TaxTMI 
TaxTMI 
2023 (6) TMI 1433
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.....09.2010. He called for various details vide notices u/s 142(1) of the Act and after examining the details furnished by the Assessee from time to time, including the books of account, purchase and sales ledger, bills and vouchers etc. he passed the Assessment Order u/s 250 of the Act on 05.04.2019 making the following additions / disallowances to the total income thus determining the total income at Rs. 3,58,99,760/-: a. Disallowance of deduction claimed u/s 24(b) of the Act - Rs. 1,50,000/- b. Enhancement of Gross Profit by rejecting books of accounts - Rs. 2,59,27,998/- c. Disallowance u/s 40(a)(ia) - Rs. 98,21,762/- 3. In the first appeal filed before the Commissioner of Income Tax (Appeals)-35, New Delhi, the assessee raised the following grounds of appeal: "1. That the impugned assessment order is not only bad in law and nature but it also whimsical and therefore, the same is liable to be quashed. 2. That on the facts and circumstances of the case, the Ld. Assessing officer has grossly erred in making Disallowance of Deduction u/s 24(b) amounting to Rs. 1,50,000/-, which is illegal and liable to be deleted. 3. That on th....
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.... of Rs. 2,59,27,998/- made by the AO, on account of suppressed Cross Profit Margin. 3. On the facts and circumstances of the case, the CIT(A) has erred in restricting the addition of Rs. 98,21,762/- made by AO u/s 40(a)(ia) of the I.T. Act to Rs. 35,87,182/- inspite of the fact that the assessee had not deducted TDS against such payments." 9. The grounds taken by the assessee in ITA no. 6829/DEL/2019 are as under: "1. That Ld. CIT (A) has erred in confirming addition on account of Freight Expenses of Rs. 31,14,549/- u/s 40(a)(ia) of the Income Tax Act, 1961 without considering the submissions made during the appellate proceedings that the payments have been have already been shown by the parties in their respective Income Tax Returns and disallowance have been wrongly made in contrary to the provisions of the second proviso to Section 40(a)(ia) read with provisions of first proviso to Section 201(1) of the Income Tax Act, 1961, so it is liable to be deleted. 2. That Ld. CIT (A) has erred in confirming addition on account of Postage & Courier Expenses of Rs. 1,32,583/- u/s 40(a)(ia) of the Income Tax Act, 1961 without considering the submissions made du....
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....." 11. It is submitted that in view of the above there is no merit in the ground raised by the Revenue and it is prayed that the same may kindly be dismissed. 12. After hearing the ld. DR, we find no mistake in the order of the ld. CIT(A) in deleting the addition. GP Addition on Enhanced Turnover: 13. It is submitted that the assessee has a proprietary concern by the name M/s K.K. Enterprises which is engaged in manufacturing as well as trading in carpets and durries. The assessee during the year has earned a Gross Profit of Rs. 2,89,72,002/- on gross sales of Rs. 44,57,14,638/- and declared Net Profit from business at Rs. 44,43,821/-. 14. The GP rate for manufacturing was 22.01% for the relevant Previous Year as compared to 25.15% in the immediately preceding assessment year. Similarly the GP rate for trading activity was 2.24% as against 5.21% for the immediately preceding assessment year. [GP figures at para-8 of AO] The combined GP rate for the relevant assessment year was 6.5% as against 18.80% in the immediately preceding assessment year. 15. The AO compared the combined GP rates achieved by the assessee and called for explanation on the fall in GP. Dissatis....
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....same has increased by almost 3.5 times in comparison to immediately preceding previous year and the percentage realization to total sale is better and there have been no negative impact on the business of appellant. The AO in order to examine the reason for decline in Gross Profits and in order to verify the purchases, sales and closing stock for the year under consideration, asked the appellant to submit the details. Based on the item wise details of purchase, sales and closing stock and details of profit & loss account for the three financial years filed by the appellant, the AO observed that there has been marginal increase in the purchase rate, which has been compensated by the increase in sale value and increase in the cost of raw material is marginal. For instance, the AO has observed that the carpet Malai Dori 10/14 Jaipur has been purchased at @ Rs. 3,500/- per mtr. in A.Y.2008.09 whereas the purchase price for the current year of the said item has been at Rs. 3,410/- per mtr. and Malai Dori Item has been sold in the preceding previous year at price of Rs. 3,682.35 per unit whereas in the year under consideration, the sale price per unit is Rs. 4,311.95. Thus, the ....
