TaxTMI 
TaxTMI 
2008 (12) TMI 290
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....t rate declared was more than 6 per cent from the same nature of liquor business in the contemporary period. (3) The learned CIT(A) has erred, in law and facts, in directing the Assessing Officer in allowing relief of Rs. 5,688 made on account of Travelling expenses. (4) The learned CIT(A) has erred, in law and facts in directing the Assessing Officer in allowing relief of Rs. 24,051 made on account of vehicle expenses. (5) The appellant reserves his right to add, amend or alter the grounds of appeal or before the date, the appeal is finally heard for disposal. 3. The grounds which have been raised by the assessee read as under: (1) On the facts and circumstances of the case the learned Commissioner of Income-tax (Appeal) has erred in applying a G.P. rate of 4 per cent on total sale declared by the appellant firm. (2) The learned Commissioner of Income-tax (Appeal) has erred in not accepting the results and total income declared by the appellant firm. 4. The relevant facts of the case are that the assessee is a liquor contractor who returned an income of Rs. 2,80,010. Accordingly, the Assessing Officer after issuance of notice unde....
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....ding of country liquor and IMFL. The audit report inform No. 3 CD along with return of income was filed. The copy of partnership deed duly signed by all the partners specifying the share of profit ratio is filed. The firm came into existence on 20-3-2000 with the objective of running wine business and liquor contracts. The principal place of the business as per partnership deed was fixed at Gwalior and it was consented that the firms branches shall be opened at any other place with the mutual consent of the partners. The contract of 53 country liquor shops of Gohad, Mehgaon were awarded to the assessee firm on 31-3-2000 and contract of Bhind was awarded on 22-4-2000. This is the first year of business of the firm. The guarantee amount has been deposited with District Excise Officer, Gohad, Mehgaon, Bhind on assignment of country liquor shops contract situated at Gohad, Mehgaon, Bhind through bid. The total bid amount that has been deposited in the firm during the year is Rs. 6,26,03,353 which has been certified by the DEO, Gohad, Mehgaon, Bhind and copy of certificate is on record. The supplies of country liquor to the assessee firm were made through Government warehouse, ....
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....nce of books in regular course of business and no record of day-to-day sale was produced. 11. In reply it was stated on behalf of the assessee that the assessee is a contractor authorised to operate the liquor shop for the period of one year from April 2000 to March 2001. Under the laws of Excise Department of Government of M.P., the country liquor is being supplied by the Government through their nominated distilleries in the shape of bottles as required by the assessee. This function can only be done by the Government Excise Department and therefore, rules and regulation of the 'department are to be followed and since the assessee' is dealing with the Government department no adjustments are likely to be made in the value of purchase of country liquor. It was submitted that the purchase of Indian made foreign liquor is through their nominated dealers and licenses of the famous branches all over the country which are produced by very few manufacturers. As per the Assessment Order it was submitted that the regulation of purchase of Indian made foreign liquor is also by way of a permit issued to the purchasers by the Government of M.P. The suppliers of Indian made foreign....
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.... conducted area are kept the assessee. (7) During the course of discussion it was explained that there were many outlets for the purpose of sale at the end of the day employee of the firm used to visit every shop personally and collected the sale proceeds which were deposited in the centralized so-called head office of the assessee. At, the head office the collection made through employees was to be cross verified with reference to the qualities and quantities and brand of liquor sold at each shop and sale consideration collected at the end of the day through reported to be maintained for non be produced on the date of hearing fixed on various dates on plea that such rough record was not presented and was destroyed after non verifications. In the absence of such basic record the sale shown in the head office could not be verified with reference to the sales effected at each shop. As the sale vouchers are not available so the rate of sale could not be verified and therefore the margin of profit earned could not be cross verified with reference to sale proceed. (8) In the absence of sale vouchers the quantity of various brands supplied to each shop sold by them duri....
