The ACIT, Circle-5, Surat V. M/s. Shah Jivraj Nanchand & Sons, Surat

ITA 3029/AHD/2008

• Counselvise Citation: [2011] 140 COUNSELVISE.COM (IT) 51008 (ITAT-AHMEDABAD)
• Duration Of Justice: 3 year(s) 3 month(s) 28 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 23-12-2011
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: D
• Next Hearing Date: 15-12-2011
• Assessment Year: 2005-2006
• Appeal Filed On: 26-08-2008
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: B L YADAV
• Assessee Lawyers: JIGNESH KHATRI
• Keywords: Gross profit estimation; Gift
• Section: 145; 37

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL D BENCH AHMEDABAD (BEFORE SHRI BHAVNESH SAINI, JM AND SHRI A. MOHAN A LANKAMONY, AM) ITA NO. 3029/AHD/2008 A. Y.: 2005-06 THE A. C. I. T., CIRCLE-5, ROOM NO.309,AAYAKAR BHAVAN, MAJURA GATE, SURAT VS M/S. SHAH JIVRAJ NANCHAND & SONS, JIVRAJ HOUSE, PLOT NO.109-B, CENTRAL ROAD NO.7, UDHNA, SURAT 494 210 PA NO. AAJFS 404 P (APPELLANT) (RESPONDENT) APPELLANT BY SHRI B. L. YADAV, DR RESPONDENT BY SHRI JIGNESH KHATRI, AR DATE OF HEARING: 15-12-2011 DATE OF PRONOUNCEMENT: 23-12-12-2011 O R D E R PER BHAVNESH SAINI: THIS APPEAL BY THE REVENUE IS DIRECTED AGAINST THE ORDER OF THE LEARNED CIT(A)-II I, SURAT DATED 20 TH JUNE, 2008 FOR ASSESSMENT YEAR 2005-06. 2. WE HAVE HEARD THE LEARNED REPRESENTATIVES OF BOT H THE PARTIES, PERUSED THE FINDINGS OF THE AUTHORITIES BELOW AND C ONSIDERED THE MATERIAL AVAILABLE ON RECORD. THE LEARNED DR RELIED UPON THE ORDER OF THE AO AND REFERRED TO HIS OBSERVATION IN THE ASSES SMENT ORDER IN ORDER TO HIGHLIGHT THE ADDITIONS MADE BY THE AO. TH E LEARNED COUNSEL FOR THE ASSESSEE REITERATED THE SUBMISSIONS MADE BE FORE THE AUTHORITIES BELOW AND REFERRED TO THE REPLY FILED B EFORE THE AO AT THE ITA NO.3029/AHD/2008 ACIT, CIRCLE- 5, SURAT VS M/S. SHAH JIVRAJ NANCHAND & SONS 2 ASSESSMENT STAGE AND SUBMITTED THAT COMPLETE DETAIL S WERE FILED BEFORE THE AO IN WHICH NO SPECIFIC DEFECTS HAVE BEE N POINTED OUT. THEREFORE, ADDITIONS HAVE BEEN RIGHTLY DELETED BY T HE LEARNED CIT(A). 3. ON GROUND NO.1, THE REVENUE CHALLENGED THE DELET ION OF ADDITION OF RS.15,93,009/- ON ACCOUNT OF LOW GROSS PROFIT. THE AO OBSERVED THAT GROSS PROFIT DURING THE YEAR WAS 23.9 6% COMPARED TO 27.96% LAST YEAR, THEREBY RECORDING A FALL OF 4%. W HEN REQUIRED TO SHOW CAUSE, THE ASSESSEE STATED THAT AVERAGE PURCHA SE VALUE OF TEA IN WHICH THE ASSESSEE WAS DEALING WAS RS.102.91 PER KG. AS AGAINST RS.98.62 PER KG. IN THE PREVIOUS YEAR. THE AO REJEC TED THE EXPLANATION OF THE ASSESSEE AND HELD THAT THE SALE PRICE INCREASED BY RS.1.36 PER KG. AND PURCHASE PRICE ALSO INCREASE BY