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2016 (12) TMI 558
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....81/- on account of security deposit accepted by the appellant against deep freezers. 4. That the ld. CIT(A) has erred in law and on facts in sustaining a disallowance of Rs. 2,74,132/- made by the Ld. AO u/s 40(a)(ia) of the Income Tax Act, 1961. 2.1 Brief facts of the case are that assessee has filed the return of income declaring total income at Rs. 7,23,250/-. The case was selected for scrutiny and accordingly the assessment u/s 143(3) was completed by the AO at an income of Rs. 47,89,272/- on 30.03.2015 by making various additions / disallowances. Aggrieved, the assessee preferred first appeal before the ld. CIT(A) who vide order dated 14.12.2015 allowed part relief to the assessee. Therefore the assessee filed the present appeal before the ITAT agitating the additions / disallowances confirmed by ld. CIT(A). 3.1 As regards ground No. 1 and 2, brief facts of the case are that the assessee is an individual and is engaged in the manufacturing and trading of ice cream under the brand name Omini. During the year under appeal assessee has declared the turnover of Rs. 5,93,74,507/-. On examination of the books of accounts, the AO observed that the assessee has made purchases....
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.... relief. This ground is partly allowed.'' 3.3 Now the assessee is before the Bench and the ld. AR of the assessee contended through his written submission as under:- In this ground of appeal, assessee has challenged the action of Ld. CIT(A) is confirming the rejection of books of accounts by invoking the provisions of section 145(3) of the Act and making estimation by applying G.P. rate of 15% on the turnover estimated at Rs. 6.25 crores as against the G.P. rate of 13.77% declared on the turnover of Rs. 5.93 crores. In this regard, it is submitted that for the year under consideration, assessee had attained a turnover at Rs. 5,93,74,507/- and had earned GP of Rs. 81,79,649/-, resulting into GP rate of 13.77%. However, ld. AO rejected the books of accounts for the reasons mentioned at para 3 page 2-3 of assessment order and estimated the turnover at Rs. 6.50 crores and applied GP rate of 16% thereon resulting into addition of Rs. 22,23,000/-, which was reduced by Ld. CIT(A) by estimating turnover at Rs. 6.25 Crores and further reducing GP rate to 15% resulting into relief of Rs. 10,25,000/-. However, Ld. CIT(A) upheld the rejection of books. Reasons for rejection of book....
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....eties. Further, details in respect of consumption of these items was maintained by assessee to record opening stock available at beginning of every month, wherein purchases during the month are added and at the end of every month the physical verification is taken and accordingly monthly consumption was being worked out. Even, in the case of small items the appellant used to have practice of working out consumption. Since the number of items used as raw material, packing items being large in number without there being any significant value, maintenance of day to day consumption was neither practicable nor feasible. The Ld. AO without properly appreciating the system being followed by the assessee took the statement of the assessee as unable to maintain day to day consumption adversely. Therefore, this allegation is not correct e) Purchases of milk for March 2011 stood debited in the month of April, 2011: As per system being followed by the appellant since last so many years the appellant use to debit the milk purchased in a month in the next month as the monthly account of every month is settled in the first week of next month. The Ld. AO has only cited example for milk purchase....
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....ssee and dealers/ distributors depending upon facts and circumstances of each case and nobody else can decide as to what is a reasonable amount to be charged. It is further submitted that is freezer is returned within 5 years, the security gets refunded and if security is forfeited pursuant to non return of freezers, the amount forfeited gets reduced from block of asset. Thus, in both the cases, effect of security charged in excess gets nullified. In fact, in very few cases assessee had taken security deposit of an amount more than cost of deep freezers wherein the dealer / distributor agreed to give deposit with the condition of receiving coupons enabling them to issue goods without cost. The Ld. AO has alleged that the goods supplied against these free coupons has not been recognized by the assessee as sales. Here Ld. AO failed to appreciate that these free coupons as the name itself suggests are given as marketing campaign which cannot be taken as part of sales by any stretch of imagination. Therefore, this allegation of the Ld. AO is also without any basis. g) Certain capital expenditure have been debited in Revenue head: The Ld. AO has doubted payment of freight of Rs. 2....
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....ntenance of stock register unless there being any specific defects. In fact, if the books of accounts are rejected, assessee has right to know the basis on which profits have been calculated thereafter. In this regard, reliance is placed on: 134 Taxmann 384 Asstt. CIT Vs. Gendalal Hazarilal & Co. (MP) Section 145 of the Income-tax Act, 1961 - Method of accounting - Estimation of profit - Assessment year 1993-94 - Whether Assessing Officer and appellate authority could not reject books of account maintained by assessee which were similar to books of previous years, accepted by department - Held, yes St. Teresa's Oil Mills v. State of Kerala, (1970) 76ITR 365, 367-8 (Ker) Accounts regularly maintained in the course of business have to be taken as correct unless there are strong and sufficient reasons to indicate that they are unreliable. The department has to prove satisfactorily that account books are unreliable, incorrect or incomplete before it can reject accounts, which may be done by showing that important purchases are omitted therefrom or proper particulars or vouchers are not forthcoming or the accounts do not include entries relating to a particular class of busines....
