The DCIT, Circle-5, Ahmedabad V. Nir Marketing Pvt. Ltd., Ahmedabad

ITA 1387/AHD/2011

• Counselvise Citation: [2014] 140 COUNSELVISE.COM (IT) 76855 (ITAT-AHMEDABAD)
• Duration Of Justice: 3 year(s) 1 month(s) 7 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 20-06-2014
• Appeal Filed By: Department
• Bench Allotted: B
• Next Hearing Date: 09-06-2014
• Assessment Year: 2007-2008
• Appeal Filed On: 13-05-2011
• Court: TRIBUNAL
• Department Lawyers: P L KUREEL
• Keywords: Gross profit estimation; Business income
• Section: 145

Judgement Text

, , , , IN THE INCOME TAX APPELLATE TRIBUNAL B BENCH, AHMEDABAD 0 00 0 0 00 0 , , , , !'# !$ !'# !$ !'# !$ !'# !$0 00 0! !! !0 00 0 %$ %$ %$ %$, , , , &' ( &' ( &' ( &' ( & & & & BEFORE SHRI G.C. GUPTA, VICE PRESIDENT AND SHRI N.S. SAINI, ACCOUNTANT MEMBER ITA NO. 1387/AHD/2011 ASSESSMENT YEAR 2007-08 DCIT, CIRCLE-5, AHMEDABAD. VS NIR MARKETING P. LTD. AHMEDABAD. PAN: AABCN4057G )*/ APPELLANT ,-)* / RESPONDENT CO NO. 131/AHD/2011 ASSESSMENT YEAR 2007-08 NIR MARKETING P. LTD. AHMEDABAD. VS DCIT, CIRCLE-5, AHMEDABAD. )*/ APPELLANT ,-)* / RESPONDENT REVENUE BY : SHRI P.L. KUREEL, SR. DR ASSESSEE(S) BY : MS. URVASHI SHODHAN, AR $'. / 0'/ // / DATE OF HEARING : 09/06/2014 123 / 0' / DATE OF PRONOUNCEMENT : 20/06/2014 &4 &4 &4 &4/ // / O R D E R PER SHRI N.S. SAINI, ACCOUNTANT MEMBER: THIS IS AN APPEAL FILED BY THE REVENUE AND CROSS- OBJECTION FILED BY THE ASSESSEE, BOTH AGAINST THE ORDER OF THE COMMISSIONE R OF INCOME TAX (APPEALS)-XI, AHMEDABAD DATED 03.03.2011. 2. GROUND NO. 1 OF THE APPEAL IS DIRECTED AGAINST THE ORDER OF THE COMMISSIONER OF INCOME TAX (APPEALS) DELETING THE D ISALLOWANCE OF EXPENDITURE OF RS 9,99,742/- ON ACCOUNT OF PREMIUM ON OFCPN (OPTIO NALLY FULLY CONVERTIBLE PREMIUM NOTES), RS 17,17,600/- BEING LATE PAYMENT O F INTEREST AND RS 36,97,418/- BEING INTEREST INCOME, TOTALLING RS 64,14,810/-. ITA NO. 1387/AHD/2011 NIR MARKETING PVT. LTD., AHMEDABAD. FOR A.Y. 2007-08 - 2 - 3. THE ASSESSING OFFICER OBSERVED THAT IN PROFIT A ND LOSS ACCOUNT, THE ASSESSEE HAS CLAIMED DEDUCTION OF RS 9,99,742/- AS PREMIUM ON OFCPN (OPTIONALLY FULLY CONVERTIBLE PREMIUM NOTES) UNDER THE HEAD FINANCIAL CHARGES. THIS IS NOTHING BUT A PROVISION MADE BY T HE ASSESSEE AGAINST FUTURE CONTINGENT LIABILITY. THE FACTS OF THE CASE ARE THAT THE ASSESSING OFFICER OBSERVED THAT AS CAN BE SEEN FROM THE ASSES SMENT ORDER PASSED FOR THE IMMEDIATELY PRECEDING ASSESSMENT YEAR 2006-07, SIMILAR ISSUE HAD COME UP FOR CONSIDERATION FROM ASSESSMENT YEAR 2001 -02. HE FURTHER OBSERVED THAT IN APPEAL BEFORE THE COMMISSIONER OF INCOME TAX (APPEALS), THE REVENUE LOST ITS CASE AND FURTHER APPEAL IS FIL ED BEFORE THE TRIBUNAL WHICH IS PENDING FOR DISPOSAL. THEREFORE, HE DISAL LOWED THE DEDUCTION FOR RS RS 9,99,742/- ON ACCOUNT OF FINANCIAL CHARGES CLAIM ED BY THE ASSESSEE. 