ACIT, Faridabad V. M/s. Shree Motors Pvt. Ltd., Faridabad

ITA 5905/DEL/2014

• Counselvise Citation: [2018] 125 COUNSELVISE.COM (IT) 6781 (ITAT-DELHI)
• Duration Of Justice: 3 year(s) 8 month(s) 12 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 12-07-2018
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: G
• Assessment Year: 2010-2011
• Appeal Filed On: 31-10-2014
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: M BARANWAL
• Keywords: Gross profit estimation; Rejection of books of accounts; Business income
• Section: 68; 145

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL DELHI BENCHG, NEW DELHI BEFORE SHRI N.K. SAINI, ACCOUNTANT MEMBER AND SHRI KULDIP SINGH, JUDICIAL MEMBER I.T.A. NO. 5905/DEL/2014 ASSESSMENT YEAR: 2010-11 ACIT CIRCLE - II , BLOCK - B, NEW CGO COMPLEX, NH-IV, N.I.T., FARIDABAD VS. SHREE MOTORS PVT. LTD., 1A/240-243, NEELAM BATA ROAD, N.I.T., FARIDABAD PAN-AAECS0284P [APPELLANT] [RESPONDENT] DEPARTMENT BY: SH. M. BARANWAL, SR. DR RESPONDENT BY: SH. ALOK KUMAR , CA DATE OF HEARING: 23 0 4 2018 DATE OF PRONOUNCEMENT: 12 0 7 2018 O R D E R PER N.K. SAINI, A.M: THIS IS AN APPEAL BY THE DEPARTMENT AGAINST THE OR DER DATED 19.8.2014 OF THE LEARNED CIT(A), FARIDABAD. THE GRO UNDS RAISED IN THIS APPEAL READ AS UNDER:- I. ON THE FACTS ANDN IN THE CIRCUMSTANCES OF THE CASE , THE LD. CIT(A) HAS ERRED ON FACTS AND IN LAW IN DELETING THE ADDITI ONS OF RS. 29,65,305/- MADE BY THE AO ON A/C OF LOW GP RATE EVEN THOUGH THE ASSESSEE COULD NOT SUBSTANTIATE ITS CLAIM WITH CORROBOR ATIVE EVIDENCE FOR SUCH A SUBSTANTIAL FALL IN GP RATIO. II. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE, THE LD. CIT(A) HAS ERRED ON FACTS AND IN LAW IN DELETING THE ADDITIONS OF RS. 6,33,000/- MADE BY THE ASSESSING OFFICER ON A/C ADVANCE FROM CU STOMERS EVEN THOUGH THE ASSESSEE NEITHER FILED ANY CONFIRMATIONS F ROM THE CUSTOMERS NOR FURNISHED ANY JUSTIFICATION WITH REGARD TO ADVANCES ITA NO. 5905/DEL/2014 2 FROM CUSTOMERS OUTSTANDING WHICH WERE RECEIVED LONG B ACK FROM F.Y. 2003-04 TO 2006-07 AND WERE NOT ADJUSTED TILL T HE END OF THE YEAR WHICH PROVES THAT THESE ADVANCES ARE NOT CLAIMAB LE BY THE CUSTOMERS. 2. VIDE GROUND NO. 1, THE GRIEVANCE OF THE ASSESSEE RELATES TO THE DELETION OF ADDITION OF RS. 29,65,305/- MADE BY AO ON ACCOUNT OF LOW GP RATE. THE FACTS RELATED TO THIS ISSUE IN BRIEF ARE THAT T HE ASSESSEE FILED ITS RETURN OF INCOME ON 1.10.2010 DECLARING AN INCOME OF RS. 71,3 8,460/- WHICH WAS PROCESSED UNDER SECTION 143(1) OF THE INCOME TAX AC T (HEREINAFTER REFERRED TO AS THE ACT). LATER ON THE CASE WAS SELECTED FOR S CRUTINY. THE AO, DURING THE COURSE OF ASSESSMENT PROCEEDINGS NOTICED THAT THE A SSESSEE DECLARED LESS NET PROFIT ON THE SALES OF RS. 59.30 CRORES DURING THE YEAR UNDER CONSIDERATION IN COMPARISON TO NET PROFIT SHOWN IN LAST YEAR I.E. A. Y. 2009-10. THE AO ASKED THE ASSESSEE TO JUSTIFY THE DECLINE IN NET PROFIT RATIO AND ALSO TO SUBMIT THE VALUATION OF CLOSING STOCK DURING THE YEAR UNDER CO NSIDERATION. IN RESPONSE, THE ASSESSEE SUBMITTED AS UNDER:- THE MAIN REASON FOR DIP IN NP HAS BEEN DIP IN GP RAT IO. IT MAY