M/s. ALLCARGO GLOBAL LOGISTICS LTD., MUMBAI V. ACIT CENT. CIR. - 44, MUMBAI

ITA 258/MUM/2007

• Counselvise Citation: [2010] 136 COUNSELVISE.COM (IT) 1247 (ITAT-MUMBAI)
• Duration Of Justice: 3 year(s) 5 month(s) 15 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 25-06-2010
• Appeal Filed By: Assessee
• Order Result: Partly Allowed
• Bench Allotted: A
• Assessment Year: 2003-2004
• Appeal Filed On: 10-01-2007
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Department Lawyers: T T JACOB
• Keywords: Gross profit estimation; Rejection of books of accounts; Business expenditure; Non compliance; Block assessment; Set aside
• Section: 274

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL MUMBAI BENCH E MUMBAI BEFORE SHRI S.V. MEHROTRA (AM) AND SMT. ASHA VIJAY ARAGHAVAN (JM) ITA NO. 258/MUM/2007 ASSESSMENT YEAR-2003-04 ALL CARGO GLOBAL LOGISTICS LTD., 5 TH FLOOR, DIAMOND SQUARE, CST ROAD, SANTACRUZ (E), MUMBAI-400 098 PAN-AABPP7194B VS. THE ACIT, CC-44, AAYAKAR BHAVAN, MUMBAI-400 020 (APPELLANT) (RESPONDENT) APPELLANT BY: SHRI PARESH SHAPARIA RESPONDENT BY: SHRI T.T. JACOB O R D E R PER SMT. ASHA VIJAYARAGHAVAN (JM) THIS APPEAL PREFERRED BY THE REVENUE IS DIRECTED A GAINST THE ORDER DT. 8.11.2006 PASSED BY THE LD. CIT(A)-C-II, MUMBAI FOR THE ASSESSMENT YEAR 2003-04. 2. THE A SSESSEE IS IN THE BUSINESS OF MULTI MODAL TRANSPORT OPERATION. FOR THE YEAR THE ASSESSEE FILED RETURN OF INCOME ON 30.10.2003 OFFERING AN INCOME OF RS. 4,53,12,657/-. THE ASSESSING OFFIC ER ADDED RS. 63,24,532/- ON ACCOUNT OF LOW GROSS PROFIT MARGIN A S COMPARED TO THE EARLIER YEAR. THE ASSESSEES APPEAL WAS DISMISSED B Y THE LD. CIT(A), AGAINST WHICH THE ASSESSEE HAS PREFERRED THIS APPEA L BEFORE US. THE MAIN GROUNDS OF APPEAL ARE AS UNDER: THE LEARNED C.I.T. (A) HAS WRONGLY DRAWN THE CON CLUSION THAT THERE IS REJECTION OF BOOKS OF ACCOUNTS. THE LEARNED C.I.T. (A) ERRED IN CONFIRMING ADDITION OF RS.63,24,532/- ON ACCOUNT OF DIFFERENCE IN GROSS PR OFIT AS COMPARED TO LAST YEAR I.E. A.Y. 2002-03. THE LEARNED C.I.T. (A) OUGHT TO HAVE CONFIRMED THE GROSS PROFIT RATE @ 16% AS AGAINST 15.47% AS DECLARED BY THE APP ELLANT ITA NO. 258/M/07 2 . THE ADDITION OF RS.63,24,532/- ON ACCOUNT OF DIFFER ENCE IN GROSS PROFIT REQUIRES TO BE DELETED. 3. DURING THE COURSE OF ASSESSMENT PROCEEDINGS THE ASSESSING OFFICER VIDE HIS SHOW-CAUSE NOTICE DATED 13.3.2006 ASKED TH E ASSESSEE TO GIVE THE BREAKUP OF THE EXPENSES IN RESPECT OF THE FOLLO WING HEADS, WHICH HAVE BEEN BOOKED AND DEBITED IN THE P & L ACCOUNT. THEY ARE IN THE NATURE OF: (1) DOCK AND CUSTOMS EXPENSES (2) CARGO HANDLING EXPENSES (3) LOADING AND UNLOADING EXPENSES 4. AGAIN HE HAS ASKED THE ASSESSEE TO FURNISH THE E XPENDITURE MADE IN CASH UNDER EACH HEAD OF THE EXPENSES. THE ASSES SING OFFICER ASKED THE ASSESSEE TO EXPLAIN REASONS, WHY THE EXPENDITUR E SHOULD NOT BE DISALLOWED IN THE SAME WAY IT WAS DISALLOWED IN THE BLOCK ASSESSMENT OF THE ASSESSEE CASE U/S 158BC OF THE IT ACT. VIDE HIS LETTER DATED 27.2.2000, THE ASSESSING OFFICER ASKED THE ASSESSEE TO EXPLAIN THE ABNORMAL INCREASE IN THE HIRE AND TRANSPORT EXPENSE S DURING THIS YEAR AND ALSO EXPLAIN THE