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TMI Blog2016 (7) TMI 163X X X X Extracts X X X X X X X X Extracts X X X X ..... d audited results are to be accepted and estimation of income by applying the net profit rate of 8% was not proper. Accordingly, we delete the addition - Decided in favour of assessee X X X X Extracts X X X X X X X X Extracts X X X X ..... f welfare, printing & stationery were not available. In the above circumstances and also in view of the discrepancies noticed by the Assessing Officer in the books of account of the assessee, the Assessing Officer invoked the provisions of section 145(3) of the Income Tax Act, 1961 (in short 'the Act') and as a consequence of which, he rejected the books of account of the assessee. The Assessing Officer applied the net profit rate of 8% on the sales of ₹ 1,60,23,400/- as declared by the assessee himself in the Profit & Loss Account. The Assessing Officer observed that as per the prevalent conditions in liquor business in Chandigarh and around for the financial year 2004-05 and as per statistics available on internet, a liquor contractor is able to save anywhere between a minimum of around 6% to 8% on bulk sales and 17% to 20% on retail sales and he has worked out the net profit rate between 9% to 12% by taking a weighted average of bulk and retail sales made by the assessee. The Assessing Officer further pointed out that the rate of profit estimated at 8% was very reasonable and much lesser than the profit rate of 13.13% applied in the case of M/s Singh Associates of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... le records, discrepancies in purchase and freight ledger and absence of supporting bills/vouchers without any proper justification and accordingly, he held that the books of account are hit by the mischief of section 145 of the Act. The learned counsel for the assessee further submitted that it is practically impossible to issue sale bills to the customers for sale of liquor and the practice of not issuing bills is prevalent all over the country in this trade. The sale price, however, is displayed by the assessee at the shop and the assessee cannot charge more price than as displayed at the shop because it is practically impossible as every customer looks at the prices displayed at the shop. The Assessing Officer has accepted the purchases and sales as disclosed by the assessee. The learned counsel for the assessee also submitted that with regard to discrepancy in purchase and freight ledger, as pointed out by the Assessing Officer, the payments shown under the head 'freight payment' relates to the payment to loading/unloading of the stock purchased while getting it delivered at the liquor shops and sale to the customers. These charges are entered in the books of account on ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ts shown by the assessee cannot be accepted in view of the discrepancies pointed out by the Assessing Officer. She further submitted that the Assessing Officer was fully justified in adopting/applying the net profit rate of 8%. Accordingly, she submitted that the impugned order may be upheld. 7. We have considered the rival submissions. The admitted facts are that during the year under consideration, the assessee was engaged in the business of wine, liquor and incurred a loss of ₹ 1,07,746/-. This business loss was not claimed in the return. It is also an admitted fact that the assessee has maintained proper books of account along with purchase, expenses bills/vouchers and daily sales statements, which were duly audited and the same were produced before the authorities below. It is also true that the copy of audited Balance Sheet and Profit & Loss Account were filed before the Assessing Officer. It is relevant to state here that the purchases are made from various suppliers in accordance with the permits given by the Government, which have been duly vouched and the same have also been verified by the Assessing Officer from original purchase bills. The assessee has also admit ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... at ₹ 3532, repair & maintenance expenses at ₹ 12,630/-, staff welfare expenses at ₹ 18,869/- and printing & stationery expenses at ₹ 12,215/-. In our considered view, the Assessing Officer was not justified in doubting the above expenses, particularly the quantum involved therein. Furthermore, the nature of expenses is such that incurring of the same for the purposes of business cannot be doubted. The main contention of the Assessing Officer while rejecting the books of account was that the assessee has not maintained any sales bills for the sales carried from its liquor shops. We find that the daily sales are, however, recorded on the basis of daily statements given by the employees attending to the shop. The entries to the said sales are recorded in the books of account maintained at its main office. It is also observed here that the assessee has time and again explained that it is impossible to issue sale bills to the customer for sale of liquor and the practice of not issuing bills is prevalent all over the country in this trade. It is also the case of the assessee that the sale price is displayed at the shop and there cannot be any variance in the pric ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... by the assessee. The cost of goods dealt, inter alia including purchase price, duties and fees paid, shop license fee and bottling and sealing charges, etc. paid by the assessee stand duly accepted by the AO with no adverse comments thereon. The AO himself is found to have accepted the declared sales at ₹ 8,33,25,882. The books of account have been maintained for the business carried (on) by the assessee. The accounts are duly audited and the return of income is accompanied by report of auditors which also came into consideration of the AO. The report of auditors constituted a material for the purpose of assessment of income under s. 143(3) of the Act. Reference on this is available from the judgment rendered by Hon'ble Delhi High Court in the case of Addl. CFT Vs. Jay Engineering Works Ltd.(1978) 113 ITR 389 (Del). No adverse comments thereon have been made by any of the authorities below. Though the assessee did not maintain any cash vouchers for the daily sale of liquor effected at its various shops in terms of system prevalent in the trade, the fact remains that the daily sales effected by the employees deployed at its various shops and brought to assessee's cent ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ial duty paid 3,59,99,000 (v) Sub-shop license fee 4,50,000 (vi) Bottling and sealing charges 50,39,000 ₹ 8,07,37,000 Gross profit ₹ 25,89,000 GP rate 3.11% The above gross profit is exactly the same that has been declared by the assessee. In case, the AO was not satisfied by the sale price or profit rate on sales, he could have estimated the sales, but that has not been done in the present case in appeal before me. Even the proviso as referred to s. 145(3) in the order of AO does not exist in the statute. This itself shows non-application of mind by the AO. The mandatory requirement as contained under sub-s. (3) of s. 145 of the Act is that where the AO is not satisfied about the correctness or completeness of the accounts of the assessee, or where the method of accounting provided in sub-s. (1) or Accounting Standards as notified under sub-s. (2), have not been regularly followed by the assessee, the AO may make an assessment in the manner provided in s. 144. The AO, however, has not recorded any finding so required by the statute nor the learned CIT(A) is found to have recorded any such finding as envisaged under sub-s. (3) of s. 145. The finding reached ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ofit rate of 8% was not proper. Accordingly, we delete the addition of ₹ 12,81,872/- made by the Assessing Officer and confirmed by the learned CIT (Appeals). 11. The appeal of the assessee is allowed. ITA No. 225/Chd/2013 : 12. In this appeal, the assessee has raised the following grounds : "1. That the Ld. CIT(A) is not justified in not providing the proper opportunity of hearing which is against the natural justice. 2. That the Ld. CIT(A) is not justified in upholding the rejection of books and the application of provisions of section 145(3) of the I. T. Act. 3. (a) That the Ld. CIT(A) is not justified in upholding the application of net profit rate @ 8% on gross sales. (b) That without prejudice to above, the appellant disputes the quantum of net profit rate & additions." 13. During the year under consideration, the assessee had declared gross receipts of ₹ 6,17,34,456/- and the Assessing Officer despite rejecting the books of account, accepted the sales declared by the assessee and had applied the net profit rate of 8% on the declared sales. Consequently, the Assessing Officer made the addition of ₹ 24,70,797/-, as against the net profit sh ..... X X X X Extracts X X X X X X X X Extracts X X X X
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