KINDLY BE NOTED THAT THE GP RATIO DURING THE YEAR UNDER CONS IDERATION WAS 2.39% AS COMPARED TO 4.28% DURING THE A.Y.2009-10, SHOWING A F ALL OF 1.89%. THE REASON FOR THE DROP IN GP RATIO AS COMPARED TO A. Y. 2009-10 ARE AS UNDER: (A) FROM THE CHART IT MAY BE NOTED THAT WORKSHOP INC OME TO SALES DURING A.Y.2010-11 WAS 0.63% WHILE IT WAS 1.16% DURING THE A.Y.2009-10, SHOWING A DROP OF 0.53%. SIMILARLY, THE PERCENTAGE O F INCENTIVE TO SALES DURING THE A.Y.2010-11 WAS 0.87% AGAINST 1.57% DURI NG THE A.Y.2009-10, SHOWING A DROP OF 0.70%. AS SUCH ON THESE TWO COUNTS T HE INCOME FELL BY 1.23%. AS PROFIT MARGIN IS VERY HIGH IN THESE TWO IN COME HEADS, FALL IN THESE INCOMES RESULTED IN LOWER GP RATIO. (B) THE A.Y.2009-10 WAS EXCEPTIONALLY GOOD TO THE C OMPANY AS MARGINS WERE BETTER. IN FACT DURING A.Y.2009-10, THERE WAS A RECESSION IN TRUCK BUSINESS AS IT MAY BE NOTICED FROM THE SALES FIGURES OF THE YEARS GIVEN IN THE CHART THAT SALES DURING A.Y.2009-10 FELL. HOWEVE R THE ASSESSEE, WITH ITS GOOD SALES NET WORK, STUCK TO SALES PRICES WHILE PRINC IPALS SOLD TRUCKS TO THE ASSESSEE AT MORE REMUNERATIVE PRICES. THIS RESULTED IN MUCH BETTER ITA NO. 5905/DEL/2014 3 MARGINS. HOWEVER THE ASSESSEE COULD NOT KEEP THE STRA TEGY ANY LONGER SUCCESSFULLY, AND DUE TO SEVERE COMPETITION, IT HAD TO BOW TO THE MARKET AND IN ORDER TO INCREASE ITS SALES, SOLD TRUCKS AT LOW ER MARGINS. 3. IT WAS ALSO STATED THAT WORKSHOP INCOME TO SALES DURING THE YEAR UNDER THE CONSIDERATION WAS 0.63% WHILE IT WAS 1.16 % DURING THE PRECEDING YEAR. SIMILARLY THE PERCENTAGE FOR INCENTIVES TO SA LES DURING THE UNDER CONSIDERATION WAS 0.87% AS AGAINST 1.57% DURING THE ASSESSMENT YEAR 2009-10. THE AO, HOWEVER, OBSERVED THAT THE ASSESSEE FAILED TO SUBMIT ANY DOCUMENTARY EVIDENCES IN SUPPORT OF HIS CLAIM FOR A SUBSTANTIAL FALL IN GROSS PROFIT RATIO FROM 4.28% TO 2.39% I.E. FALL BY 1.89% . THE AO DISALLOWED 0.50% DECREASE IN GROSS PROFIT RATIO OF SALES ACCORDINGLY A DISALLOWANCE OF RS. 29,65,305/- WAS MADE. 4. BEING AGGRIEVED THE ASSESSEE CARRIED THE MATTER TO THE LEARNED CIT(A) AND SUBMITTED AS UNDER:- THE LD. ASSESSING OFFICER MADE AN ADDITION OF RS. 29 ,65,305/- BY APPLYING A HIGHER GP RATIO .50% ON THE SALES, TO THE RETURNED INCOME ON ACCOUNT OF LOWER GP RATIO. DURING THE ASSESSMENT PROC EEDINGS, THE GP RATIO WAS DISCUSSED BY THE APPELLANT VIDE LETTERS DATED 1 9.12.2012 AND 11.02.2013. THE FOLLOWING ARE THE EXPLANATIONS REGARDING THE BEH AVIOUR OF GP RATIO AND / NET PROFIT: AMOUNT IN RS. ------------FINANCIAL YEAR ENDED ON 31 ST MARCH---------------- PARTICULARS 31.03.2008 31.03.2009 31.03.2010 SALE 487579023 352079448 593061015 WORKSHOP (NET) 3011895 4073408 3779046 INCENTIVE (NET) 3496887 5527666 5167690 TURNOVER (A) 494087805 361680522 602007751 GROSS PROFIT (C) 7739549 15484843 14362690 GP RATIO C*100/A 1.57 4.28 2.39 (I) BUSINESS DOES NOT WORK ON RATIOS. IT DEPENDS ON THE BUS INESS SCENARIO AND CIRCUMSTANCES. BUSINESSMAN ALWAYS TRIES TO MAXI MIZE THE PROFIT BUT ITA NO. 5905/DEL/2014 4 IT DEPENDS UPON THE MARKET FORCES LIKE COMPETITION, DE MAND AND SUPPLY, GOVERNMENTS FISCAL POLICIES AND FURTHER