TaxTMI 
TaxTMI 
2018 (5) TMI 1315
X X X X Extracts X X X X
X X X X Extracts X X X X
.... liquor contractor dealing in country liquor, Indian made foreign liquor (IMFL) and Beer. The AO observed that "in view of the glaring defects of the sales, totally unsupported by any day today shop wise register of stock and sales, the true profits cannot be deducted from the books of account maintained by the assessee and accordingly books of accounts are rejected under section 145(3) of the Act." Thereafter, he has collected information from the excise department and estimated the sales turnover on the basis of the information so collected and estimated the sales turnover as against the sales declared by the assessee and added the amount of the difference between the total sales turnover estimated by the AO and the sales turnover declared by the assessee on account of suppressed sales of Rs. 2,98,60,025/- and Rs. 1,88,17,217/- in respect of assessment years 2010-11 and 2011-12 respectively, as income of the assessee. The ld. CIT(A) has confirmed the action of the AO as regards to estimating the turnover on the basis of information received from the excise department, however, he has rejected the AO's view of assessing the suppressed sales as taxable income of the assessee by hol....
X X X X Extracts X X X X
X X X X Extracts X X X X
....P High Court(jurisdictional High Court) in the above cited two cases I am of the considered opinion that the entire suppressed/undisclosed sale estimated by A.O cannot be taxed as 'Income' of the appellant. Only the net profit part can be taxed. 3.6 On the facts similar to the facts of the appellant, the ITAT, Coordinate Bench of Hyderabad, ITAT (ITA No.391/Hyd/2009) in the case of Manjeet Singh Bagga Vs. ITO has held that estimation of profit @3% of the purchases made by the appellant(Liquor Contractor) would meet end of justice. In the case of Kanak Durga Wines Hyderabad Vs ITO Hyderabad bench-B of the ITAT (ITA No.591/Hyd./2011) has estimated the net profit of the assessee(Liquor Contractor) @3% of the purchases or stock put for sale during the year under consideration. In the case of G.Sudarshan Hyderabad Vs ITO (ITA No.l26/Hyd./2012) Hyderabad bench-A of the ITAT directed the Assessing Officer to estimate the net profit of the assessee at 3% of the purchases or stock put for sale during the year, subject to the condition that the income shall not go below the returned income. 3.7 After going through the various decisions of jurisdictional High Court and ITAT ....
X X X X Extracts X X X X
X X X X Extracts X X X X
....ared by the assessees, as extracted hereunder: - Comparative Chart of Gross and Net Profit on Trading results Assessme nt Year Sales (Rs.) Gross profit Net Profit Rema rks Rs. % Rs. % after deducting interest and salary % without deducting interest and salary 2006-07 2464568 904581 37.16 35798 1.47 - Accep ted 2007-08 Nil Nil Nil - Nil - - 2008-09 103159162 7420887 7.19 2002427 1.94 2.9 57600 0 2009-10 100095112 8486895 8.48 1090815 1.09 2.1 50100 0 *2010-11 154743908 12633589 8.16 1441940 0.93 1.9 Under appea l *2011-12 246560430 18018328 7.31 2341328 0.95 1.43 7. The ld. DR relied on the order of the Assessing Officer. The ld. DR submitted that the ld. CIT(A) has erred in applying the net profit rate of 3% on the total estimated turnover, instead of difference in sal....
X X X X Extracts X X X X
X X X X Extracts X X X X
....annot be regarded as profit of the assessee, on the contrary it is a net profit rate which has to be adopted in such cases. In view of the findings of the Hon'ble M.P High Court(jurisdictional High Court) in the above cited two cases I am of the considered opinion that the entire suppressed/undisclosed sale estimated by A.O cannot be taxed as 'Income' of the appellant. Only the net profit part can be taxed." 3.6 On the facts similar to the facts of the appellant, the ITAT, Coordinate Bench of Hyderabad, ITAT (ITA No.391/Hyd/2009) in the case of Manjeet Singh Bagga Vs. ITO has held that estimation of profit @ 3% of the purchases made by the appellant (Liquor Contractor) would meet end of justice. In the case of Kanak Durga Wines Hyderabad Vs ITO Hyderabad bench-B of the ITAT (ITA No.591/Hyd./2011) has estimated the net profit of the assessee(Liquor Contractor) @3% of the purchases or stock put for sale during the year under consideration. In the case of G.Sudarshan Hyderabad Vs ITO (ITA No.l26/Hyd./2012) Hyderabad bench-A of the ITAT directed the Assessing Officer to estimate the net profit of the assessee at 3% of the purchases or stock put for sale during the year, subjec....
X X X X Extracts X X X X
X X X X Extracts X X X X
....contractor is required to lift liquor from the Government for a specified value with the stipulation that if the contractor does not take delivery for the specified value, it is liable to make good the deficiency at the end of the year to the State Government, as "shortfall". The shortfall payments are directly linked with the profitability, in the sense that when there is less demand of liquor, a contractor prefers to lift less quantity of liquor and prefers to pay the "shortfall". As per the Excise Rules, the liquor contractor has to maintain complete stock register and record of all its employees as per "Nokarnama" approved by the District Excise Officer. No other person can be recruited as an employee, unless the details of the employees are provided to the District Excise Officer. The liquor contractor has to submit monthly account of receipt of liquor and sale thereof and report the stock balance at the end of the month to the Excise Inspector by the 5th of the following month. In the case of country liquor, the purchases are made from the Excise Department through permits. Accordingly, purchases of IMCL as also purchases of IMFL and Beer can be made from wholesale lice....
