Sahebrao Ramachandra Navale, Ahmednagar V. Dy. Comm. of Income-tax, Ahmednagar

ITA 1538/PUN/2011

• Counselvise Citation: 153824514 RSA 2011
• Duration Of Justice: 2 year(s) 8 month(s) 24 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 25-08-2014
• Appeal Filed By: Assessee
• Order Result: Partly Allowed
• Bench Allotted: A
• Assessment Year: 2007-2008
• Appeal Filed On: 01-12-2011
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Department Lawyers: VERMA
• Keywords: Fair market value; Corroborative evidences
• Section: 143(3)

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL PUNE BENCH A , PUNE BEFORE: SHRI G. S. PANNU, ACCOUNTANT MEMBER AND SHRI R.S. PADVEKAR, JUDICIAL MEMBER ITA NO. 15 38 /PN/20 1 1 ASSESSMENT YEAR : 2007 - 08 SRI SAHEBRAO RAMACHANDRA NAVALE, P ROP. SHRAMIK KRISHI SEVA KENDRA, SANGAMNER, DISTT. - AHMEDNAGAR VS. DY. COMMISSIONER OF INCOME TAX , AHMEDNAGAR CIRCLE, AHMEDNAGAR (APPELLANT) (RESPONDENT) PAN NO. AAIPN9679C APPELLANT BY: SHRI S.N. PURANIK RESPONDENT BY: SMT. M.S. VERMA ORD ER PER R.S . PADVEKAR , JM : - IN THIS APPEAL, THE ASSESSEE HAS CHALLENG ED THE IMPUGNED ORDER PASSED BY THE LD. CIT - I, PUNE DATED 23 - 02 - 2011 FOR THE A.Y. 2007 - 08. THE GROUND NO. 1 READ S AS UNDER: HON'BLE COMMISSIONER OF INCOME TAX HAS ERRED BOTH ON FACTS AND IN LAW IN CONFIRMING ADDITION @ 2.5% ON RS.38,62,273/ - I.E. RS.96,556/ - U/S. 40A(2)A/B. APPELLANT PRAYS FOR DELETION OF THE SAME . 2. THE FACTS WHICH REVEALED FROM THE RECORD ARE AS UNDER. THE ASSESSEE IS IN THE BUSINESS OF FERTILIZERS, PESTICIDES , SEEDS AND CEMENT ON WHOLESALE BASIS. THE ASSESSEE FILED THE RETURN OF INCOME FOR THE A.Y. 2007 - 08 DECLARING TOTAL INCOME OF RS.18,46,160/ - AND AGRICULTURAL INCOME OF RS. 3,31,700/ - . THE ASSESSEES CASE WAS SELECTED FOR SCRUTINY AND ASSESSMENT HAS BEEN C OMPLETED U/S. 143(3) OF THE INCOME - TAX ACT. THE ASSESSEE IS CARRYING OUT HIS BUSINESS AS A PROPRIETOR UNDER THE NAME AND STYLE OF M/S. NAVALE SAHEBRAO RAMCHANDRA AT SANGAMNER, DISTT. - AHMEDNAGAR. SO FAR AS THE ISSUE BEFORE US IS CONCERNED, THE ASSESSING 2 ITA NO. 15 38/PN/2011, SRI SAHEBRAO RAMACHANDRA NAVALE, AHMEDNAGAR O FFICER HAS DIS C USSED THE SAME IN PARA NO. 3. IT WAS NOTICED BY THE ASSESSING OFFICER THAT THE ASSESSEE IS ENTERED INTO THE TRANSACTION OF THE FOLLOWING PERSONS AND IN THE OPINION OF THE ASSESSING OFFICER THE SAID PAYMENT S ARE HIT BY SEC. 40A(2)(B) OF THE INCOME - TAX ACT. THE DETAILS ARE AS UNDER: I. SHRAMIK AGRO SERVICES, SANGAMNER 5930 II. SHRAMIK KRUSHI SEVA KENDRA, AKOLE 393295 II. SHRAMIK KRUSHI UDYOG LTD , SAKURI 3024 V. SHRAMIK KRUSHI UDYOG LTD, ASHVI 9205 V. SHRAMIK KRUSHI UDYOG LTD, GUNJALWADI 2575 I/I. SHRAMIK KRUSHI UDYOG LTD, MKT. YARD, SANGAMNER 5704 II. SHRAMIK KRUSHI UDYOG LTD, NARAYANGOAN. 3662 III. SHRAMIK KRUSHI UDYOG LTD , NASHIK ROAD 126085 IX. SHRAMIK KRUSHI UDYOG LTD, SHRIRAMPUR 95204 X. SHRAMIK KRUSHI UDYOG LTD, NASHIK 2640594 XI. SHRAMIK KRUSHI UDYOG LTD, AHMEDNADER 541370 XII. SHRAMIK KRUSHI UDYOG LTD, PIM. BASWANT 34685 (III. SHRAMIK PASHU PAKSHI SEVA KENDRA , SANGAMNER 940 TOTAL 38,62,273 3. THE ASSESSING OFFICER ASKED THE ASS ESSEE TO FILE THE COMPARISON OF THE PAYMENTS MADE TO THE SISTER CONCERNS AND TO ESTABLISH THAT NO EXCESS PAYMENT IS MADE TO THE ABOVE SISTER CONCERNS. AS NOTED BY THE ASSESSING OFFICER THE ASSESSE IS HAVING SOLE DISTRIBUTORSHIP OF SOME OF THE AGENCIES AND IN ABSENCE OF RETAIL LICENSE FOR VARIOUS PLACES OTHER THAN SANGAMNER, THE ASSESSEE HAS TAKEN THE HELP OF SISTER CONCERNS IN MAKING THE SALES. THE ASSESSING OFFICER HAS FURTHER SUBMITTED THAT XEROX COPY OF PURCHASES BILL INDICATING PURCHAS ES RATES & SAL ES BILL OF SISTER CONCERN AND OTHER DEALERS SHOWING COMPARATIVE SALES RATE ARE ENCLOSED HEREWITH . WE ARE SELLING THE GOODS TO VARIOUS SUBDEALERS WHO SELL THESE GOODS DIRECTLY TO THE CONSUMERS, WE ARE DISTRIBUTORS FOR SOME COMPANIES. FOR THE PRODUCT OF THE SE COMPANIES OUR SELLING PRICE TO THE SUBDEALERS SHOULD BE SAME AT S AMGAMNER AS WELL AS AT VARIOUS PLACES 3 ITA NO. 15 38/PN/2011, SRI SAHEBRAO RAMACHANDRA NAVALE, AHMEDNAGAR OTHER THAN S ANGAMNER. HENCE WHEN WE SALE TO THE SUB DEALERS AT VARIOUS PLACES OTHER THAN S ANGAMNER, WE SALE THESE GOODS THROUGH OUR SISTER CON CERN, BE CAUSE WE DO NOT HAVE OUR BRANCH OR NETWORK AT THESE LOCATIONS, WHEN WE SALE TO OUR SISTER CONCERN WE SALE ABOVE THE PURCHASE RATE BUT LITTLE LESS THAN THE SALES PRICE OF S ANGAMNER SUB DEALER AS OUR SISTER CONCERN SHOULD ALSO BE ABLE TO SALE TO THE SUB DEAL ERS AT THE, SUB DEALER PRICE APPLIED AT S ANGAMNER . O UR SISTER CONCERN GET SMALL PROFIT ON SUCH SALE, BECAUSE WE USE THEIR NETWORK FOR INCREASING THE SALES AND BECAUSE OF INCREASED SALE WE GE T QUANTITY DISCOUNT FROM OUR SUPPLIERS. IN THIS CASE , WE ALSO EAR N AND OUT SISTER CONCERN ALSO EARN LITTLE PROFIT, WE HAD TO MAKE THESE ARRANGEMENTS AS WE DO NOT HAVE OUR NETWORK AT THESE LOCATIONS AND WE USE SALES NETWORK OF EACH OTHER . MOREOVER , WHEN WE SALE TO SISTER CON CERN THAT IS A BULK SALE AND CONSIDERING THEIR COST OF DISTRIBUTION AND USE OF NETWORK WE HAVE TO CHARGE LITTLE LESS THAN OTHER SUB DEALER BUT WE HAVE ALWAYS CHARGED THEM ABOVE OUR PURCHASES PRICE . 