Shri Pradeep Lunawat, MUMBAI V. DCIT, UDAIPUR

ITA 381/JODH/2014

• Counselvise Citation: [2014] 120 COUNSELVISE.COM (IT) 7854 (ITAT-JODHPUR)
• Duration Of Justice: 3 month(s) 9 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 22-09-2014
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: DB
• Next Hearing Date: 19-09-2014
• Assessment Year: 2008-2009
• Appeal Filed On: 13-06-2014
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Assessee Lawyers: DEVENDRA MEHTA
• Keywords: Rejection of books of accounts
• Section: 45(2); 143(3); 145

Judgement Text

IN THE INCOMETAX APPELLATE TRIBUNAL JODHPUR BENCH: J ODHPUR ( BEFORE SHRI H ARI OM MARATHA, JUDICIAL MEMBER AND SHRI N.K. SAINI, ACCOUNTANT MEMBER ) I.T.A. NO.381 /JODH/201 4 (A.Y. 200 8 - 0 9 ) SHRI PRADEEP LUNAWAT V S THE DY. C.I.T 1 - 53, JAISHREE COLONY CENTRAL CIRCLE - 1 BOHRA GANESHJI, UDAIPUR UDAIPUR PAN NO. AACPL 3379 F (APPELLANT) (RESPONDENT) ASSESSEE BY : - SHRI DEVENDRA MEHTA DEPARTMENT BY : - SHRI MAHESH KUMAR - D.R. DATE OF HEARING : 1 9 /0 9 /201 4 DATE OF PRONOUNC EMENT : 22 / 0 9 /2014 O R D E R P E R HARI OM MARATHA, J.M. : THIS APPEAL O F THE ASSESSEE, FOR A.Y. 2008 - 09 IS DIRECTED AGAINST THE ORDER OF LD. CIT(A) DATED 06.05.2014. 2 2. BRIEFLY STATED THE FACTS OF THE CASE ARE THAT THE ASSESSEE IS AN INDIVIDUAL DERIVING INCOME FROM SALARIES, RENT, BUSINESS INTEREST ETC. HE IS THE PROPRIETOR OF M/S MAHAVEER TRADING COMPANY WHICH IS ENGAGED IN MINING OF MARBLE BLOCKS AND SOFT STONES. THE RETURN OF INCOME FOR A.Y. 2008 - 09 WAS FILED ON 30.09.2008 DECLARING A TOTAL I NCOME OF RS. 1,66,80,510/ - . ASSESSMENT WAS COMPLETED U/S 143(3) ON THE TOTAL INCOME OF RS. 1,77,84,540/ - . THE A.O HAS MADE ADDITION OF RS. 11,04,035/ - ON ACCOUNT OF DISALLOWANCE OUT OF REBATE AND DISCOUNT. THIS DISALLOWANCE IS BASED ON THE REASONING THA T THERE IS SLIGHT FALL IN THE G.P. RATE IN THIS YEAR AS COMPARED TO EARLIER A.Y. WHICH IS 25.88% IN THIS YEAR AND 26.54% IN A.Y. 2007 - 08. THE ASSESSEE EXPLAINED THE FALL OF THE G.P. BY STATING THAT THERE IS STEEP INCREASE IN THE TURNOVER AND NOT BECAUSE O F THE HIGHER REBATE OR DISCOUNT GIVEN. BUT THE A.O WAS NOT AGREEABLE AND HAS REDUCED THE TOTAL EXPENDITURE CLAIMED AT RS. 23,09,224/ - ON ACCOUNT OF REBATE AND DISCOUNT. THIS EXPENDITURE WAS CLAIMED AT RS. 5.49,070/ - IN THE IMMEDIATELY PRECEDING YEAR. TH E DISALLOWANCE HAS BEEN WORKED OUT BY APPLYING G.P. RATE OF THE A.Y. 2007 - 08 OF THE TURNOVER OF THIS YEAR. AGGRIEVED, THE ASSESSEE WENT IN APPEAL AND THE LD. CIT(A) HAS ALSO CONFIRMED THIS DISALLOWANCE. 3 3. BEFORE US BOTH THE PARTIES HAVE REITERATED THEIR EARLIER ARGUMENTS. WE HAVE FOUND THAT THE ASSESSEE HAD FURNISHED COMPLETE DETAILS OF REBATE/DISCOUNT OF EXPENSES ALONGWITH CO P IES OF DEBIT/CREDIT NOTES FROM THE PARTIES SHOWING THAT IT WAS ALLOWED TO THE PARTIES BECAUSE OF SHORT SUPPLY OF QUANTITY OF GOO DS, DEFICIENCY IN QUALITY OF GOODS SUPPLIED, DIFFERENCE IN RATES, DELAYED SUPPLY OF MATERIAL, PETTY OLD OUTSTANDING, ETC. THE ASSESSEE - APPELLANT HAS ENCLOSED COMPLETE STATEMENT OF REBATE AND DISCOUNT AND COPIES OF DEBIT / CREDIT NOTES IN THE PAPERS PLACED B EFORE US. THE CASE OF THE A.O IS THAT THIS EXPENDITURE WAS NOT INCURRED WHOLLY AND EXCLUSIVELY FOR THE PURPOSE OF BUSINESS. THE ASSESSEE HAS MAINTAINED HIS BOOKS OF ACCOUNT PROPERLY WHICH ARE SUBJECT TO AUDIT AND THERE HAS BEEN NO ADVERSE FINDING OF THE AUDITORS. IN THIS CONNECTION THE LD. A.R HAS SUBMITTED HIS WRITTEN SUBMISSIONS WHICH READ AS UNDER: THE ASSESSEE CLAIMED EXPENDITURE OF RS.23,09,244/ - ON ACCOUNT OF REBATE AND DISCOUNT AS AGAINST RS.5,49,070/ - IN THE IMMEDIATELY PRECEDING YEAR. THE A.O . DISALLOWED IT TO THE EXTENT OF RS.11,04,031/ - FOR WANT OF SATISFACTORY EXPLANATION, EVIDENCE IN SUPPORT OF THE CLAIM AND FALL IN GROSS PROFIT RATE BY 0.66% OVER THE IMMEDIATELY PRECEDING YEAR. 4 DURING ASSESSMENT PROCEEDINGS, (1) THE ASSESSEE FURNISHED COMPLETE DETAILS OF REBATE AND DISCOUNT EXPENSES ALONG WITH COPIES OF DEBIT/CREDIT NOTES FROM THE PARTIES AND IT WAS ALLOWED TO THE PARTIES BECAUSE OF SHORT SUPPLY OF QUANTITY, DEFICIENCIES IN QUALITY OF GOODS SUPPLIED, DIFFERENCE IN RATES, DELAYED SUPPLY OF MATERIAL, PETTY OLD OUTSTANDING ETC.. [KINDLY REFER TO PAGE NO.106 TO 122 OF THE PAPER BOOK] . AS THE IMPUGNED EXPENDITURE WAS INCURRED WHOLLY AND EXCLUSIVELY FOR