Suresh Kumar Goyal , Jaipur vs Department Of Income Tax

1 ITA No. 705/JP/2012 The ITO, Ward- 7(3) vs. Shri Suresh Kumar Goyal

IN THE INCOME TAX APPELLATE TRIBUNAL JAIPUR BENCH, JAIPUR

(BEFORE SHRI R.P. TOLANI AND SHRI T.R. MEENA)

ITA No. 705/JP/2012 Assessment year: 2008-09 PAN : ABIPG 0220 B

The ITO vs. Shri Suresh Kumar Goyal Ward- 7 (3) 175, Mohalla Mahajan Jaipur Village Jahota, Tehsil Amer, Jaipur (Appellant) (Respondent)

C.O. No. 61/JP/2012 (Arising out of ITA No. 705/JP/2012) Assessment year: 2008-09 PAN : ABIPG 0220 B

Shri Suresh Kumar Goyal vs. The ITO 175, Mohalla Mahajan Ward- 7 (3) Village Jahota, Tehsil Amer, Jaipur Jaipur (Appellant) (Respondent)

Department by: Shri Ajay Malik, Addl. CIT Assessee by : Shri S.L. Poddar, Advocate

Date of Hearing: 25-11-2014 Date of Pronouncement: 09-01-2015

ORDER PER R.P. TOLANI, JM

This is an appeal filed by the Revenue against the order of the ld.

CIT(A)-III, Jaipur dated 22-05-2012 for the assessment year 2008-09 and

the assessee has filed the C.O. 2 ITA No. 705/JP/2012 The ITO, Ward- 7(3) vs. Shri Suresh Kumar Goyal

2.1 The Revenue has raised following grounds in its appeal.

''On the facts and in the circumstances of the case, the ld. CIT(A) has erred in:-

(1) The ld. CIT(A) has passed a perverse order in restricting gross profit rate to 2.75% instead of the gross profit rate of 4.24% by the AO on the basis of the declared gross profit rate in assessment year 2006-07.

(2) The ld. CIT(A) order is perverse since specific facts for assessment year 2008-09 as discussed by the AO have not been considered by him in applying the gross profit rate of 2.75% even while the invoking of the Section 145(3) of the Act had been upheld.

2.2 The assessee has raised solitary ground as under:-

''1. That under the facts and circumstances of the case ld. CIT(A) has erred in sustaining the addition of Rs. 3,60,274/- by applying the gross profit rate of 2.75% as against gross profit rate of 1.63% declared by the assessee.''

2.3 Brief facts of the case are that the assessee carries on business in the

names of its proprietorship concern M/s. Goyal Telecom which deals in

consumer goods and M/s. Goyal Telecom is authorized dealer of Vodafone,

Essar Dizilink Ltd. A/c books of both the proprietorship concerns are

audited u/s 44AB of the Act. The results in respect of M/s. Goyal Agencies

were accepted whereas in the case of M/s. Goyal Telecom the AO observed

that entire sales of SIM cards shown by the assessee was in cash and the

stock inventory produced by the assessee was at Rs. 6,35,459/- whereas in 3 ITA No. 705/JP/2012 The ITO, Ward- 7(3) vs. Shri Suresh Kumar Goyal

the trading account the value of the stock was at Rs. 6,26,395/-. The

assessee was asked to reconcile the day to day stock. The assessee replied

that day to day stock register was not maintained and the stock details were

adopted on the basis of physical verification. The AO further observed that

the assessee was in trading of Sim card as well as receiving commission. If

the commission income of Rs. 8,66,541/- was excluded . The sim trading

resulted in loss of Rs. 3,40,819/-. The AO was of the view that the assessee

has failed to explain the trading loss. Therefore, the total sale of the assessee

was estimated at Rs. 3,22,50,000/- in place of Rs.3,22,18,045/- & applied

g.p. rate @ 4.24% which resulted into trading addition of Rs. 17,08,220/-.

2.4 The assessee preferred first appeal before the ld. CIT(A) who allowed

part relief to the assessee by following observations.

2.3.1.............. As observed from the past years result, the appellant has offered gross profit rate at 4.24% therein, albeit on the meager turnover of Rs. 38.65 lacs. However, while following the principle of the past history, it appears that the AO has mechanically applied the same gross profit ratio in the current year , even the assessee has achieved substantial higher turnover , I this year (i.e. more than 8 times than the previous year). Thus it is evident that the AO has simply ignored the above crucial aspect that the turnover of the appellant has substantially8 increased in the current year;

therefore, the fall in gross profit, to some extent, is quite natural and understandable, under given circumstances. Moreover, the AO ha also not given any reasons to estimate the turnover of the assessee at higher side i.e. Rs. 3,22,50,000/-. Considering the above aspect, in my considered view, the 4 ITA No. 705/JP/2012 The ITO, Ward- 7(3) vs. Shri Suresh Kumar Goyal

adoption of gross profit @ 2.75%, in the current year , would be fair and sufficient to meet the both ends of the justice. Accordingly, the AO is directed to restrict the estimation of income u/s 145(3), by adopting the gross profit rate at 2.75%, at the total turnover of Rs. 3,22,18,045/-. In view of the above, the corresponding revised trading addition has been worked out as under:-

1 2 3 4 5

S.N. Total turnover G.P. offered Revised G.P. Difference/ @ 1.64% estimated @ addition 2.75% confirmed 1 Rs. 3,22,18,045 Rs. 5,25,722 Rs. 8,85,996 Rs. 3,60,274

In the light of the above working, the trading addition u/s 145() of the Act is restricted Rs. 3,60,274/-, in place of Rs.

