ACIT CIR 19(2), MUMBAI V. CHANDRA S. SADHNANI, MUMBAI

ITA 3110/MUM/2009

• Counselvise Citation: [2011] 140 COUNSELVISE.COM (IT) 48932 (ITAT-MUMBAI)
• Duration Of Justice: 2 year(s) 19 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 31-05-2011
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: C
• Next Hearing Date: 27-04-2011
• Assessment Year: 2005-2006
• Appeal Filed On: 12-05-2009
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: SU RENDRA KUMAR
• Assessee Lawyers: S S PHADKAR
• Keywords: Gross profit estimation; Business income; Commercial expediency
• Section: 6; 2; 11; 10

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL MUMBAI BENCH C MUMBAI BEFORE SHRI J. SUDHAKAR REDDY (AM) AND SMT. ASHA VIJAYARAGHAVAN (JM) ITA NOS.3110 & 5365/MUM/2009 ASSESSMENT YEARS- 2005-06 & 2006-07 THE ACIT, CIR 19(2), PIRAMAL CHAMBERS, LALBAUG, MUMBAI-400 012 VS. MRS. CHANDRA S. SADHNANI, 101-A MODI NIWAS, 21-B, S.V. ROAD, SANTACRUZ (W), MUMBAI-400 054 (APPELLANT) (RESPONDENT) C.O. NO. 22/MUM/2010 (ARISING OUT OF ITA NO.3110/MUM/2009 ASSESSMENT YEAR- 2005-06 MRS. CHANDRA S. SADHNANI, 101-A MODI NIWAS, 21-B, S.V. ROAD, SANTACRUZ (W), MUMBAI-400 054 VS. THE ACIT, CIR 19(2), PIRAMAL CHAMBERS, LALBAUG, MUMBAI-400 012 (APPELLANT) (RESPONDENT) REVENUE BY: SHRI SURENDRA KUMAR ASSESSEE BY: SHRI S.S. PHADKAR O R D E R PER ASHA VIJAYARAGHAVAN (JM) TWO APPEALS FILED BY THE REVENUE ARE DIRECTED AGAI NST THE ORDER PASSED BY THE LD. CIT(A)- FOR THE ASSESSMENT YEARS 2005-06 & 2006-07. THE CROSS OBJECTION IS FILED BY THE ASSESSEE AGAINS T THE ORDER DT. 16 TH FEB. 2009 PASSED BY THE LD. CIT(A) FOR THE ASSESSME NT YEAR 2005-06. AS THESE APPEALS AND THE CROSS OBJECTION WERE HEARD TO GETHER THEY ARE BEING DISPOSED OF THROUGH THIS CONSOLIDATED ORDER. MRS. CHANDRA S. SADHNANI 2 ITA NO. 3110/M/09 REVENUES APPEAL A.Y. 2005-06 2. THE ASSESSEE IS CARRYING ON BUSINESS AS MERCHANT EXPORTERS UNDER THE NAME AND STYLE OF M/S. BOOM EXPORTS INTERNATION AL SINCE 1994. THE RETURN SHOWING INCOME OF RS. 10,79,980/- WAS FILED ON 31.10.2005. IN THE PROFIT & LOSS ACCOUNT, THE ASSESSEE HAD CLAIMED DEDUCTION ON ACCOUNT OF INTEREST PAYMENT OF RS. 7,17,589/-. THE ASSESSING OFFICER OBSERVED THAT THE BORROWED FUNDS ON WHICH INTEREST AT 9% WAS PAID WERE UTILIZED FOR INVESTMENTS IN NON REVENUE YIELDING AS SETS. THE AO FURTHER HELD THAT THE TOTAL LOANS & ADVANCES OF RS. 97,28,6 95/- INCLUDES INVESTMENTS OF RS. 87,09,500/- IN V.S. ESTATE AND P ROPERTIES. 