ASST CIT 19(3), MUMBAI V. VISHAL ASHOK BHANSALI, MUMBAI

ITA 2458/MUM/2017

• Counselvise Citation: [2018] 125 COUNSELVISE.COM (IT) 0364 (ITAT-MUMBAI)
• Duration Of Justice: 1 year(s) 5 month(s) 6 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 12-09-2018
• Appeal Filed By: Department
• Order Result: Partly Allowed
• Bench Allotted: Not Allotted
• Assessment Year: 2012-2013
• Appeal Filed On: 06-04-2017
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Department Lawyers: RAJEEV GUBANGOTRA LD
• Keywords: Gross profit estimation; Business income
• Section: 143(3); 37(1); 145

Judgement Text

ITA NO.2458/MUM/2017 VISHAL ASHOK BHANSALI ASSESSMENT YEAR-2012-13 IN THE INCOME TAX APPELLATE TRIBUNAL F BENCH, MUMBAI , , BEFORE SHRI SAKTIJIT DEY, JM AND SHRI MANOJ KUMAR AGGARWAL, AM ./I.T.A. NO.2458/MUM/2017 ( / ASSESSMENT YEAR: 2012-13) ASSISTANT COMMISSIONER OF INCOME TAX-19(3) ROOM NO.206, 2 ND FLOOR TARDEO ROAD MUMBAI-400 007 / VS. VISHAL ASHOK BHANSALI C-112, GRAND PARADI A.K.MARG, KEMPS CORNER MUMBAI-400 036 ! ./ ./PAN/GIR NO. AEIPB-9981-P ( !# /APPELLANT ) : ( $%!# / RESPONDENT ) A SSESSEE BY : WRITTEN SUBMISSIONS DATED 01/08/2018 RE VENUE BY : RAJEEV GUBANGOTRA, LD. DR / DATE OF HEARING : 01/08/2018 / DATE OF PRONOUNCEMENT : 12/08/2018 / O R D E R PER MANOJ KUMAR AGGARWAL (ACCOUNTANT MEMBER) 1. AFORESAID APPEAL BY REVENUE FOR ASSESSMENT YEAR [AY] 2012-13 CONTEST THE ORDER OF THE LD. COMMISSIONER OF INCOME -TAX (APPEALS)-30 [CIT(A)], MUMBAI, APPEAL NO.CIT(A)-30/19(3)/318/15-16 DATED 23/01/2017 BY RAISING THE FOLLOWING EFFECTIVE GROUN DS OF APPEAL:- 1. WHETHER ON THE FACTS AND CIRCUMSTANCES OF THE CASE AND IN LAW, THE LD. CIT(A) HAS ERRED IN DELETING THE ADDITION RS.2,06,9 7,863/- ON ACCOUNT OF ITA NO.2458/MUM/2017 VISHAL ASHOK BHANSALI ASSESSMENT YEAR-2012-13 2 DIFFERENCE OF GP DECLARED BY THE ASSESSEE AND ADOPT ED BY THE AO WITHOUT CONSIDERING THE FACTS THAT THE BOOKS OF ACCOUNT DID NOT REFLECT TRUE AND CORRECT PICTURE OF ITS PROFIT, ON ANALYSIS OF ITS LABOUR C HARGES, STOCK VALUATION AND LOSS INCURRED DURING THE JEWELLERY MANUFACTURING AND SAM E WERE REJECTED U/S 145(3) OF THE IT ACT BY THE AO? 2. WHETHER ON THE FACTS AND CIRCUMSTANCES OF THE C ASE AND IN LAW, THE LD. CIT(A) HAS ERRED IN DELETING THE ADDITION OF RS.14, 76,000/- AND RS.5,55,991/- ON ACCOUNT OF COMMISSION EXPENSES AND FOREIGN TRAVE L EXPENSES RESPECTIVELY WITHOUT CONSIDERING THE FACTS THAT THE ASSESSEE FAI LED TO SUBMIT ANY JUSTIFICATION OF THE PURPOSE AND BASIS OF COMMISSIO N PAYMENT AND WHETHER TRAVEL FOREIGN EXPENSES WERE INCURRED FOR THE PURPO SE OF BUSINESS? THE ASSESSMENT FOR IMPUGNED AY WAS FRAMED BY LD. AS SISTANT COMMISSIONER OF INCOME TAX-CIRCLE 19(3) U/S 143(3) ON 31/03/2015 WHEREIN THE INCOME OF THE ASSESSEE HAS BEEN DETERMI NED AT RS.354.81 LACS AFTER CERTAIN ADDITIONS AS AGAINST RETURNED IN COME OF RS.127.52 