M/s. Metro Automobile, Vapi V. The ACIT.,Vapi Circle, Vapi

ITA 3999/AHD/2008

• Counselvise Citation: [2010] 136 COUNSELVISE.COM (IT) 5581 (ITAT-AHMEDABAD)
• Duration Of Justice: 1 year(s) 7 month(s) 13 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 23-07-2010
• Appeal Filed By: Assessee
• Order Result: Partly Allowed
• Bench Allotted: D
• Next Hearing Date: 20-05-2010
• Assessment Year: 2005-2006
• Appeal Filed On: 10-12-2008
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Department Lawyers: JYOTI LAXMI
• Assessee Lawyers: PRAKRUTI UPADHYAY
• Keywords: Gross profit estimation; Gift; Depreciation; Revenue expenditure; Capital expenditure
• Section: 143(3); 32

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL : D BENCH : AHMEDABA D CAMP AT SURAT (BEFORE HONBLE SHRI T.K. SHARMA, J.M. & HON'BLE SH RI D.C. AGRAWAL , A.M.) I.T.A. NO. 3999/AHD./2008 ASSESSMENT YEAR : 2005-2006 M/S. METRO AUTOMOBILES, VAPI -VS.- ASSISTANT COMMISSIONER OF INCOME TAX, (PAN : AAGFM 7024 G) VAPI CIRCLE, VAPI (APPELLANT) (RESPONDENT) APPELLANT BY : MS. PRAKRUTI UPADHYAY RESPONDENT BY : SMT. JYOTI LAXMI, SR. D.R. O R D E R PER SHRI T.K. SHARMA, JUDICIAL MEMBER : THIS APPEAL FILED BY THE ASSESSEE IS AGAINST THE O RDER DATED 14.10.2008 OF LEARNED COMMISSIONER OF INCOME TAX(APPEALS), VALSAD FOR THE ASSESSMENT YEAR 2005-06. 2. GROUND NO. 1 OF THIS APPEAL IS AGAINST THE DISAL LOWANCE OF RS.3,31,464/- TOWARDS FOREIGN TOUR EXPENSES INCLUDING MEMBERSHIP FEES PAID TO MAH INDRA CLUB. 3. THE FACTS RELATING TO CONTROVERSY INVOLVED IN TH IS GROUND OF APPEAL ARE THAT THE ASSESSEE- FIRM ENGAGED IN THE BUSINESS OF DEALERSHIP OF TWO W HEELER OF HERO HONDA COMPANY. IN THE PREVIOUS YEAR RELEVANT TO THE ASSESSMENT YEAR UNDER APPEAL, THE ASSESSEE-COMPANY INCURRED TRAVELLING EXPENSES OF RS.3,80,327/-, OUT OF WHICH RS.3,31,464/- WAS INCURRED ON FOREIGN TRAVEL. BEFORE THE ASSESSING OFFICER, IT WAS SUBMITTED THAT THEIR PARTNERS HAVE TRAVELLED FOREIGN COUNTRIES FOR THE PURPOSE OF BUSINESS. THE ASSESSING OFFICER DISALLOWED THIS EXPENDITURE ON THE GROUND THAT THE SAID AMOUNT WAS PAID TO CLUB MAHINDRA TOWA RDS MEMBERSHIP FEES FOR HOLIDAY TRIPS ORGANIZED FOR THE RESORTS SITUATED AT THE VARIOUS P LACES OF THE COUNTRY AS WELL AS THE FOREIGN COUNTRY. ACCORDING TO THE ASSESSING OFFICER, MEMBER SHIP IS IN THE NAME OF THE PARTNERS ONLY AND SUCH EXPENDITURE WAS NOT INCURRED FOR BUSINESS PURP OSES. THE ASSESSING OFFICER ALSO OBSERVED THAT THERE IS NO NECESSITY TO UNDERTAKE ANY FOREIGN VISIT AS THE PRODUCTS OF THE COMPANY IS DULY RECOGNIZED IN THE DOMESTIC MARKET. 2 ITA NO. 3999/AHD/2008 4. ON APPEAL, IN THE IMPUGNED ORDER, THE LEARNED CO MMISSIONER OF INCOME TAX(APPEALS) UPHELD THE ACTION OF ASSESSING OFFICER ON THE GROUN D THAT THE ASSESSEE-FIRM FAILED TO PROVE BEYOND DOUBT EITHER BEFORE THE ASSESSING OFFICER OR BEFORE HIM THAT THE EXPENDITURE TOWARDS FOREIGN TRAVEL WAS INCURRED UNDER THE HEAD FOREIGN TRAVEL WHOLLY AND EXCLUSIVELY FOR THE PURPOSE OF BUSINESS. AGGRIEVED BY THE ORDER OF LEAR NED COMMISSIONER OF INCOME TAX(APPEALS), THE ASSESSEE IS IN APPEAL BEFORE THE TRIBUNAL. 