ACIT, Pune V. Vandana A Sarawgi, Pune

ITA 1488/PUN/2013

• Counselvise Citation: [2017] 127 COUNSELVISE.COM (IT) 9294 (ITAT-PUNE)
• Duration Of Justice: 3 year(s) 11 month(s) 7 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 23-06-2017
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: A
• Next Hearing Date: 03-04-2017
• Assessment Year: 2008-2009
• Appeal Filed On: 16-07-2013
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Keywords: Gross profit estimation; Rejection of books of accounts; Depreciation; Business expenditure; Opportunity of being heard; Principle of natural justice; Corroborative evidences; Commercial expediency; Onus to prove
• Section: 143(3); 234B; 133(6); 37(1); 145; 37; 11

Judgement Text

] IN THE INCOME TAX APPELLATE TRIBUNAL PUNE BENCH A, PUNE BEFORE MS. SUSHMA CHOWLA, JM AND SHRI ANIL CHATURVEDI, AM . / ITA NO.1488/PUN/2013 / ASSESSMENT YEAR : 2008-09 ASST. COMMISSIONER OF INCOME TAX, CIRCLE -5, PUNE, PMT BUILDING, 3 RD FLOOR, SWARGATE, PUNE 411 037. . / APPELLANT V/S VANDANA A. SARAWGI, VINAYAN TUBES, 32/506, OFFICE NO.309B, CITY TOWER, BOAT CLUB ROAD, PUNE 411 001. PAN NO.ADXPS3272L. . / RESPONDENT . / ITA NO.1491/PUN/2013 / ASSESSMENT YEARS : 2008-09 VANDANA A. SARAWGI, VINAYAN TUBES, 32/506, OFFICE NO.309B, CITY TOWER, BOAT CLUB ROAD, PUNE 411 001. PAN NO.ADXPS3272L. . / APPELLANT V/S ASST. COMMISSIONER OF INCOME TAX, CIRCLE -5, PUNE, PMT BUILDING, 3 RD FLOOR, SWARGATE, PUNE 411 037. . / RESPONDENT / ASSESSEE BY : SHRI M.K. KULKARNI / REVENUE BY : SHRI SUHAS KULKARNI / DATE OF HEARING : 03.04.2017 / DATE OF PRONOUNCEMENT: 23.06.2017 2 / ORDER PER ANIL CHATURVEDI, AM : THESE CROSS-APPEALS FILED BY ASSESSEE AND REVENUE EMAN ATE OUT OF ORDER OF COMMISSIONER OF INCOME-TAX (A)-III, PUNE DT.31.10.2011 FOR A.YS. 2008-09. 2. THE RELEVANT FACTS AS CULLED OUT FROM THE MATERIAL ON R ECORD ARE AS UNDER :- 2.1 ASSESSEE IS AN INDIVIDUAL AND IS STATED TO BE DEALER IN STEEL TUBES AND PIPES ON WHOLESALE BASIS. ASSESSEE FILED RETURN O F INCOME FOR A.Y. 2008-09 ON 30.09.2008 DECLARING TOTAL INCOME OF RS.1,11,71,000/-. THE CASE WAS SELECTED FOR SCRUTINY AND THEREAFTER THE ASSESSMENT WAS FRAMED U/S 143(3) OF THE ACT VIDE ORDER DT.27.12.2010 AND TOTAL INCOME WAS DETERMINED AT RS.3,63,94,550/-. AGGRIEVED BY THE ORDER OF AO, ASSESSEE C ARRIED THE MATTER BEFORE LD. CIT(A), WHO VIDE ORDER DT.31.10.2011 (IN APPEAL NO.PN/CIT(A)-III/ADDL.CIT,R-5/356/2010-11/99) GRAN TED PARTIAL RELIEF TO THE ASSESSEE. AGGRIEVED BY THE ORDER OF LD. CIT(A), ASSESSEE AND REVENUE ARE NOW IN APPEAL BEFORE US. 3. THE GROUNDS RAISED BY THE REVENUE IN ITS APPEAL NO.1488/PUN/2013 READS AS UNDER : 1. THE CIT(A) HAS ERRED IN LAW AND ON FACTS BY RES TRICTING THE ESTIMATE OF GROSS PROFIT MADE BY THE AO. 2. THE CIT(A) SHOULD HAVE UPHELD THE ORDER OF THE A SSESSING OFFICER BY CONFIRMING THE ADDITION OF GP RATE AT 12.22% AMO UNTING TO RS.1,91,00,000/-. 3. THE ORDER OF THE CIT(A) MAY BE VACATED AND THAT OF ASSESSING OFFICER BE RESTORED. 4. ON THE OTHER HAND, THE GROUNDS RAISED BY THE ASSE SSEE IN APPEAL NO.1491/PUN/2013 READS AS UNDER : 3 1. ON THE FACTS AND CIRCUMSTANCES OF THE CASE AND IN LAW THE LD. CIT(A) WAS NOT JUSTIFIED IN CONFIRMING THE ACTION O F THE A. O . REJECTING THE BOOKS OF ACCOUNT INVOKING PROVISIONS OF S. 145( 3) OF THE ACT . THE INVOKING OF S.145(3) IS WITHOUT APPLICATION OF MIND . IT BE HELD ACCORDINGLY. 2. ON THE FACTS AND CIRCUMSTANCES OF THE CASE AND I N LAW THE LD. CIT(A) WAS NOT JUSTIFIED IN UPHOLDING THE ADDITION OF RS. 83,63,100/- OUT OF THE TOTAL ADDITION OF RS. 1,91,00,000/- MADE BY THE A. O. ON ACCOUNT OF GROSS PROFIT ESTIMATION. THE SAME BE DEL ETED. 3. ON THE FACTS AND CIRCUMSTANCES OF THE CASE AND I N LAW THE LD. CIT(A) WAS NOT JUSTIFIED IN CONFIRMING THE ADDITION OF RS. 61,23,552/- MADE BY THE A . O. REJECTING THE CLAIM OF COMMISSION GENUINELY INCURRED OUT OF COMMERCIAL EXPEDIENCY AND THE PAYEE S DID NOT DENY OF COMMISSION PAID BY ASSESSEE. IN VIEW OF THIS THE DISALLOWANCE CONFIRMED BY CIT(A) WAS ILLEGAL AND WITHOUT JURISDI CTION . THE DISALLOWANCE BE DELETED. 4. ON THE FACTS AND CIRCUMSTANCES OF THE CASE AND I N LAW THE LD . CIT(A) OUGHT TO HAVE CONSIDERED THE LEGAL PARAMETERS THAT ONCE THE BOOKS OF ACCOUNT ARE REJECTED INVOKING THE PROVISIO NS OF S. 145(3) AND GROSS PROFIT IS ESTIMATED NO OTHER ADDITION CAN BE MADE . IN VIEW OF THIS THE LD. CIT(A) OUGHT TO HAVE DELETED THE AD DITION OF RS. 61,23,552/-. THE ADDITION SUSTAINED BE QUASHED. 5. ON THE FACTS AND CIRCUMSTANCES OF THE CASE AND I N LAW THE LEVY OF INTEREST U/S 234B AND 234C IS NOT JUSTIFIED. THE LEVY OF INTERES T BE QUASHED. 5. WE FIRST TAKE UP REVENUES APPEAL IN ITA NO.1488/PUN/2013. 6. BEFORE US, BOTH THE PARTIES SUBMITTED THAT FIRST TWO G ROUNDS OF ASSESSEES APPEAL ARE INTER-CONNECTED TO THE GROUN DS 1 AND 2 OF REVENUES APPEAL AND ARE THEREFORE CONSIDERED TOGETHER. 