HIMMAT MAL DOSHI, Jaipur V. ITO, Jaipur

ITA 276/JPR/2015

• Counselvise Citation: [2017] 128 COUNSELVISE.COM (IT) 9670 (ITAT-JAIPUR)
• Duration Of Justice: 1 year(s) 11 month(s) 24 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 17-03-2017
• Appeal Filed By: Assessee
• Order Result: Partly Allowed
• Bench Allotted: B
• Assessment Year: 2011-2012
• Appeal Filed On: 23-03-2015
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Department Lawyers: R A VERMA CIT DHK
• Assessee Lawyers: G L GUPTA
• Keywords: Rejection of books of accounts; Business income; Notional interest; Commercial expediency
• Section: 143(3); 201(1)

Judgement Text

VK;DJ VIHYH; VF/KDJ.K] T;IQJ U;K;IHB] T;IQJ IN THE INCOME TAX APPELLATE TRIBUNAL, JAIPUR BENCHE S, JAIPUR JH DQY HKKJR] U;KF;D LNL; ,OA JH FOE FLAG ;KNO] YS [KK LNL; DS LE{K BEFORE: SHRI KUL BHARAT, JM & SHRI VIKRAM SINGH YAD AV, AM VK;DJ VIHY LA-@ ITA NO. 276/JP/2015 FU/KZKJ.K O'K Z@ ASSESSMENT YEAR :2011-12 SHRI HIMMAT MAL DOSHI, G-845, ROAD, NO.14, V.K.I. AREA, JAIPUR. CUKE VS. THE ITO, WARD-4(2), JAIPUR. LFKK;H YS[KK LA-@THVKBZVKJ LA-@ PAN NO. ABRPD 3822 B VIHYKFKHZ@ APPELLANT IZR;FKHZ@ RESPONDENT FU/KZKFJRH DH VKSJ LS@ ASSESSEE BY : SHRI G.L. GUPTA (C.A.) JKTLO DH VKSJ LS@ REVENUE BY : SHRI R.A. VERMA (ADDL. CIT ) LQUOKBZ DH RKJH[K@ DATE OF HEARING : 09.03.2017 ?KKS'K .KK DH RKJH[K @ DATE OF PRONOUNCEMENT : 17/03/2017. VKNS'K@ ORDER PER SHRI VIKRAM SINGH YADAV, A.M. THIS IS AN APPEAL FILED BY THE ASSESSEE AGAINST THE ORDER OF LD. CIT(A)-2, JAIPUR DATED 19.01.2015 WHEREIN THE ASSESSEE HAS TA KEN THE FOLLOWING GROUNDS OF APPEAL: (I) (A) THE LD. CIT (APPEALS)-II, JAIPUR HAS ERRED IN LAW AS WELL AS ON FACTS WHILE ESTIMATING THE GP RATE @ 6% ARBITRARILY INSTEAD OF @ 4.75% AS DECLARED WITHOUT CONSIDERING THE FACTS AND CIRCU MSTANCES OF THE CASE, THEREBY MAKING AN ADDITION OF RS.13,09,166/-. (B) THE LD. CIT (APPEALS)-II HAS ERRED IN LAW AS WE LL AS ON FACT WHILE CONSIDERING THE REJECTION OF ACCOUNTS U/S 145(3) OF THE IT ACT. ITA NO. 276/JP/15 HIMMAT MAL DOSHI VS. ITO WARD (4)-2, JAIPUR 2 (C) THE LD. CIT (APPEALS)-II HAS ERRED IN LAW AS WE LL AS ON FACTS WHILE MAKING OBSERVATION THAT VALUATION OF CLOSING STOCK IS UNDERVALUED. (D) THE LD. CIT (APPEALS)-II HAS ERRED IN LAW AS WE LL AS ON FACTS WHILE OBSERVING THAT THE STOCK RECORDS HAVE NOT BEEN MAIN TAINED PROPERLY IN SPITE OF FACT THAT ASSESSEE IS REGISTERED WITH EXCI SE DEPARTMENT AND ALL THE RECORDS HAVE BEEN MAINTAINED REGULARLY AS REQUI RED UNDER RELEVANT ACT/RULES. 2. THE LD. CIT (APPEALS)-II HAS ERRED IN LAW AS WE LL AS ON FACTS WHILE CONSIDERING THE ADDITION OF RS.498,414/- BEING INTE REST PAID WITHOUT DEDUCTION OF TAX AT SOURCE U/S 40A(IA). 3. THE LD. CIT (APPEALS)-II HAS ERRED IN LAW AS WE LL AS ON FACTS WHILE MAKING DISALLOWANCE OF RS.388,276/- OUT OF INTEREST EXP. ASSUMING NOTIONAL INTEREST INCOME ON ADVANCE PAID. 2. FIRSTLY, WE TAKE UP THE GROUND REGARDING REJECTI ON OF BOOKS OF ACCOUNTS AND ESTIMATION OF GROSS PROFIT RATE. BRIEFLY, THE FACTS OF THE CASE ARE THAT THE ASSESSEE IS ENGAGED IN THE BUSINESS OF MANUFACTURE OF DPC COPPER WIRE AND ALUMINIUM WIRE. FOR THE YEAR UNDER CONSIDERATION, T HE ASSESSING OFFICER OBSERVED THAT THOUGH THE TURNOVER HAS INCREASED VIS -A-VIS LAST YEAR, THE GROSS PROFIT RATIO HAS DROPPED TO 4.74% AS AGAINST 7.46% IN A.Y. 2010-11 AND 5.06% IN A.Y. 2009-10. THE ASSESSING OFFICER THEREA FTER FOUND CERTAIN DEFECTS IN THE BOOKS OF ACCOUNTS AND BASIS THAT, THE BOOKS OF ACCOUNTS WERE REJECTED. BEING AGGRIEVED, THE ASSESSEE CARRIED THE MATTER IN APPEAL. THE LD CIT(A) HAS GIVEN HIS FINDINGS ON EACH OF THE GROUNDS RAISED BY THE AO FORMING THE BASIS FOR REJECTING THE BOOKS OF ACCOUNTS AFTER TAKING IN TO CONSIDERATION THE EXPLANATION OF THE ASSESSEE WHICH IS REPRODUCED AS UNDER: ITA NO. 276/JP/15 HIMMAT MAL DOSHI VS. ITO WARD (4)-2, JAIPUR 3 (A) THE VALUATION OF CLOSING STOCK IS NOT CORRECT SINCE A LARGE PART OF THE CLOSING STOCK HAS BEEN VALUED AS SUB STANDARD S TOCK AT PRICES BELOW THE COST PRICE. THE APPELLANT STATED THAT THIS PART OF THE STOCK HAD BEEN REJECTED AND THEREFORE, THE ASSESSEE EXPECTED TO SE LL IT AT A LOWER PRICE. THE APPELLANT HAS STATED THAT THIS STOCK WAS SOLD A T A LOWER PRICE IN THE NEXT YEAR. OUT OF THE BILLS SUBMITTED BY THE APPELL ANT, I ONLY FIND TWO BILLS OF SALE OF SUB STANDARD STOCK. ALSO, THE APPE LLANT HAS NOT GIVEN ANY DETAILS OF THE CUSTOMER WHO HAD REJECTED THE STOCK. THE ASSESSING OFFICER HAS ALSO STATED THAT THE STO CK OF ALUMINUM AND DPC WIRE IS UNDER VALUED. THE APPELLANT HAS GIV EN A VALUATION CHART FOR THE ABOVE STOCK ON FIFO BASIS. AS PER THIS VALU ATION CHART, THE VALUE OF CLOSING STOCK IS CLOSE TO THE VALUE OF THIS VALU ATION BUT NOT EQUAL TO THIS VALUATION, AS SHOULD BE THE CASE. (B) THE ASSESSING OFFICER HAS OBSERVED THAT THE ASS ESSEE HAS SOLD GOODS TO TWO ENTITIES VIZ M/S. KESHAV ELECTRICAL PV T. LTD. & M/S. RAJASTHAN TRANSFORMS & SWITCHGEARS AT PRICES LOWER THAN THE MATERIAL COST. THE ASSESSING OFFICER HAS ALSO CITED SUCH