5. AT THE TIME OF HEARING BEFORE US, ON BEHALF OF A SSESSEE SHRI PRAKRUTI UPADHYAY, LD. COUNSEL APPEARED AND CONTENDED THAT CLUB MEMBERSHIP IS IN THE NAME OF ASSESSEE-FIRM. SHE POINTED OUT THAT THE AMOUNT WAS PAID TO THE CLUB TO COVER EXPENDITURE OF MEMBERS SELECTED AND DEPUTED BY METRO AUTOMOBILES TOWARDS HOLIDAY TRIPS ORGANIZED FOR THE RESORTS SITUATED AT THE VARIOUS PLACED OF COUNTY AS WELL AS OF THE FOREIGN COUNTRY. THE DEALERS OF HERO HONDA CO. HAVE TAKEN CLUB MEMBERSHIP IN GROUP IN ORDER TO HAVE GRO UP GATHERING. MARKETING IS NOT THE ONLY PURPOSE FOR WHICH FOREIGN TRAVEL IS JUSTIFIED. THEY HAD MADE A FOREIGN TRIP TO STUDY MODERNIZATION, HOW TO EXHIBIT THE PRODUCT AND HOW T O ATTRACT CUSTOMERS. AS A RESULT OF WHICH THE ASSESSEE-FIRM HAS CARRIED OUT RENOVATION IN ITS EXI STING SHOW-ROOM, INCURRED CERTAIN EXPENSES WHICH WAS ALLOWED BY THE ASSESSING OFFICER. THIS HA S ALSO INDIRECTLY CONTRIBUTED TO THE INCREASE IN THE SALES, IN THE YEAR UNDER APPEAL. SHE FURTHER SUBMITTED THAT THE TRIP WAS MADE BY THE PARTNER(S) ONLY AND NOT ALONGWITH FAMILY. THE EXPEN DITURE WAS INCURRED WHOLLY AND EXCLUSIVELY FOR THE PURPOSE OF BUSINESS, THEREFORE, THE ASSESSI NG OFFICER BE DIRECTED TO ALLOW THE SAME. 6. ON THE OTHER HAND, SMT. JYOTI LAXMI, SR. D.R. AP PEARING ON BEHALF OF THE REVENUE VEHEMENTLY SUPPORTED THE ORDER OF AUTHORITIES BELOW . SHE POINTED OUT THAT CLUB MAHENDRA IS WELL KNOWN FOR HOLIDAY TRIPS. THE ASSESSEE-FIRM IS DEALE R OF THE PARTICULAR REGION IN INDIA. THE ASSESSEE FAILED TO PRODUCE ANY EVIDENCE BEFORE THE ASSESSING OFFICER WHICH SUPPORTS THE CLAIM THAT THE EXPENDITURE WAS INCURRED FOR THE PURPOSE O F BUSINESS. THEREFORE, SHE POINTED OUT THAT THE DISALLOWANCE BE CONFIRMED. 7. WE HAVE CAREFULLY GONE THROUGH THE ORDERS OF AUT HORITIES BELOW. IT IS PERTINENT TO NOTE THAT THE CONTENTION OF THE ASSESSEE THAT FOREIGN TRAVEL WAS UNDERTAKEN TO STUDY MODERNIZATION, HOW TO 3 ITA NO. 3999/AHD/2008 EXHIBIT THE PRODUCT AND HOW TO ATTRACT CUSTOMERS, I S UNBELIEVABLE. IT IS WELL KNOWN THAT CLUB MAHINDRA IS ORGANIZED HOLIDAY TRIPS. IN THE ABSENCE OF ANY DOCUMENTARY EVIDENCE, WHICH SUPPORTS THE CLAIM OF THE ASSESSEE, WE ARE OF THE V IEW THAT THE DISALLOWANCE OF RS.3,31,464/- OUT OF FOREIGN TRAVELLING WAS RIGHTLY MADE. WE, THEREFO RE, INCLINE TO UPHOLD THE ORDER OF LEARNED COMMISSIONER OF INCOME TAX(APPEALS) AND REJECT THIS GROUND OF APPEAL. 8. GROUND NO. 2 OF THIS APPEAL IS AGAINST DISALLOWA NCE OF RS.3,05,641/- AND RS.21,221/- INCURRED BY THE ASSESSEE FOR RENOVATION OF BUSINESS PREMISE, SHOP DECORATION AND TELEPHONE TELECOMMUNICATION IN/ AT THE EXISTING PLACE OF BUSI NESS, AS CAPITAL EXPENDITURE INSTEAD OF REVENUE EXPENDITURE. WITH REGARD TO THE DISALLOWANCE, THE L D. COUNSEL OF THE ASSESSEE POINTED OUT THAT THE ASSESSEE HAS NO OBJECTION WITH REGARD TO TREAT THE EXPENDITURE IN QUESTION AS CAPITAL EXPENSES. HOWEVER, HE POINTED OUT THAT THE ASSESSING OFFICER INVOKED THE PROVISIONS CONTAINED IN SECTION 40(A)(IA) OF THE ACT FOR CAPITAL EXPENSES IS NOT IN ORDER AS SECTION 40(A)(IA) TALKS FOR EXPENSES DEBITED AND CLAIM IN PROFIT & LOSS A/C. THEREFORE, HE POINTED OUT THAT THE EXPENDITURE WHICH IS TREATED AS CAPITAL EXPENDITURE, UNDER SECTION 40(A) (IA) IS NOT APPLICABLE. THIS ISSUE IS SQUARELY COVERED BY THE DECISION DATED 29.01.2010 OF ITAT, G BENCH, DELHI IN THE CASE OF SMS DEMAG PVT. LTD. VS.