M/s. Parle Sales Services Pvt.Ltd., Ahmedabad V. The Income tax Officer,Ward-5(2), Ahmedabad

CO 166/AHD/2009

• Counselvise Citation: [2016] 123 COUNSELVISE.COM (IT) 2026 (ITAT-AHMEDABAD)
• Duration Of Justice: 6 year(s) 6 month(s) 11 day(s)
• Appeal Type: Cross Objection
• Pronouncement Date: 04-02-2016
• Appeal Filed By: Assessee
• Order Result: Dismissed
• Bench Allotted: A
• Next Hearing Date: 27-01-2016
• Assessment Year: 2005-2006
• Appeal Filed On: 24-07-2009
• Result in Favour of: Revenue
• Court: TRIBUNAL
• Department Lawyers: DINESH SINGH
• Keywords: Recovery proceedings; Depreciation; Wholly owned subsidiary; Bad and doubtful debts; Corroborative evidences; Commercial expediency
• Section: 143(3)

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL AHMEDABAD A BENCH BEFORE: S H RI PRAMOD KUMAR , ACCOUNTANT MEMBER AND SHR I S. S. GODARA , JUDICIAL MEMBER ITO, WARD - 5(2), AHMEDABAD (APPELLANT) VS M/S. PARLE SALES SERVICES PVT. LTD, 101, GIDC ESTATE, VATVA, AHMEDABAD PAN: AACP9019R (RESPONDENT/CROSS OBJECTOR) DCIT, WARD - 5, AHMEDABAD (APPELLANT) VS M/S. PARLE SALES SERVICES PVT. LTD, 101, GIDC ESTATE, VATVA, AHMEDABAD PAN: AACP9019R (RESPONDENT/CROSS OBJECTOR) I T A NO . 1843/ A HD/20 09 AND CO NO. 166/AHD/20 09 ASSESSMENT YEARS: 2005 - 20 06 ITA NO . 10 50/AHD/2010 AND CO NO. 121/AHD/2010 ASSESSMENT YEAR: 2006 - 20 07 ITA NO . 1562/AHD/2011 AND CO NO. 174/AHD/2011 ASSESSMENT YEARS: 2007 - 2008 I.T.A NO S . 1843, 1050 & 1562 & CO NOS. 166,121 & 174 A.Y. 2005 - 06 TO 2007 - 08 PAGE NO ASSESSEE: M/S. PARLE SALES SERVICES PVT. LTD 2 DCIT, WARD - 5, AHMEDABAD (APPELLANT) VS M/S. PARLE SALES SERVICES PVT. LTD, 101, GIDC ESTATE, VATVA, AHMEDABAD PAN: AACP9019R (RESPONDENT/CROSS OBJECTOR) REVENUE BY : S H RI DINESH SINGH , SR. D . R. ASSESSEE BY: S H RI S.N. SOPARKAR , A.R. DATE OF HEARING : 27 - 01 - 2 016 DATE OF PRONOUNCEMENT : 04 - 02 - 2 016 / ORDER P ER : S. S. GODARA , JUDICIAL MEMBER : - THESE THREE REVENUE S APPEALS AND ASSESSEE S CROSS OBJECTION S THEREIN , FOR ASSESSMENT YEARS 2005 - 06 TO 2007 - 08, ARISE FROM DIFFERENT ORDERS OF THE CIT(A) - XI, AHMEDABAD DATED 24 - 03 - 2009, 01 - 02 - 2010 AND 1 7 - 03 - 2011 IN CASES NOS. CIT(A) - XI/455/JAN - 08/07 - 08 , C IT(A) - XI/669/20 08 - 09 AND C IT(A) - XI/1048/09 - 10 ; RESPECTIVELY, IN PROCEEDINGS U/S. 143(3) OF THE INCOME TAX ACT, 1961; IN SHORT THE ACT. WE PROCEED ASSESSMENT YEAR - WISE FOR THE SAKE OF CONVENIENCE AND BREVITY. I.T.A NO S . 1843, 1050 & 1562 & CO NOS. 166,121 & 174 A.Y. 2005 - 06 TO 2007 - 08 PAGE NO ASSESSEE: M/S. PARLE SALES SERVICES PVT. LTD 3 ASSESSMENT YEAR 2005 - 06 REVENUE S APPEAL 1843/AHD/2009 AND ASSESSEE S CROSS OBJECTION NO. 166/AHD/2009 2 . THE REVENUE S FIRST SUBSTANTIVE GROUND ASSAILS CORRECTNESS OF THE LOWER APPELLATE ORDER DELETING DISALLOWANCE/ADDITION OF RS. 2,18, 14, 064/ - ON ACCOUNT OF DISCOUNT ON SALES. IT APPEARS FROM ASSESSMENT ORDER DATED 28 - 012 - 2007 THAT THE SAME IS RATHER DISALLOWANCE @ 50% OF ASSESSEE S CLAIM FOR DAMAGES , D ISCOUNT TO SALE, STOCK RETURN AS DAMAGES AND UNREASONABLE/EXCESSIVE PAYMENT MADE TO SISTER CO NCERN ; TOTALING TO RS. 4,36,28,127/ - . THE ASSESSEE - COMPANY TRADES IN AERATED WATER, AGRO - BASED PRODUCTS AND PACKED DRINKING WATER. IT FILED ITS RETURN ON 31 - 10 - 2005 DECLARING NIL INCOME AFTER CLAIMING SET OF UNABSORBED BUSINESS LOSS/DEPRECIATION. THE A SSESSING OFFICER TOOK UP SCRUTI NY. HE NOTICED THAT ASSESSEE WAS A 100% SUBSIDIARY OF ITS HOLDING ENTITY M/S PARLE AGRO PVT. LTD. A ND IT PURCHASED THE ABOVE STATED PRODUCTS FROM THE HOLDING ENTITY. THE ASSESSING OFFICER WAS OF THE VIEW THAT THE ASSESSEE HAD NO BUSINESS OF ITS OWN BUT HAD BEEN USING THAT OF ITS ASSOCIATE CONCERN BY AVAILING ALL OFFICE SERVICES. HE INVOKED THE IMPUGNED DISALLOWANCE @ 50% OF THE ABOVE STATED HEAD OF EXPENDITURE BY HOLDING THAT THE ASSESSEE HAD FAILED TO PROVIDE THE RELEVANT SUPPORTIVE EVIDENCE. THE CIT (A) SUMMARIZ ES ASSESSING OFFICER S FINDING AND ASSESSEE S SUBMISSIONS MADE IN THE COURSE OF LOWER APPELLATE PROCEEDINGS AS UNDER: - 2. THE FIRST GROUN D OF APPEA L RAISED BY THE APPELLANT IS AGAINST DISALLOWANCE OF RS.2,18,14,0 64/ - MADE IN RESPECT OF EXPENSES INCURRED ON ACCOUNT OF DISCOUNT ON SALES AND DAMAGES, REBATE AND I.T.A NO S . 1843, 1050 & 1562 & CO NOS. 166,121 & 174 A.Y. 2005 - 06 TO 2007 - 08 PAGE NO ASSESSEE: M/S. PARLE SALES SERVICES PVT. LTD 4 DISCOUNT AND LOSS FOR DAMAGES. THIS ADDITION HAS BEEN DISCUSSED BY THE ASSESSING OFFICER IN PARA 4 OF THE ASSESSMENT ORDER. HE HAS STATED THAT THE APPELLANT C OMPANY IS A 100% SUBSIDIARY COMPANY OF PARLE AGRO PVT. LTD. THE APPELLANT IS ENGAGED IN THE BUSINESS OF AGRO PRODUCTS AND DRINKING MINERAL WATER. THE ENTIRE PURCHASES OF THESE PRODUCTS ARE FROM TH E HOLDING COMPANY PARLE AGRO PVT. LTD. IN PARA 3 OF THE ASSE SSMENT ORDER, THE ASSESSING OFFICER HAS NOTICE D AS UNDER: - '4.3 IT IS ALSO NOTICED THAT, THE ASSESSEE IS DOING THE TRADING ACTIVITY OF GOODS PURCHASED FROM ITS HOLDING COMPANY. THE FUND IS ALSO PROVIDED BY THE HOLDING COMPANY AND ASSESSEE HAS SHOWN CO NTINUOUS LOSS IN EARLIER YEARS. IT IS ALSO NOTICED THAT ASSESSEE HAS NO INDEPENDENT BUSINESS ACTIVITY. IT IS ONLY A TOOL OF AVOIDING TAX BY HOLDING COMPANY BY DEBIT AND CLAIM OF THE EXPENSES IN SUBSIDIARY COMPANY. THEREFORE, ASSESSEE WAS ASKED TO FURNISH D ETAILS WITH JUSTIFICATION VIDE QUESTIONNAIRE DATED 06/11/200 7. VIDE, ABOVE QUESTIONNAIRE THE ASSESSEE WAS REQUIRED TO PRODUCE DETAILS ON THE DATE OF HEARING, BUT AUTHORIZED REPRESENTATIVE OF THE ASSESSEE HAS CONTINUOUSLY ASKED FOR ADJOURNLNENT AND PART OF THE DETAILS WERE FURNISHED ON 19/12/2007.' 