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Shri Hem Raj Versus The A.C.I.T., Circle 3 (1) , Chandigarh

2016 (7) TMI 163 - ITAT CHANDIGARH

Estimation of GP rate - Assessee was running liquor, wine and beer shop - AO rejected the books of account by invoking section 145(3). - Held that:- Purchases made by the assessee are duly supported by proper vouchers and are regulated by the Excise Authorities and payment of liquor is made through Government on the basis of the auction conducted by the Government. In the case of Laxmi Narain Ramswaroop Shivhare [2008 (12) TMI 290 - ITAT AGRA], the majority view was that as regards the sale, the .....

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be accepted and estimation of income by applying the net profit rate of 8% was not proper. Accordingly, we delete the addition - Decided in favour of assessee - ITA No. 877/Chd/2012, ITA No. 225/Chd/2013 - Dated:- 26-11-2015 - SHRI H.L.KARWA, VICE PRESIDENT AND MS. RANO JAIN, ACCOUNTANT MEMBER For The Appellant : Shri N.K. Saini For the Respondent : Mrs.Raj inder Kaur, DR Both these appeals concern the same assessee and are directed against the separate orders of the learned CIT (Appeals), Chand .....

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the proper opportunity of hearing which is against the natural justice. 2. That the Ld. CIT(A) is not justified in upholding the rejection of books and the application of provisions of section 145(3) of the I. T. Act. 3. That the Ld. CIT(A) is not justified in not giving the set-off of loss from the business as claimed by the appellant while computing the total income. 4. (a) That the Ld. CIT(A) is not justified in upholding the application of net profit rate @ 8% on gross sales. (b) That withou .....

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hased wine from different suppliers and the same is sold in cash. In the return of income, the assessee had shown income under the head "salary" only. During the course of assessment proceedings, the assessee furnished his reply together with Profit & Loss Account, Balance Sheet and Audit Report in Form No. 3CD for the financial year 2007-08. The assessee also furnished ledgers, bills/vouchers of the liquor business and original bank account statements along with some other replies .....

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erely mentioned in his reply that the Assessing Officer had not pointed out any specific discrepancy. The Assessing Officer has also pointed out that the books of account had been prepared by reverse calculations to justify the deposits in the bank account and these were not prepared in the normal course of business. The Assessing Officer also mentioned that the sales shown by the assessee appeared to be deflated as the assessee was showing net loss in the venture, which is highly improbable. Th .....

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the books of account of the assessee. The Assessing Officer applied the net profit rate of 8% on the sales of ₹ 1,60,23,400/- as declared by the assessee himself in the Profit & Loss Account. The Assessing Officer observed that as per the prevalent conditions in liquor business in Chandigarh and around for the financial year 2004-05 and as per statistics available on internet, a liquor contractor is able to save anywhere between a minimum of around 6% to 8% on bulk sales and 17% to 20 .....

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grieved by the order of the Assessing Officer, the assessee carried the matter in appeal before the learned CIT (Appeals) and the learned CIT (Appeals) vide his order dated 13.7.2012 upheld the order of the Assessing Officer, and hence the assessee is in appeal before the Tribunal. 5. Before us, Shri N.K. Saini, learned counsel for the assessee reiterated the submissions made before the lower authorities. He further submitted that the assessee submitted his return for the year under consideratio .....

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ents, which were duly audited and the same were produced before the lower authorities. He also submitted that the copy of audited Balance Sheet, Profit & Loss Account and other related documents were submitted before the lower authorities. Shri N.K. Saini, learned counsel for the assessee vehemently argued that the purchases are made from various suppliers in accordance with the permits given by the Government, which had been duly vouched and the same has also been verified by the lower auth .....

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by the employees, quantitative opening stock, purchases, sales and closing stock were produced before the authorities below. No specific discrepancies in the same were found out by the Assessing Officer except that absence of day-to-day stock register, lack of sale records, discrepancies in purchase and freight ledger and absence of supporting bills/vouchers without any proper justification and accordingly, he held that the books of account are hit by the mischief of section 145 of the Act. The .....

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the purchases and sales as disclosed by the assessee. The learned counsel for the assessee also submitted that with regard to discrepancy in purchase and freight ledger, as pointed out by the Assessing Officer, the payments shown under the head 'freight payment' relates to the payment to loading/unloading of the stock purchased while getting it delivered at the liquor shops and sale to the customers. These charges are entered in the books of account on the day on which actual payment for .....

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sel for the assessee submitted that in para 8.6 of the assessment order, the Assessing Officer has mentioned that the rate of profit estimated at 8% is very reasonable and much lesser than the profit rate of 13.13% applied in the case of Singh Associates of Gwalior (supra) and 15.5% applied in the case of Luxmi Narain Shivhare & Co. of Gwalior (supra). The learned counsel for the assessee pointed out that these two cases pertain to assessment year 2000-01. The learned counsel for the assesse .....

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case of the assessee before us. The learned counsel for the assessee pointed out that on similar set of facts, the I.T.A.T., Agra Bench (TM) held that there was no justification in rejecting the book results and estimating the income by applying GP rate of 5% as against profit rate declared at 3.11% by the assessee. The learned counsel for the assessee submitted that in the instant case also, the Assessing Officer relying on the cases of M/s Singh Associates of Gwalior and Luxmi Narain Shivhare .....

