TMI Blog2015 (11) TMI 1673X X X X Extracts X X X X X X X X Extracts X X X X ..... of various items, it can be very well held that assessee’s profit and trading results are much better this year, hence, the observation and the finding of the CIT(A) cannot be deviated from and accordingly, the same is affirmed - Decided against revenue Disallowance of commission - Held that:- AO has made an ad-hoc disallowance on this score on the ground that firstly, there is enhancement of rate of commission from 2.5% to the rate of 3.25%; secondly, some of the commission agents are also the relatives of the assessee. Such a basis drawn by the AO for making the disallowance cannot be sustained for the reason that, the Ld. CIT(A) has clarified that overall rate of commission paid is @ 3% on the total turnover and not 3.25% and the commission has been paid uniformly to all the parties including the relatives. Out of 11 party, only 2 are relatives, therefore, it cannot be held that any unreasonable payment have been made to the relatives as compared to the outsiders. Such an ad-hoc disallowance of payment of commission made by the AO cannot be sustained. Disallowance as part of interest claimed - Held that:- The reason given by the CIT(A) for deleting the disallowance of in ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the addition of ₹ 19,59,477/- made by the AO on account of disallowance of part of the commission claimed by the assessee. ii) On the facts and in the circumstances of the case and in law, the ld. CIT(A) erred in deleting the addition of ₹ 2,97,048/- made by the AO on account of disallowance of part of the commission claimed by the assessee. iii) On the facts and in the circumstances of the case and in law, the ld. CIT(A) erred in deleting the addition of ₹ 4,65,063/- made by the AO on account of disallowance of part of the interest claimed by the assessee . 3. Brief facts qua the issue raised in ground no. 1 are that, assessee is an individual engaged in the business of importing reselling of hardware from his proprietorship concern, M/s Prince Decoware Industries. The assessee had declared the net profit of ₹ 19,17,871/- on total turnover of ₹ 2,82,98,825/-i.e., @ 5.54%. The AO noted that there was fall in the net profit rate but the gross profit of the assessee was ₹ 78,22,139/- which was though bit higher than the gross profit declared in the earlier year. He required the assessee to justify the same after producing purchase ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 5% works out to ₹ 97,81,616/- on the declared turnover. The assessee has declared gross profit of ₹ 78,22,1391-.The difference of ₹ 19,59,477/- is therefore added to the total income of the assessee for under reported gross profit . 4. Before the CIT(A), the assessee after submitting the computation of trading result of the last year and the current year submitted that not only the net profit but also the gross profit ratio is also high. Apart from that, the assessee has been maintaining regular books of accounts which are subject to Audit u/s 44AB and also explained that the Ld. AO has taken selective items for comparing the GP. The turnover of the sample selected by the AO was very insignificant. To rebut the finding of the AO, the assessee submitted the trading result of certain items along with GP rate which has been incorporated at page 3 of the appellate order. Regarding slight fall in net profit ratio, it was submitted that there was certain increase in the borrowings which has enhanced the interest expense, however, if overall net profit ratio to sales is seen then, the net profit has slightly increased in this year. If comparability with earlier year ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... If the appellant had correctly recorded the purchase figure and sales figure in the ledger with reference to the purchase bills and sales bills, it means that the appellant had already admitted the actual profit earned in the transaction verified by the AO. When he accepted the transactions in respect of items verified by him, there is no reason to reject the other transactions entered in the same books of accounts without pointing out any mistake. As contended by the representative, the appellant has earned gross profit of 11 to 12% in few items as shown above in para 3.2 which the AO completely ignored. I find that the AO has resorted to summary rejection of books of accounts without bringing adequate material on record. Further, the gross profit admitted by the appellant is higher when compared to the last year and even the net profit is comparable with the net profit of last year and it was less during this year only on account of the fact that the interest claimed during this year was higher. I find that there is no reason to reject the books of account which were audited and the points made by the AO in the assessment order are not sufficient to reject the books of accounts. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... against the rate of 2.5% paid in the earlier years. Thus, he disallowed the excess of 0.75% of the commission paid by the assessee to all the parties. 8. Before the CIT(A), assessee submitted that he has paid uniform commission rate to all the parties including the relatives. Out of 11 persons, only 2 persons were related to the assessee, hence no adverse inference should be drawn. The assessee has enhanced the commission rate in this year so that the agents should work hard to increase the turnover and in fact, such payment of commission has led to enhancement of the turnover in this year. All the payments were made through account payee cheques on which TDS have been deducted. The Ld. CIT(A) first of all observe that the AO has wrongly presumed that the assessee has paid commission @ 3.25%, whereas, the assessee has only paid commission @ 3% on the turnover. Looking to the fact that the assessee has paid uniform commission to all the parties and on the face of the material on record such a payment were genuine and thus, he deleted the disallowance. 9. After considering the rival contention of the parties and on perusal of the impugned material on record, we find that AO ha ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... no. 3 of the revenue s appeal stands dismissed. 13. In the result, appeal of the revenue for AY 2007-08 stands dismissed. 14. Now, we will take-up revenue s appeal for AY 2008-09 in ITA No. 4389/Mum/2010 vide which following ground has been raised:- i) On the facts and in the circumstances of the case and in law, the ld. CIT(A) erred in deleting the addition of ₹ 20,41,043/- made by the AO on account of estimation of gross profit at 25% as compared to 20.81% declared by the assessee without appreciating the fact that the assessee has not maintained proper stock records. ii) On the facts and in the circumstances of the case and in law, the ld. CIT(A) erred in deleting the addition of ₹ 2,62,831/- made by the AO on account of disallowance of portion of the commission claimed by the assessee in his profit loss account. iii) On the facts and in the circumstances of the case and in law, the ld. CIT(A) erred in deleting the addition of ₹ 12,52,158/- made by the AO on account of disallowance of portion of the interest claimed by the assessee in his profit loss account . 15. Besides this, the revenue has also raised additional ground, which r ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ad already admitted the actual profit earned in the transactions verified by the AO. When he accepted the transactions in respect of items verified by him, there is no reason to reject the other transactions entered in the same books of accounts without pointing out any mistake. As contended by the representative, the appellant has earned gross profit of 11 to 12% in few items as submitted vide Annexure to letter dated 8-12-2010 which the AO completely ignored. I find that the AO has resorted to summary rejection of books of accounts without brining adequate material on record. Further, the gross profit admitted by the appellant is higher when compared to the last year and even the net profit is comparable with the net profit of last year and it was less during this year only on account of the fact that the interest claimed during this year was higher. I find that there is no reason to reject the books of account which were audited and the points made by the AO in the assessment order are not sufficient to reject the books of accounts. In the circumstances, the addition is deleted . 18. Since reasoning given by the AO for rejecting the books of accounts and enhancing the gross ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ous persons, noted that payment made to five parties for sum aggregating to ₹ 9,43,446/- were to be disallowed, because these parties had a taxable income and assessee has wrongly accepted the From No. 15G 15H. 23. Before us, the Ld. Counsel submitted that, the provision of section 40(a)(ia) cannot be applied, because the parties to whom the assessee has paid interest have given Form 15G 15H and in wake of such Form, the assessee was not liable to deduct TDS. The fact that these Forms 15G 15H were given by these parties is not in dispute. So far as the parties to whom the interest aggregating to ₹ 9,43,446/- has been made/paid which has been disallowed by the CIT(A) u/s 40(a)(ia), he submitted that these parties have offered the income to the Department and all these receipts have been included in their return of income. Therefore, in view of the Second Proviso to section 40(a)(ia) no disallowance can be made. With respect to the applicability of such Proviso with retrospective effect, the Ld. Counsel strongly relied upon the decision of Hon ble Delhi High Court in the case Landmark Townships Pvt Ltd, reported in of 377 ITR 635. 24. Ld. DR on the other h ..... X X X X Extracts X X X X X X X X Extracts X X X X
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