2.1 THE ASSESSING OFFICER HAS STATED THAT THE APPELLANT WAS ASKED TO FURNISH BRANCH - WISE/CENTRE - WISE GRADING AND P&L ACCOUNT FOR WHICH THE ASSESSEE HAD STATED THAT THEY DO NOT MAINTAIN SEPARATE BOOKS OF ACCOUNT BRANCH - WISE AND THEY WERE CONTROLLING THE ACCOUNTS FROM THE HEAD OFFICE. IT WAS ALSO EXPLAINED THAT THERE WAS NO LEGAL REQUIREMENT TO MAINTAIN SEPARATE ACCOUNTS BRANCH - WISE AND IT WAS ALSO NOT COS T EFFECTIVE FOR THE ASSESSEE / COMPANY . IT IS THEREAFTER ST ATED BY THE ASSESSING OFFICER THAT HE HAD ASKED THE AS SESSEE TO FURNISH FOLLOWING DETAILS: - '10. STATEMENT OF PARTY WISE PURCHASES IN QUANTITY AND VALUE, ALSO JUSTIFY THE REASONABLENESS OF PAYMENT MADE TO PERSONS SPECIFIED U/S.40A(2)(B) WITH SUPPOR TING EVIDENCE. 13. PART Y WISE COMPLETE DETAILS WITH JUSTIFICATION AND SUPPORTING EVIDENCE FOR CLAIM MADE FOR DAMAGES AND DISCOUNT ON SALE. I.T.A NO S . 1843, 1050 & 1562 & CO NOS. 166,121 & 174 A.Y. 2005 - 06 TO 2007 - 08 PAGE NO ASSESSEE: M/S. PARLE SALES SERVICES PVT. LTD 5 17. IT IS OBSERVED THAT YOU ARE INVOLVED IN TRADING ACTIVITY HOWEVER THE HUGE AMOUNT OF DAMAGES HAS BEEN ACCEPTED BY YOU, WHY THE SAME HAS NOT BEEN RECOVERED / CLAIM FROM SUPPLIER BY YOU. 19. REASONS FOR INCURRING LOSSES IN TRADING ACTIVITY IN EARLIER YEARS. THE APPELLANT HAD, THEREFORE, STATED BEFORE THE ASSESSING OFFICER THAT THEY WERE MAINTA INING COMPLETE QUANTITATIVE DETAILS WHICH WERE ALREADY AVAILABLE WITH THE ASSESSING OFFICER AND NO DEFECT THEREOF WAS FOUND. THE APPELLANT FURTHER FURNISHED EXPLANATION, WHICH IS ALSO NOT ACCEPTABLE TO THE ASSESSING OFFICER AND IT IS OBSERVED BY HIM THAT T HE APPELLANT HAD REMAINED SILENT ABOUT PARTY - WISE PURCHASES WITH QUANTITY AND VALUE. IT IS STATED THAT THE PAYMENTS HAVE BEEN MADE ON ACCOUNT OF FOLLOWING TO PARLE AGRO. PVT . LTD: - (I) REIMBURSEMENT OF EXPENSES RS. 46,24,567/ - (II) PURCHASES OF AGRO - PRODUCTS RS. 72,71,04,973/ - (III) PACKED DRINKING WATER RS. 9,67,54,090/ - 2.2 EFFECTIVELY THE ADDITION IS CONSIDERED IN PARA 4.11 OF THE ASSESSMENT ORDER. IT IS STATED BY THE ASSE SSING OFFICER THAT AS PER AUDITED BALANCE SHEET THE APPELLANT HAD PROVIDED DISCOUNT ON SALES AMOUNTING TO RS.86.25 LACS AND CLAIMED DAMAGES OF RS.78.52 LACS, THUS TOTALING RS. 164.77 LACS AND FOR THE EARLIER YEAR, THE SAME WAS RS.447.08 LACS. AS PER THE AD MINISTRATIVE AND SELLING EXPENSES, THE CLAIM WAS OF RS.2,32,50,496/ - ON ACCOUNT OF REBATE AND DISCOUNT. THIS EXPENSES ARE BIFURCATED IN TWO PARTS; RS.86.25 LAC DEBITED TO SALES ACCOUNT AND RS.23.50 LACS IN EXPENSES ACCOUNT. IT IS STATED THAT THIS EXPENDI TURE WAS REQUIRED TO BE JUSTIFIED. THE ASSESSING OFFICER STATES THAT WHEN THE DAMAGE HAD OCCURRED, PROOF OF DAMAGE WAS NOT FURNISHED. THE APPELLANT HAD ALSO CLAIMED LOSSES OF 23,571 CARTOONS OF AGRO PRODUCTS OF THE APPROXIMATE VALUE OF RS.39 LACS. THE ASS ESSING OFFICER HAS IN PARA 4.12 FURTHER OBSERVED THAT IN TRADING ACTIVITY IT IS ADMITTED FACT THAT ANY LOSS ON ACCOUNT OF DAMAGES OCCURRED ARE TO BE RECOVERED FROM THE SUPPLIER. IN THIS CASE, WHEN THE PURCHASES ARE FOR TRADING FROM SISTER CONCERN SUCH LOSS ES SHOULD BE RECOVERED FROM THE SUPPLIER. IT IS STATED THAT THE APPELLANT HAD NOT FURNISHED ANY COPY OF AGREEMENT FOR PA YMENT OF I.T.A NO S . 1843, 1050 & 1562 & CO NOS. 166,121 & 174 A.Y. 2005 - 06 TO 2007 - 08 PAGE NO ASSESSEE: M/S. PARLE SALES SERVICES PVT. LTD 6 DAMAGES. IT IS FURTHER STATED IN PARA 4.14 BY THE ASSESSING OFFICER TH AT IN THE TRADING ACTIVITY WHEN THERE IS MINIMUM FIXED O VERHEAD, OVERHEAD CAN BE REDUCED AND INCREASED ACCORDING TO THE REQU IREMENT. INCURRING OF CONTINUOUS HUGE LOSSES IN TRADING ACTIVITY IS, NOT JUSTIFIED. IT IS STATED THAT ON THE BASIS OF THE ABOVE, OBSERVATION AND THE FACT T HAT THE APPELLANT HAD NOT FURN ISHED IMPORTANT DOCUMENT REFERRED TO ABOVE, IT WAS NOT POSSIBLE TO VERIFY THE GENUINENESS OF SUCH EXPENSES. THEREFORE, IT W AS QUITE REASONABLE TO DISALLOW 50% OF THE CLAIM OF EXPENSES ON ACCOUNT OF DAMAGES, D ISCOUNT TO THE SALES, STOCK WRITTEN OFF AS DAMA GES AND EXCESSIVE PAYM ENT MADE TO SISTER CONCERN. THE ADDITION IS, THEREFORE, WORKED OUT TO RS. 2,18,14,064/ - . THE CIT(A) THEREAFTER HOLDS THAT THE ASSESSING OFFICER HAS INVOLVED THE IMPUGNED DISALLOWANCE WITHOUT ANY MALPRACTICE IN ASSESSEE S BOOKS BY PROCEEDING ON MERE GUESS WORK. HE ALSO FOLLOWS HIS PREDECESSOR S ORDER FOR ASSESSMENT YEAR 2002 - 03 IN ASSESSEE S OWN CASE. 3. HEARD BOTH SIDES. RELEVANT RECORDS PERUSED. THERE IS NO DISPUTE THAT THE ASSESSEE HAS BEEN CARRYING OUT ITS BUSINESS THROUGH A WELL KNIT DEALER AND C & F NETWORK FOR EXECUTING SALE OF THE ABO VE STATED PRODUCTS. IT HAS MAINTAINED ITS BOOKS OF ACCOUNTS AS PER PROVISIONS OF THE A CT. THERE IS FURTHER NO ISSUE ABOUT GENUINENESS OF THE IMPUGNED EXPENDITURE AMOUNTING TO RS. 4,36,28,12 7/ - . THE ASSESSEE PRODUCES BEFORE US COPY OF THE TRIBUNAL S ORDER IN ITS OWN CASE FOR ASSESSMENT YEAR 2002 - 03 ITA 1097/AHD/2006 DECIDED ON 23 - 07 - 2015 UPHOLDING CIT(A) S ORDER DATED 27 - 02 - 2006 AS RELIED UPON IN THE LOWER APPELLATE FINDINGS. WE REITERATE THAT THE ASSESSING AUTHORITY HAS NOT QUOTED ANY SPECIFIC REASON OR EVIDENCE FOR I.T.A NO S . 