The ACIT, Circle-9, Surat V. M/s. Dharamchand U.Shah, Surat

ITA 1738/AHD/2011

• Counselvise Citation: [2016] 132 COUNSELVISE.COM (IT) 0157 (ITAT-AHMEDABAD)
• Duration Of Justice: 5 year(s) 3 month(s) 28 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 28-10-2016
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: D
• Next Hearing Date: 07-09-2016
• Assessment Year: 2008-2009
• Appeal Filed On: 30-06-2011
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Assessee Lawyers: RASESH SHAH
• Keywords: Gross profit estimation; Rejection of books of accounts
• Section: 143(3); 145

Judgement Text

, IN THE INCOME TAX APPELLATE TRIBUNAL D BENCH, AHMEDABAD BEFORE SHRI PRAMOD KUMAR, ACCOUNTANT MEMBER AND SHRI MAHAVIR PRASAD, JUDICIAL MEMBER ./ ITA NO. 1738/AHD/2011 / ASSESSMENT YEAR : 2008-09 ACIT, CIRCLE-9, SURAT VS SHRI DHARAMCHAND U. SHAH, PROP. OF M/S. AARADHANA SALES AGENCY, ASHWINI KUMAR ROAD, SURAT PAN : ACIPS 4179 G / (APPELLANT) / (RESPONDENT) REVENUE BY : SHRI KAMLESH MAKWANA, SR DR ASSESSEE BY : SHRI RASESH SHAH, AR / DATE OF HEARING : 07/09/2016 / DATE OF PRONOUNCEMENT: 28/10/2016 / O R D E R PER MAHAVIR PRASAD, JUDICIAL MEMBER:- THIS APPEAL BY THE REVENUE IS DIRECTED AGAINST THE ORDER OF THE COMMISSIONER OF INCOME-TAX (APPEALS)-I, SURAT DATED 21.03.2011 FOR AY 2008-09. 2. THE GROUNDS RAISED BY THE REVENUE IN ITS APPEAL READ AS UNDER:- 1. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE A ND IN LAW, THE LD. CIT(A) HAS ERRED IN DELETING THE ADDITION MADE BY THE ASSE SSING OFFICER OF RS.54,11,418/- ON ACCOUNT OF FALL IN GP BY REJECTIN G BOOK RESULT U/S 145(3) OF THE ACT. 2. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE A ND IN LAW, THE LD. CIT(A) HAS ERRED IN DELETING THE DISALLOWANCE OF SALARY EX PENSES OF RS.3,25,393/-. 3. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE A ND IN LAW, THE LD. CIT(A) HAS ERRED IN DELETING THE ADDITION MADE BY THE ASSE SSING OFFICER AT RS.4,41,142/- ON ACCOUNT OF DISALLOWANCE OF TARGET COMMISSION. 4. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE A ND IN LAW, THE LD. CIT(A) OUGHT TO HAVE UPHELD THE ORDER OF THE ASSESSING OFF ICER. ITA NO. 1738/AHD/2011 ACIT VS. SHRI DHARAMCHAND U. SHAH AY : 2008-09 2 3. BRIEFLY STATED FACTS ARE THAT THE ASSESSEE IS AN INDIVIDUAL, ENGAGED IN THE BUSINESS OF AGENCY OF FOOD PRODUCTS LIKE NESTLE INDIA LTD, SONI INDIA LTD, FISCAL LTD. FOR THE YEAR UNDER CONSIDERATION, THE ASSESSEE FILED RETURN