DCIT, New Delhi V. Sh. Arvind Kumar Modi, New Delhi

ITA 1815/DEL/2009

• Counselvise Citation: [2011] 134 COUNSELVISE.COM (IT) 4030 (ITAT-DELHI)
• Duration Of Justice: 2 year(s) 2 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 06-05-2011
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: A
• Next Hearing Date: 10-03-2011
• Assessment Year: 2005-2006
• Appeal Filed On: 04-05-2009
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: R B MATHUR
• Assessee Lawyers: R B MATHUR CA SHRI R B MATHUR

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL (DELHI BENCH : A NEW DELHI) (DELHI BENCH : A NEW DELHI) (DELHI BENCH : A NEW DELHI) (DELHI BENCH : A NEW DELHI) BEFORE SHRI G.E. VEERABHADRAPPA, HONBLE VICE PRES IDENT AND BEFORE SHRI G.E. VEERABHADRAPPA, HONBLE VICE PRES IDENT AND BEFORE SHRI G.E. VEERABHADRAPPA, HONBLE VICE PRES IDENT AND BEFORE SHRI G.E. VEERABHADRAPPA, HONBLE VICE PRES IDENT AND SHRI A.D. JAIN, JUDICIAL MEMMBER SHRI A.D. JAIN, JUDICIAL MEMMBER SHRI A.D. JAIN, JUDICIAL MEMMBER SHRI A.D. JAIN, JUDICIAL MEMMBER I.T.A. NO.1815/DEL./2009 I.T.A. NO.1815/DEL./2009 I.T.A. NO.1815/DEL./2009 I.T.A. NO.1815/DEL./2009 (ASSESSMENT YEAR : 2005 (ASSESSMENT YEAR : 2005 (ASSESSMENT YEAR : 2005 (ASSESSMENT YEAR : 2005- -- -06) 06) 06) 06) DCIT, CIRCLE 25(1), DCIT, CIRCLE 25(1), DCIT, CIRCLE 25(1), DCIT, CIRCLE 25(1), VS. VS. VS. VS. M/S ARVIND KUM M/S ARVIND KUM M/S ARVIND KUM M/S ARVIND KUMAR MODI, AR MODI, AR MODI, AR MODI, NEW DELHI. NEW DELHI. NEW DELHI. NEW DELHI. C CC C- -- -183, MAHARANA PRATAP ENCLAVE, 183, MAHARANA PRATAP ENCLAVE, 183, MAHARANA PRATAP ENCLAVE, 183, MAHARANA PRATAP ENCLAVE, PITAM PURA, PITAM PURA, PITAM PURA, PITAM PURA, NEW DELHI. NEW DELHI. NEW DELHI. NEW DELHI. (PAN/GIR NO. : AAEPM6098E) (PAN/GIR NO. : AAEPM6098E) (PAN/GIR NO. : AAEPM6098E) (PAN/GIR NO. : AAEPM6098E) (APPELLANT) (APPELLANT) (APPELLANT) (APPELLANT) (RESPONDENT) (RESPONDENT) (RESPONDENT) (RESPONDENT) ASSESSEE BY : SHRI R.B. MATHUR, CA ASSESSEE BY : SHRI R.B. MATHUR, CA ASSESSEE BY : SHRI R.B. MATHUR, CA ASSESSEE BY : SHRI R.B. MATHUR, CA REVENUE BY : SHRI H.K. LAL, SR.DR REVENUE BY : SHRI H.K. LAL, SR.DR REVENUE BY : SHRI H.K. LAL, SR.DR REVENUE BY : SHRI H.K. LAL, SR.DR ORDER ORDER ORDER ORDER PER A.D. JAIN, JM THIS IS DEPARTMENTS APPEAL FOR ASSESSMENT YEAR 2005-06 CONTENDING THAT THE CIT(A) HAS ERRED IN DELETING THE ADDITIONS OF `4915979 AND `747345 MADE BY THE AO ON ACCOUNT OF T RADING ADDITION AND BROKERAGE PAID BY REJECTING THE BOOKS OF ACCOUNT OF THE ASSESSEE, SINCE THE ASSESSEE HAD FAILED TO FURNISH THE DETAILS SOUGH T FOR AND TO PROVE THE AUTHENTICITY OF THE BOOKS OF ACCOUNT. 2. THE ASSESSEE INDIVIDUAL IS PROPRIETOR OF M/S AA ENTERP RISES AND IS ENGAGED IN THE TRADING OF FABRICS MAINLY USED BY EXPO RTERS. DURING THE YEAR, THE ASSESSEE HAD SHOWN GROSS PROFIT OF 11.08% AS COMP ARED TO THAT OF 20.11% SHOWN IN THE IMMEDIATELY PRECEDING YE AR, I.E., ASSESSMENT YEAR 2004-05. THE AO OBSERVED AS SUCH, THERE WA S A DRASTIC FALL IN THE G.P. RATE FOR THE YEAR UNDER CON SIDERATION, AS COMPARED TO THAT OF THE EARLIER YEAR. AS SUCH, THERE FORE, THE ASSESSEE WAS ASKED TO FURNISH DETAILED EXPLANATION AND TO SUBSTAN TIATE WITH EVIDENCE, HIS CLAIM RELATING TO THE G.P. RATE OF 11. 