TMI Blog2008 (12) TMI 290X X X X Extracts X X X X X X X X Extracts X X X X ..... r 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 percent, 15.5 percent and 5.88 per cent shown by the concerns specifically named in the Assessment Order. It is seen that no efforts have been made by the assessee either before the AO or before the CIT(A) or for that matter before the Bench to distinguish the area of operation etc. of M/s. Singh Associate, Laxmi Narain Shivhare Co. and M/s. S.R. Trading Co. with whom specific comparison has been made by the AO. Therefore, rejection of books of account was correctly made. However, in regard to the application of rate, we are of the view that the comparative case of Gendalal Hazrilal Co.[ 2003 (7) TMI 70 - MADHYA PRADESH HIGH COURT] by the AO maybe taken into consideration by the CIT(A) who shall thereafter as directed above pass a speaking order in accordance with law after giving the assessee an opportunity of being heard. Accordingly, ground Nos. 1 2 of the Revenue and ground No. 1 of the assessee which is ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... in set aside the issue for fresh determination by the CIT(A) as done by the ld J.M. The matter is factual and all the facts are already there before the two revenue authorities when they framed the issues. Thus, in the light of the majority view, the appeal of the assessee stands allowed and the appeal of the Revenue stands dismissed. - G.E. VEERABHADRAPPA, VICE PRESIDENT, B.R. JAIN, SANJAY ARORA, ACCOUNTANT MEMBERS AND DIVA SINGH, HARI OM MARATHA, JUDICIAL MEMBERS ORDER DIVA SINGH, JUDICIAL MEMBER 1. These are cross-appeals filed by the assessee and the revenue against the order dated 2-11-2004 of CIT(A), Gwalior pertaining to 2001-02 assessment year: 2. The grounds which have been raised by the revenue read as under: (1) The learned CIT (A) has erred, in law and facts, in directing the Assessing Officer to determine the profit by applying gross profit rate of 4 per cent on total sales declared by the assessee thus giving relief of Rs. 15,76,868. (2) The learned CIT(A) has erred, in law and facts, in directing the Assessing Officer in allowing relief of Rs. 15,76,868 contrary to his own decision made in Appeal No. 179/IT/2004-05 dated 30-11-2004 in ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... dentity, capacity and credit worthiness of Shri Gajendra Singh and genuineness of transactions with firm shown at Rs. 19,66,250 (unsecured loan) in balance sheet and assessment details. (4) Copy of account of Pooja Wine shown as creditor with elaborate description of brand and quantity of liquor purchased and rates thereof together with purchase vouchers. State assessment details of Pooja Wine and its partners name and addresses and reasonableness of the purchase price. (5) Details of furniture and fixtures along with purchase bills. (6) Furnish certificate from excise department regarding duty and bid money paid. (7) Vouchers/bills of bottling and sealing charges with complete details. (8) Method regarding treatment of breakage adopted by him as no debit is made on this account. (9) Purchase bills of spirit and beer. (10) Give details of date-wise capital introduced by the partner, sources of investment/introduction of capital. Mode of payment and withdrawal, capital withdrawal by the partners, source of investment and details of bank a/c. (11) Copy of date wise account of partners appearing in the firm's ledger their complete and permanent addresses of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... From a perusal of the material available on record, he observed that no supporting vouchers were produced to substantiate the same and instead it was stated on behalf of the assessee that no sale bills are kept and sales are recorded on the basis of the daily statement given by employee attending the shop. 8. The Assessing Officer on examining the cash book and ledger produced by the assessee required the assessee to produce the following details: (1) Details of shop-wise expenses and receipts against sales and No. of shops and sale register. (2) Confirmation from Gajendra Singh, creditor with source of credit. (3) Rate of bottling and sealing applied by Government warehouse. (4) Address of Prop. of Pooja Wine and Ganga Wine. (5) Copy of Bank statements. 9. In compliance thereto the assessee filed written submissions. Considering the same, the Assessing Officer observed that the assessee has still not produced any supporting documents relating to sales. Addresses of proprietors of Pooja Wine and Ganga Wine were required. Copy of bank statements were also required. He also observed that though purchase ledger and sales ledger and copy of ledger account of expen ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... sited 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, though reported to be maintained but not produced on the date of hearing fixed on various dates on plea that such rough record was not preserved and was destroyed after cross 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. (4) 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 quantities purchased and supplied to each shop. (5) All the sale are made in cash without vouchers supporting the sale. The brand-wise, quality-wise and date-wise sales are not subj ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... . 3,92,06,082 8.13% (2) M/s. Laxmi Narain Shivhare Co. Gwalior A. Y. 2000-01 Total Sale Rs. 11,35,15,105 Gross Profit Rs. 1,75,98,510 15.5% Net Profit Rs. 1,50,74,846 13% (3) M/s. S.R. Trading Co., Gwalior A.Y. 2000-01 Total Sale Rs. 20,70,82,022 Gross Profit Rs. 1,21,78,097 5.88% Net Profit Rs. 55,79,876 2.69% Even in his own case the assessee has shown the profit at higher figure in subsequent year. The book results are therefore not acceptable and the explanation filed by the assessee for not rejecting the books of account is not acceptable. It is therefore proposed to take the gross profit at 5 per cent of the total sale as against the book result shown by the assessee. 14. In reply the assessee though reiterated the subm ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he 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 low even after giving margin for the arguments of the assessee. 16. In the above circumstances the Assessing Officer was of the view that considering all these facts and explanation and taking into consideration the comparisons made with the other concerns the G.P. rate of 5 per cent was considered to be reasonable and applied thereby making an addition of Rs. 15,76,868. 