7. AO NOTICED THAT THE ASSESSEE WAS TRADER IN STEEL TU BES AND PIPES. HE NOTICED THAT THE AUDITOR IN THE TAX AUDIT REP ORT HAS MADE A COMMENT THAT SINCE THE NUMBER OF ITEMS BEING DEA LT WITH BY THE ASSESSEE ARE NUMEROUS, STOCK RECORDS WERE NOT MAINTAINED BY THE ASSESSEE. AO THEREFORE CONCLUDED THAT ASSESSEE HAS NOT MAINTAINED STOCK REGISTER AND THEREFORE THE TRUE AND CO RRECT STATE OF AFFAIRS OF BUSINESS CANNOT BE ASCERTAINED. THE ASSESSEE WAS ASKED TO EXPLAIN AS TO HOW THE CLOSING STOCK WAS VALUED IN THE 4 ABSENCE OF STOCK REGISTER. THE AO ASKED THE ASSESSEE TO FURNISH MONTH-WISE STOCK REGISTER WHICH THE ASSESSEE FAILED TO SU BMIT. THE ASSESSEE WAS THEREAFTER ASKED BY AO TO DEMONSTRATE W ITH DOCUMENTARY EVIDENCES THAT WHATEVER IS CLAIMED AS PURCH ASES AND OPENING STOCK IS EITHER APPEARING AS SALES OR CLOSING STO CK. AO NOTED THAT ASSESSEE DID NOT SATISFACTORILY EXPLAINED THE REQUIRED DETAILS. THEREAFTER AO AFTER VERIFYING THE DETAILS ON SA MPLE BASIS, CONCLUDED THAT SINCE THE ASSESSEE WAS NOT MAINTAINING T HE STOCK RECORDS, THE ACCOUNTS WERE NOT CORRECT AND COMPLETE. HE THEREFORE REJECTED THE BOOKS OF ACCOUNTS U/S 145(3) OF THE ACT. AO THEREAFTER NOTICED THAT ON THE GROSS TURNOVER OF RS.42.35 CRORES, A SSESSEE HAD DISCLOSED GROSS PROFIT OF RS.3.17 CRORE, WHICH WORKED OUT T O 7.5%. HE ALSO NOTED THAT IN A.Y. 2006-07 THE GROSS PROFIT DISCLOS ED BY THE ASSESSEE WAS 9.46%, IN A.Y. 2007-08 THE GROSS PROFIT WAS DISCLOSED AT 8.29% AND IN 2008-09 THE GROSS PROFIT WAS DISCLOSED AT 7.50%. HE THUS OBSERVED THAT THE GROSS PROFIT DISCLOSED BY TH E ASSESSEE IN THE YEAR UNDER CONSIDERATION WAS LESS AS COMPARED TO P RECEDING YEARS. AO NOTED THAT TURNOVER OF MEDIUM SIZE PRODUCT S CONTRIBUTED MAXIMUM TO THE TURNOVER OF ASSESSEE. HE THEREAFTER WORKED OUT THE GROSS PROFIT, FROM THE PRODUCTS WHICH CON TRIBUTED MAXIMUM TURNOVER TO THE ASSESSEE, AND AFTER TAKING AVER AGE OF GROSS PROFIT OF SUCH ITEMS SOLD, WORKED OUT THE AVERAGE G ROSS PROFIT PERCENTAGE AT 12.22% AND ACCORDINGLY ESTIMATED THE GRO SS PROFIT OF ASSESSEE AT 12% AS AGAINST TO 7.5% DISCLOSED BY THE AS SESSEE AND THUS MADE AN ADDITION OF RS.1.91,00,000/-. AGGRIEVED BY THE ORDER OF AO, ASSESSEE CARRIED THE MATTER BEFORE LD. CIT(A), WHO G RANTED PARTIAL RELIEF TO THE ASSESSEE BY OBSERVING AS UNDER :- 2.3 THE ARGUMENTS ADVANCED BY THE LD. COUNSEL FOR THE APPELLANT ARE CAREFULLY EXAMINED WITH REFERENCE TO THE FACTS OF THE CASE AND THE MATERIAL AVAILABLE ON RECORD. THE APPELLANT IS 5 AN INDIVIDUAL CARRYING ON BUSINESS OF PURCHASE AND SALE OF STEEL TUBES ON WHOLESALE BASIS. THE APPELLANT DISCL OSED GROSS PROFIT OF RS.3.17 CRORES ON A TURNOVER OF RS. 42.35 CRORES DURING THE YEAR, WHICH WORKS PUT TO GROSS PROFIT RATIO OF 7.50%. THE ASSESSING OFFICER WAS OF THE VIEW TH AT THE GROSS PROFIT SO DECLARED BY THE APPELLANT WAS VERY LOW AS COMPARED TO THE GROSS PROFIT OF 8.29% DECLARED IN THE IMMEDIATELY P RECEDING YEAR AND CONSEQUENTLY ADOPTED THE GROSS PROFIT PERC ENTAGE AT 12% ON THE TURNOVER CITING VARIOUS REASONS AND AFTE R REJECTING THE BOOK RESULTS UNDER SEC. 145(3). THE DIFFERENTIA L AMOUNT OF RS.1.91 CRORES IN THE GROSS PROFIT WAS ADDED TO THE TOTAL INCOME OF THE APPELLANT. PER CONTRA, THE CONTENTION OF THE APPELLANT IS THAT THE INFERENCES DRAWN BY THE ASSES SING OFFICER IN THE ASSESSMENT ORDER ABOUT CORRECTNESS AND COMPL ETENESS OF THE BOOKS OF ACCOUNT ARE AGAINST THE LEGAL PRINC IPLES AND THEREFORE, THE REJECTION OF BOOKS OF ACCOUNTS BY IN VOKING SEE 145(3) OF THE INCOME TAX ACT, 1961 IS UNWARRANTED A ND UNJUSTIFIED AND THE ESTIMATION OF PROFITS AT 12% OF THE TURNOVER WAS MADE WITH A PRE-DETERMINED MIND. THE CONTENTION S RAISED BY THE LD.COUNSEL FOR THE APPELLANT ARE EXAMINED AN D DEALT WITH AS UNDER: A) WHETHER ASSESSING OFFICER IS JUSTIFIED IN REJECT ING THE BOOKS RESULTS AND ESTIMATING GROSS PROFIT: 2.3.1 THE FIRST CONTENTION RAISED BY THE APPELLANT IS THAT THE ASSESSING OFFICER IS NOT JUSTIFIED IN REJECTING BOO K RESULTS UNDER SEC.145(3) OF THE I T ACT. THE SUBMISSION OF THE A PPELLANT IS THAT THE BOOKS OF ACCOUNT FOR THE YEAR UNDER CONSIDERATION W ERE DULY MAINTAINED IN THE REGULAR COURSE OF ITS BUSINESS AN D THE SAME WERE ALSO SUBJECTED TO AUDIT U/S.44AB OF THE I T. ACT AN D THE AUDIT REPORT WAS SUBMITTED ALONG WITH THE RETURN OF INCOME AND T HE BOOK RESULTS CANNOT BE DISTURBED WITHOUT POINTING OUT ANY SPECI FIC DEFECTS IN THE AUDITED BOOKS OF ACCOUNT. THIS CONTENTION OF THE AP PELLANT IS NOT WELL FOUNDED. IN THE CASE OF THE APPELLANT, DURING THE A SSESSMENT PROCEEDINGS, IT WAS FOUND THAT THE APPELLANT HAS NO T MAINTAINED DAY-TODAY STOCK REGISTER OR STOCK RECORDS ON THE GR OUND THAT THE ITEMS BEING DEALT WITH BY THE APPELLANT ARE NUMEROU S. NON- MAINTENANCE OF DAY-TODAY STOCK REGISTER WAS ALSO RE PORTED IN THE TAX AUDIT REPORT. IN THE ABSENCE OF ITEM-WISE STOCK REGISTER, THE ASSESSING OFFICER HAS CARRIED OUT THE VERIFICATION OF BOOKS OF ACCOUNT PRODUCED FOR THE YEAR IN ORDER TO ASCERTAIN WHETHER ENTIRE OPENING STOCK AND PURCHASES MADE DURING THE YEAR ARE REFLEC TED EITHER AS SALES OR CLOSING STOCK. ON SUCH VERIFICATION, THE A SSESSING OFFICER NOTED CERTAIN DISCREPANCIES IN THE PROFITS DECLARED AND THE CLOSING STOCK SHOWN BY THE APPELLANT AS HIGHLIGHTED AT PAGE 5 AND 6 OF THE ASSESSMENT ORDER. FOR INSTANCE, THERE WAS SHORT DIS CLOSURE OF STOCK OF 25X40 MM SIZE TO THE EXTENT OF 166/988.98 METERS WHEN