LACS FILED BY THE ASSESSEE ON 13/09/2012. NONE HAS APPEARED FOR ASSESSEE. HOWEVER, THE ASSESSEE HAS FILED RETURN SU BMISSIONS DATED 01/08/2018 IN SUPPORT OF HIS CLAIM. AS EVIDENT FROM GROUNDS OF APPEAL, THE FOLLOWING ADDITIONS, AS MADE BY LD. AO BUT DELE TED / PARTIALLY ALLOWED BY LD. CIT(A) ARE THE SUBJECT MATTER OF THIS APPEAL :- NO. NATURE OF ADDITION AMOUNT (RS.) 1. ESTIMATED GROSS PROFIT ADDITIONS 206.97 LACS 2. UNJUSTIFIED COMMISSION 14.76 LACS 3. EXPENSES ON FOREIGN TRAVEL 5.55 LACS TOTAL 227.28 LACS 2.1 THE ASSESSEE BEING RESIDENT INDIVIDUAL WAS ENGAGED IN THE BUSINESS OF JEWELLERY UNDER PROPRIETORSHIP CONCERN NAMELY DIAVISZ JEWEL CORPORATION REFLECTED TURNOVER OF RS.46.29 CRORES WHICH WAS 1. 57 TIMES OF THE TURNOVER OF RS.29.46 CRORES REFLECTED BY THE ASSESSEE IN THE IMMEDIATELY PRECEDING AY. HOWEVER, THERE WAS STEEP INCREASE IN VARIOUS EXPENDITURE, PARTICULARLY LABOUR CHARGES, THE COMPARATIVE CHART OF ITA NO.2458/MUM/2017 VISHAL ASHOK BHANSALI ASSESSMENT YEAR-2012-13 3 WHICH HAS BEEN EXTRACTED IN THE QUANTUM ASSESSMENT ORDER, WHICH LED THE LD. AO TO CONCLUDE THAT THE ASSESSEE HAD INFLAT ED THE EXPENDITURE. IT WAS NOTED THAT THE LABOR CHARGES INCREASED FROM RS. 11.44 LACS TO RS.76.38 LACS DURING IMPUGNED AY AND THE PAYMENTS W ERE IN CASH AND THE SELF MADE VOUCHERS DID NOT BEAR ADEQUATE DETAIL S. ALL THESE FACTORS PUT THE GENUINENESS OF THE SAME UNDER DOUBT. IT WAS FURTHER NOTED THAT THE ASSESSEE FOLLOWED LAST IN FIRST OUT [LIFO] METHOD OF ACCOUNTING TO VALUE THE CLOSING STOCK AND ACCORDINGLY, RATE AT WH ICH THE CLOSING STOCK WAS VALUED WAS MUCH LESS THAN THE AVERAGE RATE OF P URCHASE MADE BY THE ASSESSEE DURING THE IMPUGNED AY. IT WAS FURTHER NOTED THAT THE ASSESSEE CLAIMED HIGH WASTAGE / LOSS OF STOCK @9.56% DURING THE MANUFACTURING PROCESS OF DIAMOND JEWELLERY AS AGAIN ST NORMAL RATE OF 3- 4% PREVAILING IN THE INDUSTRY. FURTHER, THE STOCK L OSS WAS VALUED AT MUCH HIGHER RATES. THE TOTALITY OF ABOVE FACTORS LED THE LD. AO TO CONCLUDE THAT THE BOOKS OF ACCOUNTS WERE NOT RELIABLE AND THEREFO RE THE SAME WERE REJECTED U/S 145(3). ACCORDINGLY, THE GROSS PROFIT [GP] RATE WAS ADOPTED @15% AS AGAINST RATE OF 10.53% REFLECTED BY THE ASS ESSEE WHICH RESULTED INTO IMPUGNED ADDITIONS OF RS.206.97 LACS IN THE HANDS OF THE ASSESSEE. 2.2 THE SECOND ADDITION IS OUT OF COMMISSION EXPENS ES OF RS.56.94 LACS CLAIMED BY THE ASSESSEE. OUT OF THIS AMOUNT, R S.30.95 LACS WAS PAID BY THE ASSESSEE TO TWO FAMILY MEMBERS I.E. HIS WIFE AND MOTHER. ACCORDINGLY, SUMMONS WERE ISSUED TO THE SPOUSE OF T HE ASSESSEE AND HER STATEMENT WAS RECORDED, THE RELEVANT EXTRACT OF WHICH HAVE BEEN REPRODUCED IN THE QUANTUM ASSESSMENT ORDER. FINALLY , NOT CONVINCED, LD. AO DISALLOWED COMMISSION EXPENSES OF RS.14.76 LACS, BEING EXPENSES ITA NO.2458/MUM/2017 VISHAL ASHOK BHANSALI ASSESSMENT YEAR-2012-13 4 CLAIMED BY THE TWO PAYEES AGAINST COMMISSION STATED TO BE RECEIVED FROM THE ASSESSEE. 