M/s. Shree Ambica Auto Sales & Service, Surat V. The AddlCIT.,Range-5, Surat

ITA 1630/AHD/2008

• Counselvise Citation: [2012] 140 COUNSELVISE.COM (IT) 57121 (ITAT-AHMEDABAD)
• Duration Of Justice: 3 year(s) 8 month(s) 13 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 25-01-2012
• Appeal Filed By: Assessee
• Order Result: Dismissed
• Bench Allotted: A
• Next Hearing Date: 19-01-2012
• Assessment Year: 2005-2006
• Appeal Filed On: 12-05-2008
• Result in Favour of: Revenue
• Court: TRIBUNAL
• Department Lawyers: P K SRIVASTAVASR
• Keywords: Depreciation
• Section: 43B; 133(6); 194C

Judgement Text

ITA NO.1630 & 2042/AHD/2008 ASSESSMENT YEAR 2005-06 1 IN THE INCOME TAX APPELLATE TRIBUNAL A BENCH, AH MEDABAD (BEFORE SHRI G.C. GUPTA,VICE PRESIDENT AND SHRI B .R. BASKARAN,AM) I.T.A. NO.1630/ AHD/2008 (ASSESSMENT YEAR: 2005-06 ) SHREE AMBICA AUTO SALES & SERVICE, N.H.NO.8, AT & POST AMBOLI, TAL KAMREJ, DIST.SURAT. (APPELLANT) VS. THE ADDITIONAL COMMISASIONER OF INCOME TAX, RANGE-5, AAYAKAR BHAVAN, MAJURA GATE, SURAT. (RESPONDENT) I.T.A. NO.2042/AHD/20 08 (ASSESSMENT YEAR: 2005-06) THE ADDITIONAL COMMISASIONER OF INCOME TAX, RANGE-5, AAYAKAR BHAVAN, MAJURA GATE, SURAT. (APPELLANT) VS. SHREE AMBICA AUTO SALES & SERVICE, N.H.NO.8, AT & POST AMBOLI, TAL KAMREJ, DIST.SURAT. (RESPONDENT) PAN: AAEFA 0874 G APPELLANT BY : SHRI TUSHAR HEMANI RESPONDENT BY : SHRI P.K.SRIVASTAVA,SR.D.R. ( )/ ORDER DATE OF HEARING : 19-1-2012. DATE OF PRONOUNCEMENT : 25-1-2012 PER: SHRI B.R. BASKARAN, ACCOUNTANT MEMBER. THESE CROSS APPEALS ARE DIRECTED AGAINST THE ORDER DATED 24-03-2008 PASSED BY LD CIT (A)-III, SURAT AND IT RELATES TO THE ASSE SSMENT YEAR 2005-06. ITA NO.1630 & 2042/AHD/2008 ASSESSMENT YEAR 2005-06 2 2. THE ASSESSEE IS A PARTNERSHIP FIR AND IS AN AUTHORISED DEALER OF LIGHT COMMERCIAL VEHICLES AND HEAVY COMMERCIAL VEHICLES O F TATA MOTORS LTD. IT IS ALSO RUNNING AN AUTHORIZED SERVICE STATION FOR SERV ICING THE VEHICLES CITED ABOVE. IT FILED ITS RETURN OF INCOME FOR THE YEAR UNDER CONSI DERATION ON 28.10.2005 DECLARING A TOTAL INCOME OF RS.63,89,956/-. HOWEVER THE AO C OMPLETED THE ASSESSMENT BY DETERMINING THE TOTAL INCOME AT RS.2,60,68,590/- BY MAKING VARIOUS ADDITIONS. THE ASSESSEE CHALLENGED ALL THE ADDITIONS MADE IN THE A SSESSMENT ORDER BEFORE LD CIT (A) AND GOT PARTIAL RELIEF. STILL AGGRIEVED, THE A SSESSEE IS IN APPEAL BEFORE US. THE REVENUE IS CHALLENGING THE RELIEF GRANTED BY LD CIT (A). 3. BOTH THE PARTIES ARE IN CROSS APPEALS IN RES PECT OF THE FOLLOWING ISSUES, SINCE THE LD CIT (A) HAS GRANTED PARTIAL RELIEF ON THOSE ISSUES. THE ASSESSEE IS SEEKING FURTHER RELIEF, WHILE THE REVENUE IS ASSAILING THE RELIEF GRANTED BY LD CIT (A). (A) DISALLOWANCE MADE FROM SALARY AND BONUS (B) DISALLOWANCE MADE FROM TELEPHONE EXPENSES (C) DISALLOWANCE MADE FROM MOTOR CAR EXPENSES AND DEPRECIATION ON MOTOR CAR WE SHALL DISPOSE OF THESE ISSUES FIRST. 