3. THE ASSESSING OFFICER FURTHER STATED THAT THE U NSECURED LOANS STANDING IN THE BALANCE SHEET IS RS. 82,00,000/- ON WHICH INTEREST HAS BEEN CHARGED @9% TO THE LENDERS WHO ARE MAINLY FAMI LY MEMBERS. AS AGAINST THE SAME, THE ASSET SIDE OF THE BALANCE SHE ET INDICATES LOANS AND ADVANCES TO THE TUNE OF RS. 97,28,695/- WHICH INCLU DE INVESTMENT IN FLAT AMOUNTING TO RS. 87,09,500/- WHICH IS NOT REVENUE Y IELDING. THE AO WAS OF THE VIEW THAT THERE IS NO COMMERCIAL EXPEDIE NCY IN THE DIVERSION OF FUNDS INTEREST FREE AND IN THE INVESTMENT IN FLAT I N MUCH AS NO BUSINESS BENEFITS ARE DRAWN. THEREFORE THE AO DISALLOWED IN TEREST OF RS. 5,57,508/- PAID TO THE FAMILY MEMBERS. 4. BEFORE THE LD. CIT(A) THE AR OF THE ASSESSEE STA TED AS FOLLOWS: THE AO HAS WRONGLY CONSIDERED INVESTMENT OF RS. 87,09,500/- IN V.S. ESTATE AND PROPERTIES AS NO REV ENUE YIELDING ASSET. INVESTMENTS HAVE BEEN MADE OVER THE YEARS F OR THE PURCHASE OF FLAT FOR RESIDENCE BY THE PROPRIETOR MRS. CHANDR A SUNDER SADHNANI. IT ALSO HIGHLIGHTED THE FACT THAT THE AP PELLANTS CAPITAL ACCOUNT SHOWS AN OPENING BALANCE OF RS. 1,23,26,094 /- AND HAD THE APPELLANT DEBITED THE WITHDRAWAL FOR INVESTMENT IN V.S. ESTATE MRS. CHANDRA S. SADHNANI 3 AND PROPERTY TO HER CAPITAL ACCOUNT, IT WOULD STIL L HAVE A CREDIT BALANCE OF RS. 36,16,594/-. THE CREDIT BALANCE IN THE CAPITAL ACCOUNT WOULD HAVE CONTINUED TO BE THE SAME EVEN IF ANY OTHER CREDIT AND DEBIT IN HER ACCOUNTS ARE CONSIDERED. M ERELY BECAUSE THE INVESTMENT IN FLAT IS SHOWN SEPARATELY IN THE BALAN CE SHEET IT DOES IPSO FACTO NOT MEAN THAT THE LOANS ON WHICH INTERES T @ 9% IS PAID WAS UTILIZED FOR THE PURPOSE OF INVESTMENT IN IT. IT ALSO ADDED THAT MAJOR INVESTMENT OF RS. 76,00,000/- WITH V.S. ESTAT E AND PROPERTY WAS MADE IN PREVIOUS ASSESSMENT YEARS. IN THE CURR ENT YEAR ADDITIONAL CONTRIBUTION OF RS. 3,00,000/- WAS MADE TOWARDS COST OF THIS PROPERTY. FURTHER REGISTRATION CHARGES OF RS. 8,09,500/- WAS PAID. THE APPELLANT FURTHER HIGHLIGHTED THAT NO NE W LOANS WERE TAKEN ON 23.11.2004 AND 29.3.2005 AT THE TIME OF MA KING THE ABOVE TWO PAYMENTS THIS YEAR FROM BANK OF INDIA IN WHICH THE BUSINESS RECEIPTS WERE REGULARLY DEPOSITED. THE AMOUNT OF R S. 3,00,000/- SO PAID THIS YEAR WAS BY WAY OF TWO CHEQUES OF RS. 1,5 0,000/- EACH ON THE OVER DRAFT ACCOUNT TAKEN AGAINST FDR FROM BANK OF INDIA. AS SUCH IT WAS ARGUED THAT THE PAYMENT WAS NOT FROM IN TEREST BEARING FUNDS BUT OUT OF THE AMOUNTS AGAINST THE FDR AND TH ERE IS NO QUESTION OF ANY DISALLOWANCE. AS REGARDS THE PAYMENT OF STAMP DUTY AND REGISTRATI ON CHARGES, THE SAME WAS PAID IN INSTALLMENTS BY OBTAINING A PAY OR DER OF RS. 4,11,514/- AND RS. 3,98,999/- RESPECTIVELY ON 25.3. 