2.3 THE THIRD ADDITION PERTAINS TO EXPENSES INCURRE D BY ASSESSEE ON ACCOUNT OF FOREIGN TRAVELLING EXPENSES FOR VISIT TO LONDON / ITALY & BANGKOK STATED TO BE MADE TO REMAIN COMPETITIVE IN THE BUSI NESS ENVIRONMENT. HOWEVER, THE SAME COULD NOT FAVOR OF L D. AO AND ACCORDINGLY DISALLOWED AND ADDED TO THE INCOME OF T HE ASSESSEE. 3. AGGRIEVED, THE ASSESSEE CONTESTED THE SAME WITH SUCCESS BEFORE LD. CIT(A) WHEREIN THE MATTER WAS CONCLUDED IN THE FOLLOWING MANNER:- 7.3.3.2 I HAVE CAREFULLY CONSIDERED THE ABOVE CONT ENTIONS ON THE ISSUE. THOUGH THE AO, IN THE ASSESSMENT ORDER, STATED THAT THE APPELLANT COULD NOT FURNISH COMPARISON OF MANUFACTURING LOSS WITH SIMILAR INDUS TRY OF THE SIMILAR LOCALITY, AT THE SAME TIME AO ALSO COULD NOT BRING ANYTHING ON RECOR D ABOUT SUCH COMPARISON WITH OTHER INDUSTRIES AND SIMPLY BY STATING THAT THE AVE RAGE LOSS INCURRED IN THE INDUSTRY IS IN THE RANGE OF 3 TO 4% AND CONCLUDED THAT THE A PPELLANT BOOKED EXCESSIVE LOSS AO HAS NOT CITED ANY CASE IN SUPPORT FOR THE PERCEN TAGE MENTIONED AND AS SUCH THERE IS NO BASIS FOR THE CONCLUSION ARRIVED AT BY THE AO. APART FROM THAT, AOS OBSERVATION THAT ALL THE GOLD LOSS IS BOOKED ON DIW ALI DAY, IS ALSO NOT CORRECT AND THE APPELLANT COULD ABLE TO SHOW BY GIVING THE ENTIRE S TOCK DETAILS WITH MONTHLY SUMMARY IN WHICH LOSS OF GOLD FOR EACH MONTH IS SEPARATELY DETERMINED AND FOR THE MONTH OF OCTOBER IS 626.34 GMS AND FIGURE ADOPTED BY THE AO IS NOT CORRECT. AO ADOPTED THE OPENING STOCK VALUATION INSTEAD OF AVERAGE PURCHASE PRICE. IN VIEW OF THE ABOVE, EVEN THIS DISCREPANCY POINTED OUT BY THE AO FOR REJ ECTING THE BOOKS IS ALSO NOT FULLY SATISFACTORY AND IS REJECTED. 7.4 BY MENTIONING THE ABOVE DISCREPANCIES AO ARRIV ED AT THE CONCLUSION THAT THE BOOKS OF THE APPELLANT CANNOT BE RELIED UPON AND DO NOT REFLECT THE TRUE AND CORRECT PICTURE AND REJECTED THE BOOKS OF ACCOUNT AS PER TH E PROVISIONS OF SECTION 145(3) OF THE ACT AND ESTIMATED THE GP @15% AND REDUCED THE G P MARGIN SHOWN OF 10.53% AND ADDED THE DIFFERENCE OF RS.2,06,97,863/- TO THE TOTAL INCOME. SECTION 145 OF THE ACT DOES NOT LAY DOWN ANY SPECIFIC METHOD OF VALUAT ION OF CLOSING STOCK. ACCORDING TO SECTION 145 OF THE ACT, THE BUSINESS INCOME SHAL L BE INCOME NORMALLY COMPUTED IN ACCORDANCE WITH THE METHOD OF ACCOUNTING REGULAR LY EMPLOYED- THE APPELLANT HAS ADOPTED THE SAME METHOD OF VALUATION IN THE YEAR UN DER CONSIDERATION AS HAS BEEN ADAPTED IN THE PRECEDING YEAR HON'BLE SUPREME COURT IN THE CASE OF CHAINRUP SAMPATRAM VS. CIT 24 ITR 481 AND IN THE CASE OF KIK A BHAI PRERN CHAND VS. CIT 24 ITR 506 HAS HELD THAT IF ANY ACCOUNTING PRINCIPLE I S RECOGNIZED AND HAS BEEN ACCEPTED THEN THE STOCK VALUED ACCORDING TO THAT ME THOD IS TO BE ACCEPTED- OPTION TO ADOPT ANY SYSTEM OF ACCOUNTING CLEARLY LIES WITH THE