TaxTMI 
TaxTMI 
2023 (6) TMI 1433
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....e 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 the facts and circumstances of the case, the Ld. Assessing officer has grossly erred in m....
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....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 during the appellate proceedings that 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 4....
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....(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. Dissatisfied with the explanation and submission made by the Assessee, the AO rejected the books of account and estimated the GP for the current year at 9% [para-15 of AO], He also enhanced the total turnover to Rs. 61,00,00,000/- on an estimate basis [par....
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....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 AO observed that sale price of one of the major item has increased and better than the immediate preceding previous year. The AO further observed in the assessment order that the closing stock of 5832.127 mtr of wool durries has been shown @ Rs. 862.76 per mtr., whereas the average purchase rate of thi....
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....nd'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 KASHAN 2.400 mtrs 5500.00 13200.00 2.400 mtrs 5500.00 13200.00 18/18 SILK 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 ....
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....nbsp; 502084 195.3136 98063849.22 502084 195.3136 98063849.22 125521.727 MTRS 781.25 98063849.22 119689.600 mtrs 1130.85 135351758.48 5832.127 mtrs 862.76 5031736.1 13089000.00 TOTAL (B) 196127698.4 233415607.68 5031736.00 GRAND TOTAL (A+B) 5960135.00 495284525 842041367 13089000 The AO based on the above details, observed that whereas the total of opening and closing stock tallies with the value shown in the trading account, but the value of total of purchases and sale have been totally different from the figures shown by appellant. The total value of purchase & sales as per chart prepared by AO comes to Rs. 29,91,56,827/- &. Rs.60,86,25,759/-, whereas in the trading A/c, these figures have been shown at Rs. 39,72,20,676.24 & Rs. 44,57,14,638.25 respectively. Further, adding the figures of items purchased for manufacturing i.e. 'Wool Durry (FCM)....
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.... year has been compared with the other item i.e. Malai Dori having sale price of Rs. 4311.95, whereas the item 10/14 Jaipur has sale price of Rs. 3700/- per unit and the AO has compared the current year sale price of Rs. 4311.95 with previous year sale price of Rs. 3 700/-, but not compared the current year purchase price of Rs. 4305/- with the previous year purchase price of Rs. 3500/-, which shows that the purchase price of the item has been increased by Rs. 805/- per mtr, whereas the sale price has been increased by only Rs. 611.95 per mtr., which has ultimately the main reason for, decline in Gross Profit for the current year in comparison to the preceding previous year. The appellant alleged that the AO manipulated the figures by taking wrong figures to reject the books of appellant and to make additions in her hands. The appellant has further submitted that the AO has in para 6(e) of assessment order has observed that Closing Stock of 5832.127 mtr. of Wool Durry has been shown at Rs. 862.76 per mtr. whereas the Avg. purchase price of such- item is Rs. 781.25 per mtr. and closing stock price has been lower against the avg. purchase price by Rs. 81.51 per mtr. which is not po....
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....pellant has its buyers based in India, who are also traders and therefore, margins in case of appellant are low due to business to business transactions. Therefore, comparison of appellant gross profit results with other assessee i.e. Shri Satish Kumar Gupta could not be made as their business is not comparable at all. Further, it was submitted that the AO has been comparing the Gross Profit of appellant of current year i.e. A.Y.2009-10 with the Gross Profit ratios for the A.Y.2007-08 and A.Y.2008-09 of M/s S.K. Enterprises, which are not comparable as every year is a separate year having different circumstances and markets and therefore, not comparable at all. The appellant with regard to the observation of AO that the purchases made from M/s S.K. Enterprises (proprietorship concern of husband of appellant) has not been disclosed in the Tax Audit Report as required u/s 40A(2)(b) of the Act, has submitted that the appellant has made purchases from the relative party M/s S.K. Enterprises and Gross profit ratio of appellant has been higher than of M/s S.K. Enterprises, which shows that appellant has been on better footings and purchases have been made at Arm's length price. The....
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....200.00 24156.00 10.980 mtrs 2200.00 24156.00 HAND LOOM 198.600 mtrs 2600.00 516360.00 198.6 00 mtrs 260 0.00 516360.00 JUTE DURRY 58.210 mtrs 2300.00 133883.00 58.210 2300.00 133883.00 MALAI DORI 1702.890 mtrs 3500.00 5960135.00 40515.468 mtrs 4305.00 174419089.74 41671.683 4311.95 179686145.60 16.675 mtrs 430 5.00 2353435.88 SAGGY 389.590 mtrs 4500.00 1753155.00 389.590 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 The appellant submitted that from the comparison of the two tables, it....