2005. THE BUSINESS RECEIPTS AS ON 25.3.2005 STOOD AT RS. 9,60 ,000/- THUS IT CANNOT BE SAID THAT THE EXPENDITURE INCURRED ON STA MP DUTY AND REGISTRATION WERE OUT OF LOANS. COPIES OF BANK STA TEMENT AND THE COPY OF ACCOUNT WITH V.S. ESTATE AND PROPERTY WERE ALSO FURNISHED TO SUPPORT IT S VIEW. 5. THE LD. CIT(A) HELD AS FOLLOWS: I HAVE PERUSED THE FACTS OF THIS CASE AS WELL AS T HE ASSESSMENT ORDER. IT IS OBSERVED THAT THE APPELLAN TS CAPITAL ACCOUNT HAD A CREDIT BALANCE OF RS. 1,23,26,904/- T HROUGH- OUT THE YEAR AND IT CONTINUED TO BE THE SAME AND SO THERE IS NO REASON TO CONCLUDE THAT THE FUNDS AVAILABLE WITH THE PROPRIETOR IN THE FIRM WAS NOT UTILIZED IN THE INVE STMENT IN THE FLAT. EVEN IF THE FULL INVESTMENT IS TAKEN CARE OF STILL A CAPITAL OF RS. 36,16,594/- IS AVAILABLE WITH THE APPELLANT. THERE IS NOTHING ON RECORD TO SUGGEST THAT THE APPELLANTS B ORROWED FUNDS HAVE BEEN DIVERTED. MORE IMPORTANTLY THE INV ESTMENT OF RS. 76,00,000/- WAS MADE UP TILL THE PREVIOUS YEAR AND THERE IS NO DISALLOWANCE OF INTEREST ON THIS ACCOUNT. DU RING THE YEAR A SUM OF RS. 11,09,500/- HAS BEEN EXPENDED ON THE PROPERTY MRS. CHANDRA S. SADHNANI 4 AND ITS REGISTRATION. THE SOURCES OF THIS FUND HAV E ALSO BEEN ESTABLISHED BY NECESSARY EVIDENCES BY THE APPELLANT AND THEY ARE NOT LINKED TO ANY BORROWED FUNDS AS SUCH. THE AO HAS FAILED TO APPRECIATE THE FACT THAT THE CASE IS OF A PROPRIETOR AND NOT OF A PARTNERSHIP FIRM OR COMPANY AND TAX LEVIAB LE IS ALSO IN THE INDIVIDUAL CAPACITY. AS REGARDS THE OTHER A SSUMPTION OF THE AO BASED ON THE BALANCE SHEET FIGURES FOR PAYME NTS TO RELATIVE IT IS OBSERVED THAT NOTHING HAD BEEN BROUG HT ON RECORD THAT THE CAPITAL SO BORROWED WAS BOGUS. IF THE GRO SS FIGURE OF RS. 87,09,500/- AS INVESTED IN PROPERTY HAS BEEN EX CLUDED THAT REMAINS IS RS. 10,19,195/- AS LOANS AND ADVANC ES. THE APPELLANTS TURNOVER IN THE CURRENT YEAR IS RS. 1,7 3,42,369/- WHICH IS MORE THAN ADEQUATE TO TAKE CARE OF ANY SUC H ADVANCES. THERE IS NO EVIDENCE IN THE POSSESSION O F THE AO TO SUBSTANTIATE THAT THE CAPITAL HAS NOT BEEN BORROWED FOR THE PURPOSE OF BUSINESS WHICH IS SHOWING A TURNOVER OF RS. 1.73 CR. THE DISALLOWANCE OF INTEREST IF ON ASSUMPTION AND PRESUMPTION WHICH CANNOT BE EQUATED WITH PROOF AND HENCE THE ADDITION OF RS. 5,57,508/- IS DELETED. 