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2016 (6) TMI 46 - ITAT MUMBAI

2016 (6) TMI 46 - ITAT MUMBAI - TMI - Rejection of Books of accounts and estimation of G P - Held that:- The assessee has failed to place on record material evidence to controvert the findings of the learned CIT(A) on the issue of rejection of books and estimation of G.P. In this view of the matter, we are of the considered opinion that there is no cause for us to interfere with or deviate from the decision of the learned CIT(A) and therefore uphold his findings on rejection of the assessee’s bo .....

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at there is no cause for us to interfere with or deviate from the decision of the learned CIT(A) on this issue and therefore conform and uphold the same. - Decided against assessee. - ITA No. 4892/Mum/2014 - Dated:- 26-4-2016 - Shri Jason P. Boaz, Accountant Member and Shri Sandeep Gosain, Judicial Member For The Assessee : None For The Revenue : Shri Anil Kumar ORDER Per Jason P. Boaz, A.M. This appeal by the assessee is directed against the order of the CIT(A)-25, Mumbai dated 08.05.2014 for A .....

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the assessee was determined at ₹ 41,95,542/- in view of the following additions/ disallowances: - (i) Disallowance under section 40A(3) ₹ 3,00,000/- (ii) Addition on account of low household expenses ₹ 36,000/- (iii) Addition on account of low G.P. ₹ 29,67,013/- 2.2 Aggrieved by the order of assessment for A.Y. 2011-12 dated 28.02.2014, the assessee preferred an appeal before the CIT(A)-25, Mumbai. The learned CIT(A) disposed off the assessee s appeal vide the impugned or .....

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ds: - I) Rejection of Books of accounts and estimation of G P 1. On the facts and under the circumstances of the case, the Ld. CIT (A) erred in upholding the decision of the AO in estimating G P @ 0.5% against the G P declared by the appellant of 0.26% after rejecting the books of accounts. The same is bad in law and against equity, natural justice, good conscience and fair play. 2. The Ld. CIT (A) failed to consider that the appellant had maintained proper books of accounts while following acco .....

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he quantity-wise tally has been always maintained by the appellant and as such the correct profit was correctly worked out. 4. The Ld. CIT (A) ought to have also considered that the appellant had to work under a most competitive market at Surat where the goods were to be sold at the minimum rate of G.P and sometimes even below the cost in order to have big turnover. The sales were made at lower rates while considering the gain in foreign exchange. II) Disallowance for Salary Expenses 1. The Ld. .....

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3. The Ld. CIT (A) also wrongly agreed with the AO who held that the salary paid to two employees were at higher rate than paid to other employees and therefore was disallowable. 4. The Ld. CIT (A) also wrongly agreed with AO for disallowance of salary on account of payments made by account payee cheques earlier as advance salary and later on transferred to salary account by passing journal entry. 5. The Ld. C1T (A) also erred in upholding the decision of the AO that salary for the month in the .....

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d back unserved with the remark Left . Even today, i.e. 26.04.2016 when the case was called for hearing, none was present on behalf of the assessee, but the learned D.R. for Revenue was present and ready to present Revenue s case. In these circumstances, we are of the view that the assessee is not seriously interested in pursuing this appeal and we, therefore, proceed to dispose off this appeal with the assistance of the learned D.R. and the material on record. 5. Grounds I (1 to 4) - Rejection .....

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the rejection of the books of accounts was unjustified. The assessee further contends that the learned CIT(A) did not appreciate the fact that the assessee s work was carried out at Surat, which was a very competitive market, and therefore the goods were sold at a very low rate of G.P. and sometimes even at a loss in order to increase the turnover and earn profits on gains in foreign exchange. 5.2 The learned D.R. submitted that all the contentions raised by the assessee in the aforesaid grounds .....

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arefully considered the material on record on the issue of rejection of the assessee s books of account and the estimation of G.P. The learned CIT(A) has dealt with this issue at paras 4.1 to 4.3 of the impugned order as under: - 4.1 AO observed from the data reported in Trading account of assessee's proprietary concern, M/s. Lumionus Diamond that the assessee had shown gross profit of ₹ 32,19,551/- on a total sales of ₹ 123.73 crores, resulting in apparent G.P. Ratio to be 0.26% .....

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ssee that uniform rate was applied for valuation of cut and polished diamonds as well as rough diamonds, though the diamonds were bought in mixed qualities, and diamonds differed in shape, size, color, dimension and clarity. The stock register was maintained quantity wise, and not quality wise. In view of these findings, the assessee was asked as to why the books of account shouldn't be rejected and overall G.P. rate be taken a0.5% of total sales of ₹ 123.73 crores. In response, the AR .....

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saction was very low. The assessee's arguments that the accounts were audited and maintenance of stock register is not mandatory were also rejected by AO. The AO observed that in preceding A.Y. 2010-11, the G.P. ratio of 0.24% was achieved due to Exchange Loss Difference of ₹ 2,29,51,911/-, excluding which the assessee had made huge gross profit of ₹ 2,49,42,743/-. Hence, there was a vide variation in the reported business results for these two years. The AO rejected various othe .....

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reproduced as under: I. Rejection of books and estimation of G.P : Our client was assessed by learned I.T.O. for A.Y. 2011-12 wherein he has estimated the G.P. @ 0.5% against the G.P declared @ 0.26% by rejecting the book results. The said estimation was made arbitrarily without considering the accounts properly maintained by our client. In this respect our client says as follows. 1. He had maintained perfect and complete accounts on the basis of accounting: principles and procedure. 2. The acc .....