- DCIT IN ITA NO. 3636/DEL./2008. THE LD. D.R. APPEARING ON BEHALF OF THE REVENUE COULD NOT CONTROVERT THIS CONTENTION OF THE ASSESSEE. 9. WE HAVE CAREFULLY GONE THROUGH THE ORDER OF ITAT , DELHI BENCH, DELHI IN THE CASE OF SMS DEMAG PVT. LTD. (SUPRA) RELIED BY THE LD. COUNS EL OF THE ASSESSEE. IN THAT DECISION, IT HAS BEEN HELD THAT THE CLAIM OF THE ASSESSEE TOWARDS DE PRECIATION ON ASSETS CAPITALIZED CANNOT BE DISALLOWED ON THE GROUND THAT NO TAX WAS DEDUCTED A T SOURCE. THE PROVISIONS OF SECTION 40(A)(IA) ARE NOT APPLICABLE FOR CLAIM OF DEDUCTION UNDER SEC TION 32 OF THE ACT. WE, THEREFORE, FOLLOWING THE SAID DECISION OF ITAT, DELHI (SUPRA) DIRECT THE ASSESSING OFFICER TO ALLOW THE DEPRECIATION ON ASSETS CAPITALIZED IN ACCORDANCE WITH LAW. RESULTAN TLY, THIS GROUND OF APPEAL IS ALLOWED. 10. GROUND NO. 3 OF THIS APPEAL IS AGAINST CONFIRMI NG THE DISALLOWANCE OF COMMISSION AND BROKERAGE EXPENSES AMOUNTING TO RS.2,88,198/-. IN T HE ASSESSMENT ORDER, THE ASSESSING OFFICER DISALLOWED RS.2,88,198/- ON TWO ACCOUNTS, NAMELY (I ) COMMISSION PAYMENT OF RS.2,40,894/- ON THE GROUND THAT PROVISIONS OF SECTION 40(A)(IA) ARE NOT COMPLIED AND (II) RS.47,304/- DISALLOWED 4 ITA NO. 3999/AHD/2008 BEING 20% OF RS.2,36,521/- BECAUSE THERE IS NO NAME IN RESPECT OF BROKERS DEBITED IN LEDGER ACCOUNT PRODUCED BEFORE THE ASSESSING OFFICER IN TH E ASSESSMENT PROCEEDINGS THOUGH SUPPORTING VOUCHERS WERE PRODUCED. 11. BEFORE US, WITH REGARD TO SECTION 40(A)(IA), IT WAS SUBMITTED THAT PAYMENT IS MADE THROUGH BROKERAGE EXPENSE ACCOUNT, WHICH IS NOT BROKERAGE O R COMMISSION, BUT IT IS SALES PROMOTION EXPENSES. THE ASSESSEE-FIRM HAS NOT APPOINTED ANY P ERSON AS AGENT. THERE IS NO WRITTEN OR VERBAL AGREEMENT. THERE IS NO AGENT-CUM-PARTNER RELATIONSH IP. THE PAYMENT IS MADE THROUGH VOUCHERS WHEREIN NAME OF PERSON WHO WERE PAID AMOUNT ERRONEO USLY SHOWED AS BROKERAGE OR COMMISSION BY THE ASSESSEE. THERE IS NO FIXED TERMS AND CONDIT IONS. EVEN IT HAS NOT BEEN PAID ON THE BASIS OF FIXED PERCENTAGE. IN ALL THE EARLIER YEARS, AMOUNTS WERE MADE UNDER THE HEAD OF BROKERAGE OR COMMISSION ON SALES OF MOTOR CYCLES WHICH HAS INCRE ASED SALES AS IS EVIDENT FROM THE FOLLOWING CHART :- AY TURNOVER OF SALES OF MOTOR CYCLE COMMISSION & BROKERAGE PERCENTAGE OF COMMISSION 2002-03 17,46,48,721/- 1,81,870/- 0.10% 2003-04 18,06,17,512/- 4,07,110/- 0.22% 2004-05 23,94,88,921/- 2,86,037/- 0.12% 2005-06 31,55,07,254/- 4,77,415/- 0.15% FINALLY SHE POINTED OUT THAT IT IS NOT IN DISPUTE T HAT ENTIRE PAYMENT IS SUPPORTED BY VOUCHERS. ONLY AN ACCOUNTANT HAS NOT MENTIONED THE NAME OF RE CIPIENT IN THE BOOKS OF ACCOUNTS IN RESPECT OF SMALL PAYMENT BELOW RS.2,500/-. NO DEFECTS WERE POINTED OUT IN THE VOUCHERS. WHEN THE ASSESSING OFFICER IS ACCEPTING 80% OF EXPENSES, THE RE ARE NO MERITS FOR DISALLOWANCE OF REST OF 20% ON AD HOC BASIS. THEREFORE, THE ASSESSING OFFIC ER BE DIRECTED TO ALLOW BROKERAGE EXPENSES OF RS.2,86,198/-. 