D.b. Income Tax Appeal v. M/S Jaimal Ram Kasturi And Partners

1 IN THE HIGH COURT OF JUDICATURE FOR RAJASTHAN AT JODHPUR J U D G M E N T D.B. INCOME TAX APPEAL NO.145/2006 Commissioner of Income Tax, Bikaner vs.M/s Jaimal Ram Kasturi and Partners Date of Judgment : 15.01.2013 PRESENT HON'BLE MR. JUSTICE DINESH MAHESHWARIHON'BLE MR. JUSTICE ARUN BHANSALI Mr. K.K. Bissa, for the appellant. BY THE COURT (PER HON'BLE BHANSALI, J.): The Revenue has preferred this appeal under Section260-A of the Income Tax Act, 1961 ('the Act') against thejudgment and order dated 03.06.2005 passed by the IncomeTax Appellate Tribunal, Jodhpur Bench, Jodhpur ('the Tribunal')in ITA No.160/JDPR/1998 and CO No.48/05 for the assessmentyear 1991-1992, whereby the Tribunal has dismissed the appealof the Revenue and has allowed the cross-objection of theassessee; and in the result, has deleted in toto the impugnedaddition towards country liquor business of the assessee, asmade by the Assessing Officer ('the AO') in the assessment orderdated 11.03.1996, and as partly retained by the Commissionerof Income Tax (Appeals), Jodhpur ('the CIT(A)') in the orderdated 28.01.1998 as passed in the assessee's appeal. The appeal has been admitted on the following questions of law:- “(1) Whether Tribunal was justified in holding thatbest judgment assessment made by theAssessing Officer is not based on cogent andrelevant criteria?best judgment assessment made by theAssessing Officer is not based on cogent andrelevant criteria? (2) Whether Tribunal was justified in upholding theorder passed by CIT (Appeals) when it heldthat Assessing Officer was not justified inapplying the criteria of comparable cases andtaking into account the past history of theassessee himself?”order passed by CIT (Appeals) when it heldthat Assessing Officer was not justified inapplying the criteria of comparable cases andtaking into account the past history of theassessee himself?” The facts relevant for determination of the questionsinvolved in this appeal are that the assessee is engaged in liquorbusiness and during the period relevant to assessment year1991-1992, the income of the assessee was assessed atRs.4,15,32,865/- as against the declared profit ofRs.3,87,66,937/- by adopting a net profit rate of 20.5% towardsthe total outgoings (total payment made to Government forlifting goods) as against the declared rate of 19.13% afterrejecting the books of accounts of the assessee, under Section145 of the Act. The profit rate was adopted by the AO by takinginto account the comparable case of one M/s Malu Khan & Party,Bikaner. Feeling aggrieved, the assessee preferred an appeal beforethe CIT(A), which was partly allowed by the order dated28.01.1998. The CIT(A) though upheld the order of the AO forapplying the provisions of Section 145(2) as the sales of theassessee were not supported by vouchers but, came to the conclusion that the addition made by the AO was in factexcessive, keeping in view the past results of the assessee.While observing that the assessee had shown better rate ofprofit for the year 1991-1992 as compared to the last year andwhen books of accounts are rejected, past history of the casebecomes relevant and the same could be a guide for reasonableprofit, the learned CIT(A) restricted the addition made by the AOto Rs.10,65,928/-. Aggrieved by the aforesaid order dated 28.01.1998, theRevenue preferred an appeal before the Tribunal and theassessee took cross-objections therein. By the impugned order dated 03.06.2005, the Tribunal hasallowed the cross-objections taken by the assessee and hasdismissed the appeal preferred by the Revenue; and, in theresult, has deleted the additions altogether while observing andholding as under :- Aggrieved by the aforesaid order dated 28.01.1998, theRevenue preferred an appeal before the Tribunal and theassessee took cross-objections therein. By the impugned order dated 03.06.2005, the Tribunal hasallowed the cross-objections taken by the assessee and hasdismissed the appeal preferred by the Revenue; and, in theresult, has deleted the additions altogether while observing andholding as under :- “11.Having discussed the relevant legal position, werevert to the facts of this case, the business of theassessee has been totally controlled by the Departmentof Excise, Government of Rajasthan. Naturally there areno chances of suppression of sales/ purchases, rather theassessee has to suffer a compulsory deposit for not liftingthe contracted amount of IMFL/BEER etc. Be that as itmay, no suppression of purchases or sales have beenalleged by AO in this case. No specific defects have beenpointed out by Ld. AO. The only suspicion is that theAssessee may have been charged more sale price thanrecorded. The AO has rejected the books of the accountsbut, has relied totally on the figures recorded hereinexcept the 'sales' and for that reason has concluded thatthe assessee may have earned more profits. But the AOcannot be given a very long rope for estimation purposes.It is to be guide judiciously. He cannot be allowed to actin an arbitrary manner. That is why in such cases where,only 'sales prices' are doubted, the accepted past historyor the comparable case have been accepted as bestguide. 