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TMI Blog2014 (6) TMI 435X X X X Extracts X X X X X X X X Extracts X X X X ..... each case - While estimating the Gross Profit, the AO should be fair & reasonable and should keep into account the turnover and the Gross Profit of earlier years along with all the facts and circumstances of the case - by rejecting book result, the Assessing Officer does not get absolute and unbridled powers to estimate whatever profit he wants, as per his sweet-will – CIT(A) was rightly of the view that the addition made is not logical, since it is excessive in view of the estimation made in the sales - the difference in the circumstances of the assessee with that of M/s Banna Ali Girdhari & Party has also been shown with this submission that the business of assessee is 5 times larger than them. The assessee had shown better g.p. rate in IMFL & Beer sales, there was no much scope for the AO for interference and the possibility of sales out of books, which held unreliable has already been taken into account by the ld. CIT(A) - the extent of profit in the nature of liquor business depends upon several factors i.e. geographical condition of the area, social and economic condition of the people in the area, mixing habit of the population - rapport amongst the contractors of the ar ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Kind of liquor Total Sales (Rs.) G.P. disclosed G.P. Rate Country liquor 109764277 32897984 29.97% IMFL Beer (Retail) 120760436 30988407 25.66% IMFL Beer (Whole Sale) 74830781 2382557 3.18% 2.4 By observing that the assessee has not kept daily sales bill and brand wise/size wise quantity details of liquors sold, accordingly by applying provisions of Section 145(3) of the Act, he rejected books results and by applying G.P. rate of 70% on sales of country liquor of Rs. 11.52 crores and made an the addition of Rs. 4.77 crores. Similarly in respect of IMFL/Beer, the AO applied G.P. rate of 48% on sales of Rs. 12.67 crores and made the addition of Rs. 2.98 crores. By the impugned order, the Ld. CIT(A) after giving detailed finding, restricted the addition in case of country liquor to Rs. 5 lacs and in case of IMFL/Beer at Rs. 4 lacs. Against this order of CIT(A), the Revenue is in further appeal b ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... mpsum amount was credited on account of such sales. The same were not open to verification. Details of purchases, being regulated and as per the guidelines of the Excise Department, were produced but sale vouchers, were not produced for verification. The Assessing Officers were of the view that in the absence of sale vouchers, the assesses are at liberty to charge selling price as per their own sweet will (as the sales prices are not fixed). Since the assesses had monopoly and have exclusive jurisdiction to sale goods in the area/district, they could charge any amount. What amount was actually charged by the assesses was not known since sales were not open to verification. The AO s was of view that in the light of these deficiencies the books of accounts are liable to be rejected u/s 145(3) of the IT Act. In addition to above, the AO s inter alia, have also noticed the following defects:- i. Sales bills are not maintained hence sale rates quantum of sales/T.O. not open to verification. Auditors in their audit report have also observed these defects. ii. Vouchers for various expenses not properly maintained hence genuineness /reasonableness of various expense ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 188 ITR 44, M/s Lalchand Wailati Ram Vs. CIT: (1978) 111 ITR 244 (P H); M/s Bombay Cycle Stores Co. Ltd. Vs, CIT: (1958) 33 ITR 13(Bombay); SN Nama sivayam Chettier Vs, CIT: (1960) 38 ITR 579 (SC); Commissioner of Income-tax Vs. MC Millan Co.: 38 ITR 182(SC) etc. After rejecting the books of accounts, in some of the cases, the AO have estimated gross profit rate and in some of the cases net profit rate and in some of the cases adhoc estimated addition had been made. While making such addition, the AO s have given the detailed analogy/findings/scientific basis etc by comparing similar trade/past history/sales rates prevailing in the other locality etc also allowed reasonable opportunity to the assessee. For rejecting books of accounts u/s 145 (3) estimating the profit, the AO relied on the decision of the Hon ble Allahabad High Court in the case of Abdesh Pratap Singh, Abdul Rehman Bros. Vs CIT 210 ITR 406 which inter alia read as under:- Where the absence of stock register, cash memos is coupled with other factors like lack of vouchers for expenses low profit which give rise to a legitimate inference that all is not well with the books of accounts the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... mate, but not hard and fast rules can be laid down by the court to define what sort of material is required on which his estimate can be founded. d) Raghubar Mandal Harihar Mandal s case 8 STC 770(SC)(1957):- It has been held that if the Sales Tax Officer was compelled to adopt a rule of thumb which in a sense is an arbitrary rule, the assessee was entirely responsible for that situation. There are some more issues which are important in the matter of estimation of profits which require further elaboration i.e. as to what compelling factors were there due to which the AO was left with no choice but as to estimation of income which as a matter of fact was spearheaded by the assessee himself. It is claimed by the Ld. A/R of the assessee that there is a general practice in the line of trade is that 90% on total sales are achieved in the evening hours and that too within a period of few hours when heavy rush of customer is gathered in the retail shop and at that time it is neither practical nor possible to issue sale bills nor it is economical to employee large number of employees in every retail shop only for the purpose of issuing the sale bills. