The ITO., Indore v. M/s. Manohar Dairy & Restaurant,, Indore

IN THE INCOME TAX APPELLATE TRIBUNAL INDORE BENCH : INDORE BEFORE SHRI JOGINDER SINGH JUDICIAL MEMBER AND SHRI R.C.SHARMA ACCOUNTANT MEMBER PAN NO. : AAFFM4057Q I.T.A.NOS. 553 & 554/IND/2009 A.YS. :2006-07 & 2005-06 M/S.MANOHAR DAIRY & INCOME-TAX OFFICER RESTAURANT VS WARD 4(2) 2 JAWAHAR MARG INDORE. INDORE. (APPELLANT) (RESPONDENT) PAN NO. : AAFFM4057Q I.T.A.NOS. 570 & 571/IND/2009 A.YS. :2005-06 & 2006-07 INCOME-TAX OFFICER M/S.MANOHAR DAIRY & WARD 4(2) VS RESTAURANT INDORE. 2 JAWAHAR MARG INDORE. (APPELLANT) (RESPONDENT) APPELLANT BY : SHRI AKSHAT SINGHAI C. A. RESPONDENT BY : SHRI PRADEEP KUMAR MITRA SR. DR -: 2: - 2 O R D E R PER R. C. SHARMA A.M. THESE ARE THE CROSS APPEALS FILED BY THE ASSESSEE A ND REVENUE AGAINST THE ORDER OF LD. CIT(A) FOR ASSESSM ENT YEARS 2005-06 AND 2006-07 DATED 15.9.2009. 2. COMMON GRIEVANCE OF ASSESSEE AND REVENUE RELATE TO REJECTION OF BOOK RESULT U/S 145(3) AND APPLYING TH E GROSS PROFIT RATE OF 42.50 % IN PLACE OF 40.2 % AS DISCLO SED BY THE ASSESSEE FIRM IN THE ASSESSMENT YEAR 2006-07 AND 42 .5 % IN PLACE OF 38.9 % AS DISCLOSED BY THE ASSESSEE FIRM I N THE ASSESSMENT YEAR 2005-06. 3. WE HAVE GONE THROUGH THE ORDERS OF THE AUTHORITIES BELOW AND CONSIDERED THE CONTENTIONS OF LD. SENIOR D.R. AND LD. AUTHORIZED REPRESENTATIVE. 4. FACTS IN BRIEF ARE THAT THE ASSESSEE FIRM IS ENGAGE D IN THE BUSINESS OF PREPARATION OF SNACKS AND SWEET ITE M AND SEVERS THE SAME TO CUSTOMERS WHO COME TO THE RESTAU RANT. THE ASSOCIATE CONCERN M/S. MANOHAR SWEETS SELLS SWEETS AND -: 3: - 3 NAMKEEN MAINLY THROUGH RETAIL COUNTERS RUN FROM THE SAME PREMISES. 5. IN THE ASSESSMENT YEAR 2005-06 THE RETURN OF INCOM E WAS FILED DECLARING TOTAL INCOME AT RS. 3 78 470/- ON 21.10.05. IN COURSE OF ASSESSMENT PROCEEDINGS THE ASSESSEE W AS REQUIRED TO PRODUCE SALE BILLS AND SALE SLIPS ISSUE D TO CUSTOMERS BOTH IN RESPECT OF CASH SALES CREDIT SAL ES. IT WAS EXPLAINED BEFORE THE AO THAT THE ASSESSEE PREPARED CLOSE TO 100 ITEMS OF FOOD PREPARATIONS AND LOOKING TO THE V ERY NATURE OF BUSINESS ACTIVITY IT WAS NOT POSSIBLE TO WORK O UT SPECIFIC DETAILS OF FINISHED GOODS WASTAGES AND ONLY CREDIT SALES BILLS COULD BE PRODUCED. THE AO HOWEVER HELD THAT PAPER S IMPOUNDED DURING THE COURSE OF SURVEY PROCEEDINGS I NDICATED THAT DETAILS OF RAW MATERIALS USED PRODUCTION MADE AND MATERIAL RETURNED FROM SHOP ETC. ON DAY-TO-DAY BASI S WERE BEING RECORDED. THE ASSESSEE WHEN CONFRONTED ON THI S COUNT REQUIRED THE AO TO SUPPLY THE PAPERS RELIED UPON BY THE ASSESSING OFFICER FOR FORMING SUCH OPINION. IN RESP ECT OF SALES RECORDED IT WAS MAINTAINED BY THE ASSESSEE THAT SA LES WERE BEING RECORDED ON THE BASIS OF REGISTEREX MACHINE F OR -: 4: - 4 REGISTERING DETAILS OF SALES AT THE COUNTER WHICH GENERATED ONLY ONE SLIP AND THE SAME WAS GIVEN TO THE CUSTOME RS AND AT THE END OF THE DAY THE AMOUNT OF SALES MADE TO VAR IOUS CUSTOMERS WERE TOTALED UP AND ENTERED INTO THE BOOK S OF ACCOUNT AND NEARLY 500 BILLS WERE GENERATED EVERYDA Y AND TO AVOID OVERLOADING SUCH MACHINE WITH SUCH NUMEROUS D ATA THE REGISTRAX MACHINE WAS SET TO ZERO EVERY DAY FOR OPE RATING SMOOTHLY. 