12. ON THE OTHER HAND, THE LD. DEPARTMENTAL REPRESE NTATIVE VEHEMENTLY SUPPORTED THE ORDER OF AUTHORITIES BELOW. SHE POINTED OUT THAT ASSESSIN G OFFICER RIGHTLY DISALLOWED COMMISSION EXPENSES OF RS.2,24,894/- BECAUSE NO TDS WAS DEDUCT ED UNDER SECTION 194(1) OF THE INCOME TAX ACT, IT WAS PAID 20% OF RS.2,36,521/- AS THE NAME O F PARTIES WAS NOT MENTIONED IN THE BOOKS. 5 ITA NO. 3999/AHD/2008 13. WE FOUND CONSIDERABLE FORCE IN THE SUBMISSIONS MADE BY THE LD. COUNSEL OF THE ASSESSEE. THE PAYMENT IN QUESTION MADE BY THE ASSESSEE IS NEI THER BROKERAGE NOR COMMISSION. BUT IT IS A SALES PROMOTION EXPENSES. THE ASSESSEE-FIRM HAS NOT APPOINTED ANY PERSON AS AGENT. ADMITTEDLY, THERE IS NO AGREEMENT. IN EARLIER YEAR ALSO, COMMIS SION WAS PAID AND IT WAS ALLOWED. WITH REGARD TO OBJECTION OF ASSESSING OFFICER THAT NAME OF THE PERSON WAS NOT MENTIONED, IT CAN BE SEEN THAT NAME OF THE PERSON IS MENTIONED ON THE VOUCHERS. IN THE IMMEDIATELY PRECEDING ASSESSMENT YEAR ALSO, COMMISSION WAS PAID AND IT WAS ALLOWED. MERE FACT THAT NAME OF THE RECIPIENT IS NOT MENTIONED IN THE BOOKS OF ACCOUNTS IS NO GROUND TO DISALLOW THE COMMISSION IN QUESTION. THE PART OF THE COMMISSION I.E. 20% CANNOT BE DISALLOWE D. TO SUM UP, WE ARE CONVINCED THAT THE ASSESSING OFFICER MADE THE DISALLOWANCE IN QUESTION ON DOUBTS AND SUSPICION, THEREFORE, THE ENTIRE DISALLOWANCE OF RS.2,88,198/- MADE BY THE AS SESSING OFFICER IS DELETED. RESULTANTLY, THIS GROUND OF APPEAL IS ALLOWED. 14. GROUND NO. 4 IS AGAINST CONFIRMING THE DISALLOW ANCE OF ESI OF RS.797/- AND PF OF RS.132/-. THE LD. COUNSEL OF THE ASSESSEE POINTED O UT THAT ESI AMOUNTING TO RS.797/- IS NOT PAID PRIOR TO THE DUE DATE OF FILING THE RETURN OF INCOM E. HOWEVER, PF OF RS.132/- WAS PAID BEFORE THE DUE DATE OF FILING THE RETURN OF INCOME. THEREFORE, FOLLOWING THE JUDGMENT OF THE HON'BLE SUPREME COURT IN THE CASE OF CIT VS.- VINAY CEMENT LTD. (2007) 213 CTR (SC) 268, THE ASSESSING OFFICER BE DIRECTED TO ALLOW THE SAME. 15. THE LD. D.R. POINTED OUT THAT DISALLOWANCE OF E SI AMOUNTING TO RS.797/- BE UPHELD BECAUSE IT WAS NOT PAID BEFORE THE DUE DATE OF FILI NG THE RETURN OF INCOME. WITH REGARD TO PF CONTRIBUTION, SHE POINTED OUT THAT DISALLOWANCE WAS RIGHTLY MADE BECAUSE IT WAS NOT PAID ON OR BEFORE THE DUE DATE SPECIFIED IN THE RELEVANT ACT. 16. HAVING HEARD BOTH THE SIDES, WE HAVE CAREFULLY GONE THROUGH THE ORDERS OF AUTHORITIES BELOW. THE DISALLOWANCE OF RS.797/- IN RESPECT OF E SI IS RIGHTLY CONFIRMED BY THE LEARNED COMMISSIONER OF INCOME TAX(APPEALS). HOWEVER, SINCE PF AMOUNTING TO RS.1320/- IS PAID BEFORE THE DUE DATE OF FILING THE RETURN OF INCOME, FOLLOWING THE JUDGMENT OF THE HON'BLE SUPREME COURT IN THE CASE OF VINAY CEMENT LTD. (SUP RA) THE ASSESSING OFFICER IS DIRECTED TO ALLOW THE SAME. THIS GROUND OF APPEAL IS PARTLY ALL OWED. 6 ITA NO. 3999/AHD/2008 17. GROUND NO. 5 IS AGAINST CONFIRMING THE ADDITION OF RS.38,47,971/- MADE BY THE ASSESSING OFFICER ON ACCOUNT OF DIFFERENCE IN VALUE OF CLOSIN G STOCK. 