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2015 (11) TMI 789 - ITAT JAIPUR

2015 (11) TMI 789 - ITAT JAIPUR - TMI - Rejection of books of account - trading addition - Held that:- Firstly, it is noted that while rejecting the books of account of the assessee, the show cause was issued to the assessee on 28-12-2010. Thereafter, there is entry in the order sheet by the assessee on the same date and the assessment order has also been passed on the same date which shows that the matter has not been given considered thought by the AO. It is a clear case of lack of opportunity .....

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h are duly supported by bills and vouchers. Further monthwise quantitative details are also maintained. It is, therefore, important that the AO should examine both quantitative as well as qualitative details as maintained by the assessee in order to determine the reasons for fall in gross profit rate as compared to past years. Thirdly, the assessee has mentioned that the gross profit has increased in absolute terms from ₹ 18,26,910/- (A.Y. 2007-08) to ₹ 41,78,691/- (A.Y. 2008-09) but .....

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nditions which led to the fall in gross profit rate. In the light of above discussions and especially the fact that the assessee has been denied a reasonable opportunity of being heard, the mater is set aside to the file of the AO to determine afresh whether the assessee has declared correct gross profit or not.

Disallowance of car & conveyance, shop expenses, mobile and telephone expenses,transportation expenses - these expenses pertain to 20% of total expenses which have been incurr .....

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wn under direct expenses which have already suffered disallowance by application of adhoc gross profit rate by the AO. The AO is directed to verify the same

Addition on account of house hold expenses, the assessee has submitted detailed submission in respect of house hold withdrawal in his name as well as in the name of his wife. The AO is directed to verify the same and allow the same after due verification.

Disallowance of penalty expenses, the assessee has submitted that .....

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assessment proceedings. Further the Income Tax Returns were also filed and both the creditors are assessed to tax. Both these persons have confirmed the loan transactions made with the assessee and the transactions are duly verifiable and the creditors have been duly identified. Thus in view of these facts, the addition made u/s 68 is deleted. Hence, the order of the ld. CIT(A) is not sustainable on this point and addition sustained by the ld. CIT(A) is deleted. - Decided in favour of assessee. .....

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T. R. Meena, AM For the Petitioner : Shri P. C. Parwal, CA For the Respondent : Shri Dilip Sharma, JCIT ORDER Per R. P. Tolani, JM This is an appeal filed by the assessee against the order of the ld. CIT(A), Ajmer dated 21-03-2013 for the assessment year 2008-09 wherein following grounds have been raised by the assessee:- 1. The ld. CIT(A) has erred on facts and in law in upholding the rejection of books of account by applying provisions of Section 145(3) of the Act. 1.1 The ld. CIT(A) has erre .....

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₹ 19,660/- Transportation expenses ₹ 28,919/- House hold expenses ₹ 1,06,815/- Penalty expenses ₹ 1,78,540/- Cash Creditors ₹ 39,400/- Commission expenses ₹ 22,000/- 2.1 The ld. CIT(A) has further erred on facts and in law in not allowing the set off of trading addition of ₹ 9,76,312/- confirmed by him against the disallowance / addition in respect of transportation expenses, house hold expenses and cash creditor made by him resulting into double additio .....

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n of last two preceding years as against gross profit rate of 1.90% declared by the assessee for the assessment year 2008-09. 2.2 The ld. CIT(A) has confirmed the rejection of books of account u/s 145(3) of the Act and also upheld the addition of ₹ 9,76,312/- made by the AO by applying the gross profit rate of 2.34% based on earlier years results. The observation of the ld. CIT(A) to this effect is as under:- 4.4 I have considered the contention of the appellant as well as the assessment o .....

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the present case, the case was selected for scrutiny as per the guidelines of the CBDT which are meant for the guidance of the officers, so that case was taken up for scrutiny as per the provisions of Act. The assessee s claim is that books can not be rejected as low G.P. was due to increase in turnover and for the stock valuation, it was stated that books have been audited. In this context, it may be mentioned that the AO has pointed out various defects in the books of accounts viz. decrease in .....