THE PURPOSE OF BUSINESS, THE SAME WAS AN ALLOWABLE EXPENDITURE. (2) MOREOVER, THE BOOKS OF AC COUNTS OF THE ASSESSEE WERE PROPERLY MAINTAINED, SUBJECTED TO AUDIT REGULARLY AND THERE HAD BEEN NO ADVERSE FINDING OF THE AUDITORS. AS REGARD CONTENTION OF THE ASSESSING OFFICER THAT THERE WAS DISPROPORTIONATE INCREASE IN REBATE AND DISCOUNT AS COMPARED TO IMMEDIATELY PRECEDING YEAR, IT IS SUBMITTED THAT THE REBATE AND DISCOUNT ALLOWED TO VARIOUS PARTIES BY THE ASSESSEE WAS PRIMARILY DUE TO FACTORS LIKE SHORTAGE IN QUANTITY SUPPLIED AND DEFICIENCIES IN THE QUALITY OF MATERIAL SUPPLIED AS EVIDENT FROM DOCU MENTS FILED BEFORE THE A.O. AS WELL AS THE C.I.T.(A). THE SAME VARIED FROM YEAR TO YEAR AND CONSIGNMENT TO CONSIGNMENT AND THEREFORE, THE EXPENDITURE ON REBATE AND DISCOUNT ALLOWED WAS NOT COMPARABLE. IN THIS REGARD, WE RELY UPON THE FOLLOWING JUDGEMENTS : 5 (A) JIVRAJ TEA & INDUSTRIES LTD. V. A.C.I.T. 42 T AXMANN.COM 462 (AHD.) BUSINESS DISALLOWANCE - EXCESSIVE OR UNREASONABLE PAYMENTS (PROPORTIONATE ADVERTISEMENT EXPENSES) - A.O. DISALLOWED A PART ADVERTISEMENT EXPENSES FOR REASON THAT SALES HAD NOT INCREAS ED IN PROPORTION TO INCREASE IN ADVERTISEMENT EXPENSES AND THERE WAS NO NEXUS BETWEEN ADVERTISEMENT EXPENSES AND SALES ACHIEVED - COMMISSIONER (APPEALS) BY FOLLOWING ORDER OF TRIBUNAL IN ASSESSEE'S OWN CASE IN IMMEDIATE PRECEDING YEAR 2006 - 07 DELETED A DDITION - TRIBUNAL HELD THAT PAYMENTS WERE MADE THROUGH ACCOUNT PAYEE CHEQUES AND BANK DRAFT AND NO PARTIES WERE RELATED TO ASSESSEE COMPANY OR ITS DIRECTORS AND DETAILS AND VOUCHERS WERE MAINTAINED VERIFIABLY AND GENUINENESS OF EXPENDITURE WAS NOT IN DOUB T - WHETHER SINCE REVENUE COULD NOT POINT OUT ANY SPECIFIC ERROR IN ORDER OF COMMISSIONER (APPEALS), DELETION OF ADDITION WAS TO BE CONFIRMED - HELD, YES [PARA 44] (B) SAINICO ENTERPRISES V. I.T.O. [2004] 4 SOT 445 (ASR.) ..AFTER CONSIDERING THE RIVAL SUBMIS SIONS AND GOING THROUGH THE MATERIAL AVAILABLE ON THE RECORDS, IT SEEMS THAT THE A.O. MADE THE DISALLOWANCE ON THE BASIS THAT THE EXPENSES INCURRED BY THE ASSESSEE WERE HIGHER IN COMPARISON TO THE EXPENSES IN THE PRECEDING YEAR . IT IS ALSO NOTICED THAT THE A.O. CURTAILED THE CLAIM OF THE ASSESSEE ON THE BASIS OF THE LAST YEARS EXPENSES. THE A.O. ENHANCED THE EXPENSES OF 6 EARLIER YEAR PROPORTIONATELY AND WORKED OUT THE EXPENSES AT RS.1,20,235 INSTEAD OF RS.2,50,750 CLAIMED BY THE ASSESSEE. IT APPEARS THAT TH E WORKING OF THE A.O. WAS WITHOUT ANY BASIS SINCE THERE WAS NO EVIDENCE AVAILABLE ON R ECORD THAT THE INSTALLATION AND COMMISSIONING EXPENSES WERE DIRECTLY RELATED TO THE TURNOVER OF THE ASSESSEE. IT IS ALSO TRUE THAT THE A.O. HAD NOT POINTED OUT ANY SPEC IFIC DEFECT IN THE DETAILS AND THE VOUCHERS PRODUCED BY THE ASSESSEE . IT IS ALSO NOT THE CASE OF THE A.O. THAT THE EXPENSES INCURRED BY THE ASSESSEE WERE NOT RELATED TO THE BUSINESS OR THE EXPENSES INCURRED FOR ANY OTHER PURPOSES. IT SEEMS THAT THE DISALLO WANCE MADE BY THE A.O. IS BASED ON SURMISES AND CONJECTURES WHICH IS NOT TENABLE IN THE EYES OF LAW . SIMILARLY, THE LEARNED CIT(A) WHILE CONFIRMING THE ACTION OF THE A.O. HAS NOT GIVEN ANY COGENT REASON. HE SIMPLY SAID THAT THERE WAS NOTHING IMPROPER IN TH E DISALLOWANCE MADE BY THE A.O. IN VIEW OF VARIOUS DEFECTS POINTED OUT. HOWEVER, HE HAD NOT STATED EVEN A SINGLE WORD AS TO WHAT WERE THE DEFECTS POINTED OUT BY THE A.O. AND EVEN THE A.O. HAD NOT MENTIONED ANY PARTICULAR DEFECTS WHILE MAKING THE DISALLOWAN CE, HE SIMPLY STATED THAT THE EXPENSES CLAIMED BY THE ASSESSEE WERE ON HIGHER SIDE AND ALSO WERE NOT PROPERLY VOUCHED . HOWEVER, HE HAD NOT POINTED OUT EVEN A SINGLE INSTANCE OF EXPENSES WHICH WAS NOT FULLY VOUCHED. WE, THEREFORE, ARE OF THE CONSIDERED VIEW THAT THE A.O. WAS NOT JUSTIFIED IN MAKING THE DISALLOWANCE AND THE LEARNED CIT(A) WRONGLY CONFIRMED THE ACTION OF THE 7 A.O.. IN THAT VIEW OF THE MATTER, WE DELETE THE ADDITION OF RS.1,30,410. AS REGARD CONTENTION OF THE A.O. THAT THESE EXPENSES WERE NOT SUPPORTED BY THE DOCUMENTARY EVIDENCES , IT IS SUBMITTED THAT ALL THE POSSIBLE EVIDENCE AND SUPPORTING DOCUMENTS IN RELATION TO EXPENDITURE ON REBATE AND DISCOUNT LIKE COPIES OF DEBIT NOTE/CREDIT NOTES, VOUCHERS AND ACCOUNT STATEMENT OF REBATE AND DISCOUN T WERE SUBMITTED DURING ASSESSMENT PROCEEDINGS AND THE A.O. COULD NOT FIND ANY FAULT WITH ANY OF THE