4. FURTHER, THE ASSESSING OFFICER OBSERVED THAT TH E ASSESSEE HAS DEDUCTED FOLLOWING INCOME AND EXPENSES OF RS 64,14, 810/- CLAIMED UNDER THE HEAD PREMIUM ON OFCPN AND BALANCE AMOUNT OF RS 9,99,742/- IS DEBITED TO THE PROFIT AND LOSS ACCOUNT UNDER THE HE AD FINANCIAL CHARGES. HE OBSERVED THAT IN EARLIER YEARS ALSO, THE ASSESSEE H AD FOLLOWED THE SAME MODUS OPERANDI WHICH IS NOT IN ACCORDANCE WITH THE LAW. THE ASSESSEE HAS MADE THE ABOVE ADJUSTMENT OF NETTING AS IF IN THE C ASE OF NETTING OF INTEREST (I.E. TOTAL INTEREST INCOME INTEREST EXPENSES), N ETTING OF CAPITAL GAINS (I.E. TOTAL SHORT TERM CAPITAL GAINS SHORT TERM LOSS), NETTING OF CARTING INCOME (I.E. TOTAL CARTING INCOME CARTING EXPENSES), NET TING OF JOB WORK INCOME (I.E. TOTAL JOB WORK DONE JOB EXPENSES) AND NETTI NG OF COMMISSION (I.E. TOTAL COMMISSION INCOME COMMISSION EXPENSES). IN THE CASE OF NETTING OF INTEREST INCOME, CAPITAL GAINS, CARTING INCOME, JOB WORK INCOME AND COMMISSION, THE SAME IS AN ACCEPTED PRACTICE OF ACC OUNTING AND ALSO ACCEPTABLE TO THE DEPARTMENT AS THE NATURE OF TRANS ACTION AGAINST WHICH ADJUSTMENT IS MADE IS THE SAME I.E. INTEREST CAPITA L GAINS, CARTING INCOME, JOB WORK INCOME OR COMMISSION. IN THE PRESENT CASE , THE ASSESSEE HAS DONE NETTING BETWEEN ENTIRELY DIFFERENT HEADS OF INCOME. THE ASSESSEE HAS ITA NO. 1387/AHD/2011 NIR MARKETING PVT. LTD., AHMEDABAD. FOR A.Y. 2007-08 - 3 - DEDUCTED THE INCOME UNDER LATE PAYMENT OF INTEREST AND INTEREST INCOME AGAINST EXPENSES ON PREMIUM OF OFCPN. SUCH ADJUSTM ENT WOULD HAVE BEEN JUSTIFIED IF THE ASSESSEE HAD ADJUSTED EXPENSES ON PREMIUM ON OFCPN AGAINST INCOME OF PREMIUM ON OFCPN. THE ARGUMENT O F THE ASSESSEE THAT THERE IS DOUBLE TAXATION HAS ALSO NO MERIT FOR THE REASON THAT NEITHER ASSESSEE HAS OFFERED LATE PAYMENT INTEREST RS 17,17 ,600/- AND INTEREST INCOME OF RS 36,97,418/- IN THE PROFIT AND LOSS ACC OUNT NOR IN THE COMPUTATION OF INCOME. THEREFORE, THE QUESTION OF DOUBLE TAXATION DOES NOT ARISE. FURTHER, IF THE ASSESSEE HAD MADE ADJUSTMEN T OF INCOME UNDER OFCPN AGAINST EXPENDITURE OF OFCPN, THERE WOULD HAV E BEEN NO DISPUTE IN ACCEPTING THE SAME. FURTHER, HE OBSERVED THAT IT W AS PROPOSED TO MAKE ADDITION OF ENTIRE EXPENSES OF PREMIUM OF OFCPN OF RS 64,14,810/- TO THE TOTAL INCOME FOR THE REASON THAT THE ASSESSEES CLA IM OF PROFIT AND LOSS ACCOUNT FOR EXPENSES ON PREMIUM OF OFCPN IS ONLY TO THE EXTENT OF RS 9,99,742/-. IT WOULD HAVE BEEN AN ISSUE OF DOUBLE TAXATION IF ENTIRE EXPENSES ON PREMIUM OF OFCPN OF RS 64,14,810/- WAS DISALLOWED AND THERE WAS SEPARATE ADDITION OF INCOME UNDER THE HEAD LATE PAYMENT OF INTEREST OF RS 17,17,600/- AND INTEREST INCOME OF RS 36,97,418/ - TO THE TOTAL INCOME. THUS, IT IS CLEAR THAT THE ASSESSEE HAS ADOPTED A C OLOURABLE DEVICE TO AVOID PAYMENT OF TAX. THE ADJUSTMENT MADE BY THE ASSESSE E IS NOT ACCEPTABLE IN PRINCIPLE AS IT IS NOT IN ACCORDANCE WITH THE ACCEP TABLE PRINCIPLE OF LAW. ACCORDINGLY LATE PAYMENT OF INTEREST OF RS 17,17,60 0/- AND INTEREST INCOME OF RS 36,97,418/- ARE LIABLE TO BE TAXED. 5. ON APPEAL, THE COMMISSIONER OF INCOME TAX (APPE ALS) DELETED THE DISALLOWANCE BY OBSERVING AS UNDER: 3.2 I HAVE CONSIDERED THE SUBMISSIONS MADE BY THE A.R. OF THE APPELLANT AND THE OBSERVATIONS OF THE ASSESSING OFF ICER IN THE ASSESSMENT ORDER. SIMILAR ISSUE AROSE IN THE APPEL LANTS OWN CASE FOR IMMEDIATELY PRECEDING ASSESSMENT YEAR I.E. A.Y. 200 6-07, WHEREIN IT WAS HELD BY ME AS UNDER: ITA NO. 1387/AHD/2011 NIR MARKETING PVT. LTD., AHMEDABAD. FOR A.Y. 2007-08 - 4 - 2.2 I HAVE CONSIDERED THE SUBMISSIONS MADE BY THE A.R. OF THE APPELLANT AND THE OBSERVATIONS OF THE ASSESSING OFFICER IN THE ASSESSMENT ORDER. THE ISSUE, IN QUESTION, HAS BEEN DECIDED BY THE HONBLE ITAT, AHMEDABAD BENCH B, AHMEDABAD, R EFERRED TO ABOVE IN FAVOUR OF THE APPELLANT VIDE PARA-8 