INS TANCES IN THE ASSESSMENT ORDER. THE APPELLANT HAS NOT DISPUTED TH E ABOVE FINDINGS BUT HAS STATED THAT THIS WAS DUE TO FLUCTUATION OF THE PRICE OF COPPER IN THE INTERNATIONAL MARKET AND THE METHOD OF PRICING ADOPTED BY M/S. STERLITE INDUSTRIES LTD. I HAVE PERUSED THE CHART O F AVERAGE PRICE OF COPPER IN EACH MONTH AND FIND THAT THIS PRICE HAS F LUCTUATED DURING THE ITA NO. 276/JP/15 HIMMAT MAL DOSHI VS. ITO WARD (4)-2, JAIPUR 4 YEAR. HOWEVER, THIS FLUCTUATION HAS BEEN BOTH ON TH E HIGHER SIDE AS WELL AS THE LOWER SIDE. THEREFORE, THE G.P. COMPONENT WO ULD CONTAIN INSTANCES OF HIGH PROFITS AS WELL AS LOW OR NO PROF ITS. THE APPELLANT HAS STATED THAT IT HAS SOLD AROUND 20% OF ITS GOODS TO M/S. KESHAV ELECTRICAL PVT. LTD. AND HAS THEREORE, GIVEN THEM GOOD RATES. REGARDING, RAJASTHAN TRANSFORMS & SWITCHGEARS, THE APPELLANT H AS NOT FURNISHED ANY VALID REASON. (C) THE ASSESSING OFFICER HAS OBSERVED THAT APPELLA NT MAINTAINS ONLY A WIP REGISTER WHEREIN THE QUANTITY OF COPPER AND A LUMINIUM IS ONLY RECORDED. NO RAW MATERIAL OR FINISHED GOODS REGISTE R IS MAINTAINED. NO REGISTER FOR INSULATION MATERIAL OR KRAFT PAPER IS MAINTAINED. THIS HAS BEEN DISCUSSED IN DETAIL BY THE ASSESSING OFFICER I N PARA 3.1(III) OF THE ASSESSMENT ORDER. IN VIEW OF THE SPECIFIC DEFECTS POINTED OUT BY THE ASSESSING OFFICER WHICH THE APPELLANT HAS NOT BEEN ABLE TO FU LLY EXPLAIN, AS DISCUSSED ABOVE, THE BOOKS OF ACCOUNTS ARE REJECTED U/S. 145(3) OF THE I.T. ACT. 2.4 THE ASSESSING OFFICER HAS ESTIMATED THE TURNOV ER AT RS.10,70,00,000/- AS AGAINST RS.10,48,03,179/- SHOW N IN THE BOOKS OF ACCOUNTS. THE APPELLANT HAS SUBMITTED THE COPY OF A SSESSMENT ORDER OF VAT/CST IN WHICH THE TURNOVER OF THE ASSESSEE HAS B EEN ACCEPTED AT ITA NO. 276/JP/15 HIMMAT MAL DOSHI VS. ITO WARD (4)-2, JAIPUR 5 ALMOST THE VALUE DISCLOSED IN THE BOOKS OF ACCOUNTS . IN VIEW OF THE ABOVE, I DO NOT AGREE WITH THE ASSESSING OFFICER IN ESTIMATING ITS TURNOVER AT RS.10,70,00,000/-. INSTEAD, THE TURNOVE R DISCLOSED IN THE BOOKS OF ACCOUNTS IS ACCEPTED. AS REGARDS THE ESTIM ATION OF G.P. RATE IS CONCERNED, IT IS SEEN THAT THE TURNOVER OF THE APPE LLANT HAS INCREASED FROM RS.6,40,57,943/- IN A.Y. 2010-11 WHEN ITS G.P. RATE WAS 7.46% TO RS.10,48,03,179/- IN THIS PREVIOUS YEAR, WHEN ITS G .P. RATE HAS DECLINED TO 4.75%. AN INCREASE IN TURNOVER WOULD INVARIABLY LEAD TO SOME CONTRACTION IN MARGIN. IN PARA 2.3 OF THIS ORDER, T HE DEFECTS UPON WHICH THE ASSESSING OFFICER HAS BASED HIS ESTIMATE HAVE B EEN DISCUSSED ALONG WITH THE EXPLANATION OF THE APPELLANT. IT HAS ALREA DY BEEN HELD THAT THE APPELLANT HAS NOT BEEN ABLE TO FULLY EXPLAIN THE DE FECTS POINTED OUT BY THE ASSESSING OFFICER. IN VIEW OF THE ABOVE DISCUSS ION, THE G.P. RATE IS ESTIMATED AT 6% OF THE TURNOVER OF RS.10,48,03,179/ -. THE TRADING ADDITION MADE BY THE ASSESSING OFFICER IS RESTRICTE D ACCORDINGLY, TO RS.13,09,166/- (= 6% OF RS.10,48,03,179 RS.49,79, 025). THE BALANCE ADDITION IS DIRECTED TO BE DELETED. THIS GROUND IS PARTLY ALLOWED. 3. IN THIS REGARD, THE LD. AR HAS SUBMITTED THAT SO ME MATERIAL WAS MANUFACTURED ON THE DEMAND OF A CUSTOMER AT SPECIFI C SIZE AND CHEMICAL COMPOSITION BUT DUE TO TECHNICAL DEFECT THE MATERIA L WAS REJECTED DURING INSPECTION AND THE PARTY DENIED TO PURCHASE. AS THE MATERIAL WAS FOR A SPECIFIC SIZE AND NOT FOR NORMAL USE, THE ASSESSEE HAD TO SE LL THE SAME AT LOWER RATE ITA NO. 276/JP/15 HIMMAT MAL DOSHI VS. ITO WARD (4)-2, JAIPUR 6 AND THEREFORE, THE VALUATION WAS MADE AT EXPECTED S ELLING RATE. WE ARE SUBMITTING HEREWITH THE CHART OF SALE OF SUB-STANDA RD MATERIAL VIS-A-VIS NORMAL MATERIAL DURING THE F.Y. 2011-12 (A.Y. 2012-13): NORMAL GOODS BILL NO. DATE RATE 37 11.05.2011 488 70 24.06.2011 450 REJECTED GOODS BILL NO. DATE RATE 34 08.05.2011 434 68 22.06.2011 355-359 84 08.07.2011 440 147 26.10.2011 413 156 06.11.2011 385 158 07.11.2011 400 169 20.10.2011 413-417 187 01.11.2011 406 FROM THE ABOVE, YOUR GOODSELF WILL FIND THAT THE VA LUATION WAS MADE AT EXPECTED SELLING RATE. FURTHER, IN INVOICES OF ABOV E SUB-STANDARD MATERIAL, THE DESCRIPTION OF MATERIAL HAS BEEN MENTIONED AS SUB-S TANDARD MATERIAL (REJECTED MATERIAL). WE ARE ENCLOSING HEREWITH COPY OF THE INVOICES FOR YOUR KIND VERIFICATION. THE ABOVE FACTS WERE EXPLAINED D URING ASSESSMENT PROCEEDINGS ALSO. ITA NO. 276/JP/15 HIMMAT MAL DOSHI VS. ITO WARD (4)-2, JAIPUR 7 4. IT WAS FURTHER SUBMITTED THAT AS REGARDS ASSESSI NG OFFICERS OBSERVATION THAT VALUATION OF DPC AND ALUMINIUM WAS UNDERVALUED, THE ASSESSING OFFICER HAS NOT POINTED OUT ANY DISCREPANCY/SHORTFALL IN VALUAT ION, THOUGH WE HAD ENCLOSED THE DETAILED CHART FOR VALUATION OF COPPER , ALUMINIUM AND CRAFT PAPER WHICH IS BEING SUMMARIZED AS UNDER: NAME OF ITEM VALUATION AS PER CHART VALUATION AS PER BOOKS COPPER ROD/WIRE 487 @ 486 AND @ 428 (AS EXPLAINED ABOVE) ALUMINUM ROD/WIRE 129 @ 140 CRAFT PAPER 92 @ 90 WE ARE SUBMITTING HEREWITH COPY OF INVOICES IN SUPP ORT OF OUR ABOVE SUBMISSION. FROM THE ABOVE, YOUR GOODSELF WILL FIND THAT THE ASSESSING OFFICERS OBSERVATION IS NOT CORRECT. 