TMI Blog2010 (2) TMI 719X X X X Extracts X X X X X X X X Extracts X X X X ..... (6) and he, therefore, allowed depreciation at normal rates only). Decided against Assessee Disallowance of Brokerage. - Held that:- Assessee is in yarn business where maximum business is done through brokers.Therefore AO are not justified in disallowing the brokerage expenses. decided in favour of Assessee. Disallowance u/s 80-IB(4). - Held that:- denial of deduction on technical ground is not justified. We direct the AO to grant the opportunity to the assessee-company to file the audit report in Form No. 10CCB. Remand back to AO. Peanlty u/s 271(1)(c) - held that:- If the Tribunal has confirmed the addition that does not mean that the assessee has concealed the income or has furnished inaccurate particulars of such income. When a disallowance is made merely on an estimate basis, the penalty cannot automatically be imposed. decided in favour of Assessee. - I.T.A. Nos. 1786/Ahd/2007 and 3561/Ahd/2008, - - - Dated:- 12-2-2010 - Deepak R. Shah, D.T. Garasia, JJ. Ramesh Malpani for the Appellant V.B. Mishra for the Respondent ORDER D.T. Garasia, Judicial Member The first appeal, i.e., quantum appeal (I. T. A. No. 1786/Ahd/07) has been filed by ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rofit ratio. He, therefore, asked the assessee to explain the reasons for fall in the gross profit ratio and also asked him to furnish the various details along with books of account and documentary evidences. In reply the assessee submitted some of the details but could not produce all the details and the books of account required by the Assessing officer. It was explained by the assessee that its books of account and records were lost and destroyed in the flood which occurred in the month of August, 2006 and, therefore, books of account and all the details could not be furnished but the details and evidence which were available with the assessee were furnished. As regards fall in the gross profit ratio, it was explained that due to introduction of better technology and higher production capacity in new texturising machines, there was fall in margins because of competition in the market. It was also explained that there was price hike in oil and packing material of about 20 per cent, but due to heavy competition in the market, the same could not be passed over to the customers resulting in lower margins. In support of this, the assessee files copies of comparable bills of packing ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... filed the evidence regarding loss of its books of account/records in the flood in the form of F. I. R. and affidavit which were also filed before the Assessing Officer and have been placed on pages 30 to 32 of the paper book filed before us. It was contended that due to fast technological change in the texturising industry there was a declining trend in the margins which was well known and even accepted by the Department in many cases. In the assessee's own case the decline in the gross profit ratio was accepted in scrutiny assessment of the last assessment year (assessment year 2003-04). It was further submitted by the assessee that all the possible details, were furnished, which were available with it. It was contended that texturised yarn was subject to excise duty and copies of excise returns containing complete quantitative details of raw material and finished goods were filed with the learned Assessing Officer. Copies of bank statements were also filed. The other details and reconciliations were submitted as far as possible. In respect of increase in the cost of oil and packing material comparable bills of two years were obtained from the suppliers and were furnished to the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d May 15, 2006, the assessee understood the question in the sense as to where the books of account are kept and maintained when the relevant year was running. Learned counsel further argued that this question is standard question in almost all scrutiny cases and the same is replied in the context of the relevant year running. Hence, when the assessee replied that the assessee is maintaining its books of account at registered office of the company what was meant was that the books of account were kept and maintained at the registered office when the year is running. This reply should not be read as if all the past records were kept at the registered office. It was argued by him that considering the shortage of space in big cities it is normal practice that the books of account/records of one or two years (running years) are kept at the registered office and the past records are stored at low cost places/premises. In the appellant's case also the area of registered office were not enough for storing all the past records and, therefore, the books of account and records of the years for which audits were completed and the annual returns were filed were store at 152, basement, Kohinoor ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... on for fall in the gross profit ratio. He place reliance on the decision of the hon'ble Delhi High Court in the case of Addl. CIT v. Jay Engg. Works Ltd. [1978] 113 ITR 389, wherein it was held that if the account books were destroyed in fire then the audited accounts examined by the external auditors can be accepted as evidence in support of the return of income. Learned counsel for the assessee further argued that during assessment proceedings all the possible details were filed by the assessee-company with the learned Assessing Officer. Learned counsel carried us through the submissions made during assessment proceedings which are placed on pages 21 to 29 of the paper book and argued that the vital details such as copies of excise returns, bank statements, list of debtors/creditors and many other details which were available with the appellant were filed. In his alternative argument learned counsel contended that when the decline in gross profit ratio was accepted in last year scrutiny assessment there was no justification for accepting this trend in this year also which was well known and accepted in many cases and without prejudice to this there was no justification at all in ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... be brushed aside. Due to shortage of space, there are practices in the big cities for storing the past records either at factories or godowns or other low cost premises. Such practice has now been upheld by the hon'ble Income-tax Appellate Tribunal "A" Bench, Pune in the case of Dr. Vinay T. Karnawat Sillod [2007] 104 ITD 108 wherein it was held that only the current year's books of account are required to be kept and maintained at the place of profession and past records can be kept at other place. The authorised representative of the appellant also pointed out that except