ITA 3590 & 3542/Del/11
IN THE INCOME TAX APPELLATE TRIBUNAL
DELHI BENCH "G" NEW DELHI
BEFORE SHRI S.V. MEHROTRA : ACCOUNTANT MEMBER
AND
SHRI H.S. SIDHU : JUDICIAL MEMBER
ITA No. 3590/Del/2011
Asstt. Yr: 2007-08
Suresh Jindal Prop. Vs. Income-tax Officer,
M/s Swastik Impex C/o Vinay Goel CA Ward-1, Karnal.
B-2, Purshotam Garden,
Near Chandranchal Banquet Hall,
Karnal.
PAN: ALDPK 7993 G
AND
ITA no. 3542/Del/2011
Asstt. Yr: 2007-08
Income-tax Officer, Vs. Suresh Jindal Prop.
Ward-1, Karnal. M/s Swastik Impex
Karnal.
( Appellant ) ( Respondent )
Assessee by : Shri Ved Jain FCA &
Smt. Ranu Jain
Revenue by : Shri Rakesh Kumar Sr. DR
Date of hearing : 27-08-2014
Date of order : _______-09-2014.
ORDER
PER S.V. MEHROTRA, A.M:-
These cross appeals, preferred by the assessee as well as the revenue, are
directed against order dated 18-03-2011 passed by the ld. CIT(A), Karnal, in
appeal no. IT/102/KNL/CIT(A)/09-10, relating to A.Y. 2008-09.
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2. Brief facts of the case are that in the relevant assessment year the assessee
derived income from timber business. He filed his return of income declaring
total income of Rs. 1,53,993/-. The AO, in course of examination of books of
a/c, and sale and purchase vouchers, noticed that there was no narration of
quality of timber on the sale vouchers, whereas, the assessee had purchased the
timber of different kinds/ types for different rates according to the quality of
timber. Almost all the purchases were from Singapore except few local
purchases. It was further noticed that assessee had purchased different type/kind
of timber for different rates according to the quality of the imported timber. But
he had not mentioned the item wise quality/ kind of timber on the sale vouchers.
He simply quoted imported timber in the column of particulars of timber sold
instead of quoting the kind/ type of timber item wise on the sale vouchers and,
thus, suppressed the amount of sales in the absence of specification of quality of
timber sold in that manner.
2.1. After comparing the purchase vouchers/ sale vouchers, the AO concluded
that the assessee was not reflecting the true picture of his gross profit. He
pointed out that huge sales had been suppressed out by the assessee by not
recording the narration of item wise quality of timber. After detailed
consideration of bills/ vouchers for sale and purchase, the AO issued a detailed
show cause notice, as reproduced from pages 3 to 9 of his order, to explain as to
why the books of account be not rejected and gross profit rate of 4.90% i.e. on
average basis that was prevailing in the market for the last four years in
different cases should not be applied to calculate the gross profit. The AO gave
the following comparable cases:
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Name of Assessee Asstt. Year % Gross
Profit
Jai Parkash M/s Narwana Timber Store, Karnal 2004-05 6.00%
Jai Parkash M/s Narwana Timber Store, Karnal 2005-06 4.34%
Neeraj Jain Prop. Jagdama Timber Store, Karnal 2006-07 5.66%
Sat Paul & Sons, M/s Kaithal Timber Store, Karnal 2007-08 3.53%
TOTAL 19.53%
Average Rate 19.53/4 4.90%
2.2. The assessee's reply has been reproduced in para 4 of AO 's order.
2.3. After considering the assessee's reply, the AO gave detailed reasons for
not accepting the same and after giving elaborate reasons rejected the books of
a/c for the various deficiencies pointed out by him in the assessment order and
determined the G.P. rate at 4.9% and made an addition of Rs. 19,08,583/- as
against 2.58% declared by the assessee.
2.4. Before ld. CIT(A), the assessee, inter alia, submitted that it was not
feasible to make the trading account for each item of timber dealt with. The
assessee also pointed out that the firm dealt in one or two major type of woods
which were almost of the same price, stock register was produced before the
AO during assessment proceedings, details of item wise inventory of opening
and closing stock was also filed before the AO. Therefore, it was submitted that
provisions of section 145(3) were not applicable to the facts of the assessee's
case.
2.5. Ld. CIT(A), after considering the assessee's submissions, upheld the
rejection of trading results made by the AO by resorting to provisions of section
145(3).