3.1 THE FIRST COMMON ISSUE PERTAINS TO DISALLOW ANCE MADE FROM THE EXPENSE CLAIMED UNDER THE HEAD SALARY AND BONUS. THE ASSE SSEE HAD CLAIMED AN AMOUNT OF RS.1,27,37,469/- UNDER THIS HEAD. ON VERIFICATI ON OF THE SAID CLAIM, THE AO NOTICED THAT A SUM OF RS.68,19,704/- WAS PAID IN CA SH AND ALSO WITHOUT DEDUCTING P.F THERE FROM. THE AO ASKED THE ASSESSEE TO PRODU CE TEN EMPLOYEES, BUT THE ASSESSEE COULD PRODUCE ONLY FIVE OF THEM. THEREFOR E, THE ASSESSEE DOUBTED ABOUT THE GENUINENESS OF SALARY EXPENSES, WHICH WERE PAID IN CASH, MORE PARTICULARLY FOR THE REASON THAT THE PF WAS NOT DEDUCTED THERE FROM. ACCORDINGLY, HE DISALLOWED ITA NO.1630 & 2042/AHD/2008 ASSESSMENT YEAR 2005-06 3 25% OF SALARY EXPENSES PAID IN CASH, I.E. 25% OF RS .68,19,704/- STATED ABOVE. IN THE APPEAL, THE LD CIT (A) REDUCED THE DISALLOWANCE TO A LUMP SUM AMOUNT OF RS.5.00 LAKHS. 3.1.1 WE HAVE HEARD BOTH THE PARTIES ON THIS IS SUE. THE LD CIT (A) HAS SPECIFICALLY OBSERVED THAT THE MERE NON-DEDUCTION OF PF CANNOT BE A GROUND FOR MAKING DISALLOWANCE. WE FIND MERIT IN THE SAID OBS ERVATION OF LD CIT (A). HE HAS ALSO NOTED THAT THE PAYMENTS IN CASH WERE MADE TO ONLY CASUAL AND TEMPORARY WORKERS. HENCE ON A CONSPECTUS OF THE MATTER, THE LD CIT (A) RESTRICTED THE IMPUGNED ADDITION TO A LUMP SUM FIGURE OF RS.5.00 L AKHS FOR THE REASON THAT THERE IS A PROBABILITY THAT A PART OF CLAIM CANNOT BE SUB STANTIATED BY THE ASSESSEE. WE AGREE WITH THE VIEW OF LD CIT (A) THAT THE NON-DED UCTION OF PF ALONE CANNOT BE THE REASON FOR DOUBTING THE GENUINENESS OF THE CLAI M. IN ANY CASE, THE SAID PAYMENTS HAVE BEEN MADE TO CASUAL AND TEMPORARY LAB OURERS, WHICH FACT HAS NOT BEEN DISPROVED. WE NOTICE THAT THE AO HAS DOUBTED THE GENUINENESS OF THIS EXPENSE FOR ANOTHER REASON, I.E., THE ASSESSEE COUL D PRODUCE 5 EMPLOYEES OUT OF 10 PERSONS CALLED FOR BY HIM. HOWEVER, FROM THE ORDER OF LD CIT (A), WE NOTICE THAT THE ASSESSEE HAD FURNISHED EXPLANATIONS AS TO WHY I T COULD NOT PRODUCE THE REMAINING 5 PERSONS. HENCE, WE AGREE WITH THE VIEW OF LD CIT (A) THAT DISALLOWANCE OF 25% IS ON THE HIGHER SIDE. HOWEVER , SINCE THE PAYMENTS HAVE BEEN MADE IN CASH, AS OBSERVED BY LD CIT (A), IT IS QUIET POSSIBLE THAT SOME OF THE PAYMENTS COULD NOT BE SUBSTANTIATED. HENCE, WE ARE OF THE VIEW THAT THE DISALLOWANCE OF RS.5.00 LAKHS ESTIMATED BY LD CIT ( A) IS REASONABLE AND ACCORDINGLY UPHOLD THE SAME. 3.1.2 THE NEXT COMMON ISSUE PERTAINS TO DISALLO WANCE MADE FROM THE EXPENSE CLAIMED UNDER THE HEAD TELEPHONE EXPENSES. THE AS SESSEE HAD DISALLOWED 1/20 TH ITA NO.1630 & 2042/AHD/2008 ASSESSMENT YEAR 2005-06 4 OF THE EXPENSES CLAIMED UNDER THIS HEAD TOWARDS PER SONAL USE. THE AO HOWEVER ENHANCED THE DISALLOWANCE TO 1/4 TH OF THE TOTAL CLAIM. HOWEVER, THE LD CIT (A) SUSTAINED THE ADDITION TO THE EXTENT OF 1/5 TH OF THE EXPENSES CLAIMED UNDER THIS HEAD. THOUGH BOTH THE PARTIES ARE ASSAILING THE DE CISION OF LD CIT (A), BOTH OF THEM HAVE FAILED TO PRODUCE ANY MATERIAL BEFORE US IN ORDER TO COMPEL US TO INTERFERE WITH THE DECISION RENDERED BY LD CIT (A) ON THIS ISSUE. WE NOTICE THAT THE ASSESSEE HIMSELF HAD DISALLOWED A PART OF TELEP HONE EXPENSES TOWARDS PERSONAL USE ON AD-HOC BASIS. THE SAID ACTION OF THE ASSESSE E ESTABLISHES THE FACT THAT THE TELEPHONES WERE PUT TO PERSONAL USE ALSO. HOWEVER, THE ASSESSEE HAS FAILED TO FURNISH ANY MATERIAL TO SUBSTANTIATE THE QUANTUM OF DISALLOWANCE MADE BY IT. HENCE WE FIND NO REASON TO INTERFERE WITH THE DECIS ION OF LD CIT (A) ON THIS ISSUE. 