IN ASSESSEE S CASE, THE MARGIN PROVIDED BY THE PRINCIPLES. (II) THE MAIN REASON FOR DIP IN NP HAS BEEN DIP IN GP RAT IO. IT MAY KINDLY BE NOTED THAT THE GP RATIO DURING THE YEAR UNDER CONSI DERATION WAS 2.39% AGAINST 1.57% DURING THE ASSESSMENT YEAR RELEVANT T O AY 2008-2009, HENCE AN INCREASE OF .82%, HOWEVER IT WAS 4.28% DURING THE FINANCIAL YEAR RELEVANT TO THE AY 2009-2010, SHOWING A FALL OF 1.89%. THE REASON FOR THE DROP IN GP RATIO AS COMPARED TO AY 2009-2010 ARE AS UNDER: (A) FROM THE CHART IT MAY BE NOTED THAT WORKSHOP INCOME T O SALES DURING A.Y. 2010-2011 WAS .63% WHILE IT WAS 1.16% DURING T HE A.Y. 2009- 2010, SHOWING A DROP OF .53%. SIMILARLY THE: PERCENT AGE OF INCENTIVE TO SALES DURING THE AY 2010-2011 WAS .87% AGAINST 1.57% DURING THE AY 2009-2010, SHOWING A DROP: OF .70%. AS SUCH ON THESE TWO COUNTS THE INCOME FELL BY 1.23%. THE PROFIT MARGIN IS VERY HIGH IN THESE TWO INCOME HEADS, FALL IN THESE INCOMES RESULTED IN LOWER GP RATIO. (B) IN THE AY 2009-2010 MARGINS WERE BETTER. IN FACT DU RING AY 2009-2010, THERE WAS A RECESSION IN TRUCK BUSINESS. HOWEVER THE PRINCIPAL ALLOWED BETTER MARGINS SO THAT DEALERS WORK HARDER TO ACHIEVE SALES. ALSO AS SALES WERE LIKELY TO FALL DUE TO RECESSION, THE DEALERS NEEDED TO BE SUPPORTED IN BAD TIMES. HENCE THEY WERE ALLOWED BETTE R MARGINS AND BETTER INCENTIVES, WHICH WERE WITHDRAWN IN THE NEXT YEAR. DURING THE AY 2010- 2011, THE MARGINS WERE LOWER. FROM THE PERUS AL OF THE AUDITED BALANCE SHEET AND PROFIT & LOSS ACCOUNT, IT MAY BE NOTED THAT MARGIN ON SALES DECREASED DURING THE AY 2010-2011 AS COMPARED TO AY 2009-2010 AS EXPLAINED HEREUNDER: AMOUNT IN RS. PARTICULARS YEAR ENDED 31.3.2010 YEAR ENDED 31.3.20 09 SALE 593061015 352079447 COST OF GOODS SOLD 578883111 338215941 MARGIN ON SALE 14177904 13863506 % TO SALES 2.39 3.94 AS SUCH MARGIN ON SALE FELL BY 1.55%. FURTHER AS DIS CUSSED ABOVE, THE INCENTIVE INCOME FELL BY .70%. ALL THESE INCOMES AR E PROVIDED BY PRINCIPALS TO ITA NO. 5905/DEL/2014 5 THE APPELLANT, IN WHICH APPELLANT HAD NO ROLE AND CO NTROL. THE TOTAL MARGIN FELL BY 1.55% + .70% =2.25%. (C) THE ASSESSEE IS FACING COMPETITION ON TWO FRONTS. ON THE ONE HAND THE EICHER TRUCK OF WHICH ASSESSEE IS A DEALER IS FACIN G SEVERE COMPETITION FROM TATA AND ASHOKA LEYLAND AND ON SMAT PRICE DIFFERENCE, CUSTOMER SHIFTS TO OTHER BRAND. ON THE OTHER HAND, THERE ARE A LARGE N UMBER OF EICHER TRUCK DEALERS IN NCR.. THE CUSTOMERS FLOCK AT THE DEALER W HO SELLS CHEAPEST. THIS ALI EXPLAINS LOWER GP. IN SUCH SCENARIO THERE IS NO OPTI ON BUT TO REMAIN COMPETITIVE, I.E. COMPROMISE ON MARGINS. HAD ASSESSEE NOT SOLD AT LOWER MARGINS, IT WOULD HAVE LOST BUSINESS AND WHATSOEVER PROFIT IT WAS EARNING. THERE WAS NO POINT IN LOSING THE BUSINESS WHICH WOULD H AVE IMPACTED THE FUTURE BUSINESS PROSPECTS AS WELL. APPELLANT IN ORDER TO ACHIEVE MORE SALES, COMPROMISED ON MARGINS. (III) THE ASSESSEE HAS TRIED ITS BEST TO STILL EARN THE BEST POSSIBLE PROFIT, IT COULD. IN THIS ORDER IT MADE ECONOMY IN INTEREST EXPENSES WH ICH REDUCED FROM RS. 9,42,102/- DURING AY 2009- 2010 TO RS. 7,61,702/- DU RING A.Y. 2010-2011. SIMILARLY