DOCUMENTS FURNISHED BY THE ASSESSEE. [KINDLY REFER TO PAGE NO.106 TO 122 OF THE PAPER BOOK]. THEREFORE, THE FINDING OF THE A.O. THAT THE IMPUGNED EXPENDITU RE WAS NOT VERIFIABLE AND IT WAS ALLOWED ON SUBJECTIVE CONSIDERATION IS PERVERSE AND CONTRARY TO THE FACTS ON RECORD. IN THIS REGARD, WE RELY UPON THE FOLLOWING JUDGEMENTS: (A) FISONS PLC. V. DY. CIT [2004] 091 ITD 0450 12. THE ONLY OTHER GRIEVANCE O F THE ASSESSEE IS THAT THE COMMISSIONER (APPEALS) ERRED IN UPHOLDING DISALLOWANCE OF UK 430 BEING EXPENSES INCURRED IN CONNECTION WITH SALE OF THE SHARES AND DEBENTURES OF RALLIS. THE EXPENSES ARE IN THE NATURE OF PAYMENT TO ANZ INTERNATIONAL MERCHANT BANK ING, ON ACCOUNT OF REIMBURSING THEM FOR TRAVELLING EXPENSES AND ALLOWANCES. IT IS NOT IN DISPUTE THAT THE ASSESSEE HAS PAID THE SAME TO ANZ INTERNATIONAL MERCHANT BANKING, AND THAT THE 8 PAYMENT IS IN SETTLEMENT OF INVOICE RAISED BY ANZ INTERNATIONAL MERCHAN T BANKING. DURING THE ASSESSMENT PROCEEDINGS, THE A.O. DISALLOWED THE ABOVE EXPENDITURE AS, ACCORDING TO THE A.O., 'NO EVIDENCE HAS BEEN PRODUCED TO SUBSTANTIATE THE CLAIM'. IN APPEAL, COMMISSIONER (APPEALS) CONFIRMED THE DISALLOWANCE BY OBSERVING THAT ' IT IS SEEN THAT NO FURTHER EVIDENCE HAS BEEN PRODUCED EVEN DURING THE APPELLATE PROCEEDINGS'. APPARENTLY, AUTHORITIES BELOW APPEAR TO BE UNSATISFIED BECAUSE VOUCHERS IN SUPPORT OF EXPENSES HAVING ACTUALLY BEEN INCURRED BY ANZ INTERNATIONAL MERCHANT BANKING WERE NOT FURNISHED TO THEM. AGGRIEVED BY THE DISALLOWANCE, ASSESSEE IS IN FURTHER APPEAL BEFORE US. HAVING HEARD THE RIVAL CONTENTIONS AND HAVING PERUSED THE MATERIAL BEFORE US, WE ARE NOT INCLINED TO UPHOLD THIS DISALLOWANCE FOR THE REASON THAT, IN OUR CONSIDERED VIEW, ADEQUATE MATERIAL HAS ALL ALONG BEEN FURNISHED BY THE ASSESSEE BEFORE THE AUTHORITIES, AND COPIES OF THAT MATERIAL HAS ALSO BEEN FILED BEFORE US. THE ASSESSEE HAS FILED COPIES OF RELEVANT INVOICES, AS ALSO COPY OF THE AGREEMENT UNDER WHICH THE PAYMENTS WERE MADE TO THE BANK. PERHAPS, THE AUTHORITIES BELOW WERE NOT SATISFIED WITH THIS MATERIAL FOR THE REASON THAT FACTUM OF EXPENDITURE HAVING BEEN ACTUALLY INCURRED BY THE ANZ INTERNATIONAL MERCHANT BANKING WAS NOT ESTABLISHED BY ASSESSEE FURN ISHING THE EVIDENCE BY WAY OF SUPPORTING VOUCHERS FOR EXPENSES IN 9 THEIR HANDS. EVEN IF THAT BE SO, IN OUR CONSIDERED VIEW, SUCH AN EXERCISE WAS NOT REALLY NECESSARY. THE FACTUM OF EXPENDITURE BY THIS ASSESSEE, GENUINENESS OF EXPENSE AND ALSO PURPOSE OF EXP ENSE IS CLEARLY ESTABLISHED BY THE ASSESSEE. ACCORDINGLY, WE DEEM IT FIT AND PROPER TO DELETE THIS DISALLOWANCE OF UK 430. (B) VISHAL INFRASTRUCTURE LTD. VS. A.C.I.T. [2007] 104 ITD 537 (HYD.) IN THE INSTANT CASE, THE ASSESSEE - COMPANY HAD BEEN CONSISTENTL Y FOLLOWING A PARTICULAR METHOD OF ACCOUNTING. ITS ACCOUNTS WERE AUDITED BOTH UNDER THE COMPANIES ACT, 1956, AS WELL AS UNDER SECTION 44AB OF THE INCOME - TAX ACT. SUCH AUDITED ACCOUNTS WERE BEING FILED WITH THE REGISTRAR OF COMPANIES AS WELL AS WITH THE INC OME - TAX DEPARTMENT FOR MORE THAN 7 YEARS. THE REVENUE HAD SCRUTINIZED THE ACCOUNTS AND THE METHOD OF ACCOUNTING REGULARLY EMPLOYED AND ADOPTED BY THE ASSESSEE YEAR AFTER YEAR HAD NOT BEEN FOUND FAULT WITH. THE AUDITORS OF THE COMPANY BOTH UNDER THE COMPANI ES ACT AND THE INCOME - TAX ACT HAD BEEN CONSISTENTLY CERTIFYING THAT THE ASSESSEE HAD BEEN REGULARLY FOLLOWING THE METHOD OF ACCOUNTING AND THAT THE ANNUAL PROFITS COULD BE PROPERLY DEDUCED FROM SUCH METHOD OF ACCOUNTING EMPLOYED BY THE ASSESSEE. THE AUDITO RS OVER THE YEARS HAD ALSO BEEN CERTIFYING THAT THE ACCOUNTS WERE REGULARLY MAINTAINED AND WERE COMPLETE IN THE SENSE THAT THERE WAS NO SIGNIFICANT OMISSION THEREIN. THIS FINDING HAD BEEN ACCEPTED BY DIFFERENT A.O.S OVER A PERIOD OF SEVEN YEARS. FOR REJECT ING THE VIEW TAKEN FOR THE EARLIER 10 ASSESSMENT YEARS, THERE MUST BE A MATERIAL CHANGE IN THE FACT SITUATION. NO DOUBT, THE PREVIOUS VIEW WILL HAVE NO APPLICATION EVEN IN CASES WHERE THE LAW ITSELF HAS UNDERGONE A CHANGE BUT BEFORE AN EARLIER VIEW CAN BE UPS ET OR DIGRESSED FROM, ONE OF THE TWO MUST BE DEMONSTRATED, NAMELY, A CHANGE IN THE FACT SITUATION OR A MATERIAL CHANGE IN LAW WHETHER ENACTED OR DECLARED BY THE SUPREME COURT. [PARA 5.7] IN THE CASE OF A CIVIL CONTRACTOR, WHO UNDERTAKES MAJOR WORKS, A CON TRACT IS SPREAD OVER SEVERAL