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... f contract, amount of contract is different every year. In such a position there can not be comparable case. Each case is required to be dealt with separately on the basis of facts of the case. Therefore, there will not be any comparable cases at given point of time to estimate GP/NP/TO etc. In my opinion, if any argument is made available of comparable cases to apply GP/NP or TO that should not be entertained unless specific evidence are produced on record. As a law implementing agencies, it is duty on my part to also examine if violation of any law of land is made. Nobody is above law and assessee can not be allowed to go Scot free by repeatedly and frequently giving false statement not being interrogated to the hilt. The assessee and the A/R are indulging in exercise of obfuscation, which is apparent from the fact that majority of case of liquor contracts are handled by one particular professional. It has been noticed that each and every case is different but the above particular professional is filing similar type of replies before the AO and the other appellate authorities. When all the cases are different and not comparable. Then how can the same facts and repli ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ome yardstick is required, which in this case is offered by AOP firm of Nizamudin Maniram and Party. Once the purchase prices of various items were known through the purchase bills, corresponding excise duty as paid by the assessee was added so as to arrive at the total cost of a particular item. Thereafter on the basis of rate list found, corresponding selling price was applied to each of the commodity in order to find out as to what exactly the profit margin works out. Thereafter checking the average of such profit margin corresponding GP shall be applied. In order to calculate the excise duty, the method is as follows (as prescribed by State Excise department.):- 1) In case of IMFL:- The payment towards excise duty as per the state excise laws (F.Y.99-2000) is @ Rs. 675 per bulk litre of IMFL. (i.e. Rs. 675 for 12 bottles) (One bulk litre means 9 litres i.e. 12 bottles of 750 ML each) It, therefore means that on each bottle the excise duty payable is Rs. 56.25 (Rs. 675/12) 2) In the case of Beer:- Strong Beer Rs. 117 per bulk litre. Therefore Rs. 8.35 per bottle of strong beer. (1 bulk litre=9 litre whic ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Thunder Bolt Rs. 27.41 Rs. 50/- 45.18% 13 Bullet Rs. 27.41 Rs. 50/- 45.18% Therefore, it is very evident from the profit margin as worked out above that the country liquor has a profit margin around 75% to 90%, IMFL and Beer has profit margin around Rs. 35% to 50%. There may be a difference in the profit margin of each party on account of area/location/population/demand of variety/year of operation etc but more or less the profit margin can vary between 2-5%. In this very particular case of my assessee I decide to take GP in case of country liquor as 65% and in case of IMFL and beer as 35% and GP of 5% in case of wholesale of IMFL and Beer. Trading account (Re casted) (Based on above GP rate). Expenditure Income To purchase a/c IMFL/Beer (W.S.) Rs. 18,43,03,959/- IMFL/Beer (Retail) Rs. 39,88,64,950/- Country liquor Rs. 16,42,50,017/- To expenditure a/c IMFL/Beer (W.S.) Rs. 20,18,98,297/- IMFL/Beer (Retail) Rs. 2,61,41,311/- Country li ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nce to test the validity of the additions made by the AO has transgressed into the realm of indefiniteness from the realm of guesswork for computation of income, where the books of account of assessee have been rejected by the AO, holding that it is not possible to ascertain the true income of the assessee from such books of account. The CIT(A) has not recorded any satisfactory finding or reasoning in restricting/reducing/estimating lump sum ad hock amount, hence, it is not a speaking order. It is well settled that in a best judgment assessment there is always a certain degree of guess work. The authorities concerned should made a honest and fair estimate of the income even in a best judgment assessment and should not act arbitrarily. It is equally true that assessee is himself to be blamed as he did not submit proper accounts. It was the duty of the assessee to place all facts truthfully before the AO and if he fails to do his duty, he cannot be allowed to call upon the AO to prove conclusively what turnover he