ADMINISTRATION EXPENSES REDUCED FROM RS.63 ,09,429/- TO RS. 58,91,836/-. THIS ALL HAPPENED WHEN SALES JUMPED. T HE ASSESSEE HAS DONE REMARKABLY BETTER THAN AY 2009-2010 (AFTER IGNORING PROFIT ON SALE OF FIXED ASSETS) ALL THE ABOVE SUBMISSIONS WERE DISCUSSED WITH THE LD . ASSESSING OFFICER. BOOKS OF ACCOUNTS AND ALL THE VOUCHERS ETC WERE PRODUCED BE FORE THE LD. ASSESSING OFFICER IN SUPPORT OF THE WORKING RESULTS WHICH WERE EXAMINED BY HIM AS HE LIKED. ON SUCH EXAMINATION, HE DID NOT BRING ON RECOR D ANY DEFICIENCY, INCORRECTNESS OR FALSIFICATION IN THE RECORD/EVIDENCES . IT IS ALSO NOT BROUGHT ON RECORD IF ANY INFORMATION, DOCUMENT, EVIDENCE ETC SOUG HT BY THE ID. ASSESSING OFFICER WAS NOT PROVIDED/PRODUCED BY THE APPELLANT DU RING THE ASSESSMENT PROCEEDINGS. STILL HE PASSED AND ASSESSMENT ORDER, M AKING THE ADDITION OF RS. 29,65,305/- TO THE RETURNED INCOME WHICH IS NOT ONLY UNJUSTIFIED, UNREASONABLE, ILLEGAL BUT IT IS DEVOID OF ANY FINDING, MERE A GUE SS WORK AND MADE WITH A PRESET MIND AS DISCUSSED HEREUNDER: (I) DURING ASSESSMENT PROCEEDINGS, THE GP RATIO PATTERN F OR AY 2010- 2011, 2009-2010 AND 2008-2009 WERE DISCUSSED AND IT WAS B ROUGHT TO THE NOTICE OF THE LD. ASSESSING OFFICER THAT GP RATIO DURING TH E ASSESSMENT YEAR UNDER CONSIDERATION WAS LOWER THAN THE LAST ASSESSMENT YEA R BY 1.89% BUT HIGHER BY .82% WITH RESPECT TO PREVIOUS TO PREVIOUS A SSESSMENT YEAR . HOWEVER WHILE FRAMING THE ASSESSMENT, LD. ASSESSING OFFICER WAS ADVERSE TO THE FALL IN GP RATIO WITH RESPECT TO THE PREVIOUS YEAR (THOUGH WITHOUT ANY SUBSTANCE AND JUSTIFICATION), HE IGNORED THE FAC T THAT IT WAS SUBSTANTIALLY HIGHER TO PREVIOUS TO PREVIOUS ASSESSMENT YEAR. HAD HE TAKEN INTO ACCOUNT THIS FACT, HE COULD APPRECIATE THE FACTS MORE RATIONALLY. ITA NO. 5905/DEL/2014 6 (II) THE ORDER PASSED IS UNCERTAIN AND FULL OF CONTRADICTI ONS. IN PARA 2 OF P. NO. 3 OF THE ASSESSMENT ORDER THE LD. ASSESSING OFFICER OBSERVED 'THE AR OF THE ASSESSEE FAILED TO SUBMIT ANY DOCUMENTARY EVIDENCES IN SUPPORT OF THE CLAIM FOR SUCH A SUBSTANTIAL FALL IN GROSS PROFIT RA TIO BY 1.89%' BUT IN VERY NEXT PARA 3 OF THE SAME PAGE, HE OBSERVED 'FURTHER S UBMISSION RELATING TO WORKSHOP INCOME AND INCENTIVE TO SALES IS ACCEPTED TO SOME EXTENT .' IT IS NOT CLEAR HOW ON THE FIRST HAND HE OBSERVED THAT NO DOC UMENTARY EVIDENCE WAS FORWARDED IN SUPPORT OF THE LOWER GP RATIO AS COMP ARED TO THE LAST YEAR, THEN ON THE OTHER HAND IN THE SAME BREATH HE A CKNOWLEDGED THAT UPTO SOME EXTENT APPELLANT HAS EXPLAINED HIS CASE BUT STILL FAILED TO DISCLOSE HOW THE EXPLANATION PUT BY THE APPELLANT WAS ACCEPTE D PARTIALLY. NOW KINDLY LOOK AT PARA 4 OF THE ASSESSMENT ORDER APPEARIN G ON P. NO. 3 OF THE ASSESSMENT ORDER 'AFTER CONSIDERING THE ABOVE FACTS, THE SUBMISSION AND CONTENTION OF THE ASSESSEE IS ACCEPTED TO GREATER EXT ENT AND THUS ONLY .50% DECREASE IN GROSS PROFIT RATIO OF SALES IS DISALLOWE D AND ADDED BACK TO THE INCOME OF THE ASSESSEE COMPANY.' NOW AGAIN IT IS NOT CL EAR HOW DOCUMENTS FURNISHED AND EXPLANATIONS OFFERED IN JUST IFICATION OF LOWER GP RATIO COULD BE ACCEPTED UPTO A LARGE EXTENT BUT NOT F ULLY AND