THE STOCK WORKED OUT AS PER PURCHASE INVOICE AND SALE B ILLS IS COMPARED WITH THE STOCK DISCLOSED IN THE RETURN OF INCOME. F URTHER, ON COMPARATIVE ANALYSIS OF PURCHASES MADE FROM SISTER CONCERNS, M/S GAJANAN TUBES AND M/S VINAYAK STEELS WITH PURCHASES MADE FROM THIRD PARTIES, IT WAS FOUND THAT THE APPELLANT PAID HIGHER PRICE TO SISTER CONCERNS THAN THE PRICE PAID TO OTHERS FOR T HE SAME TYPE OF MATERIAL. IN SUCH CIRCUMSTANCES, MERELY BECAUSE THE BOOKS OF ACCOUNTS WERE SUBJECTED TO AUDIT, IT CANNOT BE SAID THAT THE VALUE OF THE CLOSING STOCK OR GROSS PROFIT DECLARED BY THE A PPELLANT IS SACROSANCT AND SHOULD BE ACCEPTED BY THE ASSESSING OFFICER WITHOUT BATTING AN EYELID. AT THIS JUNCTURE, IT MAY BE RELE VANT TO REFER TO THE DECISION OF HON'BLE MUMBAI HIGH COURT IN THE CASE O F NATIONAL PLASTIC INDUSTRIES REPORTED IN 309 ITR 191, WHEREIN THE JURISDICTIONAL HIGH COURT OBSERVED AS UNDER: 6 IT IS RELEVANT TO REFER TO DHONDIRAM DALICHAND V. CLT [1971] 81 ITR 609 (BOM.) WHERE THE DIVISION BENCH OF THIS COURT ASSESSING FACTS OF THE CASE CONCLUDED THAT ABSENCE OF QUALITATIVE TALLY ABOUT STOCKS OF PURCHASE AND SALE WERE SUFFICIENT MATERIAL TO ENABLE THE DEPARTMENT TO PRO CEED TO ASSESS THE PROFITS OF THE ASSESSEE. THE COURT OBSER VED THAT INCOME-TAX OFFICER NEED NOT MAKE EXPLICIT STATEMENT SHOWING THAT METHOD OF ACCOUNTING EMPLOYED BY ASSESSEE IS S UCH THAT PROFITS MADE CANNOT BE PROPERLY DEDUCED THERE FROM. IT IS SUFFICIENT IF HIS ORDER HAS THE EFFECT OF IMPLIEDLY RECORDING SUCH A FINDING. THESE OBSERVATIONS ARE RELEVANT IN VIEW OF THE FINDING OF THE ASSESSING OFFICER THAT IN ABSENCE OF STOCK REGISTER AS ALSO THE QUANTITATIVE DETAILS OF THE ST OCK OF FINISHED GOODS IT WAS NOT POSSIBLE TO VERIFY CORRECTNESS OF STOCK SHOWN BY THE ASSESSEE. 2.3.1.1 IT MAY ALSO BE APPROPRIATE TO REFER TO THE DECISION OF ITAT, PUNE IN THE CASE OF HONEYWELL AUTOMATION INDIA LTD. ITA NOS. 401& 402 (PUNE) OF 2007 DATED 7TH SEP, 2011, WHEREIN IT IS O BSERVED AS UNDER: SECTION 145 HAS FOLLOWING INGREDIENTS, NAMELY: ASSE SSING OFFICER BEING NOT SATISFIED ABOUT THE CORRECTNESS OR COMPLETENESS OF THE ACCOUNTS OF THE ASSESSEE OR ASS ESSEE'S FAILURE TO FOLLOW REGULARLY THE METHOD OF ACCOUNTING/ACCOUNTING STANDARDS; AND MAKING OF AN ASSESSMENT IN THE MANNER PROVIDED IN SECTION 145 TH E EXPRESSIONS THE 'CORRECTNESS' AND 'COMPLETENESS' OF ACCOUNTS ARE UNDEFINED HERE. THE 'COMPLETENESS' OF ACCOU NTS, NOT ONLY REFERS TO THE LIST OF THE BOOKS OF ACCOUNT TO BE MAINTAINED BY THE ASSESSEE AS PER THE STATUE BUT AL SO TO ALL THE ACCOUNTING ENTRIES FOR ALL THE TRANSACTION DONE DURING THE PREVIOUS YEAR. IN OTHER WORDS, THE FAILURE OF THE A SSESSEE TO MAINTAIN RELEVANT REGISTERS OR ANY OTHER BOOKS DESC RIBED IN THE LIST WITH ALL THE TRANSACTIONS PROPERLY RECORDE D IN ACCORDANCE WITH THE SET PRINCIPLES OF ACCOUNTING MA KES THE ACCOUNTS OF THE ASSESSEE INCOMPLETE. REGARDING THE 'CORRECTNESS' OF THE ACCOUNTS, IT REFERS TO THE QUA LITY OR ACCURACY OR RELIABILITY OF THE ACCOUNTS MAINTAINED BY THE ASSESSEE AND IT COVERS THE RECONCILABLE MISTAKES OR ERRORS IN ACCOUNTS. THUS THE COMPLETENESS REFERS TO LIST OF B OOKS OF ACCOUNT AND ENTRIES THEREIN AND THE ACCURACY REFERS TO THE QUALITY/ ACCURACY/ RELIABILITY OF THE ACCOUNTS OF T HE ASSESSEE. IN THE CASE OF THE APPELLANT ALSO, ABSENCE OF QUALI TATIVE OR ITEM-WISE TALLY ABOUT STOCK OF PURCHASES, SALES AND THE CLOSI NG INVENTORY WOULD RENDER [THE BOOKS OF ACCOUNT OF THE APPELLANT INCOMPLETE AND THE SAME WOULD NOT REFLECT TRUE AND CORRECT STATE O F BUSINESS AFFAIRS OF THE APPELLANT. THE CLAIM OF THE APPELLANT THAT P ARTY WISE REGISTER MAINTAINED BY THE APPELLANT SERVES THE PURPOSE OF S TOCK REGISTER CANNOT BE ACCEPTED AS SUCH REGISTER DOES NOT PROVID E THE DETAILS OF INVENTORY IN TERMS OF QUANTITY AND QUALITY ON A PAR TICULAR DATE A:ND THE VALUE THEREOF. AS POINTED OUT BY THE ASSESSING OFFICER, MAINTENANCE OF ITEM-WISE STOCK REGISTER IS OF PARAM OUNT IMPORTANCE IN THE LINE OF BUSINESS OF THE APPELLANT. THE APPEL LANT IS ALSO NOT ABLE TO CORRELATE ITEM-WISE PURCHASES WITH SALES IN TERMS OF, QUANTITY AND QUALITY. IN THIS BACKGROUND, WHEN THER E WAS A FALL IN THE GROSS PROFIT IN THIS YEAR AS COMPARED TO GROSS PROFIT IN THE EARLIER YEARS, THE APPELLANT HAS TO JUSTIFY THE DECLINE IN THE GROSS PROFIT WITH CREDIBLE EVIDENCE AND! EXPLANATION. BUT, THE APPELL ANT FAILED TO EXPLAIN SATISFACTORILY THE FALL IN GROSS PROFIT IN THIS YEAR. IN SUCH CIRCUMSTANCES, THE OBSERVATION OF THE ASSESSING OFF ICER THAT THE 7 BUSINESS MODEL FOLLOWED BY THE APPELLANT ALLOWS AMP LE SCOPE TO THE APPELLANT TO UNDERSTATE THE PROFITS AND GAINS CANNO T BE SAID TO BE WITHOUT ANY BASIS. THUS, THE: AO IS JUSTIFIED IN CO MING TO THE CONCLUSION THAT THE BOOKS OF ACCOUNT MAINTAINED BY THE APPELLANT FOR THE YEAR ARE INCOMPLETE AND REJECTING THE BOOK RESU LTS AS PER THE PROVISIONS OF SECTION 145(3). 