Shri Mahendrabhai Chunibhai Patel, v. The Income tax Officer, Ward-2,, Anand

ITA 716/AHD/2006 | 2001-2002
Pronouncement Date: 04-03-2011 | Result: Partly Allowed

Appeal Details

RSA Number 71620514 RSA 2006
Bench Ahmedabad
Appeal Number ITA 716/AHD/2006
Duration Of Justice 4 year(s) 11 month(s) 14 day(s)
Appellant Shri Mahendrabhai Chunibhai Patel,
Respondent The Income tax Officer, Ward-2,, Anand
Appeal Type Income Tax Appeal
Pronouncement Date 04-03-2011
Appeal Filed By Assessee
Order Result Partly Allowed
Bench Allotted C
Tribunal Order Date 06-05-2009
Date Of Final Hearing 09-02-2011
Next Hearing Date 09-02-2011
Assessment Year 2001-2002
Appeal Filed On 21-03-2006
Judgment Text
IN THE INCOME TAX APPELLATE TRIBUNAL AT AHMEDABAD AHMEDABAD C BENCH (BEFORE S/SHRI G.D. AGARWAL VICE-PRESIDENT AND MUKUL KUMAR SHRAWAT JUDICIAL MEMBER) ITA NO.716 AND 717/AHD/2006 [ASSTT. YEAR : 2001-2002 2002-2003] ITA NO.427 AND 428/AHD/2008 [ASSTT. YEAR : 2001-2002 AND 2002-2003] MAHENDRABHAI CHUNIBHAI PATEL PROP: PATEL PRODUCTS AT & PO: KHANDHLI DIST: ANAND. VS. ITO WARD-2 ANAND. (APPELLANT) (RESPONDENT) ASSESSEE BY : SHRI SUNIL H. TALATI REVENUE BY : SHRI SUMAN R. DESAI O R D E R PER G.D. AGARWAL VICE-PRESIDENT : THESE FOUR APPEALS BY THE ASSESSEE ARE AGAINST RESPECTIVE ORDERS OF THE CIT(A )-IV BARODA SINCE ISSUES ARE COMMON IN ALL THESE APPEALS WE DISPOSE OF THES E APPEALS BY THIS CONSOLIDATED ORDER. ITA NO.716 AND 717/AHD/2006 2. GROUND NO.1 OF THE ASSESSEE FOR BOTH THE YEARS A RE IDENTICAL EXCEPT VARIATION IN FIGURE OF ADDITION. THEREFORE WE SHA LL REPRODUCE HEREINBELOW THE GROUND NO.1 IN THE ASSESSEES APPEAL FOR A.Y.2001-2 002 WHICH READS AS UNDER: 1. THE LD.CIT(A) ERRED IN FACT AND IN LAW IN UPHOL DING THE ACTION OF THE AO IN MAKING AN ADDITION OF RS.14 08 537/- IN R ESPECT OF ESTIMATED INCOME OUT OF UNRECORDED ALES AS AGAINST THE ESTIM ATED INCOME OF RS.10 LACS DISCLOSED BY THE APPELLANT UNDER HIS REVISED R ETURN OF INCOME. THE FACTS OF THE CASE ARE THAT THE ASSESSEE DERIVES INCOME FROM THE BUSINESS OF PROCESSING AND TRADING IN TOBACCO. THERE WAS SEARC H AT THE ASSESSEES PREMISES BY THE CENTRAL EXCISE DEPARTMENT IN WHICH UNRECORDE D SALE OF 12110 BAGS OF TOBACCO WAS DETECTED. LATER ON THE IT DEPARTMENT H AS ALSO CONDUCTED SURVEY ITA NO.716 AND 717/AHD/2006 ITA NO.427 AND 428/AHD/2008 -2- UNDER SECTION 133A. AFTER THE SURVEY THE ASSESSEE VIDE LETTER DATED 12-8-2002 MADE THE DISCLOSURE OF RS.50 LAKHS WHICH WAS BIFURC ATED IN FOUR ASSESSMENT YEARS. THE INCOME DISCLOSED BY THE ASSESSEE FOR TH E YEARS UNDER APPEAL WAS AS UNDER: ASSTT.YEAR AMOUNT (RS.) 2001-02 RS.10 LAKHS 2002-03 RS.07 LAKHS THE AO ON THE BASIS OF NUMBER OF UNRECORDED BAGS OF TOBACCO IN THE YEAR UNDER APPEAL WORKED OUT UNRECORDED SALES AS UNDER: ASSTT.YEAR AMOUNT (RS.) 2001-02 RS.53 80 200 2002-03 RS.1 15 73 800 THAT FROM UNRECORDED SALES THE AO ALLOWED THE DEDU CTION FOR THE COST OF PURCHASE OF TOBACCO AND THEREAFTER WORKED OUT THE P ROFIT OF THESE TWO YEARS AS UNDER: ASSTT.YEAR AMOUNT (RS.) 2001-02 RS.14 08 537 2002-03 RS.53 95 240/- THE CIT(A) SUSTAINED THE ORDER OF THE AO IN THIS RE GARD