6. AGGRIEVED REVENUE IS IN APPEAL BEFORE US AND RAI SED THE FOLLOWING GROUND: ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE AND IN LAW, THE LD. CIT(S) HAS ERRED IN DELETING THE DISALLOWANCES OF INTEREST OF RS. 5,57,508/- WITHOUT APPRECIATING THE FACT THAT THERE WAS NO COMMERCIAL EXPEDIENCY IN THE DIVERSION OF INTEREST BEARING FUNDS TO INTEREST FREE ADVANCES AND THAT THERE IS NO EVIDENC E TO SHOW THE TRANSACTION WAS FOR THE PURPOSE OF ASSESSEES BUSIN ESS. 7. WE FIND THAT THE ASSESSING OFFICER OBSERVED THAT BORROWED FUNDS ON WHICH INTEREST AT 9% WAS PAID WERE UTILIZED FOR INV ESTMENT IN NON REVENUE YIELDING ASSETS. FURTHER THE AO HELD THAT THE TOTAL LOANS AND ADVANCES OF RS. 97,28,695/- INCLUDES INVESTMENT OF RS. 87,09,500/- IN V.S. ESTATE PROPERTY. THE LD. CIT(A) HAS POINTED O UT THAT THE AO HAS FAILED TO APPRECIATE THE FACT THAT IN THIS CASE THE ASSESSEE IS A PROPRIETOR AND NOT A PARTNERSHIP FIRM OR COMPANY. FURTHER THE LD. CIT(A) HAS OBSERVED THAT IF THE GROSS FIGURE OF RS. 87,09,500/ - WHICH HAS BEEN INVESTED IN PROPERTY EXCLUDED THE REMAINING AMOUNT OF RS. 10,19,195/- MRS. CHANDRA S. SADHNANI 5 SHOWN AS LOANS AND ADVANCES AND THE ASSESSEES TURN OVER IN THE CURRENT YEAR OF RS. 1,73,42,369/- WHICH IS TAKEN INTO ACCOU NT THE GROSS FIGURE IS VERY MUCH IN ADEQUATE TO TAKE CARE OF SUCH LOANS A ND ADVANCES. THEREFORE IN THE ABSENCE OF ANY EVIDENCE BROUGHT BY THE AO THAT THE CAPITAL HAS NOT BEEN BORROWED FOR THE PURPOSE OF BU SINESS, THE LD. CIT(A) DELETED THE DISALLOWANCE OF INTEREST WHICH THE AO H AD DISALLOWED ON MERE PRESUMPTION. IN OUR OPINION, THE INVESTMENT MADE FOR THE PURPOSE OF PURCHASING THE FLAT FOR RESIDENCE, WOULD BE COVERE D BY THE ASSESSEES CAPITAL ACCOUNT WHICH SHOWS AN OPENING BALANCE OF R S. 1,23,26,094/-. EVEN IF THE ASSESSEE HAS DEBITED THE AMOUNT OF IN VESTMENT IN V.S. ESTATE IN PROPERTY TO THE CAPITAL ACCOUNT, THE CAPI TAL ACCOUNT WOULD STILL SHOW A CREDIT BALANCE OF RS. 36,16,594/-. THE FACT THAT THE INVESTMENT IN FLAT WITH M/S V.S. ESTATE HAS SHOWN SEPARATELY I N THE BALANCE SHEET CANNOT LEAD TO CONCLUSION THAT LOANS ON WHICH THE I NTEREST AT 9% IS PAID IS UTILIZED FOR THE PURPOSE OF INVESTMENT IN NON-RE VENUE YIELDING ASSETS. FURTHER IT WAS POINTED OUT BY THE LD. COUNSEL THAT THE MAJOR INVESTMENT OF RS. 76,00,000/- WITH M/S. V.S. ESTATE PROPERTY W AS MADE IN THE PREVIOUS ASSESSMENT YEARS. IN THE YEAR OF ACCOUNT, ONLY ADDITIONAL CONTRIBUTION OF RS. 3 LAKHS WAS MADE AND ALSO REGIS TRATION CHARGES OF RS. 8,09,500/- INCLUDING STAMP DUTY WAS PAID. 8. THE LD. COUNSEL FOR THE ASSESSEE ALSO POINTED OU T THAT NO NEW LOANS WERE