TMI Blog2018 (3) TMI 372X X X X Extracts X X X X X X X X Extracts X X X X ..... te, then profit will be made. Therefore, no interference is called for in the finding of the ld.CIT(A). Disallowance of foreign tour expenses - Held that:- CIT(A) has recorded a categorical finding that expenditure on foreign travel of assessee’s son was not for the purpose of business, hence, it could not be allowed. Before us, the assessee failed to demonstrate business expediency with regard to this expenditure, and how Shri Kenny Thomas and his family have fulfilled objects of business carried out by the assessee. Therefore, we do not find any reason to interfere in the finding of the ld.CIT(A). - ITA. No. 37, 24/RJT/2013 - - - Dated:- 1-3-2018 - Shri Rajpal Yadav, Judicial Member And Shri Amarjit Singh, Accountant Member Revenue by : Shri Jitendra Kumar, CIT-DR Assessee by : Shri M.J. Ranpura, AR ORDER Per Rajpal Yadav, Judicial Member Assessee and the Revenue are in cross-appeal before the Tribunal against order of ld.CIT(A)-IV, Rajkot dated 3.12.2012 passed for the Asstt.Year 2009-10. 2. Firstly, we take appeal of the Revenue. Revenue took five grounds of appeal, but subsequently vide letter dated 5.9.2017. It has revised grounds of appeal and ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... l in gross profit and net profit in itself cannot be a reason to reject the books of account unless specific instances of bogus purchases, expenses and unrecorded sales and instances of excess stock or other such specific irregularity is detected. A particular expenditure may be disallowable as per I.T. Act if it is capital in nature and not for the purpose of business, however, if it is correctly recorded in books of account, the books of account cannot be rejected on the ground of its non-allow ability under I.T. Act. The DEPB scheme was started somewhere in Assessment Year 1998-99. Therefore, it is possible that in early days of this scheme, the benefits derived from such scheme were a windfall gain. However, in a competitive market, the business persons sacrifice the profit margin, especially when it is a windfall gain to capture the market or to increase his turnover. This is a simple economics and when all businesspersons started going the same, the benefit of DEPB, which could have been a windfall gain in 1998-99, gradually becomes a part of sale price consideration for earning normal profit in subsequent years. It is again a coincidence that when the normal forces of econom ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ccounting of waste material by the appellant in its books. The appellant also submitted the Category-wise raw fish purchased and production there from for assessment Year 2008-09 and for Assessment Year under appeal as under: Assessment Year 2009-10 Item Production Purchase yield% Squids 1182700 2196161 53.85 Shrimps 930379 2858151 32.55 Cuttle Fish 1139479 2023661 56.31 Octopus 13417 25636 52.34 3265975 7103608 45.98 Assessment Year 2008-09 Item Production Purchase yield% Squids 760856 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 4.3 I find that the appellant books of export sale in subsidiary ledger based on exchange rate as on the date of sale. If the sale proceeds are realized during the same Financial Year, appellant replaces the actual value realized in terms of rupee in sale register. There may be some sale proceeds, which are not realized during the same Financial Year. The A/R of appellant explained that the unpaid export sales bills on 31st March are mostly paid before the audit of books of account and therefore the actual value realized in terms of rupees after the month of March but before the audit of books of account replaces the sale value in the books of account. In only those cases where the realization of sale proceeds comes after the audit, appellant books the exchange rate fluctuation difference in subsequent year. The Assessing Officer in the assessment order has recognized this fact. I find that the gains and losses because of Exchange rate difference, which arise in subsequent financial Year at the time of realization of sale proceeds, are backdated and incorporated as part of sale price in the books or Financial year under consideration. It is possible that the sales could be red ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ery year in the cost of electricity is inherent. Therefore electricity consumption of appellant, when compared with appellant s own consumption of electricity of earlier years is not unreasonable. The consumption of electricity will depend upon the lowest temperature maintained for freezing and cold storage and also whether mechanized process is being used or manual labour is being used. For lesser spoilage of products and better quality of product and due to very nature of product it appears that appellant requires more expenditure on electricity than other persons in fish processing business. Shri Keshodwala Food is