AND 11 OF THE SAID CONSOLIDATED ORDER DATED 20-11-2009. THE HON BLE ITAT HELD THAT THE ASSESSEE HAD CORRECTLY CLAIMED THE DE DUCTION IN RESPECT OF PROPORTIONATE PART OF THE PREMIUM ON OFC PN ON ACCRUAL BASIS. THEREFORE, HAVING CONSIDERED THE FA CTS AND CIRCUMSTANCES OF THE CASE AND FOLLOWING THE ITATS DECISION, REFERRED TO ABOVE, I AM INCLINED TO DIRECT THE ASSE SSING OFFICER TO DELETE THE ADDITION MADE BY HIM OF RS 55,81,105/- O N ACCOUNT OF OFCPN. THIS GROUND OF APPEAL STANDS ALLOWED. SINCE THE ISSUE FOR THE ASSESSMENT YEAR UNDER CONSI DERATION IS SIMILAR TO THAT OF IMMEDIATELY PRECEDING ASSESSMENT. A.O. IS DIRECTED TO DELETE THE IMPUGNED DISALLOWANCE TOTALLING TO RS 64 ,14,810/-. THESE GROUNDS OF APPEAL ARE ALLOWED. 6. THE DEPARTMENTAL REPRESENTATIVE SUPPORTED THE O RDER OF THE ASSESSING OFFICER WHEREAS THE AUTHORIZED REPRESENTA TIVE OF THE ASSESSEE SUBMITTED THAT THE TRIBUNAL IN ASSESSMENT YEAR 2006 -07 IN THE CASE OF ITSELF IN THE ORDER PASSED IN ITA NO 724/AHD/2010 DATED 16 .12.2011 HAS ALLOWED THE CLAIM OF THE ASSESSEE IN THE VERY SAME ISSUE. 7. WE HAVE HEARD THE RIVAL SUBMISSIONS AND PERUSED THE ORDERS OF LOWER AUTHORITIES AND MATERIAL AVAILABLE ON RECORD. WE FIND THAT THE TRIBUNAL IN ASSESSMENT YEAR 2006-07 IN ASSESSEES OWN CASE H AS DECIDED THE ISSUE BY OBSERVING AS UNDER: THIS IS AN APPEAL AT THE BEHEST OF THE REVENUE WHIC H HAS EMANATED FROM THE ORDER OF LEARNED CIT(APPEALS)-XI, AHMEDABA D DATED 29/12/2009 PASSED FOR A.Y. 2006-07. THE ONLY SUBSTA NTIVE GROUND READS AS FOLLOWS:- 1. THE LD. COMMISSIONER OF INCOME TAX (A)-XI, AHME DABAD HAS ERRED IN LAW AND ON FACTS IN DELETING THE ADDITION MADE OF RS.55,81,105/- ON ACCOUNT OF DISALLOWANCE OF PREMIU M ON OFCPN. 2. AT THE OUTSET, WE HAVE BEEN INFORMED THAT IN THE PAST ON IDENTICAL FACTS IN ASSESSEES OWN CASE FOR ASSESSME NT YEARS 2001-02, 2002-03, 2003-04 & 2004-05 THROUGH A CONSOLIDATED O RDER BEARING ITA NO. 1387/AHD/2011 NIR MARKETING PVT. LTD., AHMEDABAD. FOR A.Y. 2007-08 - 5 - ITA NOS.3296/AHD/2004, 1643, 1983/AHD/2006 AND 3666 /AHD/2007, THE RESPECTED CO-ORDINATE BENCH B ITAT AHMEDABAD VIDE ORDER DATED 20/11/2009 HAS HELD THE ISSUE IN FAVOUR OF TH E ASSESSEE AS PER THE FOLLOWING RELEVANT PARAGRAPHS:- 3. BRIEFLY STATED, THE FACTS OF THE CASE ARE THAT THE ASSESSEE COMPANY, DURING THE YEAR UNDER CONSIDERATION WAS EN GAGED IN THE BUSINESS OF TRADING OF SOAP, DETERGENT POWDER A ND CAKE ETC. THE RETURN OF INCOME FOR THE YEAR UNDER CONSIDERATI ON WAS FILED ON 19-06-2000 DECLARING TOTAL INCOME AT RS. NIL. HO WEVER, THE ASSESSMENT WAS FINALIZED U/S.143(3) OF THE INCOME T AX ACT, 1961 (IN SHORT THE ACT) ON 26-02-2004 DETERMINING T OTAL INCOME AT RS.19,15,841/-. WHILE FRAMING THE ASSESSMENT, TH E AO DISALLOWED RS.19,15,841/- ON ACCOUNT OF PREMIUM PAY ABLE ON OPTIONALLY FULLY CONVERTIBLE PREMIUM NOTES (OFCPN) AS FUTURE CONTINGENT LIABILITIES. ON VERIFICATION OF ACCOUNT, THE AO NOTICED THAT THE ASSESSEE HAD DEDUCTED AN AMOUNT OF RS.19,1 5,841/- AS PREMIUM ON OFCPN FROM THE TOTAL INCOME OF RS.31,35, 704/- (OFCPN). WHEN THE AO ENQUIRED ABOUT THE DEDUCTION, THE ASSESSEE FILED REPLY VIDE ITS LETTER DATED 17-03-20 03. THE ASSESSEE ALSO FILED ANOTHER REPLY ON 23-09-2003. BO TH THE REPLIES FILED BY THE ASSESSEE WERE NOT CONSIDERED B Y THE AO TO BE SATISFACTORY. THE AO TOOK THE VIEW THAT THE ASSE SSEE COMPANY HAD MADE A PROVISION FOR FUTURE CONTINGENT LIABILITIES, WHICH COULD NOT BE THE SUBJECT MATTER OF DEDUCTION. THEREFORE, AFTER DISCUSSING THE ISSUE AT LENGTH IN THE ASSESSM ENT ORDER THE AO REJECTED THE ASSESSEES CLAIM OF PREMIUM ON OFCP N AND ADDED THE SUM OF RS.19,15,841/- TO THE TOTAL INCOME OF THE ASSESSEE COMPANY. 