has actually suppressed but, at the same time, sec. 145 of the Act, 1961 confers sufficient powers upon the AO to make such computation in such manner as he d ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 5CC 329, Mysore Anr. Judgment of this Court reported in 199 CTR 422 (RAJ) CIT Vs. Sunil Talwar Murlidhar Party, etc. In the case of CST Vs. H.M. Esufali H. M. Abdulali 90 ITR 271 (SC), the Hon ble Apex Court, inter alia has observed as under:- 'The assessing authority while making the best judgment assessment, no doubt, should arrive at its conclusion without any bias and on rational bases. That authority should not be vindictive or capricious. If the estimate made by the assessing authority is a bona fide estimate and is based on a rational basis, the fact that there is no good proof in support of that estimate is immaterial. Prima facie, the assessing authority is the best judge of the situation. It is his best judgment and not of anyone else. The High Court could not substitute its best judgment for that of the assessing authority. In the case of best judgment assessments, the courts will have to first see whether the accounts maintained by the assessee were rightly rejected as unreliable. If they come to the conclusion that they were rightly rejected, the next question that arises for consideration is whether the basis adopted in estimating t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... er collecting the necessary material/information on records. On the other hand, the CIT(A) s have allowed relief to the assessee s without appreciating the facts of the case finding given by the AO s. Against the orders of the CIT(A), revenue has preferred appeal before ITAT and in some of the cases, the assesses have also chosen to file appeal. The ITAT, after hearing the parties, agreed with the contention as to rejection of the books of accounts under Section 145(3) of the Act and in some cases, even the counsels for the assesses admitted that provisions of Section 145 are applicable. However, in so far as the addition on account of quantum, the ITAT, did not adopt a particular yardstick on account of the fact that, different places may have different facts and chose to reduce the GP rate/NP rate/adhoc addition. The ITAT has neither discussed the factual foundation and submissions and by cryptic order decided the appeals, without appreciating the findings of the AO. In view of these facts, the Hon ble High Court has set aside the matters back to the ITAT to adjudicate all these cases afresh. Keeping in view the above discussion, the clear cut/detailed findings given by ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... evaluation of the material furnished by the assessee and collected by him by his own efforts. Where best judgment assessment power has been conferred, the limits of the power are implicit in the expression best of his judgment assessment . The judgment is vital to decide the matter with wisdom, truly and legally. Judgment does not depend upon the arbitrary capricious of the Assessing Officer, but on settled and invariable principle of justice. Though there is an element of guess work in best judgment assessment , it shall not be wild one, but shall have reasonable nexus to the available material and circumstances of each case. While estimating the Gross Profit, the Assessing Officer should be fair reasonable and should keep into account the turnover and the Gross Profit of earlier years alongwith all the facts and circumstances of the case. By rejecting book result, the Assessing Officer does not get absolute and unbridled powers to estimate whatever profit he wants, as per his sweet-will. 2.8 In the instant case, the A.O. has not given any valid reason for enhancing the sales of assessee by 5% of the declared sales and application of G.P. Rate of 70% on the estimated sal ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... him are comparable with the case of assessee and as to why the past history of the assessee should be ignored. In para No. 1.11 of the first appellate order, the ld. CIT(A) has mentioned some instances cited on behalf of the assessee, wherein in the matter of country liquor, G.P. rate has been shown varying from 15.45% to 30.51% and where the Department has applied G.P. rate varying from 25% to 33%. Similarly in the matter of IMFL Beer in the cited cases, the G.P. rate was declared varying from 5.26% to 19.12% and G.P. rate applied by the Department varied from 3.85% to 26%. A detailed discussion with instances in this regard has been made by the ld. CIT(A) in para Nos. 1.17 and 1.18 of the order. These instances are of M/s Balaji Wine for 1999-2000, wherein the consolidated net profit rate was shown at 6.23%; in the case of M/s Vinayak Wines for the same assessment year, the consolidated net profit rate was shown at 3.81%; in the case of M/s Banna Ali Girdhari Singh Party (Jhunjhunu Group) for AY 1999-2000, the consolidated net profit rate was shown at 0.74%; in the case of M/s Joraram Party (AY 1999- 2000), the consolidated net profit rate was shown at 0.05%; in the case o ..... X X X X Extracts X X X X X X X X Extracts X X X X
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