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....ses 2135000 Sub shop license fee 450000 Bottling & Sealing Charges 5039000 Total (B) 80737000 Gross profit (A-B) 3.11% 2589000 G P +Cash Duty 46.31% 38588000 Net profit 0.34% 280068 15. However, the explanation offered by the assessee was considered to be not acceptable by the Assessing Officer and accordingly in line with the discussion held the book results were rejected and G.P. of 5 per cent was applied. In doing so the Assessing Officer justified his action in applying the said rate of 5 per cent which was much less than the rate of 13.13 per cent of M/s. Singh Associates of Gwalior; 15.5 per cent of M/s. Laxmi Narain Shivhare & Co. of Gwalior and 5.88 per cent of M/s. S.R. Trading Co. also of Gwalior. Considering the fact that the trade is of such a nature wherein profitability varies from place to place and is adversely affected by the areas in close vicinity and giving margin for being the first year in this line of business a lesser rate was applied. The Assessing Officer as per pages 7 & 8 of the Assessment Order was of the view that even if it is denied that the person showing extremely high profits have shown a very high turnove....
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.... made merely on the ground that the assessee could not produce sale vouchers, sale bills and brand-wise details of liquor purchased and sold, the Assessing Officer had not appreciated the nature of business being carried out by the assessee through various outlets - the partnership was only subsisting for one year and assessment was made after dissolution of firm and closure of business; comparison with other liquor contractors is fallacious as in those firms the controller of business had other undisclosed income which he used to offer through the garb of liquor firms. Further no purchases or sales were found or established outside the books of account. It is also not clear as to how such a high rate of profit was estimated. In view of such arguments, the ld. A.R. strongly urged that the result declared by the appellant should be accepted. 18. Considering these, the CIT(A) came to the following conclusion: I have gone through the assessment order, the written submission of the ld. A.R. and the arguments put forward during the course of hearing. It is clear from the assessment order and also the arguments put forward by the appellant that all the sales claimed ....
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....at reliance is placed on Ashok Kumar & Co. v. ITO [2004] 2 SOT 518 (Asr.)(SMC). Copy of which it was submitted is placed at pages 1 to 6 of the Paper Book. Reliance was also placed upon the judgment of the Jurisdictional High Court in the case of Asstt. CIT v. Gendalal Hazrilal & Co. 31 ITC 310 : [2004] 134 Taxman 384 (MP), copy of which is placed at pages 7 to 10 of the paper Book. It was pointed out to the learned A.R. that in the said judgment of the jurisdictional High Court i.e. Gendalal Hazrilal & Co.'s case (supra) cognizance has been taken of the past accepted practice in the case of the said assessee i.e., Gendalal Hazrilal & Co. wherein final accounts were supported by P5 certificates in the absence of shop-wise accounts for the 40 shops of the said assessee. As such, whether the said evidence is available in regard to the assessee or not was required to be addressed. In reply learned A.R. submitted that he is relying upon the judgment of the jurisdictional High Court only in the context of the fact that therein also the defects like absence of cash memos etc. were a fact. As such, the said judgment was being relied upon only in that context. 22. Reliance was also ....
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.... notice has been given to the assessee and the assessee has participated. As such, the argument put forth by the Bench that the books of account have not been rejected as the wording used is to invoke the proviso to Section 145(3) was vehemently contested by the learned D.R. It was his argument that instead of using the words invoke the provisions of Section 145(3) due to a typographical error which got typed as "invoke the proviso of Section 145(3)". It was his contention that the books of account have been rejected by the Assessing Officer and this fact is found recorded in page 2, para 2 of the impugned order wherein the CIT(A) observed that the book results shown by the assessee were not accepted and the profit was estimated, as such, the action has been upheld by the CIT(A) also. On a perusal of the material available on record, as per the written submissions reproduced by the CIT(A) in the impugned order, it was argued by the learned D.R. that it had been challenged by the assessee on the ground that the books of account are audited as such cannot be rejected. Accordingly, the observations of the Bench that a provision not existing in the Statute had been applied was strongly....