RS.4.29 PER KG., WHICH MEANT THAT THE NET FALL IN GROSS PROFIT SHOUL D BE 2.93% ONLY, THE AO THEREFORE, HELD THAT THERE WAS STILL UNEXPLAINED GROSS PROFIT FALL OF RS.15,93,009/- AND MADE THE ADDITION ON THIS ACCOU NT. IT WAS SUBMITTED BEFORE THE LEARNED CIT(A) THAT COMPLETE B OOKS OF ACCOUNTS AND OTHER DOCUMENTS WERE PRODUCED BEFORE THE AO, WH O DID NOT FIND ANY DEFECTS IN SUCH AUDITED BOOKS. THE AO HAD ONLY CONSIDERED A PART OF THE SUBMISSIONS FILED ON 18-12-2007 IN WHIC H IT WAS EXPLAINED THAT THE AVERAGE PRICE OF TEA COMPARED TO EARLIER Y EAR WERE HIGHER BY 4.35%. THE AO ALSO WAS NOT CORRECT IN TAKING PERCEN TAGE OF FALL IN GROSS PROFIT ON ONE SIDE AND KG AS THE BASIS ON THE OTHER SIDE. IF THE GROSS PROFIT WAS CONSIDERED AS PERCENTAGE, THE PURC HASE PRICE INCREASE SHOULD ALSO HAVE BEEN COMPARED IN PERCENTA GE TERMS ONLY. THE LEARNED COUNSEL FOR THE ASSESSEE FURTHER RELIED ON VARIOUS DECISION IN SUPPORT OF HIS CLAIM THAT LOWER GROSS P ROFIT RATE COULD NOT ITA NO.3029/AHD/2008 ACIT, CIRCLE- 5, SURAT VS M/S. SHAH JIVRAJ NANCHAND & SONS 3 BE THE BASIS FOR MAKING AN ADDITION, IN ADDITION TO THE FOLLOWING DECISIONS OF ITAT AHMEDABAD BENCH: KEYSTONE INDIA PVT. LTD., 99 TTJ 388 KIRAN CORPORATION, 102 TTJ 375 AND PUSHPANJALI DYEING & PTG. MILLS, 72 TTJ 886 4. THE LEARNED CIT(A) CONSIDERING THE EXPLANATION O F THE ASSESSEE DELETED THE ADDITION. HIS FINDINGS IN THE APPELLATE ORDER ARE REPRODUCED AS UNDER: I HAVE CONSIDERED THE SUBMISSIONS. AT THE OUTSET I T IS IMPORTANT TO NOTE THAT THE AO HAS NOT INVOKED THE PROVISIONS OF SECTION 145 OF THE IT ACT WHICH MEANS THAT SHE HAS ACCEPTED THE CORRECTNESS OF THE BOOKS OF ACCOUNTS. THAT BEING TH E CASE, ADDITION ON ACCOUNT OF GP CANNOT BE MADE. FURTHER, THE AO HAS ALSO NOT FOUND ANY SPECIFIC DEFECTS IN THE BOOK S OF ACCOUNTS NOR HAS ANY EVIDENCE OR MATERIAL INDICATING THAT TH E APPELLANT HAD MADE SALES OUT OF BOOKS OF ACCOUNTS. IT IS NOT POSSIBLE TO HAVE A FIXED PROFIT RATE IN THE LINE OF APPELLANTS BUSINESS AND AS HELD BY HONBLE ITAT AHMEDABAD IN VARIOUS CASES THE REJECTION OF BOOKS RESULTS ONLY ON TH4 BASIS OF FLUCTUATION O F GP IS NOT TENABLE. WITHOUT PREJUDICE TO THE ABOVE, IT IS SEEN THAT THE APPELLANTS EXPLANATION REGARDING FALL IN GP HAS NO T BEEN APPRECIATED BY THE AO. I AM INCLINED TO AGREE WITH THE APPELLANT THAT IF FALL IN GP WAS CONSIDERED IN PERCENTAGE TER MS, THE INCREASE IN PURCHASE PRICE OF TEA SHOULD ALSO HAVE BEEN TAKEN IN PERCENTAGE TERMS AND NOT IN TERMS OF RUPEES PER KG. WHICH WILL GIVE A SKEWED PICTURE OF THE OVERALL RESULT. A DDITION MADE ON THIS GROUND IS THEREFORE DIRECTED TO BE DELETED. 