4. THE ASSESSING OFFICER HAS GIVEN SOME OF THE EXAMPLES IN RESPECT OF THE SELLING RATE WHICH ARE AS UNDE R: S.NO. ITEM PURCHASE RATE SELLING RATE TO SISTER CONCERN SELLING RATE TO OTHER CONCERNS 1. TOMOTO ABHIVAV - 10GM, S YN G ENT 600 605 610 2. UREA UJWALA 238.63 239.50 241 3. WHEAT LOK - 1 - 40 KG MAHABEEJ 704 790 800 4. GRAM P KV - KABULI - 2 (L 0 GM) AMAR 900 980 1100 5. THE ASSESSING OFFICER HAS NOTED HIS REASONING FOR INVOKING THE PROVISIONS OF SEC. 40A(2)(B) AS UNDER: COMING TO THE FIRST POINT I.E. WHETHER EXCESS PAYMENT ARE MADE TO THE SISTER - CONCERNS, WHEN COMPA RED TO THE PREVALENT MARKET RATE OR NO PAYMENTS MADE BUT SIMPLY PASSED BOOK ENTRIES. BY PASSING BOOK ENTRIES, THE EXCESS PAYMENT ARE CLAIMED TO HAVE BEEN MADE TO SISTER CONCERN. AFTER KEEPING IN MIND, THE PROVISIONS OF SECTION 4 ITA NO. 15 38/PN/2011, SRI SAHEBRAO RAMACHANDRA NAVALE, AHMEDNAGAR 40A(2)(B) ARE TO BE STUDIED WHICH ARE VERY CLEAR. IT DOES NOT BAR ANY PERSON FROM MAKING PURCHASES FROM ITS SISTER - CONCERNS, HOWEVER, THE PROVISIONS PROVIDE CERTAIN RIDERS OR RESTRICTIONS WHICH SAY THAT BEFORE DECIDING THE ISSUE, THE AO HAS TO CONSIDER FOLLOWING FACTORS : - I) FAIR MARK ET VALUE OF THE COMMODITY. II) LEGITIMATE BUSINESS NEEDS OF THE ASSESSEE OR BENEFIT DERIVED OR ACCRUING TO ASSESSEE AS A RESULT OF EXPENDITURE. T HE ASSESSEE HIMSELF HAS ADMITTED THAT THE DELIBERATELY THE PRICES OF THE SALE AND PURCHASES TO SISTER - CONCERNS AR E FIXED IN SUCH A WAY SO AS TO HELP THE ASSESSEE. IT IS A CANDID ADMISSION ON THE PART OF THE ASSESSEE THAT THE PURCHASE OR SELLING RATE WERE NOT AT PAR WIT H THE PREVALENT RATE WHICH IS EVIDENT FROM THE ENCLOSED CHART FURNISHED BY THE ASSESSEE HIMSELF. COM ING TO THE POINT WHETHER THERE WAS LEGITIMATE BUSINESS NEED OF THE BUSINESS OF THE ASSESSEE. IN THIS REGARD, THE ASSESSEE'S SUBMISSION IS THAT HE WAS THE SOLE DISTRIBUTOR AND WAS NOT HAVING THE NETWORK. THEREFORE, IT H AD TAKEN THE HELP OF THE NETWORK OF TH E SISTER - CONCERNS FOR EFFECTING THE SALE. AS DISCUSSED ABOVE, IT IS APPARENT THAT ONLY PAPER ENTRIES ARE MADE AND SOME OF CLAIMED TRANSACTIONS APPEAR TO HAVE BEEN INFLATED SO AS TO REDUCE MARGIN OF PROFIT. THERE WAS NO LEGITIMATE BUSINESS NEED OF THE ASSE SSEE OF TAKING SUCH HELP FROM ITS SISTER - CONCERNS. THE BENEFIT DERIVED IS CLAIMED TO GETTING LARGER DISCOUNT FROM THE SUPPLIER OWING TO THE INCREASE IN THE SALE. AS DISCUSSED ABOVE, THE PURCHASE/SALE TO SISTER CONCERNS ARE MANAGED IN CONVENIENT WAY WHICH IS SUITABLE FOR BOTH OF THE CONCERNS MUTUALLY. THE PROVISIONS OF ANY SECTION ARE TO BE APPLIED ONLY IF FOUND THAT THE ASSESSEE HAS IN FACT CARRIED OUT CLAIMED TRANSACTIONS. THE ONUS LIES SQUARELY ON THE SHOULDER OF ASSESSEE TO ESTABLISH THAT IN FACT THE TR ANSACTION HAS TAKEN PLACE AND THERE WAS NO DEVIATION FROM PREVAILING MARKET RATE. BUT ASSESSEE HIMSELF ADMITTED THAT THERE WERE SPECIAL CONSIDERATION FOR TRANSACTION WITH SISTER CONCERNS. BY SHOWING OR CLAIMING TRANSACTION IN EITHER OF THE SITUATION, TH E FRUITS WILL BE ENJOYED. IT HAS THE TWIN EFFECT IN BOTH THE CASES OF ASSESSEE GROUP. THEREFORE, ASSESSEE CANNOT SAY THAT THE PURCHASES WERE MADE AT LOWER PRICE AND THERE WAS NO EXCESS PAYMENTS TOWARDS THE PURCHASES. 5 ITA NO. 15 38/PN/2011, SRI SAHEBRAO RAMACHANDRA NAVALE, AHMEDNAGAR HAVING BROUGHT ON RECORD HOW THE TRANSA CTIONS ARE CLAIMED IN DISGUISE TO SUPPRESS SALE OF EACH OTHER, IT IS FOR THE ASSESSING OFFICER TO EXAMINE THE LEGITIMATE NEEDS OF BUSINESS AND BENEFIT DERIVED BY OR ACCRUING TO THE ASSESSEE FROM SUCH EXPENDITURE BEFORE DECIDING AS TO WHETHER THE PAYMENT WA S REASONABLE. THE PROVISION WAS BROUGHT INTO STATUTE TO ENCOUNTER TAX EVASION THROUGH EXCESSIVE OR UNREASONABLE PAYMENTS TO THE RELATIVES OR TO ASSOCIATE CONCERNS. IT ALSO POINTS THE A.O. SHOULD EXERCISE HIS JUDGMENT IN A FAIR AND REASONABLE MANNER. HAVING DEALT THE PROVISIONS OF SECTION 40A(2)(B) AT LARGE AND AS DESCRIBED ABOVE, THERE WAS NO LEGITIMATE BUSINESS NEED OF THE ASSESSEE PERHAPS AS DISCUSSED SUPRA, IT WAS DECIDED BY GROUP JOINTLY TO DEVISE A METHOD WHICH WILL BE MUTUALLY BENEFICIAL TO ALL CONCER NS. ONE'S SALE WILL BE OTHER'S PURCHASES. BY SHOWING FICTITIOUS