TaxTMI 
TaxTMI 
2019 (7) TMI 170
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....ommon order. 2. The grounds of appeal raised by assessee in memo of appeal filed with the Income-Tax Appellate Tribunal, Mumbai (hereinafter called "the tribunal") in ITA no. 3786/Mum/2011 for AY 2007-08, reads as under:- "1. On the Facts and circumstances of the case and in law, the learned Commissioner of Income Tax (Appeals) erred in law in not accepting your appellant plea for deleting the addition in toto of Rs. 7,29,641/- U/s 40 (a) (ia) and disallowed Rs. 1,07,762/-. being Commission paid to various parties. Looking to the facts & circumstances of the case, Your appellant request your honor that the assessing officer may be directed to delete the said addition of expenses amounting to Rs. 1,07,762 /- in toto. 2. The Learned Commissioner of Income Tax (Appeals) erred in law in not accepting in disallowance of Rs. 10,605/-being transport charges. Your appellant request your honor to accept the claim of Transport Charges and delete addition of Rs. 10,605/- in toto. 3. The Learned Commissioner of Income Tax (Appeals) erred in law in not accepting your appellant plea for deleting the addition in toto of Rs. 84,944/- being disallowance of various expenses. Your appellan....
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....rred in granting the above relief without appreciating the fact that discrepancy in the stock was noticed during survey proceedings on 24/2/2009 vis-a-vis physical inventory taken on that date. 4. On the facts and circumstances of the case and in law, the Ld.CIT(A) erred in granting relief of Rs. 13,52,661/- on account of fall in G.P without appreciating the fact that the estimation of G.P was justified at the end of A.O. as no stock register was maintained by the assessee and further the assessee could not explain the inflated expenses of commission and transportation in the trading account. 5. On the facts and circumstances of the case and in law, the Ld.CIT(A) erred in deleting the addition made on account of unexplained commission expenses without appreciating the fact that the details produced during the scrutiny proceeding clearly reflected the discrepancy and the same could not be proved by the assessee. 6. On the facts and circumstances of the case and in law, the Ld.CIT(A) erred in deleting the addition made u/s. 41 (1) of the Act to the extent of 75% in respect of M/s. Anil Enterprises without appreciating the fact that the said party could not establish transacti....
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....ssessee was asked by the AO to explain the aforesaid difference in sales. The assessee during the course of assessment proceedings submitted before the AO , reconciliation statement of sales as per sales register and sales shown in P&L Account. The assessee submitted that the aforesaid differential in figures in sales is on account of MVAT/CST collected by the assessee which was although part of the sales invoices but was not considered part of the gross turnover as per Accounting Standards prescribed by ICAI . It was submitted by assessee that net turnover after adjusting MVAT/CST was credited to Trading Account while MVAT/CST collected was made part of the Balance Sheet directly and reflected under the head Liabilities or Assets after adjusting Input Credits set off on Purchases and also MVAT paid to Government. The assessee submitted that explanation with respect to sales reconciliation was given and further reconciliation statement of Sales as per sales register and sales as per P&L account for 3 years are also given and is part of the records. The assessee also contended that it will be wrong to say that books of accounts were not available at the time of survey. The assessee ....
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....ate order dated 25.02.2011, by holding as under:- " 5. Ground No.(i) relates to addition on account of alleged sales discrepancies for an amount of Rs. 62,41,972/-. In the assessment order in para No.7 the Assessing Officer has stated that sales as per print out taken from computer was found to be at Rs. 16 crores during the course of survey action whereas sales credited to trading account found to be only to Rs. 15.37 crores. The Assessing Officer concluded that assessee has not offered convincing explanation in regard to the differences in sales and also the alleged payment of VAT. Then in para No.7.1 of the assessment order the officer has discussed that in absence of any satisfactory explanation from the appellant the difference is taken under the head Suppression of Sales an amount of Rs. 62,41,972/- 5.1 The appellant has filed written submission during the course of appellate hearing and submitted that the same is on account of the fact that sales are reported in Profit and Loss Account as "Net of Tax" ie. MVAT Act which though from part of sales invoice, not considered as a part of the gross turnover. During the appellate proceedings the appellant has furnished copy of ....
