M/S Kota Stone Syndicate v. Asst. Commissioner Of Income Tax, Ajmer

IN THE HIGH COURT OF JUDICATURE FOR RAJASTHANBENCH AT JAIPUR. DB INCOME TAX APPEAL NO.26/2003 M/s Kota Stone Syndicate, Through its partner Shri SanjayGarg, 4 Anna Sagar, Link Road, Ajmer. Versus Asst. Commissioner of Income Tax, Ajmer. DATE OF ORDER ::: 29.11.2016. HON'BLE MR. JUSTICE K.S. JHAVERIHON'BLE MR. JUSTICE DINESH MEHTA Mr. Prakul Khurana, for the appellant.Ms. Parinitoo Jain, for the respondent. 1.By way of this appeal, the assessee has challenged thejudgment and order of the Tribunal whereby the Tribunal haspartly allowed the appeal of the department and dismissed theappeal of the assessee reversing the order of the CIT (Appeals). 2.The facts of the case are that the assessee has been engaged in the whole sale business of Stones. In the year 1991excess stock was found than the previous year. The Tribunalwhile reversing the view taken by the CIT(Appeals) hasestimated the gross profit Rs.7,26,625/-. 3.This Court while admitting the appeal on 11.07.2003framed following substantial questions of law: “(i)Whether Tribunal was justified inestimating the G.P. rate at 10.38% in the year1991-92. (ii)Whether the estimation of tradingadditions at Rs.4.00 lakh in the present caseis not arbitrary and without any basis?” 4.Counsel for the appellant, Mr. Prakul Khurana invited ourattention towards the observation made by the CIT(Appeal) inpara 5, which reads as under: “I have considered the findings of the AO andthe arguments of the ld. A/R. It is clear thatthe turnover of the appellant is 40 times to hiscapital while in all other cases it rangesbetween 2.5 times to 7 times only. It isapparent that the appellant was engaged inmuch quicker turnover. This also reflectedthe ratio of closing stock when turnover istaken up. In the case of M/s Ashok StoneCo. turnover is 10 times of the closing stock.In M/s Tirupati Stones 3 times of the closingstock. In M/s Radhey Shyam & Co. it is lessthan 2 times of the closing stock. In M/sModern Stone Suppliers 6 times of theclosing stock. In the case of M/s SanjayStone Co.20 times of the closing stock.However, 10 times of the closing stock.From the point of view gross return on thecapital and appellant has declared 2.5 timesto the capital while in other cases it is 0.3% to0.9% only. Net return on the capital in theappellant's case is 60% of the capital.Capital of the appellant is Rs.2,58,203/- andthe returned income of Rs.1,68,370/- givingapproximately 60% return. In view of thesefacts, none of the cases returned by the A.O.is comparable. In the fitness of thing theappellant's part history is only thecomparable. In the fitness of thing theappellant's part history is only thecomparison. Apparently the appellant hasdeclared better results but benefit of nobreakage is not properly reflected in thetrading results. An addition of Rs.25,000/- isjustified to cover the extra benefit of nobreakage. Another point is that at the time ofsurvey the excess stock of Rs.50,000/- wasadmitted. This indicates that the appellantwas carrying on apart of turnover notrecorded in the books in the ratio of openingstock and closing stock, turnover can beestimated at Rs.5 lacs which involved twoelements one is about the investmentreflected in the value of the stock which has already been surrendered by the appellant.Second element is of the gross profit on thisturnover @ 6% this give extra profit ofRs.30,000/-, therefore the addition to theextent of Rs.30,000/- is sustained resulting inrelief of Rs.6,71,025/-.” 5.After considering the evidence on record the CIT(Appeals) has allowed the appeal partly and upheld the additions to theIncome of the assessee to the extent of 7,26,625/-. 6.The Tribunal allowed the appeal filed by the departmentand while allowing the appeal observed in para 7 & 8 as under: already been surrendered by the appellant.Second element is of the gross profit on thisturnover @ 6% this give extra profit ofRs.30,000/-, therefore the addition to theextent of Rs.30,000/- is sustained resulting inrelief of Rs.6,71,025/-.” 5.After considering the evidence on record the CIT(Appeals) has allowed the appeal partly and upheld the additions to theIncome of the assessee to the extent of 7,26,625/-. 6.The Tribunal allowed the appeal filed by the departmentand while allowing the appeal observed in para 7 & 8 as under: “(7)We heard both the parties at length andgone through the material available onrecord, from which it appears that one of theemployees of the assessee-firm, ShriKamlesh Chand, has accepted the excessstock and the same was surrendered. Duringthe course of survey, the cash book wasfound written upto 19.02.1991. It wasledgerised only upto December, 1990.Therefore, there was the scope ofmanipulation. The assessee is notmaintaining any stock register. No details asto quantity of polished stock is separatelyavailable, in absence of which closing stockof polished stone appears to have beenunder-valued. Therefore, we are satisfiedthat the AO has rightly rejected the books ofaccount by invoking the provisions of section145(2). When the books of account wererejected, then the recourse, is the estimation.The AO has taken the comparative figure andestimated the gross profit rate at 13.33% andmade the addition of Rs.7,26,625/- but thesame appears on much higher side. TheCIT(A) has already given the benefit ofRs.50,000/-, which was surrendered by theassessee. (8)By keeping in mind the doctrine ofequality, justice and goods conscious, wemodify both the orders of lower authoritiesand restrict the addition to Rs.4 lcs. Thus, theassessee will get the relief of Rs.3,26,625/-,which includes Rs.50,000/- surrendered bythe assessee. Thus, the addition is restrictedto Rs.4 lacs regarding the trading addition. Thus, this ground taken by the Department ispartly allowed.” 7.We have heard Mr. Prakul Khurana for the assessee and Ms. Parinitoo Jain for the department. 8.Taking into consideration the above reasoning given bythe Tribunal, we are of the considered view that the Tribunal hascommitted serious error in estimating the income at Rs.4 lacs,without any basis. 9.Therefore, as such the addition of Rs.4 lacs made by theTribunal is arbitrary and without any basis. In the fact of thepresent case Tribunal has fallen into an error even theestimating GP rate @ 10.38% on the basis of retailer's turnoverparticularly looking to the assessee's turnover which has beenshown to the 40 times to his capital, while in all other cases itranges between 2.5 times to 7 times only. 10.Therefore, the second issue is required to be answered infavour of the assessee. Both the questions are, thus answeredin favour of the assessee and against the department. 11.Therefore, the order of the CIT(Appeals) is restored andthat of the Tribunal is set aside. 12.The appeal stands allowed. (DINESH MEHTA), J. (K.S. JHAVERI), J. Asheesh Kr. Yadav 11