TMI Blog2015 (11) TMI 789X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 there is only marginal decline in gross profit 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 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 no ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... o be made if the amount is not outstanding at the end of the year. Thus in the light of decision taken earlier we delete the addition. - Decided in favour of assessee. - ITA No. 486/JP/2013 - - - Dated:- 21-9-2015 - Shri R. P. Tolani, JM And Shri 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 erred on facts and in law in confirming the action of AO in making trading addition of ₹ 9,76,312/- by applying gross profit rate of 2.34% i.e. average last two preceding years as against rate of 1.90% declared by the assessee. 2. The ld. CIT(A) has erred on facts and in law in confirming disallowance / addition of ₹ 5,39,791/- out of following. Car Conveyance Expenses ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... that the assessee has not understated the income or has not computed excessive loss or has not under paid the tax in any manner. In 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 gross profit rate as compared to earlier years associated with non-maintenance of qualitative and quantitative records of the sale bills as well as non-maintenance of the stock register. Further the closing stock has been valued at the average rate not as per the FIFO method followed by the assessee. Moreover, the selling rate of the goods in the month of January to March, 2008 were lower than the purchase rate of the goods. All these defects have not been controverted by the assessee during assessment stage and assessee has merely contended that average ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... h the purchase rate of related month. This was explained to the AO in assessment proceedings (iv) It is a settled law that the choice of adopting a particular method of valuation of stock is on assessee. The only condition is that whatever method of valuation is adopted by the assessee, the same should be consistently followed. The assessee has consistently valued the stock of scrap at average rate. This was explained to the AO vide letter filed in assessment proceedings. The basis of the valuation of the stock has been adopted by the assessee since last number 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 accounts cannot be rejected as held in the following cases:- (1) Ganesh Foundry Vs. ACIT 78 TTJ 736 (Jod.) ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rders of the authorities below. 2.5 We have heard 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 observations which have been reproduced in para 1 above . 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 to the assessee to submit its submissions and 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 exam ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 15/- 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 addition. 3.2 In both the above grounds, the facts and submissions as enumerated by the assessee through its written submission are as under:- Disallowance out of car conveyance expenses and shop expenses 20% of above expenses were disallowed for the reason that expenses were paid in cash, on self- made 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ,06,815/- (17,900+88,915) for the reason that in earlier detail assessee claimed household expenses higher by Rs,17,900/- and from the verification of the return of the assessee it is found that assessee has not declared any rental income of ₹ 88,951/-. It is submitted that in earlier letter assessee has incorrectly 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 ₹ 88,951/- in respect of withdrawal out of personal/rental income by referring to the return of the assessee instead of referring to the return of the assessee s wife. From the capital account of assessee s wife , the withdrawals of ₹ 1,46,951/- is verifiable which is partly out of rental income of ₹ 72,000/- and partly out of personal withdrawal and withdrawal fr ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 to be made if the amount is not outstanding at the end of the year. 3.3 The ld. CIT(A) has confirmed all the above disallowances as made by the AO relating to Ground No. 2 and 2.1 of the assessee. 3.4 The ld. DR relied on the orders of the lower authorities. 3.5 We have heard the rival contentions and perused the materials available on record including the written submission. 3.5.1 Regarding disallowance of car conveyance and shop expenses amounting to ₹ 21,952/-, disallowance of mobile 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 th ..... X X X X Extracts X X X X X X X X Extracts X X X X
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