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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 ..... ion of Hon'ble High Court, these appeals were again heard on merit and are decided afresh in the following manner. 2.2 In this appeal, the Revenue is aggrieved for deletion of addition made by the AO by estimating the sales at higher figure as well as by estimating the profit rate at 14.5%. 2.3 The rival contentions have been heard and records perused. The facts in brief are that the assessee was carrying on business of liquor contract. Return of income was filed at Rs. 1.43 crores in the status of AOP alongwith audit report in form No. 3CB and Form No. 3CD as required u/s 44AV of the I.T. Act, 1961. During the course of scrutiny assessment, the AO observed that assessee had sold country liquor through 167 outlets and IMFL & Beer from various outlets situated in its territory. The sales and GP disclosed by the assessee are as under:- 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, accor ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he assesses have neither issued sale vouchers to the purchaser nor maintained these vouchers. 2. During the course of assessment proceedings, the assesses were specifically asked to furnish, shop-wise & brand-wise, details of all receipts and sale of IMCL, IMFL and Beer, which were not produced for verification. Vouchers for expenses were required to be produced. In some cases some vouchers were produced but, by and large, in majority of cases even vouchers were not produced. The assesses were also required to produce the details of sale of bottles and bardana which too were not provided and a lumpsum 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. W ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... counts and supporting vouchers were generally produced and maintained in accordance with the Excise rules. Merely because the sale vouchers have not been maintained, there is no justification for rejecting books of accounts. 4. The AO's did not convince with above submission of the asessees, as the AO was unable to deduce the correct amount of sales/sale rates/GP/NP from said accounts. Accordingly, the AO rejected the books of account and trading results, u/s 145(3) of the IT Act, by holding that non-maintenance of the sale vouchers/sale register is a major defect & sales are not open to verification. The assessing officers, while rejecting books of accounts, relied upon various judgments of the Apex Court & others courts, particularly in the cases of CIT Vs. British Paints India Limited, (1991) 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 gros ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ional, the best judgement assessment can not be interfered with." It is the duty of the assessee to place all facts truthfully before the AO. If he fails to do his duty he can not be allowed to call upon the AO to prove conclusively what turnover he has suppressed. That fact must be within his personal knowledge. Hence, the burden of proving that fact is on him. In the very nature of things, the estimate made may be an over estimate or an under estimate. But that is no ground for interfering with his "best judgement." b) CIT Vs Laxminarain Badridas 5 ITR (1937) 170, 180(PC):- "It has been held that in all such assessments there must necessarily be guess work, but it must be honest guess work and in that sense too the assessment must be to some extent arbitrary." c) Ganga Ram Balmokand Vs CIT 5 ITR (1973) Leh. 464:- "It can not be denied that there must be some material before the ITO on which to base his estimate, 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ssible, that the excise department also frequently check the shops and heavy penalties imposed if any discrepancy is noted, that there is common retails price list which is displayed out side the shop every day. No evidence was produced ever in support of any its claim. Therefore, it is also an example of "suppresio very, suggestion falsi" Without prejudice to the earlier orders it is to mention here that estimation of the AO may be a guess work but is not arbitrary. It is based on the basis of enquiries made by the AO and the facts and material collected on the record and from the market. "Therefore, estimation of AO can not be substituted by another estimation, unless contrary evidence produced on record." It is also important to mention here that each case is different. It is well known fact that the excise department is every year giving contracts of lifting of liquor of particular areas to the highest bidder. Every years new association of persons are floated. There is always one AOP for a particular FY for a particular place and it is hardly repeated again. The name of AOP members persons, members ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... sold. One such rate list pertaining to the period before 20.3.2003(from 21.3.2003 the rates were reduced) was found by one of the AO and impounded. Now that the rate list was found, at which the country liquor, IMFL and Beer were sold, it was required that the purchase price of the corresponding items/verities of the liquor be known. So that the profit margin in the corresponding items could be worked out so as to give a support to the findings of the estimation of gross profit and net profit as taken by the assessing authorities. Accordingly accountant of the AOP firm Sh. Niranjan Sharma was called to produce the original bills