5. ON CONSIDERATION OF THE FACTS OF THE CASE IN THE LIGHT OF THE SUBMISSIONS OF THE PARTIES, WE DO NOT FIND ANY MERI TS IN THIS GROUND OF APPEAL OF THE REVENUE. THE AO MERELY NOTED FALL IN GROSS PROFIT IN THE ASSESSMENT YEAR UNDER APPEAL AS COMPARED WITH THE E ARLIER YEARS, ITA NO.3029/AHD/2008 ACIT, CIRCLE- 5, SURAT VS M/S. SHAH JIVRAJ NANCHAND & SONS 4 THAT BY ITSELF IS NO GROUND TO MAKE THE ADDITION AG AINST THE ASSESSEE. NO SPECIFIC DEFECTS HAVE BEEN POINTED OUT IN THE MA INTENANCE OF THE BOOKS OF ACCOUNTS AS DETAILED BY THE ASSESSEE. THER E COULD NOT BE STATIC GROSS PROFIT EVERY YEAR. THE AO HAS NOT APPL IED THE PROVISIONS OF SECTION 145 OF THE IT ACT FOR REJECTION OF THE B OOK RESULTS AND NO DISCREPANCIES HAVE BEEN POINTED IN THE SALES, PURCH ASE AND OTHER RECORDS PRODUCED BY THE ASSESSEE AT THE ASSESSMENT STAGE. IN THE ABSENCE OF ANY ADVERSE MATERIAL AGAINST THE ASSESSE E, WE ARE OF THE VIEW THE LEARNED CIT(A) CONSIDERING THE TOTALITY OF THE FACTS AND CIRCUMSTANCES RIGHTLY DELETED THE ADDITION. THIS GR OUND OF APPEAL OF THE REVENUE HAS NO MERIT AND IS DISMISSED. 6. ON GROUND NO.2, THE REVENUE CHALLENGED THE ORDER OF THE LEARNED CIT(A) IN RESTRICTING THE ADDITION OF RS.1, 93,120/- TO RS.25,000/- ON ACCOUNT OF SALES PROMOTION EXPENSES. THE AO OBSERVED THAT A SUM OF RS.19,31,198/- WAS CLAIMED A S SALES PROMOTION EXPENSES AND BILLS AND VOUCHERS WERE PRO DUCED IN RESPECT OF PURCHASE OF PLASTIC & STEEL ITEMS. IT WA S STATED THAT THESE EXPENSES WERE FOR GIFT OFFERED ON SALES TO THE CUST OMERS AND DEALERS. HOWEVER, NO DETAILS REGARDING BASIS FOR SALES PROMO TION WAS FILED. THE AO, THEREFORE, HELD THAT SUCH EXPENSES MIGHT NO T HAVE BEEN EXCLUSIVELY FOR BUSINESS PURPOSES AND DISALLOWED RS .1,93,120/- BEING 10% OF THE EXPENDITURE. IT WAS SUBMITTED BEFORE THE LEARNED CIT(A) THAT THESE EXPENSES WERE INCURRED AT VARIOUS POINTS OF TIME BY INTRODUCING SCHEMES AT REGULAR INTERVALS TO PROMOTE THE BUSINESS OF THE ASSESSEE. COMPLETE BILLS AND VOUCHERS WERE FURN ISHED BEFORE THE AO WHICH WERE NOT DOUBTED. IT WAS COMMERCIAL EXPEDI ENCY TO ITA NO.3029/AHD/2008 ACIT, CIRCLE- 5, SURAT VS M/S. SHAH JIVRAJ NANCHAND & SONS 5 INTRODUCE SCHEMES DURING THE YEAR WHICH RESULTED IN HIGHER SALES BY APPROXIMATELY 20% COMPARED TO LAST YEAR. THE LEARNE D COUNSEL FOR THE ASSESSEE RELIED ON VARIOUS DECISIONS IN SUPPORT OF HIS CLAIM FOR ALLOWANCE OF SUCH EXPENDITURE. 