08%. ON THE REPLY OF THE ASSESSEE, THE AO OBSERVED THAT THE G.P. RATE SHOWN BY THE I.T.A. NO.1815/DEL./2009 (A.Y. : 2005-06) 2 ASSESSEE AT 11.08% WAS NOT JUSTIFIED; THAT THERE WAS A GRE AT DIFFERENCE IN THE RATES CHARGED, I.E., RANGING FROM 7 TO 9%; TH AT THE ASSESSEES CONTENTION THAT DIFFERENT RATES HAVE BEEN CHARGED TO DIFFERENT PARTIES, DID NOT TAKE CARE OF THE QUANTITY SUPPLIED; THAT ACC ORDING TO THE ASSESSEE, HIGHER RATES HAD BEEN CHARGED FROM SOME PARTIES, TO WHOM, THE QUANTITY SOLD WAS LOW AS COMPARED TO OTHER PARTIES TO WHOM, LOWER RATES HAD BEEN CHARGED AND TO WHOM LARGE QUANTITY HA D BEEN SOLD; THAT THE ASSESSEE HAD ALSO CONTENDED THAT QUANTITY SOLD T O SUPPLIER, TO WHOM, HIGHER RATES HAD BEEN CHARGED WAS EITHER VERY SM ALL OR SOME SAMPLES; THAT HOWEVER, THE INSTANCES CONCERNING RATE CI TED BY THE ASSESSEE WERE NOT EXHAUSTED; THAT IT IS THE NORMAL TREND OF THE ASSESSEES LINE OF BUSINESS THAT SAMPLES ARE GIVEN EITHER FR EE, OR AT CONCESSIONAL RATES, FOR THE PURPOSE OF CAPTURING A WIDE R MARKET; THAT IN THE ASSESSEES CASE, HOWEVER, SAMPLES WERE SOLD AT HIGHER RA TES; THAT FURTHER NO EVIDENCE HAD BEEN FURNISHED TO SUBSTANTIATE THE STAND TAKEN BY THE ASSESSEE; THAT THE ASSESSEES REPLY CONCERNING THE FALL IN G.P. RATE WAS VERY GENERAL AND WAS NOT SUPPORTED BY AN Y EVIDENCE; THAT THE ELEMENT OF UNDER-INVOICING IN THE TRANSACTI ON COULD NOT BE RULED OUT AND SO, IT WAS NOT CORRECT FOR THE ASSESSEE TO CONTEND THAT DIFFERENT RATES CHARGED TO DIFFERENT PARTIES FOR THE SAME VARIETY CAN BE EXEMPT ONLY IF THE TRANSACTION FALLS WITHIN THE PURVI EW OF SECTION 40A(2)(B) OF THE I.T. ACT; THAT THE ASSESSEE HAD CLAIME D TO HAVE GIVEN `2173903 TO M/S SARITA HANDA; THAT THIS CLAIM DID NOT CARRY MERIT SINCE THE ASSESSEE HAD NOT EXPENDITURE THE FACTUM OF THE CLAI MS ON ACCOUNT OF RATE DIFFERENCES IN THE CASE OF M/S SARITA HANDA WA S TWENTY TIMES MORE THAN IN THE CASES OF OTHER PARTIES; THAT IN THE C ASE OF M/S SARITA HANDA, THERE HAD BEEN SUPPLY OF DEFECTIVE MATERIAL T IME AND AGAIN DESPITE THE ASSESSEES CONTENTION THAT M/S SARITA HANDA WA S ITS PERMANENT CUSTOMER; THAT THE ASSESSEE HAD CONTENDED THAT HIS BUSINESS WAS NOT STATIC, BUT REGULATED BY NUMEROUS FACTOR S BEYOND THE ASSESSEES CONTROL LIKE DEMAND AND SUPPLY FORCES, SALES POLI CY OF I.T.A. NO.1815/DEL./2009 (A.Y. : 2005-06) 3 COMPETITOR AND BROTHER OF ASSESSEE SUPPLIERS TO INCREASE O FF TAKE; THAT HOWEVER, THIS CLAIM WAS NOT SUPPORTED WITH ANY EVIDENC E AND IT HAD NOT BEEN EXPLAINED AS TO HOW DEMAND AND SUPPLY FORCES HAD BEEN RESPONSIBLE FOR THE FALL IN G.P., AS TO WHAT HAD BEEN SALES POLICY OF THE ASSESSEES COMPETITOR AND WERE THE TYPES OF THE BROKER OF THE ASSESSEES SUPPLIER TO INCREASE OFF TAKE; THAT THOUGH THE ASSESSEE HAD CONTENDED THAT COMPLETE SET OFF RECORDS INCLUDING STOC K RECORDS HAD BEEN MAINTAINED, THIS DID NOT TAKE CARE OF THE SITUAT ION WHERE DIFFERENCE RATES HAD BEEN CHARGED TO DIFFERENT CUSTOM ERS; THAT THE ASSESSEE HAD HIMSELF ADMITTED THAT THE GROSS MARGIN IN THE ASSESSMENT YEAR 2004-05, OF 20.11% WAS AN ABERRATION AND DID NOT REFLECT LONG TERM MARGIN IN THE TRADING OF THE ASSESSEE ; THAT THEREFORE, A MORE REALISTIC COMPARISON WOULD BE WITH THE RATES PR EVALENT IN ASSESSMENT YEARS 