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rther submitted that the Assessing Officer was fully justified in adopting/applying the net profit rate of 8%. Accordingly, she submitted that the impugned order may be upheld. 7. We have considered the rival submissions. The admitted facts are that during the year under consideration, the assessee was engaged in the business of wine, liquor and incurred a loss of ₹ 1,07,746/-. This business loss was not claimed in the return. It is also an admitted fact that the assessee has maintained pr .....

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ied by the Assessing Officer from original purchase bills. The assessee has also admitted that the sales are made in cash and recorded on the basis of daily sales statements given by the employees attended to the shop. It is also stated that this practice is prevalent all over the country. The Assessing Officer has not accepted the book results and rejected the books of account by invoking the provisions of section 145(3) of the Act. The Assessing Officer has observed that the assessee had not m .....

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he declared sales and made the addition of ₹ 12,81,872/-. It is observed that the assessee furnished trading and Profit & Loss Account for the year ending 31.3.2008 before the Assessing Officer, which is reproduced at page 4 of the assessment order and the same reads as under: MR. HEMRAJ TRADING AND PROFIT & LOSS ACCOUNT FOR THE YEAR ENDING 31.3.2008 Particulars Amount Particulars Amount To opening stock 318800.00 By sales 16023400.00 To purchase 9964178.07 By Closing stock 417375. .....

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; wages 302600.00 To staff welfare 18869.00 To Professional charges 17500.00 Total 16549396.07 Total 16549398.07 8. The Assessing Officer observed that the bills/vouchers of certain expenses were not available, for example freight, miscellaneous expenses, repair & maintenance, staff welfare and printing & stationery. It is clear from the Profit & Loss Account (supra) that the assessee had claimed freight and cartage charges at ₹ 32,083/-, miscellaneous expenses at ₹ 3532, .....

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as that the assessee has not maintained any sales bills for the sales carried from its liquor shops. We find that the daily sales are, however, recorded on the basis of daily statements given by the employees attending to the shop. The entries to the said sales are recorded in the books of account maintained at its main office. It is also observed here that the assessee has time and again explained that it is impossible to issue sale bills to the customer for sale of liquor and the practice of n .....

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observe here that the Assessing Officer has not pointed out any discrepancy in the quantitative details of purchase or sales made by the assessee. Shri N.K. Saini, learned counsel for the assessee submitted that the cost of goods dealt inter-alia including purchase price, duties and fees paid, shop licence fee and bottling and sealing charges paid by the assessee has been accepted by the Assessing Officer. The learned counsel for the assessee submitted that the books of account cannot be rejecte .....

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essing Officer rejected the book results under section 145(3) of the Act, on the ground that all the sales are made in cash without proper vouchers supporting the sales and brand-wise, quality-wise and date-wise were not verifiable and estimated the GP rate at 5% as against 3.11% shown by the assessee. In the aforesaid case, the assessee was a liquor contractor engaged in the business of trading of country liquor and (Indian Made Foreign Liquor) IMFL. While deciding the case, the learned Account .....

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essee. No discrepancy has been found in the quantitative details of purchase or sales effected by the assessee. The cost of goods dealt, inter alia including purchase price, duties and fees paid, shop license fee and bottling and sealing charges, etc. paid by the assessee stand duly accepted by the AO with no adverse comments thereon. The AO himself is found to have accepted the declared sales at ₹ 8,33,25,882. The books of account have been maintained for the business carried (on) by the .....

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s 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 c .....

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d 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. Discrepancy in stock or quantitative details has also not been found. Nothing has been brought on record to show any discrepancy in the quantities of goods dealt by the assessee. The only .....

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is order but the proposed GP rate was never applied by him for the obvious reason that such cases were not the comparable cases. The only acceptable basis to arrive at gross profit is by way of deducting cost of goods sold and direct expenses from the sale value. In the present case, the facts reveal that there is no opening or closing stock. The cost of goods and direct expenses are fully admitted. Sale price is also duly admitted. Therefore, the resultant gross profit would be ₹ 25,89,42 .....

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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 s. 145(3) in the order of AO does not exist in the statute. This itself shows non-application of mind by the AO. The mandatory requirement as contained under sub-s. (3) of s. 145 of the Act is that where the AO is not satisfied about the correctness or completeness of the accounts of the assessee, or where the method of accounting provided in sub-s. (1) or .....

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same also is set aside, as the AO 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 ₹ 8.33,25,882 as against modified rate applied by learned CIT(A). Thus, the grounds raised .....

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The learned Third Member has stated that the purchases made by the assessee are duly supported by proper vouchers and are 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 the instant case also, the purchases made by the assessee are duly supported by proper vouchers and are regulated by the Excise Authorities and payment of liquor is made throu .....

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d the bid money and small variation of the profit cannot be ruled out. 10. In view of the above discussion, we do not see any ground for rejecting the book results. Therefore, the declared results are to be accepted and estimation of income by applying the net profit rate of 8% was not proper. Accordingly, we delete the addition of ₹ 12,81,872/- made by the Assessing Officer and confirmed by the learned CIT (Appeals). 11. The appeal of the assessee is allowed. ITA No. 225/Chd/2013 : 12. In .....

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