2.3.1.2. ONE OF THE GRIEVANCES OF THE APPELLANT IN THE PRESENT PROCEEDINGS IS THAT THE ASSESSING OFFICER, BEFORE R ESORTING TO HIGH PITCHED ASSESSMENT, HAS NOT GRANTED ADEQUATE OPPORT UNITY OF HEARING TO THE APPELLANT AND THERBY VIOLATED THE PR INCIPLES OF NATURAL JUSTICE. THE GRIEVANCE IS ALSO NOT WELL FOUNDED. DURING THE ASSESSMENT PROCEEDINGS, DETAILED SHOW CAUSE NOTICES WERE ISSUED ON VARIOUS FINDINGS OF THE ASSESSING OFFICER AND IN COMPLIANCE TO THE LETTERS AND SHOW CAUSE NOTICE, THE APPELLANT FURNIS HED ELABORATE SUBMISSIONS BEFORE THE ASSESSING OFFICER, WHICH WER E DULY CONSIDERED AND DEALT WITH BY THE ASSESSING OFFICER BEFORE FINALIZING THE ASSESSMENT FOR THIS YEAR. THEREFORE, IT IS NOT CORRECT TO ALLEGE THAT ADEQUATE OPPORTUNITY OF BEING HEARD WAS NOT GI VEN TO THE APPELLANT AT THE TIME OF ASSESSMENT PROCEEDINGS AND THE ASSESSMENT WAS FINALIZED WITH A PREDETERMINED MIND AND APPROACH. 2.3.1.3 TURNING TO THE AUTHORITIES RELIED UPON BY T HE APPELLANT, THE DECISION WERE RENDERED ON THE PRINCIPLE THAT IN THE ABSENCE OF ANY MATERIAL POINTING TOWARDS FALSEHOOD OR INACCURACY O F THE BOOKS OF ACCOUNTS AND NO PARTICULAR DEFECT OR DISCREPANCY BE ING POINTED IN THE BOOKS OF ACCOUNTS, BOOKS OF ACCOUNTS CANNOT BE REJECTED BY INVOKING SEC. 145(3). IN THE INSTANT .CASE, AS ALRE ADY MENTIONED, THE ASSESSING OFFICER CARRIED OUT DETAILED ANALYSIS OF PURCHASES AND SALES OF DIFFERENT ITEMS DEALT IN BY THE APPELLANT DURING THE YEAR AND ALSO THE TRANSACTIONS ENTERED INTO WITH SISTER CONC ERN AND FOUND THAT' THERE WAS TRANSFER OF PROFIT TO AN ASSOCIATE CONCERN AND THERE WAS SHORT DISCLOSURE IN CERTAIN ITEMS OF STOCK. THU S, THERE WAS JUSTIFICATION FOR REJECTING ITS BOOK RESULTS BY INV OKING PROVISIONS OF SECTION 145(3). THUS, THE AUTHORITIES RELIED UPON BY THE LEARNED COUNSEL FOR THE APPELLANT HAVE TURNED ON ITS OWN FA CTS AND THEY DO NOT ASSIST THE APPELLANT IN ANY MANNER BECAUSE THE CIRCUMSTANCES OF THE PRESENT CASE ARE TOTALLY DIFFERENT. 2.3.1.4 IN VIEW OF THE ABOVE DISCUSSION, I AM OF TH E CONSIDERED VIEW THAT THE ASSESSING OFFICER IS JUSTIFIED IN PRINCIPL E IN REJECTING THE BOOK RESULTS UNDER SEC. 145(3) AND ESTIMATING THE G ROSS PROFIT ON THE DECLARED TURNOVER OF THE APPELLANT AND THERE IS NO FLAW IN THE APPROACH OF THE ASSESSING OFFICER IN THIS REGARD. B) QUANTUM OF ESTIMATION OF GROSS PROFI T : 2.3.2 HAVING HELD THAT REJECTION OF BOOK RESULTS OF GROSS PROFIT BY THE A.O. UNDER SEC. 145(3) IS JUSTIFIED IN PRINCIPLE, T HE NEXT ISSUE THAT CROPS UP IS THAT WHETHER THE ESTIMATION OF PROFITS MADE BY THE ASSESSING OFFICER AT AVERAGE GROSS PROFIT RATIO OF 12% ON THE TURNOVER IS REASONABLE HAVING REGARD TO THE NATURE BUSINESS BEING CARRIED ON BY THE APPELLANT AND THE PROFIT RATIOS BEING DECLAR ED BY THE APPELLANT IN THE EARLIER YEARS. THE ASSESSING OFFIC ER WORKED OUT THE GROSS PROFIT AFTER TAKING INTO CONSIDERATION PURCHA SES AND SALES IN MEDIUM SIZE PRODUCTS, WHICH CONSTITUTE ABOUT 50% OF THE TURNOVER SHOWN DURING IN THE YEAR. ON THE OTHER HAND, THE CA SE OF THE APPELLANT IS THAT GROSS PROFIT OF 7.50% SHOWN BY, T HE APPELLANT IS QUITE REASONABLE AND IT IS COMPARABLE WITH GROSS PR OFIT BEING DECLARED IN EARLIER YEARS AND THERE WAS ONLY MARGIN AL VARIATION IN THIS YEAR. BUT, EVEN DURING THE APPELLATE PROCEEDI NGS, THE APPELLANT 8 HAS NOT IMPROVED ITS CASE AND FAILED TO OFFER ANY P LAUSIBLE JUSTIFICATION OR CONVINCING EXPLANATION WITH RELIAB LE DATA FOR DECLINE IN GROSS PROFIT IN THIS YEAR AS COMPARED TO GROSS P ROFIT OF LAST TWO YEARS. THE OTHER ARGUMENT OF THE APPELLANT IN THE P RESENT PROCEEDINGS IS THAT THE ADDITION MADE BY A. O. OF R S.1.91 CRORES MUST REFLECT IN REAL WEALTH OF THE ASSESSEE. THIS A RGUMENT HAS ABSOLUTELY NO MERIT. THIS IS NOT A CASE WHERE AN AC TION U/S.132 WAS TAKEN UNDER THE LT. ACT TO SAY THAT UNDISCLOSED INC OME DETECTED DURING THE SEARCH MUST REFLECT IN CERTAIN MATCHING UNDISCLOSED ASSETS OR EXPENDITURE. THE GROSS PROFIT IN THE CASE OF THE PRESENT APPELLANT WAS ESTIMATED DURING SCRUTINY ASSESSMENT PROCEEDINGS AS THE ASSESSING OFFICER WAS NOT SATISFIED WITH THE CO RRECTNESS AND COMPLETENESS' OF BOOKS OF ACCOUNT AND ON THE BASIS OF WELL REASONED ANALYSIS OF PROFITS SHOWN BY THE APPELLANT IN VARIO US ITEMS OF STOCK. IN SUCH CASES WHERE ONLY NORMAL SCRUTINY ASSESSMENT IS DONE UNDER SEC. 143(2), IT IS NOT CORRECT TO SAY THAT ALL THE ADDITIONS MADE IN THE ASSESSMENT ORDER MUST BE REFLECTED IN SOME FORM OF TANGIBLE MATCHING ASSETS OR INCREASE IN THE WEALTH. IN THESE CIRCUMSTANCES, THE JUDICIAL PRECEDENTS RELIED UPON BY THE APPELLAN T, WHICH WERE RENDERED IN THE CONTEXT OF SEC.69, 69A, 69B ETC. AR E OF NO RELEVANCE WHEN THE ISSUE INVOLVED IN THE PRESENT CASE IS ESTI MATION OF GROSS PROFIT IN NORMAL SCRUTINY ASSESSMENT PROCEEDINGS. T HE GROSS PROFIT DECLARED BY THE APPELLANT FOR THE LAST THREE YEARS INCLUDING THE YEAR UNDER CONSIDERATION IS AS FOLLOWS:- ASST. YEAR G.P PERCENTAGE 2006-07 9.46% 2007-08 8.29% 2008-09 7.50% THE GROSS PROFIT SHOWN BY THE APPELLANT IS DEFINITE LY LOWER WHEN COMPARED TO THE GP DECLARED IN THE EARLIER YEARS. T HE ASSESSING. OFFICER HAS ARRIVED AT THE AVERAGE G.P. RATE OF 12. 