8. RESPECTFULLY FOLLOWING THE JUDGEMENT OF THE HON 'BLE SUPREME COURT IN THE CASE OF MADRAS INDUSTRIAL INVE STMENT CORPORATION LTD. (SUPRA) AND ALSO THE DECISION OF T HE TRIBUNAL RENDERED IN THE CASE OF NIRMA LTD. WE HOLD THAT THE ASSESSEE HAD CORRECTLY CLAIMED THE DEDUCTION ONLY IN RESPECT OF PROPORTIONATE PART OF THE PREMIUM ON OFCPN ON ACCRU AL BASIS IN THE YEAR UNDER CONSIDERATION. ACCORDINGLY, WE UPHOL D THE ORDER OF THE CIT(A) AND DISMISS THE APPEAL FILED BY THE R EVENUE. 11. GROUND NO.2 RELATES TO DISALLOWANCE OF RS.36,0 9,609/- BEING AMOUNT OF PREMIUM ON OFCPN. WHILE DECIDING TH E REVENUES APPEAL IN ITA NO.3296/AHD/2004 (SUPRA) WE HAVE HELD THAT THE ASSESSEE IS ENTITLED TO CLAIM DEDUCTI ON ONLY IN RESPECT OF PROPORTIONATE PART OF PREMIUM ON OFCPN O N ACCRUAL BASIS IN THE YEAR UNDER CONSIDERATION. THE FACTS OF THE PRESENT YEAR ARE SIMILAR TO THAT OF ASSESSMENT YEAR 2001-02 (ITA NO.3296/AHD/2004). IN VIEW OF THE DETAILED DISCUSSI ON GIVEN THEREIN, WE SET ASIDE THE ORDER OF THE CIT(A) AND T HE DECISION RENDERED IN REVENUES APPEAL FOR AY 2001-02 (SUPRA) SHALL APPLY WITH EQUAL FORCE TO THIS GROUND OF APPEAL OF THE ASSESSEE. ACCORDINGLY, WE ALLOW THIS GROUND OF APPEAL. ITA NO. 1387/AHD/2011 NIR MARKETING PVT. LTD., AHMEDABAD. FOR A.Y. 2007-08 - 6 - 19. GROUND NO.3 RELATES TO DISALLOWANCE OF RS.26,8 9,920/- BEING AMOUNT OF PREMIUM ON OFCPN. WHILE DECIDING TH E REVENUES APPEAL IN ITA NO.3296/AHD/2004 (SUPRA) WE HAVE HELD THAT THE ASSESSEE IS ENTITLED TO CLAIM DEDUCTI ON ONLY IN RESPECT OF PROPORTIONATE PART OF PREMIUM ON OFCPN O N ACCRUAL BASIS IN THE YEAR UNDER CONSIDERATION. THE FACTS OF THE PRESENT YEAR ARE SIMILAR TO THAT OF ASSESSMENT YEAR 2001-02 (ITA NO.3296/AHD/2004). IN VIEW OF THE DETAILED DISCUSSI ONS GIVEN THEREIN, WE SET ASIDE THE ORDER OF THE CIT(A) AND T HE DECISION RENDERED IN REVENUES APPEAL FOR AY 2001-02(SUPRA) SHALL APPLY WITH EQUAL FORCE TO THIS GROUND OF APPEAL OF THE AS SESSEE. ACCORDINGLY, WE ALLOW THIS GROUND OF APPEAL. 25. GROUND NO.3 RELATES TO DISALLOWANCE OF RS.42,2 4,671/- BEING AMOUNT OF PREMIUM ON OFCPN. WHILE DECIDING TH E REVENUES APPEAL IN ITA NO.3296/AHD/2004 (SUPRA) WE HAVE HELD THAT THE ASSESSEE IS ENTITLED TO CLAIM DEDUCTI ON ONLY IN RESPECT OF PROPORTIONATE PART OF PREMIUM ON OFCPN O N ACCRUAL BASIS IN THE YEAR UNDER CONSIDERATION. THE FACTS OF THE PRESENT YEAR ARE SIMILAR TO THAT OF ASSESSMENT YEAR 2001-02 (ITA NO.3296/AHD/2004). IN VIEW OF THE DETAILED DISCUSSI ONS GIVEN THEREIN, WE SET ASIDE THE ORDER OF THE CIT(A) AND T HE DECISION RENDERED IN REVENUES APPEAL FOR AY 2001-02 (SUPRA) SHALL APPLY WITH EQUAL FORCE TO THIS GROUND OF APPEAL OF THE ASSESSEE. ACCORDINGLY, WE ALLOW THIS GROUND OF APPEAL. 