3.1.3 THE LAST COMMON ISSUE PERTAINS TO DISALLO WANCE MADE FROM THE EXPENSE CLAIMED UNDER THE HEAD VEHICLE EXPENSES AND ALSO FROM DEPRECIATION CLAIMED ON MOTOR CAR TOWARDS PERSONAL USE. AS IN THE CASE OF TELEPHONE EXPENSES DISCUSSED IN THE PRECEDING PARAGRAPH, THE ASSESSEE HAD DISALL OWED 1/20 TH OF THE SAID CLAIM. THE AO ENHANCED THE DISALLOWANCE TO 1/4 TH AND THE LD CIT (A) SUSTAINED THE DISALLOWANCE TO 1/5 TH OF THE CLAIM. THE VIEW TAKEN BY US IN RESPECT OF THE TELEPHONE EXPENSES SHALL APPLY WITH EQUAL FORCE T O THIS ISSUE ALSO. ACCORDINGLY, WE UPHOLD THE ORDER OF LD CIT (A) ON THIS ISSUE ALS O. 4. NOW WE SHALL TAKE UP THE SPECIFIC ISSUES RAIS ED IN THE APPEAL FILED BY THE REVENUE, WHICH ARE LISTED OUT BELOW:- (A) ADDITION MADE TOWARDS SUPPRESSION OF GROSS PR OFIT. (B) DISALLOWANCE MADE FROM DISCOUNTS AND REBATES CLAIM. (C) DISALLOWANCE MADE FROM LABOUR CHARGES CLAIM . (D) DISALLOWANCE OF PF CONTRIBUTION U/S 43B OF TH E ACT. ITA NO.1630 & 2042/AHD/2008 ASSESSMENT YEAR 2005-06 5 4.1 THE FIRST ISSUE RELATES OF THE ADDITION MAD E TOWARDS SUPPRESSION OF GROSS PROFIT, WHICH WAS DELETED FULLY BY LD CIT (A). THE FACTS RELATING TO THE SAME ARE STATED IN BRIEF. THE ASSESSEE HAD DECLARED GROSS PR OFIT ON SALE OF SPARE PARTS @ 6.21%. IN THE AUDIT REPORT, THE AUDITORS HAD MADE FOLLOWING OBSERVATIONS WITH REGARD TO THE VALUATION OF STOCK. (E) INVENTORIES VALUATION:- INVENTORIES OF CLOSING STOCK IS BASED ON PHYSICALLY TAKEN, VALUED AND CERTIFIED BY THE PARTNERS. INVENTORIES OF CLOSING STOCK IS VALUED AT COST. NOTE:- DAY TO DAY QUANTITATIVE RECORDS FOR SPARE PARTS, ACCESSORIES, CONSUMABLE ITEMS ARE NOT MAINTAINED BY THE FIRM WHICH IS STATED TO BE NOT FEASIBLE ON ACCOUNT OF NATURE OF OPERATIONS INVOLVING DEALINGS IN NUMEROUS ITEMS. HENCE, WE HAVE NOT BEEN ABLE TO VERIFY AND ARE NOT IN A POSITION TO STATE THE QUANTITATIVE DETAILS REQUIRED TO BE DISCLOSED IN RESPECT OF PRINCIPAL ITEMS TRADED IN B Y THE ASSESSEE . HENCE, THE AO THOUGHT IT FIT TO SEEK CLARIFICATIONS FROM THE ASSESSEE ON THIS ISSUE. WHEN QUESTIONED ABOUT THE METHODOLOGY ADOPTED FOR T HE VALUATION OF SPARE PARTS, THE ASSESSEE REPLIED AS UNDER IN ITS LETTER DATED 1 8-09-2007:- STOCK OF SPARE PARTS AND ACCESSORIES HAVE BEEN FOL LOWED CONSISTENTLY YEAR AFTER YEAR ON THE BASIS OF RETAILER METHOD. DETAIL S OF WORKINGS ARE ENCLOSED. YOUR HONOUR WILL APPRECIATE THAT WE ARE DEALING IN ENORMOUS ITEMS OF STOCK AND THEREFORE IT IS NOT FEASIBLE TO INVENTORIES AND VALUE INDIVIDUAL ITEMS OF STOCK OF SPARE PARTS AND ACCESSORIES. THE AO CAREFULLY CONSIDERED THE WORKINGS FURNISHED BY THE ASSESSEE FOR DETERMINING THE VALUE OF CLOSING STOCK OF SPARE PAR TS FURNISHED BY THE ASSESSEE. THE AO NOTICED THAT THE ASSESSEE IS NOT TAKING THE PHYSICAL INVENTORY OF SPARE PARTS AS AT THE YEAR END AND INSTEAD IT WAS ARRIVING AT T HE VALUE OF CLOSING STOCK OF SPARE PARTS BY APPLYING THE FOLLOWING FORMULA:- VALUE OF STOCK = NET SALES (-) DIRECT COS T (-) GROSS PROFIT ITA NO.1630 & 2042/AHD/2008 ASSESSMENT YEAR 2005-06 6 THUS, THE AO NOTICED THAT THE ASSESSEE IS DETERMINI NG THE AMOUNT OF GROSS PROFIT FIRST AND THEN BY REVERSE METHOD, ARRIVES AT THE VA LUE OF CLOSING STOCK OF SPARE PARTS, WHICH IS NOT NORMALLY FOLLOWED. THE ASSESSE E SUBMITTED THAT THE ABOVE SAID METHOD OF REVERSE WORKING IS ALSO