TAKEN ON 23.11.2004 AND ON 29.3.2005 WHE N PAYMENTS OF RS. 3,00,000/- AND RS. 8,09,500/- WERE MADE FROM BANK O F INDIA IN WHICH THE BUSINESS RECEIPTS ARE REGULARLY DEPOSITED. EVI DENCE WAS PRODUCED THAT THE AMOUNT OF RS. 3,00,000/- WAS PAID BY WAY O F TWO CHEQUES OF RS. 1,50,000/- EACH ON THE OVER DRAFT ACCOUNT TAKEN AGAINST THE FDR FROM BANK OF INDIA AND THEREFORE THE PAYMENT WAS NO T FROM INTEREST BEARING FUND. THE COPIES OF THE BANK STATEMENT AND COPY OF THE ACCOUNT WITH M/S. V.S ESTATE PROPERTY WERE PRODUCED BY THE ASSESSEE IN THE PAPER BOOK TO SHOW THAT NO INTEREST BEARING FUNDS W ERE UTILIZED FOR MRS. CHANDRA S. SADHNANI 6 INVESTMENT IN V.S. ESTATE PROPERTY. FURTHER, THE T URNOVER OF THE ASSESSEE FOR THE CURRENT YEAR IS RS. 1,73,42,369/- WHICH IS SUBSTANTIAL ENOUGH TO COVER THE INVESTMENT AS WELL AS LOANS AND ADVANCES. THEREFORE, RELYING ON THE RATIO LAID DOWN BY THE DECISION IN THE CASE OF CIT V. RELIANCE UTILITIES & POWER LTD., (313 ITR 304), WE CONFIRM THE ORDER OF THE LD. CIT(A) AND DISMISS THE REVENUES APPEAL ON THIS GROUND. 9. THE SECOND GROUND RAISED BY THE REVENUE READS AS FOLLOWS: ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE AND IN LAW, THE LD. CIT(A) HAS ERRED IN DELETING THE G.P. ADDIT ION OF RS. 7,68,028/- MADE BY THE AO. 10. THE AO HAS MADE THIS ADDITION AS NO STOCK REGIS TER WAS MAINTAINED AND THEREFORE THE AUDITOR HAS QUALIFIED THEIR REPORT IN FORM NO. 3CD. THE AO WAS OF THE VIEW THAT PART OF THE E XPENSES UNDER THE HEAD LABOUR AND PACKING CHARGES WERE NOT PROPERLY V OUCHED. 11. BEFORE THE LD. CIT(A), THE AR OF THE ASSESSEE S UBMITTED THAT SHE HAS SHOWN GP OF 27.68% ON A TURNOVER OF RS. 1,73,42 ,369/-. THE ASSESSEE HAS FURNISHED A COMPARATIVE STATEMENT OF G P AND TURNOVER AND HIGHLIGHTED THE FACT THAT THE GP IS GENERALLY HIGH WHEN THE TURNOVER WAS LOW. FOR THE IMMEDIATELY PRECEDING YEAR THE GP WAS 31.5% ON A TURNOVER OF RS. 1,04,20,894/-. THUS THERE IS AN INCREASE THI S YEAR OF ABOUT RS. 69 LAKHS IN TURNOVER WHICH IS 66% OVER THE PREVIOUS YE AR WHILE THE GP HAS FALLEN BY 3.8% ONLY. THE AR FURTHER STATED THAT TH IS YEAR THE EXPORT OF FABRICS WHERE THE GP IS MORE IS REDUCED BY RS. 9.75 LAKHS WHEREAS IN RESPECT OF EXPORT OF FURNITURE WHERE THE GP IS LOW, THE SAME HAS GONE UP BY RS. 10 LAKHS. THE ASSESSEE FILED DETAILS IN THE PAPER BOOK HIGHLIGHTING THE FACT THAT GP IN TEXTILES AS WELL AS HANDICRAFTS IS ABOUT 42.49% WHILE FOR ANY FURNITURE IS 25.32%. HE FURTHER STATED THA T THE FALL IN GP IS DUE TO DIFFERENCE IN FOREIGN EXCHANGE