5. THE LD AR FURTHER REITERATED THE FOLLOWING FACTS AS SUBMITTED DURING THE ASSESSMENT PROCEEDINGS: 5.1 DUE TO FLUCTUATION IN COPPER RATES IN INTERNATI ONAL MARKET, THE ASSESSEE COULD NOT MAINTAIN THE G.P. RATE. WE ARE ENCLOSING HEREWITH MONTHLY RATE CHART OF COPPER WIRE OF HINDUSTAN COPPER LTS. AND S TERLITE INDUSTRIES LTD. WHICH SHOWS THAT COPPER WIRE RATES WERE FLUCTUATED BETWEEN RS.337 PER KG. TO RS.495/- PER KG. DURING THE YEAR. ITA NO. 276/JP/15 HIMMAT MAL DOSHI VS. ITO WARD (4)-2, JAIPUR 8 5.2 FURTHER, AS PER PRACTICE ADOPTED BY VEDANTA (ST ERLITE INDUSTRIES LTD.) THE SUPPLIES WERE MADE DURING THE MONTH AS PER PROVISIO NAL RATES AND FINAL RATES WERE DECIDED AT THE END OF THE MONTH FOR SUPPLIES M ADE. WE HAD ENCLOSED COPY OF RATES STRUCTURE OF JULY 2010 DETERMINED BY STERLITE INDUSTRIES LTD. AS EXAMPLE. 5.3 DUE TO FLUCTUATION IN COPPER RATE AND PRICE FIX ATION SYSTEM ADOPTED BY SUPPLIERS, THE ASSESSEE HAD TO SALE THE GOODS AT PA RT IN APRIL 2010 AND JUNE 2010 AND IN OTHER MONTHS AT VERY LOW MARGIN WITHOUT RECOVERING THE MANUFACTURING EXPENSES WHICH PROVES THE ABOVE FACTS , WE ARE ENCLOSING HEREWITH COPY OF PURCHASE AND SALES REGISTER IN SUP PORT OUR SUBMISSION. 6. IT WAS FURTHER SUBMITTED THAT AS REGARDS THE SAL ES MADE TO M/S KESHAV ELECTRICALS (P) LTD., THE ASSESSEE HAD SOLD THE GOO DS AMOUNTING TO RS.203.32 LACS DURING THE YEAR UNDER CONSIDERATION. THE SALES WERE MADE AT THE RATES TO BE DECIDED ON THE BASIS OF VEDANTA/STERLITE INDUSTR IES. THE DIFFERENCE IN PRICES CHARGED/BY ISSUING DEBIT NOTE TO PARTY. THE ASSESSE E ISSUED DEBIT NOTE ON THE TOTAL QUANTITY SOLD DURING THE PERIOD AND AFTER CON SIDERING THE AMOUNT OF DEBIT NOTE THE ASSESSING OFFICERS OBSERVATION THAT THE P RICES CHARGED FROM KEPL WERE LOWER THAN OTHERS IS MISGUIDING LOOKING TO THE QUANTUM OF SALES TO THE PARTY. (COPY OF LEDGER ACCOUNT AND DEBIT NOTE ENCLO SED AND COPY OF ACCOUNT OF RAJASTHAN TRANSFORMERS & SWITCHGEARS IS ALSO BEI NG ENCLOSED SHOWING SALES OF RS.186.98 LACS). WE HAD ALSO ENCLOSED A LETTER R ECEIVED FROM EXCISE ITA NO. 276/JP/15 HIMMAT MAL DOSHI VS. ITO WARD (4)-2, JAIPUR 9 DEPARTMENT SPECIFICALLY MENTIONING THE RATE DIFFERE NCE MATTER AND RAISED NO OBJECTION IN RESPECT OF RATES CHARGED. 7. IT WAS FURTHER SUBMITTED THAT THE ASSESSEES TUR NOVER AND G.P. RATE DURING THE YEAR UNDER CONSIDERATION AS WELL AS PRECEDING T WO YEARS WAS AS UNDER:- A.Y. __ A.Y. __ A.Y.____ 2011-12 2010-11 2009-10 SALES 103293344/- 62904666/- 81750120/- JOB WORK 1509835/- 1153277/- 1411826/- ---------------- --------------- -------------- - 104803179/- 64057943/- 83161946/- ---------------- --------------- -------------- - G.P. RS. 4979025/- 4781628/- 4213250/- G.P. @ 4.75% 7.46% 5.06% FROM THE ABOVE, YOUR GOODSELF WILL FIND THAT THE TU RNOVER OF THE ASSESSEE INCREASED SUBSTANTIALLY FROM 640 LACS TO RS.1048 LA CS I.E. BY 61%. IT IS WELL KNOWN FACT THAT WHILE THE INCREASE IN THE SALES; TH E GP IS BOUND TO GO LOW. THE INCREASE IN SALES IS ACHIEVED WITH SLIGHT COMPR OMISE WITH GP RATE. 7.1 THE ASSESSEE IS DEALER AND MANUFACTURERS OF COP PER WIRE, ALUMINIUM WIRE AND DPC WIRE OF COPPER & ALUMINIUM. THE MAIN R AW MATERIAL IS OF COPPER ROD, ALUMINIUM ROD AND WIRE. THE OTHER RAW MATERIAL LIKE ENAMEL(CHEMICAL) AND CRAFT PAPER IS ALSO BEING USED DURING MANUFACTU RING PROCESS. THE PRICES OF COPPER AND ALUMINIUM ARE FLUCTUATED DAILY DEPEND ING ON THE IMPORT/EXPORT POLICY OF THE GOVERNMENT AND DEMAND AND SUPPLY POSI TION OF THE PRODUCTS. ITA NO. 276/JP/15 HIMMAT MAL DOSHI VS. ITO WARD (4)-2, JAIPUR 10 THE ASSESSEES PURCHASES ARE FROM HINDUSTAN COPPER, STERLITE INDUSRIES AND THEIR AGENTS/DEPOTS. THE ASSESSEES PRODUCTS ARE US ED IN ELECTRICAL, ELECTRONICS INDUSTRIES AND ELECTRICITY BOARDS. ALL THE PURCHASE S AND SALES ARE FROM REGISTERED DEALERS OF VAT/CST AND FULLY VOUCHED. WE ARE ENCLOSING HEREWITH COPY OF ACCOUNT OF PASHUPATI ENTERPRISES WHO IS AUT HORIZED DEALER OF HINDUSTAN COPPER LTD. FROM WHOM PURCHASES HAVE BEEN MADE RS.716.57 LACS OUT OF TOTAL PURCHASES OF RS.1009.89 LACS. 7.2 THE ASSESSEE IS ALSO REGISTERED UNDER VAT/CST A CT, AND IS BEING REGULARLY ASSESSED BY CTO CIRCLE JAIPUR. WE HAV E ALREADY SUBMITTED THE ASSESSMENT ORDER OF VAT/CST ACT WHICH SHOWS THE TUR NOVER(SALES) OF RS.103260960/- AND IS BEING AGAIN ENCLOSED FOR READ Y REFERENCE. WE HAVE ALREADY EXPLAINED THE REASONS OF DIFFERENCES IN SAL ES OF RS.32384/- IN OUR LETTER DT. 14.10.2013. 7.3 THE ASSESSEE IS REGISTERED UNDER EXCISE ACT SIN CE LONG. ALL THE RECORDS HAVE BEEN MAINTAINED AND ARE BEING MAINTAINED REGUL ARLY WHICH HAVE BEEN CHECKED BY EXCISE AUTHORITIES DURING THEIR VISIT AT FACTORY. ALL THE RETURNS AND AUDIT HAVE BEEN CONDUCTED BY EXCISE AUTHORITIES AND NO DISCREPANCY WAS NOTICED. 