Sh. Chaman Lal Jain (Prop.), Tanda V. The Income-tax Officer, Dasuya

ITA 277/ASR/2012

• Counselvise Citation: 27720914 RSA 2012
• Duration Of Justice: 1 month(s) 18 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 09-08-2012
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: DB
• Assessment Year: 2006-2007
• Appeal Filed On: 21-06-2012
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Assessee Lawyers: S K BANSAL
• Keywords: Business expenditure; Loose papers; Commercial expediency

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL AMRITSAR BENCH; AMRITSAR. BEFORE SH. H.S. SIDHU, JUDICIAL MEMBER AND SH. B.P.JAIN, ACCOUNTANT MEMBER I.T.A. NO.277(ASR)/2012 ASSESSMENT YEAR:2006-07 PAN :AAQPJ0259C SH. CHAMAN LAL JAIN, VS. INCOME TAX OFFICER , TANDA. C/O SH. S.K. BANSAL, ADVOCATE, DASUYA. AMRITSAR. (APPELLANT) (RESPONDENT) APPELLANT BY:SH. S.K. BANSAL, ADV. RESPONDENT BY:SH.TARSEM LAL, DR DATE OF HEARING:07/08/2012 DATE OF PRONOUNCEMENT:09/08/2012 ORDER PER BENCH ; THIS APPEAL OF THE ASSESSEE ARISES FROM THE ORDER OF THE CIT(A), JALANDHAR, DATED 04.04.2012 FOR THE ASSESSMENT YEAR 2006-07. 2. THE ASSESSEE HAS RAISED FOLLOWING GROUNDS OF APP EAL: 1. THAT THE LD. CIT(A) WRONGLY CONFIRMED THE ADDIT ION OF RS.50,000/- UNDER THE HEAD TRADING A/C WITHOUT APPR ECIATING THE FACT THAT GP RATE IS PROGRESSIVE AND BETTER THAN LA ST YEAR. 2. THAT THE LD. CIT(A) WRONGLY CONFIRMED THE ADDITI ON OF 25% OF BUSINESS EXPENDITURE CLAIMED AT RS.22,994/-. ITA NO.277(ASR)/2012 2 3(A) THAT THE LD. CIT(A) WRONGLY CONFIRMED THE ADDI TION AT 11% ON RS. 4 LACS BEING INTEREST NOT CHARGED FROM THE SON. 3(B) THAT IN THE PAST LOANS WERE TAKEN FROM SAISH J AIN WITHOUT INTEREST. 3. THE BRIEF FACTS AS REGARDS TO GROUND NO.1 ARE TH AT THE AO NOTICED FROM THE TAX AUDIT REPORT FURNISHED U/S 44AB OF THE INCO ME-TAX ACT, 1961, THAT THE ASSESSEE HAD NOT MAINTAINED QUANTITATIVE DETAILS OF OPENING STOCK, CLOSING STOCK OR OF VARIOUS ITEMS TRADED IN NOR HAD HE MAIN TAINED ANY STOCK REGISTER. THE ASSESSEE SUBMITTED BEFORE THE AO THAT STOCK REG ISTER COULD NOT BE MAINTAINED IN VIEW OF THE NATURE OF BUSINESS, THOUG H VALUATION OF OPENING AND CLOSING STOCK WAS CLAIMED TO BE DONE ON PHYSICA L VERIFICATION PREPARED ON LOOSE PAPERS ON 31.3.2005 AND 31.3.2006. THE AO WAS NOT SATISFIED WITH THE SUBMISSIONS OF THE ASSESSEE. HE NOTED THAT THE ASSESSEE HAD ADMITTED THAT HE HAD NOT KEPT THE QUANTITATIVE DETAILS OF OPENING STOCK, CLOSING STOCK, PURCHASES AND SALES. HE WAS OF THE VIEW THAT IN THE ABSENCE OF THESE PARTICULARS AND STOCK REGISTER, THE TRADING RESULTS AND MARGIN OF PROFIT ENJOYED BY THE ASSESSEE COULD NOT BE VERIFIED. THE GROSS PROFIT RATE SHOWN BY THE ASSESSEE AT 5.75% WAS WITHOUT MUCH AS COMPARED TO THE EARLIER YEARS, BECAUSE OF WHICH THE AO WAS OF THE VIEW THAT THE TR ADING RESULTS WERE MANIPULATED BY ADJUSTING THE FIGURE OF THE CLOSING STOCK. HE REJECTED THE BOOKS RESULTS OF THE ASSESSEE. THE AO ALSO NOTED TH AT AS PER ASSESSEES ITA NO.277(ASR)/2012 