A RECOGNIZED METH OD OF ARRIVING AT THE VALUE OF CLOSING STOCK AND THE SAID METHOD IS CALLED AS RET AILER METHOD. SINCE THE VALUE OF CLOSING STOCK IS DETERMINED, AFTER DETERMINING T HE AMOUNT OF GROSS PROFIT, THE AO PROCEEDED TO VERIFY THE CORRECTNESS OF THE GP RA TE OF 6.21% ADOPTED BY THE ASSESSEE. ACCORDINGLY, THE AO ASKED THE ASSESSEE T O CALCULATE THE GP RATE OF CERTAIN ITEMS OF SPARE PARTS FROM THE SALES INVOICE S. FOR THAT PURPOSE, TEN SALES INVOICES RAISED IN THE BEGINNING OF THE YEAR WERE T AKEN IN TO CONSIDERATION. THE CALCULATIONS MADE BY THE ASSESSEE WERE ATTACHED AS ANNEXURES A TO D TO THE ASSESSMENT ORDER. IN ANNEXURE A, 40 ITEMS OF SPARE PARTS WERE CONSIDERED FOR THE SAID PURPOSE. IN ANNEXURE B, C AND D, THE NUMBER O F ITEMS CONSIDERED WERE 30, 63 AND 94 RESPECTIVELY. THE AO NOTICED THAT THE ABO VE SAID LIST OF ITEMS ALSO INCLUDED CERTAIN ITEMS, WHICH WERE REPLACED AT FREE OF COST DURING THE WARRANTY PERIOD. SINCE THERE WILL NOT BE ANY PROFIT ELEMENT ON THE ITEMS REPLACED AT FREE OF COST, THE AO EXCLUDED THOSE ITEMS FROM THE WORKING S. THE RATE OF GP WORKED OUT IN THE FOUR ANNEXURES, AFTER EXCLUDING THE FREE REP LACEMENT ITEMS, RANGED FROM 11.73% TO 18.22%. THE AVERAGE OF THE SAID RATES WO RKED OUT TO 15.62%. HENCE, THE AO CONCLUDED THAT THE ASSESSEE HAD SHOWN LOWER RATE OF GP RATE ON SALE OF SPARE PARTS. ACCORDINGLY, THE AO APPLIED THE AVERA GE RATE OF GP STATED ABOVE AND REWORKED THE GROSS PROFIT AMOUNT AND ADDED THE DIFF ERENCE TO THE TOTAL INCOME OF THE ASSESSEE. IN THE APPEAL, THE LD CIT (A), ON BE ING CONVINCED WITH THE EXPLANATIONS OF THE ASSESSEE, DELETED THE SAME. HE NCE, THE REVENUE IS IN APPEAL BEFORE US. ITA NO.1630 & 2042/AHD/2008 ASSESSMENT YEAR 2005-06 7 4.1.1 WE NOTICE THAT THE LD CIT (A) HAS CONSIDER ED THE FOLLOWING POINTS WHILE DECIDING THE IMPUGNED ISSUE IN FAVOUR OF THE ASSESS EE. (A) THE OVER ALL GP RATE HAS INCREASED TO 3.85% AS AGAINST 3-09% DECLARED IN THE IMMEDIATELY PRECEDING YEAR. (B) THE AO HAS CONSIDERED ONLY TEN INVOICES AND LE SS NUMBER OF ITEMS, WHILE THE ASSESSEE IS DEALING IN 50,000 TYPES OF SP ARE PARTS. EVEN THE SAID INVOICES PERTAIN TO THE BEGINNING OF THE FINANCIAL YEAR. HENCE THE SAMPLES TAKEN BY AO CANNOT BE CONSIDERED AS REPRESENTATIVE SAMPLES. (C) THE AO DID NOT TAKE INTO CONSIDERATION THE GP RATE DIFFERENCE BETWEEN VARIOUS TYPES OF SPARE PARTS. THE EXCLUSION OF VAL UE OF REPLACEMENT ITEMS IN WARRANTY PERIOD IS NOT CORRECT. (D) THE AUDITORS HAVE NOT POINTED OUT ANY DEFECT IN THE BOOKS OF ACCOUNT. (E) IT WOULD NOT BE POSSIBLE TO WORK OUT GP RATE ON THE BASIS OF LESS THAN 1% OF THE TOTAL INVENTORY. DURING THE COURSE OF HEARING BEFORE US, THE LD A.R POINTED OUT THAT THE PRICES OF THE SPARE PARTS AS WELL AS THE MARGIN THERE ON ARE FIXED BY TATA MOTORS LTD. ACCORDINGLY HE SUBMITTED THAT THERE IS NO SCOPE FOR MANIPULATION OF SELLING PRICE OR GP RATES. HE FURTHER SUBMITTED THAT THE RETAILERS METHOD OF VALUATION IS ONE OF THE ACCEPTED METHODS OF VALUATION, WHICH WAS NOT AC CEPTED BY THE AO. HE ALSO SUBMITTED THAT THE AO HAS CONSIDERED A MINUSCULE PE RCENTAGE (LESS THAN 1%) OF THE ITEMS DEALT IN BY THE ASSESSEE, WHICH CANNOT BE CON SIDERED AS REPRESENTATIVE SAMPLES. HE SUBMITTED THAT THE OVERALL