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2016 (5) TMI 349 - ITAT DELHI

2016 (5) TMI 349 - ITAT DELHI - TMI - Addition made on account of discrepancy in DVAT account - Held that:- The reconciliation statement, ledgers of the parties in the books of accounts of the assessee. It is ample clear that the purchases shown by the assessee in the purchase returns are the same that of the sales shown by the assessee in the sales returns in regard to these three parties in the books of accounts of the assessee. The CIT(A) after considering the reconciliation statement, copies .....

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t be held as sustainable and the same was rightly deleted by the CIT(A) - Decided in favour of assessee

Addition made on account of discrepancies in sales and purchases - Held that:- Neither the AO nor the Ld. DR has brought on record any allegation to establish that the sales were made by the assessee during the FY 2008-09 relevant to AY 2009-10 amounting to ₹ 1,12,99,491/- from M/s. A.P.Sons and of ₹ 2,39,166/- from M/s. South Delhi Saree House and thus, we are in agreem .....

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s, circumstances and explanation of the assessee to the rightly held that the expense was incurred wholly and exclusively for the purpose of the business of the assessee and the same was allowable expenses expenditure for the assessee under the provisions of the Act - Decided in favour of assessee - ITA No. 220 & 6439 /Del./2013 - Dated:- 21-4-2016 - Sri C. M. Garg, JM And Sri L. P. Sahu, AM For the Petitioner : Dr. Gaurav Jain, Adv. & Sh. Deepesh Jain, CA For the Respondent : Ms. Shravan Go .....

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ng the facts that during the assessment proceeding it was observed that value of sales return and branch transfer from gross turnover as shown in DVAT return and increasing the same by turnover of Noida and Panipat which do not attract VAT. However purchase returns were not accounted for while calculating the same. 1. Whether the Ld. CIT(A) has erred in law and on facts in deleting the addition of ₹ 24,43,888/- on account of discrepancy in sales and purchase ignoring the facts that during .....

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commission and brokerage ignoring the facts that during the assessment proceeding the query raised by the AO that the same is paid to those person who manage the relationship with various dealers and act as communication channel between the assessee and the dealer. However, as per the business model of the assessee the goods supplied to the dealer no longer appear in the stock of the company. The dealer is like any other buyer of the goods from the assessee company and account is maintained sim .....

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he company and the dealer is like any other buyer of the goods from the assessee company and account is maintained similar to the accounts for sundry debtors. The Assessing Officer had held that the expenses was not laid amount wholly and exclusively for the purpose of assessee s business. Ground no. 1 for AY 2009-10 : 2. We have heard argument of both the sides and carefully perused the relevant material placed on record before the Tribunal. The ld. Departmental Representative (DR) submitted th .....

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ted while calculating the same. 3. Replying to the above the ld. Counsel for the assessee supported the impugned first appellate order and submitted that the assessing officer made additions without any basis which were rightly deleted by the CIT(A). The ld. Counsel also took us through the relevant operative paragraph nos. 4 to 4.2 of the impugned order and submitted that the assessee submitted its ledger accounts in the respective books of alleged three parties showing the ledger accounts in t .....

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on made on this account. 4. On carefully perusal of relevant part of the first appellate order, we note that the CIT(A) granted relief to the assessee with following observations and conclusions. 4.2 I have carefully considered the submissions made by the Ld. AR and have gone through the assessment order. It is observed that during the year under consideration, the Net Purchases mentioned in the Profit & Loss account was ₹ 40,57,70,959/- and the Net Purchases mentioned in the DVAT RETU .....

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nt between the Net Purchases taken in the Profit & Loss A/c. & the Net Purchases reported in the DVAT RETURN FORM that Purchase Returns were reduced in all 12 months consistently and there was mistake in the AO s order that Purchase Returns for the months of January, February & March, 2009 has not been reduced from the Purchases (net of returns) claimed by the appellant in the Profit & Loss A/c. It was apparent from the above reconciliation statement & the ledgers in the book .....

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ioned in his order at page number 5 that It may be worthwhile to state that similar instances of inflated purchases have been unearthed while analyzing individual purchase transactions; by the assessee as have been elaborately discussed in Paragraph-4 below. In response to this objection of the AO, the appellant submitted as follows: Regarding the remaining three parties mentioned by the learned AO in paragraph 4 of his order, i.e. M/s. Gungun Fashions, M/s. Ritvika Creations & M/s. Varhini; .....

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ents & the ledger copies that the Purchases & the Purchase Returns shown by the appellant were same (wherever there are some minor differences, these were completely reconciled) as that of the Sales & Sales Returns mentioned by these parties in their books of accounts and hence, the base taken by the learned AO in making the addition on account of inflated Purchases shown by the appellant in its Profit & Loss A/c. is grossly, incorrect. The appellant also submitted its ledger acc .....

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ngly, the AO is directed to delete the addition of ₹ 1,27,24,220/- and the Ground of Appeal No. 1 is allowed. 5. In view of the above observations of the first appellate authority from the reconciliation statement, ledgers of the parties in the books of accounts of the assessee. It is ample clear that the purchases shown by the assessee in the purchase returns are the same that of the sales shown by the assessee in the sales returns in regard to these three parties in the books of accounts .....