APPELLANT. HONBLE SUPREME COURT IN THE CASE OF INVESTMENT LTD. VS. CIT 77 ITR 533 HAS HELD 'A TAX PAYER IS FREE TO EMPLOY FOR THE PURPOSE OF HIS TRADE HIS OWN METH OD OF KEEPING ACCOUNTS AND FOR ITA NO.2458/MUM/2017 VISHAL ASHOK BHANSALI ASSESSMENT YEAR-2012-13 5 THAT PURPOSE TO VALUE HIS STOCK IN TRADE EITHER AT COST OR MARKET PRICE. A METHOD OF ACCOUNTING ADOPTED BY THE TRADER CONSISTENTLY AND R EGULARLY CANNOT BE DISTURBED BY THE DEPARTMENTAL AUTHORITIES ON THE VIEW THAT HE SH OULD HAVE ADOPTED A DIFFERENT METHOD OF KEEPING ACCOUNT OR OF VALUATION'. 7.5 IN VIEW OF THE FACTUAL AND LEGAL POSITION DISCU SSED AS ABOVE, I AM NOT IN A POSITION TO AGREE WITH THE REASONS MENTIONED IN THE ASSESSMENT ORDER BY THE LD. AO REJECT THE BOOKS OF ACCOUNTS OF THE APPELLANT U/S 1 45(3) OF THE ACT AND ESTIMATING THE GP MARGIN @15% AND ADDING THE DIFFERENCE AMOUNT OF RS.2,06,97,863/- BETWEEN THE GP DECLARED OF 10.53% AND GP ESTIMATED OF 15%. ACCORDINGLY, THE ADDITION MADE OF RS.2,06,97,863/- ON THIS COUNT, IS DELETED. APPELLANT SUCCEEDS ON GROUND NOS. 2, 3 & 4 OF THE APPEAL. 8. IN GROUND NO. 5, THE APPELLANT RAISED THE ISSUE OF DISALLOWING THE EXPENSES INCURRED BY THE RECIPIENT TOWARDS COMMISSION PAID. IN THE GROUND, WHICH IS SUBDIVIDED INTO THREE PARTS, IT IS STATED THAT AO H AS ERRED IN DISALLOWING THE EXPENSES INCURRED BY THE RECIPIENT OF COMMISSION, W HICH IS OUT OF CONTEXT AND BEYOND JURISDICTION. IT IS ALSO STATED THAT IN THE SCRUTINY ASSESSMENT COMPLETED IN THE CASE OF ONE RECIPIENT THE EXPENSES INCURRED FOR EAR NING COMMISSION ARE DULY ALLOWED. 8.1 AO CONSIDERED THE ADDITION AFTER OBSERVING THAT THE AMOUNT OF COMMISSION PAID IS RS.56,94,926/- IS HIGHER BY 1.62 TIMES OVER THE PREVIOUS YEAR AND OUT OF THE COMMISSION AN AMOUNT OF RS.30,95,419/- WAS PAID TO THE FAMILY MEMBERS OF THE APPELLANT. DURING THE ASSESSMENT PROCEEDINGS, SUMMO NS WERE ISSUED TO SMT. KALPANA BHANSALI, WIFE OF THE APPELLANT, WHO HAS RE CEIVED COMMISSION OF RS.17,01,319/-. BY REPRODUCING THE RELEVANT EXTRACT OF THE STATEMENT RECORDED FROM HER, AO CONCLUDED THAT PURPOSE AND BASIS OF COMMISS ION PAYMENT IS NOT REFLECTED AND SUCH PAYMENT IS ALWAYS TO BE LINKED TO PURCHASE / SALE ON CERTAIN PERCENTAGE, THEREBY CERTAIN PURPOSE AND BASIS FOR THE QUANTUM O F COMMISSION PAYMENT. AO ALSO MENTIONED THAT ON SIMILAR ISSUE IN THE EARLIER YEAR AO DISALLOWED 1% OF THE COMMISSION PAID TO THE RELATIVE AS EXCESS WHEN IT I S PAID ON PERCENTAGE BASIS. THIS YEAR THERE IS NO BASIS ATTACHED, THEREFORE THE AO H ELD THAT SUCH COMMISSION PAYMENT IS NOT JUSTIFIED. MOREOVER, AO NOTICED THAT , AGAINST THE COMMISSION PAYMENT OF RS.17.01 LAKHS, AN AMOUNT OF 9 LAKHS IS DEBITED AS EXPENSES INCURRED, BY SMT KALPANA BANSALI AND RS.5.76 LAKH EXPENSES CL AIMED AGAINST THE COMMISSION PAYMENT OF RS.13.94 LAKH BY SMT. REKHA B ANSALI. IN VIEW OF THE SAME, TOTAL AMOUNT OF RS.14.76 LAKH (9 LAKH + 5.76 LAKH) EXPENSES CLAIMED IN THEIR RETURNS OF INCOME, AO DISALLOWED THE SAME IN THE APPELLANT' S HAND, TREATING THE SAME AS NOT BEING INCURRED FOR THE BUSINESS PURPOSE AND ADDED T O THE TOTAL INCOME. 