TMI Blog2016 (2) TMI 291X X X X Extracts X X X X X X X X Extracts X X X X ..... books of account of the assessee are audited and the auditors have not given any adverse remarks. The Assessing officer has computed the suppressed sales without pointing out any discrepancy in the books of account regularly maintained by the assessee. It is observed that CIT(A) has allowed a substantial relief to the assessee but we are of the opinion that there is no justification in sustaining the addition of ₹ 13,80,680/-, particularly when it is not the case of the Assessing officer that the assessee has not declared the true profits and the books of account are not reliable as he has not rejected the book results. Thus, considering the entire facts of the present case and also settled legal position, we do not find any reason to sustain the addition of ₹ 13,80,680/- and accordingly we delete the same and allow this ground of appeal. - Decided in favour of assessee Addition to suppressed sales to the sister concern - Held that:- Considering the entire facts and circumstances of the present case, we observe that on the basis of certain bills, the Assessing officer came to the conclusion that the assessee was selling the goods to its sister concern at a lower pric ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... hence the same is dismissed. 2. Ground Nos. 1 2 of the appeal reads as under:- 1. That in the facts and circumstances of the case the Ld. CIT(A) is not justified in upholding the addition of ₹ 67,11,685/- u/s 40A(3) by misconstruing the statements of the original producers of the hides and skins from whom the purchases were made by the appellant. 2. The CIT(A) is not justified while disallowing the benefit of Rule 6DD(e)(ii) read with Circular No. 4 of 2006 by misreading the statement of both the pheriwalas recorded during the remand proceedings in the presence of the appellant that they are the original producers of hides and skins. 3. Briefly stated, the facts of the case are that assessee is manufacturing leather garments and leather goods, for which the basic raw material is hides and skins of animals. The raw material is purchased from butchers and pheriwalas who are growers/producers of hides and skins. These pheriwalas live in remote-rural area which is an unorganized sector. The assessee claimed that no formal sale bills were issued by them, the payments for which were made by the assessee in cash for the purchases made from these butchers/pheriwala ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of the Hon'ble Calcutta High Court in the case of CIT v CPL Tannery [2009] 318 ITR 179 (Cal.), wherein the Hon'ble High Court has categorically held that processors of hides and skins are producers within meaning of Rule 6DD (f)(ii); hence, cash payments made to them do not attract disallowance u/s 40A(3) of the Act. In the instant case, on the basis of statements of Shri Ram Kumar and Shri Harish Kumar, the Revenue took the stand that the above persons also purchased hides and skins from other producers and treated the same before selling to the assessee. Therefore, they are not original producers of hides and skins. We find that a similar issue was before the Hon'ble Calcutta High Court in the case of CPL Tannery (supra), wherein the Assessing officer admitted that the small suppliers of hides and skins did not carry out processing after obtaining the goods from original skin peelers. The Hon'ble High Court upheld the view of the Tribunal and the relevant observations of the Hon'ble High Court are as under:- It appears that the Tribunal has specifically held as follows:- We have heard and considered the rival submissions. We find that in the immedia ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... reasoning of the Commissioner of Income-tax (Appeals) that products of hides and skins cannot be regarded as products of animal husbandry because the producers are not directly connected to live animals at some point of time, is, in our opinion, far-fetched. The plain reading of the rule suggests that the words (including hides and skins) are specifically inserted in the rule to describe products of animal husbandry. When the plain reading of the rule is unambiguous, the principles of interpretation suggests that there is no necessity to derive other meanings of the rule by looking into the dictionary meaning or otherwise. This contention of the Commissioner of Income-tax (Appeals) is not acceptable. The contention of the assessee that he purchased goods from suppliers who are producers of hides and skins, has not been refuted either by the Assessing Officer or by the Commissioner of Income-tax (Appeals). The second contention of the assessee that owing to business expediency, obligation and exigency, the assessee had to make cash payment for purchase of goods so essential for carrying on of its business, was also not disputed by the Assessing Officer. The genuinity of the transact ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ed certain guidelines giving certain circumstances, and those circumstances are illustrative and not exhaustive and the underlying idea of the circular is that if the identity of the payee is known, it would be possible for the Income-tax Officer to cross-check, whether the transaction had in fact taken place. Taking note of the fact that under similar circumstances this court had accepted the plea of the assessee, having regard to the nature of trade, we do not find any justification to take it a reason to interfere. 