Understated sales rates-AO must bring evidence on record. Assessing Officer should make inquiry from parties to whom sales made to verify sale rates -ITAT
ABCAUS Case Law Citation:
ABCAUS 1101 (2017) (01) ITAT
Assessment Year : 2011-12
Important Case Laws Cited:
Shri Manpreet Singh Dhillon Vs ITO
Shri Satinder Kumar Vs ITO
Brief Facts of the Case:
The assessee was in the business of flour and rice nakku and trading of paddy, husk etc. During the course of assessment proceedings, the Assessing Officer (AO) asked the assessee to explain the reasons for decline in turnover and NP rate and amount of net profit during the year as compared to earlier years. The assessee was also asked to justify item-wise sale rates and valuation of closing stock with supporting evidence.
The AO has observed that opening stock of rice flour has been valued @ Rs. 1150/- per quintal and closing stock has been valued @ Rs. 1400/- per quintal. Thus, average cost or market rate, whichever is lesser of rice flour was Rs. 1275/- per quintal but the assessee has made sales at the average rate of Rs. 911/- per quintal. Further, it was noticed that rice nakku has been purchased by the assessee at the average rate of Rs. 938/- but after grinding it, flour rice has been sold at the average rate of Rs. 911/-. Besides, it was noticed that rice nakku has been purchased at average rate of Rs. 938/- per quintal but 1952.70 quintal of rice nakku has been sold at the average rate of Rs. 857.62 per quintal.
In view of this, the assessee was asked to justify the sales at less than cost price with complete evidence.
The assessee explained that average price per quintal of rice nakku in the hands of the assessee was Rs. 879.475. On the other hand, rice flour had been sold at average sale price of Rs. 911/- per quintal. Besides, the law does not force anyone to make sales either at average cost or market rate, whichever is less. The assessee had made the sales at the rate prevailing in the market at the time of sales. The Assessing Officer, however, did not accept contention of the assessee and held that the assessee has made under-billing and thus had understated/suppressed sale rate of rice flour. The Assessing Officer, therefore, by adopting sale of rice flour at Rs. 985/- per quintal made an addition of Rs. 3,99,643/-.
CIT(Appeals) in his findings had agreed with the contention of the assessee, but ultimately dismissed the appeal of the assessee.
Observations made by the Tribunal:
The Tribunal observed that the assessee produced books of account, bills and vouchers and bank statements before the AO at assessment stage and had also furnished written submissions time to time. The ITAT noted that GP rate of the assessee had increased, however, NP rate had decreased in
The Tribunal observed that the AO had not pointed out any specific defects in the maintenance of the books of account by the assessee. The AO also did not bring any comparable rates of sales of other dealers. The AO merely noting that average sale rate had decreased in assessment year under appeal, estimated the sale rate of the assessee and made the above addition. The books of account of the assessee had not been rejected.
The ITAT opined that it is not always necessary that the businessman would always earn profit. There may be cases of losses as well.
The Tribunal further observed that the assessee had explained that the majority of the sales had been made to one party and their confirmed copy of the accounts had been filed and the said party had also confirmed the sale receipts. This evidence and reply filed had not been rebutted by the authorities below.
According to the ITAT, the Assessing Officer should have brought some evidence on record to disbelieve the confirmation filed by the assessee. Merely finding out that sale rates of the assessee are lower, is no ground to enhance the sale rate. AO should make inquiry from the parties to whom sales had been made in order to verify whether sale rates of the assessee were lesser.
The additions were set aside.