WHERE IT LACKED FOR NOT ACCEPTING IT FULLY. IT IS ALSO NOT CL EAR HOW AND ON WHAT BASIS THE .50% DECREASE IN GP RATIO WAS ADDED WHEN THERE W AS NO FAULT IN APPELLANT'S EXPLANATION AND THERE WAS NO FINDING THE BOOKS OF ACCOUNTS, DOCUMENTS ETC PRODUCED BEFORE THE LD ASSESSING OFFICE R WERE FALSE, INCORRECT OR DEFICIENT. ALSO LD. ASSESSING OFFICER DI D NOT GIVE ANY FINDING WHETHER SALES WERE SUPPRESSED OR EXPENSES WERE OVERST ATED. THE REPLY TO EACH AND EVERY QUERY OF THE QUESTIONNAIRE WAS SUBMIT TED. DETAILS OF EXPENSES AS REQUIRED BY THE LD. ASSESSING OFFICER W ERE ALSO FILED VIDE LETTER DATED 19.12.2012. (III) KINDLY REFER TO PARA 4 P. NO. 3 OF THE ASSESSMENT ORDER 'THUS, THE DISALLOWANCE OF RS. 29,65,305/- (I.E. 0.50% OF TOTAL SALES OF RS. 59,30,61,014/-) IS TO BE MADE ON ACCOUNT OF LOW GROSS PROFIT RATIO A ND IS ADDED BACK TO THE TOTAL INCOME OF THE ASSESSEE COMPANY .' IT MAY KINDLY BE NOTED THAT THE ADDITION HAS BEEN MADE MERELY BECAUSE OF LOWER GP RATIO, WHICH IS ILLEGAL AS PER LAW. THERE IS NO FINDING AN D NO MATERIAL ON RECORD TO SUPPORT THE ADDITION. IN THE CASE OF PANDIT BROTHERS V VIT (1954) 26 ITR 159 JURISDICTIONAL PUNJAB AND HARYANA HIGH COURT HELD T HAT IN THE ABSENCE OF DEFINITE FINDING THAT THE CASE FELL WITHIN THE FIRS T PROVISO TO SECTION 145(1), IT WAS NOT POSSIBLE TO SUSTAIN REJECTION OF BOOK RESULT S AND ADDITION TO GROSS PROFIT AND THE MERE FACT THAT THE PROFITS WERE LOW I S NOT A CIRCUMSTANCE OR MATERIAL ALLIUNDE WHICH COULD JUSTIFY AN ESTIMATE. THE HONORABLE ALLAHABAD HIGH COURT IN THE CASE OF LAXMI STORES V CST, (1979) 43 STC 167, 168 HELD THAT LOW PROFIT WITHOUT ANY OTHER DEFECT BEING FOUND I N THE ACCOUNT BOOKS ITA NO. 5905/DEL/2014 7 IS NOT A SUFFICIENT GROUND FOR REJECTION OF ACCOUNTS. ALL THESE CITATIONS APPLY TO THE APPELLANTS CASE. KEEPING IN VIEW THE ABOVE DISCUSSION IT IS PRAYED T HAT THE ADDITION OF RS. 29,65,305/- TO THE RETURNED INCOME MADE BY THE LD. A SSESSING OFFICER MAY KINDLY BE DELETED AND RELIEF MAY KINDLY BE GRANTED TO BE APPELLANT ACCORDINGLY. 5. THE LEARNED CIT(A), AFTER, CONSIDERING THE SUBMISSI ONS OF THE ASSESSEE OBSERVED THAT THE AO WHILE MAKING THE ADDI TION FOR THE LOW GP RATE DID NOT REJECT THE BOOKS OF ACCOUNTS BY POINTING OU T ANY DEFICIENCY AND ALSO DID NOT FIND ANY PURCHASE OR SALE OR EXPENDITURE TO BE UNVOUCHED / UNSUPPORTED AND EVEN THEN HE HELD THAT THE FALL IN GP RATE BY 1 .89% TO BE TOO HIGH RESULTING AN ADHOC ADDITION EQUAL TO 0.5% OF TOTAL SALE AMOUN TING TO RS. 29,65,305/-. HE FURTHER OBSERVED THAT THE ASSESSEE GAVE PRECISE REA SON ANALYSIS OF THE FALL IN GP RATE AS PER WHICH ITS SHARE MARGIN FELL BY 1.55% AND INCENTIVE INCOME REGISTERED A DECLINE TO 0.70%. HE ALSO OBSERVED THA T THE INDUSTRY WAS FACING A SEVERE RECESSION, IN THE PRECEDING YEAR HIGH INCENT IVES WERE GIVEN TO THE DEALERS SO THAT RECESSIONARY CONDITIONS IN THE ECON OMIC DID NOT GET TRANSLATED INTO A FALL IN THE TRUCK SALES. THE LEARNED CIT(A) POINTED OUT THAT IN ORDER TO SUBSTANTIATE THE FACT THAT HE INCENTIVE INCOME REGI STERED A STEEP FALL DURING THE YEAR AS COMPARED TO THE PRECEDING YEAR, THE ASSESSE E GAVE A COPY OF DULY AUDITED BALANCE-SHEET FOR THE YEAR AND THE FIVE PRE CEDING YEARS WHICH REVEALED THAT MAXIMUM INCENTIVE INCOME WAS RECEIVED IN THE PRECEDING YEAR I.E. A.Y. 2009-10 WHICH WAS 1.53% AS COMPARED TO 0. 