22% BY CONSIDERING THE 50% OF THE TURNOVER CONSISTING OF M EDIUM VARIETY ITEMS. WHILE DOING SO, THE ASSESSING OFFICER IGNORE D THE REMAINING 50% OF THE TURNOVER OF ABOUT 21 CRORES WHICH ACCORD ING TO THE APPELLANT YIELDED LOWER MARGIN OF PROFIT THAN 12.22 %. THE APPELLANT ALSO ARGUED THAT THE GP % OF 12.22% HAS BEEN ARRIVE D AT BY TAKING INTO CONSIDERATION ONLY THE RATES OF SALES AND PURC HASES EXCLUDING DIRECT EXPENSES ON PURCHASES I.E. FREIGHT INWARDS, LABOR, MATERIAL HANDLING, OCTROI, UNLOADING/LOADING MATERIAL PROCES SING WHICH ACCOUNT FOR TOTAL OF RS. 56,03,945/-. KEEPING IN MI ND THE GROSS PROFIT DECLARED IN THE EARLIER YEARS, COMPUTATION OF GP PE RCENTAGE BY THE ASSESSING OFFICER WITH REFERENCE TO PURCHASES AND S ALES OF MEDIUM SIZE PRODUCTS, WHICH CONSTITUTES 50% OF THE TURNOVE R ONLY AND CONSIDERING THE ENTIRE CONSPECTUS OF THE FACTS AND CIRCUMSTANCES OF THE CASE, I AM OF THE CONSIDERED OPINION, IT WOULD BE FAIR AND REASONABLE IF THE G.P RATE IS ADOPTED AT 9.46% OF T HE TURNOVER FOR THE YEAR UNDER APPEAL, WHICH IS THE HIGHEST GP DECLARED IN THE LAST THREE YEARS, AND THE PROFITS ARE ESTIMATED. THE GR OSS PROFIT AT THE RATE OF 9.46% ON A TURNOVER OF RS.42.35 CRORES COM ES TO RS.4,00,63,100/- AS AGAINST RS.3,17,00,000/- DISCLO SED BY THE APPELLANT. ACCORDINGLY, THE ADDITION MADE BY THE AS SESSING OFFICER ON THIS GROUND IS UPHELD TO THE EXTENT OF RS.83,63, 100/- AS AGAINST RS.1,91,00,000/- MADE BY THE ASSESSING OFFICER AND THE APPELLANT GETS CONSEQUENTIAL RELIEF OF RS. 1,07,36,900/- (RS. 1,91,00,000 - 83,63,100). 9 AGGRIEVED BY THE ORDER OF LD. CIT(A) ON THIS ISSUE, ASSESSE E AS WELL AS REVENUE ARE IN APPEAL BEFORE US. 8. BEFORE US, LD.A.R. REITERATED THE SUBMISSIONS MADE BEFORE AO AND LD. CIT(A) AND FURTHER SUBMITTED THAT ASSESSEE HA S BEEN CONSISTENTLY FOLLOWING THE SAME METHOD OF ACCOUNTING IN THE YEAR UNDER CONSIDERATION AND IN EARLIER YEARS AND THAT IN EARLIE R YEARS THERE WAS NO REJECTION OF BOOKS OF ACCOUNTS AND IN SUP PORT OF HIS CONTENTION, HE POINTED TO THE EARLIER ORDERS FRAMED U/S 1 43(3) OF THE ACT FOR A.YS. 2009-10, 2010-11 AND 2011-12. HE FUR THER SUBMITTED THAT ASSESSEE WAS MAINTAINING DETAILS OF SALES A ND PURCHASES AND THEREFORE THE BOOKS OF ACCOUNTS COULD NO T BE REJECTED U/S 145(3) OF THE ACT AND THEREFORE THE ESTIMA TION MADE BY THE AO AND UPHELD BY LD. CIT(A) BE SET ASIDE. LD.D.R. ON T HE OTHER HAND POINTED OUT TO THE VARIOUS FINDINGS OF AO AND SUBMITT ED THAT ASSESSEE DID NOT PRODUCE THE NECESSARY DETAILS AND IN T HE ABSENCE OF DETAILS, THE AO WAS FULLY JUSTIFIABLE IN MAKING THE ESTIMATIO N AND THAT LD.CIT(A) SHOULD HAVE UPHELD THE ORDER OF AO. HE FURTHER SUBMITTED THAT LD.CIT(A) HAD THEREFORE ERRED IN GRANTING R ELIEF TO THE ASSESSEE. HE THUS, SUPPORTED THE ORDER OF AO. 9. WE HAVE HEARD THE RIVAL SUBMISSIONS AND PERUSED THE MATERIAL ON RECORD. THE ISSUE IN THE PRESENT CASE IS WITH RESPECT TO THE REJECTION OF BOOKS AND ESTIMATION OF INCOME. 10. WE FIND THAT LD. CIT(A) WHILE UPHOLDING THE REJECTION OF BO OKS OF ACCOUNTS HAD GIVEN A FINDING THAT DURING THE ASSESSMEN T PROCEEDINGS, IT WAS FOUND THAT ASSESSEE HAD NOT MAINTAINE D DAY-TO- DAY STOCK REGISTER OR STOCK RECORDS AND THE AFORESAID FACT WAS ALSO 10 REPORTED BY THE AUDITOR IN TAX AUDIT REPORT. HE HAS FUR THER NOTED THAT IN THE ABSENCE OF ITEM-WISE STOCK REGISTER, AO CARRIE D OUT THE VERIFICATION OF BOOKS OF ACCOUNTS TO ASCERTAIN AS TO WHETH ER THE ENTIRE OPENING AND STOCK OF PURCHASES MADE DURING THE Y EAR WERE EITHER REFLECTED IN THE STOCK REGISTER AND ON SUCH VER IFICATION AO HAD NOTED CERTAIN DISCREPANCIES IN THE PROFITS DECLARED AN D THE CLOSING STOCK SHOWN BY THE ASSESSEE. IT WAS FURTHER NO TED THAT ON THE PURCHASES MADE FROM THE SISTER CONCERN, ASSESSEE H AD PAID HIGHER PRICE THAN SAME PRICE PAID FOR PURCHASES FROM THE THIRD PARTIES. HE ALSO NOTED THAT ASSESSEE WAS NOT ABLE TO GIVE COMPLETE ITEM WISE PURCHASES WITH SALES IN TERMS OF QUANTITY AND QU ALITY AND THAT ASSESSEE COULD NOT JUSTIFY THE FALL IN GROSS PRO FIT AS COMPARED TO THE GROSS PROFIT IN EARLIER YEARS. 11. BEFORE US, LD.A.R. SUBMITTED THAT ASSESSEE HAS BEEN FOLLOWING THE SIMILAR METHOD OF ACCOUNTING IN SUBSEQUENT YEARS AND IN SUBSEQUENT YEARS NO REJECTION OF BOOKS OF ACCOUNTS HAVE TAKEN PLACE. ON PERUSAL OF THE ASSESSMENT ORDERS OF SUBSEQUE NT YEARS AND THAT OF THE YEAR UNDER CONSIDERATION, WE FIND THAT IN THE YEAR UNDER CONSIDERATION AO IN THE ASSESSMENT ORDERS HAS NO TED ABOUT THE REMARK OF NOT MAINTAINING OF STOCK RECORDS BUT THER E IS NO REFERENCE ABOUT THE QUALIFICATION OF AUDITOR REMARKS IN THOS E ASSESSMENT ORDERS BY THE AO. THE ASSESSEE HAS NOT PLACED THE COPY OF THE TAX AUDIT REPORTS FOR SUBSEQUENT YEARS ON RECORD TO DEMONSTRATE THAT EVEN IN SUBSEQUENT YEARS THE ASSESS EE WAS NOT MAINTAINING STOCK RECORDS AND DESPITE NON-MAINTENANCE OF STOCK RECORDS, THE BOOKS OF ACCOUNTS WERE NOT REJECTED BY T HE AO. IN SUCH CIRCUMSTANCES, WE ARE OF THE VIEW THAT THE LD. CIT(A ) WAS FULLY JUSTIFIED IN UPHOLDING THE REJECTION OF BOOKS OF ACCOUNTS U/ S 145(3) 11 OF THE ACT. AS FAR AS THE ESTIMATING OF GROSS PROFIT IS CON CERNED, WE FIND THAT AO HAD ARRIVED AT AVERAGE GROSS PROFIT RATIO AT 12.22% BY CONSIDERING 50% OF ITEMS OF TURNOVER WHICH CONTRIBUTED MAX IMUM TO TURNOVER AND HAD IGNORED REMAINING 50% OF THE TURNO VER WHICH AGGREGATELY HAD YIELDED LOWER MARGIN OF PROFIT TO THE ASS ESSEE. WE FIND THAT LD. CIT(A) AFTER CONSIDERING THE RELEVANT FACTS AN D AFTER TAKING INTO CONSIDERATION THE OTHER EXPENSES HAD DIRECTE D THE ADOPTION OF GROSS PROFIT RATIO AT 9.96%. BEFORE US, NO MATE RIAL HAS BEEN PLACED ON RECORD BY EITHER OF THE PARTIES TO POINT OUT ANY FALLACY IN THE FINDINGS OF LD. CIT(A) AND IN SUCH A SITUATION, WE FIND NO REASON TO INTERFERE WITH THE ORDER OF LD.CIT(A) AND THUS, THE GROUNDS 1 AND 2 OF THE ASSESSEE AND REVENUE ARE DIS MISSED. 