OF INCOME ON 24.09.2008 DECLARING TOTAL INCOME AT RS.1 9,13,550/-, WHICH WAS PROCESSED U/S 143(1) OF THE INCOME-TAX ACT, 1961 (H EREINAFTER REFERRED TO AS 'THE ACT'). THE ASSESSEE HAS SHOWN GP OF RS.95,18, 042/- @ 2.36% ON THE TURNOVER OF RS.40,38,37,195/- IN COMPARISON TO THE EARLIER YEAR OF RS.39,49,847/- @ 3.03% ON THE TURNOVER OF RS.13,03, 59,638/-. SUBSEQUENTLY, THE CASE OF THE ASSESSEE WAS PICKED UP FOR SCRUTINY ASSESSMENT AND THE ASSESSMENT U/S 143(3) OF THE ACT WAS FRAMED VIDE OR DER DATED 30.12.2010. WHILE FRAMING THE ASSESSMENT, THE ASSESSING OFFICER MADE FOLLOWING ADDITIONS/DISALLOWANCES AFTER REJECTING THE BOOKS O F ACCOUNTS OF THE ASSESSEE U/S 145 (3) OF THE ACT:- A. ADDITION ON ACCOUNT OF LOW GP - RS.54,11,418/- B. DISALLOWANCE OF UNACCOUNTED SALE RETURN- RS.18,80,1 22/- C. DISALLOWANCE OF SALARY EXPENSES - RS. 3,25,393/- D. ADDITION ON TARGET COMMISSION - RS. 4,41,142/- E. LOW HOUSEHOLD WITHDRAWAL - RS. 1,41,661/- 4. AGGRIEVED BY THE AFORESAID ORDER OF THE LD. AO, THE ASSESSEE PREFERRED APPEAL BEFORE THE LD. CIT(A) WHO, AFTER CONSIDERING THE SUBMISSIONS OF THE ASSESSEE, GRANTED RELIEF TO THE ASSESSEE. 5. BEING AGGRIEVED, THE REVENUE IS IN APPEAL BEFORE US AGAINST THE DELETION OF ADDITION/DISALLOWANCE IN RESPECT OF LOW GP, SALARY EXPENSES AND TARGET COMMISSION. 6. WITH RESPECT TO GROUND NO.1, I.E., DELETION OF A DDITION ON ACCOUNT OF LOW GP OF RS.54,11,418/-, THE LD. DR CONTENDED THAT THE LD. AO OBSERVED THE GP HAS FALLEN 3.03% IN AY 2007-08 TO 2.36% FOR AY 2 008-09 AND FOR SUCH FALL ITA NO. 1738/AHD/2011 ACIT VS. SHRI DHARAMCHAND U. SHAH AY : 2008-09 3 OF GP BY 0.67%, THE AO MADE ADDITION OF THIS AMOUNT BY REJECTING THE BOOKS OF ACCOUNTS ON THE BASIS OF CERTAIN DEFECTS AS MENT IONED IN THE ASSESSMENT ORDER. HE ALSO CONTENDED THAT IN THE ASSESSMENT PR OCEEDINGS ALSO, THE AO NOTICED THAT THE ACCOUNTS OF PURCHASERS WITH BOOKS OF ACCOUNTS COULD NOT RECONCILE THE LEDGER ACCOUNT ENTIRELY. MOREOVER, TH E AO POINTED OUT CERTAIN DISCREPANCIES WITH REGARD TO THE PHYSICAL CLOSING S TOCK AS ON 31.12.2008 AMOUNTING TO RS.1,04,06,933, WHEREAS AS PER THE AUD IT REPORT AND P&L ACCOUNT, THE SAME WAS VALUED AT RS.83,81,912/-. TH US, THE ASSESSING OFFICER WAS RIGHTLY REJECTED THE BOOKS OF ACCOUNTS OF THE A SSESSEE AND ADDED THE SAME TO THE TOTAL INCOME OF THE ASSESSEE AS THE ASS ESSEE HAD DELIBERATELY SHOWN LESS VALUE OF CLOSING STOCK WITH AN INTENTION TO REDUCE THE TAX LIABILITY. LD. DR ALSO