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Loss Account. Therefore, addition made by the AO on the allegation of inflated purchases cannot be held as sustainable and the same was rightly deleted by the CIT(A) and thus we uphold the impugned order on this count. Consequently, ground no. 1 of the Revenue being devoid of merits is dismissed. Ground no. 2 of the Revenue for AY 2009-10 6. The ld. Departmental Representative (DR) contended that the CIT(A) has erred in law and on facts in deleting the addition made by the AO on account of disc .....

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the figures of sales and figures given by the assessee itself. The ld. DR also drawn our attention towards relevant operative para no. 4 of the assessment order and submitted that on examination of the transactions of selected parties, with whom the assessee was having business transactions during the relevant financial period, reveals a pattern of unaccounted sales to its dealers and also inflated purchases from independent suppliers therefore, gross profit computed at the rate of 21.8% of unac .....

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ounts of the assessee of M/s. A.P. Sons and M/s. South Delhi Saree House were completely matching with the opening and closing balances. The ld. Counsel further pointed out that the assessing officer has not dislodged or demolished this fact that the sales shown in the sales return and purchases shown in the purchase returns by the assessee by these two parties are the same which has been shown by them in their respective books of accounts. The ld. Counsel vehemently contended that the AO made a .....

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ave gone through the same and found that during the year under consideration, the reconciliation statements & the ledgers in the books of both these parties & of the appellant was matching completely. This was evident by the fact that the Sales & Sales Returns shown by the appellant were same as that of the Purchases & the Purchase Returns mentioned by these parties in their books of accounts. Looking at these facts, I am of the opinion that there were no unaccounted sales by the .....

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conclusion of the CIT(A) wherein he held that there were no unaccounted sales of the assessee to its alleged dedicated dealers i.e. M/s A.P. Sons and M/s. South Delhi Saree House and hence we uphold the findings of the CIT(A) on this count. Consequently ground no. 2 of the Revenue being devoid of merits is dimissed. Ground no. 3 of AY 2009-10 and ground no. 1 of AY 2010-11 of the Revenue : 10. We have heard arguments of both the sides apropos issue of commission and brokerage and also carefully .....

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ers and act as communication channel between the assessee and the dealer. The ld. DR drawn our attention towards relevant operative part of the assessment order i.e. para 5 of AY 2009-10 and para 3 of the assessment order for AY 2010-11 and submitted that as per business module of assessee sales are recorded as when goods are supplied to the dealer and the goods supplied to the dealer and no longer appear in the stock of the assessee company. The ld. DR further elaborated that dedicated dealer i .....

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y held that the rational and justification for such expenses of brokerage and commission it cannot be said that the same represents business expenditure which has been led out or expend wholly and exclusively for the purpose of business of assessees with its dedicated dealers. 11. Replying to the above the ld. Counsel for the assessee strongly supported the conclusion of the CIT(A) for both the assessment years and submitted that from the explanation submitted by the assessee before assessee s b .....

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ncrease the sales of the dedicated dealers leading to the consequent increase in sales by the assessee and it would not over rule the substance and nature of the expenses claimed by the assessee which has been incurred wholly and exclusively for the purposes of the business of the assessee. 12. The ld. Counsel also drawn our attention towards operative para 5.1 of the order of the CIT(A) for AY 2010-11 and submitted that the CIT(A) rightly following the doctrine of consistency correctly held tha .....

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ing the principle of consistency the CIT(A) rightly deleted the baseless addition for growth the assessment years. 13. On carefully consideration on above submissions we observe that the CIT(A) deleted the addition for AY 2009-10 by observing as under : 6.1 I have carefully considered the submissions made by the Ld. AR and have gone through the assessment order. I am of the opinion that the AO has erred in arriving at the conclusion that the appellant has incurred these expenses for promoting th .....

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ncrease the sales of the dedicated dealers leadingtotheincrease in Sales by the appellant and it would not overrule the substance & nature of the expenses incurred which has been incurred wholly & exclusively for the purposes of the business of the appellant. Accordingly, the AO is directed to delete the addition of ₹ 14,99,850/- and the Ground of Appeal No. 3 is allowed. 14. Further more from the 8 appellate order to the AY 2010-11 we observe that following the rule of consistency .....

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crores out of total sales of ₹ 49.28 crores for the relevant assessment year, being 54.95% of the total sales for the year under consideration. For the purpose, free lance individuals have been appointed by the appellant to manage the appellant s business relationship with dedicated dealers, so as to maximize sales and therefore, they are hereby held to be expended wholly and exclusively for the purpose of business for the Assessment Year 2009-10, as well. My predecessor has deleted an add .....

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ccordingly, the AO is directed to the delete the addition of ₹ 15,01,947/- and this ground of appeal is, therefore, allowed. 15. In view of the above, we are of the considered view that the sales to the dedicated dealers during AY 2009-10 was of ₹ 31.67 crores and for AY 2010-11 was of ₹ 27.08 crores which is major part of the sales made by the assessee during the relevant financial periods. Neither the AO nor the ld. DR has disputed this fact that free Lance individuals have b .....

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