2003-04 AND 02-03 AND NOT IN ASSESSMENT YEA R 2004-05; AND THAT AS SUCH, THE G.P. RATE OF 11.08% AS SHOWN BY THE ASSESSEE, WAS DEFINITELY ON THE LOWER SIDE. THUS, CONSIDER ING THAT THE ASSESSEES G.P. RATE FOR ASSESSMENT YEAR 2002-03 WAS 14.37% A ND THAT FOR ASSESSMENT YEAR 2004-05 WAS 15.75% AND THE AVERAGE G .P. WAS OF 15.33%, THE AO ADOPTED 15.33% AS THE ASSESSEES G.P. RATE FOR THE YEAR UNDER CONSIDERATION, BY REJECTING THE BOOKS OF A CCOUNT OF THE ASSESSEE. THE G.P. ADDITION AMOUNTING TO `4915979 WAS M ADE TO THE TOTAL INCOME OF THE ASSESSEE. FURTHER, FROM THE ASSESSEES P&L A/C, THE AO OBSERVED THAT THE ASSESSEE HAD CLAIMED AS HAVING M ADE PAYMENTS AMOUNTING TO `747345 ON ACCOUNT OF BROKERAG E AND COMMISSION TO VARIOUS BROKERS, WHO WERE CLAIMED TO HAVE RENDERED CERTAIN SERVICES TO THE ASSESSEE. THE AO ISSUED SUMMONS TO FIVE BROKERS, I.E., PANKAJ GUPTA, MANISH GUPTA, RAGHUNATHA N PRASAD, PARVEEN KUMAR AGGARWAL AND ASHOK KUMAR BANSAL. NONE OF THESE BROKERS, HOWEVER, APPEARED BEFORE THE AO. RATHER, A LETTER FROM SHRI PURSHOTTAM GARG, CA WAS RECEIVED. THEREIN, IT WAS STAT ED THAT ALL THESE BROKERS WERE OUT OF STATION FOR BUSINESS PURPOSES. T HE AO ASKED I.T.A. NO.1815/DEL./2009 (A.Y. : 2005-06) 4 THE AUTHORIZED REPRESENTATIVE OF THE ASSESSEE TO PRODUCE THE BROKERS. HOWEVER, VIDE LETTER DATED 31.12.07, THE LD.AR OF T HE ASSESSEE CONTENDED THAT SUMMONS BE ISSUED TO THE BROKERS. 3. THE AO OBSERVED THAT DESPITE SUFFICIENT OPPORTUNITY , THE ASSESSEE HAD NOT PRODUCED THE BROKERS; THAT A ROUTINE RE PLY HAD BEEN FILED BY THE CA STATING THAT ALL THE BROKERS TO BE OU T OF STATION; THAT NO EVIDENCE HAD BEEN FURNISHED REGARDING THE BROKERS BEI NG OUT OF STATION; THAT IT WAS STRANGE THAT ALL THE BROKERS WERE OUT OF STATION ON THE DAY WHEN THEY WERE REQUIRED TO APPEAR BEFORE TH E AO; THAT SURPRISINGLY, IN THE CASE OF THREE BROKERS, I.E., RAGHU NATHAN PRASAD, PURSHOTTAM GARG, PARVEEN KUMAR AGGARWAL & ASHOK BANSA L, THE ADDRESS WAS THE SAME AS THAT OF THE CA AND THE REPLY HAD BEEN FILED BY THE CA FROM WHOSE ADDRESSES THESE BROKERS WERE CLAIMED TO BE CARRYING ON THEIR BUSINESS; THAT THERE COULD BE VERIFI ED FROM THE BANK STATEMENT OF THE ASSESSEE AS ALREADY FURNISHED; THAT THE A SSESSEE HAD FAILED TO PRODUCE THE BROKERS; THAT MERE PAYMENT THR OUGH CHEQUE DID NOT DISCHARGE THE ONUS CONCERNING GENUINENESS OF THE TR ANSACTION; THAT DESPITE HAVING BEEN ASKED TO DO SO, THE ASSESSEE FAILED TO FILE THE DETAILS OF ALL HIS EMPLOYEES ALONG WITH THEIR JOB PROF ILES, THAT AS PER THE ASSESSEES REPLY, NUMEROUS EMPLOYEES HAD BEEN SHOWN AS FIELD STAFF; THAT HOWEVER, NO DETAILED SPECIFICATIONS OF THE JOB H AD BEEN GIVEN; THAT THESE EMPLOYEES WERE ALWAYS IN THE FIELD; THAT THUS, TH EREFORE, IT WAS NOT KNOWN WHETHER THE CLAIM OF SERVICES OF THE BROKER WERE THE ONES WHICH THE FIELD STAFF OF THE ASSESSEE TOOK CARE OF; THAT THE ASSESSEE HAD SUBMITTED THAT HE DID NOT HAVE ANY AGREEMENT IN WRITING WITH THE BROKERS; THAT THOUGH THE ASSESSEE HAD FILED SOME SALE BIL LS SHOWING PERCENTAGE OF SALE BILL PAID AS BROKERAGE, THE BROKER AGE IN THE SALE BILL WAS MERELY SELF-SERVING, IN THE ABSENCE OF PROOF OF GEN UINENESS THEREOF; AND THAT IT WAS THEREFORE, THAT THE BROKERA GE CLAIMED AT `747345 WAS BEING