TMI Blog2019 (10) TMI 773X X X X Extracts X X X X X X X X Extracts X X X X ..... sessing Officer. Books of Accounts maintained in regular course of business cannot be rejected unless there are strong and sufficient reasons to indicate that they are unreliable. In the present case, basis of rejection of rejection of accounts by the Assessing Officer was totally erroneous and uncalled for. The Assessing Officer has not given any reason which would fall within the four corners of the ingredients as stipulated u/s. 145 (3) of the Act. Basis of making the addition on the basis of G.P. is also unsustainable, as making the GP addition on the basis of earlier year or future year is not called for when the rejection of books of account was found to be unsustainable. As in the present case, we do not agree with the finding of the lower authorities with respect to the rejection of books of account and in consequence thereof, we have no hesitation to hold that the GP rate of 16% is also erroneous and liable to be set aside. We may further mention that in the similar circumstances, the remand report was submitted by the Assessing Officer for the assessment year 2012-13 and the ld. CIT(A) had deleted the addition of ₹ 82.68 crores based on the remand report of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e disallowance on the ground that deferred revenue expenses are only allowable in terms of provisions of section 35D and the payment made to financial institution is covered u/s 43B - HELD THAT:- It is an undisputed fact that the identical claim of assessee, in the similar facts and circumstances of the case, has been accepted by the Revenue authorities since 2002- 03 onwards. There is no rebuttal of the fact stated by the assessee that the impugned deferred revenue expenses are relatable to expenses actually incurred and apportioned over the period of loan. In view of the above and following the rule of consistency, we are of the opinion that the ld. authorities below were not justified in disallowing the claim of the assessee. Accordingly, the disallowance made on this count is liable to be deleted. - ITA No. 173/Agr./2013 (Assessment Year: 2008-09) - - - Dated:- 2-9-2019 - Shri Laliet Kumar, Judicial Member And Dr. Mitha Lal Meena, Accountant Member Appellant by Sh. R.S. Singhvi, C.A. Respondent by Sh. Waseem Arshad, Sr. DR ORDER Per Laliet Kumar, J.M.: Present appeal i ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... zable. 6. BECAUSE, the authorities below had fallen in error in disallowing deferred revenue expenses amounting to ₹ 19,67,582/- without considering the facts that the same was never claimed in earlier years by the assessee and the same is being partly claimed on year to year basis in part and is being allowed accordingly consistently. 7. BECAUSE, on due consideration of facts and in the overall circumstances of the case the Id CIT(A) ought to have given clear cut finding in allowing the loss on merger of companies for the period 01.1 2.2007 to 31.03.2008. 8. BECAUSE, the 'AO' has erred in giving credit of TDS by ₹ 10,34,853/- instead of ₹ 13,81,255/- as claimed by the assessee in the revised computation of income. 9. BECAUSE, while making the assessment the 'AO' and while sustaining the addition the 'CIT(A)' made various observations/conclusions which are contrary to facts available on records. The findings recorded in this aspect are wholly perverse and inadmissible in law. While making and sustaining the addition submission made and evidences filed have been ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... w sale price cannot be accepted. The account suffers from infirmities as discussed above. Keeping in view the reply filed by the assessee form time to time, it would be appropriate to allow some discount in G.P. rate while adopting G.P. rate of earlier year. In A.Y. 2007-08 the assessee has shown G.P. rate of 20.71 % and in the A.Y. 2009-10 G.P. rates is 15.80%. In the current year G.P. rate is 13.96%. If G.P. rate of the current year is taken at 16 % it will be fully justified on the facts and in the circumstances of the case. 4. It was submitted by the ld.AR that the AO had wrongly rejected the books of account and thereafter had computed the gross profit @ 16%. It was submitted that on appeal before the ld. CIT(A), the ld. CIT(A) had also followed the decision of the Assessing Officer and in paragraph No. 5.3 he had concluded as under : 5.3 I have considered all these objections taken by the appellant in the first ground, however, I find that neither in the statement of facts, nor in the grounds taken, no reason has been given for selling certain items at price less than its cost. The objections raised in the ground have also been found to ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... f the same is hereunder: It is submitted that figures indicating rise in production loss in Table A at Pg 5 of the assessment order are uncorroborated and it is not known from where the assessing officer has picked up these figures. Moreover, the assessing officer has totally ignored the quantity of work in progress while computing the purported production loss and as such the very basis of conclusion