12. WE NOW TAKE UP REMAINING GROUNDS IN ASSESSEES APPE AL IN ITA NO.1491/PN/013. 12.1 GROUNDS 3 AND 4 ARE WITH RESPECT TO THE ADDITION O F ACCOUNT OF COMMISSION. 12.2 AO NOTICED THAT ASSESSEE HAD CLAIMED EXPENDITURE O F RS.61,23,552/- UNDER THE HEAD OF COMMISSION OF SALES. ON PERUSING THE DETAILS, HE NOTICED THAT ASSESSEE HAD CLAIME D PAYMENT OF COMMISSION TO SRI SUNDEEP D. GHOLAP PURPORTEDLY TO FAC ILITATE SALES TO GAJANAN TUBES, WHICH IS A RELATED CONCERN OF THE ASSESSEE . HE ALSO NOTED THAT THE NET PROFIT PERCENTAGE DISCLOSED B Y THE ASSESSEE AT 2.66% WAS LOWER THAN THE NET PROFIT PERCENT AGE DECLARED BY THE ASSESSEE IN EARLIER YEARS. THE ASSESSEE WAS THEREFORE ASKED TO JUSTIFY THE PAYMENT OF COMMISSION. AO ON THE BASIS OF INFORMATION COLLECTED U/S 133(6) OF THE ACT FROM PURCHASERS LIKE VOLTAS, BLUESTAR, KIRLOSKAR CHILLERS PVT LTD., E TC. 12 NOTED THAT THE PURCHASERS HAVE CONFIRMED THAT PURCHAS E ORDERS WERE NOT PLACED THROUGH BROKERS. AO ALSO OBSERVED VAR IOUS INSTANCES WHERE THE SALES WERE RECORDED IN THE NORMAL COURSE WITHOUT ANY INVOLVEMENT OF BROKERS. HE THEREFORE HELD TH AT THE PAYMENT OF COMMISSION WAS NOT WHOLLY AND EXCLUSIVELY FOR THE PURPOSE OF BUSINESS AND ACCORDINGLY DISALLOWED THE SAME. AGGRIEVED BY THE ORDER OF AO, ASSESSEE CARRIED THE MATT ER BEFORE LD. CIT(A) WHO UPHELD THE ORDER OF AO BY HOLDING AS UNDER : 3.3 THE SUBMISSIONS MADE BY THE LEARNED COUNSEL FO R THE APPELLANT ARE CAREFULLY EXAMINED WITH REFERECE TO THE FACTS O F THE CASE AND THE MATERIAL PLACED ON RECORD. UNDER SEC.145(3), IT IS PROVIDED THAT WHERE THE AO IS NOT SATISFIED ABOUT THE CORRECTNESS OR COMPLETENESS OF THE ACCOUNTS OF THE APPELLANT; HE MAY MAKE ASSESS MENT IN THE MANNER PROVIDED IN SEC.144. THE BOOKS OF A/C MAY N OT BE DISREGARDED ALTOGETHER AND THE ASSESSMENT MAY BE AD JUSTED TO CURE THE EXTENT OF THE INFIRMITY FOUND SO AS TO MAKE IT A BEST JUDGMENT ASSESSMENT. IN VIEW OF THIS LEGAL POSITION, ESTIMA TION OF GROSS PROFIT WOULD IN NO WAY IMPACT THE NET PROFIT AND THE ASSES SING OFFICER, AFTER ESTIMATION OF GROSS PROFIT, CAN EXAMINE THE C LAIM OF INDIRECT EXPENSES TO ASCERTAIN WHETHER THE EXPENDITURE CLAIM ED IS GENUINE AND IF GENUINE WHETHER INCURRED FOR THE PURPOSE OF THE BUSINESS. IT IS TRITE LAW THAT WHEN AN ASSESSEE CLAIMED PARTICUL AR EXPENDITURE AS DEDUCTION FROM TAXABLE PROFITS, THE ONUS OF PROVING THE GENUINENESS OF THE EXPENDITURE AS DEDUCTION FROM TAXABLE PROFIT S, THE ONUS OF PROVING THE GENUINENESS OF THE EXPENDITURE AND IT H AS BEEN LAID OUT WHOLLY AND EXLUSIVELY FOR THE PURPOSE OF THE BUSINE SS IS ON THE ASSESSEE. FURTHER, MERE PAYMENT BY ITSELF WOULD NO T ENTITLE THE ASSESSEE TO DEDUCTION OF THE SAID EXPENDITURE UNLES S THE SAME WAS PROVED TO BE PAID FOR COMMERCIAL CONSIDERATION. IT CANNOT BE SAID THAT EVEN IF THE TAXPAYER DOES NOT PRODUCE ANY EVID ENCE IN SUPPORT OF THE CLAIM FOR DEDUCTION, THE ASSESSING OFFICER H IMSELF INDEPENDENTLY IS TO COLLECT EVIDENCE AND DECIDE THA T THE DEDUCTION CLAIMED IS ALLOWABLE HAVING REGARD TO THE LEGITIMAT E BUSINESS NEEDS OF THE ASSESSEE. IF THE ASSESSEE FAILS TO PLACE SU FFICIENT MATERIALS, HE IS NOT ENTITLED TO CLAIM ALLOWANCE UNDER SECTION 37(1). IN CIT VS. CHANDRAVILAS HOTEL [1987] 164 ITR 102 [GUJ], IT IS HELD THAT IF THE EXPENDITURE IS DOUBTED BY THE ASSESSING AUTHORITY, IT IS THE DUTY OF THE ASSESSEE TO PROVE BY LEADING EVIDENCE THAT THE EXPENDITURE WAS IN FACT, INCURRED. THE SAME PRINCIPLE APPLIES EVEN TO COMMISSION PAYMENTS AND THE ASSESSEE HAS TO DEMONSTRATE AS TO WHAT SERVICES WERE RENDERED BY THE AGENTS OR THE PAYEES TO THE AP PELLANT FOR WHICH THE PAYMENTS OF COMMISSION WERE MADE. 3.3.1 IN THE PREMISE OF THE ABOVE WELL ESTABLISHED PRINCIPLES, IT IS NOW EXAMINED WHETHER THESE NECESSARY CONDITIONS EXI STED TO CLAIM DEDUCTION TOWARDS COMMISSION UNDER SECTION 37(1) AND WHETHER THE ASSESSEE DISCHARGED THE ONUS CAST ON IT. IN THE CA SE OF THE APPELLANT, THE NET PROFIT PERCENTAGE BEFORE INTERES T AND DEPRECIATION DISCLOSED BY THE APPELLANT FOR THE YEAR UNDER CONSI DERATION IS 2.66% WHICH IS MUCH LOWER AS COMPARED TO EARLIER YEARS V IZ. AT 3.69% FOR THE A.Y. 2006-07 AND 2.98% FOR A.Y. 2007-08. ONE O F THE MAJOR ITEMS OF INDIRECT EXPENDITURE CLAIMED BY THE APPELL ANT IN THE PROFIT AND LOSS A/C IS COMMISSION PAYMENTS. THE COMMISSIO N EXPENDITURE 13 SO CLAIMED INCLUDES PAYMENT OF COMMISSION TO ONE SR I SANDEEP D GHOLAP PURPORTEDLY TO FACILITATE SALES TO GAJANAN T UBES, WHICH IS AN ASSOCIATE CONCERN OF THE APPELLANT, WHICH IS RATHER STRANGE. IT IS ALSO IMPORTANT TO NOTE THAT MOST OF THE COMMISSION BILLS RELATED TO MARCH 2008 AND SUBSTANTIAL AMOUNT OF COMMISSION WAS SHOWN AS PAYABLE AS ON 31/3/2008. THE