3. IN THE LIGHT OF THE ABOVE DECISION OF THE TRIBUN AL, WE HAVE NOTICED THAT WHILE PASSING THE ASSESSMENT ORDER DAT ED 05/09/2008, THE ASSESSING OFFICER HAS ALSO MENTIONED THAT IN TH E IMMEDIATELY PRECEDING ASSESSMENT YEAR THE QUESTION OF PREMIUM O N OPTIONALLY FULLY CONVERTIBLE PREMIUM NOTES (OFCPN) HAS BEEN ME NTIONED AND THE PAST HISTORY WAS FOLLOWED. LIKEWISE, THE FIRST APPE LLATE AUTHORITY HAS GRANTED RELIEF FOLLOWING THE ORDER OF THE TRIBUNAL. SINCE ON IDENTICAL FACTS THE ISSUE HAS ALREADY BEEN DECIDED BY THE RES PECTED CO-ORDINATE BENCH, THEREFORE FOLLOWING THE SAID VIEW FOR THIS Y EAR AS WELL, WE FIND NO FORCE IN THIS GROUND OF THE REVENUE AND DISMISS THE SAME. 8. IN THE ABSENCE OF ANY DISTINGUISHING FEATURES B EING POINTED OUT BY THE DEPARTMENTAL REPRESENTATIVE, FACTS BEING IDE NTICAL, RESPECTFULLY FOLLOWING THE PRECEDENT WE DISMISS THIS GROUND OF A PPEAL OF THE REVENUE. 9. GROUND NO. 2 OF THE APPEAL IS DIRECTED AGAINST THE ORDER OF THE COMMISSIONER OF INCOME TAX (APPEALS) DELETING THE A DDITION OF RS 17,974/- ON ACCOUNT OF SUPPRESSION OF SALES. ITA NO. 1387/AHD/2011 NIR MARKETING PVT. LTD., AHMEDABAD. FOR A.Y. 2007-08 - 7 - 10. WE HAVE HEARD THE RIVAL SUBMISSIONS AND PERUSE D THE ORDERS OF LOWER AUTHORITIES AND MATERIAL AVAILABLE ON RECORD. THE ASSESSING OFFICER OBSERVED THAT THE ASSESSEE HAD SHOWN TOTAL SALES OF RS 8,49,91,947/-. ON VERIFICATION OF SELF-ASSESSMENT MADE U/S. 33 OF THE GUJARAT VAT 2003 IN THE FORM NO. 205, THE ASSESSING OFFICER FOUND THAT ACTU AL SALES AS PER VAT RETURN WAS TO THE TUNE OF RS 9,55,66,191/-. THUS, THERE W AS DIFFERENCE OF 1,03,74,244/-. THE ASSESSEE EXPLAINED THAT THE DIF FERENCE WAS DUE TO EXCLUSION OF VAT FROM THE SALES. THE CONTENTION RA ISED BY THE ASSESSEE CONSIDERED ON VERIFICATION OF VAT ANNUAL RETURN IN FORM NO. 205, IT WAS NOTICED THAT VAT ON SALES WAS WORKED OUT TO RS 1,03 ,56,270/-. THUS, THE ASSESSING OFFICER HELD THAT THERE WAS DIFFERENCE OF RS 17,974/- ONLY I.E. (RS 1,03,74,244 RS 1,03,56,270) WHICH WAS ADDED TO TH E INCOME OF THE ASSESSEE AS SUPPRESSED SALES. 11. ON APPEAL, THE COMMISSIONER OF INCOME TAX (APP EALS) OBSERVED THAT THE ASSESSEE HAS CONTENDED BEFORE HIM THAT THE IMPUGNED AMOUNT OF RS 17,794/- REPRESENTS DISCOUNT ON SALES AND ACCORD INGLY DIRECTED THE ASSESSING OFFICER TO VERIFY AND DELETE THE ADDITION SUBJECT TO VERIFICATION. THIS GROUND OF APPEAL WAS ALLOWED. 12. WE FIND THAT AS THE MATTER WAS RESTORED TO THE FILE OF THE ASSESSING OFFICER FOR VERIFICATION WHETHER THE SUM OF RS 17,974/- ADDED BY HIM AS SUPPRESSED SALES REPRESENTS DISCOUNT ON SALE S ALLOWED BY THE ASSESSEE, AND IF SO, TO DELETE THE ADDITION. THUS, THERE CANNOT BE ANY GRIEVANCE TO THE REVENUE WITH THIS DIRECTION OF COM MISSIONER OF INCOME TAX (APPEALS). ACCORDINGLY, THIS GROUND OF APPEAL OF R EVENUE IS DISMISSED. 13. GROUND NO. 3 IS DIRECTED AGAINST THE ORDER OF THE COMMISSIONER OF INCOME TAX (APPEALS) DIRECTING THE ASSESSING OFF ICER TO VERIFY THE ADDITION OF RS 12,19,117/- ON ACCOUNT OF PURCHASES OUTSIDE T HE BOOKS. ITA NO. 1387/AHD/2011 NIR MARKETING PVT. LTD., AHMEDABAD. FOR A.Y. 2007-08 - 8 - 14. WE HAVE HEARD THE RIVAL SUBMISSIONS AND PERUSE D THE ORDERS OF LOWER AUTHORITIES AND MATERIAL AVAILABLE ON RECORD. THE UNDISPUTED FACTS OF THE CASE ARE THAT THE ASSESSING OFFICER INQUIRED AB OUT PURCHASES AS PER AUDITED ACCOUNTS OF RS 8,25,32,085/- AND THE AMOUNT OF PURCHASES AS PER VAT FORM NO. 205 AT RS 9,39,60,766/-. THE ASSESSEE EXPLAINED DURING THE COURSE OF ASSESSMENT PROCEEDINGS THAT THE DIFFERENC E OF RS 1,14,68,678/- WAS DUE TO THE FACT THAT THE AUDITED ACCOUNTS PURCH ASES WERE SHOWN EXCLUDING THE VAT AMOUNT AND TRANSPORT CHARGES FROM THE AMOUNT OF PURCHASES WHEREAS FOR THE PURPOSES OF VAT RETURN AM OUNT WAS SHOWN ON INCLUSIVE BASIS. THE ASSESSING OFFICER HOWEVER DID NOT ACCEPT THE EXPLANATION OF THE ASSESSEE AND MADE ADDITION OF RS 12,79,117/-. 