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TMI Blog2019 (11) TMI 801X X X X Extracts X X X X X X X X Extracts X X X X ..... r of Ld. CIT (A), Patiala be set aside and that of the Assessing Officer be restored. 5. The appellant craves leave to add or amend any grounds of appeal before the appeal is heard and finally disposed of. 3. The facts of the case in brief are that the Assessee was engaged mainly in wholesale trading in timber and wood under the name and style of M/s Chhabra Timber Store. He also maintained a saw mill. A survey under section 133A of the Income Tax Act, 1961 (hereinafter referred to as 'Act') was conducted at the business premises of the Assessee on 09/12/2013 and the inventory of physical stock found at the business premises was compared with the provisional stock as per the books of accounts. The Assessee in his return of income disclosed Rs. 24,56,010/- on account of additional stock, however the A.O. neither mentioned the same in the assessment order nor made any discussions with regard to the disclosure of stock found verified during the survey. The Assessee filed the return of income on 22/11/2014 declaring an income of Rs. 34,08,070/-. The case was selected under compulsory scrutiny as per the guidelines laid by the CBDT. The A.O. framed the assessment under section 143(3 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... " 4.1 The Ld. CIT(A) asked the Assessee to show cause as to why the books of accounts should not be rejected in view of the non maintenance of the stock register and other errors. In response, the assessee submitted as under: "While imported timber/wood is purchased from the parties of Gandhidham in Gujarat, indigenous/local woods are purchased from the parties of Arunanchal Pradesh, Madhya Pradesh and Himachal Pradesh. This timber/wood is segregated quality wise and size-wise. Generally, the timber/wood of medium quality (being easily marketable due to competitive sale rates) is purchased. Pertinent to mention here is the universal fact that the sale rates of timber/wood are based on the quality, size and seasoning quotients. The assessee also has his own saw mill within the business premises to cut the logs to the requirements of customers. There is nominal trading in plywood etc. also. All sales (majority of them being wholesales were made to traders) are evidenced by regularly issued sale invoices, wherein all material particulars of the purchaser, description of timber/wood sold, per unit sale rate, quantity and total sale value thereof, VAT etc. are truly recorded. The b ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tions to the tune of Rs. 1,62,66,878/- by enhancing by 31.57% the sale value of timber/wood/plywood, over and above the actual sales achieved by the assessee, is not tenable in law, as it has been made by applying some presumptive sale rates, while arbitrarily rejecting the sale rate and value recorded in the Sale Invoices issued for each and every individual sale transaction. 3.3.2 Humbly submitted at the outset, that the rates of timber and wood vary with the variation in the quality of timber and it was for this reason that the assessee had purchased different types of timber/wood at varying rates throughout the period under reference. Pertinent to mention here itself, is another well know/ fact contributing towards variation of rates that a log bigger in length commands higher rate than the smaller one. Higher the thickness of log, higher will be rate as it results in lower wastage. All these facts are verifiable from the trade and this fact of varying rates had been accepted by the Ld. A.O. while framing assessments under section 143(3) of the Act, ibid, for the earlier Asst. Years 2012-13 and 2013-14. 3.3.3 Kind attention is drawn to the facts of the instant case for the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nce on the line of Ld. A.O., and these details are being filed herewith for kind appreciation of your goodself with the summary thereof, as under: S.No Item Quantity Sold in CBM Average Sale Rate Rate determined byA.O. 1 Imported Sawn Meranti 995.8281 21,658/- 21,222/40 2 Imported Mix Wood 498.3545 22,451/- 30,176/- 3 Meranti Mix Size It is part of Imported Sawn Meranti 24,155/20 4 Kapoor Sal 102.0693 24,071/- 18,920/- 5 Teak Wood 247.4085 38,548/- Not determined 6 Pine Wood 244.7637 18,360/- Not determined Further perusal of these details, when compared with the unrealistic determination of sale rates by the A.O., shall reflect, as under: (i)'Imported Sawn Morindi' (may please be read as Meranti) Purchase