YEARS. THE INCOME ARISING FROM THE SAME CONTRACT IS SPREAD OVER SEVERAL ASSESSMENT YEARS AND PART OF THE PROFIT OF THIS CONTRACT IS SEPARATELY ARRIVED AT ASSESSMENT YEAR - WISE AND BROUGHT TO TAX. WHILE SO, FOR THE SAME CONTRACT, THE BOOKS OF ACCOUNT ARE ACCEPTED FOR CERTAIN ASSESSMENT YEARS FOR THE PURPOSE OF ARRIVING AT THE PROFITS, AND FOR CERTAIN OTHER ASSESSMENT YEARS THE BOOKS OF ACCOUNT ARE REJECTED IN RESPECT OF THE VERY SAME CONTRACT PART OF WHICH IS EXECUTED IN THE CURRE NT YEAR AND THE PROFIT IS ESTIMATED ON A DIFFERENT BASIS. WHEN THIS IS DONE WITHOUT COGENT AND SUFFICIENT REASONS OR CHANGE IN FACTS OR LAW, ONE HAS TO NECESSARILY APPLY THE PRINCIPLES LAID DOWN BY THE APEX COURT IN THE CASE OF RADHASOAMI SATSANG V. CIT [1 992] 193 ITR 321 / 60 TAXMAN 248 AND IT IS TO BE HELD THAT UNLESS THE FUNDAMENTAL ASPECTS PERMEATING THROUGH DIFFERENT ASSESSMENT YEARS ARE DIFFERENT, A DIFFERENT VIEW POSSIBLY CANNOT BE TAKEN AS IT WOULD RESULT IN ANOMALOUS RESULTS. [P ARA 5.8] 11 IN THE INSTANT CASE, THE A.O. HAD ACCEPTED THE FACTUM OF EXPENDITURE ON ACCOUNT OF SUB - CONTRACTORS AND, THUS, THE NON - AVAILABILITY OF VOUCHERS OF EXPENDITURE INCURRED BY SUB - CONTRACTORS WITH THE ASSESSEE COULD NOT BE A REASON FOR REJECTION . COMIN G TO THE SITE - WISE PROFIT AND LOSS ACCOUNT WHICH WERE CLAIMED TO BE MIS REPORTS, EACH OF THESE WORKS WAS AT DIFFERENT STAGES AND PHASES OF COMPLETION. THE WORKS WERE OF DIFFERENT NATURE AND A COMPARISON OF SUCH DIFFERENT WORKS FOR ESTIMATING PROFITS OF SUC H WORKS, BASED ON THE MIS REPORTS WHICH WERE NOT COMPLETE, IN THE SENSE THAT ADMINISTRATIVE EXPENSES AND OTHER DIRECT EXPENSES INCURRED IN RESPECT OF EACH WORK OR AS OVERHEAD FIND PLACE IN THE BOOKS OF ACCOUNT OF THE HEAD OFFICE AND WERE NOT APPORTIONED TO THESE PARTICULAR WORKS, WOULD BE A WRONG COMPARISON AND OPINION FORMED. TO REJECT THE BOOKS OF ACCOUNT ON THE BASIS OF SUCH ERRONEOUS AND FALLACIOUS WORKINGS AND DATA COULD NOT BE UPHELD. CASH FLOW STATEMENTS MAINTAINED AT EACH OF THE SITES AS FOUND IN TH E MANAGEMENT INFORMATION SYSTEM, BY NO STRETCH OF IMAGINATION, COULD BE TERMED AS COMPLETE PROFIT AND LOSS ACCOUNT WHICH WOULD ENABLE THE A.O. TO ARRIVE AT THE PROFIT IN THAT WORK SO AS TO ENABLE HIM TO COMPARE THE PROFITS OF DIFFERENT WORKS. IT IS NOT COR RECT TO ASSUME THAT TWO DIFFERENT CONTRACT WORKS PERTAINING TO TWO DIFFERENT PROJECTS, AT TWO DIFFERENT PROJECT SITES IN DIFFERENT STATES AND AT DIFFERENT STAGES OF EXECUTION, WOULD DERIVE IDENTICAL PROFIT. IT WAS FOUND THAT THE SITE - WISE MIS REPORTS WHICH WERE TERMED AS PROFIT AND LOSS ACCOUNT WERE NOT PART OF THE FINANCIAL STATEMENTS DRAWN UP AS PER SCHEDULE VI OF THE COMPANIES ACT NOR WERE THEY PRESCRIBED BOOKS OF ACCOUNT. WHEN THESE STATEMENTS WERE NOT 12 BOOKS OF ACCOUNT, AND WHEN THEY WERE NOT NECESSARY DOCUMENTS OR RECORDS FOR FINALIZING THE BOOKS OF ACCOUNT BOTH UNDER THE COMPANIES ACT AS WELL AS UNDER THE INCOME - TAX ACT, INFIRMITIES, IF ANY, IN THESE STATEMENTS COULD NOT BE A REASON TO REJECT THE BOOKS OF ACCOUNT. THERE WAS NO FINDING BY THE LOWER AUTH ORITIES THAT THE BOOKS OF ACCOUNT PRODUCED BEFORE THEM WERE INCOMPLETE. [PARA 5.9] (C) SHANKAR TRADING CO. (P.) LTD. VS. A.C.I.T. 152 TAXMAN 49 (DELHI MAG) IN THE PRESENT ASSESSMENT YEAR, THE ASSESSEE HAD MADE OUT ITS CASE BY FILING THE NECESSARY AGREEMENTS, THE QUANTUM OF COMMISSION MADE WITH REFERENCE TO THE AGREED TERMS OF PAYMENT OF COMMISSION TOGETHER WITH THE QUANTITY OF PURCHASES FOR WHICH COMMISSION HAD BEEN PAID. IN VIEW OF THE ABOVE, THE PAYMENT OF COMMISSION WAS DULY SUBSTANTIATED AND THE A.O. WAS D IRECTED TO ALLOW THE SAID EXPENSE AS A DEDUCTION. THE A.O. WAS NOT EMPOWERED TO MAKE ANY ADHOC DISALLOWANCE WITHOUT POINTING OUT DEFECTS IN THE VOUCHERS PRODUCED BY THE ASSESSEE. THE A.O. COULD NOT DISALLOW AN EXPENDITURE ON SUSPICION AND SURMISES. THE AD HOC DISALLOWANCE WAS, THEREFORE, DIRECTED TO BE DELETED. 