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TMI Blog2018 (5) TMI 1315X X X X Extracts X X X X X X X X Extracts X X X X ..... income in these cross appeals, therefore, they were being heard together and are being disposed of by this consolidated order. 3. The facts and circumstances of this case are in pari materia to the facts and circumstance of the cases of Laxmi Narain Shivhare and others in ITA No. 233/Agr/2014 and ITA No. 285/Agr/2014 where the assessees were a liquor contractor dealing in country liquor, Indian made foreign liquor (IMFL) and Beer. The AO observed that in view of the glaring defects of the sales, totally unsupported by any day today shop wise register of stock and sales, the true profits cannot be deducted from the books of account maintained by the assessee and accordingly books of accounts are rejected under section 145(3) of the Act. Thereafter, he has collected information from the excise department and estimated the sales turnover on the basis of the information so collected and estimated the sales turnover as against the sales declared by the assessee and added the amount of the difference between the total sales turnover estimated by the AO and the sales turnover declared by the assessee on account of suppressed sales of ₹ 2,98,60,025/- and ₹ 1,88,17,217/- i ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... otal sales cannot be regarded as the profit of the assessee. In the case of Manmohan Sadani Vs CIT 304 ITR 52 M.P the Hon ble jurisdictional High Court has held that total sales cannot be regarded as profit of the assessee, on the contrary it is a net profit rate which has to be adopted in such cases. In view of the findings of the Hon ble M.P High Court(jurisdictional High Court) in the above cited two cases I am of the considered opinion that the entire suppressed/undisclosed sale estimated by A.O cannot be taxed as Income of the appellant. Only the net profit part can be taxed. 3.6 On the facts similar to the facts of the appellant, the ITAT, Coordinate Bench of Hyderabad, ITAT (ITA No.391/Hyd/2009) in the case of Manjeet Singh Bagga Vs. ITO has held that estimation of profit @3% of the purchases made by the appellant(Liquor Contractor) would meet end of justice. In the case of Kanak Durga Wines Hyderabad Vs ITO Hyderabad bench-B of the ITAT (ITA No.591/Hyd./2011) has estimated the net profit of the assessee(Liquor Contractor) @3% of the purchases or stock put for sale during the year under consideration. In the case of G.Sudarshan Hyderabad Vs ITO (ITA No.l26/Hyd./2012) ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ag Wines (2014) 364 ITR 660 (paper book page 84-85) IV. ITAT Agra Third Member Bench, in the case of I T O Vs. Laxami Narain Ramswaroop Shivhare (2009) 123 TTJ (Agra) ( T M ) 289 ( that paper book page93-113) 6. The ld. counsel has submitted a comparative chart on trading result showing the sales turnover, GP and NP etc. declared by the assessees, as extracted hereunder: - Comparative Chart of Gross and Net Profit on Trading results Assessme nt Year Sales (Rs.) Gross profit Net Profit Rema rks Rs. % Rs. % after deducting interest and salary % without deducting interest and salary 2006-07 2464568 904581 37.16 35798 1.47 - Accep ted 2007-08 Nil Nil Nil - Nil - ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e assessee on account of suppressed sales. Though the ld. CIT(A) has agreed with the view of the AO regarding estimation of the turnover on the basis of information received from the Excise Department, he has rejected the AO s view of assessing the suppressed sales as taxable income of the assessee, by holding that the entire suppressed sale cannot be taxed as income and only the net profit part can be taxed as income of the assessee, relying on the decision of Hon ble M.P. High Court (jurisdictional High Court) in the case of CIT vs. Balchand Ajit Kumar, 263 ITR 610 (MP) and adopted NP @ 3% following the order of ITAT, Hyderabad Bench in the case of Manjeet Singh Bagga vs. ITO (ITA No. 391/Hyd/2009), wherein it has been held as under :- 3.5 ..in the case of CIT Vs BalchandAjit Kumar 263 ITR 610 M.P has held that the total sales cannot be regarded as the profit of the assessee. In the case of Manmohan Sadani Vs CIT 304 ITR 52 M.P the Hon ble jurisdictional High Court has held that total sales cannot be regarded as profit of the assessee, on the contrary it is a net profit rate which has to be adopted in such cases. In view of the findings of the Hon ble M.P High Court(ju ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... lifted is adjusted with the basic licence fee to the extent of the amount of liquor lifted, because even if no liquor is lifted, the basic licence fee is still to be paid. 11. It has been submitted that in the liquor business, profit depends on several factors like socio economic condition, literacy, drinking habits and prosperity of people of the area of operation, and if it has prosperous agricultural, industrial and commercial business activities, there is every likelihood of consumption of all kinds of liquor being more; and that therefore, the geographic area allotted to the assessee as per the licence awarded by the State Govt is the most important factor in determining a fair and reasonable net profit rate for estimation of the income in addition to the assessee s past history, or comparable cases under the circumstances where the applicability of section 145(3) is not disputed. 12. The counsel for the assessee contended that according to the terms of license, a liquor contractor is required to lift liquor from the Government for a specified value with the stipulation that if the contractor does not take delivery for the specified value, it is liable to make good ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... they have to lift their quota from the excise department for further supply of the goods. If the goods are not sold in time, they will not be able to discharge their commitment of purchase from the Excise Department after depositing the agreed license fee and thereby incurring the huge liability of penalty and other consequences. In the months of February and March, when these new contracts are given, the Liquors are cleared much below the cost price, so that the further contract for the new order may be procured by depositing the bid amount in time. This is a usual feature of the trade. The assessee submitted his contentions in this regard before the AO and the CIT (A). The liquor shops are situated at distant places and in rural areas, where poor people reside. They cannot afford to purchase the costly liquor and they prefer to purchase the liquor locally made even in distant areas at lower prices. For these reasons, the dealer has to clear the goods at a lower price and they cannot hold the stock of liquor and cannot realize even the minimum price fixed by the excise department. It was pointed out that the assessee also had to sell the liquor at less than the minimum selling pr ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... to why the CIT(A) did not agree with the findings of fact recorded in the orders of the High Courts and the ITAT, as relied by the assessee. For this purpose, the judgement relied by the Ld. Counsel are discussed hereunder. 