15. ON APPEAL, THE COMMISSIONER OF INCOME TAX (APP EALS) HELD THAT THE CONTENTION OF THE ASSESSEE IS THAT THE IMPUGNED AMOUNT REPRESENTS TRANSPORT CHARGES AND ACCORDINGLY DIRECTED THE ASSE SSING OFFICER TO VERIFY THE SAME AND DELETE THE ADDITION SUBJECT TO VERIFICATIO N AND THIS GROUND OF APPEAL WAS ALLOWED. WE FIND THAT THE COMMISSIONER OF INCOME TAX (APPEALS) HAD RESTORED THE MATTER TO THE ASSESSING OFFICER AND DIRECTED HIM TO VERIFY WHETHER THE DIFFERENCE OF RS 12,79,117/- REPRESENTS TRANSPORT CHARGES WHICH WERE NOT INCLUDED BY THE ASSESSEE IN THE PURCHASES SHOWN IN THE AUDITED ACCOUNTS BUT INCLUDED IN THE VAT RETURN , AND IF FOUND SO, THEN TO DELETE THE ADDITION. THUS, THERE CANNOT BE ANY GRI EVANCE TO THE REVENUE AGAINST SUCH A DIRECTION OF THE COMMISSIONER OF INC OME TAX (APPEALS). THEREFORE, THIS GROUND OF APPEAL OF THE REVENUE IS DISMISSED. 16. GROUND NO. 4 OF THE APPEAL IS DIRECTED AGAINST THE ORDER OF COMMISSIONER OF INCOME TAX (APPEALS) DIRECTING THE ASSESSING OFFICER TO VERIFY THE ASSESSEES CONTENTION WITH REGARD TO THE DISALLOWANCE OF RS 42,000/- ON ACCOUNT OF NON-GENUINE RENT. ITA NO. 1387/AHD/2011 NIR MARKETING PVT. LTD., AHMEDABAD. FOR A.Y. 2007-08 - 9 - 17. THE BRIEF FACTS OF THE CASE ARE THAT THE ASSES SING OFFICER OBSERVED THAT FROM THE DETAILS FURNISHED BY THE ASS ESSEE IT IS SEEN THAT SHRI D.K. PATEL HAS BEEN PAID RENT OF RS 18,000/- ONLY A GAINST RS 60,000/- CLAIMED. THEREFORE, SHOW CAUSE NOTICE WAS ISSUED T O THE ASSESSEE. THE ASSESSEE EXPLAINED THAT THERE WAS NO WRITTEN AGREEM ENT WITH SHRI D.K. PATEL BUT THE BALANCE RENT OF RS 42,000/- WAS LIABLE TO B E PAID ON ACCRUAL BASIS. THE ASSESSING OFFICER DID NOT ACCEPT THE CONTENTION OF THE ASSESSEE AND MADE DISALLOWANCE OF RS 42,000/- ON ACCOUNT OF RENT . 18. ON APPEAL, THE COMMISSIONER OF INCOME TAX (APP EALS) HELD THAT THE CONTENTION OF THE ASSESSEE IS THAT THE IMPUGNED AMOUNT OF RS 42,000/- WAS ACTUALLY PAID AND THAT THE ASSESSING OFFICERS OBSERVATION THAT THE SAID AMOUNT REMAINS UNPAID WAS FACTUALLY INCORRECT. ACC ORDINGLY, HE DIRECTED THE ASSESSING OFFICER TO VERIFY THE CONTENTION AND DELE TE THE DISALLOWANCE SUBJECT TO VERIFICATION. THUS, THIS GROUND OF APPEA L WAS ALLOWED. SINCE THE MATTER WAS RESTORED TO THE FILE OF THE ASSESSING OF FICER FOR VERIFICATION AND THEREAFTER ALLOWING THE DEDUCTION TO THE ASSESSEE, REVENUE COULD NOT HAVE ANY GRIEVANCE AGAINST THIS DIRECTION OF THE COMMISS IONER OF INCOME TAX (APPEALS). THEREFORE, THIS GROUND OF THE APPEAL IS DISMISSED. 19. GROUND NO. 5 OF THE APPEAL OF REVENUE IS DIREC TED AGAINST THE ORDER OF COMMISSIONER OF INCOME TAX (APPEALS) DIREC TING THE ASSESSING OFFICER TO VERIFY THE CONTENTION WITH REGARD TO THE DISALLOWANCE OF RS 60,000/- ON ACCOUNT OF NON-GENUINE RENT. 20. WE HAVE HEARD THE RIVAL SUBMISSIONS AND PERUSE D THE ORDERS OF LOWER AUTHORITIES AND MATERIAL AVAILABLE ON RECORD. THE ASSESSING OFFICER OBSERVED THAT COPY OF RETURN OF INCOME OF THE PERSO N TO WHOM RENT WAS PAID WAS NOT FILED BY THE ASSESSEE. THEREFORE, THE ASSE SSING OFFICER DISALLOWED THE SUM OF RS 60,000/- AS NON-GENUINE. ITA