8.2 PER CONTRA, AGAINST THE ADDITION, THE APPELLANT IN THE WRITTEN SUBMISSION STATED THAT THE ADDITION MADE ON THIS COUNT IS PECU LIAR WHICH IS OUTSIDE THE SCOPE-OF JURISDICTION OF THE LD. AO, WHO HAS ACTED BEYOND HI S JURISDICTION IN AS MUCH AS HE FINDS FAULT WITH THE EXPENSES CLAIMED BY THE RECIPI ENT OF COMMISSION NAMELY SMT KALPANA A BHANSALI. BY ATTACHING THE COPY OF THE AS SESSMENT ORDER OF SNIT. KALPANA IT IS STATED THAT HER CASE WAS UNDER SCRUTINY FOR T HE AY 2012-13 AND HER ASSESSING OFFICER DO NOT FIND ANY FAULT WITH THE EXPENSES CLA IMED BY HER AND INCOME RETURNED WAS ACCEPTED. IT IS ALSO STATED THAT SIMILAR ISSUE WAS ALSO CREPT UP DURING THE IMMEDIATE PRECEDING YEAR AND SAME WAS TAKEN UP FOR APPEAL BEFORE THE CIT(A)-27 WHO WAS PLEASED TO ALLOW THE SAME IN FAVOUR OF YOUR APPELLANT VIDE HIS APPELLATE ORDER DATED 01-05-2014 IN ITA NO. 473/2013-14 ON PA GE NO. 29 & 30. THEREFORE, IT ITA NO.2458/MUM/2017 VISHAL ASHOK BHANSALI ASSESSMENT YEAR-2012-13 6 IS PRAYED THAT THE ADDITION ON THIS ACCOUNT MADE BY THE LD. AO IS NOT MAINTAINABLE AND SAME IS REQUIRES TO BE DELETED TO RENDER THE JU STICE. 8.3 I HAVE CAREFULLY CONSIDERED THE RIVAL CONTENTI ONS ON THIS ISSUE AND ALSO THE EVIDENCES FURNISHED BY THE APPELLANT IN THE FORM OF ASSESSMENT ORDER OF SMT. KALPANA BANSALI AND THE APPELLATE ORDER PASSED FOR THE A.Y. 2011-12. THE TOTAL AMOUNT OF COMMISSION PAID FOR THE YEAR IS 56,94,926 /-, AND OUT OF THAT AN AMOUNT OF RS. 30,95,419/- WAS PAID TO TWO OF THE APPELLANTS FAMILY MEMBERS. AO NOTICED THAT THE RECIPIENTS CLAIMED CERTAIN EXPENSES IN THE RETU RNS OF INCOME FILED BY THEM AGAINST SUCH COMMISSION INCOME. AS THERE IS NO BASI S FOR THE COMMISSION PAYMENT, AO DISALLOWED THE EXPENSES CLAIMED BY THE RECIPIENT S TO THE EXTENT OF RS. 14.76 LAKHS WHICH IS EQUIVALENT TO THE EXPENSES CLAIMED B Y THE RECIPIENTS AGAINST THE COMMISSION INCOME OFFERED IN THE RETURNS. AS SEEN F ROM THE EVIDENCES FURNISHED THE COMMISSION PAID IS DULY OFFERED AS INCOME BY THE RE CIPIENTS AND IN ONE CASE THE ASSESSMENT WAS COMPLETED U/S 143(3) BY HER AO. CORR ECTNESS OF THE EXPENSES INCURRED BY THE RECIPIENTS AND ITS ALLOWABILITY IS TO BE CONSIDERED IN THEIR RESPECTIVE HANDS. MOREOVER, AS STATED BY MY LD. PREDECESSOR CI T(A), THAT LD. AO CANNOT STEP INTO THE APPELLANT'S SHOES AS FAR AS REASONABILITY OF THE COMMISSION INCOME IS CONCERNED. AO IN THIS CASE HAS WRONGLY CONSIDERED T HE EXPENDITURE INCURRED BY THE IN THE HANDS OF THE APPELLANT. IN VIEW OF THE SAME, THERE IS NO JUSTIFICATION TO SUSTAIN THE ADDITION AND ACCORDINGLY THE ADDITION OF RS.14, 76,000/- IS DELETED. GROUND NO. 5 IS TREATED AS 'ALLOWED'. 