PAYMENTS, ALL THE CONCERNS ARE MUTUALLY BENEFITED. FOR THIS, THE ASSESSEE FRAGMENTED ITS B USINESS INTO THE DIFFERENT ENTITIES SO AS TO DIVERSIFY OR TO REDUCE ITS MARGIN OF PROFIT. THE TOTAL PU RCHASES FROM THE SISTER - CONCERNS AS STATED IN ABOVE WORKS OUT TO RS.38,62,273/ - AT ANY GIVEN CASE, THERE APPEARS TO BE MINIMUM 3% EXCESS PAYMENT WHICH IS EVIDENT IF WE TAKE INTO ACCOUNT THAT LOK - 1 M AHABEEJ 40 KG PURCHASED AT RS.704/ - WAS SOLD AT RS.800/ - A S AGAINST RS.790/ - . THIS WORKS OUT TO 4 TO 5% AS EXCESSIVE OR UNREASONABLE PAYMENTS. THIS METHOD IS EVIDENT FROM THE COMPARATIVE CHART IN RESPECT OF SA L E MADE BY ASSESSEE TO SISTER - CONCER NS. H OWEVER, AS ADMITTED BY ASSESSEE HIMSELF, THE SAME METHOD HAS BE EN ADOPTED IN RESPECT OF PURCHASES. THEREFORE CHART PROVIDED FOR THE SALE IS INDICATOR OR REPLICA OF THE PURCHASES MADE BY ASSESSEE FROM ITS SISTER - CONCERNS. IN FACT BY PLANTING PAPER ENTRIES OF PURCHASES AND SALE, THE GROUP CONCERNS AT LARGE ARE BENEFITED . ON AN AVERAGE, IT IS FOUND THAT THE PRICES FOR SISTER CONCERNS ARE NOT AT PAR AND THERE IS ALWAYS DIFFERENCE OF 8.5%. THEREFORE, THE AVERAGE 5% FROM THE TOTAL PAYMENT OF RS. 38,62,273/ - IS CONSIDERED TO BE EXCESSIVE OR UNREASONABLE PAYMENT MADE TO SISTER - CONCERNS I.E. SPECIFIED UNDER SECTION 40A(2)(B) WITH INTENTION TO REDUCE PROFIT. PAYMENT OF RS.38,62,273/ - ARE MADE TO THE SPECIFIED PERSONS. ON HIS A MOUNT, 5% WORKS OUT TO RS.1,93,113/ - . THE SAME IS DISALLOWED AS IREASONABLE AND EXCESSIVE PAYMENT AND ADD ED TO THE TOTAL INCOME . 6 ITA NO. 15 38/PN/2011, SRI SAHEBRAO RAMACHANDRA NAVALE, AHMEDNAGAR 6. THE ASSESSEE CARRIED THE ISSUE BEFORE THE LD. CIT(A) BUT PARTLY SUCCEEDED AS THE LD. CIT(A) SUSTAINED THE DISALLOWANCE @ 2.5% ON RS.38,62,273/ - . THE REASONS GIVEN BY THE LD. CIT(A) IS AS UNDER: 5.3. I HAVE CAREFULLY CONSIDERED THE FACTS OF THE CASE AND THE LAW AS APPARENT FROM RECORD. THE ASSESSING OFFICER HAS DISALLOWED RS.1,54,490 / - U/S 40A(2)(B) BEING 5% OF THE TOTAL EXPENDITURE MADE TO PERSONS COVERED U/S 40A(2)(B). THERE IS AN APPARENT MISTAKE IN TAKING A FIGURE. IN THE B ODY OF THE ORDER THE ASSESSING OFFICER HAS COMPUTED THE DISALLOWANCE AT RS.1,93,113 / - BEING 5% OF RS.38,62,273 / - . HOWEVER, IN THE FINAL COMPUTATION THIS HAS BEEN TAKEN AT RS. 1,54,490 / - INCORRECTLY. THE ASSESSING OFFICER IS DIRECTED TO CORRECT THIS FIGURE. NOW COMING TO THE BASIS OF THIS DISALLOWANCE M ADE BY THE ASSESSING OFFICER, IT IS OBSERVED THAT HE HAS SCRUTINIZED THIS ISSUE AFTER TAKING THE CUE FROM THE TAX AUDIT REPORT THAT THE APPELLANT HAS MADE PURCHASES OF RS.38,62,273 FROM PARTIES COVERED U/S 40A (2)(B). IT IS A TRITE LAW THAT SEC. 40A(2)(B) IS AIMED AT PREVENTING TAX AVOIDANCE THROUGH COLLUSIVE TRANSACTIONS CARRIED OUT AMONGST SPECIFIED RELATED PARTIES. THE CBDT HAS ALSO CLARIFIED THAT THIS PROVISION IS TO BE EVOKED WHERE TAX EVASION IS ATTEMPTED THROUGH TRANSACTIONS CARRIED OUT WITH SPECIFIED PARTIES. THE COURTS HAVE ALSO BEEN UNANIMOUS THAT THE ONUS IS ON THE APPELLANT TO ESTABLISH THAT THE TRANSACTION DOES NOT INVOLVED EVASION. IN OTHER WORDS, IT IS THE RESPONSIBILITY OF THE ASSESSEE TO SHOW THA T THE TRANSACTIONS HAVE BEEN CARRIED OUT AT FAIR MARKET RATE AS PER THE LEGITIMATE NEEDS OF BUSINESS. THE ASSESSING OFFICER, AS PER THE RELEVANT PORTION OF THE ASSESSMENT ORDER QUOTED ABOVE HAS CONCLUDED THAT 5% OF THE TOTAL CONSIDERATION PAID TO THE SPECI FIED PARTIES IS IN EXCESS THAN THE FAIR MARKET PRICE. THE APPELLANT ON THE OTHER HAND HAS CLAIMED THAT THE PRICE PAID IS LOWER THAN THE PRICE AT WHICH THE SPECIFIED PERSONS HAVE SOLD THE SAME GOODS TO OTHER THAN THE ASSESSEE. IN VIEW OF THE ABOVE, IT HAS B EEN CLAIMED BY THE APPELLANT THAT SEC. 40A(2)(B) CANNOT BE APPLIED. ON CAREFUL CONSIDERATION, I FIND THAT THE ASSESSING OFFICER HAS COMPUTED THE EXCESS PAYMENT @ 5% WHICH HAS BEEN ARRIVED AT IN AN ESTIMATED MANNER. ON THE CONTRARY, IT WAS REQUIRED THAT HE SHOULD HAVE QUANTIFY THE EXCESS PAYMENT COMPLETELY. THE CLAIM OF THE APPELLANT THAT THERE IS NO EXCESS PAYMENT LOOKS UNACCEPTABLE IN THE FACTS OF THE CASE. IN VIEW OF THE ABOVE, IT IS CONSIDERED FAIR TO SUSTAIN THE 7 ITA NO. 15 38/PN/2011, SRI SAHEBRAO RAMACHANDRA NAVALE, AHMEDNAGAR ADDITION AT 2.5% OF THE TOTAL PAYMENT TO THE SPECIFIED PERSONS. THE ASSESSEE GETS PART RELIEF. 