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....e-tax Rules, 1962 as additional evidences by way of working given for reconciling opening and closing stock vis-a-vis MVAT/CST to arrive at Income in terms of Section 145A were not before the AO and the learned CIT(A) ought to have forwarded the same to the AO for comments/remand report in terms of Rule 46A of the 1962 Rules. It was submitted by learned DR that survey operations u/s 133A of the 1961 Act were conducted by Revenue on 24.02.2009 and there was a difference in sales as per computer records and the actual sales as is recorded in books of accounts , which led to the additions on account of suppressed sales to the tune of Rs. Rs. 62,41,972/ . The learned DR relied upon assessment order passed by the AO and our attention was drawn to the orders of the authorities below. It was submitted by learned DR that learned CIT(A) erred in admitting additional evidences in violation of Rule 46A of the 1962 Rules and relief was granted to the assessee without forwarding additional evidences to the AO for comments/remand report. It was also submitted that MVAT/CST liability is not reflected in the Books of accounts, wherein it is explained that the amount of MVAT/CST is not reflected in....
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.... no additions are warranted. It was submitted that there was minor difference of around Rs. 3 lacs+ between sales of 16 crore(inclusive of MVAT/CST) as was reflected in computer printout and final sales figures( inclusive of MVAT/CST) as per books of accounts of Rs. 15.97 crores which was mainly due to cash discounts etc. given to customers which is duly accounted for in books of accounts and hence it was prayed no additions are warranted. 4.8 We have considered rival contentions and perused the material on record including orders of authorities below and paper book filed by the assessee. We have observed that the assessee is engaged in trading in chemicals. We have observed that the assessee was surveyed by Revenue u/s 133A of the 1961 Act on 24.02.2009. The survey operations u/s 133A were conducted on 24.02.2009 by Revenue at the business premises of M/s. J.V Chem at B-1, Neelkant Chhaya, R.B. Mehta Road, Ghatkopar (East), Mumbai -400077 , sales office at 403, Parshwa Chambers, 17/21, Issaji Street, Masjid Bunder, Mumbai-400003 and godown at C/o Anand & Co. , Matre Compound, Val Grampanchayat, Ajoor Phata Road, Val Village, Bhiwandi, Thane. As per Revenue , during the course of ....
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....vented Revenue from taking print out or soft copy of complete books of accounts of the assessee. It is observed that as per the details of sales taken from computer during the course of survey operations, sales were to tune of Rs. 16 crore while the actual sales credited to the audited trading account were to the tune of Rs. 15.37 crore. We have observed that the assessee has satisfactorily explained that the assessee is following exclusive method of accounting while accounting for sales wherein sales net of MVAT/CST are credited to turnover in books of accounts to sales account which got reflected in Trading Account while MVAT/CST collected by the assessee on these sales are reflected in the liability side of the balance sheet which is adjusted for Input-tax credits on Purchases and MVAT/CST paid by the assessee . This is one of the recognised method of accounting. The assessee has duly submitted complete reconciliation of sales before the AO. The assessee has duly filed reconciliation statement of the sales and purchases with Balance Sheet before the AO. Reference is drawn to page no. 29 of the paper book wherein vide submissions dated 17.03.2009 filed on 18.03.2009, the assessee....
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....Revenue looks quite attractive but on careful perusal , it is observed that this working is merely to support the clause 12(b) of the tax-audit report issued by CA u/s 44AB of the 1961 Act wherein it is disclosed by CA who conducted tax-audit that there is no deviation from the method of valuation prescribed u/s 145A and hence no effect on profit or loss. This tax-audit report was admittedly filed by the assessee before the AO which is emanating from para 1 of the page 1 of the assessment order . Thus, the working submitted by the assessee before the learned CIT(A) to prove and substantiate its stand as to what was declared in tax-audit report that there are no deviations from the method of valuation as is prescribed u/s 145A of the 1961 Act was true and correct , cannot in our considered view to be said to be an additional evidences and the contentions of the Revenue that there is breach of mandate of Rule 46A of the 1962 Rules by learned CIT(A) is fallacious and this contention of the Revenue as to infringement of Rule 46A of the 1962 Rules stand rejected. The assessee through this working u/s 145A brought to the notice of learned CIT(A) that there will be no impact on income cha....