7.4 THE ASSESSEES PRODUCT IS EXCISABLE COMMODITY A ND EXCISE IS BASED ON SALE VALUE AND ANY UNDERVALUATION OF SALES DIRECTLY AFFECTS THE REVENUE OF EXCISE DEPARTMENT, WHICH EXCISE AUTHORITY WOULD NEV ER HAVE BEEN ALLOWED. ITA NO. 276/JP/15 HIMMAT MAL DOSHI VS. ITO WARD (4)-2, JAIPUR 11 EXCISE AUDIT OF THE YEAR UNDER CONSIDERATION IS COM PLETED AND NO ADVERSE REMARKS WERE POINTED OUT. 7.6 QUANTITATIVE RECONCILIATION HAS BEEN SUBMITTED WHICH IS BEING REPRODUCED BELOW: INPUT OUTPUT RAW MATERIAL 237198.725 FINISHED GOODS 229437.145 WORK IN PROCESS 12682.227 SCRAP 1031.095 WORK IN PROCESS 18807.400 TOTAL 249880.952 TOTAL 249275.640 BURNING LOSS 605.312 KG. FROM THE ABOVE, YOUR GOODSELF WILL FIND THAT SCRAP GENERATION IS ONLY 0.41% AND WASTAGE (BURNING LOSS) IS ONLY 0.24% OF QUANTIT Y CONSUMED. 7.7 THE ASSESSMENT OF THE ASSESSEE FOR A.Y. 2008-09 WAS ALSO COMPLETED U/S 143(3) AND NO TRADING ADDITIONS WERE MADE. 7.8 SECTION 145(1) PROVIDES INCOME CHARGEABLE UNDE R THE HEAD PROFITS AND GAINS OF BUSINESS OR PROFESSION OR INCOME FRO M OTHER SOURCES SHALL, SUBJECT TO THE PROVISIONS OF SUB-SECTION (2), BE CO MPUTED IN ACCORDANCE WITH EITHER CASH OR MERCANTILE SYSTEM OF ACCOUNTING REGU LARLY EMPLOYED BY THE ASSESSEE. THE ASSESSEE IS FOLLOWING MERCANTILE SYS TEM OF ACCOUNTING ITA NO. 276/JP/15 HIMMAT MAL DOSHI VS. ITO WARD (4)-2, JAIPUR 12 REGULARLY AND THERE IS NO CHANGE IN METHOD OF ACCOU NTING. ASSESSING OFFICER HAS ALSO NOT OBSERVED ANYTHING CONTRARY TO IT. 7.9 SECTION 145(2) PROVIDES THE CENTRAL GOVERNMENT MAY NOTIFY IN THE OFFICIAL GAZETTE FROM TIME TO TIME ACCOUNTING STAND ARDS TO BE FOLLOWED BY ANY CLASS OF ASSESSEE OR IN RESPECT OF ANY CLASS OF INC OME. THE ASSESSING OFFICER HAS NOT POINTED OUT ANY NON-COMPLIANCE OF ACCOUNTIN G STANDARD TO BE FOLLOWED BY THE ASSESSEE. 7.10 SECTION 145(3) PROVIDES WHERE THE ASSESSING O FFICER IS NOT SATISFIED ABOUT THE CORRECTNESS OR COMPLETENESS OF THE ACCOUN TS OF THE ASSESSEE, OR WHERE THE METHOD OF ACCOUNTING PROVIDES IN SUB-SECT ION (1) OR ACCOUNTING STANDARDS AS NOTIFIED UNDER SUB-SECTION (2) HAVE NO T BEEN REGULARLY FOLLOWED BY THE ASSESSEE, THE ASSESSING OFFICER MAY MAKE A A SSESSMENT IN THE MANNER PROVIDED IN SECTION 144. THE ASSESSEE PRODUCED ALL BOOKS, VOUCHERS, EXCISE STOCK REGISTER, PURCHASE AND SALE BILLS FOR VERIFIC ATION OF ASSESSING OFFICER. BOOKS ARE DULY AUDITED BY INDEPENDENT CHARTERED ACC OUNTANT. THE ASSESSING OFFICER HAS NOT POINTED OUT ANY DISCREPANCY IN THE ACCOUNTING OF PURCHASE/SALE, HAS NOT POINTED OUT ANY UNRECORDED T RANSACTION, HAS NOT POINTED OUT ANY TRANSACTION WHICH COULD NOT BE VERI FIED FROM SUPPORTING DOCUMENTS. IN ABSENCE OF ABOVE, THE ACCOUNTS ARE CO RRECT AND COMPLETE AND ASSESSING OFFICERS ACTION OF APPLICABILITY OF SECT ION 145(3) IS ARBITRARY AND IS BAD IN LAW. ITA NO. 276/JP/15 HIMMAT MAL DOSHI VS. ITO WARD (4)-2, JAIPUR 13 7.11 AS REGARDS, VALUATION OF STOCK, THE INCOME TAX ACT AND INCOME TAX RULES DOES NOT PRESCRIBE ANY PARTICULAR METHOD OF V ALUATION OF STOCK. THE ASSESSEE MAY VALUE ITS STOCK EITHER AT COST PRICE O R AT MARKET PRICE WHICHEVER IS LOWER. IN THIS CASE ALSO, THE ASSESSEE HAS VALUE D THE STOCK OF COPPER WIRE IN TWO PARTS:- (A) NORMAL STOCK: AT COST PRICE. ITO HAS ACCEPTED T HE VALUATION AND RAISED NO OBJECTION. (B) SUB-STANDARD STOCK: AT REALIZABLE VALUE FOR WHI CH THE ASSESSEE HAS SUBMITTED THE PROOF OF ACTUAL REALIZATION IN F.Y. 2 011-12 (A.Y. 2012-13). 7.12 ASSESSMENT FOR ENSUING YEARS HAVE ALSO BEEN CO MPLETED U/S 143(3) AND DECLARED RESULTS WERE ACCEPTED AS UNDER:- A.Y. 2013-14 SALES/JOB WORK 82121707/- GROSS PROFIT 4404727/- 5.36% NET PROFIT 1481860/- 1.80% ASSESSMENT COMPLETED BY ITO WARD 4(2) JAIPUR. ADDITIONS/DISALLOWANCE: NIL A.Y. 2014-15 SALES/JOB WORK 92801471/- GROSS PROFIT 4697268/- 5.06% NET PROFIT 1601125/- 1.72% ITA NO. 276/JP/15 HIMMAT MAL DOSHI VS. ITO WARD (4)-2, JAIPUR 14 ASSESSMENT COMPLETED BY ITO WARD 4(3) JAIPUR. ADDITIONS/DISALLOWANCE: NIL 7.13. THE LD. AR FURTHER SUBMITTED THAT THE TURNOVE R OF THE ASSESSEE HAS INCREASED SUBSTANTIALLY FROM RS.640.57 LACS TO RS.1 048.08 LACS IN PRECEDING YEAR. WE HAD ALSO SUBMITTED THAT SHARP INCREASE IN TURNOVER IS POSSIBLE ONLY AT REDUCED MARGIN. WE HAD ALSO SUBMITTED THAT DURING T HE YEAR UNDER CONSIDERATION THE ASSESSEE EFFECTED SALES OF RS.203 .32 LACS TO M/S KESHAV ELECTRICALS (P) LTD. AND OF RS.186.98 LACS TO M/S R AJASTHAN TRANSFORMERS & SWITCHGEARS (P) LTD. OUT OF TOTAL SALES OF RS.1048. 08 LACS. THE HEAVY SALE TO ANY PARTY IS POSSIBLE ONLY BY REDUCING THE RATES IN COMPARISON TO OTHERS. THE ASSESSEE HAD REDUCED THE RATES TO THESE PARTIES AS DETAILED BELOW. IN SUPPORT OF OUR ABOVE SUBMISSION; WE ARE ENCLOSING HEREWITH THE COPIES OF SALES INVOICES TO THE ABOVE PARTIES VIS-A-VIS TO OTHER P ARTIES. SALES TO M/S KESHAV ELECTRICALS (P) LDT. B. NO. DATE QTY. (IN KG.) RATE PER KG. 10 13.04.2010 2962 390 15 15.04.2010 3122 391 20 17.04.2010 2985 391 30 24.04.2010 2604 390 35 27.04.2010 3120 390 45 30.04.2010 2965 390 SALES TO M/S RAJASTHAN TRANSFORMERS & SWITCHGEARS ( P) LDT. B. NO. DATE QTY. (IN KG.) RATE PER KG. 170 18.07.2010 1087.300 355 ITA NO. 276/JP/15 HIMMAT MAL DOSHI VS. ITO WARD (4)-2, JAIPUR 15 171 19.07.2010 1143.200 355 SALES TO OTHERS NAME OF PARTY