RATE AT THE TIME OF EXPORT AND THE MRS. CHANDRA S. SADHNANI 7 REALIZATION OF EXPORT PRICE. AR FILED CUSTOMS DOCU MENTS SHOWING THAT EXPORT OF HANDICRAFTS, TEXTILE FABRICS TO TAIWAN @ RS. 45.450 PER US$ ON 5.11.2004. WHEN THE AMOUNT WAS REALIZED ON 24.3.20 05, THE RATE HAS GONE DOWN TO RS. 43.68 PER US$ 1. HE SUBMITTED A C OPY OF THE BANK REALIZATION CERTIFICATE DT. 4.5.2005 IN SUPPORT OF THE SAME. 12. THE ASSESSEE WAS ALSO OF THE VIEW THAT THE PRES ENCE OR ABSENCE OF STOCK REGISTER IS NOT MATERIAL OR WOULD DEPEND UPON THE TYPE OF BUSINESS. THE BUSINESS OF THE ASSESSEE BEING THAT OF EXPORT A ND SO QUANTITY EXPORTED WOULD ALWAYS MATCH THE QTY. PURCHASED AND THEREFORE ABSENCE OF STOCK REGISTER IS IMMATERIAL TO THE PROVISIONS O F SEC. 145(3) OF THE I.T. ACT, 1961. 13. THE LD. CIT(A) HELD AS FOLLOWS: I HAVE PERUSED THE ASSESSMENT ORDER AS WELL AS THE REASONS FURNISHED BY THE APPELLANT AT THE ASSESSMENT STAGE AS WELL AS THE APPELLATE STAGE FOR DECLINE IN GP. THE AO HAS INVOKED THE PROVISIONS OF SEC. 145(3) ON THE GROUND THAT THE AP PELLANT DID NOT MAINTAIN STOCK REGISTER. ABSENCE OF DAY TODAY STOC K RECORDS BY ITSELF CANNOT BE A SUFFICIENT GROUND FOR REJECTING THE BOOKS OF ACCOUNTS AND INVOKING OF THE PROVISO OF SEC. 145(3) OF THE ACT. THE ACCOUNTS OF THE APPELLANT HAVE BEEN REGULARLY AUDITED U/S. 44AB OF THE I.T. ACT. SIMPLY BECAUSE A REGISTER IS NOT MAINTAINED WILL NOT MAKE THE ACCOUNTS UNRELIABLE SO AS TO BE R EJECTED ON THE FACTS OF THE CASE. IT IS OBSERVED THAT THE TURNOVER OF THE APPELLAN T HAS INCREASED THIS YEAR BY 66% WHEREAS THE DECLINE OF GP IS ONLY 3.8%. THE APPELLANT IS ENGAGED IN THE BUSINESS OF EXPORT WHIC H IS A HIGHLY COMPETITIVE SO SUCH FLUCTUATIONS ARE COMMON MORE SO WHEN IT IS CORRESPONDINGLY LINKED TO INCREASE BY 66% IN TURNOV ER BY LAST YEAR. THE APPELLANT HAS ALSO POINTED OUT THAT THE PROFIT IN FURNITURE BUSINESS IS LESS THAN THAT OF TEXTILES AN D HANDICRAFTS AND THIS YEAR THERE IS INCREASE IN FURNITURE TURNOV ER BY RS. 10 LAKHS WHILE THAT OF TEXTILES AND HANDICRAFTS HAS RE DUCED BY RS. 9.75 LAKHS. THIS FACT IS BORNE FROM RECORDS AND CA N NOT BE IGNORE. IN AN EXPORT BUSINESS FOREIGN EXCHANGE FLU CTUATION HAVE A MATERIAL EFFECT. THE PROFIT MARGIN AND ADJUSTMENTS INVARIABLY HAVE TO BE MADE ON THAT ACCOUNT. THE AO HAS SUMMAR ILY MRS. CHANDRA S. SADHNANI 8 REJECTED THIS SOLELY ON THE GROUND THAT STOCK REGIS TER IS NOT MAINTAINED. THE APPELLANT HAS DEMONSTRATED WITH TH E FACTS AND FIGURES THE REASONS FOR LOW GP, WHILE THE AO HAS AD OPTED THE GP AT 32% ON AN ESTIMATED BASIS. SUCH GP ADDITION CAN NOT BE SUSTAINED ON THE FACTS OF THE CASE AND THEREFORE DE LETED. 