18. THE FACTS RELATING TO CONTROVERSY INVOLVED IN T HIS GROUND OF APPEAL ARE THAT IN THE ASSESSMENT ORDER, THE ASSESSING OFFICER HAS GIVEN A RITHMETICAL WORKING AND ARRIVED AT THE CONCLUSION THAT EVEN IF THE ASSESSEE-FIRM IS SELLIN G OIL AND SPARES ON NO PROFIT, NO LOSS BASIS, THE CLOSING STOCK OF THESE ITEMS SHOULD NOT BE LESS THA N RS.1,05,17,942/-. AS AGAINST THIS, THE ASSESSEE HAS SHOWN CLOSING STOCK OF SPARES AND OIL OF RS.79,87,805/-. THEREFORE, THERE IS SOME AMOUNT OF SUPPRESSED CLOSING STOCK. THE ASSESSING O FFICER, THEREAFTER ULTIMATELY HAS GIVEN DETAILED WORKING ON PAGE NO. 11 OF HIS ASSESSMENT O RDER AND MADE ADDITION OF RS.38,47,971/- BEING DIFFERENCE IN VALUATION OF CLOSING STOCK. 19. ON APPEAL, IN THE IMPUGNED ORDER, THE LEARNED C OMMISSIONER OF INCOME TAX(APPEALS) UPHELD THE ACTION OF ASSESSING OFFICER FOR THE DETA ILED REASONS GIVEN IN PARA 9.3, WHICH READS AS UNDER :- 9.3. I HAVE PERUSED THE FACTS OF THE CASE AND THE SUBMISSION FILED BEFORE ME BY THE APPELLANT. THE ASSESSING OFFICER HAS WORKED OUT THE VALUE OF STOCK BASED ON THE RECORDS PRODUCED BEFORE HIM. AS AGAINST THIS, T HE APPELLANT HAS NOT PRODUCED COUNTER WORKINGS/ INFORMATION IS SUPPORT OF METHOD OF QUANTIFICATION/ VALUATION OF THE STOCK. THE SUBMISSION GIVEN BY THE APPELLANT IS GENERAL IN NATURE. THE APPELLANT HAS NOT PRODUCED ANY DETAILED STOCK REGIS TER SHOWING CONSUMPTION/ PURCHASE BEFORE ME OR ASSESSING OFFICER AND RELATE THE BALANCE STOCK WITH VALUE SHOWN ACCOUNTS. IN THIS CIRCUMSTANCES, I AM CONSTRA INED TO UPHOLD THE ADDITION MADE BY THE ASSESSING OFFICER AND THIS GROUND OF AP PEAL IS ACCORDINGLY DISMISSED. 20. AT THE TIME OF HEARING BEFORE US, THE LD. COUNS EL ON BEHALF OF THE ASSESSEE APPEARED AND POINTED OUT THAT THE ASSESSING OFFICER IS NOT CORRE CT IN BOTH OF HIS VIEWS, I.E. CONCLUSION AS WELL AS COMPUTATION. WITH REGARD TO CONCLUSION REGARDING SUPPRESSION OF CLOSING STOCK, GIVEN BY HIM ON PAGE NO. 5 OF THE ASSESSMENT ORDER, SHE POINTED OUT THAT THE ASSESSING OFFICER IS NOT CORRECT BECAUSE HE HAS CONSIDERED SALES OF OIL AND SPARES A S OUTGOING AND REDUCED ONLY SALE PROCEEDS PERTAINING TO OIL AND SPARES. HOWEVER, THERE ARE AL SO OTHER MODE OF OUTGOING OF SUCH ITEMS, LIKE USE OF OIL IN REPAIRS, USE OF PARTS IN REPAIRING, S PARES USED IN WARRANTY, DAMAGES IN TRANSIT, 7 ITA NO. 3999/AHD/2008 REPLACEMENT OF DAMAGED PARTS OF BIKE DUE TO SEVERAL REASONS, PARTS OFFERED FREE OF CHARGE TO THE CUSTOMERS, ETC. THEREFORE, CLOSING STOCK OF SPARES AND OIL COULD NOT BE WORKED OUT ONLY ON THE ACCOUNTING FORMULA, I.E. OPENING STOCK PLUS PURCHAS ES MINUS SALES. IF DUE WEIGHTAGE IS GIVEN TO THE OUTGOING ITEMS OF SPARES AND OIL, THAN THERE WO ULD BE NO DIFFERENCE IN CLOSING STOCK. THE ASSESSEE HAS SHOWN SEPARATE INCOME PERTAINING TO REPAIRS, FREE SERVICE INCOME, WARRANTY INCOME, IN ITS TRADING A/C., EVIDENT FROM PG.NO,67. THE AO HAS ALSO ACCEPTED THE FACTS REGARDING SPARES USED IN WARRANTY AS WELL AS REPLACEMENT OF DAMAGED PARTS DURING TRANSIT. REGARDING 2 ND PART, WORKING GIVEN BY THE AO ON PG.NO,11, SHE SUB MITTED THAT VARIOUS PERCENTAGE TAKEN BY THE AO FOR WORKING OUT COST OF SALE SO