B. NO. DATE QTY. RATE PER KG. NEELU METALS 11 13.04.2010 86.165 408 MAHESHWARI ELECTROS (P) LTD. 14 14.04.2010 199.745 422 KALPANA INDUSTRIES 21 19.04.2010 10.940 415 SHRI BALAJI ENTERPRISES 31 24.04.2010 190.755 418 RAJASTHAN TRANSFORMER & ELECTRICALS 37 29.04.2010 235.330 418 ANUPAM UDYOG 46 01.05.2010 321.740 403 TANTIA TRANSFORMER & ELECTRICALS (P) LTD. 152 02.07.2010 141.160 385 RAJASTHAN TRANSFORMER & ELECTRICALS 160 08.07.2010 146.390 385 AGARWAL TRANSFORMERS & ELECTRICALS 163 10.07.2010 23.635 384 SHRI KRISHNA SUDERSHAN URJA (P) LTD. 166 16.07.2010 160.820 370 BALAJI INDUSTRIES 172 21.07.2010 8.535 370 FROM THE ABOVE, YOUR GOODSELF WILL FIND THAT ASSESS EE HAD SOLD THE METAL TO M/S KESHAV ELECTRICALS (P) LTD. AND M/S RAJASTHAN T RANSFORMERS & SWITCHGEARS (P) LTD. AT VERY LOW MARGIN. FURTHER, THE TERMS OF PAYMENT OF THESE PARTIES WERE ALSO VERY MUCH FAVOURABLE, WHICH IS AS UNDER:- SALES TO M/S KESHAV ELECTRICALS (P) LTD. 203.32 LAC S BALANCE OUTSTANDING AT YEAR END NIL SALES TO M/S RAJASTHAN TRANSFORMERS & SWITCHGEARS ( P) LTD. 186.98 LACS BALANCE OUTSTANDING AT YEAR END .24 LACS (EXCESS RE CEIVED) ITA NO. 276/JP/15 HIMMAT MAL DOSHI VS. ITO WARD (4)-2, JAIPUR 16 FROM THE ABOVE SUBMISSIONS, YOUR GOODSELF WILL FIND THAT REDUCTION IN G.P. RATE IS VERY MUCH SUPPORTED WITH DOCUMENTARY EVIDEN CES AND THEREFORE DECLARED RESULTS DESERVES TO BE ACCEPTED. 7.14 THE LD AR ALSO RELIED UPON THE DECISION OF HON BLE HIGH COURT OF DELHI IN THE CASE OF COMMISSIONER OF INCOME TAX V/S PARADISE HOLIDAYS, IT APPEAL NO.445 OF 2010 DT. 28.04.2010 (2010) 325 ITR 13 (DE L.). IN THIS CASE IT WAS HELD AS UNDER: THE QUESTION AS TO WHETHER THE ACCOUNTS PRODUCED BY THE ASSESSEE WERE DEFECTIVE OR NOT IS A QUESTION OF FACT. THE CI T(A) AS WELL AS TRIBUNAL HAVE FOUND THAT THE ACCOUNTS MAINTAINED BY THE RESP ONDENT WERE NEITHER DEFECTIVE NOR INCOMPLETE. EVEN THE AO HAS NOT FOUND ANY FAULT AS SUCH WITH THE SYSTEM OF ACCOUNTING BEING FOLLOWED BY THE ASSESSEE. THE TRIBUNAL WHICH IS THE FINAL FACT-FINDING AUTHORITY HAS HELD THAT CONSIDERING THE NATURE OF THE BUSINESS OF THE ASSESSEE, IT WAS NOT OBLIGATORY TO ENTER INTO A FORMAL AGREEMENT WITH THE FOREIGN PRINCIPAL. HENCE NON-PRODUCTION OF FORMAL AGREEMENT WITH THE FOREIGN PRINCIPALS WOU LD NOT RENDER THE ACCOUNTS OF THE ASSESSEE INCOMPLETE AND WOULD NOT G IVE JUSTIFICATION TO THE AO TO REJECT THEM UNDER S. 145(3) OF THE ACT. S IMILARLY, THE EXPLANATION GIVEN BY THE ASSESSEE FOR THE TOUR EXPE NSES NOT RECONCILING WITH TOUR ITINERARY HAVING BEEN ACCEPTED, BOTH BY C IT(A) AS WELL AS BY THE TRIBUNAL, THE ACCOUNTS OF THE ASSESSEE CANNOT B E SAID TO BE DEFECTIVE ITA NO. 276/JP/15 HIMMAT MAL DOSHI VS. ITO WARD (4)-2, JAIPUR 17 ON THIS GROUND AND, THEREFORE, COULD NOT HAVE BEEN REJECTED. IF ANY PARTICULAR EXPENSE CLAIMED BY THE ASSESSEE REMAINED UNVERIFIED, THE AO COULD HAVE DISALLOWED THAT PARTICULAR EXPENSE. BUT, THAT BY ITSELF CANNOT BE A GROUND FOR REJECTION OF ACCOUNTS AS A WHOLE UN DER S. 145(3) OF THE ACT. THE FINDING OF FACT RECORDED BY THE TRIBUNAL H AS NOT BEEN SHOWN TO BE PERVERSE, AND HENCE CANNOT BE INTERFERED WITH BY THIS COURT. FROM THE ABOVE, YOUR GOODSELF WILL FIND THAT ASSESS ING OFFICERS ACTION IS NOT BASED ON FACTS AND CIRCUMSTANCES OF THE CASE. FURTH ER, ENHANCEMENT OF SALES AND ESTIMATION OF G.P. RATE IS BASED ON ASSUMPTION, WITHOUT ANY BASIS AND THEREFORE DESERVES TO BE DELETED. 8. THE LD DR IS HEARD WHO HAS RELIED UPON THE ORDER OF THE LOWER AUTHORITIES. 9. WE HAVE HEARD THE RIVAL CONTENTIONS AND PURSUED THE MATERIAL ON RECORD. THE BOOKS OF ACCOUNTS HAVE BEEN REJECTED BY THE ASS ESSING OFFICER PRIMARILY ON ACCOUNT OF UNDER VALUATION OF THE CLOSING STOCK IN RESPECT OF THE SUB- STANDARD STOCK AT PRICES BELOW THE COST PRICE AND S ECONDLY, ON ACCOUNT OF SALES MADE BY THE ASSESSEE AT PRICES LOWER THAN THE MATERIAL COST. REGARDING THE SALES WHICH HAVE BEEN AFFECTED BY THE ASSESSEE, THE SAME IS A FUNCTION OF COST OF MANUFACTURE (INCLUDING COST OF PURCHASE) AS WELL AS COMPETITIVE MARKET CONDITION IN ORDER TO SECURE THE BUSINESS OR DERS. THE APPELLANT IS ENGAGED IN THE BUSINESS OF MANUFACTURE OF DPC COPPE R WIRE AND THE PRICE OF THE COPPER HAS FLUCTUATED DURING THE YEAR, A FACT W HICH HAS NOT BEEN CONTROVERTED BY THE REVENUE AND HENCE, COST OF PURC HASE IS NOT IN DISPUTE. ITA NO. 276/JP/15 HIMMAT MAL DOSHI VS. ITO WARD (4)-2, JAIPUR 18 IN RESPECT OF THE SALES WHICH HAVE BEEN AFFECTED DU RING THE YEAR, THE LD. CIT(A) HAS TAKEN NOTE OF THE ASSESSMENT ORDER UNDER VAT/CST LEGISLATION WHEREIN THE TURNOVER OF THE ASSESSEE AS DISCLOSED I N THE BOOKS OF ACCOUNTS HAVE BEEN ACCEPTED BY THE ASSESSING AUTHORITY. FURT HER, THE EXCISE AUDIT HAS ALSO BEEN COMPLETED AND THERE IS NO ADVERSE FINDING WHICH HAS BEEN REPORTED THEREIN. GIVEN THE FLUCTUATION IN THE COPPER PRICES , AS PER THE REGULAR PRACTICE FOLLOWED, THE ASSESSEE RAISES THE NECESSARY DEBIT N OTES ON ITS CUSTOMERS TO RECOVER THE DIFFERENTIAL PRICE THAN BILLED PROVISIO NALLY. THE DIFFERENTIAL PRICING AND ALL