TMI Blog2012 (8) TMI 125X X X X Extracts X X X X X X X X Extracts X X X X ..... on even did not maintain a consistent stand of the assessment years involved - the affidavit filed before the lower authorities by assessee depicts wherein various expenditure in the nature of bardana expenses, packing expenses, shop rent, salary of salesmen, Manager, helper and chowkidar, office expenses, transportation and travelling expenses, transportation and travelling expenses, brokerage, telephone and mobile expenses etc. were not taken care of while arriving at the net profit of the assessee as shown in the impounded rough ledger - it was only on the basis of noting in a rough ledger that the Assessing Officer has jumped to the conclusion that the assessee has earned this much of profit - no infirmity in the order of CIT(A) for upholding profit in case of liquor business as per verdict of Badriprasad Bhagwandas and Co - against revenue. - I.T.A.No. 352, 353 & 354/Ind/2011 - - - Dated:- 20-6-2012 - SHRI JOGINDER SINGH, AND SHRI R.C.SHARMA, JJ. Appellant by : Shri Arun Dewan, Sr. DR Respondent by : Shri S.S.Deshpande, CA O R D E R PER BENCH These are appeals filed by the Revenue against the consolidated order of CIT(A) d ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... at all. The amount written by munim his own by balancing capital introduced les capital withdrawn by member AOP. The member AOP did not know the above matrix of munim. The profit can be ascertained only by the accounting principle that is [Sales + Closing Stock] -{Opening Stock + Purchases + Direct Expenses + Indirect Expenses]. 6. The assessee was doing retail trade of liquor in the liquor business it is well known fact the looking to volume of customers social circumstances none of the contractor in such line of business could maintained regular books of AI c, due to above facts and circumstances to compute true correct profit assessee obtained certify certificate from the M.P. Govt. Aabkari Vibhag Khargone the license fees deposited by assessee AOP during the year and after that rely on the decision of Hon'ble M.P.High Court Decision Badriprasad Bhagwandas Company (1995) 82 Taxman 109 (MP) as per this judgment license fee has been taken as base for determining sales Net profit. The sales is arrived 2.5 times of license fee Net profit is worked out 5% of sales. The return of income submitted on dated 15.04.2009 just after two months of survey. The submission of retu ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... are reproduced below:- " Appellant rightly following authoritative judgment of Hon'ble MP High Court: 1. The loose papers, rough working, calculations based on such loose papers and other relevant irrelevant papers found during survey at the administrative office of the AOP have been termed by the AO as "books of account" and he has refused to accept the contention of appellant to compute the total income by following the Hon'ble MP High 'Court's authoritative judgment in the case of Badri Prasad Bhagwandas Co. v CIT (1995) 82 Taxman 149(MP). The so called ledger from which the figures of net profit of each member have been extracted is not at all a ledger, in fact as well as-in the commercial parlance. It is only a rough memorandum/ record of the incomings and outgoings kept for the sake of knowledge of the members of the AOP as persons from different families and backgrounds have joined the AOP for running the liquor business. None the members of AOP was conversant with accounting procedure and the part time accountant employed by the AOP also did not have even the basic accounting knowledge. It is also submitted that the business of liquor is such that nobody can maint ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of the AO? and their accountant remaining awoke over night, perhaps for the first time in their lives. The members of AOP had to face such a situation for the first time and with constant and incessant questions and queries of the survey party got puzzled and mentally disturbed and with a view to any how get rid of the survey proceedings, under pressure, made statements and put signatures thereon without knowing the legal consequences of such statements. It may further be appreciated that the words used in the admissions form the members of the AOP (after the survey team insistently and repetitively impressed upon them - that the expenses recorded in the noting found during survey were not admissible deductions under the law) referred to "shuddha munafa" or "net profit" were all virtually put in the mouths of the deponent-members of the AOP, though literally on the statements recorded from them. It may kindly be further appreciated that such "shuddha munafa" or 'net profit' with, its inherent misnomer has been equated with "total income" in' the impugned assessment and, the word' income' as defined in the 25 sub clauses of clause (24 of section 2; the expression 'total income" as d ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... , Indore to direct the Assessing Officer to follow tire above' authoritative judgment and make assessment accordingly. Thereafter, a copy of the above request letter was submitted to the ACIT,Khandwa also on 13-10-2009 For ready reference copies of both the letters are enclosed herewith marked as Annexure-I to these submissions. In addition, without resorting to any additional evidence properly so called, an affidavit on the appellant's behalf by Shri Nageshwar Jaiswal, member of the appellant AOP is also enclosed summing up the events during survey truly, fully and on oath. This affidavit is also marked as Annexure-II to these submissions. Relevant case law vis-a-vis relevant facts: 3. This appellant's case was that of a survey u/e 133A, carried out as detailed above and not involving any legal fictions and presumptions of the type incorporated in section 132(4) and 132(4A) against this appellant, even retractions from the admissions made u/ s 132(4) in search cases were entertained by the Hon'ble High Court as in the following case: In the search case of Kailashben Manharlal Chokshi v. CIT [2008J 174 Taxman 466, the Hon'ble Gujarat High Court has held that no addition can b ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ssfully withdrawn and proved the so called admission to be erroneous, it may kindly be appreciated. The above judgments apart, even the CBDT has, under its circular No. 286/2/2003 dtd. 10-03-2003, directed the departmental authorities not to obtain confession of additional income during the course of search and seizure and survey operations. Likewise, an admission during survey was held to be rightly withdrawn as it was not based on relevant material to justify the addition as in the case of Ajit Chntaman Karve V ITO (2009) 311 ITR (AT) 66 (Pune). The Tribunal while so holding, also referred to similar other decisions