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sessment stage and assessee has merely contended that average G.P. rate may be applied in his case as is evident from the notings in the order that sheet annexed with the assessment order. During appeal, the findings of the AO have not been controverted. In view of above, assessee's contention that books results were rejected without any basis is not acceptable. Further, there is nothing on record that assessee was forced to give any consent for applying the gross profit rate as claimed by t .....

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o day books of accounts, which is subject to audit. These books are duly supported with bills and vouchers. The lower authorities have not pointed out any sales or purchase which is out of the books or not vouched. The month-wise quantitative details of stock is at page 3 of the paper book. In these facts, the observation of AO regarding non maintenance of day to day stock register has no relevance & thus this can t be a reason for rejecting the books and applying provisions of section 145(3 .....

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h of the year is incorrect. (iii) The AO has incorrectly observed that selling rate in some months is less than the purchase cost ignoring that the iron and scrap which has various qualities are not sold in the month in which it is purchased. The assessee has more than 200MT of stock in opening and it is not necessary that scrap purchased in a particular month is sold in the same month. Hence the selling rate cannot be compared with the purchase rate of related month. This was explained to the A .....

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er of years. In earlier years, such method of valuation of stock has been accepted. 2. The Ld. CIT(A) without considering the above explanation of the assessee has incorrectly held that the various defects pointed out by the AO in the books of accounts have not been controverted by the assessee during the assessment stage or in appeal. 3. Otherwise also, only because stock register is not maintained but quantitative details are furnished or there are some insignificant discrepancies, books of ac .....

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s of accounts, assessment is to be made in the manner provided u/s 144. This would require to take into consideration all the circumstantial facts & the past history. It is to be noted that overall gross profit has been increased from ₹ 18,26,910/- to ₹ 41,78,691/- as compared to last year. The slight decline in the G.P. Rate of 0.39% is on account of increase in the turnover, which has increased by three times as compared to the last year. The assessee is interested in the volum .....

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dated 28.12.2010, it can be noted that the assessee agreed for the assessment by applying average G.P. rate to avoid litigation and to buy peace of mind subject to the condition that no penalty proceedings be initiated. However, the AO has initiated penalty proceedings u/s 271(1)(c). Therefore, when AO has not accepted the condition on which assessee agreed for application of average G.P. rate, trading addition made by the AO and confirmed by CIT(A) only on the basis of offer of the assessee is .....

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the rival contentions and perused the material available on record including the written submissions of the assessee. First of all, it is noted that gross profit rate during the year has fallen to 1.90% as against 2.29% in A.Y. 2007-08 and 2.41% in assessment year 2006-07. In order to examine the reasons for fall in gross profit rate, the AO has called for the books of accounts and after examining the books of accounts, he has rejected the books of accounts and in that regard had made certain o .....

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relevant documents. Secondly, in terms of the observations of the AO as well as submissions of the assessee, it is noted that the AO wanted to examine the fall in gross profit rate i.e. quantity wise as well as quality wise and the corresponding margins in the sales effected during the year as well as corresponding purchases made during the year besides opening stock. The assessee has mentioned that it has maintained day to day books of account which are duly supported by bills and vouchers. Fu .....

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t rate i.e. 0.39% on account of increase in turnover. The assessee has further stated that he was interested in volume of the profit and not in rate of profit. To our mind, this justification on stand alone basis cannot stand the test of judiciary without any corroborative evidence. What is really required to be demonstrated by the assessee as a prudent businessman is that what are the key business circumstances in context of the prevailing market conditions which led to the fall in gross profit .....

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/ addition of ₹ 5,39,791/- out of following. Car & Conveyance Expenses ₹ 21,952/- Wages Expenses ₹ 1,57,952/- Shop Expenses ₹ 15,877/- Mobile & Telephone expenses ₹ 19,660/- Transportation expenses ₹ 28,919/- House hold expenses ₹ 1,06,815/- Penalty expenses ₹ 1,78,540/- Cash Creditors ₹ 39,400/- Commission expenses ₹ 22,000/- 2.1 The ld. CIT(A) has further erred on facts and in law in not allowing the set off of trading additi .....