18. In the case of CIT Vs. Avinash Chawla and Company , ITA No.150 /2012, decided on 20 June, 2014,the Hon ble M P High Court (jurisdictional) held that(APB, 75-76)- It is also noticed in this case that the appellant had shown net profit rate 1.77% which was claimed by the appellant to be reasonable considering the prevailing rate in the trade of country liquor and IMFL. It may also be noted that it is not possible to have constant gross profit or net profit in a trade. Since no material was brought on record to show that the sales were made outside the books of accounts of the appellant or amount of sale was understated, the sales shown by the appellant cannot be disturbed. I am in agreement with the submission of the appellant that non issuing of cash memo is a general practice in the line of trade and is generally an accepted and prevalent practice. It may be noted that absence of cash memo of given situation like liquor trade may not per se lead ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ant defect in the books of account of the assessee firm engaged in the business of trading of country liquor and IMFL, the books of account could not be rejected merely on the ground that sales are not supported by proper vouchers ; declared GP rate was to be accepted. 22. The ITAT, Jabalpur Bench, in the case of M/s Ramesh Chand Ravindra Kumar Rai V/s ITO , (2010) 14 ITJ 34 held that- Rejection of accounts U/s 145 of the Income Tax Act, 1961. Liquor Business. Books produced before A O, however, sales bills were not available. Sales shown was as per cash received from the different shops and accumulated in Head Office day by day. Some sales were unrecorded. Further, no vouchers for expenses were available. A O rejected books and estimated turnover 2.5 times of licence fees and applied profit rate of 5% in in view of M/s Badri Prasad Bhagwan Das Co.(1995)82 Taxman 109 (MP) CIT(A) confirmed rejection of accounts but held that said decision is not applicable. CIT(A) estimated sales and applied profit rate of 2%. Held, Books are liable to be rejected, However, Badri Prasad Bhagwan Das (supra) is not applicable as Excise law that existed earlier has changed from 1996. C ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... point no. 6, reveals that the net profit rate is varying from 0.3% to 2.62%. 27. From the above, it is evident that the NPR @ 3% adopted by the ld CIT is on the higher side, as compared to the past history, comparable cases, and the observations of the Jurisdictional High Court and various ITAT Benches. On parity of facts, the Hon ble MP jurisdictional High Court, in the case of CIT Vs Avinash Chawla , (supra), decided on 20th June,2014, confirmed a net rate of 1.77%; the ITAT, Indore Bench, in the case of CIT Vs Avinash Chandra and Co , upheld a net rate of 2% in place of 3% applied by the department; the ITAT, Jabalpur Bench, in case of Ramesh Chand Ravindra Kumar , has accepted a net rate of 1.5% in place of 2% applied by the department; and the ITAT, Agra Bench, in the case of Laxmi Narayan Ram Swaroop Shivhare , accepted the books of account of the assessee. 28. We find that the CIT(A) did not assign reasons for not following the orders of the jurisdictional High Court of MP and the jurisdictional ITAT Bench of Jabalpur, the ITAT Indore Bench and even the ITAT, Agra Bench, in which, the net rate of 1.77 to 2.0% was accepted, but he has followed the judgment of t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ined which will cover all deficiencies and lapses noticed by AO. We accordingly confirm the addition to the extent of ₹ 20,00,000 and balance addition of ₹ 6,94,40,512 (7,14,40,512 20,00,000) made by the AO is deleted. Thus, ground no. 1 2 of the assessee appeal are partly allowed. 30. Considering the comparative net profit Chart filed before the ld. CIT(A), the comparable cases as tabulated above and the judgement relied by the assessee, it is seen that the net profit rate shown by the assessee is within the range of the net profit prevalent during the period in the liquor trade. It is true that while determining the correct taxable income, even if it is estimate against estimation, it should be supported by some justification, which is the initial duty cast on the AO and when appeals were preferred before the CIT(A), it was obligatory on the CIT(A) to have discussed the factual finding recorded by the AO and placed for consideration by the assessee, as the case may be, in its proper perspective and it is expected of the authority holding appellate jurisdiction to exercise its judicious discretion based on due appreciation of the material on record. 31. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ejected, the entire sales cannot be charged to tax as income, only the profit rate is to be applied. As such, the finding of CIT(A) on the issue of applying net profit rate on the sales is in conformity with the law. Therefore, the departments ground of appeal that the difference in sales, as estimated by the AO as suppressed sales, be treated as income of the assessee, is hereby rejected. 12. From the above, it is amply clear that the ld. CIT(A) hasn t pointed out any specific deficiency in the purchase invoices or the expense invoices, nor discussed any comparable case on identical facts, to form the basis for application of a particular net profit rate on gross total receipts, in the case of the assessee. On perusal of the comparative Net Profit Chart of the assesses s past history on profit rate, as above, it is evident that the Net Profit Rate is reasonably declared at 0.95 and 0.93 in respect of assessment year 2010-11 and 2011-12 respectively as against 1.94% and 1.09% of the previous years after deducting interest and salary to partners. After considering the decisions cited and the history of the case, it is factually clear that the profit rate applied by the Ld. CIT( ..... 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