PROFITABILITY WITH REFERENCE T O GROSS PROFIT AND NET PROFIT OF THIS YEAR IN COMPARISON WITH THE EARLIER YEAR. IN RESPONSE TO THAT LETTER THE ASSESSEE FILED ITS REPLY PARTLY ON 24.03.2006 AND PARTLY ON 28.03.2006. IT WAS EXPLAINED BY THE ASSESSEE THAT THE ASSESSEE INCURRED CASH EXPENDITURE OF RS.19,,33,142/- WHICH WAS NEARL Y 20% OF THE TOTAL EXPENDITURE, AND IT WAS FURTHER CONTENDED THAT EVEN EXPENDITURE INCURRED BY CASH WERE MOSTLY RECEIPTED WITH SUPPORT ING BILLS, UN- RECEIPTED CASH PAYMENTS WERE AMOUNTING TO RS.10,29, 512/- OUT OF RS.19,33,142/-. 5. FURTHER IT WAS STATED THAT THE ASSESSEE HAD INCU RRED ONLY CARGO HANDLING EXPENSES AND UNLOADING AND LOADING EXPENSE S EXCEPT VOYAGE RELATED TO THC EXPENSES WERE INCURRED AND THC EXPEN SES WERE PAID BY ITA NO. 258/M/07 3 WAY OF CHEQUES TO SHIPPING COMPANIES. SINCE THE AS SESSING OFFICER FELT THAT THE DETAILS SUBMITTED BY THE ASSESSEE WERE NOT COMPLETE, HE ASKED THE ASSESSEE TO FURNISH THE BREAKUP OF THE CASH PAY MENTS AND CHEQUE PAYMENTS ETC. THE ASSESSEE DID NOT FURNISH THAT INF ORMATION. THE ASSESSEE WAS ASKED TO SUBMIT THE XEROX COPIES OF VO UCHERS OF CASH EXPENSES ON THE FIRST DAY OF EVERY ALTERNATE MONTH FOR THE TEST CHECK BASIS. BUT THE ASSESSEE DID NOT FURNISH THOSE COPI ES. THE ASSESSEE ALSO DID NOT GIVE THE REASONING FOR THE FALL IN GROSS PR OFIT OR NET PROFIT, THEREFORE HE REJECTED THE BOOKS OF ACCOUNTS AND MAD E ESTIMATED THE GROSS PROFIT RS.63,24,532/- ADOPTING 16% OF GROSS P ROFIT AND THUS CALCULATED GROSS PROFIT AT RS.19,01,48,498/-AS AGAI NST THE GROSS PROFIT DISCLOSED BY THE ASSESSEE AT RS.18,38,23,966/- AND DIFFERENCE BEING RS.63,24,532/- WAS ADDED TO THE INCOME RETURNED FOR THE REASONS STATED IN PARA 3.9 AS FOLLOWS: 3.9. CONSIDERING THE ENTIRE FACTS EVIDENCES AND SUBMISSIONS, I HAVE NO OPTION BUT TO HOLD CERTAIN PART OF EXPENSES OF A SSESSEE AS INGENUINE. THE BRIEF REASONS FOR DOING SO ARE AS FOLLOWS: A. PART OF EXPENSES ARE UNRECEIPTED AND THEREFORE THEY ARE NOT VERIFIABLE. B. IT WAS ADMITTED PRACTICE OF ASSESSEE TO DEBIT BOGU S AND INGENUINE EXPENSES TO SUPPRESS TO PROFIT TILL THE P RECEDING PREVIOUS YEAR. C. THE TRIBUNAL IS ALSO HOLDING THAT THE ENTIRE NATURE AND QUANTUM ARE NOT VERIFIABLE. D. FURTHER EVEN THE DETAILS OF ENTIRE UNRECEIPTED EXPE NSES UNDER ALL EXPENSES HAS NOT BEEN MADE AVAILABLE WITH THE ASSES SEE. THEREFORE DISALLOWANCE OF CERTAIN PERCENTAGE OF EXP ENSES IS ALSO NOT POSSIBLE. E. FURTHER, THE ASSESSEES EXPLANATION ABOUT THE ABNOR MAL INCREASE IN TRANSPORT AND HIRE EXPENDITURE AS RATIO OF TRANS PORT AND HIRE INCOME IS INCOMPLETE AND UNSUBSTANTIATED. F. THEREFORE, THE ADDITION ON ACCOUNT OF UNGENUINE EXP ENSES IS WORKED OUT ON THE FOLLOWING BASIS. ITA NO. 258/M/07 4 (A) IN THE PRECEDING YEAR (I.E. A.Y.2002-03 IN WHICH T HE SEARCH WAS CARRIED OUT) FOR OPERATING INCOME OF RS.173917864/- THE GP WAS SHOWN AT RS.170154438/- I.E. 15.84% AFTER INCLUDING THE UNDISCLOSED INCOME OF RS.12 LACS INCLUDED IN THE RE TURN OF INCOME, THE G.P BECOMES 15.96% FURTHER IF THE ADDIT ION OF RS.8.07 LACS MADE IN THE BLOCK PERIOD ARE ALSO ADDE D TO THE G.P.. THE G.P. RATE BECOMES 16.03%. (B) IN THE YEAR, FOR THE GROSS