TMI Blog2013 (7) TMI 473X X X X Extracts X X X X X X X X Extracts X X X X ..... Accounts of the assessee were not produced for verification - Held that:- Even Books of Accounts are not reliable, the expenditure claimed have to be allowed, if same is incurred for running the business. FAA has given a finding of fact that expenses claimed by the appellant were bank charges,auditor's remuneration, service charges, godown rent, brokerage to bank, salary and wages.In our opinion, if the amounts incurred on the said items are verifiable, no disallowance can be made. As this aspect needs further verification remit back the matter to the file of the AO - partly allowed in favour of the AO. Rejection of Books of Accounts - assessment order passed u/s. 144 - FAA had upheld the order of rejecting the Books of Accounts - Held that:- It is the duty of the assessee to produce Books of Accounts during the assessment proceedings before the AO for determining the right tax liability. In the case under consideration, neither before the survey team nor before the AO required Books of Accounts were produced. In these circumstances, upholding the order of the FAA, decide Ground against the assessee. Estimation of Closing Stock - Held that:- During assessment or appellate pro ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... estimation of gross profit @ 20% of the total turnover and restricting the estimation to 8% of the book sales. (ii) On the facts and in the circumstances of the case and in law, the CIT(A) erred in ignoring the fact that the gross profit rate of 20% was based on the actual rates derived from purchase sale register, stock statement and sales purchase bills produced by the assessee during the course of assessment proceedings. (iii) On the facts in the circumstances of the case and in law, the Ld.CIT(A) erred in ignoring the fact that the estimation is based on increase in actual weighted average of purchase sales figures appearing in the books of the assessee" 3)(i) On the fact and in the circumstances of the case and in law, the Ld.CIT(A) erred in deleting disallowances of 40% of selling and administrative expenses and restricting it to 10% of the expenses. (ii) On the facts and in the circumstances of the case and in law, the Ld.CIT(A) erred in ignoring the fact that the assessee could not produce any documentary evidences in support of his claim. 4) On the facts and in circumstances of the case and in law, the impugned order of the Ld. CIT(A) is contrary to law and ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of Accounts and documents were prepared by the members of the survey teams. 3. First Ground of Appeal is about addition made u/s. 69A of the Act of the sum of Rs.15.5 Lakhs. During the course of survey a number of blank signed cheques issued by various parties were found at the business premises of the assessee- company. AO directed the assessee to explain the blank signed cheques with appropriate documentary evidences to determine the nature of the cheques. After considering the submission of the assessee, AO held that assessee was not able to furnish any documentary evidence to support its case, that cheques were not reflected in its Books of Accounts, that the assessee had not been able to identify the corresponding sales to support its claim, that assessee had failed to identify the transaction in respect of which said cheques had been utilised, that assessee had not furnished details of the modes adopted by him or how the same were reflected in the Books of Accounts. In this background, the AO rejected the Books of Accounts and a sum of Rs.15.5 lakhs was added u/s.69 of the Act under the head Income from Other Sources by holding that the amount appearing in the signed blank ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... te of Gross Profit for the year under consideration. During the course of the assessment proceedings, AO found that assessee was deleting 8 to 10 types of items. He examined the Gross Profit margins in the said items on the basis of their weighted averages to get the true GP margin. He considered only those items which had actually been purchased and sold during the year by the assessee-company. He found that majority of the sales had been in the GP range of 10 to 20% or 20% and above. After considering this, he held that the Books of Accounts of the assessee could not be relied upon for getting a true picture of its profit, that the Gross Profit of the assessee from its trading activity was to be estimated at average rate of 20% of its turn-over. Considering the sales as per the P L A/c and un-accounted sales of stock, he estimated the rate of Gross Profit @20% for the AY under consideration. As a result an addition of Rs.93,37,633/- was made to the income the assessee. 4.1. Assessee preferred an appeal before the FAA. After considering the submissions of the assessee, FAA held that estimated Gross Profit by the AO (20%) and assessee (5.5%) were too high or too low. He held that ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... consideration. After considering the various factors like; failure to produce Books of Accounts on the date of survey, inconsistencies with respect to physical stock and its question, absence of any stock register/records as per the acceptable accounting standards, blank cheques signed by various parties found at the premises of the assessee, un-accounted sales and un- explained cash; he held that Books of Accounts maintained by the assessee were not correct, that assessee had not produced all the Books of Accounts for verification during the course of survey. Finally, he disallowed 40% of the selling and administrat -ive expenses i.e., Rs. 6.81 lakhs. 5.1. Assessee preferred an appeal before the FAA. After considering the submissions of the assessee, FAA held that the expenses claimed by the appellant included bank charges, auditor's remuneration, claim made as per the provisions of section 35AC of the Act, service charges, godown-rent and motor car expenses etc. Considering the expenses incurred under the heads brokerage to bank, salary and wages FAA held that disallowance @ 40% was excessive. He restricted the disallowance to 10% i.e. to Rs. 1,17,259/-. 