14. AGGRIEVED, REVENUE IS IN APPEAL BEFORE US. WE FIND THAT THE AO HAS ADOPTED THE GP RATE OF 32% AS AGAINST THE G.P. RATE OF 27.68% DISCLOSED BY THE ASSESSEE. FROM THE READING OF ANNEXURE-V PO INTED OUT BY THE LD. COUNSEL FOR THE ASSESSEE IT APPEARS THAT THE AUDITO RS HAVE RELIED ON THE ADMISSION OF THE ASSESSEE THAT THE ASSESSEE HAD PHY SICALLY VERIFIED THE STOCK AS ON 31.3.2005 AND HAS BEEN VALUED AS PER AN NEXURE F. THE AUDITORS HAVE EXPRESSED THEIR INABILITY TO CERTIFY THE STOCK. HENCE THE AO HAS WRONGLY BROUGHT ON THE BASIS THAT THE AUDITO RS WERE NOT ABLE TO VERIFY THE STOCK. THIS APPREHENSION ON THE PART OF THE AO HAS LED TO THE CONCLUSION THAT THE ASSESSEE IS NOT ABLE TO EXPLAIN THE FALL IN G.P. OF 3.8% WHEN COMPARED WITH THE G.P. OF IMMEDIATELY PRECEDIN G YEAR. WE FIND THAT THE FALL IN GP IS DUE TO THE FALL OF VALUE OF RUPEE AGAINST IN DOLLAR IN WHICH THE INVOICES WERE RAISED.. THE TOTAL TURNOVE R OF THE ASSESSEE IS RS. 1,73,42,369/- FALL IN THE RATE OF EXCHANGE BY RE. 1/- TO A DOLLAR COULD ACCOUNT FOR THE LOSS OF RS. 4,00,000/- APPROX. ( 45 .45 PER $). FURTHER THE ASSESSEE HAS POINTED OUT THAT WHENEVER THERE IS AN INCREASE IN TURNOVER, THERE IS A FALL IN GP RATE. THE ASSESSE E FURTHER POINTED OUT THAT THE INCREASE IN FURNITURE TURNOVER IS RS. 10,0 0,000/- WHILE THAT OF TEXTILES AND HANDICRAFTS HAS REDUCED BY 9.75% AND T HESE FACTS HAVE CONTRIBUTED TO THE FALL IN GP RATE. CONSIDERING TH E EXPLANATION OF THE ASSESSEE, WE ARE CONVINCED THAT THE ORDER OF THE CI T(A) DELETING THE ADDITION OF RS. 7,68,028/- IS TO BE CONFIRMED. THI S GROUND OF THE REVENUE IS DISMISSED. ITA NO. 5365/M/2009- A.Y. 2006-07 15. THE GROUNDS OF APPEAL RAISED BY THE REVENUE FOR THE ASSESSMENT YEAR 2006-07 ARE SIMILAR TO THAT OF ASSESSMENT YEAR 2005-06. THE FACTS MRS. CHANDRA S. SADHNANI 9 AND CIRCUMSTANCES OF THESE GROUNDS ARE MUTATIS MUTA NDIS SIMILAR TO THOSE DECIDED BY THE TRIBUNAL IN ASSESSMENT YEAR 20 05-06. HENCE WE CONFIRM THE DELETION BY THE CIT(A) OF THE ADDITION MADE BY THE AO TOWARDS DISALLOWANCE OF INTEREST AMOUNTING TO RS. 7 ,86,530/- AND DISMISS THE REVENUES APPEAL ON THE FIRST GROUND. 16. WE ALSO CONFIRM, FOR THE REASONS STATED IN OUR ORDER FOR THE EARLIER YEAR SUPRA, THE DELETION BY THE CIT(A) ADDITION OF RS. 8,37,229/- TOWARDS LOW GP MADE BY THE AO. HENCE THE REVENUES APPEAL FOR ASSESSMENT YEAR 2006-07 IS ALSO DISMISSED. C.O. NO. 22/M/2010-A.Y. 2005-06 17. SINCE THE APPEAL OF THE REVENUE IS DISMISSED, T HE C.O. FILED BY THE ASSESSEE FOR THE FIRST TWO GROUNDS BECOME INFRUCTUO US AND THE SAME IS DISMISSED AS INFRUCTUOUS. 