7. THE LEARNED CIT(A) CONSIDERING THE EXPLANATION O F THE ASSESSEE RESTRICTED THE ADDITION TO RS.25,000/- OUT OF THESE EXPENSES. HIS FINDINGS ARE REPRODUCED AS UNDER: I HAVE CONSIDERED THE SUBMISSIONS AND GONE THROUGH THE DETAILS. IT IS SEEN THAT SALES OF THE APPELLANT FIR M HAVE INCREASED FROM RS.6.88 CRORES TO RS.8.29 CRORES DURING THE YE AR AND THIS WOULD HAVE BEEN POSSIBLE BECAUSE OF THE SALES PROMO TION SCHEMES INTRODUCED BY THE APPELLANT DURING THE YEAR . IN THE PRESENT DAY COMPETITIVE MARKET, EVEN MULTI-NATIONAL COMPANIES OFFER FREE GIFTS AND OTHER SCHEMES FOR PROMOTING TH E SALES OF THEIR PRODUCTS. THEREFORE, THE GENUINENESS OF SUCH CLAIM CANNOT BE DENIED, ESPECIALLY WHEN THERE IS A 20% INCREASED IN SALES. IT IS SEEN THAT THE AMOUNT OF SALES PROMOTION EXPENSES CLAIMED IS APPROXIMATELY 2% OF THE TOTAL SALES, WHICH CANNOT B E CONSIDERED EXORBITANT. THE APPELLANT COULD ALSO HAV E RESORTED TO THE MEDIUM OF ADVERTISEMENT BUT THAT WOULD BE MO RE EXPENSIVE AND WOULD NOT BENEFIT THE CUSTOMERS DIREC TLY. THEREFORE, I AM OF THE CONSIDERED VIEW THAT SUCH EX PENSES ARE ALLOWABLE EXPENDITURE U/S 37 OF THE IT ACT. HOWEVER , IT WOULD BE FAIR AND REASONABLE TO DISALLOW TOKEN AMOUNT OF RS. 25,000/- OUT OF SUCH EXPENDITURE, SINCE SOME OF THE CLAIM MIGHT NOT BE EXCLUSIVELY FOR BUSINESS PURPOSES. 8. ON CONSIDERATION OF THE RIVAL SUBMISSIONS, WE DO NOT FIND ANY MERIT IN THIS GROUND OF APPEAL OF THE REVENUE. THE LEARNED COUNSEL FOR THE ASSESSEE REFERRED TO THE REPLY FILED BEFORE THE AO IN WHICH IT WAS SPECIFICALLY EXPLAINED THAT COMPLETE DETAILS HAVE B EEN FILED AT THE ASSESSMENT STAGE. THE LEARNED CIT(A) NOTED THAT THE RE IS INCREASE IN ITA NO.3029/AHD/2008 ACIT, CIRCLE- 5, SURAT VS M/S. SHAH JIVRAJ NANCHAND & SONS 6 THE SALES AND SALES PROMOTION EXPENSES ARE ABOUT 2% OF THE SALES WHICH CANNOT BE CONSIDERED EXORBITANT. THE LEARNED CIT(A), THEREFORE, EXAMINED THE ISSUE IN DETAIL AND HAS RIG HTLY GRANTED SUBSTANTIAL RELIEF TO THE ASSESSEE. THE AO HAS, THE REFORE, INCORRECTLY NOTED IN THE ASSESSMENT ORDER THAT NO DETAILS HAVE BEEN FILED BEFORE HIM. IN VIEW OF THIS FACT, THIS GROUND OF APPEAL OF THE REVENUE HAS NO MERIT AND IS DISMISSED. 9. ON GROUND NO.3, THE REVENUE CHALLENGED THE DELET ION OF ADDITION OF RS.1,80,125/- OUT OF PACKING EXPENSES. THE AO OBSERVED THAT UNDER THIS HEAD SOME PAYMENT SAY UP TO RS.1,50 0/- WERE PAID IN CASH AND AS SUCH IT IS NOT POSSIBLE TO VERIFY THAT SUCH EXPENSES WERE EXPENDED FOR BUSINESS PURPOSE. 5% OUT OF THE SAME W AS DISALLOWED. IT WAS SUBMITTED BEFORE THE LEARNED CIT(A) THAT ALL THE BILLS FOR PURCHASE OF PACKING MATERIAL WERE FILED BEFORE THE AO WHICH WERE VERIFIED. THE TOTAL CASH PAYMENT FOR PACKING MATERI AL WAS ONLY OF R.63,933/- AND IT WAS NOT FAIR ON THE PART OF THE A O TO DISALLOW RS.1,80,125/- OUT OF SUCH EXPENSES. THE LEARNED CIT (A) FOUND THAT ACTION OF THE AO IN MAKING ADDITION IS BASED ONLY O N CONJECTURE AND SURMISES. CASH PAYMENTS WERE MADE ONLY APPROXIMATEL Y OF