SPA RES & OIL IS ONLY ON ESTIMATED BASIS, RELYING ONLY ON THE PRICE LIST OF HERO HONDA CO. THE AO, FOR ARRIVING AT THE COST OF SALES FOR 'SPAR E SALES TO SUB-DEALERS' HAS CONSIDERED MARGIN OF 15.5% (BEFORE L-L1-04) & 12.5% (AFTER 1-11-04). THI S IS NOT ACCEPTABLE ON ACCOUNT OF THE FOLLOWING (A): THE AO HAS TAKEN FEW SALE INVOICES FOR THE MONTH OF APRIL & MAY 2004 ONLY AND ESTIMATED THE AVG. MARGIN OF 15.5% FOR THE WHOLE YE AR [P.NO.9-10 OF ASSESSING OFFICER]. (B) THE AO HIMSELF HAS OBSERVED THAT THE COMPANY HAS RE DUCED PROCESS OF SPARES AFTER 1-11-04 IN THE RANGE OF 4-34% [P.NO.1O OF AO], HOWEVER IN C OMPUTATION PART AT SR. NO.(II), HE HAS GIVEN DISCOUNT OF ONLY 3%. (C) SALES MADE BY APPELLANT FIRM IS SUBJECT TO LEVY OF VAT @ 12.5% T WHICH IS INCLUDED IN SALE PROCEEDS, HENCE IT IS TO BE DEDUCTED WHILE WORKING OUT COST OF GOODS SOLD. (D) PROFIT MARGIN VARIES FROM ITEM TO ITEM BUT TH E AC HAS TAKEN 15.5%, WHICH SHOULD BE 17,55% CONSISTENTLY, IF PRICE LIST ARE CONSIDERED. FOR WORKSHOP SALES & ACCESSORIES SALES, MARGIN OF 28,90% & 25.90% HAS BEEN CONSIDERED. SHE DISPUTED THE SAME ON FOLLOWING GROUNDS:- (A) THERE ARE -3- TYPES OF PRICES: NDP, INDICATIVE PRIC E & MRP FOR DIFFERENT CUSTOMERS/ 'PURPOSES, AS STATED BY AO ON P.NO.8- - NDP : DEALER'S PURCHASE PRICE 8 ITA NO. 3999/AHD/2008 - INDICATIVE : FOR SALES MADE TO SUB-DEALERS - MRP ; FOR RETAIL CUSTOMERS (HOWEVER, IS AT THE DISCRETION OF THE DEALER TO CHARGE LOWER PRICE THAN MRP) (B) FROM ABOVE HE HAS ARRIVED AT -2- MARGINS, 17. 55% ON INDICATIVE PRICE & 28.96% ON MRP. FOR THIS HE HAS CONSIDERED A SAMPLE OF 1 S1 -500- ITEMS ONLY OUT OF OVER 3500 TOTAL ITEMS IN W HICH THE APPELLANT TRADES, WHICH IS 1/7 TH OF THE TOTAL POPULATION. (C) THERE IS NO EVIDENCE THAT THE APPELLANT HAS M ADE SALES OF SPARES, ETC. ONLY AT 28.96% THROUGH OUT THE YEAR. (D) THE AO HIMSELF HAS OBSERVED THAT THE COMPANY HAS RE DUCED PROCESS OF SPARES AFTER 1-11-04 IN THE RANGE OF 4-34% [P,NO.L0 OF AO). HOWEVER IN C OMPUTATION ART AT SR.NO R (II), HE HAS GIVEN DISCOUNT OF ONLY 3%. (E) SALES MADE BY APPELLANT FIRM IS SUBJECT TO LEVY OF VAT @ 12.5%, WHICH IS INCLUDED IN SALE PROCEED HENCE IT IS TO BE DEDUCTED WHILE WORKING OU T COST OF GOODS SOLD. (F) THE ASSESSEE HAS ALSO MADE WORKING FOR PROFI T MARGIN, P.NO,45 OF PAPER BOOK, REFLECTING AVG. MARGIN OF 10%, (G) IN ASSESSEES BUSINESS THERE ARE NUMEROUS ITEMS & P ROFIT MARGIN VARIES FROM ITEM TO ITEM. THIS IS EVIDENT FROM THE WORKING GIVEN BY THE AO ON P.NO.9. (1) THE ASSESSEE IS MAINTAINING QUALITY WISE QUAN TITATIVE DETAILS ON DAY TO DAY BASIS FOR MAIN ITEMS THOSE TRADED I.E. BIKES OF HERO HONDA CO MPANY. THE AO HAS CALLED DETAILS OF OPENING AND CLOSING STOCK IN TERMS OF QUALITY, QUAN TITY, RATE AND VALUE. THE SAME WAS FURNISHED. THE SAME IS ALSO PLACED IN THE PAPER BOO K AT PAGE NO. 73 AND 163 OF THE PAPER HOOK IN RESPECT OF STOCK AS ON 31-03-2005 AND 31-03 -2004 RESPECTIVELY. THERE IS NO DISPUTE EITHER FOR QUANTITY OR FOR VALUATION OF BIK ES. SO FAR AS STOCK OF PARTS, ACCESSORIES ETC. ARE CONCERNED, THE APPELLANT FIRM IS TAKING IN VENTORY OF THE SAME AS ON BALANCE