TaxTMI 
TaxTMI 
2017 (3) TMI 100
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....to the provisions of law and facts on the record and hence, the addition kindly be deleted in full. 2. The ld. CIT(A) erred in law as well as on the facts of the case in partly confirming the disallowances of the following expenses: S. No. Head of Expenses Exp. Claimed by the assessee Disallowed by AO Partly sustained by the ld. CIT(A) 2.1 Conveyance Exp. Rs.9,73,835/- 15% of total 10% of total 2.2 Office Exp. Rs.1,75,818/- 2.3 Staff Welfare Exp. Rs.(1,96,282/- + 2,83,181/-) Rs.4,79,463/- 2.4 Telephone Expenses Rs.2,42,816/- 2.5 Foreign Travelling Exp. Rs.36,51,757/- 2.6 Sales Promotion Exp. Rs.2,29,889/- TOTAL Rs.61,06,705 Rs.9,16,005 Rs.6,10,670 The disallowances so made and partly confirmed by the ld. CIT(A) being totally contrary to the provisions of law and facts of the case, kindly be deleted in full. 2. In respect of ground no. 1(i) and 1(ii), the brief facts of the case are that the assessee deals in manufacturing and trading of stones at Jaipur & Chennai and also exports the same outside India. During the year under consideration, on a total turn....
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....ng assessment year at 49.74% and current year at 44.71%. 3. Against the said assessment order, the assessee preferred an appeal before the Ld. CIT(A) and objected to the rejection of books of accounts under Section 145(3) of the I.T. Act, 1961. As regards the stock register, the ld AR relied on the Tax Audit report to claim that the same had been certified and details of raw material and finished goods had been maintained. He further reiterated that yield of finished goods, percentage of yield and wastage/rejection figures had been provided for both the units i.e. Jaipur and Chennai separately. He further contended that details of all expenditure were provided and also that purchases details were also provided since they were from unrelated parties, the same should have been accepted and the abnormal increase in purchases prices and raw material was also the reason for the decreased gross profit. Further, the figure of wastage had been wrongly mentioned at 15.80% in the current year against 8.97% of previous year by the Assessing Officer, and the appellant contended that in fact in the current year, the wastage was 8.93% which was lesser than the previous year. The appellant thus ....
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....s ground is partly allowed. 4. The ld. Counsel for the assessee has submitted as under: 4.1 It was submitted that the assessee has admittedly maintained complete books of accounts consisting of Cash Book, Ledger, Journal and Stock Register of Raw Material & Production, Stock Register of Finished Goods. All the purchases and sales are fully vouched. All the expenses were fully supported by vouchers. The financial accounts and the other subsidiary & Quantitative records were duly maintained. Further the accounts were subjected to Tax Audit u/s 44AB(PB 1-9). The same were produced before the AO also alongwith other details from time to time. The AO has not at all judiciously considered submissions made before the AO. 4.2 The contention that the assessee has maintained complete day to day quantitative details, is duly supported by the examination done by the learned tax auditor wherein through Annexure G (PB 18) with reference to clause no.28 of TAR (PB 8), the quantitative details have been furnished of raw materials and finished goods both. The relevant extract from TAR, are as under: 9(b) Books of accounts maintained. (In case books of account are maintained in a computer syst....
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....with the prevailing trade practice. The AO when confronted on this aspect the assessee, he duly replied the above facts however, thereafter the AO did not raise any query meaning thereby he felt satisfied. 4.5 As regards the AO's allegation that the assessee made purchases at higher prices as compared to the preceding year, it is submitted that the fact is admitted that the assessee made purchases from the outside parties only and no one was in relation of the partners of the assessee firm. That being the position, S. 40A(2) does not apply and the genuineness of the expenditure and the fact of making payment not having being under doubt, it has to be accepted that the assessee made purchases at the prevalent prices in the best business interest. The AO could and should have made inquiries directly from those suppliers to bring the truth on record, had he got some doubt. Further as regards the expectation of the AO that the sale price should have also been increased by the assessee similarly to that extent, firstly, suffice to say that it was a businessman decision taking into the prevailing trade conditions, facts and circumstances, in the best business interest and secondly, the ....