DISALLOWED. I.T.A. NO.1815/DEL./2009 (A.Y. : 2005-06) 5 4. BY VIRTUE OF THE IMPUGNED ORDER, THE CIT(A) DELE TED BOTH THE ADDITIONS. APROPOS THE TRADING ADDITION OF `4915979, IT WAS OBSERVED, INTER ALIA, THAT NO DISCREPANCY HAD BEEN POINTED OUT BY THE AO IN THE BOOKS OF ACCOUNT OF THE ASSESSEE, WHICH BOOKS WERE AUDIT ED; THAT THE TRADING RESULTS HAD BEEN FOUND TO BE NOT ACCEPTABLE M ERELY BECAUSE THE ASSESSEE HAD EARNED A HIGHER RATE OF GROSS PROFIT DUR ING THE IMMEDIATELY PRECEDING ASSESSMENT YEAR; THAT THE ASSESSEE HA D FURNISHED DUE EXPLANATION SUPPORTED BY DOCUMENTARY EV IDENCE FOR THE REASONABLENESS OF THE LOWER G.P. RATE AS COMPARED TO TH E EARLIER YEAR; THAT, HOWEVER, THE AO HAD JUST BRUSHED ASIDE THE EXPLA NATION TO BE VERIFIED BY THE ASSESSEE; THAT THOUGH THE OPENING/CLOSIN G STOCK AND SALE AND PURCHASE FIGURES IN THEIR ENTIRETY HAD BEEN A CCEPTED, THE AO STILL PROCEEDED TO REJECT THE BOOKS OF ACCOUNT OF THE ASSESSEE; AND THAT THEREFORE, THE ESTIMATION OF THE GROSS PROFIT ON THE B ASIS OF AVERAGE OF THE EARLIER YEARS, THE GROSS PROFIT WAS NOT JUSTIFIED. 5. SO FAR AS REGARDS ADDITION OF `747345, THE CIT(A) OBSERVED, INTER ALIA, THAT THE AO HAD NOT ACCEPTED THE DOCUMENTS REQ UIRED FROM AND FILED ON BEHALF OF THE THREE BROKERS, NAMELY, RAGHUN ATHAN PRASAD, PARVEEN GARG AND ASHOK KUMAR BANSAL, OBSERVING THAT TH EY SHOULD HAVE APPEARED PERSONALLY AND NOT THROUGH THEIR REPRE SENTATIVE; THAT BEFORE THE CIT(A), THE ASSESSEE HAD SUBMITTED BILL-WISE D ETAILS REFLECTING THE QUANTITY OF THE SERVICES RENDERED; THA T ALL THE PAYMENTS HAD BEEN MADE THROUGH BANKING CHANNELS; THAT THESE FA CTS WERE AVAILABLE BEFORE THE AO, WHO ARBITRARILY DID NOT CO NSIDER THEM AND WENT ON TO DISALLOW THE EXPENSES; AND THAT THE AO HAD NOT MADE OUT AS TO HOW THE FAILURE OF THE PROGRESS TO MAKE A PERSONA L DEPOSITION COULD JEOPARDIZE THE CLAIM OF THE ASSESSEE, PARTICULARL Y WHEN ALL THE REQUISITE DETAILS WERE SUBMITTED TO THE AO IN RESPONSE T O THE SUMMONS ISSUED BY HIM. 6. AGGRIEVED BY THE ABOVE ACTION OF THE CIT(A), THE PRESENT APPEAL HAS BEEN FILED BY THE DEPARTMENT. I.T.A. NO.1815/DEL./2009 (A.Y. : 2005-06) 6 7. THE LD.DR HAS CONTENDED THAT EVEN THOUGH THE ASSESSEE HAD FAILED TO FURNISH THE DETAILS SOUGHT AND TO PROVE THE AUTHENTICITY OF ITS BOOKS OF ACCOUNT, THE CIT(A) HAS DELETED THE ADDITION S OF `4915979 AND `747345 MADE BY THE AO ON ACCOUNT OF TRADING AD DITIONS AND BROKERAGE PAID BY RIGHTLY REJECTED THE BOOKS OF ACCO UNT OF THE ASSESSEE. 8. THE LD.COUNSEL OF THE ASSESSEE, ON THE OTHER HAND, HA S PLACED STRONG RELIANCE ON THE IMPUGNED ORDER AND HAS REITERA TED THE STAND TAKEN BY THE ASSESSEE BEFORE THE AUTHORITIES BELOW. 9. WE HAVE HEARD THE PARTIES AND HAVE PERUSED THE MAT ERIAL ON RECORD. APROPOS THE TRADING ADDITION, IT IS SEEN, THA T THOUGH THE ASSESSEE HAD FILED ELABORATE EXPLANATION ALONG WITH DOC UMENTARY EVIDENCE, THE AO REFUSED TO ACCEPT THE SAME. THIS, AS RIGHTLY FOUND BY THE CIT(A), WAS ERRONEOUS, AS DISCUSSED INFRA. 