M/s. Popular Book Stores, Surat v. The Income tax Officer,Ward-2(3),, Surat

IN THE INCOME TAX APPELLATE TRIBUNAL AHMEDABAD BENCH D AHMEDABAD BEFORE SHRI MAHAVIR SINGH JUDICIAL MEMBER AND SHRI A.N.PHAUJA ACCOUNTANT MEMBER ITA NO.2910/AHD/2010 ASSESSMENT YEAR:2006-07 DATE OF HEARING:18.2.11 DRAFTED:21.2.11 M/S POPULAR BOOK STORES 4/776 TOWER ROAD SURAST-395003 PAN NO.AACFP9856D V/S. INCOME TAX OFFICER WARD-2(3) SURAT (APPELLANT) .. (RESPONDENT) APPELLANT BY :- SHRI KISHORE GHEEWALA AR RESPONDENT BY:- SHRI G.S. SURYAVANSHI SR-DR O R D E R PER BENCH:- THIS APPEAL BY ASSESSEE IS ARISING OUT OF THE ORDE R OF COMMISSIONER OF INCOME-TAX(APPEALS)-II SURAT IN APPEAL NO.CAS-II/9 1/09-10/51 DATED 16-08- 2010. THE ASSESSMENT WAS FRAMED BY THE ITO (OSD-III ) RANGE-2 SURAT U/S.143(3) OF THE INCOME-TAX ACT 1961 (HEREINAFTER REFERRED TO AS THE ACT) VIDE HIS ORDER DATED30-10-2008 FOR THE ASSESSMENT Y EAR 2006-07. THE PENALTY UNDER DISPUTE WAS LEVIED BY ASSESSING OFFICER U/S 2 71(1)(C) OF THE ACT VIDE HIS ORDER DATED27-04-2009. 2. THE ONLY ISSUE IN THIS APPEAL OF ASSESSEE IS AGA INST THE ORDER OF CIT(A) CONFIRMING THE PENALTY LEVIED U/S.271(1)(C) OF THE ACT. FOR THIS ASSESSEE HAS RAISED THE FOLLOWING TWO EFFECTIVE GROUNDS NO.1 & 2 :- ITA 2910/AHD/2010 A.Y . 2006-07 M/S POPULAR BOOK STORES V. ITO WD-2(3) SRT PAGE 2 1. THE LEARNED CIT(A) HAS GROSSLY ERRED IN CONFIRM ING PENALTY U/S.271(1) OF THE ACT BY ERRONEOUSLY PLACING RELI ANCE ON DHARMENDRA TEXTILES PROCESSORS CASE 306 ITR 277 (SC) & MISERA BLY FAILING TO APPRECIATE THAT THE ADDITION TO INCOME WAS ON ESTIM ATE BASIS SONLY & THERE WAS NO POSITIVE EVIDENCE FOR CONCEALMENT OF I NCOME. 2. THE LEARNED AO HAS ALSO GROSSLY ERRED IN LEVYING PENALTY OF RS.99815/- U/S.271(1) OF THE ACT. 3. THE BRIEF FACTS LEADING TO THE ABOVE ISSUE ARE T HAT THE ASSESSING OFFICER DURING THE COURSE OF ASSESSMENT PROCEEDINGS NOTED T HAT THERE IS FALL IN GROSS PROFIT TO THE EXTENT 2.5% FROM THE IMMEDIATE PRECED ING YEAR AND WHEN THE ASSESSEE WAS REQUESTED TO PRODUCE THE BOOKS OF ACCO UNT BILLS VOUCHERS AND OTHER STOCK REGISTERS ASSESSEE PRODUCED COMPLETE B OOKS OF ACCOUNT ALONG WITH BILLS & VOUCHERS BUT STOCK REGISTER WAS NOT AV AILABLE WITH THE ASSESSEE AS IT WAS NOT MAINTAINED. THE ASSESSEE ADMITTED THIS P OSITION VIDE HIS REPLY DATED 13-08-2010 WHICH REPRODUCE AS UNDER:- 2. STOCK