83% IN THE PERIOD RELEVANT TO ASSESSMENT YEAR UNDER CONSIDERATION. THE LEARNED CIT(A) ALSO OBSERVED THAT BESIDES EXPLAINING THE LOWER PROFITABILITY IN ITS B USINESS DURING THE YEAR UNDER CONSIDERATION, THE ASSESSEE POINTED OUT THAT THE AO MADE AN ADHOC ADDITION WITHOUT DETECTING IN DEFICIENCY IN ITS BOOKS OF ACC OUNTS WHICH COULD HAVE RESULTED IN THEIR REJECTION AND SUBSEQUENT REJECTIO N BY INVOKING THE PROVISIONS ITA NO. 5905/DEL/2014 8 OF SECTION 145 OF THE ACT. THE LEARNED CIT(A) HELD THAT THE AO WAS NOT JUSTIFIED IN MAKING AN ADHOC ADDITION ON THE BASIS OF HIS OBS ERVATION THAT GP RATE DURING THE YEAR UNDER CONSIDERATION HAD FALLEN AS COMPARED TO THE PRECEDING YEAR. THE REFERENCE WAS MADE TO THE FOLLOWING CASE LAWS: I. PANDIT BROS. VS. CIT (1954) 26 ITR 159 (P &H) II. LAXMI STORES VS. CST (1979) 43 STC 168 (ALL) III. CIT VS. INDO NISSAN OXO CHEMICAL INDUSTRIES LTD. (201 4) 45 TAXMANN.COM 478 (GUJARAT) IV. GVDI & CO. VS. DCIT SPECIAL RANGE, COIMBATORE (2014) 43 TAXMANN.COM 246 (MADRAS) V. CIT VS. U.P. STATE FOOD AND ESSENTIAL COMMODITIES (201 3) 39 TAXMANN.COM 106 (ALLAHABAD) 6. NOW THE DEPARTMENT IS IN APPEAL. 7. THE LEARNED SR. DR STRONGLY SUPPORTED THE ORDER PASSED BY THE AO AND REITERATED THE OBSERVATIONS MADE THEREIN. IT WA S FURTHER SUBMITTED THAT THE ASSESSEE COULD NOT EXPLAIN THE FALL IN GP RATE IN COMPARISON TO THE PRECEDING YEAR THEREFORE, THE AO WAS FULLY JUSTIFIE D IN ENHANCING THE GP RATE OF THE YEAR UNDER CONSIDERATION BY 0.5% AND THE LEARNE D CIT(A) WITHOUT APPRECIATING THE FACTS IN RIGHT PERSPECTIVE WAS NOT JUSTIFIED IN DELETING THE ADDITION MADE BY THE AO. IN HIS RIVAL SUBMISSIONS, THE LEARNED COUNSEL FOR THE ASSESSEE REITERATED THE SUBMISSIONS MADE BEFORE THE AUTHORITIES BELOW AND STRONGLY SUPPORTED THE IMPUGNED ORDER PASSED BY THE LEARNED CIT(A). 8. WE HAVE CONSIDERED THE SUBMISSIONS OF BOTH THE P ARTIES AND CAREFULLY AND GONE THROUGH THE MATERIAL AVAILABLE O N THE RECORD. IN THE PRESENT CASE, IT IS AN ADMITTED FACT THAT THE INCENTIVE INC OME RECEIVED BY THE ASSESSEE WAS HAVING A DECLINE AND IT WAS 0.83% OF THE TURNOV ER IN COMPARISON TO 1.53% IN THE PRECEDING YEAR WHICH WAS ONE OF THE REASON F OR FALL IN GP RATE FOR THE YEAR UNDER CONSIDERATION AS COMPARED TO THE EARLIER YEAR. IN THE INSTANT CASE, THE AO WHILE MAKING AN ADHOC ADDITION ACCEPTED THE BOOK RESULT WHICH IS ITA NO. 5905/DEL/2014 9 EVIDENT FROM THIS FACT THAT HE HAS NOT REJECTED THE BOOKS OF ACCOUNTS BY INVOKING THE PROVISIONS OF SECTION 145 OF THE ACT. IT IS ALSO NOTICED THAT THE BOOKS OF ACCOUNTS OF THE ASSESSEE WERE DULY AUDITED AND NO SPECIFIC DEFECT WAS POINTED OUT BY THE AO. IN THE PRESENT CASE, NOT HING IS BROUGHT ON RECORD TO SUBSTANTIATE THAT THE PURCHASES SHOWN BY THE ASS ESSEE WERE INFLATED OR THERE WAS ANY SUPPRESSED SALE OR THE EXPENSES CLAIM ED BY THE ASSESSEE WERE NOT INCURRED FOR THE BUSINESS PURPOSES. IT IS ALSO NOTICED THAT THERE WAS FALL IN THE WORKSHOP INCOME AND INCENTIVE TO THE SALES IN C OMPARISON TO THE PRECEDING YEAR WHICH CONTRIBUTED TO THE LOW GP RATE FOR THE YEAR UNDER CONSIDERATION. WE, THEREFORE, CONSIDERING THE TOTAL ITY OF THE FACTS ARE OF THE VIEW THAT THE LEARNED CIT(A) RIGHTLY DELETED THE AD HOC ADDITION MADE BY THE AO. WE DO NOT SEE ANY VALID GROUND TO INTERFERE WIT H THE FINDINGS OF THE LEARNED CIT(A). 