SHEET DATE OF EACH YEAR AND VALUING THE SAME AT LOW ER OF COST OR MARKET (AS PER PG. NO.4B OF PAPER BOOK) METHOD OF VALUATION OF STOCK IS RECO GNISE ONE AND CONSISTENTLY FOLLOWED. THERE IS NO CHANGE IN THE METHOD OF VALUATION OF ST OCK. DEPARTMENT HAS ACCEPTED THE METHOD IN ALL THE PAST YEARS AS WELL AS IN SUBSEQUE NT YEARS. ASSESSMENT FOR A.Y, 2007-08 WAS MADE U/S 143(3) OF THE ACT IN WHICH ALSO THE ME THOD WAS NOT DISPUTED AND NO ADDITION WAS MADE ON THIS GROUND. NEITHER THE, AO N OR CIT(A) HAS DISPUTED THE INVENTORY BOOKS ARE ACCEPTED AS THERE IS NO MISTAKE FOUND AS WELL AS NEITHER THERE IS ANY 9 ITA NO. 3999/AHD/2008 SUPPRESSED SALES OR UNACCOUNTED PURCHASES. PROVISIO N OF SECTION 145(3) OF THE ACT WAS NOT INVOKED BY THE ACTT, ALSO, YEAR AFTER YEAR SALE S HAVE INCREASED. THERE IS NOT MUCH DIFFERENCE IN GP HOWEVER, NP IS BETTER THAN LAST YE AR. (GP & NP CHART ON PG, NO.!4 OF PAPER BOOK) (2) FURTHER, AC'S ADDITION IS NOT SUSTAINABLE ON F OLLOWING GROUNDS:- STOCK DETAILS IS MAINTAINED AND IS VERIFIABLE FROM THE RECORDS MAINTAINED BY THE APPELLANT; INVENTORY OF CLOSING STOCK IS ALSO VERIFIED AND CERTIFIED BY THE CA; BOOKS ARE NOT REJECTED; THE AO HAS WORKED OUT STOCK DIFFERENCE ONLY ON ASSU MPTIONS; ADDITION MADE BY THE AO IS REVENUE NOTIONAL AS CLOS ING STOCK, OF CURRENT YEAR IS THE OPENING STOCK OF SUBSEQUENT YEAR ESPECIALLY WHEN QU ANTITY IS NOT DISPUTED; THIS IS NOT A CASE OF ESTIMATION BECAUSE ENTIRE REC ORDS ARE VERIFIABLE; GP AND NP ARE ALSO COMPARABLE AND IN ORDER; METHOD OF STOCK VALUATION WAS ACCEPTED IN ALL YEARS . ASSESSMENT FOR AY 2006-07 WAS MADE U/S 143(3) OF THE ACT, IN WHICH NO SUCH AD DITION WAS MADE BY WORKING OUT PROFIT MARGIN ON ESTIMATED BASIS AND ASSESSMENT WAS MADE BY ACCEPTING BOOKS RESULT. FINALLY, THE ASSESSEE HAS ALSO FILED A WORKING OF G ROSS PROFIT AS WELL AS STOCK WORKING RECONCILING THE STOCK. THE SAID WORKING IS AS UNDER :- PARTICULARS SALES LESS : SALES TAX 12.5% ADD. WARRANTY DAMAGES FREE GIFT ADD.: CLOSING STOCK LESS : OPENING STOCK PURCHASES GROSS LOSS 12,745,665 1,416,185 468,758 539,241 220,890 11,329,480 1,228,889 7,987,805 6,809,234 16,454,373 20,546,174 23,263,607 (2,717,433) STOCK WORKING 10 ITA NO. 3999/AHD/2008 OPENING STOCK 6,809,234 ADD. PURCHASE OF OIL & SPARES 16,454,373 23,26 3,607 LESS : COST OF GOODS SOLD SALES 12,745,665 LESS : SALES TAX 1,416,185 11,329,480 ADD. GROSS LOSS 2,717,433 14,046,913 LESS : WARRANTY 468,758 DAMAGES 539,241 FREE GIFT 220,890 15,275,802 STOCK AS PER BOOKS 7,987,805 21. ON THE OTHER HAND, THE LD. D.R. VEHEMENTLY SUPP ORTED THE ORDERS OF AUTHORITIES BELOW. SHE DREW OUR ATTENTION AND POINTED OUT THAT EVEN ASSUMI NG THE ASSESSEE FIRM IS SELLING OIL AND SPARES ON NO PROFIT/ NO LOSS BASIS, THE CLOSING STOCK OF T HESE ITEMS SHOULD NOT BE LESS THAN RS.1,18,35,776/- AS WORKED OUT BY THE ASSESSING OFF ICER IN THE ASSESSMENT ORDER. SINCE THE ASSESSEE HAS SUPPRESSED THE CLOSING STOCK TO THE TU NE OF RS.38,47,971/-, IN THIS YEAR, ADDITION IS RIGHTLY MADE. ON THIS ACCOUNT, NO PREJUDICE IS CAUS ED TO THE ASSESSEE BECAUSE THAT THE ASSESSEE WILL GET THE BENEFIT OF THIS ADDITION BY WAY OF ENH ANCED OPENING STOCK IN THE NEXT ASSESSMENT YEAR. THEREFORE, THE VIEW TAKEN BY BOTH THE AUTHORI TIES BELOW IN THIS REGARD BE UPHELD. 