9. IN GROUND NO. 6, THE APPELLANT RAISED THE ISSUE OF DISALLOWANCE CONSIDERED TOWARDS THE EXPENSES INCURRED UNDER THE HEAD 'FOREI GN TRAVEL EXPENSES'. IN THE GROUND IT IS STATED THAT THE AO ERRED IN DISALLOWIN G THE FOREIGN TRAVEL EXPENSES WITHOUT APPRECIATING THE FACT THAT DESIGNING OF JEW ELLERY PLAYS PIVOTAL AND INTEGRAL ROLE IN ITS MARKETING AND UNLESS DESIGNS ARE MAINTA INED AT PAR WITH INTERNATIONAL LEVEL ONE WILL BE OUT OF BUSINESS. IT IS FURTHER STATED T HAT IN THIS BUSINESS UNLESS PERSONALLY VIEWED AND EXAMINED THE DESIGNS THE BUSINESS CANNOT BE DONE AS PER THE MODERN AND PRESENT DAY REQUIREMENT. 9.1 DURING THE ASSESSMENT PROCEEDINGS, AO ASKED TO JUSTIFY THE EXPENSES ON TOURS TO LONDON, ITALY AND BANGKOK, INCURRED FOR THE BUSI NESS PURPOSE. IN RESPONSE, THE APPELLANT HAS STATED THAT THEY ARE INVOLVED IN MANU FACTURING OF INNOVATIVE DESIGNER JEWELLERY AND LONDON AND ITALY ARE TRENDSETTERS OF NEW DESIGNS. HENCE VISIT TO THESE PLACES TO REMAIN UPDATED AND BE COMPETITIVE IN THE BUSINESS IS ALL THE MORE ESSENTIAL AND IT WILL NOT BE POSSIBLE TO STAND IN T HE PRESENT DAY MARKET WHERE INNOVATIVE DESIGNS ARE THE ORDER OF THE DAY. WITH R EGARD TO BANGKOK TRIP IT IS STATED THAT TO EXAMINE VARIOUS RUBY, EMERALD, PEARLS FOR W HICH BANGKOK IS THE CENTRE AND THE ITEMS ARE USED ALONG WITH THE DIAMOND JEWELLERY , TO DRIVE ADDED ATTRACTION TO DESIGNS. AFTER CONSIDERING THE SUBMISSIONS, AO STAT ED THAT NOWHERE THE APPELLANT EXPLAINED HOW THE TOURS ACTUALLY LEAD TO INCREASE I N THE SALES AND PROFIT MARGINS AND THE EXPLANATION TO SUBSTANTIATE THE CLAIM IS VAGUE AND IS NOT TENABLE AND IS NOT ACCEPTABLE. IN VIEW OF THE SAME, AO DISALLOWED THE TOTAL AMOUNT OF 'FOREIGN TRAVEL EXPENSES' AMOUNTING TO RS.5,55,991/-, AND ADDED TO THE TOTAL INCOME. 9.2 I HAVE CAREFULLY CONSIDERED THE RIVAL SUBMISSIO NS ON THE ISSUE ON HAND. WHEN ASKED TO JUSTIFY THE EXPENSES INCURRED ARE FOR THE BUSINESS PURPOSE, THE APPELLANT STATED THAT THE PLACES VISITED ARE CENTRES OF INNOV ATIVE DESIGNS IN THE JEWELLERY, THE APPELLANT IS DEALING WITH AND TO KEEP UPDATED AND B E COMPETITIVE IN THE BUSINESS THE VISITS ARE ESSENTIAL. HOWEVER, AO IS NOT SATISFIED WITH THE EXPLANATION AND ADDED THE ITA NO.2458/MUM/2017 VISHAL ASHOK BHANSALI ASSESSMENT YEAR-2012-13 7 EXPENSES INCURRED TOWARDS FOREIGN TRAVEL ON THE GRO UND THAT THE APPELLANT FAILED TO EXPLAIN HOW THE TOURS ACTUALLY LEAD TO INCREASE THE SALES AND PROFIT MARGINS. IN THE PRESENT CASE, THE APPELLANT-IS. INTO THE BUSINESS O F MANUFACTURING OF JEWELLERY MADE FROM GOLD, SILVER, CUT AND POLISHED DIAMONDS AND ON PERUSAL OF THE EXPLANATION SUBMITTED, THE NATURE OF EXPENDITURE INCURRED IS FO R THE BUSINESS PURPOSE AS THE VISITS ARE SAID TO BE MADE TO KNOW THE LATEST TREND S IN DESIGNING AND THE PLACES WHERE THE APPELLANT VISITED ARE THE TRENDSETTERS FO R NEW DESIGNS. HOWEVER, AT THE SAME TIME ONE CANNOT IGNORE THE