10. THE ASSESSEE IS PROPRIETOR OF M/S AA ENTERPRISES AND IS AN AGENT AND DISTRIBUTOR OF TEXTILES AND, INTER ALIA, DEALING IN FABRICS MAINLY USED BY CUSTOMERS. AS AN INTER MEDIA PRODUCT FOR MANUFACTU RE OF HOME TEXTILES LIKE BED SHEETS, CURTAINS, CUSHION COVERS AND GA RMENTS. UNDISPUTEDLY, THE ASSESSEES FIRM WAS MAINTAINING REGULAR BOOKS OF ACCOUNT, WHICH INCLUDED THE STOCK REGISTER. IT WAS RE GISTERED WITH THE CENTRAL EXCISE DEPTT., AS A DEEMED MANUFACTURER. THE BOOKS OF THE ASSESSEE WERE AUDITED. THE TAX AUDIT REPORT U/S 44AB OF THE ACT WERE FILED ALONG WITH THE RETURN OF INCOME. IN THE FORM OF 3CD, THE BOOKS OF ACCOUNT MAINTAINED BY THE ASSESSEE, INCLUDING STOCK REGI STER WERE DULY MENTIONED. THE TURNOVER OF `11,56,74,156.83 FOR TH E YEAR UNDER CONSIDERATION, AS AGAINST THAT OF `7,88,43,088.85 IN T HE IMMEDIATELY PRECEDING ASSESSMENT YEAR, WAS ACCEPTED. FURTHER, THE F IGURES OF OPENING STOCK, PURCHASES, SALES AND CLOSING STOCK AS DECLAR ED BY THE ASSESSEE WERE ACCEPTED BY THE AO. NO DISCREPANCIES IN TH E SYSTEM OF ACCOUNT FOLLOWED BY THE ASSESSEE WERE POINTED OUT. IT WAS ALSO NOT CONTENDED BY THE AO THAT THE SYSTEM FOLLOWED BY THE A SSESSEE WAS I.T.A. NO.1815/DEL./2009 (A.Y. : 2005-06) 7 SUCH AS FROM WHICH THE TRUE PROFITS OF THE ASSESSEES BUSIN ESS COULD NOT BE DETERMINED. STILL, THE AO REJECTED THE ASSESSEE S BOOKS OF ACCOUNT AS WELL AS THE GROSS PROFIT SHOWN AT 11.08% AND THE AO ESTIMATED THE GROSS PROFIT @ 15%. 11. EVIDENTLY, THE SOLE FACTOR FOR SUCH ESTIMATION OF GROSS PROFIT WAS FALL IN THE GROSS PROFIT RATE AND THE FACT THAT THE C LAIMS PAID BY THE ASSESSEE TO ITS MANY CUSTOMER, M/S SARITA HANDA EXPORTS AND M/S SARITA HANDA PVT. LTD. WERE HIGHER THAN THE CLAIMS P AID TO OTHER CUSTOMERS. 12. THE ENTIRE PURCHASES AND SALES AND EXPENSES OF THE ASSE SSEE, IT IS SEEN, WERE FULLY VOUCHED AND AUDITED. IN THE STOCK REGISTER MAINTAINED, NO DISCREPANCY WAS FOUND. THE ACCOUNT OF M/S SARITA HANDA EXPORTS AND M/S SARITA HANDA EXPORTS PVT. LTD. W ERE DULY CONFIRMED BY THEM. THUS, THERE WAS NOTHING TO SHOW TH AT THE ASSESSEE HAD NOT DEPICTED THE CORRECT PROFITS OF HIS BUSINESS. A LSO, THERE WAS AN ILLEGAL PARTIAL REJECTION OF THE BOOKS OF ACCOUNT OF THE ASSESSEE INASMUCH AS, THE FIGURES OF OPENING STOCK, PURCHASES, SALE S AND CLOSING STOCK OF THE ASSESSEE WERE ACCEPTED ALONG WITH THE EXPEN SES CLAIMED BY THE ASSESSEE WHEREAS THE BOOKS OF ACCOUNT WERE REJECTE D. PERTINENTLY, NO DEFECT WAS POINTED OUT IN THE SYSTEM O F THE ACCOUNTING FOLLOWED BY THE ASSESSEE. 13. THE ASSESSEE FURNISHED COMPLETE BOOKS OF ACCOUNT. TH ESE INCLUDED STOCK REGISTER, PURCHASE REGISTER, SALE REGISTER OF MONTH-WISE AND PARTY-WISE DETAILS OF SALES AND COMPLETE BILLS FOR P URCHASES MADE DURING THE YEAR. THE PURCHASES, SALES AND STOCK REGISTER S OF THE ASSESSEE WERE ACCEPTED BY THE AO, INASMUCH AS DISCREPANCY WAS POINTED OUT THEREIN. EVEN THE DETAILS OF THE CLAIMS ACCOUNT, COMPRISING THE CLAIMS RECEIVED AND PAID BY THE ASSESSEE, WERE ACCEP TED, I.E., NO ADDITION WAS MADE ON THIS SCORE. HOWEVER, EVEN THOUGH FIGURES OF OPENING STOCK, PURCHASES, DIRECT EXPENSES, SALES AND CLOSIN G STOCK WERE ACCEPTED, GROSS PROFIT WAS REDUCED WHICH, IN OUR CONSIDERED I.T.A. NO.1815/DEL./2009 (A.Y. : 2005-06) 8 OPINION IS IN ACCORDANCE WITH LAW, SINCE THE FACTUM O F SUCH ACCEPTANCE OF THE ASSESSEES RECORD BY THE AO LEFT THE AO WITH NOTH ING TO CHANGE THE FIGURE OF GROSS PROFIT. 