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.... 65 Drums (c) Acetone 34 Drums 5.2. The AO observed that during course of survey operations conducted by Revenue u/s 133A of the 1961 Act on 24.02.2009 , there was no stock register found for AY 2006-07 and 2007-08 and there is a possibility of underestimating of closing stock for AY 2007-08. The assessee submitted vide letter dated 09.12.2009 before the AO during the course of assessment proceeding that the assessee deny the allegation of Revenue that no stock register were maintained . It was submitted that the assessee is maintaining computerised accounts for its business operations and day to day stock register were available during the course of survey. It was claimed that the assessee is having personalised accounting software for accounts in which stock data get automatically get updated, as soon as the data for purchases and sales are recorded in the computer. It was observed by the AO that in auditors report there is no mention of any stock register. It was further observe....
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....;s own case along with copy of tax-audit report (Annexure-6), which is placed in file. The learned DR submitted that closing stock as per tax-audit report for the financial year 2005-06 is 90928 Kgs of various kinds of chemicals while the opening stock as per tax-audit report for the financial year 2006-07 is 92788 kg(page 25/PB) of various types of chemicals. Thus, it was contended that proper stock records are not maintained by the assessee. It was contended by learned DR that stock register was produced before the learned CIT(A) for the first time which is an additional evidences and Rule 46A of the 1962 Rules was breached. Our attention was drawn to para 6 of page 7 of appellate order passed by learned CIT(A) and prayers were made not to admit additional evidences filed by the assessee for the first time before learned CIT(A). Thus, it was prayed by learned DR that learned CIT(A) erred in deleting the additions as were made by the AO. 5.5 The learned counsel for the assessee in rebuttal drew our attention to page 3 of the paper book which are notes to audited financial statements for the relevant period and submitted that the assessee is valuing inventories/stock at cost or ne....
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....ssued by the AO on directions of learned CIT(A) which is placed in paper book at page no. 119 and reply to Remand Report was submitted by the assessee before Ld. CIT(A) on 24.02.2011 which is placed at paper book at page 120-121. It was submitted by learned counsel for the assessee that additions were made by the AO owing to allegation of mismatch in stock to the tune of Rs. 5 lacs on estimated basis while the AO did not gave any basis for making these additions. 5.6. We have considered rival contention and perused the material on record including orders of authorities below and paper book filed by the assessee. We have observed that the assessee was surveyed by revenue u/s. 133A on 24.02.2009. As we have seen in preceding issue adjudicated by us vide para 4 to 4.8 in this order, there was a dispute between rival parties as to maintenance of stock records. The assessee had contended that it was marinating proper books of accounts and stock registers as it was maintaining the records through personalised accounting software in computer including stock registers and details of sale and purchases including stock were duly available during the course of survey operations conducted by ....
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....e assessee. In our considered view, the assessee on its part has duly submitted complete details and in our considered view Ld. CIT(A) has rightly deleted the addition as were made by the AO on estimated basis. However , the Ld. DR has pointed out that the closing stock for AY 2006-07 was 90,928 Kg of different types of chemicals dealt in by the assessee as on 31.03.2006, while for AY 2007-08 , the opening stock as on 01.04.2006 was taken as 92,788 Kg. of chemicals instead of taking closing stock of preceding year as opening stock and to this extent owing to specific defect being pointed out by learned DR , we are remitting the matter back to the file of AO for limited verification of this differential in closing stock of AY 2006-07 and opening stock of AY 2007-08 and for make additions to income accordingly , if any as per mandate of the applicable provisions of the 1961 Act.Needless to say that the AO shall provide proper and adequate opportunity of being heard to the assessee in set aside proceedings in accordance with principles of natural justice in accordance with law and evidences/explanations filed by the assessee shall be admitted by the AO to be adjudicated on merits in a....