7. IN SUM AND SUBSTANCE ON PRINCIPLES THE LD. CIT(A) APPROVED THAT THE PROVISIONS OF SEC. 40A(2)(B) ARE RIGHTLY EVOKED BY THE ASSESSING OFFICER BUT IN HIS OPINION 5% WAS EXCESS HENCE, HE REDUCED TO 2.5 %. NOW THE ASSESSEE IS IN APPEAL BEFORE US. 8. WE HAVE HEARD THE PARTIES. THE LD. COUNSEL REITERATED HIS ARGUMENT WHICH WAS MADE BEFORE THE AUTHORITIES BELOW. HE ARGUES THAT PROVISIONS OF SEC. 40A(2)(B) ARE NOT APPLICABLE TO THOSE PURCHASES AS SISTER C ONCERNS HAVE CHARGED AT LESSER RATE THAN TO THEIR OTHER CUSTOMERS. HE VEHEMENTLY ARGUES THAT IT IS NOT A CASE OF THE ANY EXCESS PAYMENT. HE FURTHER ARGUES THAT THE INCOME OF THE SISTER CONCERNS IS IN HIGHER SLA B AND THERE IS NO REASON TO SIFEN THE INCOME AS THE SISTER CONCERNS ARE PAYING THE HIGHER RATE OF BAGS. HE ALSO REFERRED TO THE CBDT CIRCULAR NO. 6 - P DATED JULY, 1968 AND SUBMITS THAT UNLESS THERE IS AN ATTEMPT TO EVADE TAX THE PROVISIONS OF SEC. 40A(2)(B) IS NOT TO BE RIGHTLY EVOKED. HE RELIED ON THE FOLLOWING DECISIONS: A). CIT VS. SIYARAM GARG (HUF) 49 DTR 126 (P & H) B). INDO SAUDI SERVICES (TRAVEL) P. LTD. 310 ITR 306, (BOM) C). V.S. DEMPO & CO. P. LTD. 196 TAXMANN 193. HE ALSO POINTED OUT THAT THERE IS ALSO CALCULATION MISTAKE. WE HAVE HE ARD THE LD. DR. 9. WE FIND THAT BOTH THE AUTHORITIES BELOW HAVE COME TO THE CONCLUSION THAT THE ASSESSEE HAS MADE THE EXCESS PAYMENT TO THE SISTER CONCERNS AS PER THE CHART GIVEN BY THE ASSESSING OFFICER AT PAGE NO. 3. WE FIND THAT THERE IS MARGINAL DI FFERENCE IN THE SELLING RATE TO THE RELATED PARTY AND UNCONTROLLED TRANSACTIONS. WE FURTHER FIND THAT THE ASSESSING OFFICER MADE THE DISALLOWANCE ON ADHOC BASIS BY ADOPTING 5%. IN FACT, IF 8 ITA NO. 15 38/PN/2011, SRI SAHEBRAO RAMACHANDRA NAVALE, AHMEDNAGAR HE CONSIDERED THE DIFFERENCE IN THE SELLING PRICES TO THE RELATED PARTY AND UNCONTROLLED PARTIES , THE DIFFERENCE OF MARGIN OF 3% TO 5% IN SUCH A SITUATION CAN IT BE SAID THAT THE ASSESSEE HAS MADE THE UN REASONABLE PAYMENT TO THE RELATED PARTY. 10. WHILE COMPLETING THE ASSESSMENT OF THE ASSESSEE FOR THE A.Y. 2008 - 09 THE ASSESSING OFFICER WORKED OUT THE DISALLOWANCE @ 2%. THERE IS NO CONSISTENCE IN THE APPROACH OF THE ASSESSING OFFICER IN THE CASE OF INDO SAUDI SERVICES (TRAVEL) P. LTD. (SUPRA) THE ISSUE WAS IN RESPECT OF THE INCENTIVE COMMISSION PAID TO THE SISTER COMPA NY WHICH WAS MORE THAN THE SUB - AGENTS WAS ALLOWABLE FOR DEDUCTION IN THE SAID CASE. THE ASSESSE WAS A GENERAL SALES AGENT S OF THE SAUDI ARABIAN AIRLINES. THE ASSESSEE EARNED COMMISSION @ 12% FROM SAUDI ARABIAN AIRLINES ON THE TICKET BOOKED AND SOLD BY HI M. THE ASSESSEE APPOINTED SEVERAL AGENTS INCLUDING THEIR SISTER CONCERN I.E. M/S. MIDDLE EAST INTERNATIONAL AND PAID INCENTIVE COMMISSION TO SUCH AGENTS, BY WAY OF HANDLING CHARGES. IN THE SAID CASE, THE HON'BLE HIGH COURT HELD THAT THE ASSESSEE WAS ALSO PAYING THE SAME HANDLING CHARGES ON THE SAME RATE TO OTHER AGENTS AND IN THE A.Y. 1986 - 87 AND 1987 - 88 EVEN THE 10% HANDLING CHARGES BY THE ASSESSEE TO THE SISTER CONCERN WERE CONSIDERED AS A REASONABLE. 11. IN THIS CASE IT IS NOT DISPUTED THAT THE PARTIE S TO WHOM THE ASSESSEE HAS SOLD THE GOODS OR MADE THE PURCHASES ARE RELATED PARTIES. THE ONLY SHORT ISSUE IS WHETHER THE ASSESSEE HAS MADE THE EXCESS PAYMENT AS COMPARED TO THE UNCONTROLLED PARTIES AND THE FAIR MARKET VALUE. IN THE PRESENT CASE FROM THE DATA ON RECORD THE ASSESSEE HAD MADE THE EXCESS PAYMENT TO THE SISTER CONCERN. NOTHING HAS BEEN PLACED BEFORE TO SHOW THAT ALL THE SISTER CONCERNS ARE ASSESSED AT HIGHER SLAB. WE, THEREFORE, CONSIDER IT FIT TO SUSTAIN THE DISALLOWANCE AT 1% IN PLACE OF 2 .5% SUSTAINED BY THE LD. CIT(A). ACCORDINGLY, THE ASSESSEE GET S THE PARTIAL RELIEF. 9 ITA NO. 15 38/PN/2011, SRI SAHEBRAO RAMACHANDRA NAVALE, AHMEDNAGAR 12. THE GROUND NO. 2 READS AS UNDER: HON'BLE COMMISSIONER OF INCOME TAX (APPEALS) HAS ERRED IN RETAINING ADDITION OF RS.6,00,000/ - (RUPEES. SIX LAKHS) AS GROSS PROFIT A DDITION. SAME MAY PLEASE BE DELETED . 13. THE ASSESSING OFFICER HAS DISCUSSED THIS ISSUE IN PARA NO. 4 OF THE ASSESSMENT ORDER WHICH AS UNDER: THE ASSESSEE IS ENGAGED IN THE TRADING OF 4 ITEMS I.E. FERTILIZERS, MACHINERY, PESTICIDES AND SEEDS. THE TRAD ING ACCOUNT FOR THE EACH OF THESE COMMODITIES SHOWED THE FOLLOWING RESULTS: - ITEM TURNOVER RS. GROSS PROFIT RS. RATIO FERTILIZER 270868166 4285123 1.58% PESTICIDE 12355974 366848 2.97% SEEDS 65839041 5125805 7.79% CEMENT 33594492 553091 1.65% ON COMP ARISON OF ABOVE SHOWN G.P. RATES WITH THE SISTER CONCERN VIZ. SHRAMIK AGRO SERVICES, PROP. SHRI NAVALE RAMCHANDRA BHIWANJI FOR SAME ASSESSMENT YEAR FOLLOWING PICTURE EMERGES: - COMPARISON OF G.P. RAMCHANDRA NAVALE SAHEBRAO NAVALE ITEMS 31/3/200 6 31/3/2007 31/3/2006 31/3/2007 FERTILIZER 2.47 7.33 1.54 1.58 PESTICIDES 5.05 6.79 1.83 2.97 SEEDS 9.25 6.60 8.48 7.79 CEMENT - - 062 1.645 ON BEING CONFRONTED, THE AR ON 26/11/2009, STATED THAT THE AGENCIES WHOSE GOODS ARE SO LD ARE DIFFERENT FROM THE GOODS OF SHRI SAHEBRAO (ASSESSEE). EVEN FOR THE ARGUMENT SAKE, IT IS ACCEPTABLE