ARGUED THAT THE LD. CIT(A) FAILED TO CONSIDER THE LINE OF BUSINESS OF THE ASSESSEE WHILE HOLDING THAT THE ADD ITION MADE BY THE AO SOLELY ON THE BASIS OF PRESUMPTION AND ASSUMPTION O F STATIC GP RATIO AS COMPARED WITH EARLIER YEARS. HE FURTHER ARGUED THA T FOR ANY TRADING CONCERN, THE GP RATE RANGES BETWEEN 2 TO 5%, BUT FA LL OF 0.67% CANNOT BE DIGESTED COUPLED WITH THE FACT THAT THE ASSESSEES BOOKS WERE NOT PROPERLY MAINTAINED SO AS TO COMPUTE THE CORRECT PROFITS OF THE BUSINESS. THUS, IT WAS PLEADED THAT THE ORDER OF THE LD. CIT(A) MAY BE CAN CELLED IN THIS REGARD AND THAT OF AO MAY BE UPHELD. 7. LD. COUNSEL FOR THE ASSESSEE, ON THE OTHER HAND, SUPPORTED THE ORDER OF THE LD. CIT(A) AND CONTENDED THAT THE LD. AO MAD E THE ABOVE ADDITION SOLELY ON THE BASIS OF PRESUMPTIONS AND ASSUMPTION OF STATIC GP RATIO AS COMPARED WITH EARLIER YEARS WITHOUT CONSIDERING THE TRUE FACTS OF HIGHER GP EARNED FOR THE YEAR UNDER APPEAL. HE FURTHER SUBMI TTED THAT ALL THE ENTRIES HAVE BEEN PROPERLY REFLECTED IN THE ASSESSEES BOOK S OF ACCOUNTS OF M/S. FASCAL LTD AND M/S. VODAFONE ESSAR GUJARAT LTD AND THERE IS NO DISCREPANCY IN THIS REGARD. ASSESSEE MAINTAINED CO MPLETE STOCK RECORDS AND QUANTITATIVE DETAILS WERE ALSO GIVEN IN TAX AUDIT R EPORT; AND THERE WERE NO ITA NO. 1738/AHD/2011 ACIT VS. SHRI DHARAMCHAND U. SHAH AY : 2008-09 4 DEFECTS IN THE BOOKS OF ACCOUNTS. HE FURTHER SUBMI TTED THAT THE DIFFERENCE IN THE AMOUNT MENTIONED IN STOCK STATEMENT GIVEN TO TH E BANK AND THE FIGURE OF STOCK RECORDED IN BOOKS OF ACCOUNTS WERE NOT ATT RIBUTABLE TO DIFFERENCE IN QUANTITY. 8. HAVING HEARD BOTH THE SIDES, PERUSED THE MATERIA L AVAILABLE ON RECORD AND GONE THROUGH THE ORDERS OF THE AUTHORITIES BELO W, WE FIND THAT THE METHOD OF ACCOUNTING IS CONSISTENTLY FOLLOWED BY TH E ASSESSEE FROM PAST MANY YEARS AND THE SAME IS ACCEPTED IN SCRUTINY PRO CEEDINGS FOR AY 2006- 07. THE COPY OF ASSESSMENT ORDER IS FILED IN PAPER -BOOK AT PAGE NOS. 49-52. IN THE AY 2007-08 ALSO THE GROUND OF REJECTION OF B OOKS IS HELD IN FAVOUR OF ASSESSEE. THE PRODUCT-WISE QUANTITATIVE DETAILS AR E FILED WITH AUDIT REPORT AT PAGE NOS. 55-91 OF PAPER-BOOK. THERE IS NO DIFFERE NCE IN QUANTITY IN STOCK STATEMENT FILED WITH THE BANK; ONLY DIFFERENCE IS I N VALUATION. EVEN OTHERWISE ASSESSEE HAS FILED COMPARATIVE CHART SHOW ING PRODUCT-WISE GROSS PROFIT RATIO FOR AY 2007-08 AND AY 2008-09. THEREF ORE, THE GROUND NO.1 OF THE APPEAL IS REJECTED. 