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....ertified on estimated basis with a view to evade taxes. The AO also observed that the competitors who are in the same business in the same locality namely Shri. Jitendra C. Parekh of M/s. Parekh Industrial Corporation has shown following GP ratio :- A.Y. Gross Sales Gross Profit Percentage 2007-08 Rs. 1,81,56,617 Rs. 16,18,241/- 8.91% 2006-07 Rs. 1,70,79,125 Rs. 12,76,389/- 7.47% 6.3 The AO estimated the GP of the assessee at 3% of sales and made additions of Rs. 13,52,661/- to the income of the assessee vide assessment order dated 29.12.2009 passed by the AO u/s 143(3) of the 1961 Act. The matter went in appeal to Ld. CIT(A) at behest of the assessee who was pleased to grant relief to the assessee , vide appellate order dated 25.02.2011 passed by learned CIT(A). 6.4 Now, revenue being aggrieved by the deletion of the addition by learned CIT(A) towards low GP ratio has filed an appeal with tribunal. Our attention was drawn at the outset by Ld. DR that similar GP additions made by the AO for AY 2006-07 has now been sustained by tribunal in ITA no. 8866/Mum/2011 vide orders dated 27.04.2016 and prayers were made by learned DR to sustain GP additions made by the AO....
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....rge 22,81,007 12,86,808 9,94,199 Increase in sales and purchases, as alongwith with increase in transportation cost. Commission 17,30,871 5,66,009 11,64,861 Due to increase in purchases/ sales As it is quite clear from the above table, gross profit margin were squeeze on account of increase in expenses, hike in price of goods procured for trading and the same hike could not be pass on to the customer due to stiff competition , hence no increase in margin on turnover, hence there is decrease in the Gross Profit margin." 6.8. We have considered rival contentions and perused the material on record. We have observed that the assessee is in the business of trading in chemicals and survey action u/s. 133A was conducted by revenue on 24.02.2009. We have observed that despite increase in turnover, the assessee is consistently showing a low GP ratio over years and its GP ratio is consistently falling for the last three years, the details of which are as under:- A.Y. Gross Sales Gross profit G.P Ratio 2007-08 Rs. 15,37,99,177/- Rs. 32,61,314/- 2.12% 2006-07 Rs. 8,98,38,152/- Rs. 26,63,059/- 2.96% 2005-06 Rs. 5,96,88,795/- Rs. 19,50,915/- ....
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....nd no. 1 raised in the present appeal about the addition of Rs. 2,68,144/- on account of difference of estimated gross profit. We have heard the Authorised Representative (AR) for assessee and Departmental Representative (DR) for revenue. AR of the assesses argued that in a survey action u/s. 133A, 15 person came at the office premises (a tiny space of l80sq feet) for making the survey, consisting of ITO's/ADC1T and staff of 1TO. The search commenced in afternoon and was completed in early morning to next day. During the survey operation all record of assessee was mixed in a very small place and there was a total chaotic. During survey operation no incriminating material was found nor was any discrepancy in the record of assesses recorded. After satisfying each officer individually verifying all the documents, the survey action was called off. During the re-assessment proceeding, the assesses was made to suffer a lot as the AO was biased against the assessee, reason of bias was that assessee did not co-operate at the time of survey in the senses that assesses did not declare any undisclosed/additional income during the survey operation. The AR of the assessee has argued that additi....
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....e survey proceedings. The books for the previous year relevant to AY 2005-06 were also audited, coupled with the fact that the gross profit for that was higher (at 3.26%) then that for the year under consideration, which was at 2.96%, the difference amounting to Rs. 2,68,144/-. The books of account were accordingly, i.e., in view of all discrepancies and unexplained reductions in gross profit rate, rejected, and addition for said differences in GP made. 6. We have perused the statement of gross profit and net profit filed by AR of the assessee in respect of AY 2010-11 to AY 2015-16 and there is an average variation of 0.28% and AO added the net profit of 0.30 comparatively to earlier A.Y. We have also noticed that the assessee has not challenged the re-opening/re-assessment proceeding for the reasons best known to him. The CIT(A) has considered all the facts and material with regard to addition on the basis of gross profit for earlier year. We found no perversity in the order passed by CIT(A) , hence , this ground is dismissed." As could be seen from aforesaid tribunal order that various discrepancies/inconsistencies in the accounts were noted by tribunal while confirming addit....