5.2. Before us, DR s ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t it had failed to produce the statutory Books of Accounts on the date of survey, that assessee had claimed that it was maintaining Books of Accounts like Purchase Register, Sales Register, Bank Book, Cash Book, Journal Register, Ledger, Stock Book, that during the course of survey proceedings one of the directors Sh. Pawan Kumar Agarwal was instructed to produce the Books of Accounts, that till the conclusion of the survey Books of Account, as mentioned in the Tax Audit Report, were not produced, that survey team had impounded some of the documents found at the premises of the assessee- company, that the assessee failed to produce any of the regular Books of Accounts for verification, that Books of Accounts were not maintained at all by the assessee. He further found that documents impounded by the survey team included Bank Statement file. It also came to his notice that Bank Book, Nakal Vahi Book, Rokad Vahi Book, sales file, Statement of Stock File and Delivery Challan Book were inventorised, but same were not impounded by the survey team. He held that documents/statements impounded related to banking transaction only, that regular statutory Books of Accounts were not maintained ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... es had visited the business premises. In these circumstances, he held that the valuation of the closing stock given by the assessee could not be relied upon. 6.4. AO further found that assessee had not offered any explanation about maintenance of stock records, that during the assessment proceedings also no satisfactory explanation was tendered, that as per Column No. 9(b) of the Tax Audit Report, assessee was maintaining a Stock Book, that the said Stock Book never produced for verification at any stage. He found that on 13-03-2007, Sh. Pawan Kumar Agarwal, in his statement, admitted that Stock Registers were maintained at the warehouses, that on 23-02-2007, no Stock Register was found at the warehouses when the survey team visited the godowns. He further found that on 22-03- 2003,assessee had filed a letter wherein it was admitted that no Stock Register was being maintained by it. Vide his office letter dt. 23-11-2009, AO asked the assessee to explain as how it monitored and managed its movement of stock in the absence of Stock Register. In reply to said question, assessee submitted that the Members of the family were keeping full control over the goods, that they were able to ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... assessee as to why its Books of Accounts should not be rejected. He finally held that order passed by the AO u/s. 144 of the Act was valid, that the AO was rightly not satisfied about the correctness and completeness of the accounts, that the AO had given opportunity to the appellant, that AO had considered all the relevant material facts. Therefore, issue was decided against the assessee-company. 7.2. Before us, AR submitted that reason for rejecting the Books of Accounts was absence of Stock Register, that AO did not hold that true profit could not be deduced from the Books of Accounts produced before him, that FAA had not considered the factual position, that assessee was maintaining regular Books of Accounts. He relied upon the cases of Deepak Dalela (128 ITD 225) delivered by the Jaipur Bench of the Tribunal and AR relied upon the cases of Vishwanath Prasad Gupta(129ITD95), Triveni Pharma (92 ITD125),Jacksons House (39DTR212), Bindals Apparels (332ITR 410) Poonamrani (326 ITR 223). DR submitted that assessee had not produced Books of Accounts/documents during the course of survey proceedings/assessment proceedings, that best judgment assessment was not passed only because ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... No.1 of Cross appeal is decided against the assessee. 8. Second Ground of Appeal on Cross Objection is about estimation of Gross Profit margin by the FAA @ 8% as discussed at Para No.4.1. Before us, AR submitted that, AO had not found any discrepancy in the GP shown by the assessee, that FAA was not justified in enhancing the GP rate to 8%.DR submitted same arguments which we have discussed at para No.4.3. 8.1. As far as GP Rate to be adopted by the AO is concerned, we find that AO had not taken into consideration direct expenses like Customs Duty, Freight and Shipping Expenses etc., for determining the Gross Profit Margin. It is also fact that assessee has declared GP Rate as high as 8.95% during the AY. 2004-05.FAA has held that GP Rate adopted by the AO as well as the assessee was not reasonable and has estimated it at 8%.In our opinion, it is a case of estimation of Gross Profit only and the decision of the FAA does not suffer from any infirmity. Upholding his order, we have decided the issue against the AO. Following the discussion at Para No. 4.3, we decide Ground No.2 of the C.O. against the assessee. 9. The Last Ground of Appeal of Cross Objection is about estimation ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e in closing stock difference of GP should have been added. DR supported the orders of the AO and the FAA. 9.3. We have heard the rival submissions and perused the material put before us. Assessee has no where denied that on the date of survey there was shortage of stock. During assessment or appellate proceedings before the AO/FAA, he had not explained the deficiency of stock not found during the survey operations. In these circumstances, departmental authorities were right in holding that there were un- recorded sales during the assessment year under consideration. AR has submitted that only GP could be added and not the entire sales. Argument of the assessee that only GP should be added is a clear admission that assessee was indulging in selling goods out of the books. Therefore, upholding the order of the FAA, we decide Ground No.3 of C.O. against the assessee. As far as the alternative submission of the assessee to consider the GP only for making addition, we are of the opinion that whole of sale proceeds cannot be treated as income of assessee. AO is therefore directed to re- calculate the profit @ 8% for determining the exact addition under the head 'Un- recorded Sales' as ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Accounts itself which when totaled and compared, arrived at a Gross Profit Margin of 5.60% without considering and appreciating the facts circumstances of the case. 3. On the fact and circumstances of the case as well as in Law, the Learned CIT(A) has erred in confirming the estimation of the Closing Stock of the Appellant as sold during the year without considering and appreciating the facts circumstances of the case. 4. The appellant craves leave to add, amend, alter or delete the said ground of appeal. 10.1. Background:- Assessee, a sister concern of Unicorn Textiles Pvt.Ltd. (UTPL) was carrying out its business from the premises of UTPL. During the survey proceedings of 22- 03-2007 inventories of the documents and stock of the assessee were prepared by the members of survey team. 10.2. In pursuance of survey, AO rejected the books of accounts of the assessee while passing best judgment assessment. He made additions under the heads gross profit margin, unaccounted sales of stock, selling and administrative expenses. Except for the figures; of rate of gross profit margin and sale proceeds of unaccounted sales; facts and arguments of the AO are identical to the facts ..... X X X X Extracts X X X X X X X X Extracts X X X X
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