12.The charts reproduced hereinabove are notdisputed by Ld. DR. These charts were also availablebefore the AO. From all the angles, be it gross profit onsales, net profit on sales or net profit on outgoings, therespective declared results are better than the assessedrates of GP, NP on sales, NP on outgoings in the pastyear. This fact is obvious from the above charts. There isno doubt about the same. 13.Therefore, in our considered opinion, the acceptedpast history is the best guide. And when the assessee hasdeclared the better results from all angles as statedabove, the declared results have to be accepted and noadditions can be made therein. The case of Malu Khancannot be applied when assessee's past history isavailable and there is no difference at all in the facts inthis year. The facts of both the years are on all fours.Otherwise, also the case of Malu Khan is not at allcomparable one. 14.The CIT(A) has accepted the submission of theassessee to some extent but has retained the additions toa substantial amount, even after accepting the pasthistory theory. No reasons have been given for the same.The sustained addition is baseless and arbitrary, whichcannot be sustained in the given facts of this case. Noevidence has been brought by the AO for sustenance ofany addition for that matter. Consequently, the impugnedaddition is hereby deleted in toto made in the countryliquor business. As a result, the appeal is dismissed andthe CO is allowed.” Assailing the order aforesaid, it is contended on behalf ofthe appellant that the Tribunal has not examined the matter inits entirety, objectively and in correct perspective; it is moreappropriate to estimate the profit by comparing it with the caseof an assessee in identical line of business and if, as per thefindings given by the Tribunal, the assessee's own history bemade the basis for estimation of profits, then a particularassessee who has never been subjected to scrutiny assessmentand who had been showing the gross profit at its own sweet will,would be in a advantageous position and the principle laid downby the Tribunal regarding precedence of past history overcomparable cases would be against the basic cannons of taxation. No one has appeared on behalf of the assessee despitenotice. taxation. No one has appeared on behalf of the assessee despitenotice. After having heard the learned counsel for the appellantand having perused the material placed on record, we are unableto find any infirmity in the order passed by the Tribunal so as tocall for interference in appeal; and we are of the view that thequestions as formulated deserve to be answered against theRevenue. In the present case, the AO while passing the assessmentorder under Section 143(3) read with Section 254 of the Actcame to the conclusion that though all the purchases of countryliquor were from Ganganagar Sugar Mills Limited, a Governmentundertaking, and the same were fully vouched but, in theabsence of a primary record like sale vouchers, the assessee hadshown sales in the manner suitable to it; and, while holding thatthe books of account maintained by the assessee were notreliable, applied provisions of Section 145(2) of the Act andrejected the same. The AO then held that the profit of thecountry liquor business of the assessee had to be determined incomparison with other analogous assessee engaged in the sameline of business because considering the stiff competition foracquiring monopoly rights, it could be reasonably presumed thatthe assessees were likely to have profit comparable with eachother. The AO then compared the case of the assessee with a contractor of the adjoining area, M/s Malu Khan & Party, Bikaner,who had shown the net profit at 22.70% for the period inquestion; and assessed the assessee by taking 20.5% net profitinstead of 19.13% as declared by him. The CIT(A), after taking into consideration the figuresrelating to assessee's own case and considering the submissionsof the assessee that the case of M/s Malu Khan & Party, Bikanerwas not comparable or identical as the said M/s Malu Khan &Party operated in an area which was 250 kms. away from that ofthe operational area of the appellant, came to the conclusionthat the AO was not justified in making addition by comparingthe results of the asessee with those of M/s Malu Khan & Party,Bikaner, as the facts of the two case were altogether different.The CIT(A) thus, held that the addition made by the AO wasexcessive and unreasonable; and