6. AFTER CONSIDERING THE ASSESSEES SUBMISSION THE LD . CIT(A) REDUCED THE GROSS PROFIT RATE OF 46.34 % AS APPLIED BY THE ASSESSING OFFICER TO 42.5% IN THE ASSESSMENT YE AR 2005- 06 AND 2006-07 AFTER HAVING THE FOLLOWING OBSERVATI ONS :- 4.1 THE ONLY ISSUE TO BE ADJUDICATED IN THIS APPEA L AS AGITATED THROUGH VARIOUS GROUNDS OF APPEAL IS DIRECTED AGAINST GROSS PROFIT ADDITION OF RS. 12 71 301/- AS A RESULT OF REJECTION OF BOOK RESULT S U/S 145(3). 4.2 THE AO HAS RECORDED DETAILED AND ELABORATE FINDINGS TO SUPPORT HIS ACTION IN HIS ACTING BOOK RESULTS U/S 145(3). THE AOS ACTION IN -: 5: - 5 INVOKING PROVISIONS OF SECTION 145(3) HAS TO BE NECESSARILY APPROVED IN THE FACTS AND CIRCUMSTANCES OF THE CASE FOR VERY PATENT AND SIMPLE REASON THAT THE SALES RECORDED BY THE ASSESSEE ARE NOT AT ALL VERIFIABLE. THE REASONS ADVANCED FOR SETTING THE REGISTRAX MACHINE TO ZERO WITHOUT TAKING ANY PRINT OUT OF THE SALES FOR THE PREVIOUS DAY DOES NOT AT ALL SOUND TO BE LOGICAL AND CONVINCING. IF THE REGISTRAX MACHINE USED BY THE ASSESSEE WAS NOT EQUIPPED SO AS TO STORE ADEQUATE DATA IT WAS NECESSARY FOR THE ASSESSEE TO TAKE APPROPRIATE STEPS IN THE MATTER OF EITHER UPGRADING THE MACHINE OR TAKING PRINT OUT ON DAILY BASIS OR MAKE OTHER SUITABLE ARRANGEMENTS SO THAT THE SALES RECORDED CAN BE VERIFIED FROM CONTEMPOROUS AND REGULAR RECORDS MAINTAINED ON DAY-TO-DAY BASIS. THE LOWER CAPACITY OF SUCH MACHINE AS BEEN PROCURED BY THE ASSESSEE ITSELF CANNOT ABSOLVE THE ASSESSEE -: 6: - 6 FROM THE OBLIGATION OF MAINTAINING NECESSARY AND VERIFIABLE DETAILS OF SALES. 4.3 FURTHER COMING TO THE OTHER ASPECT OF CONSUMPTION OF RAW MATERIAL WHATEVER THE PRACTICAL DIFFICULT IS IN THE LINE OF THE ASSESSEE S BUSINESS IT HAS TO BE NECESSARILY HELD IN THE FACTS AND CIRCUMSTANCES OF THE ASSESSEES LARGE VERIFIABLE BUT CONSUMPTION OF SUCH RAW MATERIAL IN PREPARATION OF VARIOUS FOOD PREPARATIONS AND SNACKS PREPARATIONS IS NOT VERIFIABLE. 4.4 NOW COMING TO THE GROSS PROFIT RATE ADOPTED AT 46.34% WORKED OUT ON THE BASIS OF PURCHASES AND SALES AND OPENING AND CLOSING STOCK OF THREE MONTHS IT IS FOUND THAT APPROACH IN THE MATTER OF DETERMINATION OF CLOSING STOCK FOR JUNE DOES NOT APPEAR TO BE AT ALL CONVINCING OR LOGICAL. FURTHER THE AO HAS NOT CONSIDERED ALLOWANCE FOR WASTAGES WHICH ARE BOUND TO OCCUR IN THE FOOD PREPARATION AS WELL EDIBLE -: 7: - 7 ITEMS PREPARED REQUIRED