TMI Blog2017 (3) TMI 100X X X X Extracts X X X X X X X X Extracts X X X X ..... sed in the Tax Audit Report and therefore, details have been submitted during the course of assessment and the appellate proceedings. In the light of above, we do not see any justifiable reason for rejection of books of accounts in the instant case. Further, no reasonable basis has been given for estimating the GP rate by the lower authorities. Taking into consideration the fact that in the previous years as well as in the subsequent years, the books of accounts have been accepted by the Revenue, we do not see any justifiable basis for rejection of books of accounts in the instant year. - Decided in favour of assessee. Disallowance of office expenses - Held that:- No specific expenditure has been identified by the Assessing officer which calls for disallowance either in terms of the said expenditure being bogus in nature or not incurred for the purposes of business carried on by the assessee. There is no basis for disallowance on adhoc basis in the eyes of law. In the result, the disallowance made by the Assessing officer and sustained by the ld CIT(A) is deleted.- Decided in favour of assessee. - ITA No. 529/JP/2016 - - - Dated:- 28-2-2017 - SHRI KUL BHARAT, JM and SHRI V ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... made and partly confirmed by the ld. CIT(A) being totally contrary to the provisions of law and facts of the case, kindly be deleted in full. 2. In respect of ground no. 1(i) and 1(ii), the brief facts of the case are that the assessee deals in manufacturing and trading of stones at Jaipur Chennai and also exports the same outside India. During the year under consideration, on a total turnover of ₹ 1659.84 lakhs, a gross profit of ₹ 742.04 lakhs net profit of ₹ 185.55 lakhs i.e. a gross profit rate of 44.71% and net profit rate of 7.75% has been returned. In the previous year, the gross profit rate and net profit rate stood at 49.74% and 10.53% respectively and the same had decreased significantly in the current year. The Assessing Officer found that wastage in the course of manufacturing had been claimed at 15.80% as against 8.93% in the preceding assessment year. The quantitative details as indicated in the annexure attached with the form No.3CD gave details in terms of sq. meter and pieces only of all quality of goods. The Assessing Officer opined that such inventory did not provide details of manufacturing goods and of the yield. It was also noted that ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... cepted and the abnormal increase in purchases prices and raw material was also the reason for the decreased gross profit. Further, the figure of wastage had been wrongly mentioned at 15.80% in the current year against 8.97% of previous year by the Assessing Officer, and the appellant contended that in fact in the current year, the wastage was 8.93% which was lesser than the previous year. The appellant thus contended that the rejection of books of accounts was not in order and also that even if the same are rejected, an addition need not necessarily be made. The ld AR claimed that the fall in gross profit was due to increase in cost of raw material as well as due to decrease in turnover which decreased from ₹ 21,85,71,128/- to ₹ 16,59,84,045/- in the current year. Thus, the ld AR submitted that even though past history is considered to be a good guide but in the assessee s case, since he had explained the peculiar facts of the current year, the same need not be applied. After considering the assessee s submission, the ld CIT(A) upheld the rejection of books of accounts but gross profit was determined at 46% as against 44.71% disclosed by the assessee. The relevant findi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... intained complete day to day quantitative details, is duly supported by the examination done by the learned tax auditor wherein through Annexure G (PB 18) with reference to clause no.28 of TAR (PB 8), the quantitative details have been furnished of raw materials and finished goods both. The relevant extract from TAR, are as under: 9(b) Books of accounts maintained. (In case books of account are maintained in a computer system, mention the books of account generated by such computer system). Purchases Book, Sales Book, Cash Book, Bank Book, Journal, Ledger (Books of account generated by computer system and Stock Register. 9(c) List of Books of account examined. Same as mentioned in 9(b) above. 4.3 The objection of the learned AO that the assessee had maintained the quantitative details as indicated and annexure attached with the Form No.3CD in terms of square meter and pieces only of all quantity of goods. However, such inventory and details attached with Form 3CD are giving the extracts of raw material and of finished goods but does not provide the details of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... o be accepted that the assessee made purchases at the prevalent prices in the best business interest. The AO could and should have made inquiries directly from those suppliers to bring the truth on record, had he got some doubt. Further as regards the expectation of the AO that the sale price should have also been increased by the assessee similarly to that extent, firstly, suffice to say that it was a businessman decision taking into the prevailing trade conditions, facts and circumstances, in the best business interest and secondly, the purchase had to be made at higher prices however, the supplies were to be made to the importers/buyers, with whom, the assessee had already entered into agreement. Therefore the assessee was contractually obliged to honour the commitment already made. In other words, the assessee had already committed the sales prices however, in the meanwhile the raw material prices went up and hence the assessee was not in a position to recoup the increase in the prices more particularly, in the absence of an escalation clause. Ref. Pr. 2.6 also. 4.6 The AO also alleged that the assessee failed to produce item-wise quantitative sock register maintained at Jai ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... is constantly coming down and has sharply decreased. Kindly refer the comparative chart (PB 78). The very basis of S. 145 remains no more. 4.10 The AO alleged that the details of sold inventory does not indicate how the same can be bifurcated and differentiated with each items of inventory for the purpose of examination. It was stated by the assessee that it is not possible to maintain such inventory in a large manufacturing unit item-wise. It is submitted that firstly there appears no specific query raised by the AO as stated nor the assessee ever gave any submission as mentioned. Thus, none of the objections raised could be made a basis of invoking Sec. 145. 