of purchases of CL/IMFL and Beer which was purchases by the firm. Sh. Niranjan Sharma expressed his inability to produce the purchase bills of the assessee AOP M/s rajaram Rajendra Bhandari & Party since they were claimed to be lying at Ajmer. However, he produced the purchase bills of another AOP i.e. Nizammudin Maniram and Party which operated in the area of Hanumangarh in the F.Y. 1999-2000. Though the purchase bills of the assessee AOP were not produced, but nevertheless purchase price is more or less same for various items in the particular financial y ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ty. Sale price as per the rate list found in the course of survey (rate list was of the period before 21.3.03) Profit Percentage 1 Country liquor (200ML pouch) Rs. 2.70/- (As stated By the Accountant Niranjan Sharma Rs. 25/- 89.2% 2 IMFL aristocrat Premium whisky Rs. 138.29 Rs. 230/- 39.8% 3 Director Special whisky Rs. 109.15 Rs. 180/- 39.36% 4 Hayward Strong Rum Rs. 95.83 Rs. 160/- 40% 5 Royal Challenge Rs. 275.41 Rs. 420/- 34.42% 6 Red Kinght Whisky Rs. 156.08 Rs. 270/- 42.2% 7 Peter scotch Rs. 270.83 Rs. 470/- 42.37% 8 Signature Rs. 310.66 Rs. 470/- 33.9% 9 Old Monk Rs. 103.25 Rs. 190/- 45.65% 10 Bag piper Rum Rs. 108 Rs. 180/- 40% 11 Beer Hayward 500 Rs. 29.42 Rs. 50/- 51.16% 12 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 mor ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... er after discussing the entire issue and also brought in material on record, therefore, it was duty of the CIT(A) to address the issue in an appropriate manner and not in a summery or in perfunctory manner. The CIT(A)'s have not discussed the facts of cases & summarily either reduced the addition or upheld the ad hoc additions, without giving any basis thereof. The Appellate authorities searching of definite evidence 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... provisions of Section 145(3), a fare estimate was required to be made by the assessing officer and in almost all cases, the assessing officers have passed well reasoned orders and the AO have brought adequate material on record to justify the additions. Further reliance is placed on various case laws namely Director of Income Tax (Exemption) Vs. Shia Dawoodi Bohra Jamat (2012) 344 ITR 653 (Guj), CIT Vs. Deepak M Kothari (2011) 331 ITR 301 (Allahabad), Mangalore Ganesh Beedi Works Vs. CIT (2005) 25CC 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e AO to consider whether or not the books disclosed the true state of accounts and the correct income can be deduced there from. It is incorrect to say, as contended on behalf of the assessee, that the officer is bound to accept the system of accounting regularly employed by the assessee the correctness of which had not been questioned in the past. There is no estoppel in these matters, and the officer is not bound by the method followed in the earlier years." From the above facts it is seen that the AO, have rightly rejected incomplete/unreliable accounts and have made best judgment in estimating TO/GP/NP in these cases, after 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... is not a provision to penalize the assessee, but is a machinery provision to enable the Revenue to assess a person when situation warrants such an assessment. The order u/s.144 is to be made to the best of the judgment of the Assessing Officer which means, the order has to be rational and is to be best on an honest guess work for which some valid basis is available to the Assessing Officer. The order involves exercise of 'judgment' by the Officer. A fair estimation of income has to be made, the Assessing Officer should take into consideration the totality of the facts and circumstances of the case in addition to proper 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 reaso ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ontract amount by 15% in comparison to the last year; there was drought in Rajasthan for the last four consecutive years and stiff competition was there in the trade. In the case of IMFL & Beer (Retail), the AO has applied G.P. rate of 48% on the estimated sales on the basis that in the case of Joraram & Party, the G.P. disclosed was 64%; in the case of M/s Banna Ali & Girdhari Singh & Party (Jhunjhunu Group) during AY 1999-2000, the G.P. was shown at 48%. In both the matters of Country Liquor and IMFL & Beer, the AO, while applying G.P. rate of 70% and 48% respectively, has not whispered as to how the cited instances by 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ssessee is 5 times larger than them. Under these circumstances, we are of the view that since 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). We fully agree with the observations of the ld. CIT(A) that 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 area; their experience and economic position; political position and status of the population in area and excise policy of the Government. Thus, there were both types of instances of lower and higher G.P. rate than the declared G.P. rate of the assessee but without discussing as to which instances were more akin to the facts and circumstances of the case of the assessee, the AO was not justified in applying the higher G.P. rate to work out the income of the assessee on the enhanced estimated sales. 2.9 In view of above discussion, we do not find any inf ..... X X X X Extracts X X X X X X X X Extracts X X X X
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