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ult of profit or loss could be well deduced correctly. 7. The valuation of diamonds at the end of the year was made at market rate prevailing at that time of each item of diamonds. 8. All the books of accounts including stock register were duly produced before the learned I.T.O. He had verified the same and no discrepancy was found out. 9. Accounts were maintained so perfectly that the same were to be accepted in toto. There was no scope for rejection of accounts. 10. He was earlier assessed u/s .....

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amond trade was passing through peculiar condition wherein trade has become so competitive that traders do business at the lowest margin of profit i.e. 0.1% or sometimes at loss in order to exist in the market. 4.3 I have perused the facts of case and submissions of appellant very carefully. For easy understanding, the comparative figures available on records for three assessment years are tabulated below: (Rs. in crores) Particulars A.Y. 2011-12 (under consideration) A.Y. 2010-11 A.Y. 2009-10 S .....

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fit ratio excluding the Exchange Difference has decreased from 2.76% to -1.01%. The appellant has however maintained to show the G.P. ratio in positive in A.Y. 2011-12 under consideration, after accounting for Exchange Profit of ₹ 1.57 crores. Now the question arises as to when the appellant's sales has increased substantially from ₹ 91.15 crores in preceding assessment year to ₹ 123.73 crores in current assessment year, and also the Exchange Difference included therein con .....

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ed the books of accounts on grounds of the appellant not showing adequate profits, the onus was heavily on the appellant to justify with facts and figures the reasons of sharp fall in profits, however the appellant has failed in providing any such details or explanation during assessment as well during present appellate proceedings. The AO has specifically pointed out that the appellant is not maintaining quality-wise stock register, which also justifies the action of AO in rejecting the books o .....

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62 - 32,19,550 = ₹ 29,67,013/-. The appellant in his written submissions has said that in A.Y. 2009-10, the addition of 0.5% to G.P. had been reduced to 0.1% by CIT(A), and hence the same may be considered for the year under consideration. I find that in A.Y. 2009-10, it was a gross addition of 0.5% of sales without giving any credit of G.P. already declared by the appellant, which addition was subsequently reduced to 0.1% of sales by CIT(A); whereas in the assessment year under considerat .....

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interfere with the same. Therefore, the addition made of ₹ 29,67,013/- is confirmed and the ground no. I of appeal is dismissed. 5.3.2 We find that, as contended by the learned D.R. the learned CIT(A) has addressed the issue in detail in the impugned order (supra) covering all the grounds raised at S.No. I (1 to 4) before us (supra). We further observe that the assessee has failed to place on record material evidence to controvert the findings of the learned CIT(A) on the issue of rejectio .....

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ry - Rs. 3,00,000/- 6.1 In these grounds, the assessee assails the impugned order of the learned CIT(A) in disallowing salary expenditure of ₹ 3,00,000/- paid to two employees for specialized services performed by them in the ordinary course of the assessee s business and therefore ought not to have been disallowed under section 40A(3) of the Act. It is submitted that these expenses were genuine and were paid by account payee cheques, though they were, paid at a higher rate than other empl .....

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ed that all the arguments put forth in the grounds raised by the assessee (supra) had been considered by the learned CIT(A) while passing the impugned order. The learned D.R. strongly argued that since no material evidence has been brought on record by the assessee to controvert the findings of the learned CIT(A) on this issue in the impugned order, the grounds raised by the assessee ought to be dismissed. 6.3.1 We have heard the learned D.R. for Revenue and perused and carefully considered the .....

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ssee submitted that the payment of ₹ 1,50,000/- was made to Mahesh Verma & Milind Dighe initially by account payee cheques only, which was not as salary but as an advance; and subsequently, in January, February and March, 2011, the said amount in 3 equal installments were transferred from their advance account to salary account. The AO did not find the said explanation of appellant as tenable in law. According to him, the question that since they became a salaried employee of assessee .....

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uded in ₹ 2,00,000/- given on 13.01.2011 by cheque) was for the month of April, 2011 was also far from truth, since the said amount was not reflected in Loans & Advances in assessee's balance sheet as on 31.03.2011. The assessee's submissions also lacked justification for having made high end payment of salary of ₹ 50,000/- to both of them, especially when the rests each of 16 employees had been paid less than ₹ 20,000/-. In view of the above, the said amount of sal .....

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expert in the line of trade. His business requirement was absolute. As these persons were expert he had engaged them and even paid them salaries in advance. Advance salaries were paid to two persons, Mr. Mahesh Verma and Mr. Milind Dighe of ₹ 1,50,000/- each at the rate of ₹ 50,000/- per month. Both the persons had worked for him. Salary paid to them was squared up since both had worked up to March 2011. (copy of salary register (muster book) was duly filed with I.T.O.) Mr. Milind D .....

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de on this account is wrong and unjustifiable. Further while computing the income ₹ 3,00,000/- has been disallowed u/s 40A (3) of IT Act. The same is wrong since all the payments were paid by accounts payee cheques only. This fact is also recorded by I.T.O. in his assessment order. Further Mr. Milind Dighe s name for advances given to him is duly reflected in the balance sheet as on 31' March 2011. A copy of balance sheet with schedules is also filed here with. 5.3 On perusal of the fa .....

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he field of Diamonds to justify the higher salaries paid to them compared to other employees, nor any contract with the employees to show that the said amounts were being paid towards advance salaries. In normal circumstances, the payment of advance salaries for several months, that too even before appointment in one case, certainly raises doubt as to the genuineness of expenses booked by appellant. In the case of Milind Dighe, the advance payment is shown upto April, 2011 i.e. extending to next .....

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