9. VIDE GROUND NO. 2, THE GRIEVANCE OF THE DEPARTME NT RELATES TO THE DELETION OF ADDITION OF RS. 6,33,000/- MADE BY THE AO ON ACCOUNT OF ADVANCES FROM CUSTOMERS. THE FACTS RELATED TO THIS ISSUE IN BRIEF ARE THAT THE AO DURING THE COURSE OF ASSESSMENT PROCEEDINGS NOTICED THAT T HE ASSESSEE HAD RECEIVED ADVANCES FROM CUSTOMER AGAINST THE BOOKING OF VEHIC LES AMOUNTING TO RS. 3,87,62,930/- WHICH WERE SHOWN AS PART OF THE CURRE NT LIABILITIES. HE ASKED THE ASSESSEE TO SUBMIT THE DOCUMENTARY EVIDENCES FOR SA LES MADE AGAINST THE ADVANCES RECEIVED FROM CUSTOMERS AND ALSO ASKED TO SHOW CAUSE AS TO WHY THE ADDITION BE NOT MADE IN RESPECT OF ADVANCES RECEIVE D FROM CUSTOMERS. IN RESPONSE, THE ASSESSEE SUBMITTED AS UNDER:- THE DETAILS OF ADVANCES FROM CUSTOMERS VIS A VIS BI LLING LATER YEAR ARE ALREADY FILED VIDE LETTER DATED 19.12.2012. TO ELABO RATE FURTHER THE FIGURES ARE SUMMARIZED AS UNDER:- PARTICULARS AMOUNT (RS) ADVANCES FROM PARTIES RS. 3,73,79,574/- ITA NO. 5905/DEL/2014 10 ADJUSTED AGAINST FUTURE SALES ADVANCES FROM THE PARTIES RETURN BACK RS. 3,82,646/- ADVANCES LYING AS SUCH AS ON 31.3.2009 RS. 8,30,191/- ADVANCES LYING AS SUCH AS ON 31.3.2010 RS. 1,70,502/- TOTAL RS. 3,87,62,913/- THE ADVANCES LYING ARE CUSTOMERS MONEY AND AS AND WH EN THEY APPEAR, THIS MONEY WILL BE ADJUSTED AGAINST SALE OR REFUNDED TO THEM. THIS MONEY CAN NEVER BE ASSESSEES MONEY AS IT DOES NOT BELONG TO IT A ND FOR MAINTAINING DIGNITY, CREDIBILITY AND IMAGE IN MARKET; ASSESSEE WILL NEVER EVEN TRY TO FORFEIT THE MONEY. AS SUCH THERE IS NO OCCASION TO TAX THE ADV ANCE RECEIVED FROM THE CUSTOMERS. IT MAY FURTHER BE NOTED THAT IN ITS PROFI T & LOSS ACCOUNT AND BALANCE SHEET, THE ASSESSEE HAS TREATED AND RECOGNIZED THE ADVANCE FROM CUSTOMERS AS ITS LIABILITY AND NOT AN INCOME. 10. FROM THE AFORESAID DETAILS FURNISHED BY THE ASS ESSEE, THE AO OBSERVED THAT THE ADVANCES WERE LYING AS SUCH AS ON 31.3.2009 AMOUNTING TO RS. 8,30,191/- AND AS ON 31.3.2010 AMOUNTING TO RS. 1,70,502/-. HE, THEREFORE, AGAIN CONFRONTED THE ASSESSEE TO SUBMIT THE DETAILS WHEN THESE ADVANCES WERE RECEIVED. IN RESPONSE, THE ASSESSEE SUBMITTED AS UN DER:- THE DETAILS OF THE ADVANCES RECEIVED FROM CUSTOMERS, WHICH ARE STILL LYING OUTSTANDING ARE ENCLOSED. THEH ASSESSEE HAS NOT OBTAIN ED CONFIRMATIONS FROM THE CUSTOMERS FOR THEIR ADVANCE MONEY LYING WITH THE ASSESSEE AS IT WILL NOT BE IN THE INTEREST OF ITS BUSINESS. IT IS REITERATED A ND AGAIN SUBMITTED THAT THE ADVANCES WILL BE RETURNED BACK/ADJUSTED AGAINST FUT URE SALES TO THEM, AS AND WHEN THESE CUSTOMERS COME. 11. THE LEARNED AO AFTER CONSIDERING THE SUBMISSION S OF THE ASSESSEE OBSERVED THAT THE ADVANCES RECEIVED FROM F.Y. 2003- 04 TO F.Y. 2008-09 WERE AS UNDER:- S. NO. PARTICULARS AMOUNT (RS) 1. ADVANCES RECEIVED IN F.Y. 2003 - 04 15,000/ - 2. ADVANCES RECEIVED IN F.Y. 2004 - 05 1,32,000/ - 3. ADVANCES RECEIVED IN F.Y. 2005 - 06 3,11,000/ - ITA NO. 5905/DEL/2014 11 4. ADVANCES RECEIVED IN F.Y. 2006 - 07 1,75,000/ - TOTAL 6,33,000/ - 12. HE ACCORDINGLY DISALLOWED RS. 6,33,000/- AND AD DED THE SAME TO THE INCOME OF THE ASSESSEE. 