13 (D) BIRLASOFT (INDIA) LTD. VS. D.C.I.T [2011] 44 SOT 664 (DELHI) ON PERUSAL OF THE PROFIT AND LOSS ACCOUNT FOR THE YEAR ENDED ON 31 - 3 - 2006 WHERE THE TOTAL TURNOVER AND OTHER INCOME AS COMPARED TO THE IMMEDIATELY PRECEDING YEAR WERE GIVEN, IT WAS FOUND THAT THE EXPORT SALES HAD BEEN INCREASED FROM RS.145,21,66,891 TO RS.180,78,17,212 AND THE DOMESTIC TURNOVER HAD BEEN INCREASED FROM RS.12,80,89,886 TO RS.16,07,56,572, AND OTHER INCOME HAD INCREASED FRO M RS.1,88,77,423 TO RS.2,39,95,281, IN THE CURRENT FINANCIAL YEAR AS COMPARED TO THE IMMEDIATELY PRECEDING YEAR. THEREFORE, THE A.O.S OBSERVATION THAT THOUGH THE TRAVELLING EXPENSES HAD INCREASED AS COMPARED TO THE IMMEDIATELY PRECEDING YEAR, BUT THE TURN OVER HAD BEEN DECREASED, WAS INCORRECT. FURTHER, THE A.O. HAD ACCEPTED THE FACT THAT THE ASSESSEE HAD SUBMITTED THE DETAILS OF TRAVELLING EXPENSES WITH JUSTIFICATION FOR FOREIGN TRAVELLING EXPENSES. THE ASSESSMENT WAS COMPLETED UNDER SECTION 143(3), AND IN THE COURSE OF ASSESSMENT PROCEEDINGS, THE ASSESSEE FILED REQUISITE DETAILS AS CALLED FOR. FROM THE DETAILS OF TRAVELLING AND CONVEYANCE WHICH WERE PLACED ON RECORD, IT WAS FOUND THAT IN THE DETAILS, UNIT - WISE DETAILS OF TRAVELLING AND CONVEYANCE EXPENSES HAD BEEN FURNISHED. THE DETAILS OF EXPENSES RELATING TO VARIOUS ACTIVITIES, SUCH AS, MARKETING, PROJECT AND DEPUTATION, ETC., HAD BEEN SEPARATELY MENTIONED. NATURE OF THE EXPENSES SUCH AS CAR HIRE CHARGES, VISA EXPENSES, VEHICLE RUNNING AND MAINTENANCE, KI T ALLOWANCE, TRAVEL EXPENSES, DOMESTIC, FOREIGN TRAVEL, ETC., WERE DULY GIVEN. THE NAMES OF THE PERSONS WHO 14 VISITED FOREIGN COUNTRY WERE MENTIONED. THE BOOKS OF ACCOUNT OF THE ASSESSEE WERE ALSO DULY PRODUCED BEFORE THE A.O.. THE A.O. HAD NOT BEEN ABLE TO POINT OUT ANY ITEM OR INSTANCE OF TRAVELLING EXPENSES THAT COULD BE SAID TO HAVE NOT BEEN INCURRED FOR THE PURPOSE OF BUSINESS. THE DISALLOWANCE OF TRAVELLING EXPENSES HAD BEEN MADE BY THE A.O. PURELY ON AD HOC BASIS BY JUST RESTRICTING THE DEDUCTION OF TH E EXPENSES ONLY TO EXTENT OF AMOUNT CLAIMED IN IMMEDIATE PRECEDING YEAR. AT THIS STAGE, IT WAS PERTINENT TO NOTE THE SETTLED PROPOSITION THAT WHEN ONCE AN OUTLAY IS MADE FOR THE PURPOSE OF THE BUSINESS, IT NEED NOT TURN OUT TO BE PROFITABLE. IT IS A MISTAK E TO SUPPOSE THAT ANY DEDUCTIBLE EXPENDITURE MUST NOT ONLY BE INCURRED FOR THE PURPOSE OF BUSINESS OR TRADE BUT MUST ALSO BE PROFITABLY LAID OUT. THE DEDUCTIBLE EXPENDITURE INCURRED FOR THE PURPOSE OF BUSINESS DOES NOT REQUIRE THE PRESENCE OF A RECEIPT ON THE CREDIT SIDE TO JUSTIFY DEDUCTION OF AN EXPENSE. IT IS NOT AS IF THE EXPENDITURE SHOULD BE CO - RELATED TO PROFITS OR TURNOVER AND IT IS DEDUCTIBLE ONLY IF PROFIT IS MADE OR TURNOVER IS INCREASED. IT IS WELL - SETTLED THAT EXPENDITURE WHOLLY AND EXCLUSIVEL Y FOR THE PURPOSE OF BUSINESS CANNOT BE DISALLOWED MERELY BECAUSE THE ASSESSEES INCOME OR THE TURNOVER WOULD BE VERY MUCH REDUCED THEREBY. IN THE INSTANT CASE, THE A.O. HAD NOT BROUGHT ANY MATERIAL OR EVIDENCE ON RECORD TO SHOW AND ESTABLISH THAT THE TRAV ELLING EXPENSES INCURRED BY THE ASSESSEE DURING THE YEAR UNDER CONSIDERATION HAD NOT BEEN EXPENDED FOR THE PURPOSE OF THE ASSESSEES BUSINESS OR HAD NOT BEEN INCURRED IN THE COURSE OF CARRYING OF ANY BUSINESS ACTIVITY OF THE ASSESSEE. IN THE LIGHT OF 15 THE A BOVE DISCUSSIONS, THE DISALLOWANCE OF TRAVELLING EXPENSES MADE BY THE A.O. WAS TO BE DELETED. [PARA 8.4] AS REGARD CONTENTION OF THE A.O. THAT THE G.P. RATE FELL BY 0.66% AS COMPARED TO THE IMMEDIATELY PRECEDING YEAR , IT IS SUBMITTED THAT THE BUSINESS IS NOT MATHEMATICS. IT IS CARRIED OUT IN REAL TIME AND IS AFFECTED BY SEVERAL FACTORS LIKE DEMAND AND SUPPLY, COMPETITION, MARKET RATE OF PRODUCT, GOVERNMENT POLICIES, EXTENT OF AUTOMATION, QUALITY OF RAW MATERIAL, AVAILABILITY OF SKILLED LABOUR, INCREASE IN TURNOVER, ETC. THEREFORE, IT IS IMPOSSIBLE FOR ANY BUSINESSMAN TO CHURN OUT THE SAME G.P. RATE OR INCREASED G.P. RATE YEAR AFTER YEAR. IN THE ASSESSEES CASE, ITS TURNOVER INCREASED FROM RS.14,51,13,510/ - IN ASSESSMENT YEAR 2007 - 08 TO RS.16,66,21,304/ - , TH EREBY REGISTERING AN INCREASE OF ABOUT 15% OVER THE LAST YEARS TURNOVER. CONSIDERING SUBSTANTIAL INCREASE IN THE TURNOVER I.E. ABOUT 15%, THE NOMINAL FALL OF 0.66% IN GROSS PROFIT RATE WAS QUITE NORMAL AND NATURAL, PARTICULARLY IN VIEW OF THE FACT THAT TH E A.O. FAILED TO FIND ANY DEFECT IN THE REGULARLY MAINTAINED AND REGULARLY AUDITED BOOKS OF ACCOUNTS OF THE ASSESSEE, WHICH WERE PRODUCED BEFORE HIM FOR VERIFICATION. IT IS SUBMITTED THAT IN TERMS OF SEC.145(3), THE BOOKS OF ACCOUNTS OF THE ASSESSEE CAN B E REJECTED AND ASSESSMENT CAN BE FRAMED U/S.144 ONLY WHEN ( A) THE A.O. IS NOT SATISFIED ABOUT THE CORRECTNESS OR COMPLETENESS OF THE ACCOUNTS OF THE