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.... monetary terms has increased) and further to increase in direct costs without any consequential increase in sale price. Further, Ld. AO observed that due to wrong accounting of milk, expenditure has gone up by Rs. 4,44,735/- and hence addition has to be for at least this amount (Para E on page 8 of his order), which is not correct as Ld. AO failed to consider that the way milk purchased in March 2011 was accounted for in F.Y.2011-12, similarly milk purchased in March 2012 was accounted for in previous year 2012-13, resulting into lower booking of expenditure by a sum of Rs. 2,12,076/-. In other words, the same has to be reduced from Rs. 4,44,735/- and addition should not exceed Rs. 2,32,659/-. Further, assessee is an excisable unit and has declared a turnover of Rs. 5,93,59,027/- in its returns (APB 18-23) which matches with turnover declared in audited accounts and hence there is no reason to enhance the sales merely on the basis of assumptions. Even the defects alleged by the ld. AO contained an estimated suppression of around Rs. 7 lacs in sales whereas turnover has been enhanced by Rs. 56 Lacs for estimating the income. In fact, ld. CIT (A) only reduced the turnover to R....
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.... the AO has examined the books of accounts and found certain deficiencies therein which though had replied by the assessee yet in the absence of the day to day stock register the consumption of milk and production of ice cream is not verifiable. The Assessee has also admitted that the purchases made of milk in the month of March have been recorded in the month of April and this practice has been followed regularly. The milk has been purchased in cash and in most of the cases no invoices were available therefore the affairs of the assessee are not open for verification. Under these circumstances the AO has rightly invoked the provision of section 145(3) of the Act which is upheld. As regards the estimation of income, it is noted from the records that the assessee has declared the total turnover of Rs. 5.93 crores which was estimated by the AO at Rs. 6.5 crores and reduced by ld. CIT(A) to Rs. 6.25 crores. The estimation made by AO is solely for the reason that certain sales against free coupons issued is not recorded for which it is explained that the free coupons were issued as a marketing strategy and free distribution of the material could not be forming part of the sales and the....
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....that this amount is received from the dealer and other persons to whom the distributor supplies ice-cream. The assessee hasn't brought any evidence to prove that this security deposit forfeited was reduced from WDV of plant and machinery and claimed reduced depreciation in fact, this is a forfeiture of security deposit received in normal course of business and the same cannot be characterized as capital receipt. Accordingly, the action of the AO is confirmed.'' 4.3 Now, the assessee is before this Bench and the ld. AR of the assessee contended through his written submission as under:- "In this ground of appeal, assessee has challenged the action of Ld. AO in confirming addition of Rs. 14,20,581/- made by Ld. AO on account of forfeited security deposits received from dealers on account of Deep Fridges given to them. In this regard, it is submitted that whenever any deep freezer is purchased by assessee, it is debited to Deep Freezer account treating the same as asset of the appellant and whatever security deposit is received from the dealer/ distributor the same is credited under the head Security for Deep freezer Account. Normally, the deep freezer is given to dealers for ....
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....99), wherein it is mentioned that "the Plant & Machinery of Rs. 14,18,501/- was written off as the deep fridge supplied to the dealers could not be recovered from them. The same has been adjusted against deposit received from dealers." In view of above, it is submitted that ld. AO failed to understand the accounting treatment in respect of deep freezers , which is followed by all the ice cream manufacturers throughout the country. It is beyond understanding as to how the ld. AO has considered the amount of security deposit forfeited as income of the appellant when the assessee has already reduced the same from the cost of assets and accordingly claimed lower depreciation, further addition of such sale is illegal. In view of above, it is requested that addition made on this account deserves to be deleted.'' 4.4 The ld. DR relied on the orders of the authorities below. 4.5 I have heard the rival contentions and perused the materials available on record. It is observed that the addition of Rs. 14,20,581/- was made for the reason that this amount was forfeited out of the security deposit received against the deep freezers given to the dealers / distributors but the same is ....
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.... Accordingly, disallowance made by AO is confirmed. This ground is dismissed.'' 5.3 Being aggrieved the assessee carried the matter before this Bench and the ld. AR of the assessee through his written submission contended as under:- Briefly stated facts in respect of this ground of appeal are that during the year under consideration, assessee paid interest of Rs. 2,74,132 on loan taken from M/s. Religare Finance Ltd. on which no tax was deducted at source. Accordingly, Ld. AO issued show cause notice as to why the said amount should not be disallowed. In response to the show cause notice, assessee furnished certificate from CA in form No. 26A (APB 26-27) in accordance with proviso to section 201(1) r.w. rule 31ACB, certifying that the taxes in respect of interest income were duly paid by M/s. Religare Finance and accordingly should not be held in default for the said amount. Thus, AO was requested not to disallow the said amount. However, ld. AO rejected the plea of assessee for two reasons: (i) Proviso to section 201(1) was inserted by Finance Act 2012 w.e.f. 01.07.2012 and was not applicable for the year under consideration and (ii) As per provisions of rule 31ACB ....
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....sstt. Year 2005-06 when the sub section (ia) was inserted in section 40(a) of the Income tax Act, 1961. Such view has been upheld by the Hon`ble Supreme Court in the cases of Goodyear India Ltd. v/s State of Haryana and Anr. (188 ITR 402), Allied Motors Pvt. Ltd. v/s CIT (224 ITR 677) and R.B. Jodhamla Kuthiala v/s CIT (82 ITR 570). Therefore the said proviso may kindly be taken to be applicable for the year under consideration also and the disallowance so made may kindly be deleted as the appellant has obtained a proof that the recipient has paid tax on the interest paid by the assessee and duly submitted before the Hon'ble Bench.''. 5.4 The ld. DR relied on the order of the authorities below. 5.5 I have heard the rival contention and perused the material available on record. It is noted from the record that the tax was not deducted on the payment of interest however the assessee has submitted the certificate in Form 26A duly signed by a chartered accountant stating that the due tax on such interest has been paid by the recipient. The Finance Act, 2012 has made an amendment in section 40(a)(ia) through which a proviso was inserted w.e.f. 01.04.2013 wherein it has been cleare....