1843, 1050 & 1562 & CO NOS. 166,121 & 174 A.Y. 2005 - 06 TO 2007 - 08 PAGE NO ASSESSEE: M/S. PARLE SALES SERVICES PVT. LTD 7 DISALLOWING 50% OF THE ABO VE STATED EXPENDITURE . WE ADOPT JUDICIAL CONSIST ENCY IN THESE FACTS FOR WANT OF ANY EXCEPTION BEING POINT OUT ON FACTS OR LAW VIS - - VIS THOSE INVOLVE D IN ASSESS MENT YEAR 2002 - 03 . THE CIT(A) S FINDINGS UNDER CHALLENGE ARE CONFIRMED. THE REVENUE S FIRST SUBSTANTIVE GROUND IS DECLINED. 4. THE REVENUE S SECOND SUBSTANTIVE GROUND SEEKS TO RESTORE INTEREST DISALLOWANCE OF RS. 1,38,540/ - . THE ASSESSEE A DVANCED LOANS AND INTEREST FREE AMOUNT S TO ITS ASSOCIATE CONCERN OF RS . 1,18,34,444/ - AS AGAINST PREVIOUS YEAR FIGURE OF RS. 26,93,230/ - . ITS INTE REST OUTGO ON TRADE DEPOSITS WAS OF RS. 1,38,540/ - . IT WOULD QUOTE COMMERCIAL EXPEDIENCY ELEMENT TO BE EMBED DED THEREIN AS HELD BY THE HON BLE APEX COURT IN SA BUILDERS VS. CIT 288 ITR 01 (SC). THE ASSESSING OFFICER WAS OF THE VIEW THAT THE SAME APPLIED AS PER FACTS AND CIRCUMSTANCES OF EACH CASE. AND THAT POSSIBILITY OF UTILIZATION OF SUCH ADVANCES BY DIRECTO RS OF AN ASSOCIATE CONCERN COULD NOT BE RULED OUT IN GIVEN CIRCUMSTANCES. HE OPINED THAT COMMERCIAL EXPEDIENCY ELEMENT COULD NOT BE HELD TO BE INVOLVED IN THESE ADVANCES AS PER CASE LAW OF V M SALGAOCAR AND BROTHERS PVT LTD VS. CIT (2000) 160 CTR (SC) 225 , GABRIEL INDIA LTD VS. JCIT (2006) 09 SOT 64 (MUM) AND CIT VS. ABHISHEKH INDUSTRIES LTD (2006) 286 ITR 01 (P & H). THE ASSESSING OFFICER ACCORDINGLY HELD THAT THE ASSESSEE HAD FAILED TO ESTABLISH ANY COMMERCIAL EXPEDIENCY INVOLVED IN THE ABOVE STATED ADV ANCES GIVEN TO SISTER CONCERN. ALL THIS DISCUSSION RESULTED IN THE IMPUGNED DISALLOWANCE OF RS. 1,38,540/ - IN THE FORM OF INTEREST PAID ON TRADING ADVANCES. I.T.A NO S . 1843, 1050 & 1562 & CO NOS. 166,121 & 174 A.Y. 2005 - 06 TO 2007 - 08 PAGE NO ASSESSEE: M/S. PARLE SALES SERVICES PVT. LTD 8 5. THE ASSESSEE PREFERRED APPEAL. IT INTER ALIA ARGUED T O HAVE MADE THE LOANS AND ADVANCES TO ASSOCIATE CONCERN, M/S PARLE AGRO PVT. LTD AND PARLE PET PVT. LTD FOR BUSINESS CONSIDERATION, EMPHASIZED THAT NO INTEREST BEARING FUNDS HAD BEEN UTILIZED THEREIN, PLEADED THAT IT WAS A DISTRIBUTOR OF ABOVE ENTITY, IT WOULD HIGHLIGHT THAT IT HAD ALREADY AVA ILED INTEREST FREE ADVANCES OF RS. 5,37, 53,300/ - FROM THE FORMER ENTITY AND FURTHER POINTED OUT THAT THE LOAN IN QUESTION WAS ON ACCOUNT OF SALE/PURCHASE ACCOUNT TO THE FORMER AND ADVANCE RATE TO THE LATTER ENTITY. THE ASSESSEE THEREAFTER STATED THAT INTE REST SUM IN QUESTION WAS ON ACCOUNT OF TRADE DEPOSITS INVOLVING INTEREST IN QUESTION. ITS LAST PLEA SUBMITTED THAT THE ASSESSING OFFICER DID NOT ESTABLISH ANY NEXUS BETWEEN INTEREST BEARING FUND AND INTEREST AMOUNT DISALLOWED OF R S. 1,38,540/ - . THE CIT(A ) TAKE NOTICE OF ALL THESE ARGUMENTS TO HOLD THAT THAT THE ASSESSEE HAS INCURRED THE ABOVE STATED INTEREST OUTGO IN BUSINESS EXPEDIENCY . 6. WE HAVE HEARD BOTH SIDES. RELEVANT FACTS NARRATED HEREINABOVE ARE NOT REPEATED FOR THE SAKE OF BREVITY . SUFFICE TO SAY, THE ASSESSEE HAS INCURRED THE IMPUGNED INTEREST OUTGO OF RS. 1,38,540/ - ON TRADING DEPOSITS FORMING SUBJECT MATTER OF THE DISALLOWANCE IN QUESTION . THE SAME ARE IN THE NATURE OF BUSINESS ADVANCES IN OTHER WORDS. THE ASSESSING OFFICER HAS NOWHERE DOUBTED THIS FACTUAL POSITION. WE OBSERVE IN T H E SE FACTS THAT THE ASSESSEE HAS INCURRED THE IMPUGNED INTEREST SPECIFI CALLY FOR HAVING RETAINED WITH ITSELF TRADE DEPOSITS WHO LLY AND EXCLUSIVELY FOR THE I.T.A NO S . 1843, 1050 & 1562 & CO NOS. 166,121 & 174 A.Y. 2005 - 06 TO 2007 - 08 PAGE NO ASSESSEE: M/S. PARLE SALES SERVICES PVT. LTD 9 PURPOSE OF THE BUSINESS. THE ASSESSING OFFICER HAS E NWIDENED SCOPE OF THE IMPUGNED INTEREST SUM WITHOUT SPECIFICALLY REBUTTING ASSESSEE S CONTENTIO N IN HIGHLIGHTING AVAILABILITY OF SUFFICIENT INTEREST BEARING FUNDS. WE ARE OF THE OPINION IN THESE FACTS THAT THE CIT(A) HAS RIGHTLY DELETED THE IMPUGNED INTER EST DISALLOWANCE. WE FURTHER NOTICE THAT THE HON BLE APEX COURT IN CASE OF MUNJAL SALES CORPORATION VS. CIT (2 008) 298 ITR 298 (SC) HAS OVERRULED THE CASE LAW OF ABHISHEKH INDUSTRIES LTD (SUPRA). HOWEVER, THIS ASPECT DEALING WITH ALLOWABILITY OF INTERES T ON BORROWED MONEY IS RENDERED INFRUCTUOUS SINCE WE HAVE ALREADY THAT THE I NTEREST DISALLOWANCE ARISES FROM TRADING ADVANCES. WE DECIDE THIS GROUND AGAINST THE REVENUE. 