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....ongly typed the said figures and based on such wrongly typed figures, the invoking the provisions of Section 145(3) of the act and rejecting the books of accounts is not only illegal and against the provisions act but void ab initio. The AR submitted that all the details, such as books of accounts, bills and vouchers were duly produced by appellant during assessment, as well as appellate proceedings and from the details of itemwise purchase and sales, it can be found that purchase and sales have been duly matching with the Financial statements filed for the year under consideration, payments made to labour have been purely business expenses, where payments have been made on daily basis to labourers, stock has been valued at cost based on the purchase prices at FIFO basis, including expenses incurred on manufacturing and therefore, the AO has wrongly rejected the books of accounts of appellant and estimation of sales at Rs. 61 Crore and estimation of Gross Profit @ 9% is erroneous, which is without any basis and is only an assumption of A.0 and additions could not be made based on the assumptions and presumptions. The appellant submitted that all these details and documents were sub....
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....e not comparable to that of the appellant. In these circumstances the Ld. CIT(A), it is respectfully submitted, has rightly allowed the grounds relating to rejection of books of accounts and enhancement of Gross Profit and Gross turnover. 20. Apart from relying upon and reiterating, before this Bench, the submissions made before the Ld. CIT(A) as summarized by her, the Respondent herein made the following submissions for kind consideration of the Bench: a. It is submitted that the AO has passed the Assessment order without considering the detailed submissions made and explanations given for the fall in GP rate from 18.98% in AY 2007-09 and 18.80% for AY 2008-09 to 6.5% for the relevant AY 2009-10. b. The AO completely ignored the important fact that the turnover for the year had gone up by almost 3.5 times from Rs. 13.4 crore to Rs. 44.5 crore and while achieving such a huge rise in a short period, the gross profit margin was bound to be affected. The turnover had increased from Rs. 13,42,96,583/- for the A.Y. 2008-09 to Rs. 44,57,14,638/- for the current A.Y. c. The AO also completely ignored the submissions that the trade margin had come down due to focus given to increasi....
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....ng the correct inventory and purchase details, the AO has kept on adopting the incorrect figures. g. As already submitted, the appellant's concern was engaged in manufacturing as well as trading activity. The AO completely went wrong in adding the sale value of manufacturing with the sales in the trading account again and thus holding that the sales figure and purchase figures do not tally with the figures given in Form 3 CD report. Further, in spite of intimating him that there was a mistake in the details and in spite of submitting the correct details, the AO kept on adopting the old figures in order to make out a case for rejection of books of account. h. It is submitted that the AO wrongly compared the appellant's GP rate with that of other business entities whose business profiles were not comparable. The AO has completely ignored the submission that the assessee's business involved both manufacturing and trading of carpets and durries, whereas, Shri Satish Kumar Gupta, who's GP rate had been compared with that of the Appellant, was in the business of trading of carpets. Further he also ignored the fact that Shri Satish Kumar Gupta was an exporter of carpets and his profit....
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....se price, whereas the facts were opposite, based on wrong comparable such as comparing the purchase price of two items with Sale Prices of different items and therefore, the AO has been on wrong, footings while rejecting the books of accounts and estimating the turn over as well as a Gross Profit, whereas the AO could not pointed out a single instance proving that the sales have been outside books of account. In these facts and circumstances of the case, I am of the considered opinion that rejection of books of account is not correct based on wrong figures adopted by AO and consequently addition made on estimate basis alleging suppression of sale and Gross profit .is not correct accordingly additions made by AO of. Rs.2,59,27,998/- is hereby deleted. Accordingly, the Ground no. 2 and Additional Grounds of appeal are allowed." 21. Having heard the arguments of the ld. DR who relied on the Assessment Order, we find no mistake in the order of the ld. CIT(A) in deleting the addition made erroneously on account of the GP. Disallowance u/s 40(a)(ia): 22. The disallowances u/s 40(a)(ia) made by the AO which were deleted by Ld CIT(A) are as under: a. Repairs and maintenance - Rs. 8....
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....al and professional charges: The commission paid to an individual for procuring order, the remuneration paid to Auditors and the fees paid towards legal advice etc have not been appreciated in the proper perspective by the AO as well as the Ld CIT(A). Further, even in respect of these payments the second proviso to section 40(a)(ia) r.w.s 201(1) of the Act are clearly applicable which was not looked into by the Authorities below. The said proviso is applicable retrospectively from 2005. 27. The Ld. CIT(A) has rejected the submission w.r.t. applicability of 2nd proviso to section 40(a)(ia) r.w.s 201(1) of the Act by holding that the same was not applicable to AY 200910 as the same was effective w.e.f. 01.04.2013 [last page of order of CIT(A)]. 28. In this regard, it was submitted that, i. The 2nd Proviso to Section 40(a)(ia) of the Act r.w. Proviso to Section 201(1) of the Act provides that disallowance of expenses under Section 40(a)(ia) of the Act cannot be made unless the assessee has been treated as assessee in default under Section 201(1) of the Act for its failure to deduct tax at source. ii. In the event if the amount paid by payer have been included by the payee in i....