9. APROPOS SECOND GROUND REGARDING DELETION OF DISA LLOWANCE OF SALARY EXPENSES OF RS.3,25,393/-, LD. DR CONTENDS THAT FOR THE AY 2007-08 ALSO THE ASSESSING OFFICER MADE SIMILAR ADDITION AS THERE WE RE NO DETAILS WITH REGARD TO EMPLOYEES WERE GIVEN BY THE ASSESSEE. FO R THE YEAR UNDER CONSIDERATION ALSO, AS THE ASSESSEE HAS EVADED THE RESPONSIBILITY TO GIVE DETAILS OF SALARY EXPENSES IN TIME FOR PROPER VERIF ICATION, 10% OF THE EXPENSES CLAIMED AT RS.32,53,932/- AMOUNTING TO RS. 3,25,393/- WAS RIGHLY DISALLOWED BY THE ASSESSING OFFICER AND ADDED BACK TO THE TOTAL INCOME OF THE ASSESSEE. THEREFORE, THE ORDER OF THE AO IN THI S REGARD MAY BE UPHELD AND THAT OF LD. CIT(A) MAY BE CANCELLED. 10. LD. COUNSEL FOR THE ASSESSEE, ON THE OTHER HAND , SUPPORTED THE ORDER OF THE CIT(A) AND SUBMITTED THAT THE APPELLANT HAS MAINTAINED SALARY ITA NO. 1738/AHD/2011 ACIT VS. SHRI DHARAMCHAND U. SHAH AY : 2008-09 5 REGISTER AND THE COMPLETE DETAILS HAVE BEEN FILED A S AND WHEN REQUIRED BY THE AO; THUS, THE AO WAS NOT JUSTIFIED IN REJECTING THE ASSESSEES CONTENTION ON THE GROUND THAT NO TIME WAS AVAILABLE WITH HIM T O VERIFY THE SAME. 11 WE HAVE HEARD BOTH PARTIES, PERUSED THE MATERIAL AVAILABLE ON RECORD AND GONE THROUGH THE ORDERS OF THE AUTHORITIES BELO W. WE FIND THAT THE OBSERVATION OF THE ASSESSING OFFICER WAS THAT THE A SSESSEE FILED THE DETAILS OF ITS EMPLOYEES VERY LATE AT THE END OF ASSESSMENT PR OCEEDINGS AND FOR AY 2007-08, THE SALARY EXPENSES OF 7 PERSONS AMOUNTING TO RS.3,73,052/- WAS HELD TO BE BOGUS AND ADDED BACK TO THE TOTAL INCOME . THE LD. CIT(A) HELD THAT THE ASSESSING OFFICER HAS FAILED TO BRING ANY MATERIAL IN SUPPORT OF HIS CONTENTION OF BOGUS EXPENSES. THUS, MERELY ON DOUB TS AND SUSPICION THE SALARY PAID TO THE EMPLOYEES COULD NOT BE TREATED A S BOGUS ONE AS IT IS MANIFESTED FROM THE ASSESSMENT ORDER THAT THE DETAI LS OF THE EMPLOYEES WERE FILED VERY LATE. THEREFORE, IN OUR OPINION, TH IS GROUND IS NOT SUSTAINABLE; HENCE DISMISSED. 12. WITH REGARD TO LAST GROUND, I.E., AGAINST THE D ELETION OF ADDITION OF RS.4,41,142/- ON ACCOUNT OF DISALLOWANCE OF TARGET COMMISSION, LD. DR CONTENDED THAT THERE IS NO SPECIFIC COMPUTATION IN THE SALARY REGISTER REGARDING COMMISSION PAID ON ANY BASIS; THEREFORE, THE COMMISSION PAID IS LIABLE TO TDS AND RIGHTLY DISALLOWED BY THE AO U/S 40(A)(IA) OF THE ACT. 13. LD. DR, ON THE OTHER HAND, SUPPORTED THE ORDER OF THE LD. CIT(A) AND SUBMITTED THAT THE PAYMENT OF