7 . THE REVENUE S THIRD SUBSTANTIVE GROUND SEEKS TO REVIVE DISALLOWANCE OF RS. 37,41, 334/ - ON ACCOUNT OF BAD DEBTS WRITTEN OFF. THE ASSESSEE WROTE OFF THE SAME AS BAD DEBTS RELATING TO PREVIOUS YEAR. ITS LITIGATION SEEKING RECOVERY THEREOF WAS ALSO STATED TO BE PENDING. THE ASSESSING OFFICER CITED LACK OF EVIDENCE ON ASSESSEE S PART TO PROVE THAT ABOVE STATED DEBT HAD BECOME ACTUALLY BAD WITHIN A SHORT PERIOD OF TIME. HE FURTHER OPINED THAT RESPONSIBILITY OF ITS RECOVERY RESTED ON ASSESSEE S AGENTS CHARGING COMMISSION IN LIEU OF SALES . CASE LAW OF HON BLE JURISDICTIONAL HIGH COURT M/S. DHALL ENTERPRISES AND ENGINEERING PVT . LTD VS.CIT 207 CTR 729 (GUJ) HOLDING THAT MERE DEBITING OF THE AMOUNT IN QUESTION IN BOOKS WAS NOT SUFFICIENT AND IT WAS NECESSARY TO PROVE THAT THE DEBT IN QUE S TION HAD BECOME BAD I N THAT PARTICULAR YEAR; WAS REFERR ED TO. THEIR LORDSHIPS APPEAR TO HAVE OBSERVED THAT THE SAID ASSESSEE WAS ALREADY INSISTING I.T.A NO S . 1843, 1050 & 1562 & CO NOS. 166,121 & 174 A.Y. 2005 - 06 TO 2007 - 08 PAGE NO ASSESSEE: M/S. PARLE SALES SERVICES PVT. LTD 10 FOR PAYMENTS. THE ASSESSING OFFICER TOOK NOTE OF ALL THIS MATERIAL TO DISALLOW THE IMPUGNED BAD DEBT CLAIM OF RS. 37,41,334/ - . 8. THE CIT(A) REVERSES ASSE SSIN G OFFICER S ACTION AS UNDER: - 5.1 THE APPELLANT, IN THIS CONNECTION REFERRED TO THE FOLLOWING EXPLANATION GIVEN TO ASSESSING OFFICER VIDE LETTER DATED 24.12.2007 : - 'IN CONTINUATION OF OUR LETTERS DATED 06/02/2007 AND 12/12/2007 AND 19/12/2007 WITH RE FERENCE TO YOUR LETTERS DT. 12/01/2007 AND 6/11/2007, WE ARC FORWARDING HEREWITH FOLLOWING FURTHER DETAILS IN COMPLIANCE WITH YOUR REQUIREMENTS TO COMPLETE ASSESSMENT PROCEEDINGS FOR ASSESSMENT YEAR 2005 - 06. I) DETAILS OF BAD DEBTS W/OFF DURING TH E ASSESSMENT YEAR 2005 - 06 TO THE EXTENT OF RS.34,42,328/ - . IN RESPECT OF BAD DEBTS W/OFF DURING THE YEAR WILL LIKE TO STATE AS UNDER: WE HAVE W/OFF BAD DEBTS OF RS.37,41,334/ - DURING THE ASSESSMENT YEAR 2005 - 06. OUT OF THESE BAD DEBTS RS.33,41,623 BELONG S TO K.R. MARKETING AND OTHER AMOUNT OF RS.36316 AND RS.41,178 BELONGS TO K.R. AND COMPANY, AND K. R. SALES MUMBAI RESPECTIVELY WHICH ALSO BELONGS TO SAME PERSON. THESE THE TOTAL AMOUNT DUE AS PER BOOK DURING THE ASSESSMENT YEAR 2005 - 06 WAS RS.44,19,119.80 . THE COMPANY HAS TAKEN LEGAL PROCEEDINGS IN THE COURT BUT THE PARTY REMAIN ABSENT DURING THE HEARING AND THEREFORE AWARD WAS GIVEN IN OUR FAVOUR. WE ARE ENCLOSING HEREWITH COURT ORDER AND ANNEXURE THERETO WHICH SHOWS THE COMPANY HAS SELL GOODS TO K. R. MA RKETING (DETAILS GIVEN ON PAGE SHOWS INVOICE NO. AND 'AMOUNT, INTEREST PAYABLE. LEDGER COPY OF THE PARTIES ACCOUNT AS ALSO ENCLOSED ALONG WITH THE LETTER. IN SPITE OF COURT ORDER PARTY WAS IGNORING TO PAY OUR DUES AS PARTY WAS NOT AVAILABLE TO COURT. FINALLY THEY CAME FOR SETTLEMENT AND PAID RS.10,00,000 AND THEREFORE BALANCE AMOUNT DUE WHICH WAS SHOWN AS DEBTORS WERE WRITTEN OFF. IN I.T.A NO S . 1843, 1050 & 1562 & CO NOS. 166,121 & 174 A.Y. 2005 - 06 TO 2007 - 08 PAGE NO ASSESSEE: M/S. PARLE SALES SERVICES PVT. LTD 11 OUR EARLIER LETTER DATED 19/12/2007 WE HAVE ENCLOSED THE COPY OF MINUTES BOOK WHICH ALSO 'SHOWS THAT THE COMPANY HAS W/O FF RS.34,19,116.80 DUE FROM K.R. MARKETING. THE BALANCE AMOUNT OF BAD DEBTS INCLUDES BUSINESS ADVANCES AS THE DETAILS IS ALREADY GIVEN ON 19/12/2007.' IT IS STATED THAT THE CLAIM FOR BAD DEBT MAINLY INCLUDE RS.34,19,116/ - RECEIVABLE FROM K.R. MARKETING AN D OTHERS ARE SMALL AMOUNTS RECEIVABLES FROM PARTIES, CONNECTED WITH THE SAME CONCERN K.R. SALES. THE APPELLANT HAD FILED DETAILS OF BAD DEBT ALONG WITH THE DETAILS OF SUIT FILED AND ITS RESULT. THE ASSESSING OFFICER HAS WRONGLY STATED THAT COPY OF SUIT OR COPY OF COURT ORDER HAD NOT BEEN FILED. HE HAD NEVER CALLED UPON THE APPELLANT TO SUBMIT SUCH COPIES AFTER THE EXPLANATION WAS GIVEN. IT IS SUBMITTED THAT THE COPY OF HIGH COURT ORDER WAS FILED WITH THE ASSESSING OFFICER WITH THE COPIES OF RELEVANT NOTICES . AS REGARDS THE OBSERVATION OF THE ASSESSING OFFICER THAT THE SALES ARE MADE TO C&F AGENTS, AND THEREFORE, RECOVERY OF THE DEBT WAS THEIR RESPONSIBILITY, IT IS STATED THAT THE OBSERVATION IS TOTALLY INCORRECT. THE ASSESSING OFFICER HAS WRONGLY MIXED UP C &F AGENTS WITH THAT OF DELL CREDER AGENTS. IN THE CASE OF DELL CREDER AGENT, THE POSITION IS DIFFERENT BUT IN APPELLANT'S CASE THERE WAS NO DELL CREDER AGENT. IT IS STATED THAT THE APPELLANT HAD FILED SUIT AGAINST THE K.R. MARKETING FOR RECOVERY OF RS.34.1 9 LACS AND THE HIGH COURT HAD DECIDED THE DECREE IN FAVOUR OF THE APPELLANT. HOWEVER, IN SPITE OF SUCH ORDER OF HIGH COURT, THE APPELLANT COULD RECOVER ONLY RS.10 LACS FROM THAT PARTY, OUT OF THE TOTAL AMOUNT OF RS.44 LACS RECEIVABLE FROM THEM AND ACCORDIN GLY THE APPELLANT HAD NO ALTERNATIVES, BUT TO WRITE OFF THE BALANCE AMOUNT. IT IS FURTHER SUBMITTED THAT IN SO FAR AS DECISION OF DHALL ENTERPRISE IS CONCERNED, IN THE SAID CASE IT WAS OBSERVED BY THE ITAT THAT 'IT IS TRUE THAT BY VIRTUE OF A MENDMENT BROU GHT IN SECTION 36(1 )(VII) THE EARLIER PROVISION BY WHICH THE ASSESSEE WAS CONSTRAINED TO ESTABLISH BY STRICT PROOF THAT THE DEBT HAS BECOME BAD IS NO MORE IN EXISTENCE BUT AT THE SAME TIME IT IS ALSO CORRECT THAT FOR THE PURPOSE OF CLAIMING DEDUCTION ON AC COUNT OF BAD DEBT ALL DEBTS CANNOT BE TERMED AS BAD DEBT.' THIS OBSERVATION OF ITAT ARE NOT CONTROVERTED BY HIGH COURT IN THE SAID CASE THE RECOVERY PROCEEDINGS WERE PENDING AND THERE WERE DIFFERENCES BETWEEN THE PARTIES AND HENCE IN VIEW OF THE PECULIAR F ACTS OF THAT CASE, THE TRIBUNAL HAD DECIDED THE ISSUE AGAINST THE ASSESSEE. THE H IGH I.T.A NO S . 