GP RATE HA S INCREASED TO 3.85% AS AGAINST 3.09% AND 3.14% DECLARED IN THE IMMEDIATELY PRECEDI NG 2 YEARS. THE GP RATE IN RESPECT OF SPARE PARTS ALSO INCREASED TO 6.21% AS A GAINST 5.21% DECLARED IN THE IMMEDIATELY PRECEDING YEAR. THE LD A.R RELIED UPON CERTAIN CASE LAW IN SUPPORT OF HIS CONTENTIONS THAT THERE IS NO NECESSITY TO DI STURB THE RESULTS SHOWN BY IT. WE DISCUSS THOSE CASE LAW BRIEFLY HEREUNDER: ITA NO.1630 & 2042/AHD/2008 ASSESSMENT YEAR 2005-06 8 (A) ITA NO.3225/A/2004 PRADIPBHAI D SHAH VS.ACIT:- WHERE GP IS MORE AS COMPARED TO EARLIER YEARS AND WHICH HAS BEEN ACC EPTED BY THE REVENUE, NO ADDITION IS REQUIRED. (HOWEVER THE ASSESSEE DID NOT SUBMIT A COPY OF THE SAID ORDER AND HENCE WE COULD PERUSE THE SAME.) (B) THE LD CIT (A) HAS HELD THAT THERE IS NO JUSTI FICATION IN INVOKING THE PROVISIONS OF SEC. 145(3) OF THE ACT AND IN REJECTI NG THE BOOK RESULTS. THE SAID FINDING WAS NOT CHALLENGED BY THE REVENUE. IN THE ABSENCE OF ANY CHALLENGE TO THE FINDING RECORDED BY LD CIT (A), TH E BOOKS RESULTS DECLARED BY THE ASSESSEE SHALL HAVE TO BE ACCEPTED. RELIANC E WAS PLACED ON THE DECISION RENDERED BY THIS BENCH IN THE CASE OF ITO VS. M/S P.T. SYNTHETICS (ITA NO.4520/AHD/2007); M/S P.T. SYNTHETICS VS. ITO (ITA NO.4543/AHD/2007 AND ACIT VS. SHRI RAMANBHAI B PATE L (HUF) (ITA NO.1948/AHD/2008). (C) EVEN IF DAY TO DAY STOCK REGISTER IS NOT MAIN TAINED, THE BOOK RESULTS CANNOT BE REJECTED. ITO VS. MANSI PRINTS PVT. LTD (ITA NO.498 AND 872/AHD/2009). ON THE CONTRARY, THE LD D.R POINTED OUT THAT THE AS SESSEE HAD BEEN ARRIVING AT THE VALUE OF CLOSING STOCK BY APPLYING THE PREDETERMINE D GP RATE. HENCE THE AO PROCEEDED TO EXAMINE THE VERACITY OF THE RATE ADOPT ED BY THE ASSESSEE, WHICH WAS ULTIMATELY FOUND TO BE VERY MUCH LOWER. HENCE THE AO HAS ARRIVED AT THE RATE OF GP ON THE BASIS OF SALES INVOICES AND HAS ADOPTED T HE SAME IN THE METHODOLOGY FOLLOWED BY THE ASSESSEE. 4.1.2 ON A CAREFUL CONSIDERATION OF RIVAL SUBMISS IONS AND RECORD, WE NOTICE THAT THE ASSESSEE HAS NOT MAINTAINED DAY TO DAY RECORD O F QUANTITY REGISTERS IN RESPECT OF SPARE PARTS. THE ASSESSEE HAS ALSO NOT TAKEN PHYSI CAL INVENTORY OF SPARE PARTS THAT WERE AVAILABLE AS AT THE YEAR END. WE HAVE GONE TH ROUGH THE CASE LAW RELIED UPON BY THE ASSESSEE AND NOTICE THAT IN THOSE CASES, THE ASSESSEES THEREIN HAVE EITHER MAINTAINED THE DAY TO DAY STOCK REGISTER OR FURNISH ED THE QUANTITY DETAILS OF STOCK ITA NO.1630 & 2042/AHD/2008 ASSESSMENT YEAR 2005-06 9 THAT WERE AVAILABLE AS AT THE BEGINNING/END OF THE FINANCIAL YEAR. HOWEVER, THE FACTS PREVAILING IN THE INSTANT CASE ARE OTHER WISE , I.E. THE ASSESSEE HAS NOT EITHER MAINTAINED DAY TO DAY STOCK REGISTER FOR SPARE PART S OR TAKEN PHYSICAL INVENTORY OF SPARE PARTS STOCK AS AT THE YEAR END. HENCE, IN OU R VIEW, THE ASSESSEE CANNOT DERIVE SUPPORT FROM THE CASE LAW DISCUSSED ABOVE. THE ASS ESSEE HAS CONTENDED THAT THE REVENUE HAS NOT TAKEN A SPECIFIC GROUND WITH REGARD TO THE OBSERVATIONS OF LD CIT (A) WITH REGARD TO THE REJECTION OF BOOK RESULTS. HOWEVER, WE NOTICE THAT THE REVENUE IS CHALLENGING THE DECISION OF LD CIT(A) IN DELETING THE ENTIRE ADDITION ON THIS ISSUE. HENCE, IN OUR VIEW, THE SAID GROUND EN COMPASSES IN ITS FOLD ALL THE OBSERVATIONS MADE BY THE LD CIT (A). 