ASSESSEE OR (B) WHERE THE METHOD OF ACCOUNTING PROVIDED IN SEC.145(1) OR ACCOUNTING STANDARD NOTIFIED U/S.1 45(2) HAVE NOT BEEN REGULARLY FOLLOWED BY THE ASSESSEE. IN THE ASSESSEES CASE, 16 ALTHOUGH THE A.O. DID NOT REJECT BOOKS OF ACCOUNT, HE MADE A TRADING ADDITION IN THE GARB OF DISALLOWANCE OUT OF REBATE AND DISCOUNT EXPENSES. THIS FACT IS EVIDENT FROM THE FAC T THAT THE DISALLOWANCE WAS RESTRICTED TO FALL IN G.P. AS COMPARED TO THE IMMEDIATELY PRECEDING YEAR. MOREOVER, IN THE ASSESSEES CASE, THE AFORESAID CONDITIONS NECESSARY FOR REJECTION OF ACCOUNTS AND MAKING TRADING ADDITION IN THE GARB OF DISALLOWANCE OUT OF REBATE AND DISCOUNT EXPENSES DID NOT EXIST. IT IS SUBMITTED THAT A FALL IN GROSS PROFIT RATE MAY ALERT AN A.O. ABOUT ASSESSEES AFFAIRS, MAKE HIM VIGILANT AND PROVOKE HIM TO LOOK DEEPLY BUT IT DOES NOT AUTHORIZE HIM TO REJECT BOOKS OF ACCOUNTS AND MAKE A BEST JUDGEMENT ASSESSMENT WITHOUT SATISFYING THE CONDITIONS PRESCRIBED U/S.145(3). IN THIS REGARD, WE RELY UPON THE FOLLOWING JUDGEMENTS: PUSHPANJALI DYEING & PRINTING MILLS (P.) LTD. VS. J.C.I.T. [72 TTJ 886 (AHD)] ..6. WE HEARD BOTH THE REPRESENTAT IVES AT LENGTH AND AFTER CAREFUL CONSIDERATION OF THEIR SUBMISSIONS AND AFTER PERUSAL OF RECORDS AND JUDGMENTS REFERRED, WE ARE OF THE VIEW THAT THE LOWER AUTHORITIES OF THE REVENUE HAD FAILED TO POINT OUT ANY SPECIFIC DEFECT IN BOOKS OF ACCOUNTS. IT IS RE LEVANT TO MENTION HERE THAT THE BOOKS OF ACCOUNTS OF THE ASSESSEE WERE SUBJECT TO AUDIT UNDER SECTION 44AB OF THE INCOME - TAX ACT AS WELL AS UNDER THE COMPANIES ACT. UNDER BOTH THE ACTS, AUDITOR IS TO CERTIFY WHETHER BOOKS OF ACCOUNTS WHICH WERE AUDITED HAD SHOWN TRUE AND FAIR 17 VIEW OR NOT. SOME RELEVANT OBSERVATIONS OF AUDITOR RELATING TO BOOKS OF ACCOUNTS OF ASSESSEE FOR THE YEAR UNDER APPEAL FROM AUDIT REPORT ARE REPRODUCED AS UNDER : 'WE HAVE AUDITED THE ATTACHED BALANCE SHEET OF M/S PUSHPANJALI DYEING A ND PRINTING MILLS (P.) LTD. AS AT 31 - 3 - 1997, AND THE P&L A/C FOR THE YEAR ENDED ON THAT DATE, ANNEXED THERETO AND REPORT THAT : ( A ) WE HAVE OBTAINED ALL THE INFORMATION AND EXPLANATIONS WHICH, TO THE BEST OF OUR KNOWLEDGE AND BELIEF WERE NECESSARY FOR TH E PURPOSE OF OUR AUDIT. ( B ) IN OUR OPINION, PROPER BOOKS OF ACCOUNTS AS REQUIRED BY LAW HAVE BEEN KEPT BY THE COMPANY SO FAR AS APPEARS FROM OUR EXAMINATION OF THE BOOKS. ( C ) THE BALANCE SHEET AND P&L A/C DEALT WITH BY THIS REPORT ARE IN AGREEMENT WITH THE BOOKS OF ACCOUNTS. ( D ) IN OUR OPINION AND TO THE BEST OF OUR INFORMATION AND ACCORDING TO THE EXPLANATIONS GIVEN TO US, THE SAID BALANCE SHEET AND P&L A/C TOGETHER WITH NOTES THEREON, GIVE THE INFORMATION REQUIRED BY THE COMPANIES ACT, 1956, IN THE M ANNER SO REQUIRED AND GIVE A TRUE AND FAIR VIEW : ( I ) INSOFAR AS IT RELATES TO THE BALANCE SHEET OF THE COMPANY OF THE STATE OF AFFAIRS OF THE COMPANY AS AT 31 - 3 - 1997; AND ( II ) INSOFAR AS IT RELATES TO THE P&L A/C OF THE LOSS OF THE COMPANY FOR THE YEAR ENDED ON THAT DATE.' 18 '3. THE STOCK OF RAW MATERIALS, STORES AND SPARE PARTS HAVE BEEN PHYSICALLY VERIFIED BY THE MANAGEMENT AT REASONABLE INTERVALS.' 5. THE DISCREPANCIES NOTICED ON PHYSICAL VERIFICATION OF STOCK AS COMPARED TO BOOK RECORDS WERE NOT MATE RIAL AND THESE HAVE BEEN PROPERLY DEALT WITH IN THE BOOKS OF ACCOUNTS.' '6. IN OUR OPINION, THE VALUATION OF STOCKS IS FAIR AND PROPER IN ACCORDANCE WITH NORMALLY ACCEPTED ACCOUNTING PRINCIPLES AND THE BASIS OF VALUATION OF STOCKS IS SAME AS IN THE PRECED ING YEAR.' '14. THE COMPANY IS MAINTAINING REASONABLE RECORDS FOR SALE AND DISPOSAL OF REALIZABLE SCRAPS. THERE ARE NO BYE - PRODUCTS ARISING OUT OF THE MANUFACTURING PROCESS OF THE COMPANY.' IN THIS REGARD SOME RELEVANT FACTS AND DIRECTORS REPORT ARE ALSO REPRODUCED AS UNDER: 'REVIEW OF OPERATIONS YOUR DIRECTORS REGRET TO INFORM THAT COMPANYS ANNUAL TURNOVER HAS SUFFERED SET BACK DUE TO STIFF COMPETITION IN PRODUCTION AND MARKETING OF DYEING AND PRINTED FABRICS. YOUR COMPANY COULD ACHIEVE JOB CHARGES OF R S. 2,84,97,561 AND PROCESSED 37,38,357 METERS, FABRICS WHICH IS LOWERED BY RS. 79.75 LACS AND 5.8 METERS RESPECTIVELY AS COMPARED TO PREVIOUS YEARS PERFORMANCE. AS A RESULT OF REDUCTION IN TURNOVER, THE OPERATING PROFIT IS REDUCED BY RS. 70.26 LACS AS COMP ARED TO PREVIOUS YEARS OPERATING PROFIT.' 