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vouchers, not fully verifiable and cannot be said to be wholly for business purpose ignoring that nature of such expenses are such that there cannot be a pakka bill for these expenses. The expenses are reasonable considering the turnover. Otherwise the disallowance is excessive and be restricted to 10% of the expenses looking to the size and volume of the business vis-à-vis the expenditure incurred last year. Disallowance out of wages expenses Disallowance is made out of outstanding liabi .....

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d. Further, the wages payable of ₹ 83,912/- is a part of trading account. Therefore, once income is estimated by application of the g.p rate, separate disallowance of wages payable cannot be made. Hence, disallowance made by AO and confirmed by CIT(A) without considering these factual aspects be deleted. Disallowance out of mobile and telephone expenses 20% of the expenses has been disallowed for personal use which is excessive considering the volume of the business and the same be restric .....

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made by AO and confirmed by CIT(A) without considering these factual aspects be deleted. Addition on account of household expenses The AO observed that assessee submitted the details of household withdrawals vide reply dated 10.09.10 in which he has shown household withdrawals of ₹ 1,37,900/- in his name and ₹ 42,000/- in the name of his wife. Thereafter, vide letter dated 24.09.2010, household expenses is claimed at ₹ 1,20,000/- in his name and ₹ 1,46,951/- in the name o .....

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correctly shown the household withdrawals in his hands at ₹ 1,37,900/- whereas the actual withdrawals were ₹ 1,20,000/-. Therefore, this difference cannot be added. Further, in earlier letter assessee claimed household withdrawal in the hands of his wife at ₹ 42,000/- whereas the actual withdrawals in her hands were ₹ 1,46,951/-. The AO has accepted the household withdrawals in the hands of assessee s wife at ₹ 58,000/- but incorrectly ignored the withdrawal of S .....

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irmed by CIT(A) be deleted. Disallowance of penalty expenses The AO disallowed the restoration charges of ₹ 1,17,540/- paid to RIICO ignoring that the same is not claimed as expenditure in M/s Bajaj Industries, Kota but is debited to the capital account of the assessee. Therefore, the disallowance made by the AO and confirmed by CIT(A) without looking to the facts is incorrect and the same be deleted. Addition of ₹ 39,400/- u/s 68 AO observed that assessee has shown loan of ₹ 1 .....

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t received by them from cheque but has added the amount received in cash. Further, when these persons have confirmed giving loan to the assessee, are assessed to income tax and summons have been served on them, assessee has discharged his burden of proof and therefore, the addition made by AO and confirmed by CIT(A) is unjustified. This apart when trading addition is made, addition u/s 68 should not have been made as per the ratio laid down in the following cases:- CIT Vs. Tyaryamal Bal Chand 16 .....

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(ia) is warranted in view of the decision of Hon'ble Allahabad High Court in case of CIT vs. Vector Shipping Services (P) Ltd. where the decision of Special Bench of ITAT in case of Merilyn Shipping and Transport Ltd. 136 ITD 23 is approved and the SLP of the Department agaisnt the decision of Hon'ble Allahabad High Court is dismissed by Hon'ble Supreme Court . Hon'ble ITAT in case of Girdhari Lal Bagrotia in ITA No. 757/JP/12 has held also held no disallowance u/s 40(a)(ia) is t .....

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le and telephone expenses amounting to ₹ 19,660/-, disallowance of transportation expenses amounting to ₹ 28,919/-, it is noted that these expenses pertain to 20% of total expenses which have been incurred by the assessee. From the perusal of the order of the AO, we do not find any specific finding which has been given while disallowing these expenses. It is thus an adhoc disallowance made by the AO which is not justified. Thus we delete the adhoc disallowance of expenses of 20% on t .....

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file of the AO. 3.5.3 As regards addition on account of house hold expenses, the assessee has submitted detailed submission in respect of house hold withdrawal in his name as well as in the name of his wife. The AO is directed to verify the same and allow the same after due verification. 3.5.4 Regarding disallowance of penalty expenses, the assessee has submitted that the restoration charges of ₹ 1,17,540/- have been debited to the account of the assessee and has not been claimed as expen .....

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