4.1.3 THE METHODOLOGY ADOPTED BY THE ASSESSEE FOR THE PURPOSE OF ARRIVING AT THE VALUE OF CLOSING STOCK OF SPARE PARTS HAS BEEN CLAI MED TO BE RETAILERS METHOD. UNDER THE SAID METHOD, THE VALUE OF STOCK IS ARRIVE D AT BY REVERSE PROCESS BY DETERMINING THE AMOUNT OF GROSS PROFIT FIRST. IT I S PERTINENT TO NOTE THAT, IN THE NORMAL COURSE, THE GROSS PROFIT IS STRUCK AFTER PUT TING THE VALUE OF CLOSING STOCK IN THE FINANCIAL STATEMENTS. THE ASSESSEE HAS CLAIMED BEFORE US THAT THE AO HAS NOT ACCEPTED THE RETAILERS METHOD OF VALUATION. HOWEV ER, ON A CAREFUL PERUSAL OF THE ASSESSMENT ORDER, WE NOTICE THAT THE AO HAS NOT DIS TURBED THE SAID METHODOLOGY. SINCE THE AMOUNT OF GROSS PROFIT IS DETERMINED FIRS T UNDER THIS METHOD, THE AO HAS PROCEEDED TO ASCERTAIN THE VERACITY OF THE RATE OF GP ADOPTED BY THE ASSESSEE AND CONSEQUENTLY THE AMOUNT OF GROSS PROFIT. 4.1.4 THE LD A.R, DURING THE COURSE OF ARGUMENT S, SUBMITTED THAT THE SELLING PRICE OF SPARE PARTS AND ALSO THE MARGIN THEREON AR E DETERMINED BY M/S TATA MOTORS LTD. THERE APPEARS TO BE NO DISPUTE ON THIS POINT. WE NOTICE THAT THE ITA NO.1630 & 2042/AHD/2008 ASSESSMENT YEAR 2005-06 10 AVERAGE RATE OF GP HAS BEEN WORKED OUT ONLY ON THE BASIS OF SALES INVOICES MAINTAINED BY THE ASSESSEE. HOWEVER, WE FIND THAT THE ASSESSEE HAS NOT TAKEN STEPS (A) TO BRING INSTANCES FROM OTHER SALES INVOICES TO PROVE ITS CLAIM THAT THE RATE OF GP WAS LOW IN MAJORITY OF ITEMS OF SPARE PA RTS. (B) TO WORK OUT THE GP RATE FROM THE RATES DETERMIN ED BY M/S TATA MOTORS LTD, AS THE PURCHASE PRICE AND SELLING PRICE ARE DE TERMINED IN ADVANCE BY THE SAID COMPANY. THERE CANNOT BE ANY DISPUTE THAT THE RATE OF GP DEP ENDS UPON THE PURCHASE PRICE AND SELLING PRICE OF A PRODUCT. THE ASSESSEE COULD HAVE DONE A MEANINGFUL EXERCISE TO SUBSTANTIATE THE AVERAGE RATE OF GP OF 6.21% DEC LARED BY IT ON THE BASIS OF PURCHASE AND SALES INVOICES BY ADOPTING WEIGHTED AV ERAGE METHOD. HOWEVER, WE NOTICE THAT THE ASSESSEE HAS CHOSEN TO SUBSTANTIATE THE RATE OF GP ADOPTED BY IT ONLY ON THE BASIS OF GENERAL SUBMISSIONS. 4.1.5 THERE CANNOT BE ANY DISPUTE THAT THE ASSE SSEE CANNOT REALIZE ANY PROFIT WHEN A PARTICULAR ITEM IS REPLACED AT FREE OF COST DURING THE WARRANTY PERIOD. IF SUCH WARRANTY CLAIMS ARE BORNE BY THE ASSESSEE, THE N IT WILL CERTAINLY HAVE IMPACT ON THE RATE OF GP. HOWEVER, IT IS NOT CLEAR FROM T HE RECORD AS TO WHETHER SUCH WARRANTY CLAIMS ARE BORNE BY THE ASSESSEE. THE ASS ESSEE IS CLAIMED THAT IT WAS HAVING STOCK OF ABOUT 50,000 TYPES OF SPARE PARTS. ACCORDINGLY, IT HAS CLAIMED THAT IT COULD NOT MAINTAIN DAY TO DAY STOCK. FROM THE P RACTICABILITY POINT OF VIEW, THERE IS SOME FORCE IN THE SAID CLAIM. HOWEVER, THE NON- MAINTENANCE OF STOCK ALSO LEADS TO CERTAIN OTHER PROBLEMS, LIKE THEFT AND PILFERAGE AND SUCH INCIDENTS WOULD ALSO HAVE IMPACT ON THE RATE OF GP. THE AO HAS NOT FACTO RED IN SUCH KIND OF POSSIBILITIES WHILE WORKING OUT THE AVERAGE RATE OF GP. FURTHER THE SAMPLES TAKEN BY THE AO CANNOT BE TAKEN AS REPRESENTATIVE SAMPLES , AS HE HAS NOT TAKEN SAMPLES RANDOMLY OVER THE ENTIRE YEAR. THUS, IN OUR VIEW, T HE RATE OF GP WORKED OUT BY THE ITA NO.1630 & 2042/AHD/2008 ASSESSMENT YEAR 2005-06 11 AO