3 REPLIES FURNISHED VIDE LETTER DATED 28.1.2008, THE WHOLESALE DISTRIBUTION WAS WITHDRAWN FROM HIM BY HIS MAIN DEALER DURING THE A CCOUNTING YEAR RELEVANT TO THE AY 2006-07 AND HE WAS RESTRICTED TO TRADING ONLY. AS PER THE AO, THE PROFIT MARGIN IN RETAIL BUSINESS FROM 8% TO 10%. HE NCE, CONSIDERING THE FACTS AND CIRCUMSTANCES OF THE CASE AND THE 8% RATE PRESCRIBED FOR RETAIL TRADE U/S 44AF OF THE ACT, THE AO APPLIED THE GROSS PROFIT RATE OF 8%. HE ALSO ENHANCED THE SALES OF THE ASSESSEE BY 2.25% TO RS.1,18,47,437/-. THE AO CONSEQUENTLY, MADE AN ADDITION OF RS.2,81,441/- TO THE TRADING RESULTS OF THE ASSESSEE. 4. THE LD. CIT(A), VIDE PARA 4.2 TO 4.5 OF HIS ORDE R CONFIRMED THE REJECTION OF BOOKS OF ACCOUNT AND SUSTAINED THE ADD ITION OF RS.50,000/- TO MEET ENDS OF JUSTICE. 5. WE HAVE HEARD THE RIVAL CONTENTIONS AND PERUSED THE FACTS OF THE CASE. THE ASSESSEE IS NOT IN DISPUTE BEFORE US WITH REG ARD TO THE REJECTION OF BOOKS OF ACCOUNT CONFIRMED BY THE LD. CIT(A). AS RE GARDS THE ESTIMATION OF INCOME, THE ASSESSEE HAD DECLARED A GROSS PROFIT RA TE OF 5.75% AS COMPARED TO 5.64% IN THE IMMEDIATE PRECEDING YEAR. THE AO WI TH REGARD TO THE ESTIMATION OF INCOME RELIED UPON SECTION 44AF OF TH E ACT AND ACCORDINGLY APPLIED THE GP RATE OF 8% BY ENHANCING THE SALES TO 2.25%. AS HAS RIGHTLY ITA NO.277(ASR)/2012 4 BEEN HELD BY THE LD. CIT(A), THE ASSESSEE IS HAVING THE TURNOVER OF MORE THAN RS.40 LAKHS IN THE IMPUGNED YEAR AND THEREFORE SECTION 44AF CANNOT BE MADE APPLICABLE. MOREOVER, UNDER SECTION 44AF OF TH E ACT, THE NP RATE IS 5% WHEREAS IN DISPUTE BEFORE US IS THE GP RATE. THE ASSESSEE IS ENGAGED IN THE BUSINESS OF WHOLESALE GOODS LIKE, SHAMPOO, SOAP S, HAIR DYE, MEHNDI AND OTHER COSMETIC ITEMS ETC. THE GP RATE HAS ALSO INCR EASED IS NOT UNDER DISPUTE. THE INCREASE IN THE TURNOVER TO 2.25% BY T HE AO IS WITHOUT ANY BASIS AND THEREFORE, SUCH INCREASE IN THE SALES IS NOT PERMITTED BY THE AO. AS REGARDS THE SUSTENANCE OF ADDITION OF RS.50,000/- BY THE LD. CIT(A), THE LD. CIT(A) HAS NOT ACCEPTED THE MARGINAL INCREASE OF GP RATE AS COMPARED TO THE PRECEDING YEAR AND HAS ACCEPTED WHOLESALE TRADING B Y THE ASSESSEE. IN THE ABSENCE OF ANY DEFECT IN THE PURCHASE AND SALE AND THE RESULTS DURING THE YEAR BEING BETTER THAN THE IMMEDIATE PRECEDING YEA R, IT IS NOT NECESSARY THAT IN THE FACTS AND CIRCUMSTANCES OF THE PRESENT CASE, ANY ADDITION SHOULD HAVE BEEN BE MADE EVEN AFTER REJECTION OF BOOKS OF ACCOU NT. THEREFORE, ADDITION SO SUSTAINED BY THE LD. CIT(A) IS DIRECTED TO BE DE LETED. THUS, GROUND NO.1 OF THE ASSESSEE IS ALLOWED. 6. AS REGARDS GROUND NO.2, THE AO MADE A DISALLOWAN CE OF VARIOUS EXPENSES I.E. STAFF WELFARE, PRINTING AND STATIONE RY, SCOOTER REPAIR AND ITA NO.277(ASR)/2012 5 MAINTENANCE, MISC. EXPENSES AND CAR MAINTENANCE TOT ALING RS.22,994/- SINCE THE ASSESSEE HAD NOT PRODUCED VOUCHERS FOR EXPENSE S CLAIMED UNDER DIFFERENT HEADS. THE LD. CIT(A) SUSTAINED THE DISAL LOWANCE @ 25% OF THE CLAIM MADE BY THE ASSESSEE. 