rates of Imported Sawn Meranti' ranged from Rs. 12,582/- per cbm to Rs. 20,500/- per cbm (excluding freight etc.), depending on the quality of wood. The annual average purchase rate comes to Rs. 18,605/-. The identity of this timber/wood at the time of sale had remained same i.e. imported sawn meranti as it had been purchased and the Sale rates had started from Rs. 13,500/- per cbm and the selective ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e period under reference, to the tune of Rs. 44,93,822/- (being 9.12% of total sales), with the average purchase rate of Rs. 15,915/- per cbm (before freight expenses) and average sale rate of Rs. 18,360/- per cbm.. The Ld. Officer has accepted these sales rates and has not made any effort to calculate average sale rates at his end for raising presumptions of under-pricing. (vi) 'Imported Sawn Timber Mix Sizes' In addition to the identified species of timber like Teak Wood, Meranti, Hollok etc., there are woods which are not familiar by name with the ultimate users. These different species of wood are purchased in lots which are not specifically identified as a particular type of wood and are described as Imported Sawn Timber with mix sizes. Purchase rates of the above mixed lots of timber started from Rs. 9,050/- per cbm and were upto Rs. 30,090/- per cbm (excluding freight etc.), with the annual average purchase rate of Rs. 17,359/-. The Sale rates correspondingly ranged from Rs. 14,250/- per cbm to Rs. 57,634/- per cbm with the annual average sale rate of Rs. 22,451/-. The A.O. has presumed the sale rate at Rs. 30,176/- per cbm for making arbitrary enhancement. ( ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... purchasers and no discrepancy whatsoever has been pinpointed by the AO. In this connection, a reference is invited to the decision of Hon'ble Apex Court in the case of M/s. Daulatram Rawatmal reported in 87ITR 349(SC), according to which, to prove that the apparent is not the real, the onus lies on the party which says so. It was, therefore, the onus of the Ld. A.O. to prove that the assessee realised more than what was recorded in the books of account and that onus could be discharged only by placing positive material on record. It could not be discharged merely by rejecting unreasonably the explanation of the assessee without pointing out any inherent defect therein or rebutting the evidence produced as has been held by the Hon'ble Apex Court on 49 ITR 112(SC) in the case of Sreelekha Banerjee. 3.3.8 Kind attention is also drawn to the fact that the detailed information relating to the traders (purchasing parties) had been incorporated in the periodic returns filed under the Punjab Value Added Tax Act, 2005/the Central Sales Tax Act, 1956 and have been accepted by the Authorities concerned as correct as per the assessment framed vide their orders dated 25.07.2016 (cop ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... also reproduced the GPR of the various assessment years at page no. 19 of the impugned order which read as under: Asstt. Year G.P. Rate (%) 2006-07 3.48 2007-08 4.40 2008-09 4.25 2009-10 4.51 2010-11 4.12 2011-12 4.76 2012-13 5.03 2013-14 5.98 2014-15 6.97 2015-16 7.01 2016-17 7.35 2017-18 8.26 6.1 The Ld. CIT(A) deleted the trading addition of Rs. 1,62,66,878/- made by the A.O. on account of under declared sales, however, directed to apply the GPR of 7.5% by observing in para 5.5 of the impugned order as under: 5.5 The Ld. AO has not pointed out a single instance of under declared prices/ in the books. It is my considered view that the addition is done on the basis surmises that prima-facie appears unreasonable, thus the addition on account of under declared sales of Rs. 1,62,66,878/- is deleted. However, in view that of the GP regularly offered by the Appellant and the nature of the timber trade the AO, the GP of the appellant merits a recast at 7.5 %. The turnover of the appellant for the previous year relevant to the AY of the impugned order is Rs. 5,15,26,381/- of which turnover attributable to timber and wood is Rs. 4,92,44,325/- .If ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... dition of Rs. 19,125/- as alleged unaccounted sales to have been recorded in documents serially numbered as 1 to 3, 5, 7 to 14, 16 and 18 to 47 of Annexure B-2, has also been wrongly made. The perusal of relevant impounded documents shall support the submissions of assessee that these are just some rates quoted by the staff members and do not relate to any business transaction which had taken place to conclude that it represented