is incorrect and erroneous. Even otherwise, the mere fact of increase in production loss in the year under reference per se would not lead to any adverse inference as long as the production data is actual and correct. It may be appreciated that assessing officer has not disputed the correctness of opening stock, purchases, sales and closing stock and as such hypothetical allegation of production of loss is highly arbitrary and misconceived. The AO has observed that there is reduction in consumption of fabric in Table B at Page 6 of the order. It is observed that consumption of fabric per garment has reduced from 1.578 Kg in AY 2007-08 to 0.33 Kg in current year. It is incomprehensible as to how reduction of consumption is an indicator of defe ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n account of alleged defects pointed out by the Assessing Officer. The ld. AR has relied upon the following decisions : (i). CIT vs. UP State Food and Essential Commodities (2014) 221 Taxman 16 (Allahabad HC) (ii). CIT v. Poonam Rani (2010) 326 ITR 223 (Delhi HC) (iii). DCIT v. Subhash Chand Agrawal (2013) 58 SOT 122 (Alld. Tribunal) 7. It was further submitted by the ld. AR that for the assessment year 2012-13, the ld. CIT(A) in the identical facts, despite decline in GP, had accepted the GP rate of 8.41%. He has drawn our attention to the table reproduced in paragraph 6.7 of the written submissions to the following effect : A.Y. SALES Accretion/ (Decretion) of Stock Material Manufacture ngExp. Payment Benefit to Employee G.P. G.P. RATE Assessment under 2000-01 15,595.80 -105.82 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 3.91 24,662.71 2,053.55 4,214.15 13.97% U/S 143 (3) 2009-10 40,805.38 -606.49 31,530.16 2,217.47 6,451.26 15.81% U/S 143 (3) 2010-11 50,720.84 327.04 38,320.82 2,404.81 10,322.25 20.35% U/S 143 (3) 2011-12 69,298.80 5170.08 57,959.74 2,865.75 13,643.39 19.69% U/S 143 (3) 2012-13 71,214.93 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... heard the rival contentions of the parties and perused the material available on record. Before we deal with the facts of the case we would like to mention that the Assessing Officer is empowered by virtue of section 145(3) to reject the books of account and make assessment on estimate basis as per section 144 of the Act. But before invoking the provisions of section 145, it was incumbent upon the Assessing Officer to record that the books of account were not correctly maintained and were not complete and also to mention that the method of accounting followed by the assessee was not in accordance with the norm laid down by ICA or the Central Government. Further, it was the duty of the Assessing Officer to show that the income was not computed by the AO in accordance with notified accounting standard. 9.1 If we look into the orders of the authorities below, then we find that thelower authorities have neither pointed out any defect in the books of account of the assessee with respect to the correctness or completeness (in fact, the AO has relied upon the books of account and used the transactions recorded in the books of account to come to the conclusion that there ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... o loss. In fact while doing so the assessing officer had compared the sale price of raw yarn with the processed fabric. In this case also the assessing officer had not brought on record any independent evidence for decreasing the sale price. The assessing officer has not brought on record that the assessee has made a sale out of books or have made under invoicing. In view of the above on facts also we do not find any reasons for rejecting the books of account by the assessing officer. 10.2 In our considered opinion, the requirement of section 145(3) must be complied by the Assessing Officer and he has to mention pointedly that in what manner and on what basis, the conclusion was drawn by the Assessing Officer that the books of account have not been correctly maintained. 10.3 On the contrary, if we look into the figures provided in tables A to E then it is clear that the said table work wereconstructed by the Assessing Officer based on the books of accounts of the assessee, cost audit report and balance sheet of the assessee. If the record is maintained by the assessee, then it is for the Assessing Officer to point out how the maintained books of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s are to be taken as correct unless there are strong and sufficient reasons to indicate that they are unreliable... 12.1 The primary condition for rejecting the book results as laid down under section 145 of the Income-tax Act, 1961 is that the ld. AO should be satisfied that the books of account maintained by the assessee are not complete and correct. As can be seen from the findings of the lower authorities, there is no instance of falsity or incompleteness of the books of account. The books of account reflect the true state of affairs of the assessee company. Under such circumstances merely because the assessee company sold its products to its sister-concern, at a price lesser than the prevalent market price on the date of sale, would not be a sufficient ground to come to a conclusion that books of account of assessee company were not complete or correct. This finding cannot, in any way, warrant rejection of books of accounts. 