TMI Blog2014 (7) TMI 1028X X X X Extracts X X X X X X X X Extracts X X X X ..... IT (A) attempted to examine the veracity of reasons submitted by the assessee for decline in GP rate – AO as well as the CIT (A) made and confirmed the addition mainly on the reason that books of accounts stood rejected - As the issue of rejection of books to the file of the AO for fresh and de novo adjudication - the issue of GP rate is also remitted back to the AO for fresh adjudication – Decided in favour of Assessee. Managerial remuneration and salary to director’s relatives – Held that:- The managerial remuneration which could be paid by the assessee per managerial person comes to ₹ 1,25,000/- monthly or say ₹ 15 lacs per annum - the amount paid is only ₹ 12,96,000 - this is well within the limit as prescribed in the Companies Act, 1956 - CIT (A) was not justified in sustaining the same - the salary can be paid to relative of the directors were up to ₹ 20,000/- per month or ₹ 2,40,000/- per annum - the salary paid was only ₹ 2,40,000/-, therefore, the payment was also within the limits of Companies Act, 1956 which does not require any approval from Board or Central Government – Decided in favour of Assessee. Foreign exchange fluctuatio ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... was engaged in the business of manufacturing and exporting of welding machine tools and accessories. The unit located at Bhiwadi (Rajasthan) was 100% export oriented unit, it was manufacturing and exporting garden tools, agricultural and fence post. The Assessing Officer rejected the books of accounts and made additions and also disallowed certain other expenses. The CIT (A) has confirmed the action of the Assessing Officer. Now, the assessee is in appeal before us by taking the following grounds of appeal :- 1. On the facts and circumstances of the case, the order passed by the learned Commissioner of Income Tax (Appeals) [CIT(A)] is bad both in the eye of law and on facts. 2(i) On the facts and circumstances of the case, the learned CIT(A) has erred both on facts and in law in confirming the action of the AO in rejecting the books of accounts of the assessee. (ii) On the facts and circumstances of the case, the learned CIT(A) has erred both on facts and in law in confirming the action of the AO in rejecting the books of account ignoring the explanation and evidences submitted by the assessee in support of its contention and on the wrong premises that the acc ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... , the learned CIT(A) has erred both on facts and in law in distinguishing that the judgment of the Supreme Court in the case of CIT vs. Woodward Governor India Pvt. Ltd. (2009) 312 ITR 254 (SC) is not applicable to the facts of the case. 6. On the facts and circumstances of the case, the learned CIT(A) has erred both on facts and in law in confirming the action of AO in disallowing an amount of ₹ 84,478/- made by AO on account of VAT written off. 7. On the facts and circumstances of the case, the learned CIT(A) has erred both on facts and in law in confirming the action of AO in not allowing assessee the exemption under section 10B of the Act, despite the assessee being eligible for the same. 8. The appellant craves leave to add, amend or alter any of the grounds of appeal. 3. Ground No.1 is general in nature and does not require any adjudication. 4. In the ground nos.2(i), (ii) and (iii), the issue involved is confirming the action of Assessing Officer in rejecting the books of accounts of the assessee. While pleading on behalf of the assessee the ld. AR submitted that the Assessing Officer raised queries which have been replied by the assessee. H ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 998) 60 TTJ (Ind) 27 7. Pushpanjali Dyeing Printing Mills (P) Ltd. Vs. JCIT (2001) 72 TTJ (Ahd) 886 8. Ganesh Foundary Vs. ACIT (2003) 78 TTJ (Jd) 736 5. On the other hand, ld. DR relied on the orders of the authorities below and submitted that in the auditor s balance sheet, the auditors have made various observations like non-availability of various balance confirmations, non-availability of office copies of the invoices raised by the company, noncompliance of various provisions of Companies Act, 1956, non-maintenance of fixed asset register, payment of managerial remuneration without complying with the provisions of section 11 of Part II of Schedule XIII of the Companies Act, 1956 giving salary to relative of whole time director in contravention of the provisions of Companies Act, not physically verifying of the stock and various assets by the management, not maintaining proper stock record and sales transaction with the group company where directors are interested and no internal control system show that assessee s books of accounts were not reliable. He prayed that the action of the lower authorities below be confirmed. 6. We have heard both the sides on ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e addition made of ₹ 2,68,28,749/- by applying a gross profit rate of 28.39% in respect of Bhiwadi unit and confirming the addition of ₹ 38,04,328/- by applying a gross profit rate of 12.55% in respect of Delhi unit. 8. While pleading on behalf of the assessee, ld. AR submitted that assessee was having two units, one at Bhiwadi and another at Delhi. He submitted that the reason for fall in the gross profit rate during the year under consideration was fully explained with the documents to Assessing Officer. The Assessing Officer has not doubted the purchases and sales of assessee. In absence of any such discrepancy, the Assessing Officer was not justified in rejecting the books. The books were duly audited by the chartered accountant. The assessee has made total sales of ₹ 11,39,10,962/- in respect of Bhiwadi unit during the year and earned gross profit of ₹ 55,10,573/-. For the year, if compared to just preceding year, gross profit has gone down by ₹ 95,98,673/-. This gross profit has gone down due to decline in the exchange rate of UK Pound which was ₹ 86.90 in the financial year 2006-07 (Assessment Year 2007-08) as compared to the rate of &# ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ross profit. 9. On the other hand, the ld. DR relied on the orders of the authorities below. Ld. DR submitted that all the pleadings of ld. AR are hypothetical. No evidence in support of such claim was filed. Further, when cost of input rises then price of output must rise. Such facts have not been explained. He pleaded to sustain the addition. 