TaxTMI 
TaxTMI 
2020 (5) TMI 116
X X X X Extracts X X X X
X X X X Extracts X X X X
....penditure by apportioning the total indirect expenditure between non-SEZ unit and SEZ Unit on the basis of total turnover of the units, which disallowance of Rs. 1,00,000/- is most arbitrary and unjust and in the alternative excessive w.r.t facts and circumstances of the case." 2. In Ground No. 1, the assessee has challenged the sustenance of additions of Rs. 1,92,926/- made by the AO by way of disallowing 25% of alleged unverifiable purchases of Rs. 7,71,704/- made by assessee from M/s. Rose Impex in his non-SEZ unit, namely, Ashok Jewels - Unit-I. 3. In this regard, the ld. AR submitted that the sales in above said Unit-1 is of Rs. 14,27,85,791/- and this turnover is export turnover. The total purchases of this Unit-I is of Rs. 9,72,65,328/-. These total purchases of Unit-I of Rs. 9,72,65,328/- includes alleged unverifiable purchases of Rs. 7,71,704/- made by assessee from above named M/s. Rose Impex. These alleged unverifiable purchases of Rs. 7,71,704/- are simply 0.8% of total purchases and as such very little seeing the volume of total purchases of Unit-I which are of Rs. 9,72,65,328/- and seeing the volume of the business, total sales being export sales and fully verifiabl....
X X X X Extracts X X X X
X X X X Extracts X X X X
....erifiable purchases) made by the AO, the gross profit of SEZ unit becomes 29.78% which is high in comparison to average gross profit rate of 28.80%. Therefore, in view of the totality of facts, component of unverifiable purchase in total purchase and circumstances of the case, in my considered opinion, it would be appropriate to estimate the GP rate at 29.25%, which would result in gross profit of Rs. 3,09,49,178/- against gross profit of Rs. 3,05,22,759/- shown by the appellant, thereby resulting in trading addition of Rs. 4,26,419/-. The higher gross profit will also take into account of the irregularities committed by the appellant in obtaining accommodation entries. Hence, the addition made by the AO is restricted to Rs. 4,26,419/-." 8. It was submitted by the ld AR that the learned CIT(A) failed to appreciate that the Hon'ble Rajasthan High Court in last 3-4 years have more than once held that while applying GP rate for estimating the gross profits, the average gross profit rate of the assessee in past years should be taken into account. In appellant's case average GP rate of preceding year is 28.80%. It was submitted that the GP rate of the year under appeal is 28.85% which ....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... accepting the apparent as real lies on the AO but he has failed to discharge this burden of proof. So much so the AO has not given a single instance of layering of funds or circulation of funds or returning by the seller in cash the amount of cheque given by the assessee in lieu of goods purchased by him. 10. Per contra, the ld DR submitted that the AO had received the information from the Investigation wing of the Department that the appellant has taken accommodation entry amounting to Rs. 40,22,164/- from a number of entities controlled and managed by Shri Bhanwar Lal Jain and others, entry operators of Mumbai, in whose case a search was conducted by the income tax department, wherein, it was admitted by him that he was in the business of providing accommodation entries. In the assessment order, it was concluded by the AO that the appellant has tried to deflate its profits by arranging bogus purchase bills without actual delivery of goods and consequently, the AO has made trading addition of Rs. 11,79,041/- to the income of the appellant, being 25% of bogus purchased of Rs. 47,16,164/-. 11. It was further submitted that the appellant has declared total turnover of Rs. 14,27,85....
X X X X Extracts X X X X
X X X X Extracts X X X X
....it, ld CIT(A) has taken note of the fact that as against the average gross profit of past years which comes to 28.80%, the assessee has declared G.P of 28.85% and where the addition so made by the AO is considered, the effective current year G.P will come to 29.78%. However, given the component of unverifiable purchases, he has estimated the gross profit rate of 29.25%. We find that once the past year results are taken as a reliable basis for estimating the gross profit and such results have attained finality and where the assessee has disclosed better gross profit rate than the past years results, gross profit so declared should be accepted and the same cannot be disturbed applying the same basis pursuant to which the books of accounts have been rejected. The addition of Rs. 4,26,419/- so sustained by the ld CIT(A) is hereby set-aside. In the results, the ground no. 2 of assessee's appeal is allowed. 16. In Ground No. 3, the assessee has challenged sustenance of disallowance of expenses of Rs. 1,00,000/- by the learned CIT(A) by applying theory of apportionment of expenses in regard to indirect expenses claimed in Unit-I (Non-SEZ) and Unit-II (SEZ unit claiming exemption of incom....
X X X X Extracts X X X X
X X X X Extracts X X X X
....the A.O. in last para of page 17 of the impugned assessment order which reads as "it is pertinent to mention here that both the units of the assessee are being operated from Jaipur and engaged in the similar line of business and expenditure incurred is also same. Therefore, it is quite possible that the assessee has diverted its expenditure of SEZ unit to Non SEZ unit to avoid the tax liabilities from Non SEZ Unit. In these circumstances, it is reasonable to apportionment the total indirect expenses in the ratio of turnover of both the Units" is in fact far away from truth and based on surmises and conjectures. It is submitted that Income tax Act 1961 as well as related laws never support the actions based on hypothetical grounds. In this regard the assessee rely on the following judgments: * Dharkeshwari Cotton Mills Ltd. Vs. CIT 26 ITR 775 * Omar Salay Mohammed Vs. CIT 37 ITR 151 * Lal Chand Bhagat Ambica Ram Vs. CIT 37 ITR 288 19. Without prejudice to above submissions and in the alternative, it was submitted that while making disallowance of expenses by adopting theory of "apportionment", the AO has also included following expenses totalling to Rs. 5,71,727/- which clear....
X X X X Extracts X X X X
X X X X Extracts X X X X
....its of the assessee are being operated from Jaipur and engaged in the similar line of business and expenditure incurred is also same. Therefore, it is quite possible that the assessee has diverted its expenditure of SEZ unit to non SEZ unit to avoid the tax liabilities from Non SEZ unit. In these circumstances, it is reasonable to apportionment the total indirect expenses in the ratio of turnover of both the units." 21. After considering the submission of the appellant and the facts of the case, it is noted that the AO has apportioned whole of the indirect expenditure without indentifying specific instances of debiting inter unit expenditure. It is noted that the appellant has debited travel expenses of 4,15,363/- in non SEZ unit while Rs. 2,35,248/- in SEZ unit. As SEZ unit is 100% export oriented, the foreign travel expenses are bound to be more in SEZ unit than in non SEZ unit. In absence of specific details of travelling and its benefit to different units some disallowance is justified. Considering the totality of facts, the disallowance made by the AO out of total expenditure is restricted to Rs. 1 lac. The appellant gets relief of Rs. 1,02,421/-. 22. We have heard the riva....