RECORDS IMPOSSIBLE:- IN THEORY EVERYTHING MAY BE POSSIBLE BUT THERE IS A ALWAYS A WIDE GAP BETWEEN THEORY & PRACTICE THE FACT REMAINS THAT IT IS PRACTICALLY IMPOSSIBLE TO MAINTAIN THE STOCK RECORDS IN A BOOK STORE LIKE OURS. 4. G.P. EXPLAINED:- THE APPELLANT HAD EXPLAINED THE G.P. AS UNDER A) THE DAY TO DAY STOCK RECORDS ASKED FOR BY THE LE ARNED A.O WAS PRACTICALLY NOT POSSIBLE TO MAINTAIN IN VIEW OF VAR IED & HUGE NO OF BOOKS. B) THE CLOSING STOCK WAS AS PER PHYSICAL INVENTORY TAKEN AT THE YEAR END. C) SUBSTANTIAL PART OF THE STOCK BEING OUT DATED HAD NO VALUE EXCEPT AS WASTE/PASTI. D) COMPARATIVE STATEMENT OF SALE PRICE & PURCHASE P RICE OF BOOKS WAS SUBMITTED EVIDENCING VARIANCE IN G.P. E) COMPARATIVE OVERALL SALES & PURCHASE PRICES WERE MENTIONED SHOWING A FALL IN MARGIN JUSTIFYING THE FALL IN G.P . ACCORDING TO ASSESSEE THERE IS NO DEFECT IN THE BO OKS OF ACCOUNT POINTED OUT BY ASSESSING OFFICER AND GP WAS ADDED ON THE BASIS OF EARLIER YEARS RESULTS ON ESTIMATE BASIS. ACCORDING TO ASSESSEE ITA 2910/AHD/2010 A.Y . 2006-07 M/S POPULAR BOOK STORES V. ITO WD-2(3) SRT PAGE 3 4. G.P. EXPLAINED:- THE APPELLANT HAD EXPLAINED THE G.P. AS UNDER F) THE DAY TO DAY STOCK RECORDS ASKED FOR BY THE LE ARNED A.O WAS PRACTICALLY NOT POSSIBLE TO MAINTAIN IN VIEW OF VAR IED & HUGE NO OF BOOKS. G) THE CLOSING STOCK WAS AS PER PHYSICAL INVENTORY TAKEN AT THE YEAR END. H) SUBSTANTIAL PART OF THE STOCK BEING OUT DATED HAD NO VALUE EXCEPT AS WASTE/PASTI. I) COMPARATIVE STATEMENT OF SALE PRICE & PURCHASE P RICE OF BOOKS WAS SUBMITTED EVIDENCING VARIANCE IN G.P. J) COMPARATIVE OVERALL SALES & PURCHASE PRICES WERE MENTIONED SHOWING A FALL IN MARGIN JUSTIFYING THE FALL IN G.P . THE ASSESSING OFFICER MADE ADDITION OF GP AT RS.3 1 4 190/- BY APPLYING THE GP RATE AT 17.34%. THE ASSESSEE ACCEPTED THIS ADDIT ION AND NO QUANTUM APPEAL FILED. THE AO ON THIS ESTIMATION OF GP LEVIE D THE PENALTY U/S.271(1) OF THE ACT. AGGRIEVED ASSESSEE PREFERRED APPEAL BEFOR E CIT(A). THE CIT(A) ALSO CONFIRMED THE ACTION OF ASSESSING OFFICER BY GIVING FOLLOWING FINDINGS IN PARA- 4.1 OF HIS APPELLATE ORDER:- 4.1 I HAVE DULY CONSIDERED THE SUBMISSION OF THE A PPELLANT WHICH IS MORE OR LESS ON THE SAME LINES AS FILED DURING THE COURSE OF ASSESSMENT AND PENALTY PROCEEDINGS. THE APPELLANTS CASE IS NO T MERELY OF SIMPLE G.P ADDITION BY ADOPTING