6. Considering the entire facts and circumstances and circumstance of the present case, we hold that the assessee had made payments to small time venders who supplied hides and skins on vehicles such as cycles, rickshawalas and rehris. The payments were being made to them against kacha bills because the purchases were made from unorganized sectors and the butchers do not have printed bills. It is also clear from the statements of Shri Ram Kumar and Shri Harish Kumar that they confirmed having purchased kucha skins from other butchers and after processing them with salt and mixture they sold these goods to the assessee. In view of the decision of the Hon'ble Ca ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Opening stock 198.54 201.89 168.25 Purchases 364.75 529.55 1060.63 Wages salary 19.95 21.28 23.65 Job work 21.61 3.50 1.28 Import expenses 25.84 13.08 15.43 Building expenses 1.23 0.00 0.00 Electricity expenses 1.63 5.60 0.68 Machinery expenses 6.72 2.40 1.33 Fuel A power 23.22 ' 21.16 31.87 Carriage inward 5.12 4.52 12.25 Gross profit 43.27 56.47 95.13 Total 711.88 859.45 1410.50 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... f 15% without pointing out any discrepancy in the audited books of account regularly maintained by the assessee. The Assessing officer has not invoked the provisions of section 145 of the Act. Even the Ld. CIT(A) has not properly appreciated the contention of the assessee. It is a trite law that merely low profit made may provoke an enquiry, but that itself without more cannot justify an addition to the profit shown. It appears that authorities below have not found any discrepancy in the books of account and also in the method of accountancy regularly followed by the assessee. It is also true that the GP rate cannot be uniform in all the years. It depends on many factors namely general market conditions based on demand and supply position, the rise and fall in market rates, the capital position vis-a-vis turn over achieved and many others. The explanation offered by the assessee is self explanatory. In our opinion, the first appellate authority was not justified in sustaining a part of addition made by the Assessing officer because low profit is neither a circumstance nor material to justify the addition of profits. There must be something more than a mere suspicion to support the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s Viking Garments, Ambala City @ ₹ 4/- per DMS whereas on 15.4.2008 vide sale bill No. 641, Sheep NAPPA Black had been sold to Indiggo, Gurgaon @ ₹ 5.75 per DMS. Similarly, the Assessing officer has quoted other bills in the assessment order. The Assessing officer computed the total suppressed sales at ₹ 49,03,385/- on which GP rate of 15% was applied and made addition of ₹ 7,35,508/- . 13. On appeal, the CIT(A) confirmed the view taken by the Assessing officer but he has applied GP rate of 11% as against GP rate of 15% adopted by the Assessing officer. The Ld. CIT(A) has not disturbed the suppressed sales of ₹ 49,03,385/- as worked out by the Assessing officer. The CIT(A) allowed a relief of ₹ 1,96,136/-. 14. We have considered the rival submissions and have also perused the materials available on record. Shri Rohit Goel Ld. Counsel for the assessee relied on the decision of Hon'ble High Court of Punjab Haryana in the case of CIT v. Siya Ram Garg (HUF) [2012] 20 taxmann.com 622 wherein it has been held that sister concerns were being taxed at a same rate at which the assessee was being taxed and there was no reason for the assessee t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ount of salary and wages. The assessee claimed salary and wages at ₹ 23,65,128/- and bonus at ₹ 3,50,432/-. The Assessing officer disallowed ₹ 4 lakhs on adhoc basis. 18-19. Aggrieved by the order of the Assessing officer the assessee went in appeal before the CIT(A) and submitted that the assessee being a benevolent employer has been liberal in not making any deduction from the salary and bonus paid to the employees. Therefore, there was no justification in making adhoc disallowance of about 15% out of total salary and bonus paid by the assessee. The assessee submitted that the addition to the extent of mere doubt regarding the payment of bonus to one employee who had left the job one year earlier, amounting of ₹ 17,419/- could be made. Addition made beyond that and that too merely on adhoc basis which is unreasonable and arbitrary could not be made. 20. The Ld. CIT(A)accepted the contention of the assessee and restricted the disallowance to the discrepancy i.e. ₹ 17,419/- and allowed a relief of ₹ 3,82,581/- (Rs. 4 lakhs - ₹ 17,419/- = ₹ 3,82,581/-). 21. After hearing the Ld. representative of both the parties, we are of th ..... X X X X Extracts X X X X X X X X Extracts X X X X
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