RS.60,000/-. THEREFORE, THERE IS NO NEED TO MAKE TH IS ADDITION. ON CONSIDERATION OF THE FACTS OF THE CASE IN THE LIGHT OF THE FINDINGS OF THE LEARNED CIT(A), WE DO NOT FIND ANY MERIT IN THIS GR OUND OF APPEAL OF THE REVENUE. THE AO MERELY DOUBTED THE PACKING EXPE NSES BECAUSE SOME PART PAYMENTS WERE MADE IN CASH. THE AO HAS NO WHERE RECORDED THAT SUCH EXPENSES WERE NOT SPENT FOR PACK ING MATERIALS. IN THE ABSENCE OF ANY SPECIFIC FINDINGS AGAINST THE AS SESSEE, THE ITA NO.3029/AHD/2008 ACIT, CIRCLE- 5, SURAT VS M/S. SHAH JIVRAJ NANCHAND & SONS 7 LEARNED CIT(A) WAS JUSTIFIED IN DELETING THE ADDITI ON. THIS GROUND OF APPEAL OF THE REVENUE IS DISMISSED. 10. ON GROUND NO.4, THE REVENUE CHALLENGED THE DELE TION OF ADDITION OF RS.61,424/- ON ACCOUNT OF QUANTITY DISC OUNT AND INCENTIVE EXPENSES. THE AO DISALLOWED 5% OUT OF QUANTITY DISC OUNT AND QUANTITY INVENTIVE AND OBSERVED THAT QUANTITY DISCO UNT PAID TO VARIOUS PARTIES RAISED FROM RE.0.75 TO RS.2.85 PER KG. AND THE INCENTIVE RANGES FROM RE.0.75 TO RS.1.20. FURTHER HIGHER DISC OUNT WAS PAID TO 3 PARTIES AND NO COMMENTS HAVE BEEN OFFERED. IT WAS SUBMITTED BEFORE THE LEARNED CIT(A) THAT DISCOUNTS WERE GIVEN TO THE PURCHASERS OF GOODS IN BULK IN QUARTERLY BASIS AND QUANTITY INCENTIVE WAS GIVE TO THE TRADERS PURCHASING GOODS IN BULK TH ROUGH OUT THE YEAR. ALL THE CREDIT NOTES FIND MENTION THE DETAILS OF QUANTITY AND THE AMOUNT. CONFIRMATIONS OF THE PARTIES ARE FILED. THE DIFFERENCE IN THE DISCOUNT AND INCENTIVE TO 3 PARTIES WAS MAINLY FOR COMPARISON WITH LOCAL TRADERS FOR INCREASING SALES IN RURAL AREA. THE LEARNED CIT(A) CONSIDERING THE COMPLETE DETAILS AND EVIDENCES IN SUPPORT OF THIS I SSUE DELETED THE ENTIRE ADDITION. 11. ON CONSIDERATION OF THE SUBMISSIONS OF THE PART IES, WE DO NOT FIND ANY MERIT IN THIS GROUND OF APPEALS OF THE REV ENUE. SINCE COMPLETE DETAILS HAVE BEEN MAINTAINED BY THE ASSESS EE ON THIS ISSUE AND DISCOUNT AND INVENTIVE HAVE BEEN GIVEN TO THE T RADERS FOR BUSINESS PURPOSES, THEREFORE, NO FAULT CAN BE FOUND IN THE ORDER OF THE LEARNED CIT(A) IN DELETING THE ADDITION. IN THE RESULT, GROUND NO.4 OF THE APPEAL OF THE REVENUE IS DISMISSED. ITA NO.3029/AHD/2008 ACIT, CIRCLE- 5, SURAT VS M/S. SHAH JIVRAJ NANCHAND & SONS 8 12. NO OTHER POINT IS ARGUED OR PRESSED. 13. IN THE RESULT, THE DEPARTMENTAL APPEAL IS DISMI SSED. ORDER PRONOUNCED IN THE OPEN COURT SD/- SD/- (A. MOHAN ALANKAMONY) ACCOUNTANT MEMBER (BHAVNESH SAINI) JUDICIAL MEMBER LAKSHMIKANT/- COPY OF THE ORDER FORWARDED TO: 1. THE APPELLANT 2. THE RESPONDENT 3. THE CIT CONCERNED 4. THE CIT(A) CONCERNED 5. THE DR, ITAT, AHMEDABAD 6. GUARD FILE BY ORDER D Y. REGISTRAR, ITAT, AHMEDABAD