ALSO CANNOT BE CONSIDERED TO BE A PERFECT ONE. IN THESE KIND OF SITUATIONS, I.E., WHERE BOTH THE PARTIES HAVE FAILED TO SUBSTANTIATE THEIR RESPECTIVE STANDS, WE ARE CONSTRAINED TO TAKE A VIA MEDIA STAND IN ORDER TO S ETTLE THE DISPUTE. HENCE, ON A CONSPECTUS OF THE MATTER, WE ARE OF THE VIEW THAT T HE AVERAGE RATE OF GP ON SALE OF SPARE PARTS MAY BE FIXED AT 9% AND IN OUR VIEW THE SAME WOULD MEET THE ENDS OF JUSTICE. WE ORDER ACCORDINGLY. THE ORDER OF LD CI T (A) IS MODIFIED ACCORDINGLY ON THIS ISSUE. THE AO IS DIRECTED TO REWORK THE GP ADDITION IN THE LIGHT OF THE ABOVE SAID DECISION. 4.2 THE NEXT ISSUE RELATES TO THE DISALLOWANCE MADE FROM DISCOUNT AND REBATE CLAIM. THE ASSESSEE HAD CLAIMED A SUM OF RS.2,95,6 0,731/- UNDER THIS HEAD. THE AO NOTICED THAT THE ASSESSEE COULD FURNISH ONLY CR EDIT NOTES PREPARED BY IT IN SUPPORT OF THIS CLAIM. THE AO FELT THAT THE SAID C REDIT NOTES ARE NOT FULLY RELIABLE AS THEY WERE NOT SIGNED BY THE RECIPIENTS. HENCE, IN ORDER TO FIND THE VERACITY OF THE SAID CLAIM, THE AO SUMMONED CERTAIN CUSTOMERS, WHO WERE GIVEN DISCOUNTS. HOWEVER SOME PERSONS DID NOT TURN OUT AND SOME PERS ONS GAVE CONTRADICTORY REPLIES. HENCE THE AO CONCLUDED THAT THE ASSESSEE HAS INFLATED THE CLAIM MADE UNDER THE HEAD DISCOUNT AND REBATE AND ACCORDINGL Y DISALLOWED 20% THERE OF. HOWEVER, THE LD CIT (A) NOTICED THAT THE ASSESSEE H AD PAID A SUM OF RS.1.19 CRORES BY WAY OF CROSSED CHEQUES OUT OF THE TOTAL C LAIM OF RS.2.95 CRORES. THE LD CIT (A) ALSO RECOGNIZED THE FACT THAT THE CREDIT NO TES ARE NOT USUALLY SIGNED BY THE RECIPIENTS. IN RESPECT OF CUSTOMERS WHO FAILED TO RESPOND TO THE SUMMONS ISSUED BY THE AO, THE ASSESSEE HAD EXPLAINED THE MANNER AS TO HOW THE DISCOUNTS WERE PAID TO THOSE CUSTOMERS. THE ASSESSEE ALSO GAVE SO ME SATISFACTORY EXPLANATION WITH REGARD TO THE CONTRADICTORY REPLIES GIVEN BY S OME CUSTOMERS. THE LD CIT (A) ALSO RECOGNIZED THE FACT THAT THE RELATIONSHIP BETW EEN THE ASSESSEE AND ITS CUSTOMER NORMALLY ENDS AFTER THE COMPLETION OF SALES AND HEN CE THERE IS NO COMPULSION FOR ITA NO.1630 & 2042/AHD/2008 ASSESSMENT YEAR 2005-06 12 THE CUSTOMERS TO APPEAR BEFORE THE INCOME TAX AUTHO RITIES. ACCORDINGLY THE LD CIT (A) OPINED THAT THE AO COULD NOT HAVE TAKEN ADVERSE INFERENCE AGAINST THE ASSESSEE FOR NON-APPEARANCE OF CERTAIN CUSTOMERS. THE LD CI T (A) ALSO NOTICED THAT THE AO HAS FAILED TO ADDUCE THE OPPORTUNITY OF CROSS EXAMI NING THE PERSONS WHO HAVE GIVEN CONTRADICTORY STATEMENTS. IN VIEW OF THE VAR IOUS REASONS DISCUSSED ABOVE, THE LD CIT (A) DID NOT FIND ANY MERIT IN THE IMPUGN ED DISALLOWANCE AND ACCORDINGLY DELETED THE SAME. WE HAVE ALSO GONE TH ROUGH THE DETAILED DISCUSSIONS MADE BY THE LD CIT (A) AND FIND THAT THE VARIOUS PO INTS THAT WERE CONSIDERED BY FIRST APPELLATE AUTHORITY ARE VALID ONES. ACCORDIN GLY, WE DO NOT FIND ANY INFIRMITY IN HIS DECISION ON THIS ISSUE. 