THE SALES HAVE BEEN DULY RECORDED IN THE FI NANCIAL STATEMENT WHICH HAS BEEN DULY AUDITED. THE ASSESSING OFFICER HAS ALSO D ISPUTED THE TURNOVER OF THE ASSESSEE AND COMPUTED THE SAME AT RS.10.70 CR. AS A GAINST RS.10.48 CR. SHOWN IN THE BOOKS OF ACCOUNTS. THE LD. CIT(A) HAS UPHELD THE TURNOVER FIGURE AS REFLECTED IN THE BOOKS OF ACCOUNTS AND TH E REVENUE IS NOT IN APPEAL AGAINST THE SAID CONFIRMATION OF THE TURNOVER AS UP HELD BY THE LD. CIT(A). EFFECTIVELY, THE PRICE AT WHICH THE GOODS HAVE BEEN SOLD DURING THE YEAR HAS BEEN ACCEPTED BY THE REVENUE AND THE SAME CANNOT, T HEREFORE, BE A BASIS FOR UPHOLDING THE REJECTION OF BOOKS OF ACCOUNTS. SECON DLY, REGARDING THE UNDER VALUATION OF THE SUB-STANDARD STOCK, THE ASSESSEE H AS SUBMITTED THAT THE SAME HAS BEEN VALUED AT A REALIZABLE VALUE AT WHICH SUCH STOCK HAS BEEN SOLD IN THE SUBSEQUENT F.Y. 2011-12 AS DEMONSTRATED THRO UGH ACTUAL SALES INVOICES AND THE RESULTS OF THE SUBSEQUENT FINANCIAL YEAR HA VE BEEN ACCEPTED BY THE REVENUE. FURTHER, IT IS NOTED THAT THE ASSESSEE IS IN THE SAME LINE OF BUSINESS ITA NO. 276/JP/15 HIMMAT MAL DOSHI VS. ITO WARD (4)-2, JAIPUR 19 OVER THE YEARS AND IS FOLLOWING THE SAME METHOD OF ACCOUNTING IN RESPECT OF VALUATION OF ITS STOCK AS WELL AS ACCOUNTING FOR PU RCHASE AND SALES AND ITS BOOKS OF ACCOUNTS HAVE ALL ALONG BEEN ACCEPTED BY T HE REVENUE FOR THE PREVIOUS AND THE SUBSEQUENT YEARS. IN LIGHT OF ABOV E, WE DO NOT SEE A JUSTIFIABLE REASON FOR REJECTION OF BOOKS OF ACCOUN TS AS MAINTAINED BY THE ASSESSEE. HENCE, THE ACTION OF THE LD. ASSESSING OF FICER IN REJECTING THE BOOKS OF ACCOUNTS CANNOT BE SUSTAINED. IN LIGHT OF ABOVE, THE TRADING ADDITION OF RS.13,09,166/- AS UPHELD BY THE LD. CIT(A) ON ACCOU NT OF REJECTION OF BOOKS OF ACCOUNTS IS HEREBY DELETED. IN THE RESULT, GROUN D NO.1 OF THE ASSESSEE IS ALLOWED. 10. REGARDING GROUND NO. 2, BRIEFLY THE FACTS OF T HE CASE ARE THAT THE ASSESSEE HAS PAID INTEREST AMOUNTING TO RS.4,98,414 /- TO M/S. RELIANCE CAPITAL LTD. WITHOUT DEDUCTING TAX AT SOURCE, AS RE QUIRED BY THE PROVISIONS OF SECTION 194A. THE APPELLANT HAS RELIED UPON THE PRO VISO TO SECTION 201 AND 40(A)(IA). AS PER LD CIT(A), THE SECOND PROVISO TO SEC 40(A)(IA) HAS BEEN INTRODUCED BY THE FINANCE ACT, 2012 AND IS EFFECTIV E FROM 1/4/2013. ALSO, THE FIRST PROVISO TO SECTION 201(1) HAS BEEN INSERTED B Y THE FINANCE ACT, 2012, W.E.F. 01.07.2012. BOTH THE ABOVE AMENDMENTS DO NOT APPLY TO THE ASSESSMENT YEAR, UNDER CONSIDERATION AND THEREFORE, THIS CONTENTION OF THE APPELLANT WAS NOT ACCEPTED. IN VIEW OF THE ABOVE, A DDITION MADE BY THE ASSESSING OFFICER ON ACCOUNT OF DISALLOWANCE OF INT EREST U/S. 40(A)(IA) WAS SUSTAINED. ITA NO. 276/JP/15 HIMMAT MAL DOSHI VS. ITO WARD (4)-2, JAIPUR 20 11. IN THIS REGARD, THE LD. AR SUBMITTED THAT THE A SSESSEE RECEIVED LOAN FROM RELIANCE CAPITAL LTD., IN PERSONAL NAME FOR TH E PURPOSE OF BUSINESS OF DOSHI METALS. THE PAYMENT WAS MADE TO THE RELIANCE CAPITAL LDT. THROUGH BANK. THE RELIANCE CAPITAL LTD. IS WELL-KNOWN, NON- BANKING FINANCE COMPANY HAVING PAN NO.AAACR5054J AND IS LISTED IN MAJOR STO CK EXCHANGE OF INDIA AND IS SUPPOSED TO COMPLY ALL THE LEGAL REQUIREMENT OF INCOME TAX IN TIME. 12. IT WAS FURTHER SUBMITTED THAT SECTION 40(A)(IA) IS APPLICABLE ONLY IN RESPECT OF TDS DEFAULTS IF AMOUNT IS PAYABLE. IF AMOUNT IS ACTUALLY PAID AND TAX IS NOT DEDUCTED UNDER THE ABOVE SECTIONS, SECTION 40(A)(IA ) IS NOT APPLICABLE. SECTION 40(A)(IA) HAS TO BE SUBJECTED TO RESTRICT INTERPRET ATION. GOING BY THE RULE OF STRICT INTERPRETATION, THE DEFAULT WITH REFERENCE T O ACTUAL PAYMENT OF EXPENDITURE WOULD NOT ENTAIL DISALLOWANCE. THE AFOR ESAID OBSERVATION HAS NOW BEEN UPHELD BY DIFFERENT BENCHES OF TRIBUNAL TEJA CONSTURCTION V. CIT(2010)39 SOT 13 (HYD.). MERILYN SHIPPING & TRANS PORTERS V. CIT(2012) 20 TAXMANN.COM 244 (VISAKAPATTNAM), S.S. WARAD V. CIT( 2012)19 ITR (TRIB.) 35 (BANG.). T.T. KURUVILLA V. CIT (2012) 149 TTJ (COCH .) 533. EMDEE APPARELS V. CIT (2012) 54 SOT 600 (BANG.), BARRONICS INDIA LTD. V. CIT (2012) 52 SOT 188 (HYD.), CADTRIUM ENGINEERING SOLUTIONS (P) LTD. V. ITO (2013) 33 TAXMANN.COM 269(DELHI), ITO V. VINOD DATTA (2013) 3 3 TAXMANN.COM 440 (MUM.) ITO V. MGB TRANSPORT(2013) 143 ITD 564 (KOL. ) CADTRIUM ENGINEERING SOLUTIONS (P) LTD. V. ITO (2013) 58 SOT 3 (DELHI). A SIMILAR RULING IS GIVEN BY THE ALLAHABAD HIGH COURT IN THE CASE OF CIT V. VECT OR SHIPPING SERVICES (P) ITA NO. 276/JP/15 HIMMAT MAL DOSHI VS. ITO WARD (4)-2, JAIPUR 21 LTD. (2013) 218 TAXMANN 93 (SLP AGAINST THIS JUDGME NT HAS BEEN REJECTED BY THE APEX COURT ON JULY 2, 2014). 