AVERAGE OF PRECEDING YEAR S G.P RATE OR LUMP SUM A. IN THE CASE OF THE APPELLANT THE ASSESSING OFFICER HAS CARRIED OUT DETAILED EXERCISE OF WORKING OF G.P ON THE BASI S OF SALES AND PURCHASE OF ITEMS I.E. BY TAKING PURCHASE INVOICE AND SALES INVOICE AND COMPUTING THE PROFIT ON EACH SALE BY TAKING THE DIF FER4NCE BETWEEN THE TWO AND ALSO COMPUTING THE G.P RATE ON EACH SALES I NVOICE. THE ABOVE WORKING IS APPEARING ON PAGES 3 TO 5 OF THE ASSESSM ENT ORDER. THE WORKING OF G.P PREPARED BY THE ASSESSING OFFICER IS THEREFORE FROM THE AUDITED BOOKS OF ACCOUNTS I.E. FROM PURCHASE AND S ALES INVOICES OF THE REGULAR BOOKS OF ACCOUNTS AND THEREFORE CANNOT BE DISPUTED. THE ABOVE WORKING SHOWS THAT THE G.P RETURNED BY THE AP PELLANT AS PER THE ALLEGED AUDITED BOOKS OF ACCOUNTS CANNOT BE RELIED UPON AND THE ASSESSING OFFICER HAD NO RECOURSE BUT TO REJECT BOO K RESULTS AND ADOPT G.P AS COMPUTED FROM THE VERIFICATION OF ACTUAL PUR CHASE & SALES INVOICE/BILLS. THE ADDITION MADE TO THE BOOK RESULT S OF THE APPELLANT IS THEREFORE ON ACCOUNT OF CONCEALMENT OF PROFIT FROM SALE OF BOOKS. I THEREFORE HOLD THAT PENALTY IS EXIGIBLE INCOME THE APPELLANT. IN THIS REGARD DECISION IN THE CASE OF INDIA CERAMIC CORPORATION (ITAT DEL) 193 TAXMAN (MAG) 83 WHERE THE TRIBUNAL UPHELD LEVY OF PENALTY WHEN ITA 2910/AHD/2010 A.Y . 2006-07 M/S POPULAR BOOK STORES V. ITO WD-2(3) SRT PAGE 4 THE ASSESSEE CONFRONTED WITH THE DISCREPANCIES IN C LOSING STOCK AND ACCOUNTING AND LOW G.P AGREED FOR ADDITION OF RS.30 000/- ON THE CONDITION THAT NO PENALTY BE LEVIED AND PENALTY U/ S.271(1) WAS LEVIED IS ALSO RELEVANT AND APPLICABLE TO THE FACTS OF THE APPELLANTS CASE. IN SO FAR AS THE CITATIONS RELIED UPON BY THE APPELLANT I S CONCERNED INCOME NATIONAL TEXTILES VS. CIT 249 ITR 125 THE FACTS WERE TOTALLY DIFFERENT AS IT RELATED TO CASH CREDITS AND THE COURT HELD TH AT WILFULL DEFAULT HAS NOT BEEN ESTABLISHED AND IN THE CASE OF JUMABHAI PREMCHAND HUF VS. CIT 243 ITR 812 THE DECISION GIVEN WAS THAT THE DEPAR TMENT HAS TO PROVE DELIBERATE CONCEALMENT . IN THE OTHER DECISION IN THE CASE OF SMT. K. MEENAKSHI KUTTY 258 ITR 294 IT WAS HELD THERE IS NO GROSS OR WILLFUL NEGLIGENCE THEREFORE PENALTY CANNOT BE LEVIED. THE OTHER DECISIONS RELIED UPON BY THE APPELLANT ALSO RELATE TO ESTABLISHING CONCLUSIVE EVIDENCE FOR LEVY OF PENALTY. ALL THE AB OVE