ELEMENT OF THE PERS ONAL EXPENSES IN SUCH TOURS. IN VIEW OF THE SAME, ENTIRE AMOUNT CANNOT BE TREATED A S INCURRED FOR THE PURPOSE OF BUSINESS. TO RULE OUT THE PERSONAL NATURE OF EXPENS ES, IN MY CONSIDERED OPINION, OUT OF THE TOTAL EXPENDITURE INCURRED TOWARDS FOREI GN TRAVEL, IF 25% OF THE EXPENSES ARE TREATED AS PERSONAL IN NATURE AND IS DISALLOWED THAT WILL MEET THE ENDS OF JUSTICE. ACCORDINGLY, LD. AO IS DIRECTED TO RESTRICT THE DIS ALLOWANCE TO 25% OF THE 'FOREIGN TRAVEL EXPENSES' OF RS.5,55,991/-. THE GROUND RAISE D AGAINST THE FOREIGN TRAVEL EXPENSES IS TREATED AS PARTLY ALLOWED. 10. IN THE RESULT, FOR THE STATISTICAL PURPOSES, TH E APPEAL FILED FOR THE A.Y 2012-13, IS TREATED AS 'PARTLY ALLOWED'. AGGRIEVED THE REVENUE IS IN FURTHER APPEAL BEFORE U S. 4. THE LD. DEPARTMENTAL REPRESENTATIVE [DR], SHRI RAJEEV GUBANGOTRA, SUBMITTED THAT THE BOOKS WERE RIGHTLY REJECTED SINC E THE ASSESSEE MISERABLY FAILED TO RECONCILE THE DISCREPA NCIES AS POINTED OUT BY LD. AO AND THEREFORE, LD. CIT(A) ERRED IN PROVID ING RELIEF TO THE ASSESSEE. THE ASSESSEE, IN WRITTEN SUBMISSIONS, HAS PREDOMINANTLY PLACED RELIANCE ON THE SUBMISSIONS MADE TO LD. CIT( A) DURING APPELLATE PROCEEDINGS. IT HAS BEEN SUBMITTED THAT BOOKS HAVE WRONGLY BEEN REJECTED SINCE THE ASSESSEE RECEIVED LABOR CHARGES OF RS.1.60 CRORES IN THE IMPUGNED AY AS AGAINST RS.1.43 CRORES IN IMMEDI ATELY PRECEDING AY AND THEREFORE, THERE WAS CORRESPONDING INCREASE IN THE LABOR EXPENDITURE. AS PER SUBMISSIONS, THE ASSESSEE IS CO NSISTENTLY FOLLOWING LIFO METHOD OF ACCOUNTING WHICH IS GENERAL SYSTEM BEING FOLLOWED IN THE TRADE. FURTHER, THE STOCK LOSS HAS OCCURRED EVE NLY THROUGHOUT THE YEAR WHICH WAS EVIDENT FROM MONTHLY SUMMARY OF STOC K DETAILS FILED BY ITA NO.2458/MUM/2017 VISHAL ASHOK BHANSALI ASSESSMENT YEAR-2012-13 8 THE ASSESSEE BEFORE LOWER AUTHORITIES. SIMILARLY, T HE OTHER ADDITIONS OF COMMISSION EXPENSES & FOREIGN TRAVELLING EXPENSES H AVE BEEN AGITATED. 5. WE HAVE CAREFULLY GONE THROUGH THE ORAL SUBMISSI ONS AS MADE BY LD. DR AS WELL AS WRITTEN SUBMISSIONS OF THE ASSESS EE AND PERUSED RELEVANT MATERIAL ON RECORD. WE FIND THE MATTER TO BE A FACTUAL ONE. SECONDLY, BESIDES WRITTEN SUBMISSIONS OF THE ASSESS EE AND ORDERS OF LOWER AUTHORITIES, WE HAVE NO MATERIAL ON RECORD TO VERIFY THE RESPECTIVE SUBMISSIONS AND THEREFORE, WE PROCEED TO DISPOSE-OF F THE MATTER ONLY WITH A VIEW TO PUT AN END TO LITIGATION. 6. SO FAR AS THE REJECTION OF BOOKS ARE CONCERNED, WE FIND THAT THE KEEPING IN VIEW THE ASSESSEES TURNOVER, THE BOOKS WERE SUBJECTED TO TAX AUDIT AND THE SAME COULD NOT BE REJECTED IN A L IGHT MANNER WITHOUT POINTING OUT GRAVE DISCREPANCIES THEREIN. HOWEVER, AT THE SAME TIME, IT IS ALSO A MATTER OF FACT THAT THE ASSESSEES EXPENDITU RE REGISTERED STEEP INCREASE WHICH WAS NOT COMMENSURATE WITH THE GROWTH IN SALES TURNOVER. AS PER ASSESSEES