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....ases have been made from M/s S.K. Enterprises, neither the quantity nor the price of any item is same in case of both the parties and thus, the AO was fortified that the details of purchases/sales shown by the appellant are not correct. The AO further observed that the details of purchase made by the appellant from her husband's proprietorship concern i.e. M/s S.K. Enterprises has not been reported in the Tax Audit Report u/s 40A(2)(b). The AO further produced the details of purchase, sales and closing stock which have been reproduced as under: ss Particulars Opening Balance Purchase/manufactured Sale/consumed Closing balance Quantity Rate Value Quantity Rate Value Quantity Rate Value Quantity Rate Value Carpets Trading 10.5/48 MTR 1.960 mtrs 5000.00 9800.00 1.960 mtrs 5000.00 9800.00 12/12 JAIPUR 0.540 mtrs 3800.00 2052.00 0.540 mtrs 3800.00 2052.00 12/60 KASHA....
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.... 389.590 mtrs 4500.00 1753155.00 TWIST ED DURRY 16.320 mtrs 2600.00 42432.00 16.320 mtrs 260 0.00 42432.00 Mix Fabric 6078.000 mtrs 170.00 1033260.00 875568.00 6078.000 mtrs 170.00 1033260.00 Fabric 10064. nnn mtrs 87.00 875568. 00 10064. nnn mtrs 87.00 9384518 Fabric (Polyester) 622617 yard 135.50 84364603.50 622617 yard 135.50 310362879.77 TOTAL (A) 5960135.00 299156827 60825759 8057263 MANUFACTURING DETAILS Woold Durry (FCM) 502084 195.3136 98063849.22 502084 195.3136 98063849.22 125521.727 MTRS ....
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....ant made before the Ld. CIT(A) as summarized in the appellate order are under: "During the appellate proceedings, the AR of the appellant made written as well as oral submissions, which have been carefully considered. The AR submitted that all the details and documents were submitted during the assessment proceedings. However, the same were ignored by AO and in some cases wrongly adopted the figures to show that the details filled were incorrect, in order to show that the books of accounts maintained by the appellant are incorrect and to make additions in hands of appellant by rejecting the books of accounts and estimating the turnover as well as Gross Profit of appellant taking imaginary figures based on wrong facts and wrongly typed details. The appellant further submitted that in para 6(b) and 6(c) of the assessment order, the AO has compared the purchase price of item 10/14 Jaipur of current year of Rs. 3410/- per mtr. with the purchase price of item Malai Dori 10/14 Jaipur Rs. 3500/- per mtr. for preceding previous year whereas the sale price of Rs. 3682.35 per unit of same item Malai Dori 10/14 Jaipur for previous year has been compared with the other item i....
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....ussed in the assessment order. The appellant further submitted that the books of accounts were duly audited by the Chartered Accountant as per the provisions of Section 44AB of the Income Tax Act and submitted during the assessment proceedings, whereas the AO ignored the books of accounts and keeps on stating in the assessment order that books of accounts were not produced, it was also submitted that the act of AO rejecting the books of accounts is contrary to the provisions of law and illegal. The Appellant further submitted that the Gross Profit result of appellant are not comparable to the Gross Profit results of other assessees i.e. Shri Satish Kumar Gupta and M/s S.K. Enterprises, proprietorship concern of Sh. Swadesh Kumar Mishra, husband of appellant because Shri Satish Kumar Gupta has been in the business of trading of carpets, whereas the appellant has been in the business of manufacturing as well as trading of Durries and carpets. It was argued that source of raw material and the destination of end product very much matters in this field, as Shri Satish Kumar Gupta is an exporter where the profit margins are generally higher whereas the appellant has its buyers b....
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....p; 4/25 GABBEH 409.520 mtrs 2250.00 921420.00 409.520 mtrs 2250.00 921420.00 5/28 GABBEH 1520.000 mtrs 5002.00 7603040.00 1520.000 mtrs 5004.00 7606080.00 5/40 BIDJAR 3.920 mtrs 3800.00 14896.00 3.920 mtrs 3800.00 14896.00 9/54 BIDJAR 0.980 mtrs 5500.00 5390.00 0.980 mtrs 5500.00 5390.00 9/60 KASHAN 2.800 mtrs 3300.00 9240.00 2.800 mtrs 3300.00 9240.00 NAPALI 2661.370 mtrs 2310.00 14131874.00 2518.370 mtrs 5353.20 13481338.29 143.0 0 5310.00 759330.00 TUFFTED 1492.800 mtrs 4287.00 6399728.43 1492.800 mtrs 4287.06 6399728.43 WOOLEN HAND....