THEREFORE THE ASSESSEE AGGRIEVED WITH THE ADDITION SUSTAINED IS IN APPEAL BEFORE US. 3. AT THE TIME OF HEARING BEFORE US IT IS SUBMITTE D BY THE LEARNED COUNSEL THAT THE AO WHILE WORKING OUT THE PROFIT FROM UNREC ORDED SALES HAD ALLOWED THE DEDUCTION ONLY FOR THE PURCHASE OF THE TOBACCO BUT DID NOT ALLOW ANY DEDUCTION EITHER FOR THE PROCESSING OR FOR THE PACKING AND TR ANSPORT ETC. HE REFERRED TO THE CHART AT PAGE 15 OF THE ASSESSMENT ORDER FOR A.Y.20 01-02 AND POINTED OUT THAT IN A.Y.2001-02 THE PERCENTAGE OF THE EXPENDITURE O N PACKING MATERIAL TO THE SALE WAS 11.92% AND THE LABOUR CHARGES WAS 5.41% WH ILE THE TRANSPORT CHARGES WAS 1.1%. IF THESE EXPENSES ARE CONSIDERED THE PR OFIT OF RS.10 LAKHS AND RS.7 ITA NO.716 AND 717/AHD/2006 ITA NO.427 AND 428/AHD/2008 -3- LAKHS DISCLOSED BY THE ASSESSEE IN A.Y.2001-02 AND A.Y.2002-03 RESPECTIVELY IS QUITE FAIR AND REASONABLE AND NO FURTHER ADDITIO N IS CALLED FOR. IT WAS ALSO CONTENDED BY THE LEARNED COUNSEL THAT THE GP DISCLO SED BY THE ASSESSEE IN RESPECT OF SALES RECORDED IN THE BOOKS OF ACCOUNTS WAS ONLY 8.25% WHICH WAS ACCEPTED BY THE REVENUE. HE THEREFORE SUBMITTED THA T THE ADDITION SUSTAINED BY THE CIT(A) MAY BE DELETED. 4. THE LEARNED DR ON THE OTHER HAND RELIED UPON T HE ORDERS OF THE AUTHORITIES BELOW AND HE HAS STATED THAT THE EXPEND ITURE INCURRED BY THE ASSESSEE WHETHER FOR ACCOUNTED SALES OR UNACCOUNTED SALES MUST HAVE BEEN ACCOUNTED FOR BY THE ASSESSEE IN THE BOOKS OF ACCOU NTS. THEREFORE THE AO WAS FAIR ENOUGH TO ALLOW THE DEDUCTION FOR THE PURCHASE OF RAW-TOBACCO RELATING TO UNACCOUNTED SALES. HE ALSO SUBMITTED THAT THE PROD UCT OF THE ASSESSEE I.E. PROCESSED TOBACCO IS LIABLE TO EXCISE DUTY AND IN T HE CASE OF UNRECORDED SALES THE ASSESSEE HAD THE BENEFIT OF SAVING OF EXCISE-DU TY ALSO THEREFORE THE PROFIT DISCLOSED IN RESPECT OF RECORDED SALES CANNOT BE AP PLIED IN RESPECT OF UNRECORDED SALES. 5. WE HAVE CAREFULLY CONSIDERED THE ARGUMENTS OF BO TH THE SIDES AND PERUSED THE MATERIAL PLACED BEFORE US. THERE IS NO DISPUTE WITH REGARD TO UNRECORDED PRODUCTION AND SALE OF TOBACCO BY THE AS SESSEE. THE AO HAS WORKED OUT THE PROFIT ON SUCH UNRECORDED SALES BY A LLOWING PROPORTIONATE DEDUCTION IN RESPECT OF PURCHASE OF THE TOBACCO. H OWEVER IN OUR OPINION WHEN THE ASSESSEE IS IN THE BUSINESS OF PROCESSING AND PACKAGING OF THE TOBACCO AND THEN SELLING THE PACKED TOBACCO THERE WAS NO J USTIFICATION FOR NOT ALLOWING THE DEDUCTION FOR EXPENDITURE IN RESPECT OF PROCESS ING PACKING ETC. SALES OUTSIDE THE BOOKS WERE SUBSTANTIALLY HIGH AS COMPAR ED TO THE SALES RECORDED IN THE BOOKS OF ACCOUNTS. THERE IS NO EVIDENCE THAT T HE EXPENDITURE ON PROCESSING/PACKING OF UNRECORDED SALES WAS RECORDED IN BOOKS OF ACCOUNTS. THE AO HAS ALLOWED THE DEDUCTION IN RESPECT OF PURCHASE S AGAINST UNRECORDED SALES. THERE CANNOT BE DIFFERENT YARDSTICK FOR PURCHASE AN D OTHER DIRECT EXPENDITURE ITA NO.716 AND 717/AHD/2006 ITA NO.427 AND 428/AHD/2008 -4- ON PROCESSING/PACKING. THE CONTENTION OF THE LEARNE D DR THAT IN RESPECT OF UNRECORDED SALES THERE MUST BE SAVING OF EXCISE DU TY ALSO CANNOT BE IGNORED. IN VIEW OF THE ABOVE IN OUR OPINION PROPER COURSE WOULD BE TO ESTIMATE THE PROFIT ON UNRECORDED SALES BY APPLYING THE NET PROF IT RATE. CONSIDERING THE FACTS AND ARGUMENTS OF BOTH THE SIDES IT WOULD BE FAIR A ND REASONABLE IF THE NET PROFIT RATE OF 25% IS APPLIED ON THE UNRECORDED SALES WORK OUT BY THE AO. THE AO WILL WORK OUT THE ADDITION ACCORDINGLY. 