TaxTMI 
TaxTMI 
2022 (10) TMI 1038
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....istory of the assessee's own case duly accepted in scrutiny assessments u/s.143(3) in AY 09-10, 10-11, 12-13 and 14-15. 2. On the facts and circumstances of the case and in law, the ld. CIT(A) has erred in sustaining the addition of Rs.18,83,719 on the count of commission paid to sister concerns merely on presumption and surmises, while similar expenses had been duly accepted in scrutiny assessments u/s.143(3) in earlier years and succeeding years. 3. The Appellant craves leave to add, urge, alter, modify or withdraw any grounds before or at the time of hearing." 2. Succinctly stated, the assessee who is engaged in the business as a wholesale dealer/distributor of ITC products namely cigarettes & tobacco and other Fast Moving Consumption Products (FMCG) had e-filed his return of income for the assessment year 2013-14 on 26.03.2014, declaring an income of Rs.16,59,700/-. Subsequently, the case of the assessee was selected for scrutiny assessment u/s.143(2) of the Act. 3. During the course of the assessment proceedings, it was observed by the A.O that verification of books of account i.e. sales and purchase account of the assessee revealed that the different p....
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....ing the year for FMCG products as compared to cigarette and tobacco products but the bills produced by the assessee revealed a story the other way round. It was observed by the A.O that despite schemes the assesee had separately debited discount in his trading account of Rs.13,47,914/- i.e. @ 0.21% of the total sales. The A.O on a perusal of the aforesaid details observed, that if the discount percentage was reduced from the gross profit percentage then the gross profit percentage of the assessee would work out almost @ 1.98% for cigarette and tobacco products and @ 3.96% for other FMCG products. Considering the aforesaid facts the A.O was of the view that the assessee had shown low GP rate. 3.1. The A.O on the basis of his aforesaid observations reworked out the gross profit of the assessee at an amount of Rs.1,44,34,055/- and made a consequential addition of Rs.48,22,955/-, as under:- Tobacco products Rs.52,95,15,914/- GP @ 1.98% Rs.1,04,84,415/- NBFC Products Rs.9,97,38,393/- GP @ 3.96% Rs.39,49,640/- Total sales Rs.62,92,54,306/- Total GP Rs.1,44,34,055/- Gross profit shown by ....
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....8% ; (ii) FMCG products : 3.96%, and thus arrived at an addition towards suppressed gross profit of Rs.48,22,955/-. 8. Although, we find substance in the observations of the A.O that had prompted him to reject the trading results of the assessee, but are accept the manner in which he had determined the gross profit addition on the basis of an unsubstantiated; or in fact an ad-hoc application of gross profit rate of 1.98% of cigarette and tobacco products and 3.96% of other FMCG products. In our considered view, as stated by the Ld. AR and, rightly so, there was no justification on the part of the A.O to have adopted the aforesaid basis which as the same was not supported by any concrete basis. On the contrary, in our considered view the estimation of the assessee's income for the year under consideration could have been safely done by taking cognizance of its disclosed gross profit rates for the immediately three preceding years [out of which two years had been subjected to scrutiny assessment u/s. 143(3) of the Act], as well as that of the immediately succeeding year which too have been subjected to a scrutiny assessment u/s.143(3) of the Act, as under:- 31-3-10 AY....
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....ated parties in the garb of commission for pushing up its sales. Accordingly, the A.O declined the assessee's claim of commission expenses of Rs.18,83,719/-(supra), which thereafter was been upheld by the CIT(Appeals). 10. We have given a thoughtful consideration to the aforesaid issue and are unable to persuade ourselves to subscribe to the same. At the very outset, we may herein observe that the litmus test for allowability of a claim of expenditure u/s. 37(1) of the Act primarily hinges around satisfaction of dual conditions, viz. (i). the expenditure (not being expenditure of the nature described in sections 30 to 36 and not being in the nature of capital expenditure or personal expenses of the assessee) is laid out or expended wholly and exclusively for the purposes of the business; and (ii). the expenditure incurred by the assessee should not be for any purpose which is an offence or which is prohibited by law. In our considered view the A.O for considering the allowability of the expenditure incurred by the present assessee before us, could not have been guided by the test of necessity, but by the fact that as to whether or not the expenditure had been laid out or expende....
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.... commissions which were paid by the assessee to the aforementioned related parties, as under: Party to whom commission was paid AY10-11 31-3-10 AY11-12 31-3-11 A.Y.12-13 31-03-12 AY13-14 31-03-13 AY14-15 31-3-14 Shri Krishna Commercial CO. 9,45,953 8,54,258 12,07,392 12,71,510 11,75,907 Varun Nathani 4,91,896 4,11,309 5,81,337 6,12,209 5,66,178 Total Commission claimed in P & L a/c. 14,37,849 12,65,567 17,88,729 18,83,719 17,42,085 Accepted by revenue in scrutiny assessment u/s.143(3) dt.19-12-12 Accepted by revenue Accepted by revenue in scrutiny assessment u/s.143(3) dt.20-2-15 Under consideration Accepted by revenue in scrutiny assessment u/s.143(3) dt.15-11-16 Our attention was also drawn by the Ld. AR to the copies of the respective returns of income of the aforementioned parties to whom commission had been paid by the assessee, viz. i) Shri Krishna Commercial Co., Raipur (sister concern) ; and (ii) Shri Varun Nathani, Raipur, Page 23 to 36 of APB. 12. We have given a thoughtful consideration to the facts involved as regards the aforesaid issue, and are of the considered view....