1843, 1050 & 1562 & CO NOS. 166,121 & 174 A.Y. 2005 - 06 TO 2007 - 08 PAGE NO ASSESSEE: M/S. PARLE SALES SERVICES PVT. LTD 12 COURT CONSIDERED THAT WHEN T HE NEGOTIATIONS WERE IN PROGRESS BETWEEN THE PARTIES AND THE ASSESSEE WAS INSISTING FOR PAYMENT FOR RECOVERY OF DEBTS IT CANNOT BE SAID THAT TH E DEBT HAD BECOME BAD AND THEREFORE THE TRIBUNAL'S ORDER WAS CONFIRMED. HOWEVER IN THE APPELLANT'S CASE AS STATED ABOVE, EVEN AFTER THE COURT ORDER THE APPELLANT COULD RECOVER ONLY RS.10 LAKH AND BALANCE DEBT WAS WRITTEN OFF. IT IS, THEREFORE, SUBMITTED TH AT THE ADDITION MADE IS TOTALLY INCORRECT. 5.2 IN THE LIGHT OF ABOVE SUBMISSION S OF THE AR, IT APPEARS THAT THE APPELLANT HAD TAKEN ALL THAT REQUIRED PRECAUTIONS BEFORE WRITING OFF THE BAD D EBTS CLAIMED. THE APPELLANT HAS TO BE SATISFI ED AND DECIDE WHAT A RE THE BAD DEBTS. IF THE APPELLANT IS OF THE OPINION THAT TH ERE IS NO CHANCE OF RECOVERY, THE SAME WILL BE WRIT TEN OFF FOLLOWING THE PROVISION OF THE INCOME TAX ACT. HENCE IN APPELLANT'S CASE IT APPEARS THAT, THE BAD DEBTS CLAIMED ARE IN ACCORDANCE TO LAW. 9. WE HAVE HEARD RIVAL CONTENTIONS . IT IS AN UNDISPUTED FACT THAT THE ASSESSEE HAS ACTUALLY WRITTEN OFF THE IMPUGNED SUM OF BAD DEBTS. THE SAME RELATES TO ITS TRADING TRANSACTION S EXECUTED THROUGH ITS DEALER AND C& F NETWORK. WE FIND THAT THE HON BL E APEX COURT IN CASE OF TRF LTD. VS. CIT (2010) 323 ITR 397 (SC) DISCUSSES LEGAL POSITION FROM 01 - 04 - 1989 AS PER AMENDMENT TO SECTION 36(1)(VII) TO HOLD THAT IT IS NO MORE NECESSARY TO PROVE THAT THE DEBTS IN QUESTION HAVE ACTUALLY BECOME BAD. THE REVENUE FAILS TO POINT OUT ANY DISTINCTION ON FACTS AND LAW. WE DRAW SUPPORT TH EREFORM AND HOLD THAT THE CIT(A ) HAS RIGHTLY ENTERTAINED ASSESSEE S BAD DEBTS CLAIM. THIS THIRD GROUND IS REJECTED. REVENUE S APPEAL ITA 1843/AHD/2009 IS DISMISSED. 10 . THIS LEAVES US WITH ASSESSEE S CROSS OBJECTION CHALLENGES DISALLOWANCE OF PRIOR PERIOD EXPENSES OF RS. 4,75,221/ - AND SUPPORTS I.T.A NO S . 1843, 1050 & 1562 & CO NOS. 166,121 & 174 A.Y. 2005 - 06 TO 2007 - 08 PAGE NO ASSESSEE: M/S. PARLE SALES SERVICES PVT. LTD 13 CIT(A) S ORDER QUA REVENUE S GROUND NO. 1 & 3. IT SUBMITS THAT ITS FIRST PLEA BE DISMISSED AS NOT PRESSED SUBJECT TO THE CONDITION THAT THE SAME BE NOT TREATED AS PRECEDENT IN PRECEDING OR SUCCEEDING ASSESSMENT YEARS. RATHER T HE SAME PLEA IS REITERATED IN ITS CROSS OBJECTION S FOR REMAINING TWO ASSESSMENT YEARS. THE REVENUE DOES NOT OBJECT TO THE SAME. WE ACCORDINGLY UPHOLD CIT(A) S FINDING S ON THE ISSUE OF PRIOR PERIOD EXPENDITURE. REST OF THE TWO SUBSTANTIVE GROUNDS HAS BEEN RENDERED INFRUCTUOUS IN VIEW OF OUR FINDINGS IN REVENUES APPEAL RAISING THE VERY ISS UES. ORDERED ACCORDINGLY. THE VERY ORDER IS TO BE FOLLOW ED IN ASSESSEE S CROSS O BJECTION 121/AHD/2010 AND 174/AHD/2011 FOR ASSESSMENT YEAR 2006 - 07 & 2007 - 08 WHICH ARE DISMISSED AS NOT PRESSED. ASSESSMENT YEAR 2006 - 07 REVENUE S APPEAL ITA 1050/AHD/2010 11. THE REVENUE S FIRST SUBSTANTIVE GROUND CHALLENGES LOWER APPELLATE FINDING DELE TING ADDITIONS OF RS. 2,48,90,600/ - @ 50% OF VARIOUS EXPENSES ON ACCOUNT OF DISCOUNT ON SALES, DAMA G ES, RENT AND COMPENSATION, ADVERTISEMENT, REBATE DISCOUNT, SALES PROMOTIONS , COMMISSION PAID, TELEPHONE AND OTHER EXPENSES TOTALING TO RS. 4,97,81,201/ - . B OTH PARTIES ARE IN AGREEMENT THAT OUR CORRESPONDING FINDINGS IN REVENUE S APPEAL RAISING GROUND NO. 1 IN ASSESSMENT YEAR 2005 - 06 DECIDED HEREINABOVE SQUARELY COVER THE ISSUE. WE APPRECIATE THIS FAIR SUBMISSION AND REJECT THIS GROUND BY FOLLOWING BY OUR DI SCUSSION HEREINABOVE. I.T.A NO S . 1843, 1050 & 1562 & CO NOS. 166,121 & 174 A.Y. 2005 - 06 TO 2007 - 08 PAGE NO ASSESSEE: M/S. PARLE SALES SERVICES PVT. LTD 14 12 . THE REVENUE S SECOND SUBSTANTIVE GROUND SEEKS TO RESTORE ADDITION OF RS. 8,48,945/ - MADE ON ACCOUNT OF ESTIMATED DAMAGES FOR EXPIRED GOODS. THE CIT(A) S FINDINGS DECIDE THE ISSUE IN ASSESSEE S FAVOUR AS FOLLOWS: - 3. THE SECOND GROUND OF APPEAL IS DIRECTED AGAINST THE ADDITION OF RS. 8,48,945/ - ON ACCOUNT OF ESTIMATED RECEIPT TOWARDS EXPIRED/DAMAGED STOCK. IN THE WRITTEN SUBMISSIONS, THE A. R. OF THE APPELLANT HAS GIVEN OBSERVATIONS OF THE ASSESSING OFFICER FOR MAKING THE DISALL OWANCES AND HIS CONTENTIONS THEREON. TH E SAME ARE REPRODUCED HEREUNDER : - 'THE LEARNED ASSESSING OFFICER IN PARA 4.8. OF THE ORDER, WHILE DISCUSSING THE APPELLANT'S REPLY REGARDING TRADING RESULT OF THE APPELLANT REFERRED TO THE INCOME CREDITED UNDER THE HE AD 'OTHER INCOME' AS PER SCHEDULE M AND STATED THAT - I) OTHER INCOME IN THE PRESENT YEAR IS RS.52.68 LAKH WHEREAS IN THE EARLIER YEAR IT WAS RS.99.12 LAKH. THUS THERE