22. IN REJOINDER, THE LD. COUNSEL OF THE ASSESSEE R EITERATED THE SUBMISSIONS MADE EARLIER. SHE POINTED OUT THAT ASSESSING OFFICER INSTEAD OF MAKIN G THE ADDITION IN CLOSING STOCK, SHOULD HAVE MADE THE SPECIFIC ADDITION WHERE GP WAS LOW. THE GP DECLARED BY THE ASSESSEE IN THE ASSESSMENT YEAR UNDER APPEAL IS BETTER THAN LAST YE AR IN RESPECT OF ALL THE ITEMS EXCEPT ON SALE OF SPARES. ON SALE OF SPARES, LAST YEAR GP WAS 3.8% AS AGAINST GP IN THE CURRENT YEAR 3.4%. THEREFORE, AT THE MOST, THE ADDITION ON ACCOUNT OF LOW GP ON SALE OF SPARES SHOULD BE RS.43,516/- ( 0.4% OF RS.1,08,79,008/-). 23. HAVING HEARD BOTH THE SIDES, WE HAVE CAREFULLY GONE THROUGH THE ORDERS OF AUTHORITIES BELOW. WE FOUND CONSIDERABLE FORCE IN THE SUBMISSIO NS MADE BY THE LD. COUNSEL OF THE ASSESSEE. IT IS NOT THE CASE OF THE REVENUE THAT THE ASSESSEE IS MAKING SALES OUTSIDE THE BOOKS OF ACCOUNTS. THE ADDITION MADE BY THE ASSESSING OFFICER IS REVEN UE NEUTRAL BECAUSE CLOSING STOCK OF CURRENT 11 ITA NO. 3999/AHD/2008 YEAR IS THE OPENING STOCK OF SUBSEQUENT YEARS PARTI CULARLY WHEN NO DIFFERENCE IS QUANTITY POINTED OUT BY THE ASSESSING OFFICER. (IN EARLIER YEAR, NO SUCH ADDITION WAS MADE. THE METHOD OF STOCK VALUATION OF THE ASSESSEE IS SAME, AND IT HAS BEEN ACCEPTED BY THE ASSESSING OFFICER IN THE SUBSEQUENT ASSESSMENT YEAR, I.E. ASSESSMENT YEAR 20 06-07. FOR THAT ASSESSMENT YEAR, ASSESSMENT WAS FRAMED UNDER SECTION 143(3) OF THE ACT. AS A MA TTER OF FACT, IN THE IMPUGNED ORDER, THE LEARNED COMMISSIONER OF INCOME TAX(APPEALS) MADE NO ATTEMPT TO VERIFY THE WORKING AND VARIOUS SUBMISSIONS RAISED BEFORE HIM. THE LEARNED COMMISSIONER OF INCOME TAX(APPEALS) MERELY STATED THAT THE ASSESSEE HAS NOT PRODUCED CO UNTER ARGUMENT/ INFORMATION IN SUPPORT OF METHOD OF QUANTIFICATION / VALUATION OF STOCK. FROM THE PERUSAL OF SUBMISSIONS MADE BEFORE BOTH THE AUTHORITIES BELOW, WE ARE CONVINCED THAT THE AS SESSEE HAS FURNISHED SUFFICIENT INFORMATION/ JUSTIFICATION. THE LEARNED COMMISSIONER OF INCOME T AX(APPEALS) MADE NO ATTEMPT TO VERIFY THE SAME. HOWEVER, AS SUGGESTED BY THE LD. COUNSEL OF T HE ASSESSEE, WE ARE OF THE VIEW THAT IT WILL MEET THE END OF JUSTICE IF GP ADDITION ON SALES OF OIL AND SPARES AMOUNTING TO RS.43,516/- MADE INSTEAD OF ADDITION OF RS.38,47,971/- MADE BY THE A SSESSING OFFICER ON ACCOUNT OF UNDER VALUATION OF CLOSING STOCK. WE ACCORDINGLY DIRECT T HE ASSESSING OFFICER TO RESTRICT THE ADDITION OF RS.38,47,971/- TO RS.43,516/-. THIS GROUND OF APPEA L IS PARTLY ALLOWED. 24. IN THE RESULT, THE APPEAL FILED BY THE ASSESSEE IS PARTLY ALLOWED AS INDICATED ABOVE. THE ORDER WAS PRONOUNCED IN THE COURT ON 23.07.201 0 SD/- SD/- (D.C. AGRAWAL) (T.K. SHARMA ) ACCOUNTANT MEMBER JUDICIAL MEMBER DATED : 23 / 07 / 2010 COPY OF THE ORDER IS FORWARDED TO : 1) THE ASSESSEE (2) THE DEPARTMENT. 3) CIT(A) CONCERNED, (4) CIT CONCERNED, (5) D.R., ITAT, AHMEDABAD. TRUE COPY BY ORDER DEPUTY REGI STRAR, ITAT, AHMEDABAD LAHA/SR.P.S.