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.... G.P. rate of 4 per cent is given. 29. For ready reference the reasoning adopted by the CIT(A) is reproduced hereunder: I have gone through the assessment order, the written submission of the ld. A.R. and the arguments put forward during the course of hearing. It is clear from the assessment order and also the arguments put forward by the appellant that all the sales claimed cannot be established because of lack of vouchers. The results shown by the appellant, therefore, cannot be accepted. However, considering the fact that this was the first year of business for the firm, that the books of account were produced before the Assessing Officer, who has not specifically found any defect in such books of account and that the accounts of the appellant are audited by a qualified Chartered Accountant, I am of the view that the G.P. at the rate of 4 per cent on the total sales declared by the appellant would meet the ends of justice. The Assessing Officer is directed to modify her order accordingly. 30. It is seen from the above that the CIT(A) has been careless in not considering the comparable cases which have been cited by the Assessing Officer at page 6 of his order. He ....
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....ourt has taken into consideration the past accepted practice which the Tax Authorities over the period had accepted and had relied upon. Namely final accounts supported by P5 certificates. Thus, in absence of shop-wise accounts of 40 shops and cash memos etc. in these peculiar facts were considered to be not relevant. In the facts of the present case, the certificates by competent authority of the Excise Department are not available on record and in the case of the assessee it is not even a fact that past practice would show that these certificates have been considered to be sufficient evidence as this is the first year of assessee's business. Accordingly the said judgment is of no help to the facts of assessee's case. 34. In the case of Md. Umer (supra), the judgment of the Patna High Court, there was no finding in the Assessment Order that any of the books of account were not correct and there was no finding recorded by the departmental authorities as to the unacceptability of the method and irregularity of the account kept by the assessee. Accordingly, on account of these specific finding of fact being absent in the Assessment Order the trading result so declared by t....
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....ed as no specific reasons have been brought in the Assessment Order to make the additions. In the facts as they stand, the impugned order appears to be reasonable. Ground Nos. 3 & 4 of the Revenue as such are rejected. 36. Ground No. 5 is general in nature require no adjudication. 37. In the result, the appeal of the revenue is partly allowed for statistical purposes and the appeal of the assessee is also allowed for statistical purposes. ORDER B.R. JAIN, ACCOUNTANT MEMBER 1. In these cross-appeals for the assessment year 2001-02, unable to agree with the reasoning and decision reached by the learned Judicial Member, I proceed to write my separate order. 2. Briefly, the facts are that the assessee commenced business of wine and liquor contract during the year under consideration. The contract was awarded by the Excise Department of Government of Madhya Pradesh for a limited period of one year from April 2000 to March, 2001. The assessee disclosed sales of Rs. 8,33,26,000 and gross profit yielded thereon accounts to 3.11 per cent. The assessee has maintained books of account which are duly audited. The return of income is accompanied by auditor's report. The As....
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....3% 3. M/s. S.R. Trading Co., Gwalior A.Y. 2000-01 Total sale Rs. 207082022 Gross profit Rs. 12178097 5.88% Net profit Rs. 5579876 2.69% 4. The explanation given by the assessee has, however, has not been accepted and accordingly, after rejecting the book results in terms of proviso to Section 145(3) of the Act, the Assessing Officer applied gross profit rate of 5 per cent on the declared sales of Rs. 8,33,26,000 and worked out the gross profit at Rs. 41,66,294 as against gross profit disclosed at Rs. 25,89,426 by the assessee. The difference on account of low gross profit at Rs. 15,76,868 has been added to the returned income and assessment stood completed accordingly. 5. The assessee's counsel Shri Rajendra Sharma Advocate while assailing the order of ld. CIT (Appeals) contends that there is no factual or legal justification in action of ld. CIT(Appeals) in upholding rejection of books of account and application of profit rate at 4 per cent as against 3.11 per cent declared by the assessee. The estimation otherwise also is highly excessive and unreasonable. The assessee had maintained regular books of account in the shape of cas....
