TMI Blog2004 (2) TMI 311X X X X Extracts X X X X X X X X Extracts X X X X ..... 0(a)(2) were applicable since sole selling agent M/s Hindustan Textile Agency was a sister concern of the assessee. Before the AO the assessee stated that the aforesaid concern was appointed sole selling agent long back and commission at 3.5 per cent had been paid for the period relevant to asst. yrs. 1976-77 to 1982-83. It was stated that on account of excellent handling of the sales by the agent the sales had risen from Rs. 83,72,460 in the year 1975-76 to Rs. 2,22,09,939 for the year 1982-83 and in the succeeding year, i.e., accounting year 1982-83 relevant to asst. yr. 1983-84 the sale came down to Rs. 1,44,48,285 when the commission was reduced to 2.75 per cent from 3.50 per cent. It was contended that the transactions even with relatives or associate concerns could not be disregarded and price paid, as commission, could not be disregarded unless it was shown by the Department that the transaction was sham or commission paid was not really paid. The reliance was placed on the judgment of Hon ble Gujrat High Court in the case of Voltamp Transformers (P) Ltd. vs. CIT (1981) 23 CTR (Guj) 312 : (1981) 129 ITR 105 (Guj). It was stated that the commission payment to M/s Hindustan Te ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the submissions of the assessee observed that no doubt the assessee reduced the rate of commission payment to same party in the subsequent year and the reason for reduction was stated that in the earlier year this party was only sole selling agent but in the subsequent year this party also took selling agency of another party namely M/s Rajkamal Textile, therefore, the assessee reduced the rate of commission to its sister concern since the party was not taking much interest in the selling of the goods of the assessee. The learned CIT(A) pointed out that the sales of the assessee got reduced due to the reduction of commission to the sole selling agent and that the AO had not commented upon the reply of the assessee to justify his action even when called upon to do so. However, the learned CIT(A) sustained the addition of Rs. 65,515 and allowed a relief of Rs. 1,00,000. 4. Now the Department is in appeal against the relief of Rs. 1,00,000 while the assessee is in appeal against the sustenance of the disallowance of Rs. 65,515. The learned Departmental Representative supported the order of the AO and stated that in the subsequent year the assessee itself reduced the commission to ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... at all excessive or unreasonable. It was also stated that the transaction of paying commission was duly supported by an agreement executed on 30th Oct., 1973 between the assessee and M/s Hindustan Textile Agency. The reference was made to page Nos. 65 to 69 of the paper book. Accordingly, it was submitted that the payment of commission was a contractual obligation. On the basis of aforesaid submissions, the learned counsel for the assessee prayed to delete the disallowance sustained by CIT(A). 5. We have considered the rival submissions and carefully gone through the material available on the record. In the instant case, it is noticed that M/s Hindustan Textile Agency, a sister concern of the assessee, was acting as sole selling agent and for that purpose there was an agreement which was executed on 30th Oct., 1973. It is also noticed that the commission at 3.5 per cent was paid by the assessee to M/s Hindustan Textile Agency from very beginning of its business till the year relevant to the assessment year under consideration and no such disallowance had been made in past. It seems that the AO allowed the commission at 2.75 per cent only on the basis that in the subsequent year t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he AO opined that the production should have been at 19,95,649 mtrs. The AO after considering the aforesaid estimated production, worked out the estimated production at 19,68,986 mtrs. as against the production shown by the assessee at 19,03,351 mtrs. The estimated production was worked out by the AO by observing as under: "(a) Estimated production on the basis of average shortage as worked out in para 9 above (i.e. 19,03,351 + 51,464) 19,54,815 mtrs. (b) Estimated production on the basis of colours and chemicals consumed as worked out in para 15 above 19,56,507 mtrs. (c) Estimated production on the basis of value of colours and chemicals consumed as worked out in para 16 above. 19,95,649 mtrs. Total 59,06,961 mtrs. The average production of the assessee after taking into account all the above factors thus works out to 19,68,986 mtrs. (i.e. 5,90,961 divided by 3)." On the aforesaid basis the AO worked out under-production of finished cloth by 65,636 mtrs. and valued the same at Rs. 5,12,000. The AO further stated that the assessee had shown Gross Profit rate of 11.6 per cent for the year under consideration as ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rival submissions the learned counsel for the assessee reiterated the submissions made before the authorities below and vehemently argued that the AO had not invoked the provisions of s. 145 of the IT Act and the results declared by the assessee as well as method of accounting regularly employed had not been rejected. Therefore, there was no justification in making the trading addition without pointing out any specific defect in the books of account maintained by the assessee, which were supported by the vouchers etc. The reliance was placed on the following case laws: (i) R.B. Bansilal Abirchand Spg. Wvg. Mills vs. CIT (1970) 75 ITR 260 (Bom) (ii) CIT vs. Maharaja Shree Umaid Mills Ltd. (1991) 96 CTR (Raj) 72 : (1991) 192 ITR 565 (Raj) (iii) Dy. CIT vs. Mewar Textile Mills Ltd. 21 Tax World 821 (Jp) (iv) Mohd. Umer vs. CIT 1975 CTR (Pat) 13 : (1975) 101 ITR 525 (Pat) (v) Ajanta Constructions (P) Ltd. vs. Asstt. CIT 22 Tax World 606 (Jp) (vi) Manohar Lal vs. ITO (2000) 68 TTJ (Jd) 27 (vii) Shri Gautam Textile vs. ITO (2001) 72 TTJ (Jd) 169 (viii) Vinod Kumar Pramod Kumar vs. ITO (2000) 66 TTJ (Jd) 722 (ix) Brij Lal vs. ITO (2001) 75 TTJ (Jd) 374 (x) ITO vs. S ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he average production without any scientific method. In such type of cases it cannot be said that there is set formulae or scientific method to estimate the production on the basis of consumption of chemicals and stores etc. The production can be compared with other years only if all the conditions are identical, i.e., the quality of cloth to be processed and quality of the chemicals is similar but such type of happening are rare to be happened. In other words it can not be said that the quality of the chemical will remain the same year after year and the climatic condition will also remain the same year after year. Therefore, the order of the AO can be said as a hypothetical calculation only and not more than that. In that view of the matter, we are of the considered view that the AO was not justified in estimating the production of the assessee on the basis of consumption of chemicals and stores etc. As regards to the application of Gross Profit rate is concerned it is noticed that the AO worked out the average Gross Profit rate of the asst. yrs. 1980-81, 1981-82, 1983-84 and 1984-85. In other words the AO took two assessment years which were preceding the assessment year under c ..... X X X X Extracts X X X X X X X X Extracts X X X X
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