Madras High Court
The Commissioner Of Income vs Shri Paul Devaraj on 1 April, 2021
TCA.No.236 of 2021
IN THE HIGH COURT OF JUDICATURE AT MADRAS
DATED : 01.4.2021
CORAM
THE HONOURABLE MR.JUSTICE T.S.SIVAGNANAM
and
THE HONOURABLE MS.JUSTICE R.N.MANJULA
Tax Case Appeal No.236 of 2021
The Commissioner of Income
Tax, Chennai ...Appellant
Vs
Shri Paul Devaraj ...Respondent
APPEAL under Section 260A of the Income Tax Act, 1961
against the order dated 24.3.2016 passed by the Income Tax
Appellate Tribunal, Madras 'C' Bench, Chennai made in
I.T.A.No.885/Mds/2013 for the assessment year 2009-10.
For Appellant: Mrs.R.Hemalatha, SSC
For Respondent: Mr.A.S.Sriraman
Judgment was delivered by T.S.SIVAGNANAM,J
This appeal has been filed by the Revenue under Section 260A
of the Income Tax Act, 1961 ('the Act' for brevity) challenging the
order dated 24.3.2016 made in I.T.A.No.885/Mds/2013 on the file of
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TCA.No.236 of 2021
the Income Tax Appellate Tribunal, Chennai 'C' Bench ('the Tribunal'
for brevity) for the assessment year 2009-10.
2. The Revenue has filed this appeal by raising the following
substantial questions of law :
“i. Whether, on the facts and in the
circumstances of the case, the Tribunal was
right in holding that the rejection of the
accounts by the Assessing Officer was not
proper ?
ii. Is not the finding of the Tribunal bad
by holding peak credit adopted was the only
method to find out the cash balances
especially when the Assessing Officer has
rejected the books of accounts ?
iii. Whether the finding of the Tribunal is
proper especially when the books of accounts
were rejected due to negative balances,
inflation of expenses, unproved purchase,
unidentified trade credit and due to publicity
expenses incurred were not relating to the
assessee's business?
iv. Whether the reasoning and finding of
the Tribunal is proper especially when the
assessee has not furnished details pertaining
to the date on which the cash was withdrawn,
the account number from which it was
withdrawn especially when the books of
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accounts shows no cash withdrawals except
on the said dates contra entries were made in
the cash books ?
v. Whether the finding of the Tribunal is
proper especially when the Assessing Officer
had granted allowance for secondary packing,
given wastages in respect of polythene case
and also took into account the arithmetical
calculation of the estimated sales which come
to 21,61,000 Kgs ?
vi. Whether the finding of the Tribunal is
correct especially when the assessee is not
maintaining proper books of account and
details of unaccounted purchase were arrived
at by looking into the purchase bills of the
packing materials which is 17.2% of the
turnover and the said bills were submitted by
the assessee himself? And
vii. Whether the finding of the Tribunal
is correct by deleting the additions made by
the Assessing Officer on account of
unaccounted purchases that too without any
rational basis?”
3. We have elaborately heard Mrs.R.Hemalatha, learned Senior
Standing Counsel appearing for the appellant/Revenue and Mr.A.S.
Sriraman, learned counsel accepting notice for the respondent/
assessee.
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TCA.No.236 of 2021
4. The assessee is a dealer in turmeric powder. They filed the
return of income for the relevant assessment year namely 2009-10 on
30.9.2009 admitting a total income of Rs.12,31,580/-. The case was
selected for scrutiny, a notice was issued to the assessee and details
were called for. The books of accounts, which were summoned, were
produced before the Assessing Officer. The Assessing Officer found
from the cash book that the assessee has negative cash balance in
the cash book on various dates after 01.12.2008. After noting the
other details, the Assessing Officer was of the view that the assessee
was not able to give proper clarification or explanation regarding
unaccounted cash inserted in the books of accounts, but merely
stated that the assessee had withdrawn the cash from the bank.
Thus, holding that there was no proper explanation, the Assessing
Officer opined that the assessee inflated bogus expenses.
