M/S Dhodha House, Kotkapura v. Commissioner Of Income Tax, Jalandhar & Another

[.T_A. No.50 of 2000 IN THE HIGH COURT OF PUNJAB AND HARYANA ATCHANDIGARH LT.A. No.50 of 2000|Decided on:-February 28, 2014. M/s Dhodha House, Kotkapura. ....... Appellant, Versus Commissioner of Income Tax, Jalandhar & another woe KRESpondents. CORAM: Hon'ble Mr. Justice Rajive BhallaHon'ble Mr. Justice Dr. Bharat Bhushan Parsoon.Hon'ble Mr. Justice Dr. Bharat Bhushan Parsoon. ///// Argued by:- Mr. Aalok Mittal, Advocate for the appellant. Mr. Vivek Sethi, Advocatefor the respondents. Dr. Bharat Bhushan Parsoon, J. This appeal under Section 260-A of the Income Tax Act, 1961(hereinafter referred to as the Act) arises out of order (Annexure P-3) dated4.11.1999 passed by the Income Tax Appellate Tribunal, Amritsar Bench,Amritsar (hereinafter referred to as, the Tribunal) in ITA No.914(ASR)/1993pertaining to the assessment year 1988-89. 2 |The assessee, manufacturer of~Dhodha>Patisaland other sweetshad filed its return of income for the assessment year 1988-89 on 29.7.1988declaring an income of Rs.61,600/-.Dhodha!1S a renowned sweet. It is likedby many. As mentioned on the packing boxes of|Dhodhasweet of theassessee, the assessee is a gold medalist in the manufacturing of|Dhodha -)- The assessee, thus, is a leading manufacturer of this sweet whereas itmanutactures other sweets as well. | 3During examination of books of accounts by the AssessingOfficer (hereinafter referred to as the AQ), it was found by him that theassessee was not issuing cash memoes to the customers qua the saleseffected by it. The assessee also admitted that cash memoes were beingissued to the purchasers only on demand. On examination of books ofaccounts, it was found by the AO that the assessee had been supplyingfinished goods to S/Shri Radhey Shyam, Palji @ Palu Ram and VijayKumar. During the course of assessment, their statements were recorded on22.6.1989 by Inspector of the Income Tax Department; he submitted hisreport on 29.6.1989. It was found that total value of the goods received fromthese three parties was to the tune of Rs.3,26,000/- whereas the total saleshown by the assessee to them was to the tune of Rs.7,24,604/-. 4When report prepared by the tax officials was sent to theassessee, the assessee desired to cross-examine the said purchasers. Thosewitnesses were called after issuing notices to them under Section 131 of theAct. When after cross-examination of the witnesses, large scalediscrepancies were found in the accounts, the assessee was called upon toproduce cash memoes which were issued by him to various customers for aparticular period i.e. from 1.4.1987 to 31.3.1988. Cash memoes produced bythe assessee were only from 18.10.1987 to 31.3.1988; these revealed thateven Serial number of cash memoes had not been printed on the bills and thebills used to be filled in by hand, whenever it was felt necessary to issuesuch bills. It was found by the revenue that on many days, there was noteven single cash memo which was issued, showing the sale. 5When scrutiny of the books of account was made even further,it was found that some expenses had also been debited under the head“Salary” i.e. amounting to Rs.65,472/- but no such register had been kept by [.T_A. No.50 of 2000 the assessee. In absence of the salary register, it was difficult for the revenueto verify the payments shown to have been made as salary to certainindividuals. In the face of serious omissions and commissions, the assesseewas asked by the revenue to produce necessary evidence regardinggenuineness of the expenses incurred. Similarly, for consumption of milk,sugar and other allied items, no proper books of accounts had beenmaintained and when the assessee was called upon to produce, neither themilk sellers of the assessee nor any books of accounts were produced. Theassessee, thus, was caught napping. [.T_A. No.50 of 2000 the assessee. In absence of the salary register, it was difficult for the revenueto verify the payments shown to have been made as salary to certainindividuals. In the face of serious omissions and commissions, the assesseewas asked by the revenue to produce necessary evidence regardinggenuineness of the expenses incurred. Similarly, for consumption of milk,sugar and other allied items, no proper books of accounts had beenmaintained and when the assessee was called upon to produce, neither themilk sellers of the assessee nor any books of accounts were produced. Theassessee, thus, was caught napping. 