SUBMISSIONS, THE LABOR CHARGES RE GISTERED MARGINAL INCREASE OF RS.17 LACS DURING IMPUGNED AY, HOWEVER, THE EXPENDITURE INCREASED BY MORE THAN RS.64.94 LACS FOR WHICH NO S UITABLE JUSTIFICATION IS AVAILABLE ON RECORD. THE LD. AO NOTED THAT ALL T HE LABOR PAYMENTS WERE IN CASH AND SUPPORTED BY SELF-MADE VOUCHERS ON LY. NOTHING ON RECORD SUGGEST THAT THE ASSESSEE WAS CONSISTENTLY F OLLOWING LIFO METHOD OF ACCOUNTING TO VALUE THE STOCK. FURTHER, T HE RATIO OF STOCK WASTAGE OF EARLIER YEARS AS CLAIMED BY THE ASSESSEE IS ALSO NOT AVAILABLE ON RECORD. SO FAR AS THE COMMISSION PAYMENTS ARE CO NCERNED, WE FIND THAT MORE THAN 54% OF AGGREGATE COMMISSION HAS BEEN PAID BY THE ASSESSEE TO TWO OF THE FAMILY MEMBERS. HOWEVER, THE DETAILS OF SPECIFIC ITA NO.2458/MUM/2017 VISHAL ASHOK BHANSALI ASSESSMENT YEAR-2012-13 9 SALES AGAINST WHICH THE COMMISSION WAS PAID, BASIS OF PAYMENT ETC. COULD NOT BE DEMONSTRATED BY THE ASSESSEE. SO FAR A S DEDUCTION OF FOREIGN TRAVELLING EXPENSES IS CONCERNED, NO PLAUSI BLE EXPLANATION / EVIDENCES HAS BEEN FURNISHED BY THE ASSESSEE TO DEM ONSTRATE THAT THE SAME WERE INCURRED FOR BUSINESS PURPOSES OF THE ASS ESSEE AND THUS FULFILLED THE BASIC CONDITION OF SECTION 37(1) TO C LAIM THESE EXPENDITURES. HENCE, THE PRIME ONUS AS CASTED ON THE ASSESSEE TO SUBSTANTIATE THE CLAIM HAS REMAINED UN-DISCHARGED AND THE STAND OF LD. FIRST APPELLATE AUTHORITY IN PROVIDING SUBSTANTIAL RELIEF TO THE AS SESSEE WAS NOT JUSTIFIED. 7. AFTER CONSIDERING THE ABOVE FACTUAL MATRIX, WE A RE OF THE VIEW THAT THE GP ESTIMATION OF 15% AS MADE BY LD. AO WAS SLIGHTLY ON THE HIGHER SIDE AND THEREFORE WE PROPOSE A NET ADDITION OF 0.5 % ON SALES TURNOVER OF RS.46.29 CRORES TO TAKE CARE OF STOCK DISCREPANC IES, STOCK-LOSS AND HIGH LABOR CHARGES. 8. AT THE SAME TIME, THE DISALLOWANCE OF COMMISSION EXPENSES OF RS.14.76 LACS AS ESTIMATED BY LD. AO, IN OUR OPINIO N, WAS FAIR IN THE CIRCUMSTANCES AND THEREFORE, THE STAND OF LD. CIT(A ), IN THIS REGARD, STAND REVERSED. LASTLY, THE STAND OF LD. CIT(A) IN ESTIMATING THE DISALLOWANCE OF 25% AGAINST FOREIGN TRAVELLING EXPE NSES WAS JUST AND FAIR UNDER THE CIRCUMSTANCES AND THEREFORE, THE SAME DO NOT REQUIRE ANY INTERFERENCE ON OUR PART. 9. THE LD. AO IS DIRECTED TO RE-COMPUTE THE INCOME OF THE ASSESSEE IN TERMS OF OUR ABOVE ORDER. 10. THE APPEAL STAND PARTLY ALLOWED IN TERMS OF OUR ABOVE ORDER. ITA NO.2458/MUM/2017 VISHAL ASHOK BHANSALI ASSESSMENT YEAR-2012-13 10 ORDER PRONOUNCED IN THE OPEN COURT ON 12 TH SEPTEMBER, 2018 SD/- SD/- (SAKTIJIT DEY) (MANOJ KUMAR AGGARWAL) / JUDICIAL MEMBER / ACCOUNTANT MEMBER MUMBAI; DATED : 12.09.2018 SR.PS:-THIRUMALESH ! / COPY OF THE ORDER FORWARDED TO : 1. !# / THE APPELLANT 2. $%!# / THE RESPONDENT 3. ( ) / THE CIT(A) 4. / CIT CONCERNED 5. + ,$ - , - , / DR, ITAT, MUMBAI 6. , ./0 / GUARD FILE / BY ORDER, / (DY./ASSTT.REGISTRAR) , / ITAT, MUMBAI