5. The assessee was called upon to produce necessary details
and proof with regard to the cash paid for the purchase of turmeric.
The assessee was stated to have given the addresses of 76 creditors,
to whom cash had been given. However, the Assessing Officer
disbelieved the same on the ground that the transactions of purchase
recorded in the books have not been proved and accordingly treated
the same as unproved purchases. After considering the other issues,
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ultimately, the assessment was completed by order dated 30.12.2011
under Section 143(3) of the Act and the assessed income was
determined at Rs.17,57,25,071/-.
6. Aggrieved by the said order of assessment dated
30.12.2011, the assessee preferred an appeal before the
Commissioner of Income Tax (Appeals)-IV, Chennai [for short, the
CIT(A)]. During the pendency of the appeal, the CIT(A) called for a
remand report from the Assessing Officer and thereafter, taking into
consideration the stand taken by the assessee and the contents of the
remand report, the CIT(A) allowed the appeal by order dated
27.12.2012. Aggrieved by that, the Revenue preferred an appeal
before the Tribunal seeking to sustain the assessment order. The
Tribunal, after taking note of the facts, dismissed the appeal filed by
the Revenue. Challenging the same, the Revenue is before us by way
of this appeal.
7. After carefully going through the impugned order as well as
the order passed by the CIT(A), we find that the matter is entirely
factual and the grounds, which have been raised before us, are all
factual grounds and not questions of law much less substantial
questions of law. We say so taking note of the findings recorded by
the Tribunal in paragraphs 5, 9, 13, 17 and 20.
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TCA.No.236 of 2021
8. By way of illustration, we refer to the findings rendered by
the Tribunal with regard to enhancement of turnover and estimating
profit of the assessee.
9. The Revenue contended before the Tribunal that the
Assessing Officer, by comparing the packing material consumed by
the assessee vis-a-vis the actual quantity of turmeric powder sold,
estimated the gross profit. The assessee claimed that 19,75,166.60
kgs of turmeric power was sold in the market. However, the
Assessing Officer calculated the probable sale of turmeric powder in
the market at 37,90,500 Kgs, which was based on the packing
material consumed by the assessee and accordingly, the total sales
were estimated for the year under consideration at Rs.18,19,44,000/-
as against the sale declared by the assessee at Rs.11,83,40,941/-.
After considering the total sales, the Assessing Officer estimated the
gross profit on the enhanced turnover at 18% and after allowing the
overhead expenses, the net profit was determined at
Rs.2,57,81,465/- as against Rs.11,82,054/- declared by the assessee.
10. Thus, the Revenue contended before the Tribunal stating
that since the assessee consumed large quantity of packing material,
the Assessing Officer rightly computed the gross profit by increasing
the total turnover on the basis of packing material consumed.
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Therefore, it is contended before us that the CIT(A) committed an
error in deleting the addition made by the Assessing Officer under the
said head.
11. Per contra, the assessee contended before the Tribunal
stating that the Assessing Officer enhanced the turnover by
comparing the packing material consumed by the assessee, which is
incorrect and that there is an arithmetical error in the calculation
done by the Assessing Officer. The Assessing Officer considered the
secondary packing material as packing material consumed for the
purpose of estimating the probable sales and when the remand report
was called for from the Assessing Officer by the CIT(A), in the report
dated 09.12.2012, the Assessing Officer confirmed that there was an
error in the probable sales calculated in the assessment order. The
assessee stated that the total quantity of the sales was 1,25,500 Kgs.