X X X X Extracts X X X X
X X X X Extracts X X X X
....hey cannot hold the stock of liquor and cannot realize even the minimum price fixed by the excise department. It was pointed out that the assessee also had to sell the liquor at less than the minimum selling price. For this reason, in the case of M/s Shivhare Associates, the assessee was also penalized by the District Collector, Gwalior on 09.06.2010, resulting in suspension of the license of the assessee for one day. In view of these facts, it is submitted that application of mathematical formula for sales by the AO, is entirely based on presumption, surmises and conjunctures and adoption of higher NP rate by CIT(A) has no basis. 15. The ld. CIT(A) has rightly followed the decisions of the Hon'ble Jurisdictional Madhya Pradesh High Court given in the cases of 'Commissioner of Income Tax vs. Balchand Ajit Kumar', 263 ITR 610 and 'Manmohan Sadani vs. Commissioner of Income Tax, 304 ITR 52 while holding that where the books of account are being rejected, the entire sales cannot be charged to tax as income, only the profit rate is to be applied. As such, the finding of CIT(A) on the issue of applying net profit rate on the sales is in conformity with the law. Therefore, the d....
X X X X Extracts X X X X
X X X X Extracts X X X X
....lant that non issuing of cash memo is a general practice in the line of trade and is generally an accepted and prevalent practice. It may be noted that absence of cash memo of given situation like liquor trade may not per se lead to interference that the accounts are incorrect or incomplete. Here in the case of appellant, the Assessing Officer had not pointed out any defect or deficiency in the books of accounts and therefore, there was no sufficient ground with the Assessing Officer for invoking provisions u/s 145(3) of the I T Act. Since provisions of section 145(3) of the I T act are not applicable in this case and the books of accounts have not been validly rejected, the Assessing Officer was not justified in estimating the sales at a higher figure and applying a higher net profit that declared by the appellant." 19. The ITAT, Indore Bench, in the case of 'ACIT Vs. Avinash Chawla & Co. Bhopal', in ITA No. 570/Ind./ 2012, for Asstt. Year 2008-09, vide order dated 17.04.2013, held that (APB, 77-83)- "No major defects pointed out by the Assessing Officer other than the defects of not issuing the sale bills, but the fact remains that sales of the assessee as recor....
X X X X Extracts X X X X
X X X X Extracts X X X X
....ion of accounts but held that said decision is not applicable. CIT(A) estimated sales and applied profit rate of 2%. Held, Books are liable to be rejected, However, Badri Prasad Bhagwan Das (supra) is not applicable as Excise law that existed earlier has changed from 1996. Comparable case of other liquor contractor cited by A O is different on facts. Estimation of sales done by CIT(A) is upheld and profit rate applied by CIT(A) is reduced from 2% to 1.5%." 23. In the case of 'Balch and Ajit Kumar', (2003) 263 ITR 610 (MP) (APB, 37-40) and in the case of 'Man Mohan Sadani V.s Commissioner of Income Tax', (2008) 304 ITR 52 (APB, 41-44)it is held that the total sales could not be recorded as the profit of the assessee. The net profit rate has to be adopted and once it is adopted, the same can be treated as the income of the assessee. In the present case, the finding of the Ld. Assessing Officer with respect to addition of the entire amount of the sales difference and adoption of higher rate of NPR on these estimated sales as discussed above, on the basis of information received from Excise Department, is contradictory to the observations of the Hon'ble jurisdictional MP High ....
X X X X Extracts X X X X
X X X X Extracts X X X X
....d that the CIT(A) did not assign reasons for not following the orders of the jurisdictional High Court of MP and the jurisdictional ITAT Bench of Jabalpur, the ITAT Indore Bench and even the ITAT, Agra Bench, in which, the net rate of 1.77 to 2.0% was accepted, but he has followed the judgment of the ITAT, Hyderabad Bench, in the cases of 'Kanak Durga Wines Vs ITO', (supra) and 'G. Sudarshan V/s ITO', in which 3% net rate was applied. Thus, the finding of the CIT (A) in applying 3% net rate, as held by the Hyderabad Bench of the ITAT as against net profit rates of 1.77% and 2%, upheld in the decisions of the jurisdictional High Court of MP and the ITAT Jabalpur/Indore Benches, respectively, on parity of facts is a per se unsustainable finding with reference to the facts and circumstances of the case and it also amounts to violation of judicial discipline by not following the decision of the jurisdictional High Court and ITAT Benches on parity of facts, and wrongly following the decision of other ITAT Benches. 29. The ITAT, Agra Bench, in the case of 'Laxami Narain Shivhare, Gwalior Vs. Joint Commissioner of Income Tax III', in ITA No. 419/Agra/2012, for the A.Y. 2009-10 an....
X X X X Extracts X X X X
X X X X Extracts X X X X
....discussed the factual finding recorded by the AO and placed for consideration by the assessee, as the case may be, in its proper perspective and it is expected of the authority holding appellate jurisdiction to exercise its judicious discretion based on due appreciation of the material on record. 31. The above principles fully hold good for the present case also. In the entire order, the CIT(A) has not recorded any finding of fact, nor any reasons are assigned as to why he does not agree with the past history of the assessee, the comparable cases and the observations of the higher jurisdictional judicial forums on the parity of facts. 32. From the above, it is amply clear that the ld. CIT(A) has not pointed out any specific deficiency in the purchase invoices, or the expense invoices, nor discussed any comparable case on identical facts, to form the basis for application of a particular net profit rate on gross total receipts, in the case of the assessee. On perusal of the comparative 'Net Profit Chart' of the assesses's past history on profit rate, as above, it is evident that the Net Profit Rate is reasonably declared at 2.62%, as against those of 2.09% and 2.12....