4.11 The ld. CIT(A), as evidently clear from her order has summarily confirmed the application of Sec. 145 without appreciating the various factual submissions and the case laws cited and even without appreciating the practical difficulties in the maintenance of the quantitative records, the way the revenue wants more particularly, when there is no prescription u/s44AA r/w Rule 6F. In fact, the AO wanted the assessee to do something humanely impossible. It has been held in various cases that maintenance of the accounts ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e firm. In the export business the quality of product is of utmost importance. Even a single defect in quality of goods, the entire shipment is rejected by the buyer. However, in the order, there appears no adverse remark of the claim of wastage made by the assessee this year at 8.93% and thus, the contentions of the AO have been impliedly rejected. It is submitted that when the ld. CIT(A) has neither found any fault in the submissions explaining the reason of fall in the GP/NP rate as also has justified the wastage claimed this year, there was no reason yet to upheld the part addition by applying GP rate of 46%. Hence, the impugned addition kindly be deleted in full. 4.13. Minor irregularities, even assuming were there, cannot be made a basis of the rejection of the books of accounts or of trading addition. Kindly refer Padampath Ramgopal (1970) 76 ITR 719 (SC). 4.14. It was further submitted that the assessee has been carrying on the same business in the same set up and under the same facts and circumstances. Even the manner and method of recording the transactions has also been the same since AY 2003-04. All along in the past, the cases of the assessee are being selecte ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... changed in a subsequent year . 4.16. Alternatively and without prejudice to above submissions on merits also, it is submitted that no trading addition at all was called for in view of the following facts and submissions: 4.17 Addition need not be made, even if Sec. 145 Invoked: It is submitted that even invoking of Sec. 145 does not confer blind powers upon the AO and he is not at liberty to assess the income at whatever figure he wants. He is bound to make an honest estimation of income. In the case of CIT vs. Gotan Lime Khaniz Udyog (2002) 256 ITR 243 (Raj), it has been held that mere rejection of books of accounts need not necessarily lead to additions to the returned income. However, it will appear that in the present case, the ld. AO has not made a fair estimation in conformity of the above settled judicial guideline. It is not denied that the assessee was engaged in the business of manufacturing, trading and export of stones in the past as also in the later years. Therefore, there is no reason still not to consider the past history which is the best material to be used for fair estimation as per the binding decisions. The ld. AO is totally silent on this aspect. 4 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n fall in the GP rate due to increase in percentage of cost of fixed nature of expenditure and other direct expenditure. Int. dep. increase this year by 32 lacs i.e. 1.93% more w.r.t. turnover (PB 70). The main reason for fall in the NP rate for the year under reference was due to decrease in GP rate for the year under reference by about 5% which resulted fall in NP rate for the year under reference. However, it appears that the AO ld. CIT (A) have not appreciated these submissions judiciously. These submissions having been made and duly supported with the evidences, remaining un-rebutted, there is no reason that why the AO should have made the addition. 4.19 Otherwise A.Y. 2011-12 distinguishable: Since the assessee had already successfully distinguished the facts of the preceding year A.Y. 2011-12 from the peculiar facts available in this year, which fact is not disputed by the AO ld. CIT (A), hence there was no justification even of computing an average of the two years of the GP rate at 47.23% and to apply the same. The past history though is treated to be a good guide in the matters of estimations however, for fair estimation unless the facts are not found ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Further, no reasonable basis has been given for estimating the GP rate by the lower authorities. In the overall facts and circumstances of the case and also taking into consideration the fact that in the previous years as well as in the subsequent years, the books of accounts have been accepted by the Revenue, we do not see any justifiable basis for rejection of books of accounts in the instant year. In the result, we are of the view that A.O was not justified in rejecting the books of accounts and making the GP above. Pursuant thereto the ground taken by the assessee is therefore allowed. 7. In respect of ground no.2, the brief facts of the case are that the Assessing Officer has made an addition on account of expenses under the head conveyance of ₹ 9,73,835/-, Office expense ₹ 1,75,818/-, Staff welfare expenses with staff-mess expenses ₹ 4,79,463/-, Telephone expenses ₹ 2,42,816/-, Vehicle repairing expenses ₹ 3,53,127/-, Foreign travelling expenses ₹ 36,51,757/-, and Sales promotion expenses ₹ 2,29,889/- which in total works out to ₹ 61,06,705/-. During the course of assessment proceeding, the Assessing Officer has found that no ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... huge turnover of more than ₹ 16.59 crores (approx), claim of expenditure is otherwise very meager. On the above expenses kindly refer a chart (PB 101) herein above. Thus such a meager claim to achieve such a huge turnover is not at all unjustified. All these expenses were incurred exclusively for businesses purpose and are under the provisions of the Act. 10. The ld DR is heard who has relied on the order of lower authorities. 11. We have heard the rival contentions and pursued the material available on record. No specific expenditure has been identified by the Assessing officer which calls for disallowance either in terms of the said expenditure being bogus in nature or not incurred for the purposes of business carried on by the assessee. There is no basis for disallowance on adhoc basis in the eyes of law. In the result, the disallowance made by the Assessing officer and sustained by the ld CIT(A) is deleted. The ground taken by the assessee is thus allowed. 12. Regarding Ground No.3 which is against levy of interest under Section 233B and 234D, since the same is consequential in nature, the same is dismissed. In the result, appeal filed by the assessee is partl ..... X X X X Extracts X X X X X X X X Extracts X X X X
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