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2.6. As regards the G.P. rate adopted at 4.9% by the AO, ld. CIT(A) held that
G.P. @ 4% was fair and reasonable, inter alia, observing as under:
"1.08. The appellant declared net profit of Rs. 2,73,344/- on sale
of Rs. 8.3 crores i.e. 0.34% only. It is difficult to appreciate that a
person would be running a business of turnover of Rs. 8.3 crores
which results in NP of Rs. 2.73 lacs only. Even the GP declared by
the appellant is 2.5% which is very much on lower side in view of
the GP declared by the other concerns represented by the same
counsel in the appeal in this office. The appellant further stated that
7.93% of his turnover was high sizes sale wherein profits are less
than 2%. No evidence in support of this claim has been brought on
record besides the fact that it is not going to make much effect in
the G.P. declared by the appellant. The appellant also referred to
some of the cases wherein G.P. claim to be declared from 1.88% to
3.63% and claimed that GP declared at 2.58% by him is not low.
This plea of the appellant is not verifiable for want of relevant facts.
1.09. In view of the facts discussed above, GP @ 4% is held fair
and reasonable as against 4.9% adopted by the AO and 2.50%
declared by the appellant. The AO is, accordingly directed to work
out the GP of the appellant and addition made by him is as such
confirmed up to that extent only."
2.7. Being aggrieved with the order of ld. CIT(A), both the assessee and the
department are in appeal before us. Respective grounds raised are as under:
ITA no. 3590/Del/11: (Assessee's appeal):
"1. That on the facts & in the circumstances of the case, the Ld.
CIT(A) has erred on law & facts by confirming the imposition of
section 145(2) and upholding rejection of books of accounts despite
furnishing of requisite information & documents including stock
register.
2. That on the facts & in the circumstances of the case, the Ld.
CIT(A) has erred on law & facts by applying the Gross profit rate
@ 4% (from 4.90% assessed by the Ld AO) against 2.58% shown
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by the assessee, despite no defects has been found by the Ld AO in
the books of accounts of the assessee".
ITA no. 3542/Del/11 ( Revenue's appeal):
"On the facts and in the circumstances of the case, the Ld. CIT(A)
has erred in directing to work out profit by applying a G.P. rate of
4% as against 4.9% applied by the AO without appreciating that
G.P. rate declared in the comparable cases of the line relied upon
by the AO had shown better results and the account books
maintained by the assessee suffered from defects so as to warrant
invoking of section 145(3) of the I.T. Act."
3. Ld. Counsel for the assessee submitted that rejection of books is
unjustified but even if rejection of books is accepted, still reasonable rate should
be applied for determining net profit. After going through the assessment order
and ld. CIT(A)'s order, we are of the opinion that on account of absence of
necessary details in respect of sales and other discrepancies pointed out by AO,
the books of account were rightly rejected. Now, the short issue is as to what is
the reasonable rate of gross profit which should be applied. The assessee had
disclosed the g.p. rate of 2.58%. The books of a/c were rejected by AO, who
applied the g.p. rate of 4.90%. Ld. CIT(A) upheld the rejection of books of a/c
but reduced the G.P. rate to 4% as against 4.9%. The assessee's contention is
that the G.P. rate for the year under consideration shows an increasing trend
rising from 2.26% for A.Y. 2006-07 to 2.58% while the G.P. rate for A.Y.
2005-06 was 2.16%. The contention of assessee is that only one comparable
case for A.Y. 2007-08 is that of M/s Sat Paul & Sons and all other three cases
were for earlier years. The contention is that if earlier years are to be taken as
bench mark the assessee's own case is the best and if comparison with others is
to be made, it is to be for the relevant assessment year. The assessee has relied
on the orders of the ITAT in the cases of:
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(i) ITO Vs. Shri Krishan Kumar - ITA no. 3543/Del/2011, A.Y. 2007-08,
dated 6-7-2012; and
(ii) Jai Parkash Vs. ITO ITA no. 3589/Del/2011, A.Y. 2007-08, dated
28-11-2013.