APPELLANT DID NOT PRODUCE ANY EVIDENCE TO SHOW THAT CERTAIN TARGETS WERE FIXED FOR THE COMMIS SION AGENTS AND THE AMOUNT WAS CREDITED ON 31.3.2008 AFTER THEY ACH IEVED THE TARGETS FIXED. IN CASE OF GENUINE EXPENDITURE, THE RE WOULD BE PERIODICAL PAYMENTS FOR THE SERVICES RENDERED AND T HE PAYMENTS ARE NORMALLY MADE SOON AFTER THE SALES ARE EFFECTED THR OUGH THE AGENTS OR THE SERVICES RENDERED. IN THE BACKDROP, ONUS OF A VERY HIGH DEGREE WAS CAST UPON THE APPELLANT TO PROVE THAT TH E EXPENDITURE IS GENUINE AND IT WAS INCURRED FOR THE SERVICES RENDER ED BY THE SAID PERSONS FOR THE BUSINESS OF THE APPELLANT. BUT, TH E APPELLANT HAS NOT PROVED THE EXACT NATURE OF SERVICES RENDERED BY PAY EES WITH NECESSARY SUPPORTING EVIDENCE EXCEPT VAGUELY STATIN G THAT THEY HAVE RENDERED VARIOUS SERVICES LIKE BOOKING SALES O RDERS, DISPATCH OF GOODS, COLLECTION OF PAYMENTS FROM THE CUSTOMERS ETC. THE APPELLANT FAILED TO PRODUCE ANY AGREEMENT OR CORRES PONDENCE BETWEEN THE APPELLANT AND THE SAID COMMISSION AGENTS TO PROVE THAT THE PARTIES HAVE UNDERTAKEN TO RENDER PARTICULAR SE RVICES FOR THE APPELLANT AND AT A PARTICULAR RATE OF COMMISSION. THE APPELLANT ALSO NOT PRODUCED CORRESPONDENCE, IF ANY, ENTERED INTO B Y THE COMMISSION AGENTS EITHER WITH THE APPELLANT OR WITH THE CUSTOM ERS OF THE APPELLANT TO SHOW THAT CERTAIN SERVICES, AS CLAIMED BY THE APPELLANT, WERE UNDERTAKEN AND IN FACT RENDERED BY THE SAID AG ENTS. IT IS ALSO NOT ESTABLISHED THAT THE PARTIES CONCERNED HAD THE NECESSARY INFRASTRUCTURE, EXPERTISE AND RESOURCES TO UNDERTAK E ALLEGED SERVICES ON BEHALF OF THE APPELLANT. FURTHER, ON ENQUIRIES MADE BY THE ASSESSING OFFICER WITH THE CUSTOMERS OF THE APPELLA NT NAMELY VOLTAS, BLUE STAR, KIRLOSKAR PNEUMATIC CO. LTD., KIRLOSKAR CHILLERS P LTD., KIRLOSKAR EBARA PUMPS LTD AND SPIRAX MARSHALL LTD, THEY HAVE CONFIRMED THAT THE PURCHASE ORDERS WERE PLACED DIRE CTLY WITH THE APPELLANT AND NOT THROUGH MIDDLEMEN OR BROKERS. TH E APPELLANT WAS HAVING BUSINESS RELATIONS WITH HER CUSTOMERS FO R SEVERAL YEARS AND THERE IS NO NECESSITY FOR BROKERS TO MEDIATE BE TWEEN HER AND THE CUSTOMERS. THE OTHER CONTENTION OF THE APPELLA NT THAT BROKERS HELPED IN COLLECTION OF DUES FROM CUSTOMERS OF THE APPELLANT IS ALSO NOT CONVINCING AS IT WAS NOTICED BY THE ASSESSING O FFICER THAT THE COMMISSION IS BEING PAID ONCE THE SALE IS AFFECTED, IRRESPECTIVE OF COLLECTION OF THE SALE AMOUNT. FURTHER, WHEN THE A PPELLANT WAS DEALING WITH REPUTED CUSTOMERS WHO WOULD NOT ENTERT AIN BROKERS OR MIDDLEMEN, THERE IS NO NEED TO HAVE BROKERS FOR COL LECTING THE SALE DUES FROM CUSTOMERS. IN AN CASE, ASSESSEE FAILED T O DEMONSTRATE THAT RECOVERY WAS AFFECTED ONLY BECAUSE OF THE SERV ICES OF THE BROKERS. THE APPELLANT ALSO FAILED TO PRODUCE THE COMMISSION AGENTS FOR EXAMINATION BY THE ASSESSING OFFICER EXCEPT IN THREE CASES. AS POINTED OUT BY THE ASSESSING OFFICER, THERE WERE EM PLOYEES HIRED BY THE APPELLANT TO TAKE CARE OF SUCH JOBS LIKE PROCUR EMENT OF MATERIAL UNDER SALE, DISPATCH OF GOODS ETC. AND THERE IS NO REASON AS TO WHY THE SERVICES OF OTHER PERSONS SHOULD BE ENGAGED FOR SUCH SERVICES. THUS, THE APPELLANT EXCEPT STATING THAT COMMISSION W AS PAID TO IMPROVE OR FACILITATE SALES HAS NOT BEEN ABLE TO DI SCHARGE HER ONUS TO PROVE AND ESTABLISH WITH COGENT EVIDENCE THAT PAYEE S HAVE RENDERED SERVICES TO THE APPELLANT, WHICH NECESSITATED THE P AYMENT OF COMMISSION TO THE SAID PERSONS. 3.3.2 THE OTHER CONTENTION OF THE APPELLANT IS THAT THE ASSESSING OFFICER ALSO DID NOT ACCORD TO THE REQUEST OF THE A PPELLANT TO SUMMONS THESE PARTIES TO TESTIFY THE FACTS BEFORE H IM. THIS CONTENTION ALSO HAS NO MERIT. AS MENTIONED EARLIER , IT CANNOT BE SAID 14 THAT EVEN IF THE TAXPAYER DOES NOT PRODUCE ANY EVID ENCE IN SUPPORT OF THE CLAIM FOR DEDUCTION, THE ASSESSING OFFICER H IMSELF INDEPENDENTLY IS TO COLLECT EVIDENCE AND DECIDE THA T THE DEDUCTION CLAIMED IS ALLOWABLE HAVING REGARD TO THE LEGITIMAT E BUSINESS NEEDS OF THE ASSESSEE. IN THIS CASE, THE APPELLANT HAS N OT EVEN DISCHARGED ITS PRIMARY ONUS OF SUBSTANTIATING THE CLAIM THAT T HE COMMISSION AGENTS HAVE ACTUALLY RENDERED THE SERVICES. IT IS ONLY WHEN THE APPELLANT DISCHARGED ITS PRIMARY ONUS, THE BURDEN S HIFTS TO THE A.O. TO DEMONSTRATE THAT THE CLAIM IS NOT GENUINE AND IT IS NOT LEGITIMATE BUSINESS EXPENDITURE. WHEN THE APPELLANT FAILED TO PLACE EVEN BASIC MATERIAL IN SUPPORT OF ITS CLAIM, NO PURPOSE WOULD BE SERVED BY SUMMONING THE PARTIES CONCERNED TO TESTIFY THE FACT S. 3.3.3 AT THIS JUNCTURE, IT MAY BE RELEVANT TO REFER TO THE DECISION OF ITAT, PUNE IN THE CASE OF DCITSR-3, PUNE VS. KIRLOS KAR PNEUMATIC CO. LTD IN ITA NO.415/PN/1995 DATED 24/3/2006, WHER EIN DISALLOWANCE OF CLAIM FOR PAYMENT OF COMMISSION WAS UPHELD BY THE ITAT, PUNE AS THE ASSESSEE FAILED TO DISCHARGE THE ONUS OF SHOWING AS TO WHAT SERVICES WERE RENDERED BY THE AGENTS FOR WHICH THE PAYMENTS OF COMMISSION WERE MADE. FURTHER, IN CASE OF KIRLOSKAR OIL ENGINES PUNE VS. DCIT.SR.1, PUNE IN ITA NO.429/ PN/97 AND 606/PN/99 DATED 23/6/2006, DISALLOWANCE OF COMMISSI ON EXPENDITURE WAS UPHELD BY THE ITAT, PUNE AS THE ASS ESSEE HAS