14. APROPOS THE DECLINE IN THE GROSS PROFIT OF THE ASSESSE E, THE AO WAS OF THE VIEW THAT THE ASSESSEE HAD STATED TO HAVE SOLD SOME OF THE ITEMS AT DIFFERENT RATES TO DIFFERENT CUSTOMERS, WHICH WAS NOT ACCEPTABLE. IT WAS HELD THAT THE PRICE CHARGED FORM M/S SARITA HANDA EXPORTS, FOR THE ITEM KNOWN AS 2/20 X 2/20-40X40-94 AND 98 DYED AT 1115 PER MTR. WHEREAS THE SAME ITEM WAS SOLD TO M/S S&R EXPORTS @ 120 PER MTR.; THAT SIMILARLY IN THE CASE OF THE ITEM 40X40/100X80-98* DYED WAS SOLD TO SARITA HANDA @ 105 PER MTR., WHEREAS THE SAME WAS SOLD TO M/S ORIENT CRAFT LTD. @ 115 PER MTR. IN THIS REGARD, THE ASSESSEES CASE WAS THAT THERE WAS ADEQUATE JUSTIFICATION FO R SUCH PRICES; THAT THE SALES TO PARTIES OTHER THAN SARITA HAN DA EXPORTS IN RESPECT OF A PARTICULAR QUALITY OF CLOTH, WAS MINIS CU ED AS COMPARED TO THE QUANTITY SOLD TO SARITA HANDA EXPORTS; THAT IN TH E CASE OF 2/20X 2/20-40X40-94 AND 98. THE QUANTITY SOLD TO SARITA H ANDA EXPORTS, WAS 3422.5 MTRS. @ 115 PER MTR., WHEREAS THE QUANTITY SOL D TO S&R EXORTS WAS ONLY 97.3 MTRS., OR ONLY ONE BALE; THAT LIKEWISE I N THE CASE OF 40X40/100X80-98* DYED, RATE CHARGED FROM SARITA HAN DA EXPORTS FOR THE SALE OF 1630.50 MTRS. WAS `105 PER MTR., WHEREAS TH E RATE CHARGED FROM ORIENT CRAFT FOR THE SALE OF THE SAME FABRIC WAS `115 PER MTR., WHERE ONLY 75.40 MTR. OF FABRIC WAS SOLD TO ORIENT C RAFT FOR SAMPLING PURPOSE. THE AOS CONCLUSION WAS ARRIVED AT WITHOUT CO NSIDERING THIS ASPECT OF THE MATTER. PERTINENTLY, THE ASSESSEE HAD FIL ED BEFORE THE AO COPIES OF SALE BILLS. THESE SALE BILLS CLEARLY MENTIONED THE QUANTITY AND DESCRIPTION OF THE FABRICS SOLD. APROPOS THE SALE OF OR IENT CRAFT, THE SALES INVOICES SPECIFICALLY MENTIONED SAMPLING FABRIC. THESE WERE WRONGLY OVERLOOKED BY THE AO. I.T.A. NO.1815/DEL./2009 (A.Y. : 2005-06) 9 15. FURTHER, THOUGH THE AO OBSERVED THE ASSESSEE TO HAVE INDULGED IN UNDER INVOICING TO SARITA HANDA EXPORTS, THIS OBSER VATION REMAINED UN-SUPPORTED BY ANY EVIDENCE WHATSOEVER. 16. FURTHER, THE AO OBSERVED THAT THE ASSESSEE HAD PAID HIGH AMOUNT OF CLAIMS AMOUNTING TO `21,73,903 TO SARITA H ANDA EXPORTS AND M/S SARITA HANDA EXPORTS PVT. LTD. THE ASSESSEE HAD DULY FURNISHED EXPLANATION WITH REGARD THERETO. HOWEVER, IT WAS DISREGARDED. AS PER THIS EXPLANATION, ALL CLAIMS WERE PAID, INTER ALIA, ON ACCOUNT OF DELAYED DELIVERIES AND LOWER QUANTITY OF FABRIC; THAT THE SETTLEMENT WAS ALWAYS DONE KEEPING THE OVERALL INTEREST OF THE BUSINESS OF THE ASSESSEE IN MIND; THAT THE ASSESSEE HAD HAD A TURNOVER OF `66735425 WITH THE SARITA HANDA GROUP; THAT OUT OF THE CLAIMS PAID TO THE SARITA HANDA GROUP, A SUM OF `5,44,000 HAD BE EN PAID AS CLAIMS ON ACCOUNT OF EXCESS SALES PRICE CHARGED TO SARITA HAND A EXPORTS BY INCLUDING THE EXCISE DUTY IN THE ASSESSEES SALES INVOICES; THAT DURING THE PERIOD, THERE HAD BEEN A SHIFT IN THE EXCISE POLI CY, AS A RESULT OF WHICH, EXCISE DUTY WAS ONLY TO BE PASSED ON AND NOT TO BE CHARGED ON THE ASSESSEES SELLING PRICE, AS HAD BEEN DONE EARLIER; TH AT IF THE ASSESSEE WERE TO PREPARE THEIR INVOICES PASSING THE EXCISE DUTY AS PAID BY THEM ON THEIR PURCHASE PRICE, IT CANNOT DIVU LGE THE MARGINS OF THE ASSESSEE TO THEIR CONSTITUENT; THAT DURING THE YEAR, THE ASSESSEE KEPT ON PREPARING THE INVOICES SHOWING THE EXCISE DUTY AS PART OF THE PRICE AND CHARGED IT