18. THE THIRD GROUND IS WITH RESPECT TO REDUCTION O F DISALLOWANCE OF TRAVELLING EXPENSES FROM RS. 1,00,000/- TO RS. 50,0 00/-. THE LD. COUNSEL FOR THE ASSESSEE SUBMITTED BEFORE US THAT T HE FOREIGN TOURS UNDERTAKEN BY THE ASSESSEES HUSBAND IS DUE TO THE BUSINESS REQUIREMENT IN AS MUCH AS HE WAS SUPPORTIVE AND USE FUL IN INTERACTING WITH CUSTOMERS AND WAS OF HELP IN ENTERTAINING THEM . THEREFORE, THE LD. COUNSEL ARGUED THAT LUMPSUM DISALLOWANCE OF RS. 1,0 0,000/- ON AN ADHOC BASIS IS NOT WARRANTED AND THE CIRCUMSTANCES UNDER WHICH THE TRAVELLING HAD BEEN DONE WHICH IS WHOLLY AND EXCLUS IVELY FOR THE PURPOSE OF BUSINESS HAS TO BE CONSIDERED. 19. WE FIND THAT THE LD. CIT(A) HAS REDUCED THE DIS ALLOWANCE BY 50%. WE GIVE A FURTHER REDUCTION AND CONFIRM THE DISALLO WANCE AT RS. 25,000/- . MRS. CHANDRA S. SADHNANI 10 20. THE NEXT GROUND IS WITH RESPECT TO DISALLOWANCE OF 25% OF THE MOTOR CAR EXPENSES HOLDING THAT THE EXPENSES ARE FO R NON BUSINESS PURPOSES. THE LD. CIT(A) HAS RESTRICTED THE DISALL OWANCE TO 15% OF THE EXPENSES. WE GIVE A FURTHER RELIEF OF 5% RESTRICTI NG THE DISALLOWANCE TO 10% OF THE EXPENSES. 21. THE NEXT GROUND RELATES TO DISALLOWANCE OF TELE PHONE EXPENSES. WE ARE OF THE OPINION THAT THE PERSONAL USAGE CANNOT B E RULED OUT IN THE TYPE OF EXPENSES. THE AO HAS ARRIVED AT A DISALLOWANCE O F 25% OF THE EXPENSES FOR PERSONAL USE WHILE COMPUTING THE DISALLOWANCE. TAKING INTO ACCOUNT THE NATURE OF THE BUSINESS BEING EXPORT BUSINESS WH ERE INTERNATIONAL CALLS ARE NECESSARY, WE RESTRICT THE DISALLOWANCE T O 5% OF THE TOTAL EXPENSES AMOUNTING TO RS. 1,07,234/-. 22. IN THE RESULT, THE C.O. FILED BY THE ASSESSEE I S PARTLY ALLOWED. ORDER PRONOUNCED ON THIS 31 ST DAY OF MAY, 2011 SD/- SD/- (J. SUDHAKAR REDDY) (ASHA VIJAYARAGHAVAN) ACCOUNTANT MEMBER JUDICIAL MEM BER MUMBAI, DATED 31 ST MAY, 2011 RJ COPY TO : 1. THE APPELLANT 2. THE RESPONDENT 3. THE CIT-CONCERNED 4. THE CIT(A)-CONCERNED 5. THE DR C BENCH TRUE COPY BY ORDER ASSTT. REGISTRAR, I.T.A.T, MUMBAI MRS. CHANDRA S. SADHNANI 11 DATE INITIALS 1 DRAFT DICTATED ON: 26 .05.2011 SR. PS/PS 2. DRAFT PLACED BEFORE AUTHOR: 27 .05.2011 ______ 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. 9. DATE ON WHICH FILE GOES TO THE HEAD CLERK: DATE ON WHICH FILE GOES TO AR _________ ______ 10. DATE OF DISPATCH OF ORDER: _________ ______