13. IT WAS FURTHER SUBMITTED THAT THE ASSESSEE HAS DEBITED RS.498414/- AS INTEREST PAYMENT TO RELIANCE CAPITAL LTD. AND TOTAL AMOUNT HAS BEEN PAID DURING F.Y. 2010-11 (A.Y. 2011-12) IN MONTHLY INSTA LMENTS AND NOTHING WAS PAYABLE AT THE END OF THE F.Y. 2010-11 I.E. AS ON 3 1.03.2011. WE ARE ENCLOSING HEREWITH COPY OF ACCOUNT OF RELIANCE CAPI TAL LTD. WHICH PROVES THAT PAYMENT HAS BEEN MADE IN MONTHLY INSTALMENTS DURING THE FINANCIAL YEAR 2010-11 (A.Y. 2011-12) AND NO AMOUNT IS PAYABLE AS AT THE END OF THE YEAR. 14. A SIMILAR ISSUE HAS BEEN DEALT RECENTLY BY THE COORDINATE BENCH IN JAIPUR IN CASE OF SIYARAM EXPORT INDIA (P) LTD. VS. ADDL. CIT, RANGE-6, JAIPUR ITA NO. 501/JP/14 DATED 26/07/2016 WHEREIN THE ISSUE AROUND DISALLOWANCE U/S 40A(IA) HAS BEEN DISCUSSED IN LIGHT OF SPECIAL BENC H DECISION IN CASE OF M/S MERILYN SHIPPING & TRANSPORT AND THE CONFLICTING D ECISIONS OF VARIOUS HIGH COURTS. THE OPERATIVE PART OF THE DECISION IS AS U NDER: 2.5 IN THE CONTEXT OF FACTUAL MATRIX AND ABOVE LEG AL DEVELOPMENTS, FIRSTLY, IT WOULD BE RELEVANT TO REFER TO THE DECISION OF THE H ONBLE ANDHRA PRADESH HIGH COURT IN CASE OF JANAPRIYA ENGINEERS SYNDICATE (I.T .T.A NO 352 OF 2014 VIDE ITS ORDER DATED 24.06.2014) WHEREIN THE APPEAL FOR STATISTICAL PURPOSE WAS ADMITTED ON THE FOLLOWING SUBSTANTIAL QUESTION OF L AW: ITA NO. 276/JP/15 HIMMAT MAL DOSHI VS. ITO WARD (4)-2, JAIPUR 22 WHETHER THE LD. TRIBUNAL WAS JUSTIFIED IN LAW ON THE FACTS AND CIRCUMSTANCES OF THIS CASE IN PASSING ORDER OF REMA ND FOR REDECISION IGNORING THE SPECIAL BENCH DECISION OF THE TRIBUNAL ON THE I SSUE THOUGH THE APPEAL AGAINST THE SAME IS PENDING ADJUDICATION BEFORE THE HONBLE COURT? THE FINDINGS OF THE HONBLE HIGH COURT ARE AS UNDER : 3. WE FIND THAT THE LEARNED TRIBUNAL TAKING NOTE O F THE PENDENCY OF THE APPEAL IN THIS COURT, PREFERRED BY THE REVENUE AGAI NST THE DECISION OF THE SPECIAL BENCH OF THE TRIBUNAL IN M/S MERILYN SHIPP ING & TRANSPORT IN ITA NO.477/VIZ/2008 DATED 29.03.2012, DIRECTED THE ASSE SSING OFFICER TO RE- DECIDE THE ISSUE AFTER THE DISPOSAL OF THE APPEAL B Y THIS COURT. 4. WE ARE OF THE VIEW THAT UNTIL AND UNLESS THE DEC ISION OF THE SPECIAL BENCH IS UPSET BY THIS COURT, IT BINDS SMALLER BENC H AND CO-ORDINATE BENCH OF THE TRIBUNAL. UNDER THE CIRCUMSTANCES, IT IS NOT O PEN TO THE TRIBUNAL, AS RIGHTLY CONTENDED BY MR. NARASIMHA SARMA, LEARNED C OUNSEL, TO REMAND ON THE GROUND OF PENDENCY ON THE SAME ISSUE BEFORE THI S COURT, OVERLOOKING AND OVERRULING, BY NECESSARY IMPLICATION, THE DECISION OF THE SPECIAL BENCH. WE SIMPLY SAY THAT IT IS NOT PERMISSIBLE UNDER QUASI J UDICIAL DISCIPLINE. UNDER THE CIRCUMSTANCES, WE SET-ASIDE THE IMPUGNED JUDGEMENT AND ORDER, AND RESTORE THE MATTER TO THE FILE OF THE TRIBUNAL WHICH WILL D ECIDE THE ISSUE IN ACCORDANCE WITH LAW AND IT WOULD BE OPEN TO THE TRIBUNAL EITHE R TO FOLLOW THE SPECIAL ITA NO. 276/JP/15 HIMMAT MAL DOSHI VS. ITO WARD (4)-2, JAIPUR 23 BENCH DECISION OR NOT TO FOLLOW. IF THE SPECIAL BE NCH DECISION IS NOT FOLLOWED, OBVIOUSLY REMEDY LIES ELSEWHERE. 2.6 SUBSEQUENTLY, THE COORDINATE BENCH IN CASE OF S HRI AMIT NARESH SHAH IN ITA NO. 4154/MUM/2013 DATED 10.09.2014 TAKING INTO COGNISANCE THE DECISION OF HONBLE ANDHRA PRADESH HIGH COURT IN CA SE OF JANAPRIYA ENGINEERS SYNDICATE (SUPRA) HAS HELD AS UNDER: FROM THE CLARIFICATION ISSUED BY THE HONBLE HIGH COURT, IT IS CLEAR THAT UNTIL AND UNLESS THE DECISION OF MARILYN SHIPPING A ND TRANSPORT (SUPRA) IS REVERSED BY THE COURT, IT IS BINDING ON ALL THE BE NCHES OF THE TRIBUNAL. WE FIND THAT HONBLE COURT HAS HELD THAT JUDICIAL DISC IPLINE MANDATES THAT THE DECISION OF THE SPECIAL BENCH HAS TO BE FOLLOWED BY OTHER BENCHES. AS ON TODAY, THE STAY ORDER GRANTED BY THE HONBLE COURT HAS BEEN VACATED AND THE ORDER OF THE SPECIAL BENCH IS BINDING ON OTHER BENC HES OF THE TRIBUNAL. THEREFORE, RESPECTFULLY FOLLOWING THE SAME, WE HOLD THAT THE FAA WAS JUSTIFIED IN FOLLOWING THE ORDER OF MARILYN SHIPPING & TRANSP ORT (SUPRA). CONSIDERING THE FACTS OF THE CASE AND THE CLARIFICATION ISSUED BY THE HONBLE ANDHRA PRADESH HIGH COURT ON 24.06. 2014 IN THE CASE OF JA NAPRIYA ENGINEERS SYNDICATE, WE DECIDE THE EFFECTIVE GROUND OF APPEAL IN FAVOUR OF THE ASSESSEE AND CONFIRMED THE ORDER OF THE FAA. 2.7 IN LIGHT OF DECISION OF HONBLE ANDHRA PRADESH HIGH COURT IN CASE OF JANAPRIYA ENGINEERS SYNDICATE (SUPRA), IT IS THUS C LEAR THAT THE DECISION OF THE ITA NO. 276/JP/15 HIMMAT MAL DOSHI VS. ITO WARD (4)-2, JAIPUR 24 SPECIAL BENCH OF THE TRIBUNAL IN CASE OF M/S MERILY N SHIPPING & TRANSPORT (SUPRA) CONTINUES TO BIND THE COORDINATE BENCHES TI LL THE TIME THE SAME IS NOT OVERRULED BY THE HONBLE HIGH COURT. 2.8 FURTHER, IT IS NOTED THAT THE SPECIAL BENCH DEC ISION IN CASE OF M/S MERILYN SHIPPING & TRANSPORT (SUPRA) HAS BEEN APPR OVED AND REFERRED BY THE ALLAHABAD HIGH COURT IN CASE OF VECTOR SHIPPING SER VICES (P) LTD. AT THE SAME TIME, THERE ARE DECISIONS OF CALCUTTA HIGH COURT IN CASE OF CRESCENT EXPORTS SYNDICATE AND GUJARAT HIGH COURT IN CASE OF SIKANDA RKHAN N TANVAR WHERE THE HIGH COURTS HAVE DISAGREED WITH THE VIEW OF THE SPE CIAL BENCH IN CASE OF M/S MERILYN SHIPPING & TRANSPORT (SUPRA). IT IS THUS EVIDENT THAT THE VIEW OF THE ALLAHABAD HIGH COURT AND OTHER TWO HIGH COURTS ARE IN DIRECT CONFLICT WITH EACH OTHER. THE QUESTION THAT ARISES FOR CONSIDERA TION IS WHERE THERE IS NO DECISION OF A JURISDICTIONAL HIGH COURT AND THERE A RE CONFLICTING VIEWS