ACCORDINGLY; THAT SINCE THE PUR CHASE PRICE WAS NOT TO BE DISCLOSED, THE ASSESSEE DID NOT PROVIDE THE DETAILS OF THE GATE PASS TO M/S SARITA HANDA EXPRTS AND THE AMOUNT WAS DEDUC TED BY SARITA HANDA EXPORTS AT THE END OF THE FINANCIAL YEA R. IT WAS BY WAY OF LETTER DATED 31.12.07, THAT THIS FACTUAL POSITION WAS BROUGHT TO THE KNOWLEDGE OF THE AO. HOWEVER, THE AO MADE THE OBSER VATIONS LEADING TO THE ADDITION WITHOUT CONSIDERING THIS REPLY WITHOU T EVEN RELYING ON THE CONTENTS THEREOF IN THE ASSESSMENT ORDER. ON THE OT HER HAND, THE PAYMENT OF THE CLAIMS HAS NOT BEEN SHOWN AS NOT MADE IN THE I.T.A. NO.1815/DEL./2009 (A.Y. : 2005-06) 10 ASSESSEES NORMAL COURSE OF BUSINESS. THESE PAYMENTS, PERTINE NTLY, WERE CONFIRMED BY BOTH M/S SARITA HANDA EXPORTS AND M /S SARITA HANDA EXPORTS PVT. LTD. THE OBSERVATIONS OF THE AO IN THIS REGARD ARE, THUS, OBSERVATIONS MADE IN OBLIVION OR DISREGARD OF MAT ERIAL EVIDENCE BROUGHT ON RECORD, RESULTING INTO AN ORDER WHICH IS A N ORDER BASED ON NON-READING OF DOCUMENTARY EVIDENCE. 17. APROPOS THE ADDITION OF `7,47,345, AGAIN, THE AO DID NOT CONSIDER, MUCH LESS ADJUDICATE UPON THE REPLIES FILED B Y THE PROGRESS AND THAT TOO, FOR THE SUSTAINABLE REASON THAT HE PROGR ESS DID NOT PUT IN PERSONAL APPEARANCE BEFORE THE AO. UNDISPUTEDLY, TH E CALL OF THE AO WAS RESPONDED TO BY THE THREE BROKERS, HOWEVER, THROUG H THEIR COUNSEL. THE AO HAS NOWHERE QUESTIONED THIS. HIS ONLY G ROUSE WAS THAT THESE BROKERS DID NOT PRESENT PERSONALLY BEFORE H IM. NOW, THIS IS IN COMPLETE VIOLATION TO THE SETTLED CANON OF LAW, A CCORDING TO WHICH EVERYONE IS ENTITLED TO APPEAR BEFORE A COURT OR AUT HORITY THOUGH THEIR COUNSEL OR AUTHORISED REPRESENTATIVE. 18. IN THE DETAILS FILED BEFORE THE AO IN THIS REGARD , THERE WERE BILL- WISE DETAILS. THEY REFLECTED THE AUTHENTICITY OF THE SERVICES RENDERED. ALL THE PAYMENTS WERE THROUGH BANKING CHANNELS. IN T HE LIGHT OF THESE FACTS, IT CANNOT, BUT BE SAID THAT THE AO MADE THE AD DITION ARBITRARILY AND ILLEGAL. THE ADDITION OF `747345, THEREFORE, W AS ALSO UNSUSTAINABLE. 19. THE CIT(A) WHILE DELETING THE ADDITION OF `49,1 5,979, OBSERVED, INTER ALIA, AS FOLLOWS: 4.8 ADVERTING BACK TO THE FACTS OF THE CASE, IT IS A F ACT THAT BOOKS OF ACCOUNTS OF THE ASSESSEE ARE AUDITED AND NO DISCREPANC Y HAS BEEN POINTED OUT BY THE AO. THE TRADING RESULTS HAVE NOT BEEN FOUND TO BE ACCEPTABLE TO THE AO MERELY BECAUSE THE ASSESSEE HAD EARNED A HIGHER RATE OF GROSS PROFIT DURING THE I MMEDIATE PRECEDING YEAR. THE AO HAS SUBSTITUTED A GP RATIO WITH THE GP RATIO DECLARED BY THE ASSESSEE MERELY ON THE BASIS OF CON SIDERING ASSESSEE'S ABOVE EXPLANATIONS AS 'VAGUE'. IT IS OBSERVED THA T THE ASSESSEE HAS FURNISHED COGENT EXPLANATION SUPPORTED BY DOCUMENTARY EVIDENCE ON THE REASONABLENESS OF LOWER GP RATIO I.T.A. NO.1815/DEL./2009 (A.Y. : 2005-06) 11 AS COMPARED TO THE PREVIOUS YEARS. HOWEVER THE AO HAS SI MPLY BRUSHED ASIDE THE CRUCIAL FACTS PUT FORTH BY THE ASSESSEE LIKE SHIFT IN EXCISE DUTY STRUCTURE, NEGLIGIBLE SALE OF HIGH PROFIT MARGIN ITEMS AS COMPARED TO PREVIOUS YEAR; BULK SALE AT COMPET ITIVE PRICE TO PARTICULAR CUSTOMERS TO RETAIN THEM, ETC. TH E BOOKS OF ACCOUNTS HAVE BEEN REJECTED BY THE AO DESPITE ACCEPTI NG THE OPENING/CLOSING STOCK, SALE, PURCHASE FIGURES IN ITS ENTI RETY AND WITHOUT POINTING OUT ANY SPECIFIC DEFECT. THE ACTION OF THE AO IN DOING SO IS CONTRARY TO THE WELL ESTABLISHED PROPOSITION OF LAW. HENCE, THE ESTIMATION OF GROSS PROFIT ON THE BASIS OF AV ERAGING PREVIOUS YEARS' GROSS PROFIT, IS NOT JUSTIFIED AND THE AD DITION OF RS. 49,15,979/-MADE BY THE AO REJECTING THE BOOKS OF ACCOUNTS AND APPLYING THE AVERAGE G.P. RATE IS DELETED. 