TaxTMI 
TaxTMI 
2008 (12) TMI 290
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....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 under Section 143(2) dated 14-10-2002 which was served upon the assessee on 16-10-2002 and subsequ....
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....led. 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, Gohad, Mehgaon, Bhind, on payment of duty at intervals and when stock was lifted/required by the firm for which the separate charges are to be paid to the Government warehouse against sealing and bottling charges an....
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....o 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 liquor are also large companies having their purchase are also fully regularized. The purchase of the assessee of Indian made foreign liquor it was stated have been duly furnished. 12. However, the Assessing Officer did not consider the above explanation of th....
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....d 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 during the day and closing stock remained at the end of the day could not be verified with reference to the qualities purchased and supplied to each shop. 13. The assessee as such was put to notice of the above facts and reasons. The assessee was also put to notice by the Assessing Officer that looking at the assessee'....
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....lied. 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 turnover and they are making higher purchases and are well established in the trade whereas the assessee is a new concern in its first year even then the G.P. and N.P. disclosed is very low and does not justify the profits earned by employing capital though the partners have not even been paid interest on capital and salary for that matter during the year. Thus qua the comparison made and confronted the assessee's profit rate was considered too lo....
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....oller 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 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 t....
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....ilal & 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 placed upon the judgment of the Patna High Court in the case of Md. Umer v. CIT [1975] 101 ITR 525. Copy of the same it was submitted is placed at pages 11 to 16 of the Paper Book so as to contend that therein also the books of account were rejected only, on account of the fact that cash memos were not available. Relying upon these arguments and facts, it was his submission that the CIT(A) was not justified in applying a G.P. rate of 4 per cent which has been agitated in ground No. 1 of the assessee....
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.... 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 opposed by the Revenue. It was his submission that the CIT(A) has also held that book results of the assessee cannot be accepted and the assessee as per its grounds is only on the issue of applicability of G.P. rate. 25. In support of the departmental ground reliance was placed upon the Assessment Order. 26. Referring to the form No. 3CD which was filed before the Bench by the learned A.R. it was vehemently contended by the learned D.R. that the certificate of the Chartered Accountant Shri U.N. Modi ....
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....he 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 has not cared to consider that the comparison so made is confronted to the assessee and the assessee's explanation has also been considered by the Assessing Officer. It is seen that the Assessing Officer has himself given sufficient margin for the fact that this was the first year of the assessee's business and handicap if any on account of the same or on account of operating in a different area he has already tried to factor in these considerations by applying a lesser G.P. rate as compared to 13.13 per cent, 15.5 per cent and 5.88 per cent....
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....een 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 the assessee stood accepted. In the facts of the present case there are categorical finding of the Assessing Officer that the books of account maintained by the assessee are defective. Specific defects have been pointed out therein that the sales vouchers/cash memos which are the basic and primary document on the basis of which P&L account can be made are not available. The reliance placed on audited accounts in the absence of the primary documents would not be of much help. The auditing of accounts in the absence of basic primary documents admittedly cannot....
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....e 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 Assessing Officer has expressed his satisfaction with respect to value and quantity of purchases, other expenses such as bid amount, bottling charges, license fees, freight, salary, rent etc. He, however, made disallowance of Rs. 5,688 out of travelling expense and Rs. 24,051 under the head vehicle expenses, but the same stands deleted by the ld. CIT(Appeals) and the decision so taken by the ld. CIT(Appeals) stands confirmed by the Tribunal. 3. The Assessing Officer also accepted the sales declared at Rs. 8,33,26,000. No discrepancy in quantity of sales so effected has al....
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....ded 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 cash book, ledger etc. which were duly audited and the return of income was accompanied with the report of auditors. The Assessing Officer has examined the books of account in detail. No discrepancy whatsoever has been found or pointed out. Even though the assessee was not maintaining sale vouchers for the sale of liquor carried at 53 shops spread at different places yet the system of receipt of sale proceeds and making entries was duly established before the Assessing Officer and no discrepancy has been found or pointed out by the Assessing Officer. Merely because the cash vouchers were not maintained, the accounts of the assessee could not have bee....
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....8] 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 assessee. The entries in the books of account maintained in regular course are considered as relevant and is a prima facie proof or basis to justify the correctness thereof. Reference may be had to the judgment rendered by Hon'ble Assam High Court in the case of Tolaram Daga v. CIT [1966] 59 ITR 632. The Assessing Officer himself is found to have accepted the correctness of sale amount by admitting the declared sales at Rs. 8,33,25,882. It is not the case of Revenue nor has been found by the Assessing Officer that the sales effected by the employees are not at the rate displayed on the shops nor is the case that the daily sales effected are more than the amount remitted at ....
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....isfied 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 any such finding as envisaged under Sub-section (3) of Section 145. The finding reached by the ld. CIT(Appeals) that all the sales claimed cannot be established because of lack of vouchers is also without any good basis. The same also is set aside, as the Assessing Officer himself has accepted the sale value disclosed by the assessee. I, therefore, do not find any factual or legal justification in rejecting the book results and estimating income by applying higher profit rate than that was declared by the assessee. Accordingly, the profit rate declared at 3.11 per cent by the assessee is directed to be applied on the declared sales of Rs. 8,33,25,882 as against modified rate applied by ld. CIT (Appeals). Thus, the groun....
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....ere 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. Singh Associates, Gwalior A.Y. 2001-02 Total Sale Rs. 482165138 Gross Profit Rs. 63277790 13.13% Net Profit Rs. 39206082 8.13% 2. M/s. Laxmi Narain Shivhare & Co., Gwalior A.Y. 2000-01 Total Sale Rs. 113515105 Gross Profit Rs. 17598510 15.5% Net Profit Rs. 15074846 13% 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% 3. According to the Assessing Officer, the book results which showed gross profit of 3.11 per cent of sales are not acceptable and, therefore, the Assessing Officer proposed to make an addition of gross profit of sale at 5 per cent instead of the book results shown by the assessee. Accordingly, an a....
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.... 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 order of ld. A.M. 7. The ld. DR, on the other hand, strongly supported the findings in the order of the ld. J.M. According to him, the book results cannot be accepted in view of the fact that the sale bills are not maintained by the assessee and the estimation of the gross profit, according to him, is very much justified. 8. I have carefully considered the rival contentions and gone through the record. This is the first year of the assessee's business. All its supplies are duly supported by proper vouchers and is regulated by the excise authorities and payment of country liquor is made through Government warehouses against payment made to the Government on the basis of the auction conducted by the Government. In other words, the purchases are all supported by valid documents. When it comes to the sale, the nature of....