6. THE GROUND NO.2 REGARDING CHARGING OF THE INTERE ST UNDER SECTION 234B OF THE ACT IS CONSEQUENTIAL IN NATURE THE AO IS DI RECTED ACCORDINGLY TO WORK OUT THE INTEREST AFTER GIVING EFFECT TO OUR ABOVE O RDER. A.Y.2002-2003 7. THE GROUND NO.2 3 AND 4 READS AS UNDER: 2. THE LD.CIT(A) ERRED IN FACT AND IN LAW IN CONFIR MING THE ADDITION MADE BY THE AO OF RS.3 76 000/- BY INVOKING PROVISI ONS OF SEC. 68 OF THE IT ACT. 3. THE LD.CIT(A) ERRED IN FACT AND IN LAW IN CONFIR MING THE ADDITION MADE BY THE AO OF RS.11 26 470/- BY CONSIDERING GIF T RECEIVED AS UNEXPLAINED CASH CREDIT. 4. THE LD.CIT(A) ERRED IN FACT AND IN LAW IN CONFIR MING THE ADDITION MADE BY THE AO OF RS.1 11 052/- ON THE GROUND OF SA LE OF EUCALYPTUS TREES AS UNEXPLAINED CASH CREDITS. 8. AT THE TIME OF HEARING BEFORE US THE ASSESSEE S UBMITTED THAT ALL THESE ADDITIONS ARE NOT JUSTIFIED BECAUSE THE ASSESSEE HA S PROPERLY EXPLAINED THE CREDIT/GIFTS ETC. HOWEVER HE ALSO MADE ALTERNATI VE CONTENTION THAT THE TELESCOPIC OF THE ADDITIONS TO THE NET PROFIT SUSTA INED BY THE ITAT SHOULD BE ALLOWED AGAINST THESE ADDITIONS WHILE THE LEARNED DR RELIED UPON THE ORDER OF THE AO. ITA NO.716 AND 717/AHD/2006 ITA NO.427 AND 428/AHD/2008 -5- 9. AFTER CONSIDERING THE ARGUMENTS OF BOTH THE SIDE S AND FACTS AND CIRCUMSTANCES OF THE CASE WE ACCEPT THE ALTERNATIV E CONTENTIONS OF THE ASSESSEE AND DIRECT THE AO TO ALLOW TELESCOPING OF NET PROFI T ADDITION SUSTAINED BY US IN RESPECT OF GROUND NO.1. THUS IF THE NET PROFIT AD DITION SUSTAINED IS MORE THAN THESE THREE ADDITIONS THEN THESE ADDITIONS WOULD B E DELETED. 10. GROUND NO.5 REGARDING CHARGING OF INTEREST UNDE R SECTION 234B OF THE ACT BEING CONSEQUENTIAL IN NATURE WE DIRECT THE AO TO WORK OUT THE INTEREST AFTER DETERMINATION OF INCOME AFTER GIVING EFFECT T O OUR ABOVE ORDER. ITA NO.427 AND 428/AHD/2008 11. THE ONLY COMMON GROUND RAISED IN BOTH THE APPEA LS ARE AGAINST THE LEVY OF PENALTY UNDER SECTION 271(1)(C) OF THE ACT OF RS .4 41 160/- FOR A.Y.2001-02 AND RS.21 48 475/- FOR THE A.Y.2002-03. 12. WE HAVE HEARD BOTH THE PARTIES AND PERUSED THE MATERIAL PLACED BEFORE US. AT THE TIME OF HEARING BEFORE US IT IS SUBMIT TED BY THE LEARNED COUNSEL THAT THE ISSUE OF PENALTY WOULD BE CONSEQUENTIAL TO THE OUTCOME OF THE QUANTUM ADDITIONS UNDER APPEALS. WE HAVE ALREADY HEARD AND ADJUDICATED THE QUANTUM APPEALS OF THE ASSESSEE IN BOTH THE YEARS AND ALSO ALLOWED PART RELIEF. WE THEREFORE DIRECT THE AO TO LEVY MINIMUM PENALTY UND ER SECTION 271(1)(C) OF THE ACT FOR BOTH THE YEARS ON THE ADDITION SUSTAINE D BY US. 13. IN THE RESULT ALL THE APPEALS OF ASSESSEE ARE PARTLY ALLOWED. ORDER PRONOUNCED IN OPEN COURT ON 4 TH MARCH 2011. SD/- SD/- (MUKUL KUMAR SHRAWAT) JUDICIAL MEMBER (G.D. AGARWAL) VICE-PRESIDENT PLACE : AHMEDABAD DATE : 04-03-2011