10. We have heard both the sides on the issue. We have also perused the records filed in the paper book. On perusal of assessment order, we find that the Assessing Officer has not properly verified and examined the explanation of assessee pertaining to decline in GP rates at Bhiwadi and Delhi unit. From the orders of the authorities below, we also observe that neither the Assessing Officer nor the CIT (A) attempted to examine the veracity of reasons submitted by the assessee for decline in GP rate. The Assessing Officer as well as the CIT (A) made and confirmed the addition mainly on the reason that books of accounts stood rejected. As we have restored the issue of rejection of books to the file of the Assessing Officer for fresh and de novo adjudication, under these circumstances, we are also inclined to set aside the issue of GP rate ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... yable shall not exceed (Rupees) (i) less than rupees 1 crore 75,000 (ii) rupees 1 crore or more but less than rupees 5 crore 1,00,000 (iii) rupees 5 crore or more but less than rupees 25 crore 1,25,000 (iv) rupees 25 crore or more but less than rupees 50 crore 1,50,000 (iv) rupees 50 crore or more but less than rupees 100 crore 1,75,000 (vi) rupees 100 crore or more 2,00,000 Provided that the ceiling limits specified under this sub-paragraph shall apply, if - (i) payment of remuneration is approved by a resolution passed by the Remuneration Committee; (ii) the company has not made any default in repayment of any of its debts (including public deposits) or debentures or interest payable thereon for a continuous period of thirty days in the preceding financial year before the date of appointment of such managerial person The term ef ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... consent of the company by a special resolution and the approval of the Central Government. [Proviso to sub-section (18) omitted by the Companies (Amendment) Act, 1988 w.e.f. 15-6-1988.] [Substituted for three thousand rupees by the Companies (Amendment) Act, 1988, w.e.f. 15-6-1988. Sub-rule(2) of rule 10C of General Rules Forms prescribes a sum being not less than ₹ 20,000 for the purposes of this clause, Rule 3 of Director's Relatives(Office or Place of Profit) Rules, 2003, reads as under: (a) Partner or relative of a Director or Manager; or (b) Firm in which such Director or Manager, or relative of either is a partner; or (c) Private Company of which such Director or Manager or relative of either is a Director or Member which carries a monthly remuneration exceeding ₹ 50,000 p.m.] As per these provisions of Schedule XIII, we find that the managerial remuneration which could be paid by the assessee per managerial person comes to ₹ 1,25,000/- monthly or say ₹ 15 lacs per annum. In the assessee s case, the amount paid is only ₹ 12,96,000/-. Therefore, in our considered view, this is well within the limit as ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... as an amount which is really a loss even though such amount has not gone out from the pocket of the assessee. Profits and gains of the previous year are required to be computed in accordance with the relevant accounting standard. On general principles of commercial accounting, the value of the stockin- trade at the beginning and at the end of the accounting year should be entered in the profit and loss account at cost or market price, whichever is lower-the market value being ascertained on the last date of the accounting year, not at any intermediate date. No gain or profit can arise until a balance is struck between the cost of acquisition and the proceeds of sale. The word profits implies a comparison between the state of business at two specific dates, usually separated by an interval of twelve months. Stock-in-trade is an asset: it is a trading asset. Therefore, the concept of profits and gains made by a business during the year can only materialize where a comparison of the assets of the business at two different dates are taken into account. Under the mercantile system of accounting, what is due is brought into credit before it is actually received : it bri ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... was not adjudicated by the commercial tax authority Therefore, refund receivable by the assessee is not chargeable to tax Addition made by the AO rightly deleted by CIT (A). Since the refund of VAT receivable by the assessee is not chargeable to tax u/s 41(1) until the claim of refund is adjudicated by the commercial tax authority, therefore, respectfully following the aforesaid decision, we allow this ground of assessee s appeal. 20. In the ground no.7, the issue involved is confirming the action of the Assessing Officer in not allowing assessee the exemption u/s 10B of the Act. 21. Ld. AR submitted that the assessee is eligible for deduction u/s 10B. Such deduction has been allowed in the past years, i.e. 2006-07 and 2007-08. Evidence is placed for Assessment Year 2006-07 at pages 1286 to 1288 of the paper book and for Assessment Year 2007-08, the evidence is placed at pages 1293 1295 of the paper book. The assessee fulfills all the conditions of exemption including approval of Development Commissioner. The CIT (A) s observation that the assessee has not given submission and evidence to show that all conditions are fulfilled, is factually wrong as is evident from ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... figure 3.4 The above reply as well revised computation of the assessee has been considered but not found satisfactory. Here, it would be in the fitness of things to refer to the wordings of section 10B which reads as under: 10B Special provisions in respect of newly established hundred per cent export oriented undertakings (1) Subject to the provisions of this section, a deduction of such profits and gains as are derived by a hundred per cent export oriented undertaking from the export of articles or things or computer hardware for a period of ten consecutive assessment years beginning with the assessment year relevant to the previous year in which the undertaking begins to manufacture or produce article or things or computer software, as the case may be shall be allowed from the total income of the assessee. 3.5 The relevant words, here are profits and gains as are derived by a 100% EOU from the export of article. The expression derived from came up for consideration before the Apex Court in Cambay Electric Supply Industrial Co. Ltd. Vs CIT (1978) 113 ITR 84, where the Hon'ble court held that the expression derived from has to be gi ..... X X X X Extracts X X X X X X X X Extracts X X X X
|