OPERATING INCOME OF RS. 1188428117/- THE G.P. SHOWN IS 15.47% WHICH IS LESS THAN EVEN TH E ADMITTED G.P. OF 15.96% AND G.P. AS PER BOOKS OF ACCOUNTS I. E. 15.84%. (C) FURTHER, NO REASON HAS BEEN GIVEN FOR FALL IN G.P. THEREFORE KEEPING IN VIEW THE ASSESSED G.P. OF LAST YEAR I.E. , 16.03% IF THE G.P. FOR THE PREVIOUS YEAR IS ADOPTED AT 16% THEN T HE G.P, FOR THE PREVIOUS YEAR WILL BECOME RS.19,01,48,498/- AS AGAI NST THIS, THE G.P. DISCLOSED BY THE ASSESSEE IS RS.18,38,23,966/- THE DIFFERENCE WHICH COMES TO RS.63,24,532/- IS ADDED T O THE INCOME OF THE ASSESSEE. THE ABOVE ADDITION ALSO INCLUDE THE ADDITIONS ON AC COUNT OF UNRECEIPTED EXPENDITURE UNDER THE HEAD CARGO HANDLI NG EXPENSES AS WELL UNDER VARIOUS OTHER HEADS, THE DETAILS OF W HICH WERE NOT GIVEN IN THE ASSESSMENT PROCEEDINGS. THE ABOVE ADD ITION ALSO TAKEN CARE OF ABNORMAL HIKE IN TRANSPORT AND HIRE E XPENSES FOR WHICH NO PROPER EXPLANATION HAS BEEN SUBMITTED. PEN ALTY PROCEEDINGS U/S 271(1) R.W.S. 274 ARE INITIATED ON THIS ADDITION. 6. AGGRIEVED BY THIS, THE ASSESSEE HAS PREFERRED AN APPEAL BEFORE THE LD. CIT(A). DURING THE APPELLATE PROCEEDINGS, THE A SSESSEES REPRESENTATIVES SUBMITTED AS UNDER VIDE LETTER DATE D 24.8.2006. THE APPEAL RELATE TO ADDITIONS MADE ON THE GROUND THAT GP RATIO EARNED DURING THE YEAR WAS MARGINALLY LOWER THAN TH E PREVIOUS YEAR. THE LEARNED ASSESSING OFFICER HAS ERRED IN LAW BY C ONVERTING THE GP RATIO OF 15.84% FOR ASSESSMENT YEAR 2002-03 TO 16.0 3% BY ADDING UP THE DISALLOWED EXPENSE AND UNRECEIPTED EXPENSES OF DOCKS & CUSTOMS AND CARGO HANDLING. ALSO APPLIED THE SAME P ERCENTAGE FOR ESTIMATING THE INCOME FOR THE ASSESSMENT YEAR 2003 -04. ITA NO. 258/M/07 5 THE DETAILS OF SUCH UNRECEIPTED DOCKS & CUSTOMS AND CARGO HANDLING EXPENSES FOR ASSESSMENT YEAR 2003-04 WERE SUBMITTED AT THE TIME OF ASSESSMENT PROCEEDINGS FOR VERIFICATION TO THE ASSESSING OFFICER WHICH WAS AMOUNTED TO RS.10,29,512/-. G.P. RATIO EARNED BY YOUR APPELLANT DURING THE RELE VANT ASSESSMENT YEAR IS 15.47% AS COMPARED TO 15.84% IN THE ASSESSM ENT YEAR 2002-03 BUT NOT 16.03%. AS THE DIFFERENCE IN GP RATIO WAS ONLY 0.37% AS COM PARED TO PREVIOUS ASSESSMENT YEAR, YOUR APPELLANT WAS NOT VO LUNTARILY OFFERED ANY EXPLANATION AT THE TIME OF ASSESSMENT P ROCEEDINGS. MARGINAL FALL IN G.P. RATIO: AS YOUR APPELLANT IS IN THE TRADE OF FREIGHT FORWAR DING AND LCL CONSOLIDATION THE GP MARGIN DEPENDS UPON VARIOUS FA CTORS SUCH AS BELOW. EXTERNAL FACTORS. (I) FREIGHT RATE DIFFERS DUE TO DEMAND SUPPLY GAP OF CONTAINERS, AVAILABILITY OF EXPORT/ IMPORT CARGO, A ND EXCESS / SHORT CAPACITY OF SHIPPING TONNAGE. (II) THERE IS NO STANDARD FREIGHT RATE FOR SECTORS OTHER THAN U.S. SECTOR IN THE INDUSTRY. NEW PLAYERS IN THE MARKET A LWAYS CUT THE FREIGHT RATE TO GET MORE MARKET SHARE AND H ENCE QUOTE FREIGHT RATE AT MARGINAL PROFIT OR EVEN AT LO SS. INTERNAL FACTORS . (I) YOUR APPELLANT WAS IN THE PROCESS OF INCREASING THE VOLUME AND OFFERED BEST RATE TO THEIR CUSTOMERS. (II) GP RATIO DIFFERS FROM CLIENT TO CLIENT DEPENDIN G UPON THE VOLUME OF THE CLIENT. THE HIGHER THE VOLUME OF THE CLIENT, THE LOWER FREIGHT RATE AND LOWER MARGIN. (III) YOUR APPELLANT