7. WE HAVE HEARD THE RIVAL CONTENTIONS AND PERUSED THE FACTS OF THE CASE. IT WAS SUBMITTED BY THE ASSESSEE BEFORE THE LD. CIT (A) THAT THE PAYMENTS HAVE BEEN MADE THROUGH CHEQUES AS PER DETAILS AVAIL ABLE IN THE BOOKS OF ACCOUNT AND ALL THE EXPENSES WERE NECESSARY AND THE A.O. IN A HURRY MADE A DISALLOWANCE OF 100% OF THE EXPENSES CLAIMED BY THE ASSESSEE. IT APPEARS THAT THE AO WHILE MAKING DISALLOWANCE HAD MADE A HU RRIED ASSESSMENT AND HAD DISALLOWED TOTAL EXPENSES CLAIMED BY THE ASSESS EE. THEREFORE, SUCH ASSESSMENT CAN NOT BE HELD TO BE VALID AS REGARDS T HE DISALLOWANCE OF EXPENSES IS CONCERNED. THEREFORE, THE AO CANNOT MAK E SUCH ADDITION AND ADDITION SUSTAINED BY THE LD. CIT(A) IS DIRECTED TO BE DELETED. THUS, GROUND NO.LS 2 OF THE ASSESSEE IS ALLOWED. 8. AS REGARDS GROUNDS NO.3(A) & 3(B) ARE CONCERNED, THE BRIEF FACTS ARE THAT THE AO FOUND THAT THE ASSESSEE HAD ADVANCED LO ANS OF RS. 4 LACS TO HIS SON SH. SATISH JAIN AND RS.50,000/- TO SH. SATISH J AIN (HUF) AND NO INTEREST HAD BEEN CHARGED ON THESE AMOUNTS. SINCE THE ASSESS EE HAD INCURRED INTEREST EXPENDITURE ON BORROWING FROM BANKS AND FROM DEPOSI TORS AND HAD ALSO PAID ITA NO.277(ASR)/2012 6 BANK CHARGES, THE AO DISALLOWED INTEREST @ 11% ON T HE BORROWING OF RS.7.50 LACS FOR THE PERIOD 15.6.2005 TO 31.3.2006 WHEN LOAN OF THIS AMOUNT HAD BEEN TAKEN. 9. THE LD. CIT(A) AFTER CONSIDERING THE SUBMISSIONS OF THE ASSESSEE CONFIRMED THE ACTION OF THE AO FOR DISALLOWANCE OF THE INTEREST IN THE CASE OF SH. SATISH JAIN BUT DISALLOWANCE WAS DIRECTED TO BE CONFIRMED FOR THE PERIOD 9.1.2006 TO 31.3.2006 IN RESPECT OF SUM OF RS.4 LAC S AND @ 11% FOR THE ENTIRE YEAR IN RESPECT OF THE SUM OF RS.50,000/- IN THE NAME OF SH. SATISH JAIN (HUF). 10. WE HAVE HEARD THE RIVAL CONTENTIONS AND PERUSED THE FACTS OF THE CASE. WE CONCUR WITH THE VIEWS OF THE LD. CIT(A) THAT THE DECISION OF THE HONBLE SUPREME COURT IN THE CASE OF S.A. BUILDERS VS. CIT REPORTED IN 288 ITR 1 IS OF NO ASSISTANCE TO THE ASSESSEE, SINCE THE ASSESSE E HAD FAILED TO PROVE THE TEST OF COMMERCIAL EXPEDIENCY IN THE PRESENT CASE W HICH WAS EVIDENT FROM THE FINDING THAT THE LOAN GIVEN BY THE ASSESSEE TO HIS SON AND TO THE HUF WAS FOR THE PURCHASE OF PROPERTY AND NOT FOR FURTHERING THE BUSINESS IN ANY MANNER. IN THE FACTS AND CIRCUMSTANCES OF THE CASE, WE FIND NO INFIRMITY IN THE ORDER OF THE LD. CIT(A). THUS, GROUNDS NO. 3(A) & 3(B) OF THE ASSESSEE ARE DISMISSED. ITA NO.277(ASR)/2012 7 11. IN THE RESULT, THE APPEAL OF THE ASSESSEE IN IT A NO.277(ASR)/2012 IS PARTLY ALLOWED. ORDER PRONOUNCED IN THE OPEN COURT ON 9TH AUGUST, 2012. SD/- SD/- (H.S. SIDHU) (B.P. JAIN) JUDICIAL MEMBER ACCOUNTANT MEMBER DATED: 9TH AUGUST, 2012 /SKR/ COPY OF THE ORDER FORWARDED TO: 1. THE ASSESSEE: SH. CHAMAN LAL JAIN PROP. M/S. VARDHM AN AGENCY, TANDA. 2. THE ITO DASUYA. 3. THE CIT(A) JLR 4. THE CIT,JLR 5. THE SR DR, ITAT, AMRITSAR. TRUE COPY BY ORDER (ASSISTANT REGISTRAR) INCOME TAX APPELLATE TRIBUNAL, AMRITSAR BENCH: AMRITSAR.