TARGET SALARY HAS ACT UALLY BEEN MADE TO THE EMPLOYEES AS MENTIONED IN THE SALARY REGISTER AND A LL THE EMPLOYEES HAVE ASSERTED THAT THEY HAVE BEEN PAID TARGET SALARY AS A TOKEN OF RECEIPT OF THE SAME AND THEY HAVE SIGNED IN THE SALARY REGISTER AL SO. FURTHER, THE LD. CIT(A) OBSERVED THAT SIMILAR ADDITION MADE IN THE P RECEDING YEAR HAS BEEN DELETED VIDE ORDER DATED 22.02.2011 PASSED IN ASSES SEES OWN CASE. ITA NO. 1738/AHD/2011 ACIT VS. SHRI DHARAMCHAND U. SHAH AY : 2008-09 6 14 WE HAVE HEARD THE RIVAL CONTENTIONS, PERUSED THE MATERIAL AVAILABLE ON RECORD AND GONE THROUGH THE ORDERS OF THE AUTHOR ITIES BELOW. WE FIND THAT THE ASSESSING OFFICER HELD THAT IN THE SALARY REGISTER THERE IS NO SPECIFIC COMPUTATION OF THE COMMISSION PAID ON ANY BASIS AND THE COMMISSION PAID IS LIABLE TO TDS AND THEREFORE, HE MADE DISALLOWANC E U/S 40(A)(IA) OF THE ACT. THE LD. CIT(A) HAS HELD THAT THE VIEW TAKEN BY THE ASSESSING OFFICER FOR MAKING THIS DISALLOWANCE IS IN THE ABSENCE OF ANY S OLID BASE AND MERELY ON THE GROUND OF MIS-NOMENCLATURE OF THE HEAD OF THE E XPENDITURE WHICH IS TARGET SALARY AND NOT TARGET COMMISSION AND HENCE, THERE IS NO LAWFUL GROUND TO MAKE DISALLOWANCE US/ 40(A)(IA) OF THE AC T TREATING THE TARGET SALARY AS THE PAYMENT OF COMMISSION U/S 194H OF THE ACT. THE ASSESSEE VIDE HIS LETTER DATED 27.12.2010 ALSO GAVE JUSTIFIC ATION FOR PAYMENT OF TARGET SALARY AND IT WAS POINTED OUT THAT TURNOVER HAS SUB STANTIALLY INCREASED TO RS.40 CRORES IN CURRENT YEAR FROM RS.13 CRORES IN P RECEDING YEAR. THE ASSESSEE HAS MAINTAINED TARGET SALARY REGISTER SHOW ING COMPLETE NAME OF THE EMPLOYEES AND THE SAME IS DULY SIGNED AND STAMP ED AT THE END OF PARTICULAR MONTH. THE ASSESSEE ALSO GAVE ALL THE N AMES OF ITS EMPLOYEES AND EVEN THE RETURNS OF INCOME OF A FEW EMPLOYEES WERE FILED. THEREFORE, IN OUR CONSIDERED OPINION, GROUND NO.3 IS NOT SUSTAINABLE IN LAW AND HENCE DISMISSED. 15. IN THE RESULT, THE APPEAL FILED BY THE DEPARTME NT IS DISMISSED. ORDER PRONOUNCED IN THE COURT ON 28 TH OCTOBER, 2016 AT AHMEDABAD. SD/- SD/- PRAMOD KUMAR (ACCOUNTANT MEMBER) MAHAVIR PRASAD (JUDICIAL MEMBER) AHMEDABAD; DATED 28/10/2016 ITA NO. 1738/AHD/2011 ACIT VS. SHRI DHARAMCHAND U. SHAH AY : 2008-09 7 / COPY OF THE ORDER FORWARDED TO : 1. / THE APPELLANT 2. / THE RESPONDENT. 3. / CONCERNED CIT 4. ( ) / THE CIT(A) 5. , , / DR, ITAT, AHMEDABAD 6. / GUARD FILE . / BY ORDER, TRUE COPY / ( DY./ASSTT.REGISTRAR) , / ITAT, AHMEDABAD