However, the Assessing Officer added one more '0' and treated the
same as 12,55,000 Kgs. This mistake was accepted by the Assessing
Officer in the remand report and on account of such mistake, the
figures, which got inflated, had to be necessarily reduced. The
Assessing Officer reiterated the stand taken by them before the
CIT(A) stating that there were two types of packing materials. One
kind of packing material is used to pack turmeric powder in sachet
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and the other is called as the primary packing material. The
Assessing Officer did not know this important distinction and more
particularly when the source of purchase was from two different
sources. When this was pointed out to the CIT(A), the cost of the
packing material was rightly added and the average sale price of
turmeric powder was arrived at Rs.48/- per Kg and it was found that
no prudent businessman would intend to add more weight to the
packing material. Hence, the assessee contended that the Assessing
Officer was not correct in adopting uniform weight for the sachets of
different sizes and different weights for the same size. Further, before
the Tribunal, the assessee sought to sustain the order passed by the
CIT(A) by submitting that it was rightly found that the estimation of
turnover was not scientific and that the estimation and enhancement
of turnover as done by the Assessing Officer was imaginary.
12. The arguments of the learned counsel on either side were
tested for their correctness by the Tribunal, which returned the
following findings :
“17. We have considered the rival
submissions on either side and perused the
relevant material available on record. The
Assessing Officer estimated the probable sales
on the basis of packing material said to be
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used by the assessee. The fact remains that
the assessee has used two types of packing
material, one is secondary secondary packing
material and another is primary packing
material. The cost of packing material ranged
from Rs.72/- to Rs.180/- per Kg whereas the
average sale price of the turmeric powder is
Rs.48/- per Kg. Therefore, the CIT (Appeals)
came to a conclusion that no prudent
businessman would add weight to packing
material when the contents are of lesser
value. The ClT (Appeals) further found that
there is an arithmetical error in computing the
packing material. The Assessing Officer has
committed mistake by himself adding one
more '0'. In fact, the actual sale of turmeric
powder was 1,25,500 Kgs. However, the
Assessing Officer has taken the same as
12,55,000 Kgs. The Assessing Officer
confirmed the arithmetical mistake made by
him, in the remand report dated 09.12.2012.
Therefore, the estimation of the Assessing
Officer with regard to sale of turmeric powder
was reduced to 26,61,000 Kgs. After
elaborately considering the quantity of packing
material, the CIT (Appeals) came to a
conclusion that some of the packing material
consumed during the year under consideration
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should not be considered for the purpose of
calculating the quantity of sales made during
the year. Some of the packing material
consumed during the year was actually used
for turmeric powder manufactured and packed
and was lying in the closing stock. The volume
of such closing stock as on 31.03.2009 was
1,15,345 Kgs. The opening stock as on
01.04.2008 was 6,856 Kgs. Therefore, the net
closing stock of 1,08,489 Kgs should also be
considered as the resultant of the packing
material consumed during the year under
consideration. Therefore, the Assessing
Officer's calculation of 37,90,500 Kgs actually
represents the finished product manufactured
by the assessee during the financial year
2008-09. To arrive at the probable sales
effected during the year, the net increase in
the closing stock is to be reduced from the
goods manufactured during the year. In view
of the above, this Tribunal is of the considered
opinion that in the absence of any material on
record that the assessee has inflated the
purchases or sales, the estimation of probable
sales on the basis of the packing material
consumed by the assessee is not justified.
This Tribunal is of the considered opinion that
the estimation of total sales without
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considering the actual purchases would inflate
the sale, therefore, the CIT(Appeals) has
rightly found that the total turnover was
19,75,167.60 Kgs as against 37,90,500 Kgs
estimated by the Assessing Officer. Therefore,
the ClT (Appeals) has rightly deleted the
addition made by the Assessing Officer. This
Tribunal do not find any reason to interfere
with the order of the ClT (Appeals) and
accordingly the same is confirmed.”
13. Similarly, all the other issues were also dealt with by the
Tribunal in an elaborate manner i.e by examining the factual position,
which was examined by the CIT(A) while granting relief to the
assessee. Hence, we find that there is no question of law much less
substantial question of law involved in this appeal.
14. Accordingly, the above tax case appeal is dismissed as no
substantial question of law arises for consideration. No costs.
01.4.2021
To
The Income Tax Appellate Tribunal, 'C' Bench, Chennai.
RS
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TCA.No.236 of 2021
T.S.SIVAGNANAM,J
AND
R.N.MANJULA,J
RS
TCA.No.236 of 2021
01.4.2021
http://www.judis.nic.in