4.3 THE NEXT ISSUE RELATES TO THE DISALLOWANCE MADE FROM THE LABOUR CHARGES CLAIM. THE AO ISSUED LETTERS U/S 133(6) OF THE ACT TO FOUR PERSONS TO WHOM AN AGGREGATE AMOUNT OF RS.10,66,468/- HAD BEEN PAID AS LABOUR CHARGES. SINCE THE SAID LETTERS WERE RETURNED BACK UN-SERVED, THE AO D ISALLOWED THE SAID CLAIM. THE LD CIT (A) APPRECIATED THE FACT THAT THE ASSESSEE I S REQUIRED TO ENGAGE OUT SIDE PERSONS ALSO, TO CARRY OUT THE REPAIR WORKS OF VEHI CLES. THE LD CIT (A) ALSO NOTICED THAT THE ASSESSEE HAD DEDUCTED TAX AT SOURC E U/S 194C OF THE ACT ON THE ABOVE SAID PAYMENTS. THE ASSESSEE HAD MADE MAJORIT Y PORTION OF THE IMPUGNED AMOUNT BY WAY OF ACCOUNT PAYEE CHEQUES. IT WAS ALS O NOTICED THAT OUT OF FOUR PERSONS, ONE HAD EXPIRED, ONE OF THEM HAD GONE ABRO AD AND OTHER TWO PERSONS WERE NOT IMMEDIATELY TRACEABLE. IN VIEW OF THE ABOVE RE ASONS, THE LD CIT (A) HAS OPINED THAT THERE IS NO ROOM TO DOUBT THE GENUINENE SS OF THE IMPUGNED CLAIM SIMPLY FOR THE REASON THAT THE LETTERS ISSUED TO TH EM WERE RETURNED UN-SERVED. ACCORDINGLY HE HAS DIRECTED THE AO TO DELETE THE IM PUGNED ADDITION. ON A CAREFUL CONSIDERATION OF THE VARIOUS POINTS DISCUSSED ABOVE , WE ARE ALSO OF THE VIEW THAT ITA NO.1630 & 2042/AHD/2008 ASSESSMENT YEAR 2005-06 13 THE AO WAS NOT JUSTIFIED IN MAKING THE IMPUGNED ADD ITION. ACCORDINGLY, WE UPHOLD THE ORDER OF LD CIT (A) ON THIS ISSUE. 4.4 THE LAST ISSUE RELATES TO THE DISALLOWANCE O F EMPLOYEES SHARE OF PF. THE AO ADDED A SUM OF RS.85,254/- RELATING TO PF AMOUNT COLLECTED FROM THE EMPLOYEES, AS THE SAID AMOUNT WAS NOT PAID BY THE A SSESSEE WITHIN 15 DAYS. BEFORE LD CIT (A), THE ASSESSEE SUBMITTED THAT A GRACE PER IOD OF FIVE MORE DAYS ARE AVAILABLE UNDER THE PF REGULATIONS AND THE IMPUGNED PAYMENTS HAVE BEEN MADE WITHIN THE GRACE PERIOD. IT WAS ALSO SUBMITTED THA T THE PAYMENTS MADE WITHIN THE GRACE PERIOD ARE ALSO CONSIDERED AS PAYMENTS MADE W ITHIN THE DUE DATE. ACCORDINGLY, THE LD CIT (A) SUSTAINED A SUM OF RS.2 0,016/-, BEING THE AMOUNTS PAID BEYOND THE GRACE PERIOD. THOUGH THE REVENUE H AS CHALLENGED THE SAID DECISION OF LD CIT (A), YET THE DEPARTMENT HAS FAIL ED TO FURNISH ANY MATERIAL TO CONTRADICT THE SUBMISSIONS MADE BY THE ASSESSEE ON THIS ISSUE. HENCE, WE DO NOT FIND ANY REASON TO INTERFERE WITH THE DECISION OF L D CIT (A) ON THIS ISSUE. 5. IN THE APPEAL OF THE ASSESSEE, NO SPECIFIC I SSUE HAS BEEN RAISED OTHER THAN THE COMMON ISSUES DISCUSSED SUPRA. 6. IN THE RESULT, THE APPEAL OF THE ASSESSEE IS DISMISSED AND THE APPEAL OF THE REVENUE IS PARTLY ALLOWED. ORDER PRONOUNCED IN OPEN COURT ON 25 - 01 - 2012. SD/- SD/- (G. C. GUPTA) (B.R. BASKARAN) VICE PRESIDENT ACCOUNTANT ME MBER AHMEDABAD. S.A.PATKI. ITA NO.1630 & 2042/AHD/2008 ASSESSMENT YEAR 2005-06 14 COPY OF THE ORDER FORWARDED TO: - 1. THE APPELLANT. 2. THE RESPONDENT. 3. THE CIT (APPEALS)-III, SURAT. 4. THE CIT CONCERNED. 5. THE DR., ITAT, AHMEDABAD. 6. GUARD FILE. BY ORDER DEPUTY/ASSTT.REGISTRAR ITAT,AHMEDABAD. 1.DATE OF DICTATION 19 - 1 -2012 2.DATE ON WHICH THE TYPED DRAFT IS PLACED BEFORE TH E DICTATING 19 / 01 / 2012 MEMBER.OTHER MEMBER. 3.DATE ON WHICH THE APPROVED DRAFT COMES TO THE SR. P.S./P.S 20 - 01 -2012. 4.DATE ON WHICH THE FAIR ORDER IS PLACED BEFORE THE DICTATING MEMBER FOR PRONOUNCEMENT 25 - 01 -2012 5.DATE ON WHICH THE FAIR ORDER COMES BACK TO THE SR .P.S./P.S 25 - 01 -2012 6.DATE ON WHICH THE FILE GOES TO THE BENCH CLERK 2 5 - 01 -2012. 7.DATE ON WHICH THE FILE GOES TO THE HEAD CLERK . 8.THE DATE ON WHICH THE FILE GOES TO THE ASSTT. REG ISTRAR FOR SIGNATURE ON THE ORDER 9.DATE OF DESPATCH OF THE ORDER..