and Board's Circular No. 14(XIr35) dtd. 11-03-1955, which required the additions to be based upon evidence. One very important consideration that was not taken into account by the ld AD was an acceptance of the rough jottings in the so called capital accounts of the members from which net profits of the assessee AD? were extrapolated by the AD. As submitted at assessment stage also, the jottings did not take into account even the most important factors responsible for determination of profit from the liquor contract business. For example, the factor. of stock va ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... department; 3. Shop rent expenses; 4. Salary of salesman ,manager, helper and chowkidar; 5. Office expenses; 6. Transport expenses; 7. Traveling expenses; 8. Secret expenses for business security; 9. Breakage; 10.Miscellaneous expenses; 11.Telephone and mobiles. (ii) In para 4 of the affidavit, the appellant contended that in the administrative office at Brindaban Colony, rough record of the incomings and outgoings and other expenses was maintained. Rough register, ledger, cash book etc. were kept. All papers were impounded from the Brindaban Colony administrative office. (iii) In para 5, it was stated that no regular books of account have been kept for any year nor any profit and loss account and balance sheet has been drawn for any year. This is proved by the fact that the department has also not found nor seized any P/L A/ c or Balance Sheet for any of the years. (iv) In para 6, it is stated each of the members of the AOP is only '10th class pass and not educated beyond that. (v) In para 7, it is stated that the accountant Shri Sadanand Gupta is also only 5th class pass and does not have any knowledge about accounting. (vi) In para 8, it is stated th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ooks of account, income tax returns were filed by taking maximum profit within a period of 2 months and 11 days of survey. (xvii) In para 19, it is stated that while enclosing computations of income, to the above returns, it was clarified that the returns were filed on the basis of decision of Hon'ble MP High Court in the case of Badriprasad Bhagwandas and company vs. CIT( 19'95) 82 Taxman 149 (MP). Therefore, it was clear that whatever admission was made in signed statements' of the members of the AOP , the same stood retracted on the above basis. The deponent did not know anything about the legal effect of the admissions made in the statements. The papers were signed as directed by the officers. (xviii) In para 20, it is stated that during assessment proceedings, the then CIT-II, Indore was informed verbally and also in writing that the ACIT, Khandwa may be directed to frame assessments of the AOP according to the formula approved by the MP High Court. (xix) In para 21, it is stated that a copy of the above request letter was also submitted to the ACIT, Khandwa on 13.10.09. (xx) In para 22, it is stated that the above affidavit has been prepared on solemn affirmation to ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... A/c for arriving at figure of Gross profit/loss, the figures of net Profit credited in the capital account of the members of AOP is not corroborated by any regular and proper books of account and relevant vouchers and material. A figure of true Profit or loss from trading activities can be obtained after incorporating all the ingredients of a complete and correct Trading Account which itself is lacking in the case of the appellant, 4.2.2 Last but not the least, It is contended that the stock valuation of the appellant Assessing Officer for all the four years for working out capital accounts of the members is based on the market price printed on the bottles comprised, in the liquor stock This may be on the accountant's initiative to impress the appellant with a much more than real element of profit in the business. As against this, the accounting principles is that stock may be valued at cost or market value whichever less is. Market value is misnomer until the entire stock is marketed or sold. The truth is that the entire unsold stock has to be surrendered and handed over to the new contractor on expiry of the contract in favour of the appellant. At this stage, all that the ap ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... mula and frame the assessment accordingly. A copy of such submissions was also filed with the AO during assessment proceedings on 13.10.2009. The AO neither took any notice of the submission of appellant AOP nor did he decide the same. While passing the assessment order, the Assessing Officer did not even mention the fact of the assessee s submissions made by the appellant to the Administrative CIT and also to the AO himself. The AO, as a quasi judicial authority, was under a legal obligation to first consider the appellant's submissions judicially and then to have passed the assessment order giving reasons for his decision. He has not done so. In the result, the order passed by the AO in violation of principles of natural justice. In view of the inherent defects in the impugned assessment order, the same cannot be sustained. Considering all the facts and circumstances of the case, the income returned by the AOP at Rs. 22,16,160/- following the authoritative judgment of the Hon'ble jurisdictional High Court is directed to be accepted and the impugned addition of Rs. 20,58,613/- is directed to be deleted. 4.5 Ground No.4 relates to charging of Interests u/s 234A, 234B and 234C. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ding to which sales is arrived at 2.5 % of the license fee and net profit is to be worked out at 5 % of the sales. After considering the detailed submissions of the assessee, the CIT(A) keeping in view the liquor trade of assessee s business wherein Jabalpur and Indore Bench of the Tribunal have upheld the net profit at 5 % of the net profit by estimating sales at 2.5 times of the license fee, held that 5% net profit shown by the assessee was in consonance with the decision of the Jurisdictional High Court. While upholding the estimation of net profit rate of 5%, the CIT(A) has examined the entire assessment records and survey folder, thereafter recorded detailed submission of the assessee and found that the books of account so found were not proper books and the same was written by the 5th Class passed accountant of the assessee. It was observed that while taking the figures shown in alleged documents, the Assessing Officer did not bother to test check as to whether the total income extrapolated from such capital was at all corroborated by any evidence or even by kachcha accounts. It was also observed that the Assessing Officer adopted such extrapolation even did not maintain a ..... X X X X Extracts X X X X X X X X Extracts X X X X
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