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TMI Blog2012 (11) TMI 792X X X X Extracts X X X X X X X X Extracts X X X X ..... ssessee is in appeal before us. The revenue is challenging the relief granted by Ld CIT (A). 3. Both the parties are in cross appeals in respect of the following issues, since the Ld CIT (A) has granted partial relief on those issues. The assessee is seeking further relief, while the revenue is assailing the relief granted by Ld CIT (A). (a) Disallowance made from Salary and Bonus (b) Disallowance made from Telephone expenses (c) Disallowance made from Motor Car expenses and Depreciation on Motor car We shall dispose of these issues first. 3.1 The first common issue pertains to disallowance made from the expense claimed under the head "Salary and Bonus". The assessee had claimed an amount of Rs.1,27,37,469/- under this head. On verification of the said claim, the AO noticed that a sum of Rs.68,19,704/- was paid in cash and also without deducting P.F there from. The AO asked the assessee to produce ten employees, but the assessee could produce only five of them. Therefore, the assessee doubted about the genuineness of salary expenses, which were paid in cash, more particularly for the reason that the PF was not deducted there from. Accordingly, he disallowed 25% of salary expe ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n of the assessee establishes the fact that the telephones were put to personal use also. However, the assessee has failed to furnish any material to substantiate the quantum of disallowance made by it. Hence we find no reason to interfere with the decision of Ld CIT (A) on this issue. 3.1.3 The last common issue pertains to disallowance made from the expense claimed under the head "Vehicle expenses" and also from depreciation claimed on Motor car towards personal use. As in the case of "Telephone expenses" discussed in the preceding paragraph, the assessee had disallowed 1/20th of the said claim. The AO enhanced the disallowance to 1/4th and the Ld CIT (A) sustained the disallowance to 1/5th of the claim. The view taken by us in respect of the "Telephone Expenses" shall apply with equal force to this issue also. Accordingly, we uphold the order of Ld CIT (A) on this issue also. 4. Now we shall take up the specific issues raised in the appeal filed by the revenue, which are listed out below:- (a) Addition made towards Suppression of Gross Profit. (b) Disallowance made from "Discounts and Rebates" claim. (c) Disallowance made from "Labour charges" claim. (d) Disallowance of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of closing stock is determined, after determining the amount of Gross Profit, the AO proceeded to verify the correctness of the GP rate of 6.21% adopted by the assessee. Accordingly, the AO asked the assessee to calculate the GP rate of certain items of spare parts from the sales invoices. For that purpose, ten sales invoices raised in the beginning of the year were taken in to consideration. The calculations made by the assessee were attached as Annexures A to D to the assessment order. In Annexure A, 40 items of spare parts were considered for the said purpose. In Annexure B, C and D, the number of items considered were 30, 63 and 94 respectively. The AO noticed that the above said list of items also included certain items, which were replaced at free of cost during the warranty period. Since there will not be any profit element on the items replaced at free of cost, the AO excluded those items from the workings. The rate of GP worked out in the four annexures, after excluding the free replacement items, ranged from 11.73% to 18.22%. The average of the said rates worked out to 15.62%. Hence, the AO concluded that the assessee had shown lower rate of GP rate on sale of Spare part ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... wever the assessee did not submit a copy of the said order and hence we could peruse the same.) (b) The Ld CIT (A) has held that there is no justification in invoking the provisions of sec. 145(3) of the Act and in rejecting the book results. The said finding was not challenged by the revenue. In the absence of any challenge to the finding recorded by ld CIT (A), the books results declared by the assessee shall have to be accepted. Reliance was placed on the decision rendered by this bench in the case of ITO Vs. M/s P.T. Synthetics (ITA No.4520/Ahd/2007); M/s P.T. Synthetics Vs. ITO (ITA No.4543/Ahd/2007 and ACIT Vs. Shri Ramanbhai B Patel (HUF) (ITA No.1948/Ahd/2008). (c) Even if day to day stock register is not maintained, the book results cannot be rejected. ITO Vs. Mansi Prints Pvt. Ltd (ITA No.498 and 872/Ahd/2009). On the contrary, the Ld D.R pointed out that the assessee had been arriving at the value of closing stock by applying the predetermined GP rate. Hence the AO proceeded to examine the veracity of the rate adopted by the assessee, which was ultimately found to be very much lower. Hence the AO has arrived at the rate of GP on the basis of sales invoices and has ado ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... point. We notice that the average rate of GP has been worked out only on the basis of sales invoices maintained by the assessee. However, we find that the assessee has not taken steps (a) to bring instances from other sales invoices to prove its claim that the rate of GP was low in majority of items of spare parts. (b) to work out the GP rate from the rates determined by M/s Tata Motors Ltd, as the purchase price and selling price are determined in advance by the said company. There cannot be any dispute that the rate of GP depends upon the purchase price and selling price of a product. The assessee could have done a meaningful exercise to substantiate the average rate of GP of 6.21% declared by it on the basis of purchase and sales invoices by adopting weighted average method. However, we notice that the assessee has chosen to substantiate the rate of GP adopted by it only on the basis of general submissions. 4.1.5 There cannot be any dispute that the assessee cannot realize any profit when a particular item is replaced at free of cost during the warranty period. If such warranty claims are borne by the assessee, then it will certainly have impact on the rate of GP. However, i ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... mons issued by the AO, the assessee had explained the manner as to how the discounts were paid to those customers. The assessee also gave some satisfactory explanation with regard to the contradictory replies given by some customers. The Ld CIT (A) also recognized the fact that the relationship between the assessee and its customer normally ends after the completion of sales and hence there is no compulsion for the customers to appear before the income tax authorities. Accordingly the Ld CIT (A) opined that the AO could not have taken adverse inference against the assessee for non-appearance of certain customers. The Ld CIT (A) also noticed that the AO has failed to adduce the opportunity of cross examining the persons who have given contradictory statements. In view of the various reasons discussed above, the Ld CIT (A) did not find any merit in the impugned disallowance and accordingly deleted the same. We have also gone through the detailed discussions made by the Ld CIT (A) and find that the various points that were considered by first appellate authority are valid ones. Accordingly, we do not find any infirmity in his decision on this issue. 4.3 The next issue relates to the ..... X X X X Extracts X X X X X X X X Extracts X X X X
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