12.2 Similar ratio, under identical set of facts, has been laid down by the Hon ble ITAT Bangalore Bench in the case of Sphoorti Machine Tools (P.) Ltd [(2012) 19 ITR 0736 Bang] = [TS-744-ITAT-2012(Bangalore)-O] in whic ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... der of learned CIT(A) and we confirm the same.... 12.4 In view of the above and also in view of the fact that there was no rejection of books of accounts, ground Nos. 2(a) to (c) are allowed. 13. Ground No. 3 is not pressed. 13.1 Ground No.4 pertains to disallowance of prior period expenses. The ld. AR has drawn our attention to page 10 of the assessment order where the Assessing Officer at Sl. (D) has disallowed the amount of ₹ 13,52,866/- on account of prior period expenses. It was submitted that the assessee has not claimed this amount in the computation of income and our attention was drawn to page 29 Sl. No. 11 of the paper book to the following effect : Further, it was submitted that the assessee has been consistently following this policy in the earlier years also and has claimed as allowable expenses u/s. 37 of the Act. 14. On the other hand, the ld.DR had drawn our attention to page 12 13 of the CIT(A) order where the ld. CIT(A) has discussed in details the issue of prior period income and expenditure. 15. We have heard the rival contentions of the part ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... iod expenses for the purpose of computation of income, then there was no reason for the Assessing Officer to make disallowance of ₹ 13,52,866/-. In view of the above, the ground raised by the assessee is allowed, as there is no occasion for the Assessing Officer to disallow the same being not arising and forming part of the profit loss account of the assessee. 17. Ground No. 5 of the assessee s appeal pertains to notional rental income. The AR has drawn our attention to page 11 of the assessment order where the Assessing Officer had added the amount of ₹ 29,11,000/- as notional rent for the year under consideration. The submissions of the AR are that the appellant had let out the machinery to M/s. Ginni International Ltd. (GIL) and dispute arose between the assessee and the tenant which led to filling of civil suit before the Delhi High court and the assessee in balance sheet at page 29 had disclosed the pendency of the suit before the Delhi High Court. Note 7 reads as under : 7. The company had given certain machines valuing ₹ 340.08 lacs (WDV as on 31.03.2008 ₹ 134.78 lacs) on loan against payment of rent to M/s. Gin ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ines let out by the assessee and the said machines were given to GIL after taking consent from the Financial Institution to whom the machines were hypothecated. 19.1 In our view, if GIL was not liable to pay the rent, and that position of GIL was accepted by the assessee, then it was not required to be shown in the books of account. However, once the assessee is claiming the rent on account of leasing out the machines to GIL and GIL is subsequently settling the suit filed before the Delhi High Court on the basis of mutual settlement whereby the GIL paid an amount of ₹ 2.60 crores towards payment against machinery cost, rent charges etc. 19.2 In the opinion of Bench , mere assertion of the assessee that GIL was denying the rent and hence it was not shown in the books and therefore addition of notional rent was incorrect, is totally unacceptable. The assessee was following mercantile system and the rent was required to be paid on accrual basis. Further the letter at page 162 with subject payment towards machinery cost, rent charges etc. clearly shows that the amount of ₹ 2.60 lacs were not only towards block of assets, but was als ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... othetical or imaginary income, but had accrued on account of use of industrial plant by GIL . Therefore, there was no error in the orders of the authorities below. 20. Ground No. 6 pertains to disallowance of claim of deferred revenue expenses to the extent of ₹ 19,67,582/- in respect of payment made to financial institution on restructuring of loans. The AO considered the disallowance on the ground that deferred revenue expenses are only allowable in terms of provisions of section 35Dand the payment made to financial institution is covered u/s 43B of the Act. The CIT(A) has also upheld the disallowance. The contention of the ld. AR is that the identical claim of deferred revenue expenses are being allowed since AY 2003-04 without any reference to provisions of section 35D or 43B of the Act. It was submitted that during the year under consideration there was no fresh expenses or new claim and it is not understood on what basis, reference was made to provisions of section 35D or 43B. the ld. AR further clarified that the claim of deferred revenue expenses was in respect of advance payment of Management fee, restructuring fee and other administrative expenses ..... X X X X Extracts X X X X X X X X Extracts X X X X
|