TO BE DESTROYED PERIODICALLY WHICH CANNOT BE SOLD ON ACCOUNT OF DETERIORATION IN QUALITY AND OTHER MULTIPLE REASONS AS WELL AS ITS PERISHABLE NATURE. THE AO HAS ALSO NOT BEEN ABLE TO CITE ANY PARTICULAR INSTANCES OF ANY OTHER ASSESSEE IN THE SAME OR SIMILAR LINE OF BUSINESS DISCLOSING THE GROSS PROFIT RATE AT 46 % OR APPROXIMATELY 46% OR SO. HENCE ON OVERALL CONSIDERATION OF THE MATERIAL AVAILABLE ON RECORD AND PAST HISTORY OF THE CASE THE GROSS PROFIT RATE IS DIRECTED TO BE APPLIED AT 42.5% AS THE MAXIMUM GROSS PROFIT RATE DISCLOSED FOR ASSESSMENT YEAR 1996-97 STANDS AT 42.03 % ON DECLARED SALES OF RS. 62.22 LAKHS AND GROSS PROFIT ADDITION MADE EARLIER HAVING BEEN DELETED AT THE LEVEL OF I.T.A.T. IN SUBSEQUENT YEAR ALSO BROADLY THE DISCLOSED GROSS PROFIT RATE HAS BEEN FOUND TO BE VARYING IN THE RANGE OF 42 % TO 39 % ONLY. IN VIEW OF AFORESAID -: 8: - 8 DETAILED FINDINGS AND IN PARTICULAR FINDINGS ABOUT LACK OF VERIFIABILITY OF BOTH SALES AND CONSUMPTION OF RAW MATERIALS THE ASSESSEE CANNOT DRAW ANY ASSISTANCE FROM VARIOUS JUDICIAL DECISIONS CITED AND HON'BLE I.T.A.T. ORDER IN ITS OWN CASE FOR EARLIER ASSESSMENT YEARS. IN VIEW OF THE AFORESAID DETAILED FINDINGS OF FACTS IT IS NOT CONSIDERED NECESSARY TO EXAMINE VARIOUS JUDICIAL DECISIONS REFERRED BY THE ASSESSEE IN HIS WRITTEN SUBMISSIONS WHICH ARE DISTINGUISHABLE ON FACTS. REFERENCE CAN BE MADE TO THE DECISION OF HON'BLE M.P. HIGH COURT IN THE CASE OF VRIJLAL MANILAL & CO. VS. CIT 92 ITR 287 WHEREIN IT HAS BEEN HELD WHERE THE ACCOUNTS WERE CONSIDERED TO BE UNRELIABLE ADOPTION OF GROSS PROFIT RATE ON THE BASIS OF PAST HISTORY OF THE ASSESSEES CASE WOULD BE JUSTIFIED. 4.5 NOW COMING TO ASSESSMENT YEAR 2006-07 GROUNDS OF APPEAL RAISED THE APPELLANT HAS -: 9: - 9 SIMPLY CHALLENGED THE AOS ACTION IN REJECTING BOOK RESULTS U/S 145(3) AND ESTIMATING THE GROSS PROFIT @ 46.34%. 4.6 THE OTHER FACTS AND FINDING OF THE AO RESULTING IN REJECTION OF BOOK RESULTS U/S 145(3) AND ADOPTING GROSS PROFIT RATIO OF 46.3 % IS BASED ON HIS FINDING RECORDED FOR ASSESSMENT YEAR 2005-06. THE RETURNED INCOME FOR 2006-07 STANDS AT RS. 4 26 020/- FOR RETURN FILED ON 31.10.06. THE RESULTANT GROSS PROFIT ADDITION MADE STANDS AT RS.10 79 344/- ON DISCLOSED SALES WHICH HAVE BEEN ACCEPTED BY AO WITHOUT ANY VARIATION AT RS. 1 75 80 534/-. IT MAY BE INCIDENTALLY MENTIONED THAT GROSS PROFIT RATE DISCLOSED FOR ASSESSMENT YEAR 2006-07 STOOD AT 40.2 % AGAINST GROSS PROFIT DISCLOSED AT 38.9 % FOR ASSESSMENT YEAR 2005-06. 4.7 IN VIEW OF THE FINDINGS RECORDED FOR ASSESSMENT YEAR 2005-06 THE AOS ACTION IN REJECTING BOOK RESULT U/S 145(3) IS APPROVED AND AO IS -: 10: - 10 DIRECTED TO RECALCULATE GROSS PROFIT ADDITION BY APPLYING GROSS PROFIT RATE OF 42.5 % AND THE ASSESSEE SHALL BE ENTITLED TO CONSEQUENTIAL RELIEF. 