NO. 1387/AHD/2011 NIR MARKETING PVT. LTD., AHMEDABAD. FOR A.Y. 2007-08 - 10 - 21. BEFORE THE COMMISSIONER OF INCOME TAX (APPEALS ), THE ASSESSEE SUBMITTED THAT COPY OF RETURN OF INCOME FILED BY SH RI VINIT D. PATEL TO WHOM RENT OF RS 60,000/- WAS PAID WAS FILED BEFORE THE A SSESSING OFFICER DURING THE COURSE OF ASSESSMENT PROCEEDINGS AND THE DISALL OWANCE WAS MADE WITHOUT CONSIDERING THE SAME. 22. THE COMMISSIONER OF INCOME TAX (APPEALS) THERE FORE DIRECTED THE ASSESSING OFFICER TO VERIFY THE CONTENTION OF T HE ASSESSEE AND DELETE THE DISALLOWANCE MADE BY HIM SUBJECT TO VERIFICATION. THUS, THIS GROUND OF APPEAL WAS ALLOWED. WE FIND THAT THE COMMISSIONER OF INCOME TAX (APPEALS) HAS RESTORED THE MATTER TO THE ASSESSING OFFICER FOR VERIFICATION OF THE COPY OF RETURN OF INCOME OF SHRI VINIT D. PATEL TO WHOM THE ASSESSEE HAS PAID RENT OF RS 60,000/- AND THEREAFTER TO ALLOW TH E SAME AS DEDUCTION TO THE ASSESSEE. THEREFORE, THE REVENUE COULD NOT HAV E ANY GRIEVANCE AGAINST FINDING OF COMMISSIONER OF INCOME TAX (APPEALS) AND ACCORDINGLY, THIS GROUND OF APPEAL OF THE REVENUE IS DISMISSED. 23. GROUND NO. 6 OF THE APPEAL IS DIRECTED AGAINST THE ORDER OF COMMISSIONER OF INCOME TAX (APPEALS) DELETING THE D ISALLOWANCE OF RS 27,000/- BEING SALARY PAID TO SHRI V.K. PATEL. 24. WE HAVE HEARD THE RIVAL SUBMISSIONS AND PERUS ED THE ORDERS OF LOWER AUTHORITIES AND MATERIAL AVAILABLE ON RECORD. THE ASSESSING OFFICER OBSERVED THAT THE ASSESSEE HAS PAID SALARY TO SHRI V.K. PATEL, SON OF THE DIRECTOR WHO IS RELATED TO THE PARTY U/S. 40(A)(IA) OF THE ACT, OF RS 75,000/-. HE FURTHER OBSERVED THAT SHRI V.K. PATEL IS WORKING IN MICRO PREC. IND AND NIR MARKETING PRIVATE LTD. HE ALSO OBSERVED THAT SHRI V.K. PATEL IS ALSO A PARTNER IN THE FIRM OF M/S. GORKA MARKETING. CONSI DERING THESE FACTS, THE ASSESSING OFFICER ESTIMATED THE SALARY AT THE RATE OF 4,000/- PER MONTH FOR HIS PART TIME JOB TO BE REASONABLE. ACCORDINGLY, H E ALLOWED SALARY OF RS ITA NO. 1387/AHD/2011 NIR MARKETING PVT. LTD., AHMEDABAD. FOR A.Y. 2007-08 - 11 - 48,000/- AND DISALLOWED BALANCE AMOUNT OF RS 27,000 /- UNDER 40A(2)(B) OF THE ACT. 25. ON APPEAL, THE COMMISSIONER OF INCOME TAX (APP EALS) OBSERVED THAT WHILE MAKING DISALLOWANCE, THE ASSESSING OFFIC ER HAS NOT BROUGHT ON RECORD ANY MATERIAL THAT THE SALARY PAID TO SHRI V. K. PATEL WAS EXCESSIVE AND UNREASONABLE AS PER PROVISIONS U/S. 40A(2)(B) OF TH E ACT AND DELETED THE DISALLOWANCE. THE DEPARTMENTAL REPRESENTATIVE SIMP LY RELIED ON THE ORDER OF THE ASSESSING OFFICER AND POINTED OUT NO SPECIFI C ERROR IN THE ORDER OF THE COMMISSIONER OF INCOME TAX (APPEALS). THE DEPARTME NTAL REPRESENTATIVE ALSO BROUGHT NO MATERIAL ON RECORD TO SHOW THAT THE SALARY OF RS 75,000/- PAID TO SHRI V.K. PATEL WAS EXCESSIVE AS COMPARED T O MARKETING VALUE OF THE SERVICES RENDERED BY SHRI V.K. PATEL. THEREFORE, W E FIND NO INFIRMITY IN THE ORDER OF THE COMMISSIONER OF INCOME TAX (APPEALS) W HICH IS CONFIRMED AND THIS GROUND OF APPEAL IS DISMISSED. 26. GROUND NO. 7 OF THE APPEAL IS DIRECTED AGAINST THE ORDER OF COMMISSIONER OF INCOME TAX (APPEALS) DELETING THE G P ADDITION OF RS 8,92,680/- MADE BY THE ASSESSING OFFICER. 