20. WHILE DELETING THE ADDITION OF `747345, IT HAS B EEN OBSERVED AS FOLLOWS BY THE CIT(A) : 5.4 IT IS SEEN THAT THE ASSESSING OFFICER ISSUED SUMMONS TO T HE CONCERNED BROKERS. THE THREE BROKERS TO WHOM THE SUMMONS WERE ISSUED REPLIED THROUGH THEIR COUNSEL. THE AO DID NOT ACCEPT THE DOCUMENTS REQUIRED FROM THEM STATING THAT THEY SHOULD HAVE APPEARED PERSONALLY AND NOT THROUGH THEIR REPRESENTATIVES. THE AO FAILED TO CONSID ER AND EVALUATE THE REPLIES JUST BECAUSE THE CONCERNED PARTIES DID NOT APPEAR PERSONALLY. ONCE THE SUMMONS SENT BY THE AO ARE SERVED BY THE POSTAL AUTHORITIES THE ONU S SHIFTS TO THE AO TO ENFORCE THE ATTENDANCE OF THE CON CERNED PERSON. THE AO HAS NOT TAKEN ANY ACTION IN THIS REGARD AND ARBITRARILY REJECTED THE CONTENTION OF THE ASSESSEE. THE COUNSEL OF THE APPELLANT HAS SUBMITTED THE BILL- WISE DETAIL WHICH REFLECTS THE QUANTITY OF THE SERVICE S RENDERED. ALL THE PAYMENTS WERE MADE THROUGH BANKING CHANNELS. THESE FACTS WERE AVAILABLE WITH THE ASSESSING OFFICER BUT THE AO PROCEEDED ON TO ARBITRARILY DISAL LOW THESE EXPENSES. IT HAS BEEN ARGUED BEFORE ME THAT THE NOTICE ISSUED TO THE BROKERS PERMITTED THEM TO APPEAR PERSONALLY OR TO BE REPRESENTED BY AUTHORIZED REPRESENTATIVES. BUT THE AO HAS NOT BEEN ABLE TO MAKE A POINT AS TO HOW THE FAILURE OF THE BROKERS TO MAKE A PERSONAL DEPOSITION BEFORE HIM COULD JEOPARDIZE THE C LAIM OF THE ASSESSEE REGARDING THESE EXPENSES PARTICULARLY WHEN ALL THE REQUISITE DETAILS WERE SUBMITTED IN RESPON SE OF THE SUMMONS ISSUED BY THE AO. THE AO HAS ERRED IN I.T.A. NO.1815/DEL./2009 (A.Y. : 2005-06) 12 DISALLOWING THE BROKERAGE PAID TO THE BROKERS FOR THE SERVICES RENDERED BY THEM. THE ADDITION OF RS. 7,47,345/- IS, THEREFORE, DELETED . 6.1 THE NEXT GROUND OF APPEAL IS AS FOLLOWS: 'THAT ON THE FACTS AND CIRCUMSTANCES OF THE CASE THE LD ADDITIONAL COMMISSIONER OF INCOME TAX WAS NOT JUSTIFIED IN DISALLOWING RS. 40,000 OUT OF THE CAR EXPENSES AND RS. 25,000/- OUT OF THE TELEPHONE EXPENSES ON AN ADHOC BASIS.' 21. IN VIEW OF THE PRECEDING DISCUSSION, WE DO NOT FIN D ANY ERROR WHATSOEVER IN THE ORDER OF THE CIT(A) ON BOTH THE CO UNTS. THE CIT(A) HAS CORRECTLY, AFTER DUE CONSIDERATION OF THE FACTS OF THE EVIDENCE BROUGHT ON THE RECORDS DELETED BOTH THESE ADDITIONS BY PASSING AN ELABORATE SPEAKING ORDER. ACCORDINGLY, FINDING NO M ERIT THEREIN, THE GRIEVANCE SOUGHT TO BE RAISED BY THE DEPARTMENT THROU GH THE GROUND OF APPEAL RAISED IS REJECTED. 22. IN THE RESULT, THE APPEAL OF THE DEPARTMENT IS DI SMISSED. ORDER PRONOUNCED IN OPEN COURT ON 06.05.2011. SD/- SD/- (G.E. VEERABHADRAPPA) (A.D. JAIN) VICE PRESIDENT JUDICIAL MEMBER DATED: MAY 06 , 2011. *SKB* COPY FORWARDED TO:- 1. THE APPELLANT 2. THE RESPONDENT 3. THE CIT 4. THE CIT(A)-XXIV, NEW DELHI. 5. THE DR, ITAT, LOKNAYAK BHAWAN, KHAN MARKET, NEW DELHI. AR/ITAT