THAT THE POLICIES OF EACH CASE IS SEPARATE, BUT OVERALL THE SAME MARKET RATES ARE REQUIRED TO BE KEPT BY THE DIFFERENT COMPANIES. UNLESS SOME QUALITIE S ARE ADDED AND THERE IS IMPROVEMENT IN THE PRODUCT THEN ONLY THE RATES WILL VARY, BUT NOT TO THE EXTENT AS SHOWN BY THE ASSESSEE. IN CASE OF FERTILIZER, PESTICIDES AND SEEDS, THE COMPARATIVE RATES SHOW THAT DECLINE IS BY 5.75%, 3.82% AND 1.46%, RESPECTIVE LY. BOTH SHRI RAMCHANDRA NAVALE AND SHRI SAHEBRAO NAVALE ARE 10 ITA NO. 15 38/PN/2011, SRI SAHEBRAO RAMACHANDRA NAVALE, AHMEDNAGAR ENGAGED IN THE SAME LINE OF B USINESS, EVEN BUSINESS PLACE IS SAME AND SALE IS ALSO TO THE SAME TYPE OF C U STO M ERS AND IN SAME LOCATION, THEN FLUCTUATION SHOWN IS UNBELIEVABLE . BEFORE DISCUSSION ON THIS ISSUE ANY FURTHER, IT IS IMPORTANT TO TAKE INTO ACCOUNT THE FACTS THAT VIDE ORDER SHEET ENTRY DATED 26/11/2009, THE AUTHORIZED REPRESENTATIVE AND SHRI ANIL NAVALE (BROTHER OF ASSESSEE ) ON CONFRONTATION FIRST STATED THAT THE G.P. RATE IN RESPECT SEED S HAS DECLINED FROM 8.47% TO 6.46%. BUT IN THE SUBMISSION THEY SHOWED G.P. RATES OF SEEDS OF 7.79% INSTEAD OF 6.46% AGREED UPON EVIDENT FROM VIDE ORDER SHEET ENTRY DATED 26/11/2009. NO CONSISTENCY IS MAINTAINED. THE SUBMISSION MADE ITSELF GOES AGAINST TH E ASSESSEE. THE ASSESSEE APPEARS TO BE IN TWO STATES OF MIND SINCE HE IS GOT NAPPING. ONCE A LIE IS DETECTED, THE ASSESSING OFFICER IS DUTY BOUND TO PIERCE THROUGH AND BRING THE FACTS ON RECORD. WHILST ON THE SUBJECT, THE 3CD REPORT SUBMITTED WITH THE RET URN OF INCOME NEEDS TO BE EXAMINED MINUTELY: - (I) THE CLOSING STOCK IS SHOWN AS VERIFIED AND VALUED BY THE PROPRIETOR AND NO PHYSICAL VERIFICATION WAS MADE. (II) WHEREVER VOUCHER IS NOT SUPPORTED BY APPROPRIATE PAPERS, WE HAVE RELIED ON INFORMATION GIVEN BY PROPRIETOR. (III) SUNDRY DEBTORS, SUNDRY CREDITORS, DEPOSITS AND ADVANCES ARE SUBJECT TO CONFIRMATION LETTERS. THUS, THE REPORT SIGNED BY THE AUTHORIZED CHARTERED ACCOUNT IS SUBJECT TO THE CONFIRMATION AND EXPLANATION GIVEN BY THE PROPRIETOR H IMSELF WHICH ITSELF SHOWS THAT HOW MUCH RELIABLE ARE THE BOOKS OF ACCOUNTS OF THE ASSESSEE. AS STATED ABOVE ON BEING SPECIFICALLY ASKED TO STATE THE REASONS FOR FALL IN G.P RATE OF SEEDS, ON 30/11/2009, THE AUTHORIZED REPRESENTATIVE ATTENDED AND FILED EX PLANATION. THE RELEVANT PORTION FROM THE SUBMISSION IS EXTRACTED HEREUNDER: - 1) EXPLANATION OF FALL IN GP RATIO OF SEEDS THE GROSS PROFIT RATIO FOR A.Y. 2006 - 07 AND 2007 - 08 ARE AS UNDER 11 ITA NO. 15 38/PN/2011, SRI SAHEBRAO RAMACHANDRA NAVALE, AHMEDNAGAR ITEM TURNOVER RS. GROSS PROFIT RS. RATIO 31.03.06 31.03.07 31.03 .06 31.03.07 31.03.06 31.03.07 FERTILIZER 271620158 270868166 4171750 4285123 1.54% 1 .58% PESTICIDE 12200568 12355974 222772 366848 1 .83% 2.97% SEEDS 55279487 65839041 4686448 5125805 8.48% 7.79% CEMENT 16741526 33594492 1 03178 553091 0.62% 1.65 % TOTAL 355841739 382657673 ITEM TURNOVER RS. DIRECT EXPENSES RS. RATIO 31.03.06 31.03.07 31.03.06 31.03.07 31.03.06 31.03.07 HAMALI 355841739 382657673 358839 306703 0.1% 0.08% TRANSPOR TATION 355841739 382657673 1 706944 1877972 0.48% 0.49% FROM THE ABOVE DETAILS IT IS CLEAR THAT THE GP IS INCREASED H FERTILIZERS PESTICIDES AND CEMENT BUT IN CASE OF SEEDS ONLY THE GP RATIO IS DECREASED. THE PURCHASES ARE FULLY SUPPORTED BY PURCHASE BLL S, SALES ARE ALSO FULLY SUPPORTED BY SALE BILLS, ALL QUANTITATIVE DETAILS OF PURCHASE SALES, OPENING STOCK, CLOSING STOCK ARE REGULARLY MAINTAINED AND THERE IS NO ANY CHANGE IN STOCK VALUATION METHOD HENCE THE GP IS AS PER THE BOOKS OF ACCOUNTS ONLY. ALL T HE DEBITS LIKE OPENING STOCK AND PURCHASES AND ALL THE CREDITS LIKE SALES AND CLOSING STOCK ARE FULLY SUPPORTED BY SALES BILLS, PURCHASES BILLS, QUANTITATIVE DETAILS - ETC. AND HENCE THE GP DISCLOSED AS PER BOOKS OF ACCOUNTS IS CORRECT THE TOTAL PURCHASES O F SEEDS ARE ONLY FROM REGISTERED SUPPLIERS WHICH ARE AS UNDER: - SR.NO NAME OF COMPANY/ DEALER AMOUNT RS. 1 AMAR SEEDSPVT.LTD, PUNE 72468/ - 2 DEEPAK FERTILIZERS PETROCHEM. CORP. LTD., NASIK 162300 / - 3 INDO AMERICAN HYBRID SEEDS PVT. LTD., PUNE 57 1296 / - 4 MAHARASHTRA STATE SEEDS CARP. LTD., HMEDNAGAR 20210501 / - 5 NAMADHARI SEEDS PVT . LTD., PUNE 5099600 / - 6 SHRAMIK AGRO SERVICES, S ANGAMNER 450881 / - 7 SHRMIK KRUSHI SEVA KENDRA, AKOLE 3685 / - 8 SHRMIK KRUSHI UDYOG LTD., SANGAMNE R 2348421 / - 9 SWIFT AGRO CHEMICALES PVT. LTD., PUNE 10439 / - 10 SYNGENTA INDIA LTD., PUNE 31210135 / - 11 SHRAMIK SHETKARI SEVA KENDRA, SANGAMNER 201 90/ - TOTAL 60179916 / - AS THE TOTAL SEEDS PURCHASES ARE FROM THE REGISTERED SEED COMPANIES & DEALERS AND HENCE THERE IS NO PURCHASE FROM ANY LOCAL 12 ITA NO. 15 38/PN/2011, SRI SAHEBRAO