Case Details:

CIT vs. Paul Devaraj

Appeal No.:

Tax Case Appeal No. 236 of 2021

Order pronounced by:

Madras High Court

Date of Order:

01-04-2021

In favour of:

Assessee

• The assessee is a dealer in turmeric powder. His case was selected for scrutiny and details were called for. The Revenue in appeal before the Tribunal contended tat the A.O. by comparing the packing material consumed by the assessee vis-à-vis the actual quantity of turmeric powder sold, estimated the gross turnover.
• The assessee claimed that 19,75,166.60 kgs of turmeric powder was sold in the market. However, the A.O. 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/- and after considering the total sales, the A.O. 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. 11,82,504/- as declared by the assessee.
• The Revenue contended before the Tribunal stating that since the assessee consumed large quantity of packing material, the A.O. rightly computed the gross profit by increasing the total turnover on the basis of packing material consumed.

• The assessee contended before the Tribunal stating that the A.O. enhanced the turnover by comparing the packing material consumed by the assessee, which is incorrect and there is an arithmetical error in the calculation done by the A.O.
• The A.O. 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 A.O. by the CIT(A), in the report dated 09-12-2012, the A.O. 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 A.O. added one more ‘0’ and treated the same as 12,55,000 kgs. This mistake was accepted by the A.O. 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 and the other is called as the primary packing material.
• The A.O. 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 A.O. 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 A.O. was imaginary.