HAS FILED DOCUMENTS WITH SEBI FOR TH E PURPOSE OF IPO ON 23 RD MARCH 2006 WHEREIN THE MANAGEMENT HAS ANALYSED VOLUME. INCOME AND EXPENSE S OF THE LAST FOUR YEARS. THE FOLLOWING ARE THE EXTRA CTS FROM THE PROSPECTUS FILED WITH SEBI/BSE AND REGISTRAR OF COMPANIES (PAGE NO.214). ITA NO. 258/M/07 6 7. THEY FURTHER SUBMITTED THAT A COMPARISON OF FINA NCIAL RESULTS OF YEAR ENDED MARCH 31,2003 WITH THE YEAR ENDED MARCH 31, 2002 WOULD SHOW AN INCREASE OF 10.84% IN INCOME. THE INCREASE IN INCOME IS ON ACCOUNT OF 1. INCREASE IN VOLUME OF EXPORTS BY 15.89%, WHILE T HE INCOME HAS INCREASED BY ONLY 6.87% DUE TO REDUCTION IN FREIGHT RATES AND INCREASED COMPETITION. THE IMPORT INCOME HAS INCREASED BY 56.54% ON ACCOUNT OF INCREASE IN V OLUMES HANDLED FROM 2449 TEU TO 3173 TEU. 2. OPERATING EXPENDITURE INCREASED BY 11.28%. THE OPERATING EXPENDITURE ON EXPORTS HAS INCREASED BY 7 .55% ON ACCOUNT OF PROPORTIONATE INCREASE IN INCOME. OPERAT ING EXPENSES ON IMPORTS INCREASED BY 67.99% WHILE INCOM E HAS INCREASED BY 56.54% ON ACCOUNT OF INCREASE IN INCEN TIVES TO AGENTS. 3. OTHER EXPENDITURE INCREASED BY 9.35%. THE INCREA SE IN STAFF COSTS AND ADMINISTRATIVE EXPENSES BY 11.95% I S ON ACCOUNT OF GROWTH OF BUSINESS. MISCELLANEOUS EXPENS ES HAVE RISEN BY 12.8% DUE TO THE INCREASE IN HIRE AND TRAN SPORT EXPENSES. 4. THE INCREASE IN HIRE & TRANSPORT EXPENSES IS MAI NLY DUE TO INCREASE IN SPARES CONSUMED AND FUEL EXPENSE S. THE MAIN REASON FOR INCREASE IN SPARES CONSUMED IS DUE TO WEAR AND TEAR OF THE VEHICLES USED AND INCREASE IN REPAI RS AND MAINTENANCE COST OF VEHICLES INVOLVED IN THE ACCIDE NTS. THERE IS ALSO MARGINAL INCREASE IN FUEL COST. 8. THUS THE REDUCTION IN THE GP MARGIN CAN BE EXPLA INED BY THE ABOVE REASONS. THE LEARNED ASSESSING OFFICER WAS NO T RIGHT IN COMPARING THE INSIGNIFICANT CHANGE IN GP RATIO INSTEAD OF COM PARING THE GP RATIO OF THE INDUSTRY. ALL THE RELEVANT SUPPORTING DOCUMENTS WERE PRODUCED AT THE TIME OF ASSESSMENT PROCEEDINGS. THE LEARNED ASS ESSING OFFICER HAS ERRED IN NOT CONSIDERING THE ABOVE FACTS AND SUPPOR TING. THE LEARNED ASSESSING OFFICER ERRED IN ESTIMATING AND EXTRAPOLA TING AND THEREBY MAKING ADDITION OF RS.63,24,532/- DURING THE COURSE OF ASSESSMENT PROCEEDINGS ALL THE BOOKS, VOUCHERS AND RECORDS WER E PRODUCED BEFORE ITA NO. 258/M/07 7 THE ASSESSING OFFICER AND THERE IS NO REASON WHY AD HOC ARBITRARY ESTIMATED AND EXTRAPOLATION BE MADE TO DETERMINE TH E INCOME. 9. THEY RELIED ON THE FOLLOWING CASES WHERE COURTS HAVE HELD THAT ADHOC, ESTIMATED AND EXTRAPOLATION IS NOT PERMITTED . A. SMT. RAJANI GUPTA VS DCIT 72 ITD 155 (MUM):HELD T HAT ESTIMATED ADDITION WITHOUT EVIDENCE OR BASE IS NOT SUSTAINABL E. B. INDORE CONSTRUCTIONS PVT .LTD 71 ITD 128(IND) WHERE IN IT HAS BEEN HELD THAT THE A.O. CANNOT MAKE IMAGINARY OR UNFOUN DED INFORMATION TO MAKE ADDITION BUT HAS TO BE AUTHENTIC RELIABLE A ND VERIFIABLE INFORMATION. 