RAMACHANDRA NAVALE, AHMEDNAGAR OR UNREGISTERED DEALER. ALL THE PURCHASES ARE SUPPORTED BY PURCHASE BILLS AND ALL THE PAYMENTS TO THESE SUPPLIERS ARE MADE BY CROSSED CHEQUE OR DEMAND DRAFT ONLY. THE GP IS SLIGHTLY AFFECTED DUE TO T HE FACT THAT THE RETAIL SALES AS COMPARED TO THE WHOLESALE SALES FOR AY 2006 - 07 TO AY 2007 - 08 ARE REDUCED AND IN A.Y. 2007 - 08 THE INCREASE IN SALES OF SEEDS AROUND 19% IS DUE TO INCREASE IN WHOLESALE SALES WHERE THE PROFIT MARGIN IS LESS THAN THE RETAIL SA LES. THE QUANTITATIVE CHART SHOWING ALL QUANTITATIVE DETAILS INCLUDING WHOLESALE SALES AND RETAIL SALES DETAILS FOR AY 2006 - 07 AND AY 07 - 08 ARE ENCLOSED HEREWITH. THE LICENCE FOR CONDUCTING THE BUSINESS IS ISSUED BY ZILHA PARISHAD AND THERE IS STRICT CONTR OL ON THE SEEDS BY ZILHA PARISHAD AND ACCORDING TO THE RULES OF ZILHA PARISHAD 100% SALES BILLS ARE TO BE ISSUED TO THE CUSTOMERS AND HENCE , IN OUR CASE ALSO 100% SALES BILLS ARE ISSUED TO ALL CUSTOMERS CONSIDERING ALL THE ABOVE FACTS THE SLIGHT DECREASE I N GP OF SEEDS IS FULLY JUSTIFIED AND THERE IS NO ANY MANIPULATION IN THE RESULTS SHOWN BY THE BOOKS OF ACCOUNTS. COMING TO THE EXPLANATION FILED BY THE ASSESSEE, CONTROVERSIAL STATEMENT APPEARS REGARDING ASSESSEE'S SUBMISSION THAT THE PURCHASES ARE FULLY SUPPORTED BY PURCHASE AND SALE BILLS. AS DISCUSSED ABOVE IN FIRST PORTION OF THE ASSESSMENT ORDER, NO COMPARISON FOR THE PURCHASES MADE FROM THE SISTER - CONCERNS AS COMPARED TO PURCHASES MADE FROM MARKET, WERE FURNISHED. NOT ONLY THAT, ENORMOUS INTER PARTY PURCHASES AND SALES ARE MADE, HOWEVER, THE 3CD REPORT DOES NOT TALK ABOUT SALE. THE ANNEXURE 'VII' OF THE BCD REPORT TALKS ONLY ABOUT THE PURCHASES OF RS.38,62,273/ - MADE FROM ITS SISTER - CONCERNS. FROM ABOVE DISCUSSION,, IT IS PRIMA FACIE APPARENT THAT AS SESSEE WAS FOUND TO HAVE SHOWN NON - EXISTING TRANSACTIONS WITH SISTER CONCERNS. HENCE ASSESSEE'S EXPLANATION IS UNTENABLE. IT IS ALREADY BROUGHT ON RECORD THAT ASSESSEE STATED THAT SIMILAR PRACTICE FOLLOWED FOR PURCHASES TOO. HENCE FILED EXPLANATION IS ANAL YSED FURTHER, I) THE VALUE OF CLOSING STOCK WAS NOT VERIFIED BY CHARTER ACCOUNTANT AND HE RELIED SIMPLY ON THE WORD OF THE ASSESSEE. 13 ITA NO. 15 38/PN/2011, SRI SAHEBRAO RAMACHANDRA NAVALE, AHMEDNAGAR II) THE CHARTERED ACCOUNT HAS AFFIRMED THAT IN CASE OF MANY OF THE EXPENDITURES, RELIANCE WAS PLACED ON SELF DRAWN OFFICE VOUCHER S. III) ON TOP OF THAT THE CREDIT BALANCES WERE SUBJECT TO CONFIRMATIONS, THESE WERE NEVER CONFIRMED WITH THE RETURN OF INCOME NOR IN ASSESSMENT PROCEEDINGS. IV) THE COMPARISON OF THE BOOK RESULT OF THE ASSESSEE WITH ITS SISTER CONCERN AS DISCUSSED SUPRA HAD REVEAL ED THAT REMARKABLE AND UNBELIEVABLE FALL IN THE G.P. RATE IN FERTILIZERS, SEEDS AND CHEMICALS FOUND. THEREFORE, THE BOOK RESULT SHOWN BY THE ASSESSEE CANNOT BE ACCEPTED TO BE CORRECT. COMPARISON OF THE TRADING RESULTS OF THE ASSESSEE WITH SISTER CONCERN SHOWS FOLLOWING FALL IN THE G.P. RATES : - I) FERTILISER - 5.75% II) PESTICIDES - 3.82% III) SEEDS - 1.46% EVEN IF THE ARGUMENT MADE ORALLY DURING THE ASSESSMENT THAT THE ASSESSEE DEALS IN COMMODITIES OF THE SUPPLIERS THAN THE SISTER CONCERNS, THEN ALSO THE MAGNIT UDE OF THE FALL IN G.P. RATE CANNOT BE ACCEPTED TO BE CORRECT. AFTER TAKING INTO ACCOUNT THE TOTALITY OF THE FACTS OF THE CASE AND AFTER CONSIDERING ACCOUNT ARGUMENTS MADE BY THE ASSESSEE, IT IS DETERMINED THAT ASSESSEE HAD SHOWN FOLLOWING AS EXCESSIVE AND UNREASONABLE FALL IN G.P. RATES IN VARIOUS COMMODITIES: - S. NO. COMMODITY FALL IN G.P. RATE ON COMPARISON EXCESS PERCENTAGE DISALLOWED TOTAL TURNOVER TOTAL DISALLOWANCE I. FERTILIZER 5.75% 1.5% 270868166 4063022 ( 1 .5% OF 270868166) II. PES TICIDES 3.82% 2% 471998 9439 (2% OF 471998) III. SEEDS 1.46% 1% 65839041 658390 ( 1 % OF 65839041) TOTAL DISALLOWANCE - RS.47,30,851 14. IN SUM AND SUBSTANCE THE ASSESSING OFFICER WORKED THE DISALLOWANCE TO THE EXTENT OF RS.47,30,851/ - I. E. AFTER COMPARING WITH 14 ITA NO. 15 38/PN/2011, SRI SAHEBRAO RAMACHANDRA NAVALE, AHMEDNAGAR ONE OF THE SISTER CONCERNS I.E. M/S. SHRAMIK AGRO SERVICES, SANGAMNER WHO PROPRIETOR IS RAMCHANDRA B. NAVALE. THE ASSESSEE CARRIED THE ISSUE BEFORE THE LD. CIT(A) AND LD. CIT(A) SUSTAINED THE ADDITION AT RS.6 LACS BY GIVING THE FOL LOWING REASONS: I AM UNABLE TO SUSTAIN THE ENTIRE ADDITION OF THE ASSESSING OFFICER. DESPITE THIS, SOME OF THE OBJECTIONS FOUND BY THE ASSESSING OFFICER, MAINLY RELATING TO THE TRANSACTIONS ENTERED INTO BY THE APPELLANT WITH ASSOCIATE CONCERNS DESERVE TO BE CONSIDERED. ONLY PURCHASES HAVE BEEN SHOWN IN THE TAX AUDIT REPORT U/S 40A(2)(B). THE APPELLANT HAS ADMITTED BEFORE THE ASSESSING OFFICER, AS