WAS A SUBSTANTIAL REDUCTION IN INCOME UNDER THIS HEAD. II) THE APPELLA NT HAD AFTER SETTING OFF THIS OTHER INCOME SHOWN LOSS OF RS.54.55 LAKH. HE HAD CALLED FOR THE REASONS FOR DEDUCTION IN OTHER INCOME. IT IS STATED THAT THE APPELLANT HAD EXPLAINED THAT IN THE EARLIER YEAR MISCELLANEOUS INCOME INCLUDED AMOUNT RECEIVED TOW ARDS EXPIRED DAMAGED STOCK OF RS.19.01 LAKH AND THE PRICE DIFFERENCE ON ACCOUNT OF CHANGES IN SALES TAX RATE OF RS.34.46 LAKH WHICH IS THE MAIN REASON FOR DIFFERENCE UNDER THE HEAD 'OTHER INCOME'. THE A. O. HAS NOT ACCEPTED THIS EXPLANATION AND STATED THA T IN CURRENT YEAR MISCELLANEOUS INCOME IS RS.2.16 LAKH AS COMPARED TO EARLIER YEAR OF RS.57.54 LAKH. IN THE EARLIER YEAR THE APPELLANT RECEIVED RS.19.01 LAKH TOWARDS EXPIRED AND DAMAGED STOCK, WHEREAS IN THE CURRENT YEAR NO SUCH AMOUNT AMOUNT IS SHOWN. THE REFORE, HE HAS ESTIMATED REALIZATION OF EXPIRED GOODS ON PROPORTION TO SALE AS UNDER: RS. 19,01,895 X RS. 48,02,94, 149 RS.108,88,29,943 = RS.8,38,945/ - I.T.A NO S . 1843, 1050 & 1562 & CO NOS. 166,121 & 174 A.Y. 2005 - 06 TO 2007 - 08 PAGE NO ASSESSEE: M/S. PARLE SALES SERVICES PVT. LTD 15 IN CONNECTION WITH THE ABOVE ISSUE THE APPELLANT SUBMITS COMPARAT IVE DETAILS OF OTHER INCOME AS CREDITED IN THE CURRENT YEAR AND IN THE EARLIER YEAR, WHICH IS AS UNDER: OTHER INCOME F.Y.05 - 06 F.Y. 04 - 05 INTEREST ON DEBENTURE - 7,33,333 INTERE ST ON NS C 2,995 2,052 INTEREST ON FIXED DEPOSIT 6,771 20,224 PROVISION WRITTEN BACK - 78,323 SUNDRY CREDIT BALANCE APPROP. 42,49,372 31,72,885 PROVISION FOR DOUBTFUL DEBTS W/BACK 7,88,006 60,668 SURPLUS ON SALE OF FIXED ASSETS 5,349 90,098 MISC. INCOME 2,16,299 57,54,665 52,68,792 99,12,248 IT IS SUBMITTED THAT THE LEARNED A.O. HAS WRONGLY ASSUMED THAT THE INCOME UNDER THE HEAD 'OTHER INCOME' SHOULD REMAIN AT THE SAME LEVEL, WITHOUT APPRECIATING THE NATURE OF SUCH INCOME. HE HAS ALSO FAILED TO APPRECIATE THAT THE CLAIM FOR EXPIRED PACKING LYING IN THE STOCK WOULD DEPEND UPON THE QUANTUM OF EXPIRED GOODS AVAILABLE AT THE RELEVANT TIME BUT IT CANNOT BE IN PROPORTION OF SALES. IT ALWAYS DEPENDS UPON THE QUANTUM OF SUCH STOCK WHICH REMAIN ED UNSOLD. THEREFORE, HE IS NOT JUSTIFIED AT ALL IN CALCULATING SUCH AMOUNT IN PROPORTION OF SALES AS COMPARED TO THAT OF EARLIER YEAR. THE ADDITION IS MADE ON ASSUMPTION BASIS WITHOUT ANY EVIDENCE. ON THIS GROUND ITSELF THE ADDITION DESERVES TO BE DELETED . ' 3.1. I HAVE CONSIDERED THE SUBMISSIONS MADE BY THE A. R. OF THE APPELLANT AND THE OBSERVATIONS OF THE ASSESSING OFFICER. THE A.O. MADE THE DISALLOWANCE ON A MATHEMATICAL FORMULA BY OBSERVING THAT THE APPELLANT SHOULD HAVE RE CEIVED AN AMOUNT OF RS.8,38,945/ - ON ACCOUNT OF EXPIRED AND DAMAGED GOODS. IN VIEW OF THE EXPLANATION FURNISHED BY THE APPELLANT FOR REDUCTION IN MISC. INCOME A.O'S ACTION IS ARGUABLY WITHOUT ANY BASIS. TO SAY THAT APPELLANT SHOULD HAVE RECEIVED DAMAGES ON EXPIRED GOODS IN TH E SAME PROPORTION COMPARED TO EARLIER YEAR IS WITHOUT ANY RHYME OR REASON. THEREFORE, THE DISALLOWANCE IS DELETED. THIS GROUND OF APPEAL IS ALLOWED. I.T.A NO S . 1843, 1050 & 1562 & CO NOS. 166,121 & 174 A.Y. 2005 - 06 TO 2007 - 08 PAGE NO ASSESSEE: M/S. PARLE SALES SERVICES PVT. LTD 16 13 . WE HAVE HEARD BOTH THE PARTIES. THERE I S NO DISPUTE THAT THE ASSESSING OFFICER HAS MADE T HE IMPUGNE D ADDITION IN ABSENCE OF ANY RECEIPT BEING PROVED IN AS S ESSEE S HANDS BY SIMPLY OB SERVING THAT IT SHOULD HAVE RECEIVED THE IMPUGNED SUM AS INCOME. THE REVENUE FAILS TO JUSTIFY THIS ME THOD WITHOUT REJECTING ASSESSEE S BOOKS OF ACCOUNT QUANTIFYING ITS LIABI LITY ON ACCOUNT OF EXPIRED AND DAMAGED GOODS. WE UPHOLD CIT(A) S FINDINGS IN THESE FACTS AND CIR CUMSTANCES . THIS FIRST SUBSTANTIVE GROUND STANDS DECIDED IN ASSESSEE S FAVOUR . REVENUE S APPEAL ITA 1050/AHD/2010 FAILS. ASSESSMENT YEAR 2007 - 08 REVENUE S APPEAL ITA 1562/AHD/2011 14 . BOTH PARTIES POINT ED OUT AT THE OUTSET THAT FIRST SUBSTANTIVE GROUND RAISED IN THE INSTANT APPEAL SEEKS TO REVIVE ADDITION OF RS. 9,53,597/ - ON ACCOUNT OF EXPIRED AND DAMAGED GOODS IS IDENTICAL TO REVENUE S SECOND SUBSTANTIVE GROUND DECIDED HEREINABOVE IN PRECEDING ASSESSMENT YEAR . WE DO NOT FIND ANY SPECIFIC DISTINCTION ON FACTS AND LAW IN THESE TWO ASSESSMENT YEARS . WE REJECT THIS GROUND ACCORDINGLY. 15 . THE REVENUE S NEXT SUBSTANTIVE GROUND CHALLENGES THE LOWER APPELL A TE ORDER DELETING ADDITION OF R S. 1,64,56,406/ - MADE BY THE ASSESSING OFFICER ON ACCOUNT OF FALL IN GROSS PROFITS. THE LOWER APPELLATE FINDINGS DECIDE THE ISSUE IN ASSESSEE S FAVOUR BY TAKING INTO ACCOUNT ASSESSING OFFICER S OBSERVATION, ASSESSEE S SUBMIS SIONS I.T.A NO S . 