6.|Against the order of the AO, the assessee preferred an appealbefore the Commissioner of Income Tax, Bhatinda |hereinafter referred to asthe CIT(A)]. While deciding the appeal against claim of the assessee quaburning loss at 25% to 35%, going into facts based situation and employingvarious parameters for assessing the sales, while allowing relief ofRs.61,680/-, estimating gross profit rate at Rs.2,78,070/-, addition ofRs.96,170/- was made by the CIT(A) vide order (Annexure P-2) dated245.1993, vaAgain assessee-firm felt aggrieved and had preferred an appealbefore the Tribunal. The Tribunal while deciding the case on 4.11.1999,upheld the order of the CIT(A), whereby addition of Rs.96,170/- had beenmade. S_Hearing has been provided to counsel for the parties whilegoing through the paper book. Q |Counsel for the assessee has urged that there was no materialworth credit and integrity to dislodge the accounts of the appellant-firm. It isclaimed that books of accounts of the assessee were wrongly rejected andresults of the accounts reached by the assessee, were wrongly ignored. It isclaimed that when books of accounts had been left aside, then the revenue [.T_A. No.50 of 2000 Should have collected its own evidence to come to a finding distinct andseparate from the findings arrived at by the assessee. It is, thus, contendedthat approach of the revenue has been highly lopsided. 10.Following substantial questions of law had been posed by theassessee for adjudication: a)Whether in the facts and circumstances of thecase, orders Annexures Pl, P2 and P3 are legallysustainable? b)Whether in the facts and circumstances of thecase, order of the ITAT in confirming the additionof Rs.96,170/- based on mere _ presumptiignoring the evidence put-forth by the assesseeshowing to the contrary, is legally sustainable? C)Whether in the facts and circumstances of thecase, order of the ITAT in confirming the findingregarding the application of proviso to Section145(1) of the I.T. Act without there being anySpecific averment as regards the infirmity in themethod of accountancy employed by the assessee-appellant as mandated in the case of Moh. UmerVersus C.I.T. Bihar reported in 101 ITR 525, islegally sustainable? d)Whether in the facts and circumstances of thecase, order of the ITAT in confirming the additionmade, when the quantity of raw-material notbeing in dispute and ignoring the sales put-forthby the assessee-appellant without there being anyevidence to show to the contrary, is legallysustainable? 11.)These questions of law are not very happily worded. However,taking the spirit behind framing of these substantial questions of law, thematter is being adjudicated. 12.Following observations made by the AO in order (Annexure [.T_A. No.50 of 2000 -5- P-1) dated 31.3.1989 are noteworthy: d)Whether in the facts and circumstances of thecase, order of the ITAT in confirming the additionmade, when the quantity of raw-material notbeing in dispute and ignoring the sales put-forthby the assessee-appellant without there being anyevidence to show to the contrary, is legallysustainable? 11.)These questions of law are not very happily worded. However,taking the spirit behind framing of these substantial questions of law, thematter is being adjudicated. 12.Following observations made by the AO in order (Annexure [.T_A. No.50 of 2000 -5- P-1) dated 31.3.1989 are noteworthy: “Tf the assessee was right in his approach, then certainlyhe should have produced the saidBahiin which the record ofpurchase of milk was kept. All these facts clearly show that thebooks result shown by the assessee are not subject to anyverification and the provisions of section 145(1) are clearlyapplicable. If on the basis of calculations made by meregarding the sale ofDhodhaat the Bus Stop was negligiblesale ofDhodhaat other places although it is not a fact, yet Iestimate the sales of the assessee at Rs.13,50,000/- and applyG.P. Rate 25.10% as shown by the assessee. This will mean anaddition ofRs.1,57,850/- in the trading account.” 