QUOTED IN THE ASSESSMENT ORDER THAT 'XEROX COPY OF PURCHASE BILL INDICATING PURCHASES DATE AND SALES BILL OF SISTER CONCERN AND OTHER DEALERS SHOWING COMPARATIVE SALES RATE ARE ENCLOSED HEREWITH. WE ARE SELLING THE GOODS TO VARIOUS SUB - DEALERS WHO SALE THESE GOODS DIRECTLY TO THE CONSUMERS. WE ARE DISTRIBUTORS FOR SOME COMPANIES. FOR THE PRODUCT OF THESE C OMPANIES OUR SELLING PRICE TO THE SUB - DEALERS SHOULD BE SAME AT SANGAMNER AS WELL AS AT VARIOUS PLACES OTHER THAN SANGAMNER. HENCE WHEN WE SELL TO SUB - DEALERS AT VARIOUS PLACES OTHER THAN SANGAMNER, WE SALE THESE GOODS THROUGH OUR SISTER CONCERNS, BEC A USE WE DO NOT HAVE ANY BRANCH OR NETWORK AT THESE LOCATIONS. WHEN WE SALE TO OUR SISTER CONCERNS WE SALE ABOVE THE PURCHASE RATE BUT LITTLE LESS THAN THE SALES PRICE OF SANGAMNER SUB - DEALER AS OUR SISTER CONCERN SHOULD ALSO BE ABLE TO SALE TO THE SUB - DEALERS AT THE SUB - DEALER PRICE APPLIED AT SANGAMNER. OUR SISTER CONCERN GET SMALL PROFIT ON SUCH SALES BECAUSE WE USE THEIR NETWORK FOR INCREASING THE SALES AND BECAUSE OF INCREASED SALES WE GET QUANTITY DISCOUNT FROM OUR SUPPLIERS. IN THIS CASE WE ALSO EARN A ND OUR SISTER CONCERN ALSO EARN LITTLE PROFIT, WE HAD TO MAKE THESE ARRANGEMENTS AS WE DO NOT HAVE OUR NETWORK AT THESE LOCATIONS. MOREOVER WE SALE TO OUR SISTER CONCERN THAT IS A BULK SALE AND CONSIDERING THEIR COST OF DISTRIBUTION, USE OF NETWORK WE HAV E TO CHARGE LITTLE LESS THAN OUR SUB - DEALER BUT WE HAVE ALWAYS CHARGE THEM ABOVE OUR PURCHASE PRICE.' THEREFORE, IT IS SEEN THAT THE ARGUMENTS MADE BEFORE THE ASSESSING OFFICER BY THE APPELLANT WAS NOT ONLY SUFFERING FROM COGENT APPEAL BUT WAS INDICATIVE O F MANIPULATION. THE APPELLANT HAS ALSO INDIRECTLY ADMITTED THAT THE ADDITION OF RS.6,47,605 BEING 0.31% OF THE TRANSACTIONS WITH THE RELATED PARTIES, MADE BY THE ASSESSING OFFICER IN A.Y. 2008 - 09 WAS REASONABLE AND ACCEPTABLE TO THEM. 15 ITA NO. 15 38/PN/2011, SRI SAHEBRAO RAMACHANDRA NAVALE, AHMEDNAGAR APPARENTLY, NO APPEAL HAS BEEN FILED IN THE SAID ASSESSMENT YEAR. THEREFORE, CONSIDERING THE OVERALL FACTS OF THE CASE, AN ADDITION OF RS.6,00,000 IS CONSIDERED TO BE FAIR AND REASONABLE OUT OF THE ABOVE REFERRED ADDITION MADE BY THE ASSESSING OFFICER. THIS GROUND THEREFORE, I S TREATED AS PARTLY ALLOWED . 15. WE FIND THAT IN THE A.Y. 2008 - 09 ON IDENTICAL REASON , THE ASSESSING OFFICER HAS MADE THE ADDITION WHICH WAS DELETED BY THE LD. CIT(A). THE LD. CIT(A) HAS OBSERVED THAT THE ASSESSEE HAS NOT CONTESTED THE ADDITION BUT THE SAID OBSERVATION APPEARS TO BE NOT CORRECT AS THE COPY OF THE ORDER OF THE LD. CIT(A) IS FILED BEFORE US FOR THE A.Y. 2008 - 09. WE ALSO FIND THAT EVEN THE LD. CIT(A) SUSTAINED THE ADDITION ON MERE LY ESTIMATE BASIS AND THERE IS NO CONSISTENCY IN THE APPROA CH OF THE AUTHORITIES BELOW . T HERE MAY BE THE TEN REASONS FOR DIFFERENCE IN THE PRICING E VEN IF THERE IS A COMPARISON BETWEEN THE SISTER CONCERNS AND UN RELATED PARTIES. WE, THEREFORE, FIND NO REASON TO SUPPORT THE ADDITION SUSTAINED BY THE LD. CIT(A) AT RS.6 LACS AND ACCORDINGLY, SAME IS DELETED. GROUND NO. 2 IS ALLOWED. 16. THE GROUND NO. 3 READS AS UNDER: HON'BLE COMMISSIONER OF INCOME TAX (APPEALS) HAS ERRED IN RETAINING ABOVE ADDITION OF RS. 3,17,583/ - OUT OF TOTAL EXPENSES DEBITED TO PROFIT AND LOS S ACCOUNT, S AME MAY PLEASE BE DELETED . 17. AS NOTED BY THE ASSESSING OFFICER THE ASSESSEE HAS DEBITED THE EXPENDITURE UNDER VARIOUS HEADS TO THE EXTENT OF RS. 63,51,777/ - AS EXPENDITURE WHICH RESULTED INTO THE NET PROFIT OF RS.17,75,753/ - . THE ASSESSING OFFICER HAS ALSO GIVEN THE HEADS WISE EXPENDITURE IN THE ASSESSMENT ORDER. THE ASSESSING OFFICER HAS OBSERVED THAT THE ASSESSEE PRODUCED BOOKS OF ACCOUNTS, VOUCHERS . ON THE VERIFICATION , IT WAS REVEALED THAT SOME OF THE EXPENSES ARE NOT FULLY SUPPORTED W ITH SUPPORTING EVIDENCE IN THE FORM OF MUSTER ROLL, BILLS AND VOUCHERS. NO THIRD PARTY EVIDENCE OR CIRCUMSTANTIAL EVIDENCE WAS AVAILABLE WITH THE 16 ITA NO. 15 38/PN/2011, SRI SAHEBRAO RAMACHANDRA NAVALE, AHMEDNAGAR ASSESSEE. THE ASSESSING OFFICER HAS OBSERVED THAT THE PERCENTAGE OF BOOKED GROSS PROFIT AT 2.12% IS REDUCE D TO 0.46% AS NET PROFIT. THE CHARTERED ACCOUNTANT'S GENERAL REMARK NO. 5 IS AGAIN EXTRACTED HEREUNDER 'WHEREVER THE SUPPORTING DOCUMENTS, BILLS, CASH MEMOS, STAMP RECEIPT, VOUCHERS OR DETAILS NOT AVAILABLE ON RECORD, WE HAVE RELIED UPON OFFICE VOUCHERS D ULY SIGNED BY ASSESSEE OR AUTHORIZED PERSONS AND INFORMATION AND EXPLANATION GIVEN BY PROPRIETOR'. THE ASSESSING OFFICER HAS FURTHER OBSERVED THAT THE AUDITOR HIMSELF IS OF THE CONSIDERED VIEW THAT THE ASSESSEE WAS NOT HAVING FULL SUPPORTING DOCUMENTS AND HE HAD TO RELY