1843, 1050 & 1562 & CO NOS. 166,121 & 174 A.Y. 2005 - 06 TO 2007 - 08 PAGE NO ASSESSEE: M/S. PARLE SALES SERVICES PVT. LTD 17 AND AFTER DRAWING A COMPARATIVE CHART OF THE TWO PRECEDING ASSESSMENT YEAR S AS UNDER: - 4. WITH REGARD TO THE THIRD GROUND OF APPEAL ON ACCOUNT OF ADDITION IN RESPECT OF FALL IN GROSS PROFIT, THE RELEVANT PARAS OF THE WRITTEN SUBMISSIONS FILED BY THE A.R. OF THE A PPELLANT ARE REPRODUCED HEREUND ER: - 4.1 THE LEARNED A.O. HAS STATED THAT THE APPELLANT HAD SHOWN GROSS PROFIT OF RS.2,92,47,171/ - ON SALES OF RS.20,53,50,900/ - WHICH WORKS OUT TO 14% AS AGAINST THE GROSS PROFIT OF 21% IN EARLIE R YEAR. HE HAS FURTHER OBSERVED THAT THE SALE VOLUME HAS GONE DOWN BY 50 % AND, THEREFORE, THE GROSS PROFIT SHOULD HAVE, INCREASED. THE APPELLANT'S EXPLANATION BEFORE THE A.O. IS REPRODUCED IN PARA 5 OF THE ORDER. IT WAS EXPLAINED BEFORE THE A.O. THAT THE CLAIM FOR DAMAGES IN THE PROFIT AND LOSS ACCOUNT HAD INCREASED AS COMPARED TO EARLIER YEAR AS SOME OF THE EXPENSE WERE CLUBBED IN THIS HEAD WHICH ACCOUNTED FOR IN DIFFERENT HEADS IN TWO YEARS. THEREFORE, IT CANNOT BE COMPARED. THE A.O. HAS STATED THAT .E VEN AFTER CONSIDERING THE SAME, THE 'PERCENTAGE OF DISCOUNT, DAMAGES, REBATE ETC. COMES TO 9.96% AS AGAINST 5.41% IN EARLIER YEAR AND, THEREFORE, THE APPELLANT HAD NOT EXPLAINED WHY THERE WAS SUCH INCREASE IN THE CLAIM WHICH HAS GONE UP BY 4.55%. HE HAS ST ATED THAT THE CLAIM FOR DAMAGES GENERALLY COMES AROUND 1.82% (ON AVERAGE OF TWO EARLIER YEARS) AND THERE WAS SHARP INCREASE IN THIS YEAR. IT IS STATED BY THE A.O. THAT THIS CLAIM FOR DAMAGES HAS INCREASE PROBABLY FOR THE HEAVY CLAIM ATTRIBUTABLE TO CLEAN U P OPERATION PRIOR TO MERGER OF THE CO MPANY WITH OTHER COMPANY. THE A. O. OBSERVES THAT THE ASSESSEE HAD WRITTEN OFF EVERY DEBIT BALANCE IN THE BOOKS. IT IS, THEREFORE, HELD THAT THE CLAIM IS NOT SUPPORTED BY THE MATCHING FIGURE OF EARLIER YEARS AND SUCH INC RE ASE IS NOT ALLOWABLE EXPENSE. HE HAS, THEREFORE, HELD THAT SUCH CLAIM CAN BE ALLOWED, COMPARED TO NORMAL YEAR I.E. 1.82% WHICH WORKS OUT TO RS.37.21 LAKH. HENCE, THE CLAIM IS RESTRICTED TO THIS FIGURE AND THE BA LANCE AMOUNT OF RS. 1,64,56,406/ - IS ADDED AND IT IS STATED THAT SINCE THIS IS THE REASON FOR DOWN FALL IN GROSS PROFIT, THE ADDITION ON ACCOUNT OF FALL IN GP IS MADE BY REJECTING THIS CLAIM. I.T.A NO S . 1843, 1050 & 1562 & CO NOS. 166,121 & 174 A.Y. 2005 - 06 TO 2007 - 08 PAGE NO ASSESSEE: M/S. PARLE SALES SERVICES PVT. LTD 18 4.2 WITH REFERENCE TO THE ABOVE, THE APPELLANT MAY SUBMIT THE FOLLOWING: (I) THE APPELLANT SUBMITS A COPY OF THE EXPLANATION GIVEN TO THE A.O. IN THIS REGARD. FURTHER TO THAT, THE APPELLANT MAY ALSO GIVE COPY OF ANNUAL ACCOUNTS FOR THE YEAR UNDER CONSIDERATION, IT MAY BE APPRECIATED THAT WHILE WORKING OUT THE GP IN THE EXPLANATION GIVEN TO THE 'A.O., *H E APPELLANT HAD CONSIDERED SALES FIGURE BY ADOPTING THE SALES AFTER REDUCTION OF THE AMOUNT OF CLAIM FOR DAMAGES WHICH WAS GROUPED UNDER THE HEAD CLAIM FOR DAMAGES. IN FACT THE APPELLANT HAS BEEN INCURRING THE DISCOUNT ALLOWED TO THE STOCKISTS, CLAIM FOR D AM AGES AND REBATE. THEREFORE, THOSE AMOUNTS CANNOT FORM PART OF THE GROSS PROFIT WORKING. IT IS SU BMITTED THAT FOR THE PURPOSE OF GROSS PROFIT WORKING WHAT IS TO BE CONSIDERED IS SALES AND COS T OF SALES. IF THE SAME IS CONSIDERED THE WORKING WOULD BE AS UN DER: ASSESSMEN T YEAR 2005 - 06 2006 - 07 2007 - 08 SALES 1105307574 489242148 225528527 PURCHASE 885354868 376673047 172676360 STOCK DECREASE 4791270 2773159 3427368 COST OF SALES 890146138 40440506 176103728 PROFIT 215161436 1097959 42 49424799 PERCENTAGE OF GP 19.4% 22.44 % 21.21 % THUS THE G.P. IS COMPARABLE TO PAST. (II) IT MAY BE APPRECIATED THAT THE A.O. HAS NOT REJECTED THE BOOKS OF ACCOUNT OR HAS NOT INVOKED SECTION 145(2). HE HAS ALSO NOT FOUND ANY FAULT IN THE INC OME BY WAY OF SALES, EXPENSES ON PURCHASE, STOCK ETC. AS REFLECTED IN THE BOOKS OF ACCOUNT. THEREFORE, WHEN THE BOOKS' OF ACCOUNT ARE NOT REJECTED BY THE A.O. HE CANNOT MAKE THE I.T.A NO S . 1843, 1050 & 1562 & CO NOS. 166,121 & 174 A.Y. 2005 - 06 TO 2007 - 08 PAGE NO ASSESSEE: M/S. PARLE SALES SERVICES PVT. LTD 19 ADDITION BY REJECTING THE GROSS PROFIT RATE PARTICULARLY WHEN THE HOOKS OF ACC OUNT ARE AUDITED UNDER PROVISIONS OF THE COMPANIES ACT AS WELL AS UNDER THE PROVISIONS OF SECTION 44AB OF THE INCOME - TAX ACT. (III) IT IS SUBMITTED THAT THE A. O. HAS WRONGLY PRESUMED THAT WHEN THE SALES ARE D ECREASED, THE GROSS PROFIT RATE SHOULD HAVE INC REASED. THERE IS NO BASIS FOR SUCH ASSUMPTION. WITHOUT PREJUDICE TO THE ABOVE CONTENTIONS, IT IS FURTHER SUBMITTED THAT EVEN THE A.O. HAS NOT FOUND THAT ANY OF THE EXPENDITURE ON ACCOUNT OF DAMAGES, DISCOUNT ETC. DEBITED IN 'THE BOOKS ARE NOT GENUINE BY P OINTING OUT ANY PARTICULAR EXPENDITURE OR PARTICULAR ENTRY. HE HAS SIMPLY GONE B Y RATIO OF SUCH EXPENSES AND PRESUMED THAT THE EXPENSES H AVE GONE UP AND, THEREFORE, THE ASSESSES COULD BE ALLOWED ONLY EXPENDITURE TO THE EXTENT OF THE RATIO ARRIVED AT BY HIM FOR SUCH EXPENDITURE, COMPARED TO SALES, IN EARLIER YEARS. (IV) THE APPELLANT SUBMITS THAT AS CAN BE SEEN FROM THE DATA OF THE SALES FOR LAST 3 YEARS, THE SALES HAVE DECREASED FROM YEAR TO YEAR, SUBSTANTIALLY. THIS IS FOR THE REASON THAT THE BUSINESS AVA ILABLE] WITH THE COMPANY IS DECREASING. IT IS SUBMITTED THAT THE CLAIM FOR DAMAGES HAS BEEN MADE BY STOCKISTS WHICH IS ACCEPTED BY THE COMPANY AFTER DETAILED SCRUTINY FOR WHICH THERE IS DETAILED PROCEDURE WHICH IS BEING FOLLOWED FROM YEAR TO YEAR. AS AGAIN ST THIS IT MAY