10. THE LD. CIT(A) DISMISSED THE ASSESSEES APPEAL OBSERVING AS UNDER: I HAVE CONSIDERED THE SUBMISSIONS OF THE APPELLAN T. FROM THE FACTS STATED BY ME IN PARA 1 OF THIS ORDER, THE ASSESSING OFFICER HAD MADE THIS ADDITION BY REJECTING THE BOOKS OF ACCOUNTS IN VIEW OF THE NON COMPLIANCE OF THE ASSESSEE IN FURNISHING THE INFORM ATION AND OTHER DETAILS AS CALLED FOR BY HIM. IT IS AN ADMITTED FA CT THAT THE ASSESSEE COMPANY HAD MADE CASH PAYMENTS, AS ADMITTED BY IT T O THE EXTENT OF RS.19,33,142/- UNDER THE HEAD DOCKS AND CUSTOMS EXPENSES AND CARGO HANDLING EXPENSES. OUT OF THIS AMOUNT OF CASH PAYMENTS OF RS.19,33,142/- A SUM OF RS.10,29,512/- WERE UNRECEIPTED AND THE BALANCE WERE RECEIPTED. WHEN T HE ASSESSING OFFICER SPECIFICALLY ASKED FOR THE DETAILS OF CONVE YANCE EXPENSES AND OTHERS WERE CASH EXPENSES HAVE BEEN INCURRED., THE ASSESSEE DID NOT GIVE THE BREAK UP BETWEEN THE CASH PAYMENTS AND THE CHEQUE PAYMENTS. DURING THE COURSE OF APPELLATE HEARING I T IS FOUND THAT THE ASSESSEE HAD INCURRED CONVEYANCE EXPENDITURE OF RS.25,11,231/- OUT OF WHICH PAYMENTS WERE MADE BY C HEQUES TO THE EXTENT OF RS.4,96,594/- AND THE BALANCE OF RS.20,14 ,637/- WAS PAID ONLY BY CASH. FROM THIS, IT IS VERY MUCH EVIDENT A ND CLEAR THAT THE ASSESSEE HAD MADE PAYMENTS IN CASH WHICH ARE CLAIME D AS EXPENDITURE IN THE BOOKS OF ACCOUNTS BUT THEY WERE NOT SUPPORTED BY ANY RECEIPTS OR VOUCHERS ETC. THIS ASPECT OF UNRECE IPTED EXPENDITURE BOOKED IN THE ASSESSEES ACCOUNTS ITSELF COULD FORM THE BASIS FOR HOLDING THAT THE ASSESSEES BOOKS OF ACCOUNTS ARE N OT RELIABLE. THEREFORE, THE CORRECTNESS OR COMPLETENESS OF THE A CCOUNTS OF THE ASSESSEE CANNOT BE ACCEPTED AS SUCH, AND HENCE, THE ASSESSING OFFICER WOULD BE JUSTIFIED IN REJECTING THE BOOKS A S EMPOWERED U/S. 145(3) OF THE INCOME TAX ACT. ITA NO. 258/M/07 8 IT HAS BEEN HELD BY THE ASSAM AND NAGALAND HIGH CO URT IN THE CASE OF STEELS WORTH LTD VS CIT 69-ITR 366 THAT NON MAINTENANCE OF DAILY RECORD OF PRODUCTION COULD BE REASON FOR RE JECTING THE BOOKS OF ACCOUNTS. SIMILARLY WHERE THE ASSESSEE HAS NOT ADD UCED STOCK REGISTER AND SALES AND PURCHASE VOUCHERS FOR VERIFI CATION, THE ASSESSING OFFICER WAS HELD TO BE JUSTIFIED IN REJEC TING THE BOOKS OF ACCOUNTS IN 2006 CIT RAJ 346 RAJASTHAN WINE AGENCY VS CIT THE HONBLE SUPREME COURT IN THE CASE OF CIT VS BRITISH PAINTS LTD 188 ITR 444 (SC) HAS AFFIRMED THE POWER OF THE ASSESSIN G OFFICER WITH REFERENCE TO REJECTION OF THE BOOKS OF ACCOUNTS MAI NTAINED BY THE ASSESSEE. THE HONBLE SUPREME COURT HAS HELD THAT I T WAS NOT ONLY THE RIGHT, BUT THE DUTY OF THE ASSESSING OFFICER TO CONSIDER WHETHER OR NOT THE BOOKS DISCLOSED TRUE STATE OF ACCOUNTS AND THE CORRECT INCOME ADDUCED BY THE FIRM AND IT WAS INCORRECT TO SAY THA T THE OFFICER WAS BOUND TO ACCEPT THE SYSTEM OF ACCOUNTING THE CORREC TNESS OF WHICH HAVE NOT BEEN QUESTIONED IN PAST. THE HONBLE COUR T HAS FURTHER STATED THAT IT WAS THE DUTY OF THE ASSESSING OFFICE R TO DETERMINE THE CORRECT TAXABLE INCOME BY MAKING SUCH COMPUTATION A S HE MIGHT THINK FIT, THE MADRAS HIGH COURT IN THE CASE OF T. V. SUNDARAM IYENGAR & SONS LTD VS CIT 241 ITR 420, IN A CASE WH ERE THAT THE EXPENDITURE WAS DISALLOWED IN THE ABSENCE OF DETAIL S REGARDING THE PRESENTATION ARTICLES IN RESPECT OF WHICH THEY CLAI MED FOR DEDUCTION IN THE RETURN OF INCOME THE MADRAS HIGH COURT HAS C ONFIRMED SUCH DISALLOWANCE. THE GAUHATI HIGH COURT IN THE CASE O F KESHRICHAND JAISUKHLAL VS CIT 248 ITR 47 HAS HELD THAT THE ASSE SSING OFFICER WAS JUSTIFIED IN MAKING AN ASSESSMENT OF INCOME IN THE ABSENCE OF INFIRMITIES AND INCONSISTENCIES IN THE ACCOUNTS. I T HAS BEEN HELD BY VARIOUS COURTS AS FOLLOWS: MANI & CO VS CIT 256 ITR 373 KER. WHERE EXPENSES HAVE NOT BEEN PROPERLY VOUCHED AND THE ASSESSEE WAS NOT ABLE TO S UBSTANTIATE THE EXPENDITURE. THE ASSESSING OFFICER WAS JUSTIFIED IN REJECTED THE BOOKS OF ACCOUNTS. 