17. Aggrieved by this the assessee went in appeal before the First Appellate Authority. The contention put forth on behalf of the assessee before the CIT(A) as reproduced in the impugned order read as under: Shri Pramod Gupta, ITO, who appeared on behalf of the appellant, submitted that the Assessing Officer has not been able to appreciate the facts of the case and the practice prevalent in this kind of business. He submitted that this was the first year of the business of the appellant and the accounts of the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ar 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. 19. Aggrieved by this, both the assessee and the revenue are in appeal before the Tribunal. 20. Learned A.R. contended that this was the first year of assessee's business and as a result of the same he has argued before the Tax Authorities that he cannot be expected to compete against other established companies which are already in the market. It was also submitted by him that apart from these two reasons it has also been contended by the assessee that profit varies from place to place i.e., area to area and depends where the shops are situated. Accordingly, it was submitted that due to these factors the results would also consequently be affected. It was his submission that apart from the fact that the sale vouchers were mi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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. These arguments it was submitted would address the grounds raised by the Revenue also who have agitated the issue in ground No. 1 2 on the relief granted by the CIT(A). 23. Learned D.R., on the other hand, relying upon the Assessment Order contended that he was directed by the Bench (learned A.M.) to address the aspect about the availability of proviso to Section 145(3) in the Statute which has been applied by the Assessing Officer. 24. In the context of the same, learned D.R. submitted that in the facts of the present case, the Assessing Officer has issued a detailed questionnaire as is evident from page 2 of the Assessment Order after issuing of notice under Section 143(2) and 142(1) of the Income-tax Act. Thereafter, sufficient opportunities were given to the assessee to place necessary evidences called forth. No doubt in page 5 the Assessing Officer ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 Co., 103, Akash Ganga Apartment, City Centre, Gwalior which had been flashed before the Bench by the learned A.R. is not a blanket certificate but a qualified certificate and the C.A. has been very careful to confine its certification by using specific words in para 3(a) and (b) which is qualified in para 3 as under: 3. (a) We report the following observations/comments/discrepancies/inconsistencies; if any: (b) Subject to above: 1. and 2.** 3. In our opinion and to the best of our information and according to the explanations given to us, the said accounts, read with notes thereon, if any, give a true and fair view. 27. The above para 3 was emphasised and read out by the learned D.R. to canvass that certificate was qualified by the statement that it was based on the explanations given to the Chartered Accountants and the same did not give ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s 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 shown by the concerns specifically named in the Assessment Order. It is seen that no efforts have been made by the assessee either before the Assessing Officer or before the CIT(A) or for that matter before the Bench to distinguish the area of operation etc. of M/s. Singh Associate, Laxmi Narain Shivhare Co. and M/s. S.R. Trading Co. with whom specific comparison has been made by the Assessing Officer. 31. Accordingly, in the peculiar facts and circumstances of the case, we think it appropriate to restore the issue back to the file of the CIT(A) who shall take into consideration the specific facts pointed out by the Assessing Officer and take into consideration comparative cases in this line and area of business. The CIT(A) shall afford a reasonable opportunity to the assessee to substantiate its case and thereafter decide the same in ac ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 be equated to an audit where all the primary documents were examined and have been seen by the Chartered Accountant. As per the material available on record, the assessee's own version is that when he was repeatedly called forth to come with the primary document of the so-called rough record prepared shop-wise allegedly maintained even that could not be produced by the assessee as evident from page 5, para 7 of the Assessment Order wherein the assertions of the assessee and factum of destroying of rough record of the alleged maintenance of shop-wise accounts was argued by the assessee, however, the same could not be substantiated at any stage. Moreover the non-acceptance of book results has been confirmed by the CIT(A) also in the present case as such in the facts as they stand the judgment of the Patna High Court does not help th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ade 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 also been found or pointed out by the Assessing Officer. The assessee has not maintained any sale bills for the sales carried from its 53 country liquor shops. The daily sales are, however, recorded on the basis of daily statement given by the employees attending to the shops. The entries of such sales are carried in the books of account maintained at its central office. The assessee also explained that it is impossible to issue sale bills to the customers for sale of liquor and the practice of not issuing bills is prevalent all over the country in this trade. The sale price, however, is displayed by the assessee at the shops and there can be no variance in price so displayed. This aspect has been accepted to be correct by the Assessing Officer. The Assessing Officer, however, invoked the proviso to Section 145(3) o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tification 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 been rejected and higher profit rate than that declared by assessee could not have been applied particularly when the Assessing Officer himself is found to have admitted the total sales declared by assessee in the books of accou ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... f 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 the central office or recorded in the books of account. It is also not the case of Revenue that other persons engaged in the similar business in the area have sold the similar goods at a higher price or on premium. D ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 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 r ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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. 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 Pr ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... g 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 order of ld. A.M. 7. The ..... X X X X Extracts X X X X X X X X Extracts X X X X
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