BE SEEN THAT THE AMOUNT OF REBATE DISCOUNT AND REIMBURSEMENT TO STOCKISTS HAVE GONE DOWN SUBSTANTIALLY. IN FACT THE EXPENDITURE UNDER THIS THREE HEADS IS PART OF THE SALES EXPENDITURE. THIS CAN BE EXPLAINED IN THE FOLLOWING WAY. THROUGH INAD VERTENCE THE DISCOUNT' AND REBATE IS ACCOUNTED AS DAMAGES' AND THUS TWO FIGURES ARE NOT COMPARABLE. IT CAN BE SEEN FROM THE PROFIT AND LOSS ACCOUNT THAT THE DAMAGE CLAIMS OF RS.2,01,77,626/ - WERE REDUCED FROM THE SALE. IT WAS TRADING PRACTICE THAT TO ACCE PT THE CLAIM LODGED BY THE STOCKIEST AFTER DUER VERIFICATION AND THE SAME WERE BOOKED IN THE PROFI T AND LOSS ACCOUNT. IT CAN BE SE EN FROM PROFIT AND LOSS ACCOUNT SCHEDULE R THAT THE 'REBATE DISCOUNT AND REIMBURSEMENT TO STOCKIEST' WERE SHOWN 1 OF RS.23,01,9 38/ - ONLY COMPARE TO LAST YEAR WHEN THE SAME AMOUNT WAS RS.1,75,60,467/ - . IT CAN BE SEEN FROM THE SCHEDULE L THAT THE CLAIMS AND DAMAGES WERE SHOWN OF RS.2,01,77,626/ - WHICH IS THREE TI ME OF LAST YEAR AMOUNT WHICH WA S RS.64,75,938/ - . THE REASON FOR THE SAI D DIFFERENCE IS THAT THE SECONDARY CLAIMS LIKE DISCOUNT, AND I.T.A NO S . 1843, 1050 & 1562 & CO NOS. 166,121 & 174 A.Y. 2005 - 06 TO 2007 - 08 PAGE NO ASSESSEE: M/S. PARLE SALES SERVICES PVT. LTD 20 DAMAGES ARE ALSO GROUPED AS CLAIMS AND DAMAGES AND REDUCE FROM SALES WHICH CAUSED REDUCTION IN GP RATIO DURING THE ASSESSMENT YEAR 2007 - 08 . THE COMPARISON OF SALES AND DISCOUNT REBATES AND DAMAG ES REDUCED FROM SALES AND REBATE DISCOUNT CHARGED TO P & L IN LAST THREE YEAR IS GIVEN AS FOLLOWS: A.Y. TURN OVER DISCOUNT/ CLAIM DAMAGE REDUCE FROM SALES PERCENTA GE REBATE/ DIS COUNT REIMB. DEBITED TO P & L PERCENTA GE TO SALES 2005 - 06 1,10,53,07,57 4 1,64,77,631 1 .49% 232,50,496 2.10% 2006 - 07 48,92,42,148 89,47,999 1,83% 1,75,60,46 7 3.59% 2007 - 08 22,55,28,526 2,0177,626 8.94% 23,01,938 1.02 THUS THE EXPENSES TOGETHER UNDER 3 HE ADS IS COMPARABLE TO EARLIER YEARS. THUS THE ABOVE COMPARISON WOULD SHOW THAT THE DISALLOWANCE MADE IS UNJUSTIFIED AND UNWARRANTED. (V) WITHOUT PREJUDICE TO THE ABOVE CONTENTIONS, IT IS FURTHER SUBMITTED THAT IN THE EARLIER YEARS THE A.O . WAS DISALLOWING THE CLAIM FOR DAMAGES, REBATE AND DISCOUNT TO THE EXTENT O F 50% OF THE CLAIM I.T.A NO S . 1843, 1050 & 1562 & CO NOS. 166,121 & 174 A.Y. 2005 - 06 TO 2007 - 08 PAGE NO ASSESSEE: M/S. PARLE SALES SERVICES PVT. LTD 21 ON ADHOC BASIS BY HOLDING THAT SUCH CLAIM WAS EXCESSIVE OR WAS RELATABLE TO THE PRINCIPAL SUPPLIER (WHICH IS HOLDING COMPANY OF THE ASSESSEE). HOWEVER SUCH DISALLOWAN CE IS DELETE D BY THE HON'BLE CIT (A) IN A.Y. 2005 - 06 AND 2006 - 07 BY GIVING A DETAILED REASONING. THEREFORE, WHEN NO SPECIFIC INSTANCE IS POINTED OUT, ANY CLAIM TO BE NON GENUINE, THERE IS NO JUSTIFICATION FOR APPLYING THE RATIO OF SUCH EXPENDITURE TO SALES IN EARLIER YEAR, FOR THE PRESENT ASSESSMENT YEAR. FOR THESE REASON ALSO THE ADDITION MADE IS REQUIRED TO BE DELETED. 4.1. I HAVE CONSIDERED THE SUBMISSIONS MADE BY THE A. R. OF THE APPELLANT AND THE OBSERVATIONS OF THE ASSESSING OFFICER IN THE ASSESSMENT ORDER. AS S EEN FROM THE ASSESSMENT ORDER, NO DEFECTS IN THE BOOKS OF ACCOUNTS (AUDITED U/S. 44AB) WERE POINTED OUT. NOR WERE THE BOOKS REJECTED. AS CONTENDED BY THE LEARNED A. R., THE G.P. OF THE YEAR UNDER CONSIDERATION IS COMPARABLE TO EARLIER YEARS. THEREFORE, IMPU GNED ADDITION ON ACCOUNT OF FALL IN G. P. IS NOT SUSTAINABLE. IT IS DELETED. THIS GROUND OF APPEAL IS ALLOWED. 16 . HEARD BOTH SIDES. THE ASSESSING OFFICER NOTES IN ASSESSMENT ORDER THAT THERE HAS BEEN A FALL IN AS SESSEE S GROSS PRO FITS AS COMPARED TO THOSE DECLARED IN THE TWO PRECEDING ASSESSMENT YEARS. THE CIT(A) HOLDS THAT ASSESSEE S DULY AUDITED BOOKS OF ACCOUNT HAVE NEITHER BEEN REJECTED NOR ANY DEFECTS HAVE BEEN POINTED OUT THEREIN. THE REVENUE FAILS TO REBUT THIS FINDING IN ASSESSMENT ORDER DA T ED 09 - 12 - 2009 AND PARA 5 THEREOF. WE FURTHER FIND FROM ABOVE STA T ED TABULATION THAT THERE HAS BEEN INCREASE IN DAMAGES CLAIM FROM 2% FROM 8. 94%. WE DEEM IT APPROPRIATE TO OPINE THAT T HE CIT(A) HAS ALSO DELETED DISALL OWANCE OF EXPENSES TO THE TUNE OF 50% (SUPR A ) . WE NOTICE THAT HE FOLLOWS HIS CORRESPONDING FINDING S ON THE RELEVANT ISSUES IN TWO PRECEDING ASSESSMENT YEARS DECIDED HEREINABOVE. WE DRAW SUPPORT FROM THE ABOVE STATED FINDING S AND REJECT THIS I.T.A NO S . 1843, 1050 & 1562 & CO NOS. 166,121 & 174 A.Y. 2005 - 06 TO 2007 - 08 PAGE NO ASSESSEE: M/S. PARLE SALES SERVICES PVT. LTD 22 REVENUE S GROUND AS WELL. THE CI T(A) S FINDINGS UNDER CHALLENGE ARE CONFIRMED. ITA 1562/AHD/2011 FAILS . 17 . T HESE THR EE REVENUE S APPEALS ITA NOS. 1843/ AHD/2009, 1050/AHD/2010 AND 1562 /AHD/2011 ARE DISMISS ED. ASSESSEE S CROSS OBJECTION NO S. 166 /AHD/2009, 121/AHD/2010 AND 174/AHD/20 11 ARE DISMISSED AS NOT PRESSED. ORDER PR ONOUNCED IN THE OPEN C OURT ON 04 - 02 - 201 6 SD/ - SD/ - ( PRAMOD KUMAR ) ( S. S. GODARA ) ACCOUNTANT MEMBER JUDICIAL MEMBER AHMEDABAD : DATED 04 /02 /2016 AK / COPY OF ORDER F / ORWARDED TO: - 1. ASSESSEE 2. REVENUE 3. CONCERNED CIT 4. CIT (A) 5. DR, ITAT, AHMEDABAD 6. GUARD FILE. , BY ORDER/ , / ,