NOT BEEN ABLE TO DISCHARGE ITS ONUS TO PROVE AND ESTABL ISH THAT PAYEE HAS RENDERED ANY SERVICES TO THE ASSESSEE, WHICH NE CESSITATED THE PAYMENT OF COMMISSION TO HIM. IN ANOTHER CASE OF L AXMI OIL ENGINES PVT. LTD., KOLHAPUR VS. ACIT.CIR.2, KOLHAPUR IN ITA NO.717/PN/06 & 682/PN/06 DATED 25/04/2008 THE ITAT, PUNE CONFIRMED DISALLOWANCE OF COMMISSION AS THE ASSESSEE IS UNABL E TO SUBSTANTIATE ITS CLAIM THAT THE COMMISSION AGENTS HA VE ACTUALLY RENDERED THE SERVICES. IT WAS OBSERVED BY THE ITAT IN THAT CASE THAT MERE EXISTENCE OF AGREEMENT BETWEEN THE ASSESSEE AN D ITS SELLING AGENTS OR PAYMENT OF CERTAIN AMOUNTS AS COMMISSION D OES NOT BIND THE A.O TO HOLD THAT PAYMENT WAS MADE EXCLUSIVELY A ND WHOLLY FOR THE PURPOSE OF THE ASSESSEES BUSINESS. IT WAS FUR THER HELD ALTHOUGH THERE MIGHT BE SUCH AGREEMENT AND THE PAYM ENTS MIGHT HAVE BEEN MADE, IT IS STILL OPEN TO THE A.O TO CONS IDER THE RELEVANT FACTS AND DETAILS FOR HIS DETERMINATION WHETHER THE COMMISSION SAID TO HAVE BEEN PAID TO THE AGENTS OR ANY PART THEREOF IS PROPERLY DEDUCTIBLE U/S 37 OF THIS ACT. IN THE PRESENT CASE ALSO, THE APPELLANT IS UNABLE TO SUBSTANTIATE ITS CLAIM WITH NECESSARY DOCUMENTARY EVIDENCE THAT THE COMMISSION AGENTS HAVE ACTUALLY RE NDERED THE SERVICES TO THE APPELLANT. UNDER THESE CIRCUMSTANC ES, JUST BECAUSE THE PAYMENT WAS MADE TO THE PARTIES BY ACCOUNT PAYE E CHEQUE AND TAX WAS DEDUCTED AT SOURCE FROM SUCH PAYMENTS AND T HE PARTIES ARE HAVING PAN, IT CANNOT BE SAID THAT THE EXPENDITURE IS GENUINE. 3.3.4 TO SUM UP, THE APPELLANT HAS NOT BEEN ABLE TO DISCHARGE HER ONUS TO PROVE AND ESTABLISH WITH COGENT EVIDENCE TH AT PAYEE HAVE RENDERED ANY SERVICES TO THE APPELLANT, WHICH NECES SITATED THE PAYMENT OF COMMISSION TO THE SAID PERSONS. IN THE ABSENCE OF SUCH EVIDENCE, IT CANNOT BE SAID THAT THE EXPENDITURE WA S INCURRED WHOLLY AND EXCLUSIVELY FOR THE PURPOSE OF BUSINESS OF THE APPELLANT. THE FACTS OF THE CASE DO NOT INDICATE THAT IT IS LEGITI MATE BUSINESS EXPENDITURE AND IT WOULD APPEAR THAT THE CLAIM IS M ADE ONLY AS AN AFTERTHOUGHT SO AS TO REDUCE THE TAX LIABILITY. 3.3.5 FOR THE FOREGOING REASONS, IT IS HELD THAT TH E ASSESSING OFFICER IS JUSTIFIED IN MAKING THE DISALLOWANCE OF COMMISSIO N PAYMENTS OF RS.61,23,552/- AND THE ACTION OF THE ASSESSING OFFI CER IN THIS REGARD IS UPHELD. 15 AGGRIEVED BY THE ORDER OF LD. CIT(A) ASSESSEE IS NOW IN AP PEAL BEFORE US. 13. BEFORE US, LD.A.R. REITERATED THE SUBMISSIONS MADE BEFORE AO AND LD. CIT(A) AND FURTHER SUBMITTED THAT ASSESSEE HA D PAID SIMILAR COMMISSION IN EARLIER YEARS AND IN SUBSEQUENT YEAR S BUT NO SUCH DISALLOWANCE OF COMMISSION HAS BEEN MADE. HE POINTE D TO THE ASSESSMENT ORDERS FOR 2009-10, 2010-11 AND 2011-1 2 AND THE COPIES OF WHICH ARE PLACED AT PAGES 96 TO 98 OF THE PAP ER BOOK AND THAT IN A.Y. 2009-10, 90% OF THE COMMISSION WAS ALLOWED AND IN A.Y. 2010-11 THE ENTIRE COMMISSION WAS ALLOWED. HE THEREFOR E SUBMITTED THAT THE ENTIRE ADDITION BE DELETED. LD.D.R. ON THE OTHER HAND TOOK US THROUGH THE FINDINGS OF LD.CIT(A) AND SUPPORT ED THE ORDER OF LOWER AUTHORITIES. 14. WE HAVE HEARD THE RIVAL SUBMISSIONS AND PERUSED THE MATERIAL ON RECORD. THE ISSUE IN THE PRESENT CASE IS WIT H RESPECT TO DISALLOWANCE OF COMMISSION. AO HAS DISALLOWED THE ENTIRE COMMISSION WHICH HAS BEEN UPHELD BY LD. CIT(A). WHILE DISALLOWING THE COMMISSION, AO HAS NOTED THAT ASSESSEE HAS ALSO PAID COMMISSION TO SHRI SANDEEP D. GHOLAP TO FACILITATE SALES TO GAJANAN TRADERS, AN ASSOCIATE OF ASSESSEE. BEFORE US, IT IS ASSESSEES SUBMISSION THAT SIMILAR COMMISSIONS HAVE BEEN PAID IN SUBSEQUENT YEARS AND THE SAME HAS BEEN ACCEPTED BY THE REVENUE. IT IS ALSO ASSESSEES SUBMISSION THAT ASSESSEE HAD PROD UCED THREE COMMISSION AGENTS FOR EXAMINATION BY AO. THIS FACT HAS NOT BEEN CONTROVERTED BY REVENUE. IN THE PRESENT CASE, NO MA TERIAL HAS BEEN PLACED ON RECORD BY REVENUE TO DEMONSTRATE THA T THE ENTIRE COMMISSION IS BOGUS. BEFORE US, THE ASSESSEE HAS SUBMITT ED THE 16 DETAILS OF COMMISSION OF PAYMENT AND SALES MADE TO VARIOUS PARTIES AND SHE ALSO DEDUCTED TDS ON SUCH COMMISSION PAYMENTS . CONSIDERING THE TOTALITY OF THE AFORESAID FACTS, WE ARE OF THE VIEW THAT IN THE PRESENT CASE, THE ENTIRE DISALLOWANCE OF COMM ISSION IS UN-CALLED FOR. CONSIDERING THE TOTALITY OF THE AFORESAID FAC TS, WE ARE OF THE VIEW THAT IN THE PRESENT FACTS DISALLOWANCE OF COMMIS SION TO THE EXTENT OF 10% WOULD MEET THE ENDS OF JUSTICE. WE A CCORDINGLY UPHOLD THE DISALLOWANCE OF COMMISSION ONLY TO THE EXTENT OF 10% OF TOTAL COMMISSION I.E., RS.6,12,355/-. THUS, THIS GROUND IS PARTLY ALLOWED. 15. IN THE RESULT, THE APPEAL OF THE ASSESSEE IS PARTLY ALLOWED AND THE APPEAL OF THE REVENUE IS DISMISSED. ORDER PRONOUNCED ON 23 RD DAY OF JUNE, 2017. SD/- SD/- ( SUSHMA CHOWLA ) ( ANIL CHATURVEDI ) ! / JUDICIAL MEMBER '! / ACCOUNTANT MEMBER PUNE; ! DATED : 23 RD JUNE, 2017. YAMINI #$%&'('% / COPY OF THE ORDER FORWARDED TO : 1. / THE APPELLANT 2. / THE RESPONDENT 3 . 4. 5. 6. CIT(A)-III, PUNE. CIT-III, PUNE. #$% &&'(,* '(, / DR, ITAT, A PUNE; %,-./ GUARD FILE. / BY ORDER, // // TRUE COPY // / 0123 / ASSISTANT REGISTRAR, * '(, / ITAT, PUNE.