for this year the appellant-company in past never failed to produce the books of account/details whenever called for and this track record supports the explanation of the appellant for the year under consideration. This is a fact that there was unfortunate flood in the city of Surat which caused lots of damage and destruction. Merely on the basis of the reply given to a question in the context when the year was running, it cannot be said that all the past records of all the group concerns were kept and stored at the registered office only. Considering the evidence furnished by the assessee regarding loss of its ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... at normal rates only. Similar disallowance was made in last year also. The Commissioner of Income-tax (Appeals) upheld the view of the Assessing Officer. Before us, learned counsel for the assessee fairly conceded that this issue has already been decided against the assessee in the assessee's own case in the last year (assessment year 2003-04) in I. T. A. No. 2881/Ahd/2006, wherein the assessee was denied the benefit of higher rate of depreciation in respect of pre-weaving machines. The issue is coming from last year. Therefore, respectfully following the decision of the Tribunal in the asses-see's own case in I. T. A. No. 2881/Ahd/2006, the assessee appeal on this ground is rejected. Ground No. 4 in the appeal reads as under: "That the hon'ble Commissioner of Income-tax (Appeals) has erred in disallowing the brokerage expenditure of Rs.6,21,130 which is a genuine and legitimate business expenditure." The facts of the case are that during the course of assessment proceedings, the Assessing Officer noticed that the assessee claimed brokerage expenses of Rs.10,61,766. On being asked for details and evidence the assessee submitted the list of 46 brokers to whom the bro ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the comparative chart of the brokerage paid in this year as well as in the last year which is reproduced below: Assessment year 2004-05 Assessment year 2003-04 Total turnover Brokerage paid Rs.31,96,45,752 Rs.10,61,766 Rs.31,92,71,942 Rs.20,77,235 It was argued that from the above chart it is clearly evident that the brokerage paid is quite reasonable and many brokers are the same who are the brokers in the last year also. The learned Departmental representative, on the other hand, supported the orders of the lower authorities and claimed that the disallowance was rightly made as the assessee has failed to submit supporting evidence and details. We have considered the rival submissions and perused the material on record. From the list on page 24 of the assessment order, we find that out of total 29 brokers whose brokerage has been disallowed, the brokerage paid to more than 20 brokers is even less than Rs.10,000 each. We also find that the brokerage paid is almost half of the brokerage paid in the last year on almost same turnover. We also find that during assessment proceedings, the assessee furnished complete ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he law. Such deductions cannot be denied merely because the same were not claimed in the return of income because there were no profits as per return of income. He place reliance on the decision of the hon'ble Madras High Court in the case of CIT v. Valli Cotton Traders P. Ltd. [2007] 288 ITR 400. We have considered the rival submissions and perused the material on record along with the orders of the authorities below. We find that the hon'ble Madras High Court in the case of Valli Cotton Traders P. Ltd. [2007] 288 ITR 400 have held as under (page 406): "6.6 In the instant case, it is clear from the records that it is the Assessing Officer, who refused to accept the original return filed by the assessee, in which the assessee had shown a loss and after issuing notice under section 148 of the Act, completed the assessment under section 147 of the Act, which resulted in profit. Therefore, at that point of time, the Assessing Officer ought to have informed the asses-See that the non-furnishing of the audit report in Form No. 10CCAC to claim deduction under section 80HHC is a defect . . . 8. Therefore, it is clear that the spirit behind sub-sections (5) and (9) of section 1 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the additions as discussed above. On the basis of these facts, the Assessing Officer initiated penalty proceedings and after considering the submissions made by the assessee levied the impugned penalty of Rs.51,13,506 holding that the assessee-company has concealed income of Rs.47,67,950 by furnishing inaccurate particulars of income and thereby committed a default under section 271(l)(c) of the Act. In appeal, the assessee pleaded that there is no deliberate and conscious: concealment for furnishing of inaccurate particulars of income. The asses-see also relied upon the decision of the hon'ble Supreme Court in the case of T. Ashok Pai v. CIT [2007] 292 ITR 11. The Commissioner of Income-tax (Appeals) after considering the submissions made by the assessee, confirmed the penalty in respect of gross profit addition and brokerage addition but deleted the penalty in respect of depreciation disallowance. Before us, learned counsel for the assessee submitted that the assessee- 2 company is engaged in the business of texturising and twisting of yarn. For the year under appeal, the return of income was filed on October 7, 2004 for total income of Rs.1,76,460. The learned Assess ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... aw points. Hence, all the disallowances/additions have been made on probability and estimated basis. There is no finding of concealment of income or furnishing inaccurate particulars thereof. Also, higher rate of depreciation on plant and machinery had been claimed under bona fide belief that the appellant are eligible for the same. There was no mala fide intention. Learned counsel also submitted that the hon'ble apex court in its recent judgment held that penalty under section 271(l)(c) can be levied only if there is finding of the fact that there is deliberate act on part of the assessee to conceal income or furnish inaccurate particulars of income. In support learned counsel placed reliance on the following decision of the hon'ble Gujarat High Court in the case of CIT v. Peass Industrial Engg. P. Ltd. [2005] 274 ITR 437 and the decision of the hon'ble Punjab and Haryana High Court in the case of CIT v. M. M. Rice Mills [2002] 253 ITR 17 for the proposition that no penalty can be levied on addition on account of gross profit estimation. He also relied on the decision of the Income-tax Appellate Tribunal in the case of ITO v. Hanuman Filaments P. Ltd. in I. T. A. No. 2819/Ahd/2009 ..... X X X X Extracts X X X X X X X X Extracts X X X X
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