OF THE DIFFERENT HIGH COURT, WHICH VIEW SHOULD BE FOLLOWED . IN THIS REGARD, WE DRAW SUPPORT FROM THE JUDGEMENT OF HONBLE SUPREME COU RT IN THE MATTER OF CIT VS. VEGETABLE PRODUCTS LTD. (1972) 88 ITR 192 (SC) WHEREIN THE HONBLE SUPREME COURT HAS LAID DOWN THE PRINCIPLE THAT F TWO REASONABLE CONSTRUCTIONS OF A TAXING PROVISIONS ARE POSSIBLE, THAT CONSTRUCTION WHICH FAVOURS THE ASSESSEE MUST BE ADOPTED. IN VIEW OF THE ABOVE DISCUSSIONS AND THE ENTIRETY O F FACTS AND CIRCUMSTANCES OF THE CASE, THE DISALLOWANCE OF SUM OF RS.14,14,53 4/- U/S 40(A)(IA) OF THE IT ACT, IS HEREBY DELETED. ITA NO. 276/JP/15 HIMMAT MAL DOSHI VS. ITO WARD (4)-2, JAIPUR 25 15. IN LIGHT OF ABOVE, FOLLOWING THE EARLIER DECISI ON OF THE COORDINATE BENCH IN CASE OF SIYARAM EXPORTS (SUPRA), WE HEREBY DELETE T HE DISALLOWANCE UNDER SECTION 40(A)(IA) AS NO AMOUNT REMAINED PAYABLE AS ON 31ST MARCH. IN THE RESULT, THE GROUND NO. 2 OF ASSESSEE IS ALLOWED. 16. REGARDING 3 RD GROUND OF APPEAL, THE ASSESSING OFFICER FOUND THAT THE ASSESSEE HAS GIVEN INTEREST FREE ADVANCES TO TWO FA MILY MEMBERS WITH WHOM THE ASSESSEE DID NOT HAVE ANY BUSINESS CONNECTION. THE APPELLANT HAS EXPLAINED THAT THESE ADVANCES WERE GIVEN DUE TO URG ENT REQUIREMENT OF FUNDS IN THE NORMAL COURSE OF BUSINESS. THE APPELLANT HAS STATED THAT IT HAS RECEIVED INTEREST FREE LOANS ALSO. AS PER THE LD CIT(A), THI S CONTENTION OF THE APPELLANT IS NOT ACCEPTABLE BECAUSE THE ASSESSEE HAS NOT ABLE TO SHOW THAT MONEYS WERE ADVANCED TO THE ABOVE TWO PERSONS FOR BUSINESS PURPOSES. ALSO, THE APPELLANT HAS NOT BEEN ABLE TO ESTABLISH ANY NEXUS BETWEEN THE INTEREST FREE LOANS AND THE INTEREST FREE ADVANCES GIVEN BY IT. I N VIEW OF THE ABOVE, THE DISALLOWANCE OF INTEREST EXPENDITURE MADE BY THE AS SESSING OFFICER @ 12% ON THE INTEREST FREE ADVANCES WAS SUSTAINED SINCE THIS PART OF THE EXPENDITURE HAS NOT BEEN INCURRED FOR BUSINESS PURPOSES OR FOR ANY COMMERCIAL EXPEDIENCY. 17. IN THIS REGARD, THE LD. AR SUBMITTED THAT DURIN G THE YEAR UNDER CONSIDERATION THE ASSESSEE HAD PAID ADVANCE TO SMT. SNEH LATA JAIN AND YASH DOSHI. THE AMOUNT WAS GIVEN FOR MEETING OUT URGENT REQUIREMENT OF FUNDS FOR ITA NO. 276/JP/15 HIMMAT MAL DOSHI VS. ITO WARD (4)-2, JAIPUR 26 A SHORT PERIOD BUT NOT IN THE NATURE OF LOAN AND TH EREFORE NO INTEREST WAS CHARGED. WE ARE SUMMARIZING THE LOAN POSITION AS UN DER:- 1. SMT. SNEH LATA JAIN OPENING BALANCE 3216365/- PAID DURING THE YEAR 04.10.2010 1000000/- 4216365/- RECEIVED BACK 1552600/- CLOSING BALANCE 2663765/- 2. YASH DOSHI OPENING BALANCE 319366/- PAID DURING THE YEAR 10.04.2010 75000/- PAID DURING THE YEAR 26.07.2010 500000/- 894366/- RECEIVED BACK 1900000/- CLOSING BALANCE 704366/- 18. IT WAS SUBMITTED THAT D URING NORMAL COURSE OF BUSINESS, LOOKING TO THE SITUATION AND RELATIONS WITH EACH OTHER, AMOUNT WAS PAID/RECEIVED WITHOUT INTEREST FOR MEETING OUT THE URGENT REQUIREMENT OF FUNDS. THE ASSESSEE HAS ALSO RECEIVED INTEREST FREE AMOUNT FROM M/S ZODIAC ENTERPRISES (P) LTD. WHICH SHOWS OUTSTANDING BALANCE OF RS.48.73 LACS AS AT TH E YEAR END (COPY ENCLOSED). 19. IT WAS FURTHER SUBMITTED THAT THE ASSESSING OFF ICER HAS CALCULATED & DISALLOWED INTEREST ON CLOSING BALANCE INCLUDING OL D INTEREST FREE ADVANCES ITA NO. 276/JP/15 HIMMAT MAL DOSHI VS. ITO WARD (4)-2, JAIPUR 27 ALSO. IF ITO WAS NOT SATISFIED WITH OUR SUBMISSION, HE SHOULD AT THE MOST CALCULATE & DISALLOW THE INTEREST ON ADVANCES PAID DURING THE YEAR UNDER CONSIDERATION WHICH IS AS UNDER:- SMT. SNEH LATA JAIN RS.10,00,000/- PAID ON 04.10.2010 INTEREST @ 12% RS .60000/- YASH DOSHI RS.75000/- PAID ON 10.04.2010 INTEREST @ 12% RS.900 0/- RS.500000/- PAID ON 26.07.2010 INTEREST @ 12% RS.40 000/- 109000/- 20. WE HAVE HEARD THE RIVAL CONTENTIONS AND PURSUED THE MATERIAL ON RECORD. WE HAVE GONE THROUGH THE ORDER OF LD. CIT(A) WHO HA S HELD THAT THE ASSESSEE HAS GIVEN INTEREST FREE ADVANCES TO TWO FA MILY MEMBERS WITH WHOM THE ASSESSEE DID NOT HAVE ANY BUSINESS CONNECTION. THE ASSESSEE HAS NOT BEEN ABLE TO CONTROVERT THE SAID FINDINGS OF THE LD CIT(A). IN LIGHT OF ABOVE, THE TEST OF COMMERCIAL EXPEDIENCY HAVING NOT BEEN S ATISFIED, WE CONFIRM THE ORDER OF LD. CIT(A). IN THE RESULT, GROUND TAKEN BY THE ASSESSEE IS DISMISSED. IN THE RESULT, THE APPEAL FILED BY THE ASSESSEE IS PARTLY ALLOWED. ORDER PRONOUNCED IN THE OPEN COURT ON 17/03/2017. SD/- SD/- (KUL BHARAT) (VIKRAM SINGH YADAV) U;KF;D LNL;@ JUDICIAL MEMBER YS[KK LNL;@ ACCOUNTANT MEMBER JAIPUR ITA NO. 276/JP/15 HIMMAT MAL DOSHI VS. ITO WARD (4)-2, JAIPUR 28 DATED:- 17/ 03/2017. *SANJEEV* VKNS'K DH IZFRFYFI VXZSF'KR@ COPY OF THE ORDER FORWARDED TO: 1. VIHYKFKHZ@ THE APPELLANT- SHRI HIMMAT MAL DOSHI, G-845, ROAD, NO.14, V.K.I. AREA, JAIPUR. 2. IZR;FKHZ@ THE RESPONDENT- THE ITO, WARD-4(2), JAIPUR 3. VK;DJ VK;QDR@ CIT-2 , JAIPUR 4. VK;DJ VK;QDRVIHY@ THE CIT(A)-2, JAIPUR 5. FOHKKXH; IZFRFUF/K] VK;DJ VIHYH; VF/KDJ.K] T;IQJ@ DR, ITAT, JAIPUR 6. XKMZ QKBZY@ GUARD FILE (ITA NO.276/JP/2015) VKNS'KKUQLKJ@ BY ORDER, LGK;D IATHDKJ@ ASSISTANT. REGISTRAR