DECISIONS SHAVE BEEN RENDERED PRIOR TO THE DECISION OF DHARMENDRA TEXTILE PROCESSORS (306 ITR 277) AND ARE NO LONGER APPLICABLE. THE OTH ER DECISIONS WHERE IT HAS BEEN HELD THAT NO PENALTY CA N BE LEVIED ON ESTIMATED INCOME ARE ALSO NOT APPLICABLE BECAUSE AS SEEN FROM THE FACTS OF THIS CASE THE GROSS PROFIT HAS BEEN UNDER STATED WHICH IS SUBSTANTIATED FROM THE RECORDS OF THE APPELLANT AND IT IS NOT A CASE OF ESTIMATING THE INCOME WITHOUT CARRYING OUT ANY INVE STIGATION. I THEREFORE CONFIRM THE PENALTY AND DISMISS THE GROU NDS TAKEN BY THE APPELLANT. NOW AGGRIEVED ASSESSEE CAME IN SECOND APPEAL BEFO RE US. 4. WE HAVE HEARD THE RIVAL CONTENTIONS AND GONE THR OUGH THE FACTS AND CIRCUMSTANCES OF THE CASE. WE FIND THAT THE ASSESSI NG OFFICER HAS ESTIMATED THE GROSS PROFIT BY TAKING SELECTIVE BILLS AS NOTED BY HIM. THE AO HAS ADOPTED THE GP RATE BY AVERAGING THE GP OF 17.36%. SINCE TH E ASSESSEE WAS NOT MAINTAINED THE STOCK REGISTER THE AO HAS ESTIMATED THE GP AND WE ARE OF THE VIEW THAT THE ESTIMATION OF GP IS NOTHING BUT ESTIM ATION OF STOCK. THE NON- PRODUCTION OF CLOSING STOCK AUTOMATICALLY DOES NOT GIVE RISE TO CONCEALMENT OF INCOME. WE FIND FROM THE ASSESSMENT ORDER THAT THE AO HAS ESTIMATED THE GP AND MADE ADDITION ON WHICH PENALTY FOR CONCEALMENT OF INCOME IS LEVIED. WE ARE IN FULL AGREEMENT WITH THE ASSESSEE THAT SUBSTA NTIAL PART OF THE STOCK BEING OUTDATED HAVE NO VALUE AND COMPARATIVE STATEMENT OF SALE & PURCHASE OF BOOKS SUBMITTED BY THE ASSESSEE CLEARLY PROVES THE VARIANCE IN GP. EVEN THE AO HAS NOT BOOKED THE ENTIRE BILLS IN THE SYSTEM FO R ESTIMATING THE GP RATHER ITA 2910/AHD/2010 A.Y . 2006-07 M/S POPULAR BOOK STORES V. ITO WD-2(3) SRT PAGE 5 HE HAS PICKED UP A FEW BILLS AND ESTIMATED THE GP. IN VIEW OF THESE FACTS WE ARE OF THE VIEW THAT THE PENALTY LEVIED AND CONFIRM ED CANNOT BE SUSTAINED. ACCORDINGLY WE DELETE THE PENALTY AND THIS APPEAL OF ASSESSEE IS ALLOWED. 5. IN THE RESULT ASSESSEES APPEAL IS ALLOWED. ORDER PRONOUNCED IN OPEN COURT ON 22/02/2011 SD/- SD/- (A.N.PHAUJA) (MAHAVIR SINGH) (ACCOUNTANT MEMBER) (JUDICIAL MEMBER) AHMEDABAD DATED : 22/02/2011 *DKP COPY OF THE ORDER FORWARDED TO :- 1. THE APPELLANT. 2. THE RESPONDENT. 3. THE CIT(APPEALS)-II SURAT 4. THE CIT CONCERNS. 5. THE DR ITAT AHMEDABAD 6. GUARD FILE. BY ORDER /TRUE COPY/ DEPUTY / ASSTT.REGISTRAR ITAT AHMEDABAD