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....wards commission for the immediately preceding year. The AO observed that commission as percentage of turnover has gone upto 1.12% as against 0.57% paid for last year and in the opinion, the assessee paid more commission to show lower GP as compared to preceding year and to reduce tax liability. The AO also observed from verification of details of commission paid during financial year 2006-07 that the assessee has made payment of commission amounting to Rs. 24,60,511/- while as per Trading account, the commission debited was only Rs. 17,30,870/- , leading to difference of Rs. 7,29,641/- . The AO observed that the assessee could not offer any satisfactory explanation with respect to difference in the commission paid shown in the trading account and in the statement furnished by the assessee during the course of assessment proceedings, which led AO to make additions to the income of the assessee to the tune of Rs. 7,29,641/- u/s. 69C of the 1961 Act. 7.2 Aggrieved, the assessee filed first appeal before the Ld. CIT(A) who was pleased to hold that assessee has filed statement during the course of assessment proceedings before the AO of the commission paid exceeding Rs. 50,000/- whic....
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....during assessment proceedings, details of the brokerage and commission along with TDS details. The learned counsel for the assessee also brought to our notice page no. 35/pb, wherein vide letter dated 04.12.2009 details of commission and brokerage as also TDS details were filed before the AO during assessment proceedings . 7.4 We have considered rival contentions and perused the material on record. We have observed from Trading, Profit and Loss of the assessee for the year ended 31.3.2007 (placed in PB/page 5) that the assessee has debited Rs. 17,30,870.50 towards commission paid in Trading Account while an amount of Rs. 4,89,284/- was debited towards Brokerage in Profit and Loss Account. The assessee has placed on record Ledger account of Commission paid at page 51-54/paper books wherein commission earned by the assessee also stood credited and Net Commission Expenses( net of commission income ) of Rs. 17,30,870.50 is reflected in ledger account. The assessee submitted details of commission paid of above Rs. 50000/- during assessment proceedings before the AO , which is placed on record in paper book at page 55. The AO added and disallowed commission based on differentials of com....
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....additions/disallowance of transportation charges were confirmed by learned CIT(A) to the tune of 10% of unexplained transportation charges to the tune of Rs. 1,06,058/- leading to disallowance of Rs. 10,605/- . Before us Ld. Counsel for the assessee has not made any serious contentions to support its case and only bald averments are made . In the absence thereto of any serious challenge to the well reasoned appellate order passed by learned CIT(A) and as per material on record, we confirm the additions as sustained by learned CIT(A) . The differential in transportation charges as were observed by authorities below could not be explained by the assessee even before us. We also note that Revenue has not raised any challenge to part relief granted by learned CIT(A) to the assessee. Thus, this ground of appeal filed by the assessee being ground number 2 raised by the assessee in its appeal filed with tribunal stand dismissed. We order accordingly. 9. The next ground being ground number 3 raised by assessee in memo of appeal filed with tribunal relates to addition of Rs. 84,944/- made by the AO of various expenses by disallowing 25% of the following expenses , for which the assessee d....
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.... para 9 as above in this order. Similar additions to the income of the assessee by disallowance of 25% on depreciation on car amounting to Rs. 15,692/- was made by the AO which were later confirmed by Ld. CIT(A). The assessee being aggrieved has now filed second appeal . No serious contentions were raised by Ld. Counsel for the assessee even before tribunal to substantiate /justify that car was wholly and exclusively used for the purposes of the business of the assessee . It is also observed that car is registered in the individual name of partners and personal usage of the car for benefit of partners/family members cannot be ruled out and hence this addition is sustained. Ground No. 4 raised by the assessee in memo of appeal filed with tribunal stands dismissed. We order accordingly. 11. Similar is the fate of disallowance of expenses towards warehousing charges(Rs. 36,943/-) and Hamali Charges(Rs. 25,088/-) challenged by the assessee vide ground no. 5 and 6 raised by the assessee in memo of appeal filed with tribunal. The additions were made towards warehousing charges of Rs. 36,943/- by the AO which were later confirmed by learned CIT(A). The assessee did not furnished details ....