164-ITR 102(GUJ) CIT VS CHANDRA VILAS HOTEL: MERE P RODUCTION OF VOUCHERS IN SUPPORT OF THE CLAIM FOR DEDUCTION OF E XPENDITURE WOULD NOT PROVE CLAIM MADE BY THE ASSESSEE. ASIAN TOOL & PLASTIC CO.VS CIT 55-ITR 392-ALL WHER E EXPENSES HAVE BEEN INFLATED, THE PROVISIONS OF SEC.13 OF TH E ACT, 1922 (ANALOGOUS TO SEC 145(3) OF THE ACT 1961) CAN BE IN VOKED. THUS, ALL THE ABOVE JUDGEMENTS WHICH ARE ONLY ILLUS TRATIVE AND NOT EXHAUSTIVE, HAVE SPELT OUT CLEARLY THAT IF THE ASSE SSING OFFICER WAS NOT SATISFIED WITH THE CORRECTNESS AND COMPLETENESS OF THE ACCOUNTS, ITA NO. 258/M/07 9 HE WOULD BE WELL FORTIFIED IN HIS POWER TO MAKE THE DISALLOWANCE OF EXPENDITURE OR TO ESTIMATE THE INCOME OR TO MAKE AN ADDITION AS HE MAY THINK FIT. IN THIS CASE, THE ASSESSING OFFICER HAS FOUND OUT THAT THE ASSESSEE HAD BEEN CLAIMING EXPENDITURE BY MAKIN G CASH PAYMENTS IN THE BOOKS OF ACCOUNTS, IN SOME CASES WI TH THIRD PARTIES RECEIPT AND IN SOME CASES WITHOUT RECEIPTS AT ALL. THIS PRACTICE OF THE ASSESSEE HAS BEEN FOUND IN EXISTENCE IN THE EAR LIER YEARS TOO WHICH WAS THE SUBJECT MATTER OF BLOCK ASSESSMENT U/ S 158BC AND ALSO IN APPEAL. IN FACT, I HAVE DISCUSSED THIS ISS UE VIDE MY APPELLATE ORDER NO.CIT(A)/C_II/IT 131/03-04 DATED 3 1.3.2006 WHERE I HAVE HELD THAT 25% IF THE EXPENDITURE WAS T O BE DISALLOWED. IN THIS YEAR ALSO, THERE ARE CASH PAYMENTS NOT SUPP ORTED BY VOUCHERS AND RECEIPTS AND THE ASSESSING OFFICER DID NOT ACCEPT THE EXPENDITURE CLAIMED BY THE ASSESSEE. FOR THIS PURPO SE HE HAS ASKED THE ASSESSEE TO FILE SEPARATE TABLES OF GP AND NP F OR PREVIOUS FOUR YEARS AND THE REASONS FOR SHORTFALL IN GP OR NP, IF ANY. THE ASSESSEE DID NOT SUBMIT THIS BEFORE THE ASSESSING O FFICER. THE ASSESSEE ALSO WAS ASKED BY THE ASSESSING OFFICER TO SUBMIT XEROX COPIES OF VOUCHERS AND CASH EXPENSES ON THE 30 TH DATE OF EVERY ALTERNATE MONTH AND WHICH WAS NOT SUBMITTED BY THE ASSESSEE. AS REGARDS THE EXPLANATION BY THE ASSESSEE ABOUT THE A BNORMAL INCREASE IN 21% IN HIRE AND TRANSPORT EXPENSES AS T HE REASON FOR SHORTFALL IN INCOME, THE ASSESSING OFFICER HAS STAT ED THAT NEITHER THE ASSESSEE HAD SUBSTANTIATED THIS EXPLANATION NOR IT HAD PUT UP ANY FIGURES ABOUT THE INCREASE IN FUEL COST ETC. THERE FORE, THE ASSESSING OFFICER HAD ADOPTED THE GP FOR THIS YEAR AT 16% ON THE BASIS OF GP REPORTED BY THE ASSESSEE AT 16.03% IN THE PRECEDING YEAR AS AGAINST THE GP OF 15.47% SHOWN AND WORKED OUT BY HIM IN PAR A 3.9 OF THE ASSESSMENT ORDER WHICH HAS BEEN EXTRACTED IN PARA 1 .1.1 OF THIS ORDER. THE ASSESSING OFFICER HAS SPECIFICALLY CALLED FOR, VIDE HIS LETTER ISSUED TO THE ASSESSEE ON 27.2.2006 AT PARA NO.10 A S UNDER: THE ABOVE DECLARATION MEANS THAT SEVERAL EXPENSES ARE