TMI Blog2012 (7) TMI 479X X X X Extracts X X X X X X X X Extracts X X X X ..... opening stock, purchases, consumption, production and sales which were verified by the AO and accepted without pointing out any deficiency or defect in them. Thus in these circumstances provision of section 145(3) have been incorrectly resorted to by the AO. Furthermore, AO has partly rejected the books of account, which is not tenable - in favour of assessee. Addition on account of disallowance u/s 40(a)(ia) - Held that:- The assessee has made payments to the three transporters mentioned in the assessment order for each order of transport executed by them. As the assessee has no contract for transport with any transporter, thus each GR Note becomes a separate contract and since the value of such contract does not exceed Rs. 20,000/- the assessee was not required to deduct tax at source from the said payments - the Board Circular No. 715 dated 8.8.1995 comes to the rescue of the assessee - the AO has not brought on record any document to show that the assessee had contract with any transporter and thus just because the payments exceeded Rs. 50,000/- there was no implicit reason to hold that the payments were made in pursuance to a contract - in favour of assessee. Disallowanc ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... r. II. On the facts and in the circumstances of the case, the Ld. CIT(A) has erred on facts and in law in deleting the addition of Rs. 13,04,524/- by simply relying on the decision in assessee's own case in the Asstt. Year 2001-02 in contravention of the Hon'ble Supreme Court's decision in the case of C.K. Gangadharan Anothers Vs. CIT (2008) 218 CTR SC. Wherein it is held that "merely because the revenue has not preferred appeal in some cases, it does not operate as a bar for the Revenue to prefer an appeal in another case where there is just cause for doing so or it is in the public interest to do so. III. On the facts and in the circumstances of the case, the Ld. CIT(A) has erred on facts and in law in deleting the addition of Rs. 20,97,572/- made on account of shortage in production even when the assessee has not been able to justify the shortage in furnished product. IV. On the facts and in the circumstances of the case, the Ld. CIT(A) has erred on facts and in law in deleting the addition of Rs. 8,59,481/- made on account of disallowance u/s 40(a)(ia) of the Income Tax Act, 1961 ignoring the legal position that the tax was required to be deducted on the payment of Rs. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the time of hearing of appeal. 4. The grounds raised in ITA No. 1680/Del/2010 (A.Y. 2007-08) read as under:- (i) On the facts and in the circumstances of the case, the Ld. CIT (A) has erred on facts and in law in deleting the addition of Rs. 47,91,977/- made by the AO on account of payments of commission made to agents viz. of Turkey at Rs. 35,34,232/- and of Mauritius at Rs. 12,57,747/- disregarding the fact that the assessee had contravented the provisions of section 195 read with section 40(a) of the Income Tax Act, 1961. (ii) On the facts and in the circumstances of the case, the Ld. CIT (A) has erred on facts and in law in deleting the addition of Rs. 4,84,197/- made by the AO on account of excess shortage claimed even though the assessee had not furnished any authentic documentary evidence in support of its claim. (iii) That the appellant craves for the permission to add, delete or amend the grounds of appeal before or at the time of hearing of appeal. 5. One common issue raised in assessment years 2005-06 and 2006-07 pertains to addition made by the AO on account of labour charges. Since the facts are common, we deal with the case by taking the figures from asse ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Out of those persons to whom summons u/s. 131 could be served, 2 appear in this office and have stated on oath that they have never worked for the assessee nor have ever received any payments from him. v) The assessee has refused to make any attempt to produce any of the labourers, barring 1. vi) It is further seen that the total labour charges by the assessee have been claimed at Rs.31,40,316/- which forms - percentage of the total turnover of the assessee. The same is very high as compared to the percentage of the expenses shown under the said head by other assessees in the same line of business. A mention in this regard may be made or the following two leading manufacturers of Mehandi in Faridabad who have claimed labour charges for the A.Y.2005-06 as indicated against their names:- i) M/s Kuriya Mal Sons, Faridabad Percentage of total labour charges to turnover - 1.13% ii) M/s Ishar Dass Amirchand, Faridabad Percentage of total labour charges to turnover - 1.52% 7. Before the CIT(A) assessee inter-alia submitted as under:- Coming to the issue of non verification of the persons in whose names the labour charges have been paid it is the contention of the assessee ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... comparative figure of labour charges claimed in earlier years. Ld. CIT(A) found that AO has adopted flimsy and frivolous ground on which he has made the disallowance out of labour charges. Ld. CIT(A) further observed that AO has not gone into the pragmatic and practical phenomenon in such line of business and has restricted the expenditure out of labour charges on an arbitrary, mindless and self-willed basis. Ld. CIT(A) further found that AO has not brought any thing afresh or any material on record which can go against the established history of the assessee firm. Ld. CIT(A) further found that AO did not provide any opportunity to the assessee for the application of percentage ratio of the labour charges to turnover, neither did he confront with it the documents of the comparable cases relied upon by him. Ld. CIT(A) further observed that on the issue of labour charges in assessee s own case in A.Y. 2001-02, the Jurisdictional Tribunal vide its order dated 8.12.2006 in ITA No. 3936/D/2004 had clinched the issue after going into the history of the case regarding sales, packing charges and labour charges, deleting the disallowance worked out of packing charges and labour charges in ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t years. It is also a fact that the AO has made adhoc disallowance of 50% of packing charges and labour charges claimed by the assessee without pointing out the specific expenditure under those heads which were not verifiable as the address of the casual labourers were not available. It has not been found that labour charges claimed were excessive by citing any comparable cases. In view of the above we are of the considered view that the disallowance made by the AO cannot be sustained in law and requires to be deleted. Hence we set aside the orders of the lower authorities and direct the AO to allow deduction of packing charges and labour Charges of Rs. 378096/- and Rs. 154840/- respectively claimed by the assessee. The ground of appeal of the assessee is allowed. 