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.... assessee stand duly accepted by the Assessing Officer with no adverse comments thereon. The Assessing Officer himself is found to have accepted the declared sales at Rs. 8,33,25,882. The books of account have been maintained for the business carried by the assessee. The accounts are duly audited and the return of income is accompanied by report of auditors which also came into consideration of the Assessing Officer. The report of auditors constituted a material for the purpose of assessment of income under Section 143(3) of the Act. Reference on this is available from the judgment rendered by Hon'ble Delhi High Court in the case of Addl CIT v. Jay Engg. Works Ltd. [1978] 113 ITR 389. No adverse comments thereon have been made by any of the authorities below. Though the assessee did not maintain any cash vouchers for the daily sale of liquor effected at its various shops in terms of system prevalent in the trade, the fact remains that the daily sales effected by the employees deployed at its various shops and brought to assessee's central office were taken into sales account in such books of account, as the same were the sale proceeds that were actually received by the asse....
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....0 (vi) Bottling & sealing charges 50,39,000 Rs. 8,07,37,000 Gross profit Rs. 25,89,000 G.P. rate 3.11% The above gross profit is exactly the same that has been declared by the assessee. In case, the Assessing Officer was not satisfied by the sale price or profit rate on sales, he could have estimated the sales, but that has not been done in the present case in appeal before me. Even the proviso as referred to Section 145(3) in the order of Assessing Officer does not exist in the statute. This itself shows non-application of mind by the Assessing Officer. The mandatory requirement as contained under Sub-section (3) of Section 145 of the Act is that where the Assessing Officer is not satisfied about the correctness or completeness of the accounts of the assessee, or where the method of accounting provided in Sub-section (1) or accounting standard as notified under Sub-section (2), have not been regularly followed by the assessee, the Assessing Officer may make an assessment in the manner provided in Section 144. The Assessing Officer, however, has not recorded any finding so required by the statute nor the ld. CIT(Appeals) is found to have recorded a....
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.... parties in accordance with the permit given by the Government. Apart from the audited accounts, the assessee filed the details of the bottling and sealing charged for supply by the Government warehouse and purchase bills in respect of IMFL purchase. However, in respect of the sale of country liquor, no supporting vouchers were produced. It was stated that no sale bills are kept and the daily shop sales are recorded on the basis of daily statement given by the employee in charge at the shop. During the course of assessment, quantitative details were furnished by the assessee, which are supported by issues by the department and the permit obtained for IMFL from the department. All books of account maintained in the regular course of business were produced. However, the Assessing Officer rejected the books of account on the ground that all the sales are made in cash without proper vouchers supporting the sale. The brand-wise, quality-wise and date-wise sales are not subject to verification by any independent evidence The Assessing Officer, after rejecting the books of account, went on to determine trading on the basis of results shown by the following other traders: 1. M/s. Sin....
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.... book results and estimating the income by applying higher profit than what was declared by the assessee. Accordingly, the appeal of the revenue was dismissed and the assessee's appeal stood allowed giving rise to the point of difference stated above. 5. As regards the minor disallowance which stood deleted by the CIT(A) in respect of travel expenses and vehicle expenses, both the Members have concurred with the findings of the CIT(A). 6. I have heard the ld. Counsel for the assessee who pointed out that this is the first year of the assessee's business. All the books are audited by a qualified accountant. The Assessing Officer complained lack of maintenance of the sale bills and accepted the sale value declared by the assessee. It shows that he has no reason to reject the books of account maintained by the assessee. The assessee has declared the gross profit of 3.11 per cent on the sale value whereas the CIT(A) has reduced it to 4 per cent and he has also given a finding that there was no defect in the books of account maintained by the assessee. In the light of these factual details, the declared result is requested to be accepted in the light of discussion in the o....