INCURRED BY YOU WHICH ARE NOT SUPPORTED BY THIRD PARTY VOUCH ERS. IN VIEW OF THE ABOVE, YOU ARE REQUESTED TO FURNISH BIFURCATION OF EXPENSES UNDER EACH HEAD WHEREVER PART OF EXPENDITURE IS MAD E IN CASH. (A) TOTAL EXPENDITURE UNDER THE HEAD. (B) TOTAL EXPENDITURE INCURRED IN CASH UNDER THE HEAD. (C) THE QUANTUM OF CASH EXPENDITURE, NOT SUPPORTED BY T HIRD PARTY VOUCHERS (EVEN IF SIGNATURE OF THIRD PARTY IS THERE ON THE VOUCHERS BUT IF THE ADDRESS OF THE THIRD PARTY IS NOT MENTIO NED THEN THE ITA NO. 258/M/07 10 CORRESPONDING EXPENDITURE SHOULD BE CONSIDERED UNDE R THIS SUB HEAD). INSPITE OF THIS, THE ASSESSEE HAD NOT FURNISHED THE BREAK UP OF THE DETAILS OF THE EXPENDITURE. THEREFORE, THE ADDITION MADE BY THE ASSESSING OFFICER BY ADOPTING THE GP IN THE EARLIER YEARS, FOR THIS YEAR ALSO, IN THE ABSENCE OF SUBSTANTIATION OF THE EXPENDITURE CLAIMED BY THE ASSESSEE, IS JUSTIFIED AND HENCE THE ADDITION OF RS.63,24,532/- IS CONFIRMED. 11. AGGRIEVED THE ASSESSEE PREFERRED AN APPEAL BEFO RE US. 12. THE LEARNED DEPARTMENTAL REPRESENTATIVE RELIED ON THE ORDERS OF THE LOWER AUTHORITIES. 13. THE LD. COUNSEL FOR THE ASSESSEE REITERATED THE ARGUMENTS MADE BEFORE THE LD. CIT(A). THE OPERATING PROFIT OF THE ASSESSEE FOR THE YEAR WAS RS. 107,39,17,864/- AND THE GP WAS RS. 17,01,54 ,438/-. THE EXPENDITURE INCURRED WAS RS. 90,37,63,426/-. OUT OF THIS THERE WAS UNRECEIPTED CASH EXPENDITURE OF RS. 10,29,512/- AND CONVEYANCE EXPENDITURE INCURRED IN CASH OF RS. 20,14,637/-. IT IS NOT AS IF EXPENDITURE IN CASH IS A NEW PHENOMENON. THE ASSESS EE HAD BEEN INCURRING EXPENDITURE IN CASH IN THE EARLIER YEARS ALSO. IN THEIR LINE OF BUSINESS EXPENDITURE IN CASH COULD NOT BE AVOIDED. IN THE BLOCK ASSESSMENT THE LD. CIT(A) DELETED 25% OF THE CASH E XPENDITURE. 14. THE NEXT OBJECTION WAS THERE WAS AN INCREASE IN MAINTENANCE AND FUEL EXPENSES. THE ASSESSEE HAS EXPLAINED THE REASO NS FOR THE SAME. ON THIS BASIS THE AO HAS REJECTED THE BOOKS AND HAS AD DED RS. 63,24,532/- BASED ON THE EARLIER YEARS GP RATE. IN OUR OPINION THE REASONS FOR REJECTION OF THE ACCOUNTS OF THE ASSESSEE CANNOT BE SUSTAINED. THE ASSESSEE HAS BEEN MAINTAINING BOOKS OF ACCOUNTS ALL THESE YEARS. EXPENSES, INCLUDING EXPENDITURE IN CASH, HAVE BEEN ACCOUNTED AS IN EARLIER YEARS. IN ASSESSEES LINE OF BUSINESS EXPEN DITURE IN CASH CANNOT BE AVOIDED. THERE ARE FLUCTUATIONS OF INCOME AND EX PENDITURE EVERY YEAR. ITA NO. 258/M/07 11 THEREFORE MERELY BECAUSE THE ASSESSEE HAD INCURRED SOME EXPENDITURE (ABOUT 0.3% OF THE TOTAL EXPENDITURE) IN CASH OR CE RTAIN EXPENDITURE HAS INCREASED AS COMPARED TO EARLIER, BOOKS CANNOT BE R EJECTED, PARTICULARLY WHEN ON IDENTICAL CIRCUMSTANCES THE BOOKS OF THE AS SESSEE HAS BEEN ACCEPTED FOR EARLIER YEARS. THE AO COULD HAVE INVES TIGATED FURTHER INTO THIS EXPENDITURE AND IF HE IS NOT SATISFIED DISALLO WED APPROPRIATE PORTION OF THESE EXPENDITURE. HE COULD NOT REJECT THE ENTIR E BOOKS OF THE ASSESSEE. IN THE RESULT, WE CANNOT SUSTAIN THE ACTION OF THE AO REJECTING THE ACCOUNTS OF ASSESSEE FOR THE REASONS STATED IN THE ASSESSMENT ORDER AND HOLD SUCH REJECTION IS ERRONEOUS. 