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....rongly typed against sale of "Fabric Cotton", whereas the sale of Fabric Cotton has been only Rs. 8,75,568/- in comparison to the Qty. and rate of sale of item. Further, the Appellant submitted that the AO has taken the total of Trading Sale of Rs. 31,03,62,879.77, as the sale of item "Fabric (Polyster)" instead of sale of Rs. 9,38,45,182.80 and thereby making the sub-total of trading sale at Rs. 60,86,25,759/-, instead of correct sale of Rs. 31,03,62,879.77. Again, the AO taken the amount of manufacturing purchase of Item "Wool Durry (FCM), of Rs. 9,80,63,849.22, as sale whereas the said amount has been transferred to Sale in next row as purchases/manufactured and then the item has been sold at sate price of Rs. 13,53,51,758.48; however, the Ld. AO considered the above said amount of Rs. 9,80,63,849.22 twice in purchase and wrongly in Sales, whereas the said amount has been purchased and transferred to manufacturing in next row and therefore, the Ld.AO increased the amount of purchases and sales by Rs. 9,8063,849.22 and further increased the sales by Rs. 31,03,62,879.77 and the sales was decreased by Rs. 1,21,00,000/- (1,34,81,338.29 - 13,81,338.29). Thus, the reconciliat....
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..... CIT 26 ITR 775, 782 (SC). Based on the above submissions, the appellant finally submitted that books of accounts of appellant have been wrongly, rejected and estimated additions are liable to be deleted." 19. As may be noted the main allegation against the appellant was decline in GP Rate from 18.80% in the immediately preceding year to 6.5% for the current A.Y. 2009- 10. The AO was not satisfied with the explanations given by the assessee. However, he did not find any defects in the books of accounts produced before him. The AO's effort throughout the assessment order has only been to point out supposed deficiencies in the appellant's explanations. He had not find any suppression of sales or inflation of expenditure from the details available before him. Even though all the details of the parties for purchase and sales as well as purchase and sales register and all the relevant documents were produced before him, the AO did not make any enquiries with the suppliers or with the buyers. It is submitted that all the observations made by the AO have been found to be defective and made on the basis of wrong assumptions - be it on the lowering of the margin in order to achieve high....
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....duced by her at pages 7 & 8 and pages 14-16 of her order and thus made wrong inferences regarding the correctness of the accounts. e. The basic hypothesis of the AO that the increase in purchase price of items has been compensated by corresponding increase in sales prices was ill founded as for example in the case of Item 10/14 Jaipur the sale price per unit for the current year increased only by 611.95 per meter where as the Purchase price for the same item had increased by Rs. 805 per meter as duly explained in Para third para from top on page 8 of Ld CIT(A) order which is one the main reasons for decline in GP rate. f. The AO also wrongly kept on ignoring the settled accounting principle of valuation of closing stock. He held that the value of closing stock inventory can never be less than the average purchase price. This stand of the AO is contrary to the ICDS-II "Valuation of inventories" of Income Computation and Disclosure Standards (ICDS) issued by the Government of India in exercise of powers conferred to it under section 145(2) of the Act according to which the stock can be valued at cost or at net realizable value, whichever is lower. The AO ignored the....
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....t half of the husband's sales were to the assessee's concern which would mean that the finished products of her husband's business were the raw materials for the appellant's business and thus the two cannot be comparable. i. The AO was also wrong in holding that even though almost half of the sales of her husband's concern were made to appellant, the quantity and value of any of the items was not matching. The AO tried to compare the banner products (broad classification of the goods), viz., Carpets and Durries mentioned in her husband's sales ledger with the individual items mentioned in the inventory details of the appellant's concern. He thus arrived at wrong conclusions. j. As noted by Ld, CIT(A) in her order, the AO has held at various places in the assessment order that the Assessee did not produce books of accounts which is factually incorrect as the same were duly produced before him during the assessment proceedings as also during the remand /appeal proceedings. The Appellant had also produced the purchase and sales register and bills and vouchers for verification by the AO. The appellant had also produced various details as called for u/s 142(1) of the A....
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.... persons and were below the limits prescribed under section 192B and 1941 of the Act. [Ref: middle para on page 69 of order of CIT(A).]. 24. Hence, there is no merit in the grievance of the Revenue. ITA no. 6829/Del/2019 (Assessee's appeal) 25. The ld. CIT(A) confirmed the following additions / disallowances made by the AO: a. Disallowance of * Freight expenses u/s 40(a)(ia) - Rs. 31,14,549/- * Postage and Courier expenses u/s 40(a)(ia) -Rs. 1,32,583/- * Legal and professional charges u/s 40(a)(ia) - Rs. 3,40,050/- 26. The submissions of the ld. AR are as under: a. Freight expenses: Even though the payment towards freight expenses were made to a number of persons / transporters, mini tempos, hand carts, thela walas, however only one person's name was mentioned in the voucher giving all the break up as annexure. However, while preparing the data for submission before the AO, the staff had not understood the gravity of the issue and had submitted the payments as made to the single person appearing in the voucher. The same was discovered when the AO raised the query, and the figures had been submitted before the AO which have no....