8.1 We find that the facts in the present case are analogical with the facts of the decision of Tribunal in assessee s own case as aforesaid. In the background of the aforesaid discussion and precedents relied upon, we affirm the order of the Ld. CIT(A) on this issue. 8.2 In the result, on this issue, the Revenue s appeal stands dismissed. 9. One common issue raised in assessment years 2005-06, 2006-07 2007-08 pe ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ts maintained by the assessee firm were in no way in dispute as is clear from the assessment order. Hence, the provisions of section 145(3) of the IT Act have been incorrectly resorted to by the AO. Ld. CIT(A) further noted that the ld. Counsel of the assessee pointed out that the AO was not at all justified to part reject the books of account in making an isolated addition only out of shortage, instead of making a full rejection of the accounting version and then determining the profits, if any, arrived at. Ld. CIT(A) further found that the claim of the assessee is in line with its past history. Ld. CIT(A) further noted that AO has restricted the shortage by comparing with the case of M/s Ishar Das Amir Chand, Faridabad. Ld. CIT(A) found that the same was not very reliable as its method of accounting of trading results are quite different from the case relied upon. Ld. CIT(A) further noted that this tribunal in its order dated 5.9.2002 in ITA No. 1044/Del/98 in assessee s own case for the assessment year 1995-96 has confirmed the action of the Ld. CIT(A) in deleting the addition effected by the AO on account of wastage in henna account. Ld. CIT(A) observed that in this year also ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d to deduct tax at source from the said payments. It was further submitted that this is also borne out by the Board Circular No. 715 dated 8.8.1995 wherein the following was stated Question 9 : In the case of payments to transporters, can each GR be said to be separate contract, even though payments for several GRs are made under one bill. Answer :- Normally, each GR can be said to be a separate contract, if the goods are transported at one time. But if the goods are transported continuously in pursuance of a contract for a specific period or quantity, each GR will not be a separate contract and all GRs relating to that period or quantity will be aggregated for the purpose of the TDS. It is not the case of the AO that each GR is above Rs. 20,000/- and thus the assessee was not required to deduct tax at source. This is a legal ground which can taken up at any point in time in the appellate proceedings. It was further submitted that the AO has not brought on record any document to show that the assessee had contract with any transporter and thus just because the payments exceeded Rs. 50,000/- there was no implicit reason to hold that the payments were made in pursuance to ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... idence of commission and receipts and agreements with the agents OCAK, Turkey and Isham Rook, Mauritius. Ld. CIT(A) observed that he has gone into the past history of the case where such expenses have been fully accepted by the department, as in this case since the assessee is an exporter of black and red heena, commission is paid at the contracted rate to the overseas agents appointed by the assessee who procure orders and ensure the realization of the payments and such commission expense is incurred in the normal course of business. The majority of the assessee business is done through commission agents as the partners of the assessee firm do not travel abroad much and find the business transacted through the agents to be a profitable mode of conducting business. Ld. CIT(A) further observed that he has examined the payments of commission vis-a-vis the turnover of the assessee from A.Y. 2000-01 to A.Y. 2006-07 alongwith payments made to agents. He further found that such expenses have been allowed in the past years in the scrutiny assessment u/s. 143(3). He further observed that AO has not brought anything on record which may enable him to doubt the commission agreements and pay ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... y, no part of their income arises in India. Further, since the payment was remitted directly abroad it cannot be held to have been received by or on behalf of the agent in India. Further, Ld. CIT(A) has given a finding that in earlier years such expenditure have been allowed in the scrutiny assessment u/s. 143(3). Under the circumstances, in the background of the aforesaid discussion, we do not find any infirmity in the order of the Ld. CIT(A). Accordingly, we uphold the same. 26. Another issue raised in assessment year 2005-06 pertains to disallowance in respect vehicle expenses and telephone expenses. 27. The AO in his order has made the addition out of vehicle expenses and telephone expenses to the extent of 1/5th and 1/3rd out of the total expenditure debited under each head respectively for the personal use of those assets. As far as the addition in the vehicle expenses is concerned, the AO has mentioned that the assessee has first surrendered one fifth of these expenses but the said disallowance surrendered was subsequently withdrawn, and it rather had requested for 1/10th disallowance out of these expenses. The AO treated it as deviation from the earlier stand of the a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the consumption of electrical expenses with the household expenses shown and educational expenses incurred. The AO estimated the household expenses of the above partners at Rs. 3,99,300/-; Rs. 3,02,450/- and Rs.1,98,380/- and thus worked out the suppression at Rs. 2,70,000/-, Rs. 85,000/- and Rs. 45,000/- respectively and added them to the total income of the assessee firm. 34. Upon assessee s appeal ld. CIT(A) observed that AO was well within the powers to enquire about the household expenses of the partners, yet the AO has not been able to establish whether the estimated additions were to be effected in the hands of the assessee firm out of the funds of the firm or through their personal sources. Further, Ld. CIT(A) observed that as per the provisions of section 69C, the onus was on the AO whether the expenditure attributed to partners was actually spent for their household purposes which he claims to have established but he has not established by any documentary evidences that much expenditure incurred as such. Thus, Ld. CIT(A) concluded that addition made on account of household expenditure also remains without any basis or material. Therefore, he held that the addition ..... X X X X Extracts X X X X X X X X Extracts X X X X
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