the profit declared by theappellant was quite fair and reasonable; and hence, reduced theaddition by Rs.17,00,000/-. In Ram Prakash v. Commissioner of Income Tax : (1983)15 Taxman 533 (Allahabad), the Hon'ble Allahabad High Court,while considering a similar issue, upheld the finding of theTribunal that the applicant's profits could properly be worked outin the light of its assessment in earlier years; and held thus: “3.The learned counsel for the assessee contendsthat the Tribunal committed a mistake of law in ignoringthe exemplars of country liquor dealers of Lucknow, citedby him and in taking irrelevant material intoconsideration by relying upon the exemplar of a countryliquor dealer of Allahabad district. This, according to him,vitiates the finding recorded by the Tribunal.that the Tribunal committed a mistake of law in ignoringthe exemplars of country liquor dealers of Lucknow, citedby him and in taking irrelevant material intoconsideration by relying upon the exemplar of a countryliquor dealer of Allahabad district. This, according to him,vitiates the finding recorded by the Tribunal. “3.The learned counsel for the assessee contendsthat the Tribunal committed a mistake of law in ignoringthe exemplars of country liquor dealers of Lucknow, citedby him and in taking irrelevant material intoconsideration by relying upon the exemplar of a countryliquor dealer of Allahabad district. This, according to him,vitiates the finding recorded by the Tribunal.that the Tribunal committed a mistake of law in ignoringthe exemplars of country liquor dealers of Lucknow, citedby him and in taking irrelevant material intoconsideration by relying upon the exemplar of a countryliquor dealer of Allahabad district. This, according to him,vitiates the finding recorded by the Tribunal. 4.We find no merit in the aforementionedsubmission made by the learned counsel. A perusal ofthe order of the Tribunal shows that what it in effectfinds is that neither the exemplars pertaining to thecountry liquor dealer of Allahabad nor those whichconcerned other country liquor dealers of Lucknow,could, in the circumstances of the case, provide a properbasis for assessing the profits earned by the petitioner.Account to it, applicant's profits could properly be workedout in the light of its assessment in earlier years. In thisview of the matter, no question of the Tribunal eitherignoring any relevant material or its relying upon anirrelevant material arises. The findings recorded by theTribunal in this regard are findings of fact based onappraisement of material on record and they do notappear to be vitiated by any error of law.” In Commissioner of Income Tax Vs. Sadrudeen Hussaion : (2003) 263 ITR 677, this Court while considering a case ofanother liquor contractor upheld the order passed by theTribunal which relied on the assessee's own case in theimmediate preceding year and the appeal filed by the Revenuewas dismissed. The findings of the Tribunal reproduced herein-above makeit clear that the Tribunal has examined the issue involved in itscorrect prospective and has assigned cogent reasons for notapproving the order passed by the AO. The AO was obviously inerror in taking the case of M/s Malu Khan & Party as acomparable one for the reasons given by CIT(A) and in the faceof assessee's available and consistent past history. In our view, ultimately, the matter had been of putting aestimate on the profit of the assessee while recording thefindings on facts. The CIT(A) has given cogent reason for notendorsing the approach of the AO in making assessment withreference to the case of another assessee after finding it to be not a directly comparable case and hence, not a safe guide moreparticularly, when assessee's past history was available andthere was no material difference in the facts pertaining to therelevant assessment year and the past history year. The CIT(A),even while accepting past history as the relevant basis forassessment, proceeded to retain a part of the addition to thetune of Rs.10,65,928/- without cogent and sufficient reasontherefor. The Tribunal, therefore, while endorsing the basisadopted by the CIT(A), has found no reason to sustain anyaddition and hence, deleted the addition altogether. In the totality of circumstances, the Tribunal cannot befaulted in accepting the profit rate as declared by the assesseewhile not approving the rate as applied by the AO. The order aspassed by the Tribunal does not appear suffering from anyperversity or from the application of any wrong principle so as tocall for interference. Accordingly and in view of the above, the answer to thequestions formulated in the present case is in the affirmative i.e.against the revenue and in favour of the assessee. Consequently, the appeal fails and is hereby dismissed. Nocosts. (ARUN BHANSALI)J. (DINESH MAHESHWARI)J.RM/