producing large number of items which are almost resale of the item purchased as the yield is 100% in almost 2/3rd items purchased by it. Such items require processing by the persons who purchase them. Appellant is producing more than 92% of such products which would hardly require any further processing when sold. Therefore the electricity consumption in case of appellant cannot be compared in the manner Assessing Officer has done. Moreover, Assessing Officer has not analyzed any electricity bill of voucher to arrive at such decision that the electricity expenditure ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... followed by any class of Assessee in respect of any class of income. Thus, it indicates that income has to be computed in accordance with the method of accountancy followed by an Assessee i.e. cash or mercantile, such method has to be followed keeping in view the Accounting Standard notified by the Central Government from time to time. Sub clause 3 provides a situation, that is, if the Assessing Officer is unable to deduce the true income. On the basis of method of accountancy followed by an Assessee than he can reject the book result and the assessee s income according to his estimation or according to his best judgment. The Assessing Officer in that case is required to point out the defects in the accounts of Assessee and required to seek explanation of the Assessee qua those defects. If the assessee failed to explain the defects than on the basis of the book result, income cannot be determined and Assessing Officer would compute the income according to his estimation keeping in view the guiding factor for estimating such income. 6. In the light of the above, let us examine facts of the present case. As observed earlier, the ld.AO, for rejecting book of accounts of the assesse ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... r doubting audited accounts of the assessee. 8. Next reason assigned by the AO is electricity consumption in comparison to other similarly situated assessees. The ld.CIT(A) has recorded a finding that the AO has compared electricity consumption with Keshodwala Foods and shri Pithar. Both these concerns were mostly engaged in the export of finished products. The ld.CIT(A) has held that Keshodwala Foods is producing large number of items which are almost resale of items purchased as the yield is 100% in almost two-third items purchased by it. Thus, when an assessee purchased finished product, they come in a frozen state and their preservation would not require much electricity in comparison to the processing activities maintained by the assessee in converting raw-fishes into finished goods, and thereafter preserving it. Thus, the ld.CIT(A) has rightly observed that there is no comparison between activities of the assessee vis- - vis Keshodwala Foods or Shri Pithar. Electricity consumption of these concerns could not be equated with the assessee. 9. Similarly, as far as purchases made from unregistered dealers are concerned fishes were to be procured from fishermen. Of course, t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... by appellant Amount Correct Price Difference Squids 165948 76 12553711 76 0 Shrimps 112285 116 13069514 146 3368550 Cuttle Fish 129061 95 12313456 144 6323989 Octopus 4915 36 175373 60 117960 412209 38112054 9810499 I therefore confirm the addition of ₹ 98,10,499/- on account of undervaluation of stock. However, this stock would be opening stock of subsequent Assessment Year and appellant may claim deduction in subsequent Assessment Year. 11. With the assistance of the ld.representatives, we have gone through the record carefully. There is no disput ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... aining the particular transaction for which the commission was charged in the debit note. I do not find any reason as why after submission of these details the commission could be held as disallowable. Moreover, in Assessment Year 2008-09, appellant had claimed similar sales commission expenditure of ₹ 10186988/- which the Assessing Officer had allowed. The foreign tour expenditure of ₹ 6,29,855/- was also claimed by the appellant for her son Shri Kenny Thomas and his family. The question of allowance of disallowance of an expenditure revealed in the books cannot be a reason to reject the books of account. Appellant has not submitted not submitted any argument during the appellate proceeding also. The foreign travelling expenditure of ₹ 6,29,855/- for appellant s son and his family is apparently a pleasure trip and personal in nature. I therefore confirm the disallowance of ₹ 6,29,855/- on foreign travelling expenditure. 13. With the assistance of ld.representatives, we have gone through the record carefully. A perusal of the above would indicate that the ld.CIT(A) has recorded a categorical finding that expenditure on foreign travel of assessee s son w ..... 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