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....ooks of accounts of the assessee was added by the AO as income of the assessee, wherein the addition to the tune of 25% of the purchases made by the assessee from the said party during the year were confirmed by learned CIT(A) on the grounds that purchase price of the drums were inflated , leading to confirmation of disallowance amounting to Rs. 4,86,522/- against which assessee has come in appeal, while rest of the additions as were made by the AO were deleted by Ld. CIT(A) which has aggrieved Revenue. The Revenue has also come in appeal before the tribunal being aggrieved by part relief being granted to the assessee by learned CIT(A) , vide ground number 6 raised by Revenue in memo of its appeal filed with tribunal. Thus, both assessee and revenue being aggrieved by the decision of learned CIT(A) has come in an appeal before tribunal. There were two additions made u/s 41(1) by the AO wrt M/s Jay Ambe Enterprises and M/s Anil Enterprises but since dispute wrt additions made u/s 41(1) of the credit balance outstanding to the credit of Jay Ambe Enterprises has attained finality between rival parties, we will restrict our discussions to additions made wrt credit of M/s Anil Enterpris....
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.... its books of accounts and bill copies of the parry. However , the assessee did not file other details. The assessee did not file details of delivery i.e. delivery challans and transportation details, storage or warehouse details and hence transaction with the said party M/s Anil Enterprises was held to be not genuine purchase transactions. The copy of remand report was forwarded by learned CIT(A) to the assessee for rebuttal. The assessee in rebuttal to remand report submitted before learned CIT(A) that the said party M/s Anil Enterprises is a regularly trading party and the purchase transactions with said party are also going on till today while filing reply on 24.02.2011. The assessee also submitted copies of bills and as well copies of bank statements to prove that all payments were made through banking channel. The assessee also submitted confirmation of ledger account of Anil Enterprises as it appears in its books of accounts as well assesee‟s ledger as it appears in the books of M/s Anil Enterprises. The learned CIT(A) observed that assessee is dealing regularly with Anil Enterprises and even today that there are dealing between both the parties . The payments were mad....
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....0 before AO during remand report proceedings. It was submitted that dealings were continuing with the said party for purchasing drums for packing chemicals even after closure of financial year. Our attention was drawn to page 123/124 of paper book , wherein account of assessee in books of accounts of Anil Enterprises from April 2007 onwards till 19.03.2008 is placed. It was claimed that merely because the party has not appeared before the authorities below, no additions can be made. 12.4. We have considered rival contentions and perused the material on record. We have observed that the assessee is trading in chemicals. The assessee is buying drums from M/s Anil Enterprises which are used for packing chemicals . The assessee has made purchases to the tune of Rs. 19,46,088/- from the said party during the relevant period. The AO in order to verify genuineness of these purchases issued notice u/s 133(6) during assessment proceedings . The said notices returned unserved by postal authorities with remark "Not Known‟ . The assessee was called upon by the AO to prove genuineness of these purchases and to prove this creditor. The assessee filed confirmation from this party but could....
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....nticity of purchase price could not be proved , but learned CIT(A) failed to bring on record any evidences/comparative analysis to prove how the price charged by M/s Anil Enterprises is on higher side. The addition has been confirmed by learned CIT(A) merely on conjectures and surmises solely for the reasons that M/s Anil Enterprises did not authenticate transactions directly. No further enquiries were made by the authorities below to obtain independent data to prove that higher prices for drums was charged by Anil Enterprises. The learned CIT(A) rightly held that in the instant case Section 41(1) cannot be invoked as the dealing with said party continued even after the end of previous year and also that payments were all made through banking channel. Thus, this addition in our considered view is not sustainable in the eyes of law as the liability has not ceased to exist as on 31.03.2007 as the trading dealings of the assessee with the said party M/s Anil Enterprises continued even after closure of previous year and secondly payments were made through banking channel. The assessee has proved consumption of drums for packing of chemicals. The confirmations obtained by assessee from ....