UPON SELF - DRAWN VOUCHERS SIGNED BY ASSESSEE OR HIS AUTHORIZED REPRESENTATIVE. THE ASSESSING OFFICER HAS NOTED THAT THE GENERAL REMARK NO. 4 WHICH ALSO NEEDS TO BE TAKEN INTO ACCOUNT BEFORE ARRIVING AT CONCLUSION. THE REMARK NO. 4 IS QUALIF YING STATEMENT WHICH STATES THAT ACCORDING TO INFORMATION AND EXPLANATION GIVEN TO US BY THE ASSESSEE, ALL THE EXPENSES DEBITED TO PROFIT AND LOSS ACCOUNT WERE INCURRED PURELY FOR BUSINESS PURPOSE. THE ASSESSING OFFICER HAS FURTHER OBSERVED THAT THE AUD ITOR PLACES RELIANCE UPON INFORMATION AND THE STATEMENT GIVEN BY PROPRIETOR AND HE DID NOT HAVE ANY SCOPE FOR VERIFICATION ABOUT TRUTH OR GENUINENESS OF THE EXPENDITURE WHICH IS CLAIMED TO HAVE BEEN INCURRED PURELY FOR BUSINESS. 18. THE ASSESSING OFFICER HAS FURTHER OBSERVED THAT A LL THESE FACTORS ARE THE CLEAR INDICATORS THAT THE ASSESSEE HAS INFLATED THE EXPENDITURE TO REDUCE ITS NET PROFIT FROM GROSS PROFIT. AS STATED ABOVE, THE AMOUNT OF RS.63,51,777/ - IS DEBITED TO PROFIT AND LOSS ACCOUNT UNDER VARIO US HEADS AND MORE PARTICULARLY AMOUNT OF RS.31,74,209/ - DEBITED DOES NOT APPEAR TO BE SOUND ON FOOTING. THE ASSESSING OFFICER FINALLY HELD THAT A FTER TAKING INTO ACCOUNT ALL THE FACTS OF THE CASE, 10% EXPENDITURE, OUT OF TOTAL DEBITED EXPENDITURE OF RS.63 ,51,777/ - IS DISALLOWED AS INFLATED EXPENDITURE TO REDUCE MARGIN OF PROFIT WORKS OUT TO RS.6,35,177/ - . ACCORDINGLY , THE ASSESSING OFFICER MADE THE ADDITIONS OF RS.6,35,177/ - . 17 ITA NO. 15 38/PN/2011, SRI SAHEBRAO RAMACHANDRA NAVALE, AHMEDNAGAR THE LD. CIT(A) SUSTAINED THE ADDITION AT RS.3,17,583/ - BY GIVING THE FOLLOWING REASONS: 4.3. I HAVE CAREFULLY CONSIDERED THE FACTS OF THE CASE AND THE LAW AS ARE APPARENT FROM THE RECORD. THE ASSESSING OFFICER AFTER CONSIDERING THE TRADING ACCOUNT OF THE APPELLANT HAS EXAMINED THE VARIOUS EXPENSES DEBITED IN THE P&L ACCOUNT OF RS. 63,51,777 BEFORE ARRIVING AT THE NET PROFIT OF RS.17,75,753 AND CAME TO THE CONCLUSION THAT THE EXPENSES ARE NOT SUPPORTED WITH VERIFIABLE VOUCHERS. THE NATURE OF THE EXPENDITURE WAS ALSO CONSIDERED AND IT WAS FOUND THAT ITS USE FOR OTHER THAN BUSINESS PUR POSES CANNOT BE RULED OUT. THE OBSERVATION OF THE AUDITOR HAS ALSO BEEN RELIED UPON. THE APPELLANT ON THE OTHER HAND HAS OBJECTED TO THE SAME AND IT HAS BEEN CLAIMED THAT THE ENTIRE EXPENDITURE IS FOR THE PURPOSE OF THE BUSINESS. THE APPELLANT HAS ALSO TRIED TO ARGUE THAT THE ASSESSING OFFICER IN A.Y. 2008 - 09 HAS RESTRICTED THE DISALLOWANCE IN SIMILAR FACTS TO RS.89,000 AND THEREFORE, AT BEST THE DISALLOWANCE CAN BE RESTRICTED TO RS.30,000. ON CAREFUL CONSIDERATION, I FIND THAT THE ASSESSING OFFICER HAS ESTIMATED THE ADDITION ON THE BASIS OF OBSERVATION OF THE AUDITOR AS WELL AS HIS OBSERVATION MADE IN RESPECT OF MAINTENANCE OF SUPPORTING DOCUMENTS AND THE NATURE OF THE EXPENDITURE. THE APPELLANT CLAIMS THAT THE SAME IS UNREASONABLE AND CAN BE RESTRICTED TO RS.30,000. THE ASSESSING OFFICER HAS DISALLOWED 10% OF THE TOTAL EXPENDITURE, WHICH MAY BE CONSIDERED SLIGHTLY EXCESSIVE IN THE FACTS OF THE CASE. CONSIDERING THE TOTALITY OF THE FACTS AND CIRCUMSTANCES OF THE CASE THE DISALLOWANCE IS RESTRICTED TO 5% O F THE TOTAL EXPENSES. THE APPELLANT GETS; A RELIEF OF RS.3,17,588 (50% OF 6,35,177). THIS GROUND IS PARTLY ALLOWED. WE HAVE HEARD THE PARTIES AND PERUSED THE RECORD. 19. WE FIND THAT THE ASSESSEE HAS SUBMITTED COMPARATIVE CHART SHOWING EXPENSES DEBITED T O THE PROFIT AND LOSS ACCOUNT FOR THE A.YS. 2007 - 08 AND 2008 - 09. IN THE A.Y. 2008 - 09 THE EXPENDITURE WAS MORE BUT THE ASSESSING OFFICER HAS MADE THE DISALLOWANCE ONLY AT RS.89,000/ - . IT IS TRUE THAT EACH Y EAR IS DIFFERENT ASSESSMENT YEAR AND UNLESS THE FACTS ARE TOTALLY IDENTICAL THEN THERE SHOULD NOT BE INCONSISTENT APPROACH BY THE REVENUE AUTHORITIES. THE CONTENTION OF THE 18 ITA NO. 15 38/PN/2011, SRI SAHEBRAO RAMACHANDRA NAVALE, AHMEDNAGAR ASSESSEE IS THAT THE DISALLOWANCE MAY BE RESTRICTED TO RS.30,000/ - AFTER CONSIDERING THE TOTALITY OF THE FACTS AND ALSO TAKING THE NOTE THAT NO REASONS ARE GIVEN FOR MAKING THE DISALLOWANCE AND DISALLOWANCE IS ONLY BASED ON THE AD HOC BASIS. WE, SUSTAIN THE DISALLOWANCE TO RS.50,000/ - AND BALANCE ADDITION IS DELETED. ACCORDINGLY, GROUND NO. 3 IS PARTLY ALLOWED. 20. IN THE RESULT, THE ASSESSEES APPEAL IS PARTLY ALLOWED. PRONOUNCED IN THE OPEN COURT ON 25 - 0 8 - 2014 SD/ - SD/ - ( G.S. PANNU ) ( R.S. PADVEKAR ) ACCOUNTANT MEMBER JUDICIAL MEMBER RK /PS PUNE , DATED : 25 TH AUGUST, 2014 COPY TO 1 ASSESSEE 2 DEPARTMENT 3 4 THE CIT(A) - I, PUNE THE CIT - I, PUNE 5 THE DR, ITAT, A BENCH, PUNE. 6 GUARD FILE. //TRUE COPY// BY ORDER ASSISTANT REGISTRAR INCOME TAX APPELLATE TRIBUNAL PUNE