7. IN THE ASSESSMENT YEAR 2005-06 THE AO HAS DISREGARDED GROSS PROFIT OF 35.59 % DISCLOSED BY TH E ASSESSEE AND ESTIMATED THE SAME AT 46.34 %. IN THE ASSESSMEN T YEAR 2006-07 THE AO HAS DISREGARDED GROSS PROFIT OF 38. 9 % AS DISCLOSED BY THE ASSESSEE FIRM AND TAKEN THE SAME A T 46.34 %. BY THE IMPUGNED ORDER THE CIT(A) HAD RESTRICTED TH E GROSS PROFIT RATE TO 42.5 % IN BOTH THE ASSESSMENT YEARS. AGAINST THE DELETION OF ADDITION BY REDUCING THE GROSS PROFIT R ATE THE REVENUE IS IN APPEAL BEFORE US. HOWEVER THE ASSESS EE HAS ALSO FILED APPEAL FOR NOT ACCEPTING THE GROSS PROFIT RAT E DISCLOSED BY THE ASSESSEE. 8. WE HAVE CONSIDERED THE RIVAL CONTENTIONS AND FOUND FROM THE RECORD THAT SINCE SALES RECORDED BY THE AS SESSEE WERE NOT VERIFIABLE THE AO HAS REJECTED THE BOOK RESUL T BY INVOKING PROVISIONS OF SECTION 145(3). BEFORE THE LD. CIT(A) AND TRIBUNAL THE ASSESSEE COULD NOT CONTROVERT THE FIN DING -: 11: - 11 RECORDED BY THE ASSESSING OFFICER WITH REGARD TO DI SCLOSURE OF COMPLETE SALES IN THE BOOKS OF ACCOUNT WE THEREF ORE CONFIRM THE ACTION OF THE LD. CIT(A) FOR APPROVING THE AOS ACTION REGARDING REJECTION OF BOOS OF ACCOUNT U/S 145(3). AFTER REJECTING THE BOOKS OF ACCOUNT THE AO HAS APPLIED GROSS PROFIT RATE OF 46.34 % IN THE ASSESSMENT YEAR 2005-06 WHI CH WAS WORKED OUT ON THE BASIS OF PURCHASE AND SALES OPEN ING STOCK AND CLOSING STOCK OF THREE MONTHS. HOWEVER THE AO HAS NOT CONSIDERED ALLOWANCE FOR WAGES WHICH ARE BOUND TO OCCUR IN THE FOOD PREPARATION AS WELL AS EDIBLE ITEMS PREPAR ED WHICH IS REQUIRED TO BE DESTROYED PERIODICALLY ON FINDING TH AT THE SAME COULD NOT BE SOLD ON ACCOUNT OF DETERIORATION IN QU ALITY AND OTHER MULTIPLE REASONS LIKE PERISHABLE NATURE ETC. THE LD. CIT(A) ALSO FOUND THAT THE AO HAS NOT BEEN ABLE TO CITE ANY PARTICULAR INSTANCE OF ANY OTHER ASSESSEE IN THE SI MILAR LINE OF BUSINESS DISCLOSING GROSS PROFIT RATE AT 46 %. THER EFORE AFTER CONSIDERING ALL THE MATERIALS ON RECORD THE LD. CI T(A) DIRECTED FOR ADOPTION OF GROSS PROFIT RATE OF 42.5 % WHICH APPEARS TO BE VERY REASONABLE KEEPING IN VIEW THE TOTALITY OF FAC TS AND CIRCUMSTANCES. NOTHING WAS BROUGHT TO OUR NOTICE BY LD. -: 12: - 12 AUTHORIZED REPRESENTATIVE AND LD. SENIOR D.R. TO PE RSUADE US TO DEVIATE FROM THE FINDINGS RECORDED BY THE LD. CI T(A). WE THEREFORE DO NOT FIND ANY REASON TO INTERFERE IN T HE ORDER OF THE LD. CIT(A) FOR REDUCING THE GROSS PROFIT RATE TO 42 .5 % IN PLACE OF GROSS PROFIT RATE ESTIMATED BY THE ASSESSING OFF ICER AT 46.34 %. 9. IN THE RESULT BOTH THE APPEALS OF THE ASSESSEE AND THE REVENUE ARE DISMISSED. THIS ORDER HAS BEEN PRONOUNCED IN THE OPEN COURT ON 7 TH FEBRUARY 2011. SD/- SD/- (JOGINDER SINGH) ( R.C.SHARMA) JUDICIAL MEMBER ACCOUNTANT MEMBER DATED : 7 TH FEBRUARY 2011. CPU* 237