4. Ld. Counsel pointed out that in these two cases exactly on the same facts,
using the same comparables for the same assessment year, in the case of
individual, engaged in the same nature of business, the additions were made on
which partial relief was given by the CIT(A), sustaining the G.P. rate of 4%. In
the case of Shri Krishan Kumar (supra), the ITAT in paras 8 to 11 of its order
has observed as under:
8. We have carefully considered the arguments of both the
sides and perused the material placed before us. The Assessing
Officer has given four comparable cases on page 6 of the
assessment order. For ready reference, the same is reproduced
below:-
Name of Assessee Asstt. %
Year Gross
Profit
Jai Parkash M/s Narwana 2004- 6.00%
Timber Store, Karnal 05
Jai Parkash M/s Narwana 2005- 4.34%
Timber Store, Karnal 06
Neeraj Jain Prop. Jagdama 2006- 5.66%
Timber Store, Karnal 07
Sat Paul & Sons, M/s 2007- 3.53%
Kaithal Timber Store, 08
Karnal
Total 19.53%
Average Rate 19.53/4 4.90%
=
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9. At page 7 of the assessment order, the Assessing Officer has given the
comparative position of sale and gross profit in the case of the assessee. The
same is also reproduced herein below for ready reference:-
Particul 2005- 2006- 2007-
ars/AY 06 07 08
Sales 73194 58871 84009
816.00 050.00 166.00
GP 17375 15600 30494
28.00 90.00 94.00
NP 23220 23977 36723
4.29 1.82 8.40
GP 2.37% 2.65% 3.63%
Ratio
10. The assessment year under appeal is 2007-08. The comparable cases
of other assessees are for AY 2004-05 to 2007-08. If we take the comparable
cases of AY 2007-08, then we find that the GP rate for the comparable cases
quoted by the Assessing Officer himself is 3.53% whereas in the case of the
assessee, the GP rate is 3.63%. If we compare the trading result of the year
under consideration as compared to earlier year in assessee's own case, we
find that in AY 2006-07, the GP rate was 2.65% which is accepted by the
Revenue in the order passed under Section 143(3) wherein the Assessing
Officer held as under:-
"Purchases and sales shown have been verified from the books of account.
During the course of asstt. proceedings it was noticed that the assessee had
shown gross turnover of Rs.58871050/- and G.P. of Rs.1560090/- and G.P.
rate of 2.65% against gross turnover of Rs.73194816/-, G.P. of Rs.1737528/-
and G.P. rate of 2.37% of immediately preceding year. The G.P. rate is on
higher side, whereas gross profit rate in this line of trade shown 2.85% in the
case of M/s Janta Timber Store, Timber Market, Karnal."
11. From the above, it is evident that the Assessing Officer himself
considered the GP rate of 2.65% in AY 2006-07 to be reasonable. In AY
2005-06, in assessee's own case, the GP rate of 2.37% was accepted by the
Revenue. In view of the totality of above facts, we do not find any justification
for applicability of GP rate of 4.90%. The gross profit rate disclosed by the
assessee at 3.63% is better as compared to earlier two years of assessee's
case and also better than the comparable case of Sat Paul & Sons quoted by
the Assessing Officer for AY 2007-08. In view of the above, we do not find any
justification for sustaining the part of the trading addition by applying GP
rate of 4%. The same is deleted.
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4.1. In the case of Jai Parkash (supra), the ITAT in para 5 of its order has
observed as under:
5. We have considered rival contentions and perused the
material available on record. In our considered view the
judgment of coordinate Bench in the case of Krishan Kumar
(supra) in which assessee's own case has been considered as
comparable and holding that thought average rate of g.p. in the
case of assessee being 4.9% still, the g.p. rate of 3.61% earned in
the case of Krishan Kumar is justifiable. The ratio of the
judgment on the facts is applicable and proposition that
assessee's g.p. may vary year to year and books of account
should not have been rejected on hypothecated grounds is also
applicable. It has not been disputed that no other defects were
found in assessee's books except A.O's expectation of a
particular way of identification of cut timber with the individual
purchase which in our considered view is rather difficult to
maintain. In the circumstances, we uphold the g.p. rate declared
by the assessee.
4.2. Relying on the above two decisions, the contention is that since the G.P.
rate declared by the assessee for same year is better than earlier, the same
should be accepted.
4.3. However, the contention of the Department is that in similar line of
business, the G.P. rate, as accepted by the Tribunal, is in the range of 3.61% to
3.63% and, therefore, the same should be accepted. We are inclined to accept
the contention of the ld. DR on this count because when G.P. rate is applied for
similar line of business, then for same assessment year there could not be any
wide variation in the G.P. rate. Merely because assessee has shown better result
for the current year cannot be the sole criteria and due regard has to be given to
the G.P. rate adopted in same line of business for same assessment year. The
G.P. rate in the case of Sat Paul & Sons (supra) has been taken at 3.53%. The
AO has considered the case of Sat Paul & sons as one of the comparable cases
and we find that in the similar line of business the G.P. rate accepted by the
Tribunal in the case of Krishan Kumar is 3.61% and in the case of Jai Parkash
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3.63%. Therefore, considering all comparable cases, we are of the opinion that
it would serve the interest of justice if the G.P. rate of 3.53% is adopted in the
case of the assessee as was in the case of Sat Paul & Sons. We order
accordingly.
4.4. In the result, both the appeals, filed by the assessee as well as the
Revenue are partly allowed.
Order pronounced in open court on 22-09-2014.
Sd/- Sd/-
( H.S. SIDHU ) ( S.V. MEHROTRA )
JUDICIAL MEMBER ACCOUNTANT MEMBER
Dated: 22-09-2014.
MP
Copy to :
1. Assessee
2. AO
3. CIT
4. CIT(A)
5. DR
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