15. THERE WAS A SEARCH IN THE ASSESSEES PREMISES. THE AO AND THE LD. CIT (A), IN SUPPORT OF THE ADDITIONS MADE IN THIS A SSESSMENT, HAS RELIED HEAVILY ON THE ADDITION MADE ON THE BLOCK ASSESSMEN T FOR THE PERIOD ENDING 31.10.01. IN THAT CASE THE AO AND THE CIT (A ) MADE AN ADDITION ON THE BASIS OF STATEMENT GIVEN BY ONE MR. KIRAN JA NARDHAN SHETTY, THE MD OF ALL CARGO MOVERS (INDIA) P LTD, AN ASSOCIATE COMPANY. IN THE BLOCK ASSESSMENT THERE WAS ALSO AN ADDITION IN RESPECT OF CASH EXPENDITURE. IN THE ASSESSEES OWN CASE THE ITAT IN ITA (SSA)NO 221/MUM/2006 DATED 28.11.2008, ( IN THE CASE OF ALL CARGO MOVERS (I) P LTD- AS THE ASSESSEE WAS THEN CALLED) DELETED THE ADDITIONS MAD E ON ACCOUNT OF THE SWORN STATEMENT OF THE MD OF THE GROUP CONCERN AS W ELL AS THE DISALLOWANCE ON ACCOUNT OF CASH EXPENDITURE. THE AS SESSEE APPEARS TO HAVE OFFERED GP FOR THE BLOCK PERIOD AT 17%, WHILE THE GP FOR THE IMMEDIATELY PRECEDING AY 2002-03 WAS 16.03% (ACCORD ING TO ASSESSEE THE GP OF THE EARLIER YEAR WAS ONLY 15.84%). THIS P ROVES THAT THE GP RATES IN THE BUSINESS IS NOT A CONSTANT AND THE GP RATE OF THE EARLIER YEAR NEED NOT BE THE CRITERION OR THE BASIS OF DETERMINI NG THE GP OF THE YEAR UNDER APPEAL. THE ASSESSEE HAS GIVEN DETAILED EXPLA NATION FOR THE VARIATION IN THE GP RATE WHICH HAS NOT BEEN ASSAILE D. IN THE ASSESSEES LINE OF BUSINESS EXPENDITURE INCURRED IN CASH CANNO T BE RULED OUT. THE ITA NO. 258/M/07 12 ITAT IN ASSESSEES OWN CASE FOR THE BLOCK ASSESSMEN T HAD DELETED THE ADDITION ON ACCOUNT OF CASH EXPENDITURE. IN THE CIR CUMSTANCES, WE ARE NOT INCLINED TO SUSTAIN THE ADDITION OF RS. 63,24,5 32/- MADE BY THE AO AND SUSTAINED BY THE CIT(A) ON THE BASIS OF THE EAR LIER YEARS GP RATE. 16. HOWEVER, WE FIND THAT THE AO HAD STATED THAT TH IS ADDITION WILL TAKE CARE OF ANY DISALLOWANCE ON ACCOUNT OF EXPENDI TURE INCURRED IN CASH. HE HAS THEREFORE NOT EXAMINED THE EXPENDITURE IN RELATION TO THE PROVISIONS OF SEC 40A(3). THEREFORE, WE SET ASIDE T O THE FILE OF THE AO FOR EXAMINING THE ALLOWABILITY CASH EXPENDITURE OF RS. 19,33,142/- OUT OF THE DOCK AND CUSTOMS EXPENSES, CARGO HANDLING EXPENSES AND RS. 20,14,637/- OUT OF THE CONVEYANCE EXPENSES IN THE L IGHT OF PROVISIONS OF SEC 40A(3). 17. IN THE RESULT THE APPEAL FILED BY THE ASSESSEE IS PARTLY ALLOWED. ORDER PRONOUNCED ON THIS 25 TH DAY OF JUNE, 2010 SD/- SD/- (S.V. MEHROTRA) (ASHA VIJAYARAGHAVAN) ACCOUNTANT MEMBER JUDICIAL MEMBER MUMBAI, DATED 25 TH JUNE, 2010 RJ COPY TO : 1. THE APPELLANT 2. THE RESPONDENT 3. THE CIT-CONCERNED 4. THE CIT(A)-CONCERNED 5. THE DR E BENCH TRUE COPY BY ORDER ASSTT. REGISTRAR, I.T.A.T, MUMBAI ITA NO. 258/M/07 13 DATE INITIALS 1 DRAFT DICTATED ON: 11.5.2010 SR. PS/PS 2. DRAFT PLACED BEFORE AUTHOR: 13.5 .2010 ______ SR. PS/PS 3. DRAFT PROPOSED & PLACED BEFORE THE SECOND MEMBER: _________ ______ JM/AM 4. DRAFT DISCUSSED/APPROVED BY SECOND MEMBER: _________ ______ JM/AM 5. APPROVED DRAFT COMES TO THE SR. PS/PS: _________ ______ SR. PS/PS 6. KEPT FOR PRONOUNCEMENT ON: _________ ______ SR. PS/ PS 7. FILE SENT TO THE BENCH CLERK: _________ ______ SR. PS/PS 8. DATE ON WHICH FILE GOES TO THE HEAD CLERK: _________ ______ 9. DATE OF DISPATCH OF ORDER: _________ ______