the purpose of making the addition. The assessee produced books of account, bills and vouchers and bank statements before Assessing Officer at assessment stage and also furnished written submissions time to time. The GP rate of the assessee has increased in assessment year under appeal to 5.37% as against 3.72% and 2.11% in preceding assessment years 2009-10 and 2010-11. However, NP rate has decreased in assessment year under appeal and has been shown at .14% as compared to .16% and .19% adopted in preceding assessment year 2009-10 and 2010-11. The Assessing Officer noted certain irregularities in para 3 of the assessment order with regard to valuation of the sales of the closing stock but has not pointed out any specific defects in the 6 maintenance of the books of account by the assessee. The Assessing Officer has not brought any comparable rates of sales of other dealers. The Assessing Officer merely noting that average sale rate has decreased in assessment year under appeal, estimated the sale rate of the assessee and made the above addition. The books of account of the assessee have not been rejected. It is not always necessary that the businessman would always earn profit. There may be cases of losses as well. The assessee explained before Assessing Officer that assessee made the sales at the rate prevailing in the market at the time of sales.
5(i) The ld. counsel for the assessee referred to PB-25 which is reply filed before Assessing Officer in which the assessee explained that majority of the sales have been made to M/s Patiala Distilleries & Manufacturers and their confirmed copy of the accounts have been filed for confirmation of the sale receipts. This evidence and reply filed before Assessing Officer have not been rebutted by the authorities below in any manner, meaning thereby, that majority of the sales have been made to one party who have also confirmed the sale rates. Therefore, the Assessing Officer should bring some evidence on record to disbelieve the confirmation filed by the assessee. Therefore, merely finding out that sale rates of the assessee are lower, is no ground to enhance the sale rate. Before making any such addition, 7 Assessing Officer should make inquiry from the parties to whom sales have been made in order to verify whether sale rates of the assessee are lesser. The Assessing Officer should also bring on record some positive evidence to show that sale rates were excessive as against sale rates shown by the assessee.
6. The assessee made detailed submissions before ld. CIT(Appeals) in which it was specifically pointed out that Assessing Officer has not pointed out defects in maintenance of the books of account and books of account have not been rejected. It was also pleaded before ld. CIT(Appeals) that all the sale and purchase bills have been maintained and the rates are verifiable. Therefore, in the absence of any material against assessee, Assessing Officer should not have made the addition. The ld. CIT(Appeals) in the opening para of his findings, has held that "he is in agreement with the contention of the assessee". But later on, he did not accept contention of the assessee and dismissed the appeal of the assessee. Therefore, on the face of these facts and material on record, it is clear that sale rates of the assessee have been enhanced without bringing any evidence or material on record against the assessee and without rejecting books of account and sales bills of the assessee. The ld. counsel for the assessee relied upon order of ITAT Chandigarh Bench in the case of Shri Satinder Kumar Vs ITO dated 30.08.2012 (supra) in 8 which addition was made on account of sale of rice husk by estimating the sale price of rice husk in which the Tribunal followed its earlier decision in the case of Shri Manpreet Singh Dhillon (supra) and addition on account of enhancement in sale rates have been deleted.
7. Considering the totality of the facts and circumstances, I do not find any justification to sustain the orders of authorities below in making the addition. The orders of authorities below are, accordingly, set aside the addition of Rs. 3,99,643/- is deleted.
8. In the result, appeal of the assessee is allowed.
Order pronounced in the Open Court.
Sd/-
(BHAVNESH SAINI) JUDICIAL MEMBER Dated : 3 r d January,2017.
'Poonam' Copy to:
1. The Appellant
2. The Respondent
3. The CIT(A)
4. The CIT,DR Assistant Registrar, I TAT Chandigarh