19 THE LOWER AUTHORITIES OF REVENUE HAVE FAILED TO PUT ANY MATERIAL AGAINST THE ABOVE OBSERVATIONS OF AUDITOR AND DIRECTORS. AFTER CAREFUL CONSIDERATION ON ALL ABOVE FACTS, CONTENTIONS AND SUBMISSIONS, WE HOLD THAT ME RE LOW YIELD AND EXCESS EXPENDITURES ON ELECTRICITY DO NOT WARRANT AN ADDITION IN THE TRADING ACCOUNT . WHEN REASONS FOR LOW G.P. AND EXCESS EXPENDITURE ON ELECTRICITY HAVE BEEN SATISFACTORILY EXPLAINED BY THE ASSESSEE, THE ELECTRICITY CONSUMPTION ALONE IS NOT AN ASPECT BY WHICH A PERSON CAN EARN TAXABLE INCOME OR PROFIT. WE DO NOT FIND ANY MATERIAL ON RECORD TO JUSTIFY THE CONCLUSION REACHED UPON BY THE A.O. FOR REJECTION OF BOOKS OF ACCOUNTS WHEN THE ASSESSEE MAINTAINED COMPLETE BOOKS OF ACCOUNTS IN ACCORD ANCE WITH THE PROVISIONS OF INCOME - TAX ACT, FURTHER SAME WERE AUDITED BY AUDITOR AND NO ADVERSE OBSERVATIONS WERE POINTED OUT BY THE AUDITOR. IN THESE CIRCUMSTANCES, THE LOWER AUTHORITIES OF REVENUE WERE NOT JUSTIFIED IN MAKING/CONFIRMING THE ADDITION OF R S. 41,27,406. WE, THEREFORE, DELETE THE SAME. (A) A.C.I.T. VS. BUDHALAL & CO. [2011] 10 TAXMANN.COM 52 (AHD.) INDISPUTABLY, GP RATE IN THE YEAR UNDER CONSIDERATION DECLINED TO 24.92 PER CENT VIS - A - VIS 28.13 PER CENT OF THE PRECEDING YEAR. THE COMMISSIONER (APPEALS) CONCLUDED THAT THE ASSESSEE HAD LOGICALLY EXPLAINED WITH ELABORATE 20 REASONS, THE FALL IN GP DURING THE YEAR UNDER CONSIDERATION WHEREAS THE A.O. DID NOT POINT OUT ANY SPECIFIC DEFECTS IN THE BOOKS OF ACCOUNT MAINTAINED BY THE ASSESSEE. IT WAS FOUN D FROM THE ASSESSMENT ORDER THAT THE A.O. DID NOT POINT OUT ANY DEFECTS IN THE BOOKS OF ACCOUNT WHILE IGNORING THE BOOK RESULTS NOR BROUGHT ANY MATERIAL ON RECORD REGARDING THE GENUINENESS OF PURCHASES, SALES OR EXPENDITURE INCURRED BY THE ASSESSEE BEFORE DISCARDING THE BOOK RESULTS. POSITION OF LAW IS THAT A LOWER RATE OF GROSS PROFIT DECLARED BY THE ASSESSEE AS COMPARED TO THE PREVIOUS YEAR, WOULD NOT IN ITSELF BE SUFFICIENT TO JUSTIFY ANY ADDITION. THE MERE FACT THAT THE PERCENTAGE OF LOSS OR GROSS PROFI T IS HIGH OR LOW IN A PARTICULAR YEAR DOES NOT NECESSARILY LEAD TO INFERENCE THAT THERE HAS BEEN SUPPRESSION. LOW PROFIT IS NEITHER A CIRCUMSTANCE NOR MATERIAL TO JUSTIFY ADDITION OF PROFITS. IT IS WELL SETTLED THAT A.O. IS NOT FETTERED BY ANY TECHNICAL RU LES OF EVIDENCE AND PLEADINGS, AND HE IS ENTITLED TO ACT ON MATERIAL WHICH ARE NOT ACCEPTABLE IN EVIDENCE IN A COURT OF LAW, BUT WHILE MAKING THE ASSESSMENT UNDER THE PRINCIPLES OF BEST JUDGMENT, THE INCOME - TAX OFFICER IS NOT ENTITLED TO MAKE A PURE GUESS WITHOUT REFERENCE TO ANY EVIDENCE OR MATERIAL. THERE MUST BE SOMETHING MORE THAN A MERE SUSPICION TO SUPPORT THE ASSESSMENT. LOW PROFIT IN A PARTICULAR YEAR IN ITSELF CANNOT BE A GROUND FOR INVOKING THE POWERS OF BEST JUDGMENT ASSESSMENT WITHOUT SUPPORT OF ANY MATERIAL ON RECORD. IF THERE IS NO CHALLENGE TO THE TRANSACTIONS REPRESENTED IN THE BOOKS THEN IT IS NOT OPEN TO REVENUE TO 21 CONTEND THAT WHAT IS SHOWN BY THE ENTRIES IS NOT THE REAL STATE OF AFFAIRS. SECONDLY, EVEN IF FOR SOME REASON, THE BOOKS ARE RE JECTED IT IS NOT OPEN TO THE A.O. TO MAKE ANY ADDITION ON ESTIMATE BASIS OR ON PURE GUESS WORK. THE A.O., WITHOUT RECORDING ANY FINDING THAT THE BOOKS OF ACCOUNT MAINTAINED BY THE ASSESSEE WERE INCORRECT, RENDERING IT IMPOSSIBLE TO DEDUCE THE PROFITS, PROC EEDED TO REJECT THE BOOK RESULTS, INVOKING PROVISIONS OF SECTION 145. NO SPECIFIC DISCREPANCIES OR DEFECTS IN THE BOOKS OF ACCOUNT OF THE ASSESSEE HAD BEEN POINTED OUT NOR WAS ANY MATERIAL BROUGHT TO ESTABLISH THAT PURCHASES WERE INFLATED OR RECEIPTS SUPPR ESSED. IN SUCH CIRCUMSTANCES, THERE WAS NO JUSTIFICATION IN INVOKING THE PROVISIONS OF SECTION 145 . SINCE THE A.O. HAD NOT RECORDED ANY FINDINGS FOR REJECTING THE BOOK RESULTS AND APPLYING THE GROSS PROFIT RATE OF 26 PER CENT IN THE YEAR UNDER CONSIDERATIO N, IT WAS TO BE HELD THAT THE COMMISSIONER (APPEALS) WAS JUSTIFIED IN DELETING THE ADDITION. EVEN THE REVENUE HAD NOT PLACED ANY MATERIAL CONTROVERTING THE FINDINGS OF FACTS RECORDED BY THE COMMISSIONER (APPEALS). IF THERE WAS NO CHALLENGE TO THE TRANSACTI ONS REPRESENTED IN THE BOOKS, THEN IT WAS NOT OPEN TO REVENUE TO CONTEND THAT WHAT WAS SHOWN BY THE ENTRIES WAS NOT THE REAL STATE OF AFFAIRS. IN THE LIGHT OF AFORESAID, THE FINDINGS OF THE COMMISSIONER (APPEALS) WERE TO BE UPHELD. [PARA 5] 22 (B) D.C.I.T. VS. VISHWANATH PRASAD GUPTA [2011] 129 ITD 95 (JAB.) (TM) IT WAS EVIDENT FROM THE RECORD THAT THE ASSESSEE HAD MAINTAINED THE INVENTORY OF OPENING AND CLOSING STOCK, VOUCHERS FOR PURCHASES AND SALES AND THE BOOKS WERE AUDITED BY THE AUDITOR. IT IS WELL - SETTLE D LAW THAT MERELY ON THE BASIS OF NON - MAINTENANCE OF STOCK REGISTER, IT CANNOT BE INFERRED THAT THE ACCOUNT BOOKS MUST BE FALSE. THE A.O. OBSERVED THAT THERE WAS SHORTFALL IN THE GROSS PROFIT RATE. IT IS WELL - SETTLED THAT MERELY LOW PROFIT MAY PROVOKE AN E NQUIRY BUT THAT, BY ITSELF, WITHOUT MORE, CANNOT JUSTIFY AN ADDITION TO THE PROFIT SHOWN. IN THE INSTANT CASE, THE A.O. HAD NOT POINTED OUT ANY MISTAKE IN THE BOOKS OF ACCOUNT OF THE ASSESSEE. FURTHERMORE, THE RATE OF GROSS PROFIT IN A PARTICULAR YEAR DEPE NDS ON MANY FACTORS AND THE SAME CANNOT BE CONSTANT FROM YEAR - TO - YEAR. THUS, THERE WAS NO JUSTIFICATION IN MAKING THE IMPUGNED ADDITION TO THE INCOME OF THE ASSESSEE. THEREFORE, THE JUDICIAL MEMBER WAS JUSTIFIED IN CONFIRMING THE ORDER OF THE COMMISSIONER (APPEALS). [PARA 5] (C) D.C.I.T. VS. NIKKO AUTO (P.) LTD. [2005] 145 TAXMAN 42(DELHI) (MAG.) I. SECTION 143 OF THE INCOME - TAX ACT, 1961 - ASSESSMENT - ADDITIONS TO INCOME - ASSESSMENT YEAR 1996 - 97 - ASSESSEE - COMPANY HAD SHOWN GROSS PROFIT RATE LOWER THAN THA T SHOWN 23 IN EARLIER YEAR - A.O. ESTIMATED GROSS PROFIT RATE AT 20 PER CENT - COMMISSIONER (APPEALS) DELETED ADDITION RELYING UPON A DECISION IN INTERNATIONAL FOREST CO. V. CIT [1975] 101 ITR 721 (J&K) WHEREIN IT WAS HELD THAT IF PROFITS SHOWN BY ASSESSEE IN HIS RETURN ARE NOT ACCEPTED, IT IS FOR TAXING AUTHORITIES TO PROVE THAT ASSESSEE MADE MORE PROFITS AND ITO COULD NOT PROCEED TO MAKE AN ARBITRARY ADDITION - WHETHER ORDER OF COMMISSIONER (APPE ALS) CALLED FOR ANY INTERFERENCE - HELD, NO II. SECTION 143 OF THE INCOME - TAX ACT, 1961 - ASSESSMENT - ADDITIONS TO INCOME - ASSESSMENT YEAR 1996 - 97 - A.O. DISALLOWED ASSESSEES CLAIM OF CERTAIN AMOUNT AS LOSS OF MATERIAL ON GROUND THAT NO FIR WAS LODGED - COMMISSIONER (APPEALS) ALLOWED ASSESSEES CLAIM HOLDING THAT INSTANT CASE WAS NOT A CASE OF SIMPLE LOSS BUT IT WAS A CASE OF LOSS FROM NOT GETTING MATERIALS RELEASED FROM CUSTOMS OFFICE, AND, THEREFORE, ASSESSEE WAS NOT OBLIGED TO FILE FIR - WHETHER NO IN TERFERENCE WAS CALLED FOR IN ORDER OF COMMISSIONER (APPEALS) - HELD, YES AS REGARD CONTENTION OF THE C.I.T.(A). THAT THE SUBMISSION OF THE ASSESSEE ON THE ISSUE OF REJECTION OF ACCOUNTS WAS SOMEWHAT REDUNDANT, IT IS SUBMITTED THAT WHILE MAKING THE DISALLO WANCE, ONE OF THE FACTORS RELIED UPON BY THE A.O. FOR JUSTIFYING DISALLOWANCE OUT OF REBATE AND DISCOUNT WAS FALL IN GROSS PROFIT RATE AND HE RESTRICTED THE DISALLOWANCE TO THE EXTENT OF 0.66% 24 I.E. FALL IN GP AS COMPARED TO IMMEDIATELY PRECEDING YEAR. THER EFORE, THE SUBMISSION OF THE ASSESSEE WAS QUITE RELEVANT. IN VIEW OF THE FACTS AND LEGAL POSITION EXPLAINED ABOVE, WE REQUEST YOUR HONOUR TO KINDLY DELETE THE ADDITION OF RS.11,04,031/ - . 4. WE ARE SATISFIED THAT THE INCREASE IN REBATE AND DISCOUNT AS COMPARED TO THE IMMEDIATELY PRECEDING YEAR IS DUE TO THE FACTORS WHICH HAVE ALREADY BEEN MENTIONED. OBVIOUSLY, THESE FACTORS VARY FROM YEAR TO YEAR AND CONSIGNMENT TO CONSIGNMENT. THEREFORE, THE EXPENDITURE ON REBATE/DISCOUNT ALLOWED ARE NOT COMPARABLE IT EMS. IN THIS REGARD, THE DECISIONS RELIED ON BY THE LD. A.R ARE RELEVANT. THE SLIGHT FALL IN THE G.P. RATE OF ABOUT 0.66% STANDS EXPLAINED BY THE INCREASE IN THE TURNOVER OF THE YEAR. THE INCREASE FROM 0.38% TO 1.426% OF THE REBATE IN THIS YEAR CLEARLY STANDS EXPLAINED WITH PROOF. THEREFORE, IN OUR CONSIDERED OPINION, THERE IS NO REASONABLE BASIS FOR MAKING THE IMPUGNED DISALLOWANCE WITH REFERENCE TO SLIGHT FALL IN THE G.P. AND INCREASE IN REBATE/DISCOUNT EXPENDITURE WHICH CANNOT BE CONSTANT IN EACH A.Y . ACCORDINGLY, WE ORDER DELETION OF IMPUGNED ADDITION AND ALLOW THE APPEAL OF THE ASSESSEE. 25 5 . IN THE RESULT, THE APPEAL OF THE ASSESSEE IN ITA NO. 381/JU/2014 FOR A.Y. 2008 - 09 STANDS ALLOWED. ORDER PRONOUNCED IN THE COURT ON 22 ND SEPTEMBER , 2014. SD/ - SD/ - (N.K.SAINI) [HARI OM MARATHA] ACCOUNTANT MEMBER JUDICIAL MEMBER DATED : 22 ND SEPTEMBER , 2014 VL/ - COPY TO: 1. THE APPELLANT 2. THE RESPONDENT 3. THE CIT BY ORDER 4. THE CIT(A) 5. THE DR SENIOR PRIVATE SECRETARY ITAT, JODHPUR