27. WE HAVE HEARD THE RIVAL SUBMISSIONS AND PERUSE D THE ORDERS OF LOWER AUTHORITIES AND MATERIAL AVAILABLE ON RECORD. IN THE INSTANT CASE, THE ASSESSING OFFICER IN THE ASSESSMENT ORDER OBSERVED THAT CONSIDERING THE DEFECTS POINTED OUT SPECIALLY WITH REGARD TO DIFFER ENCE IN PURCHASE AND SALES, AGGREGATE INCOME CANNOT BE DEDUCED FROM THE BOOKS O F ACCOUNT OF THE ASSESSEE AND HENCE TRADING RESULT OF THE ASSESSEE W AS REJECTED U/S. 145 OF THE ACT AS UNRELIABLE. HE FURTHER OBSERVED THAT TH E ASSESSEE HAS SHOWN GROSS PROFIT OF RS 25,07,002/- ON SALES OF RS 8,49, 91,947/- WHICH WORKS OUT TO 2.95%. HE OBSERVED THAT CONSIDERING THE DEFECTS IN THE BOOKS, REASONABLE GROSS PROFIT OF 4% IS ESTIMATED FOR THE YEAR UNDER CONSIDERATION AND ACCORDINGLY WORKED OUT THE GROSS PROFIT AT RS 3 3,99,680/- AS AGAINST RS ITA NO. 1387/AHD/2011 NIR MARKETING PVT. LTD., AHMEDABAD. FOR A.Y. 2007-08 - 12 - 25,07,002/- SHOWN BY THE ASSESSEE AND THEREBY MADE AN ADDITION OF THE DIFFERENCE AMOUNT OF RS 8,92,680/- TO THE INCOME OF THE ASSESSEE. 28. ON APPEAL, THE COMMISSIONER OF INCOME TAX (APP EALS) OBSERVED THAT THE BOOKS OF ACCOUNT OF THE ASSESSEE ARE AUDIT ED BY THE TAX AUDITORS UNDER THE PROVISIONS OF SECTION 44AB OF THE ACT. T HE ASSESSING OFFICER HAS NOT POINTED OUT ANY SPECIFIC DEFECTS IN THE BOOKS O F ACCOUNT MAINTAINED BY THE ASSESSEE. THE REASONS GIVEN BY THE ASSESSING O FFICER FOR REJECTION OF BOOKS OF ACCOUNT ARE GENERAL AND VAGUE. FURTHER, T HE ASSESSING OFFICER HAS NOT GIVEN ANY BASIS OF GROSS PROFIT OF EARLIER YEAR S OR GROSS PROFIT IN COMPARABLE CASES TO ESTIMATE GROSS PROFIT OF THE AS SESSEE AT THE RATE OF 4% IN PLACE OF 2.95% SHOWN BY THE ASSESSEE. HE, THERE FORE, HELD THAT THE ASSESSING OFFICER WAS NOT JUSTIFIED IN REJECTING TH E BOOKS OF ACCOUNT AND ESTIMATING THE GROSS PROFIT AND ACCORDINGLY DIRECTE D THE ASSESSING OFFICER TO ACCEPT THE BOOK RESULTS SHOWN BY THE ASSESSEE AND T HEREBY DELETED THE ADDITION MADE BY HIM ON ACCOUNT OF LOW GROSS PROFIT . 29. THE DEPARTMENTAL REPRESENTATIVE SUPPORTED THE ORDER OF THE ASSESSING OFFICER. HE COULD NOT POINT OUT ANY SPEC IFIC ERROR IN THE FINDING OF THE COMMISSIONER OF INCOME TAX (APPEALS). THEREFOR E, WE FIND NO INFIRMITY IN THE ORDER OF THE COMMISSIONER OF INCOME TAX (APP EALS) WHICH IS CONFIRMED AND THE GROUND OF APPEAL OF THE REVENUE I S DISMISSED. 30. AT THE TIME OF THE HEARING, THE AUTHORIZED REP RESENTATIVE OF THE ASSESSEE SUBMITTED THAT THE CROSS-OBJECTION FILED B Y THE ASSESSEE IS IN SUPPORT OF THE ORDER OF THE COMMISSIONER OF INCOME TAX (APPEALS). AS NO GROUND HAS BEEN RAISED IN THE CROSS-OBJECTION AGAIN ST THE ORDER OF THE COMMISSIONER OF INCOME TAX (APPEALS), THE CROSS-OBJ ECTION FILED BY THE ASSESSEE IS INFRUCTUOUS AND HENCE DISMISSED. ITA NO. 1387/AHD/2011 NIR MARKETING PVT. LTD., AHMEDABAD. FOR A.Y. 2007-08 - 13 - 31. IN THE RESULT, THE APPEAL OF THE REVENUE AND T HE CROSS-OBJECTION OF THE ASSESSEE BOTH ARE DISMISSED. ORDER PRONOUNCED IN THE COURT ON FRIDAY, THE 20 TH OF JUNE, 2014 AT AHMEDABAD. SD/- SD/- (G.C. GUPTA) VICE PRESIDENT ( N.S. SAINI) ACCOUNTANT MEMBER AHMEDABAD; DATED 20/06/2014 GHANSHYAM MAURYA, SR. P.S. TRUE COPY &4 / ,5 6&53 &4 / ,5 6&53 &4 / ,5 6&53 &4 / ,5 6&53/ COPY OF THE ORDER FORWARDED TO : 1. )* / THE APPELLANT 2. ,-)* / THE RESPONDENT. 3. ## 7 / CONCERNED CIT 4. 7() / THE CIT(A)-III, AHMEDABAD 5. 5': ,$ , , / DR, ITAT, AHMEDABAD 6. ;< =. / GUARD FILE. &4$ &4$ &4$ &4$ / BY ORDER, / // / # # # # ( DY./ASSTT.REGISTRAR) , , , , / ITAT, AHMEDABAD