unaccounted sales of the assessee and that too during the period under reference. C) Addition ofRs. 25,452/-: Further addition of Rs. 25,452/-, again as unaccounted sale alleged to have been found recorded in Annexure B-4, has been wrongly made. It was brought to the knowledge of Ld. Officer that the details recorded there in were just periodic stock check up and did not relate to any sale transaction. The perusal of this document supports the above submission of assessee as there is neither any rates have been recorded therein nor any amount has been worked out for drawing adverse inference which warranted additions of Rs. 25,452/- as unaccounted sales. As the findings of the Ld. Officer to the contrary, are based on conjectures and surmises only an ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... naccounted sales relating to the above is quantified at( Rs. 65,000+19,125) Rs. 84,125. I also find considerable merit in the appellant' alternate submission that it is not the argument of the Ld AO that the sales were out of unaccounted purchases. I find considerable merit in the appellant's submissions that the additions need to be restricted to the GP after giving credit to the purchases. Thus the addition is directed to be restricted to 7.5% of Rs. 84,125 or Rs. 6400. The appellant partly succeeds on this ground of appeal. 9. The another addition of Rs. 31,758/- was made by the A.O. under section 36(1)(iii) of the Act, on account of interest on advances given for non business purposes. The A.O. observed that the Assessee had given an advance of Rs. 2,64,755/- to M/s Garg Trading Company to whom no goods were supplied during the year. The A.O. disallowed proportionate interest @ 12%. The submissions of the Assessee before the Ld. CIT(A) were as under: "It is submitted that the Ld. A.O. has also erred in disallowing an amount of Rs. 31,758/- out of the Expenses incurred towards Interest Expenses'. It is stated that the assessee had regular business dealings with ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n'ble Apex court in the case of SA Builders Ltd, vs. CIT (2007) 158 Taxman 74 (SC)may be relevant. The relevant part is extracted below: " However, where it is obvious that a holding company has a deep interest in its subsidiary, and hence if the holding company advances borrowed money to a subsidiary and the same is used by the subsidiary for some business purposes, the assessee would, in our opinion, ordinarily be entitled to deduction of interest on its borrowed loans." This principle has been further affirmed by Hon'ble Supreme Court in the case of Hero Cycles 379 ITR 347 (SC) wherein the Hon'ble Court has ruled as under: i. "..It would be pertinent to mention that insofar as the advance given to M/s. Hero Fibres Limited is concerned, the case put up by the assessee even before the Assessing Officer was that it had given an undertaking to the financial institutions to provide M/s. Hero Fibres Limited the additional margin to meet the working capital for meeting any cash loses. It was further explained that the assessee company was promotor of M/s. Hero Fibres Limited and since it had the controlling share in the said company that necessitated giving of such ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ent is in appeal. 12. The Ld. Sr. DR reiterated the observations made by the A.O. and strongly supported the assessment order. It was further submitted that the additions were made by the A.O. on the basis of the documents found during the course of survey which proved that the Assessee was engaged in the sales outside the books of accounts. Therefore, the additions were rightly made by the A.O, the Ld. CIT(A) was not justified in deleting the same and directing the A.O. to apply the GPR on the sales outside the books of accounts. 13. As regards to the addition on account of the notional interest it was stated that the Assesee on the one hand had given interest free advances and on the other hand was paying interest on the loans received by him, therefore the A.O. was justified in making the addition on account of interest on interest free advances. 14. In his rival submissions the Ld. Counsel for the Assessee reiterated the submissions made before the authorities below and strongly supported the observations made by the Ld. CIT(A) in the impugned order. 15. We have considered the submissions of both the parties and perused the material available on the record. In the present c ..... X X X X Extracts X X X X X X X X Extracts X X X X
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