13.Agreeing with these observations, the CIT(A) vide order(Annexure P-2) affirming the finding of the AO regarding rejection of booksof accounts, had held as under: “For the year under consideration, the assessee hashimself shown purchases of raw-material at Rs.5,60,535/- andthe weight of raw-material consumed has been mentioned at38392 Kgs. whereas infact it works out to 38892 Kgs includingopening stock etc. The weight of sweets manufactured isestimated after giving a discount of 10% on account of burninglosses, pilferage, wastage and otherfactors like consumption ofmilk and milk products etc. by the assessee's employees. I amnot inclined to accept the plea of the learned counsel thatburning losses and wastage tantamount to 25% to 30%.Accordingly, the net weight of sweet manufactured would workout to 35003 kgs. The weight of“dhodamanufactured is taken to65% and weight of other sweets is taken at 35%. This is beingtaken at estimated figure since assessee has not disclosed theformula for manufacturingdhodabeing a trade secret. To thesweets so manufactured the sale rate of‘dhodaduring the yearwas Rs.40/- per kg. Perusal of assessment record shows thatassessee had been giving a discount ofRs.2.5 per kg in respectof bulk sales since the assessee has not been able to produceany record of having given discount on retail sales, the averagediscount 1s allowed at Rs.1.25 per kg and the net rate in respectof‘dhodais taken at Rs.39/- per kg. In respect of other sweets,the rate varied between Rs.14/- per Kg to Rs.20/- per Kg. Sinceexact bifurcation 1s not possible, the average rate ofRs.18/- per Kg is applied. Accordingly, the total sales would work out asunder: To the sales so estimated, a rate of25.10% 1s applied as shownand accepted by the AO. This would mean gross profit ofRs.2,78,070/- as against this, the assessee has shown G.P. OfRs.1,81,900/-.. This would, therefore, call for an addition oRs.96,170/- since the AO has made addition of Rs.1,57,850/-,the appellant would get relief ofRs.61,680/-. ” 14.When the matter was taken to the Tribunal further in appeal bythe assessee, the Tribunal affirmed finding of the AO which in turn had beenupheld by the CIT(A) as well, regarding invocation of proviso appended tosection 145(1) of the Act. Relevant findings of the Tribunal in this regard asmentioned in para No.1] of the order (Annexure P-3) are reproduced asbelow: Kg is applied. Accordingly, the total sales would work out asunder: To the sales so estimated, a rate of25.10% 1s applied as shownand accepted by the AO. This would mean gross profit ofRs.2,78,070/- as against this, the assessee has shown G.P. OfRs.1,81,900/-.. This would, therefore, call for an addition oRs.96,170/- since the AO has made addition of Rs.1,57,850/-,the appellant would get relief ofRs.61,680/-. ” 14.When the matter was taken to the Tribunal further in appeal bythe assessee, the Tribunal affirmed finding of the AO which in turn had beenupheld by the CIT(A) as well, regarding invocation of proviso appended tosection 145(1) of the Act. Relevant findings of the Tribunal in this regard asmentioned in para No.1] of the order (Annexure P-3) are reproduced asbelow: “On going through these observations, we find that theorder of the CIT(A) in estimating total sales, application of G.P.rate and in granting a relief of Rs.61,680/- is most reasonableand well discussed and is based on the proper analysis offactsand the circumstances of the case of the assessee. In view of thematter, we do notfind any illegality and infirmity in the order ofthe CIT(A), which is a well reasoned and well discussed andhence no interference is calledfrom our side. Hence grounds ofappeal Nos.2 to 5 of the assessee having no merits are rejectedand the order of the CIT(A) with regard to the sustaining ofaddition ofRs.96,170/- is upheld.Crate and in granting a relief of Rs.61,680/- is most reasonableand well discussed and is based on the proper analysis offactsand the circumstances of the case of the assessee. In view of thematter, we do notfind any illegality and infirmity in the order ofthe CIT(A), which is a well reasoned and well discussed andhence no interference is calledfrom our side. Hence grounds ofappeal Nos.2 to 5 of the assessee having no merits are rejectedand the order of the CIT(A) with regard to the sustaining ofaddition ofRs.96,170/- is upheld.C 15.In view of the discussion already made, it is apparent that theentire issue concerns facts and attending circumstances and there is no legalissue much less substantial to be adjudicated upon and as such, no [.T_A. No.50 of 2000 substantial question of law, in fact, arises. Sequelly, the appeal, beingwithout any merit, is dismissed. (Dr. Bharat Bhushan Parsoon)Judge February 28, 2014"Yag Dutt’ (Rajive Bhalla)Judge 1.|Whether Reporters of local papers may be allowed to see the judgment? Yes oDWhether to be referred to the Reporters or not? Yes cwWhether the judgment should be reported in the Digest? Yes