17,08,220/-, as proposed by the AO in the impugned order. Consequently, this ground of appeal is partly allowed.''

2.5 Aggrieved, both the parties are before us i.e. the Revenue is through

appeal and the assessee is through cross objection.

2.6 The ld. DR at the outset contends that the ld. CIT(A) has upheld the

rejection of books of account which has not been challenged by the assesse.

Despite rejecting the rejection of books of account, he accepted the turnover

of Rs. 3,22,18,045/- without assigning any reason. The total turnover as per

books of account of the assessee has been upheld. When it is clear that

assessee's all sales are through cash and no day to day stock is maintained

then in that case there is no justification for the assessee to exclude the

estimation of sales. Besides, the gross profit has been estimated at 2.75% as

against 4.24% estimated by the AO. Thus there is no justification in the 5 ITA No. 705/JP/2012 The ITO, Ward- 7(3) vs. Shri Suresh Kumar Goyal

order of the ld. CIT(A) in upholding the rejection of books of account and

there being no justified reasons for reducing the estimate in giving the

requisite relief.

2.7 On the other hand, the ld. Counsel for the assessee contends that Sim

cards are invariably sold on M.R.P. given by the company, no bills were

raised about the purchases effected by the assessee. The purchases turnover

remained unchanged. There is no justification for the AO in estimating the

sales only on the reason that cash sales are made by the AO. It is rather

indicated that the assessee has to sell Sim cards in cash and if the any

customer offered cheque the assessee cannot refuse. Therefore, the adverse

inference was drawn by the AO to estimate the sales is not justified.

2.8 Coming to the issue about non-maintenance of stock register, the ld.

Counsel for the assessee contends that as per AO's version, the assessee

produced inventory of closing stock with value of Rs. 6,35,459/- as against

book stock of Rs. 6,26,395/-. When these figures are available with the AO

then same can be treated by the AO as opening stock. Thus it has no revenue

effect. It is pleaded that the AO cannot estimate the gross profit rate at

4.24% arbitrarily without taking into consideration that its turnover has

arisen at 8 times high. The gross profit rate at 4.24% at meager turnover

cannot be a Bench mark for adoption of gross profit rate. 6 ITA No. 705/JP/2012

The ITO, Ward- 7(3) vs. Shri Suresh Kumar Goyal

2.9 Apropos C.O. , it is contended that the assessee offered gross profit

rate at 1.63% whereas the ld. CIT(A) adopted at 2.75% without any basis

which should be reduced.

2.10 We have heard the rival contentions and perused the materials

available on record. It emerges from the record that the assessee was

maintaining proper books of account which were duly audited. All the

purchases are duly vouched which have not been questioned. Apropos sales,

it appears that the assessee's business of sales of sim cards is in cash which

cannot be found fault with. The turnover of the assessee has increased by 8

times. In these circumstances, the estimation of sales by the AO cannot be

held as justified as meager difference in the closing stock was at Rs. 9,000/-.

Besides, if any defect is found in question, it becomes postponement of

income as corresponding amount becomes opening stock of the assessee in

next year. Therefore, the estimation of sales as made by the AO cannot be

upheld. Coming to the common issue of estimation of gross profit, we are of

the view that in case of turnover of 8 times, the significant impact on the

gross profit. The rejection of books has not been challenged by the assessee

and looking at some of the defects, some corrective action is called towards

assessee's trading results. Thus in the given facts and circumstances of the

case, we see no infirmity in the order of the ld. CIT(A) in estimating the 7 ITA No. 705/JP/2012 The ITO, Ward- 7(3) vs. Shri Suresh Kumar Goyal

gross profit rate at 2.75% which is upheld. Thus the appeal of the Revenue

as well as C.O. of the assessee are dismissed.

3.0 In the result, the appeal of the Revenue as well as C.O. of the assessee

are dismissed

The order is pronounced in the open Court on 09 -01-2015

Sd/- Sd/-

(T.R. MEENA) (R.P. TOLANI) ACCOUNTANT MEMBER JUDICIAL MEMBER

Jaipur Dated: 9th JAN 2015 *Mishra Copy forwarded to:- 1.The ITO , wed 7 (3), Jaipur 2. Shri Suresh Kumar Goyal, Jaipur 3. The ld. CIT(A) 4. The ld. CIT By Order 5..The ld. DR 6.The Guard File (IT No. 705/JP/2012)

AR ITAT, Jaipur