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....es of invoices (PB 84- 98). The AO could have made inquiries from those parties directly. 4.9 The AO appears to have wrongly mentioned the figure of wastage and appears to have proceeded on misconception of facts by saying that the assessee declared wastage of 15.80% this year as against 8.93% in the preceding assessment year and alleged that there was no reason for such a sharp increase in the wastage. However, the correct facts are otherwise. The assessee, in fact, declared much lesser wastage of 8.93% this year as against 15.80% in AY 2010-11. In AY 2011-12 the assessee declared 13.82%. Thus, the percentage of wastage is constantly coming down and has sharply decreased. Kindly refer the comparative chart (PB 78). The very basis of S. 145 remains no more. 4.10 The AO alleged that the details of sold inventory does not indicate how the same can be bifurcated and differentiated with each items of inventory for the purpose of examination. It was stated by the assessee that it is not possible to maintain such inventory in a large manufacturing unit item-wise. It is submitted that firstly there appears no specific query raised by the AO as stated nor the assessee ever gave any submi....
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....ferent than raw materials purchased by the assessee firm. In the export business the quality of product is of utmost importance. Even a single defect in quality of goods, the entire shipment is rejected by the buyer. However, in the order, there appears no adverse remark of the claim of wastage made by the assessee this year at 8.93% and thus, the contentions of the AO have been impliedly rejected. It is submitted that when the ld. CIT(A) has neither found any fault in the submissions explaining the reason of fall in the GP/NP rate as also has justified the wastage claimed this year, there was no reason yet to upheld the part addition by applying GP rate of 46%. Hence, the impugned addition kindly be deleted in full. 4.13. Minor irregularities, even assuming were there, cannot be made a basis of the rejection of the books of accounts or of trading addition. Kindly refer Padampath Ramgopal (1970) 76 ITR 719 (SC). 4.14. It was further submitted that the assessee has been carrying on the same business in the same set up and under the same facts and circumstances. Even the manner and method of recording the transactions has also been the same since AY 2003-04. All along in the past,....
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....opriate to allow the position to be changed in a subsequent year". 4.16. Alternatively and without prejudice to above submissions on merits also, it is submitted that no trading addition at all was called for in view of the following facts and submissions: 4.17 Addition need not be made, even if Sec. 145 Invoked: It is submitted that even invoking of Sec. 145 does not confer blind powers upon the AO and he is not at liberty to assess the income at whatever figure he wants. He is bound to make an honest estimation of income. In the case of CIT vs. Gotan Lime Khaniz Udyog (2002) 256 ITR 243 (Raj), it has been held that mere rejection of books of accounts need not necessarily lead to additions to the returned income. However, it will appear that in the present case, the ld. AO has not made a fair estimation in conformity of the above settled judicial guideline. It is not denied that the assessee was engaged in the business of manufacturing, trading and export of stones in the past as also in the later years. Therefore, there is no reason still not to consider the past history which is the best material to be used for fair estimation as per the binding decisions. The ld. AO is total....
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....in fall in the GP rate due to increase in percentage of cost of fixed nature of expenditure and other direct expenditure. Int. & dep. increase this year by 32 lacs i.e. 1.93% more w.r.t. turnover (PB 70). The main reason for fall in the NP rate for the year under reference was due to decrease in GP rate for the year under reference by about 5% which resulted fall in NP rate for the year under reference." However, it appears that the AO & ld. CIT (A) have not appreciated these submissions judiciously. These submissions having been made and duly supported with the evidences, remaining un-rebutted, there is no reason that why the AO should have made the addition. 4.19 Otherwise A.Y. 2011-12 distinguishable: Since the assessee had already successfully distinguished the facts of the preceding year A.Y. 2011-12 from the peculiar facts available in this year, which fact is not disputed by the AO & ld. CIT (A), hence there was no justification even of computing an average of the two years of the GP rate at 47.23% and to apply the same. The past history though is treated to be a good guide in the matters of estimations however, for fair estimation unless the facts are not found exactly....
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....sonable basis has been given for estimating the GP rate by the lower authorities. In the overall facts and circumstances of the case and also taking into consideration the fact that in the previous years as well as in the subsequent years, the books of accounts have been accepted by the Revenue, we do not see any justifiable basis for rejection of books of accounts in the instant year. In the result, we are of the view that A.O was not justified in rejecting the books of accounts and making the GP above. Pursuant thereto the ground taken by the assessee is therefore allowed. 7. In respect of ground no.2, the brief facts of the case are that the Assessing Officer has made an addition on account of expenses under the head conveyance of Rs. 9,73,835/-, Office expense Rs. 1,75,818/-, Staff welfare expenses with staff-mess expenses Rs. 4,79,463/-, Telephone expenses Rs. 2,42,816/-, Vehicle repairing expenses Rs. 3,53,127/-, Foreign travelling expenses Rs. 36,51,757/-, and Sales promotion expenses Rs. 2,29,889/- which in total works out to Rs. 61,06,705/-. During the course of assessment proceeding, the Assessing Officer has found that no call register, ledger, vouchers and log book mai....