TaxTMI 
TaxTMI 
2016 (5) TMI 349
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.... for while calculating the same. 1. Whether the Ld. CIT(A) has erred in law and on facts in deleting the addition of Rs. 24,43,888/- on account of discrepancy in sales and purchase ignoring the facts that during the assessment proceeding it was noticed by the AO that there are several instances of discrepancy in transaction of the assessee with independent parties for sales as well as purchase of goods. The explanation of the assessee that opening and closing balances were all matched for the parties was not true as per the figures of sales and purchase given by the assessee itself. 2. Whether the Ld. CIT(A) has erred in law and on facts in deleting the addition of Rs. 14,99,850/- made on account of commission and brokerage ignoring the facts that during the assessment proceeding the query raised by the AO that the same is paid to those person who manage the relationship with various dealers and act as communication channel between the assessee and the dealer. However, as per the business model of the assessee the goods supplied to the dealer no longer appear in the stock of the company. The dealer is like any other buyer of the goods from the assessee company and....
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.... contended that there were no purchases shown by the assessee in its Profit & Loss Account. Therefore the CIT(A) directed the AO to delete the addition made on this account. 4. On carefully perusal of relevant part of the first appellate order, we note that the CIT(A) granted relief to the assessee with following observations and conclusions. "4.2 I have carefully considered the submissions made by the Ld. AR and have gone through the assessment order. It is observed that during the year under consideration, the Net Purchases mentioned in the Profit & Loss account was Rs. 40,57,70,959/- and the Net Purchases mentioned in the DVAT RETURN FORM was Rs. 40,58,55,851/-. There was a difference of Rs. 84,892/- between the two & this was due to the general method of accounting employed by the appellant of recording the VAT amount separately & taking the input credit of the VAT amount & not charging the same through its Profit & Loss A/c., however, in DVAT RETURN FORM the Purchases are mentioned including the VAT amount. Further, it was evident from the monthly Purchases reconciliation submitted by the appellant between the Net Purchases taken in the Profit & Loss A/c. & t....
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.... The appellant also submitted its ledger accounts in the respective books of above three parties & their ledgers in the books of the appellant. From the perusal of details submitted by the appellant, it is noted that the ledgers & reconciliation of the above three parties referred by the AO are matching & there is no discrepancy on account of Purchases claimed by the appellant in its Profit & Loss A/c. I am of the opinion that there were no inflated Purchases mentioned by the appellant in its Profit & Loss A/c. Accordingly, the AO is directed to delete the addition of Rs. 1,27,24,220/- and the Ground of Appeal No. 1 is allowed." 5. In view of the above observations of the first appellate authority from the reconciliation statement, ledgers of the parties in the books of accounts of the assessee. It is ample clear that the purchases shown by the assessee in the purchase returns are the same that of the sales shown by the assessee in the sales returns in regard to these three parties in the books of accounts of the assessee. The CIT(A) after considering the reconciliation statement, copies of the ledger accounts of the alleged party rightly and correctly held that there were no....
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....mpletely matching with the opening and closing balances. The ld. Counsel further pointed out that the assessing officer has not dislodged or demolished this fact that the sales shown in the sales return and purchases shown in the purchase returns by the assessee by these two parties are the same which has been shown by them in their respective books of accounts. The ld. Counsel vehemently contended that the AO made addition merely on the basis of doubt and the CIT(A) rightly observed that there was no unaccounted sales by the assessee to its dedicated dealers. 8. On careful consideration of above contentions of both the sides, from the impugned first appellate order, we observe that the CIT(A) granted relief to the assessee on this count by observing as under : "The appellant also submitted its ledger accounts in the respective books of above two parties & their ledgers in the books of the appellant. I have gone through the same and found that during the year under consideration, the reconciliation statements & the ledgers in the books of both these parties & of the appellant was matching completely. This was evident by the fact that the Sales & Sales Returns shown by t....
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.... by the dealers as specified in the dedicated dealers agreement. Dealer will pay a commission of Rs. 0.5% to the sales man and 0.25 to the sales boys for sales generated by them. The ld. DR further pointed out that the AO, after considering the parties for which claimed expenses have been incurred, it was rightly held that the rational and justification for such expenses of brokerage and commission it cannot be said that the same represents business expenditure which has been led out or expend wholly and exclusively for the purpose of business of assessees with its dedicated dealers. 11. Replying to the above the ld. Counsel for the assessee strongly supported the conclusion of the CIT(A) for both the assessment years and submitted that from the explanation submitted by the assessee before assessee's below it is evident that impugned expenses have been incurred for managing the relationship with dedicated dealers who account for about Rs. 31.67 crores of sales being 64.41% of the total sales under taken by the assessee during the relevant financial period under consideration. The ld. Counsel further drawn our attention towards operative para 6.1. of the first appellate ord....
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....ordingly, the AO is directed to delete the addition of Rs. 14,99,850/- and the Ground of Appeal No. 3 is allowed." 14. Further more from the 8 appellate order to the AY 2010-11 we observe that following the rule of consistency and earlier first appellate order the CIT(A) also granted relief for the assessee for the relevant assessment year with following conclusion : "5.1 I have carefully considered the submission of the appellant. The appellant has stated that it has incurred expenses of Rs. 15,01,945/- as commission and brokerage for the AY under consideration which was, however, disallowed by the AO and added to the total income of the assessee. The appellant's sales to the dedicated dealers were Rs. 27.08 crores out of total sales of Rs. 49.28 crores for the relevant assessment year, being 54.95% of the total sales for the year under consideration. For the purpose, free lance individuals have been appointed by the appellant to manage the appellant's business relationship with dedicated dealers, so as to maximize sales and therefore, they are hereby held to be expended wholly and exclusively for the purpose of business for the Assessment Year 2009-10, as well. ....