13. BEING AGGRIEVED THE ASSESSEE CARRIED THE MATTER TO THE LEARNED CIT(A) AND SUBMITTED AS UNDER:- I. DURING THE ASSESSMENT PROCEEDINGS THE DETAILS O F ADVANCES RECEIVED FROM CUSTOMERS WERE PROVIDED VIDE LETTER D ATED 11.2.2013 (P. NO. 7-9), WHICH WAS ALSO MENTIONED IN P. NO. 3-4 OF THE ASSESSMENT ORDER. THE BREAKUP OF THE ADVANCE SHOWED THAT THE A DVANCES RECEIVED BUT STILL NOT ADJUSTED / REPAID WERE AS UNDER:- ADVANCES RECEIVED UPTO 31.3.2009 RS. 830191 ADVANCES RECEIVED DURING THE YEAR UNDER CONSIDERAT ION RS. 170502 TOTAL RS. 1000693 14. THE LEARNED CIT(A) AFTER CONSIDERING THE SUBMIS SIONS OF THE ASSESSEE OBSERVED THAT THE AO MADE THE ADDITION OF RS. 6,33, 000/- CONCERNING THE ADVANCES OUTSTANDING FOR MORE THAN THREE YEARS ON T HE BASIS OF INFERENCE DERIVED BY HIM THAT THE SAID AMOUNT WAS NOT CLAIMAB LE BY THE CUSTOMERS. HE FURTHER OBSERVED THAT THE ASSESSEE GAVE THE DETAILS OF ADVANCES WHICH INCLUDED THE NAMES AND ADDRESSES OF THE PERSONS TO WHOM THE SAID ADVANCES WERE PAYABLE AND THE AMOUNT ON ACCOUNT OF ADVANCES WAS N EVER CLAIMED AS DEDUCTION BY THE ASSESSEE IN ANY OF THE YEARS TO WH ICH THOSE ADVANCES WERE RELATED. THE LEARNED CIT(A) HELD THAT THE ADDITION MADE BY THE AO WOULD HAVE BEEN MADE ONLY UNDER THE PROVISIONS OF SECTION 68 O R SECTION 41 OF THE ACT BUT NO ADDITION COULD HAVE BEEN MADE UNDER SECTION 68 O F THE ACT SINCE THOSE ADVANCES DID NOT RELATE TO THE YEAR UNDER CONSIDERA TION AND AS THE ASSESSEE NEVER CLAIMED THE AMOUNT ON ACCOUNT OF THE ADVANCES PAYABLE TO THE CUSTOMERS AS A DEDUCTION IN ANY OF THE EARLIER YEAR S THEREFORE, THE ITA NO. 5905/DEL/2014 12 DISALLOWANCE UNDER SECTION 41 OF THE ACT WAS ALSO R ULED OUT. THE LEARNED CIT(A) WAS OF THE VIEW THAT MERELY BECAUSE THE LIABILITY W AS OUTSTANDING FOR THE LAST MANY YEARS IT COULD NOT BE PRESUMED WITH THE SALE H AD ESCAPED TO EXIST. ACCORDINGLY, THE ADDITION OF RS. 6,33,000/- MADE BY THE AO WAS DELETED. 15. NOW THE DEPARTMENT IS IN APPEAL. 16. THE LEARNED SR. DR REITERATED THE OBSERVATIONS MADE BY THE AO AND STRONGLY SUPPORTED THE ASSESSMENT ORDER DATED 14.3. 2013 PASSED BY THE AO. IN HIS RIVAL SUBMISSIONS, THE LEARNED COUNSEL FOR THE ASSESSEE REITERATED THE SUBMISSIONS MADE BEFORE THE AUTHORITIES BELOW AND S TRONGLY SUPPORTED THE IMPUGNED ORDER PASSED BY THE LEARNED CIT(A). 17. WE HAVE CONSIDERED THE SUBMISSIONS OF BOTH THE PARTIES AND PERUSED THE MATERIAL AVAILABLE ON THE RECORD. IN THE PRESEN T CASE, IT IS NOTICED THAT THE AO MADE THE ADHOC ADDITION ONLY ON THIS BASIS THAT THE LIABILITY SHOWN BY THE ASSESSEE WAS OUTSTANDING FOR MORE THAN THREE YEARS, NO OTHER REASON HAS BEEN GIVEN. IT IS NOT BROUGHT ON RECORD THAT THE LIABILI TY OF THE ASSESSEE CEASED OR THE ASSESSEE HAD CLAIMED ANY DEDUCTION IN RESPECT OF AD VANCES PAYABLE IN ANY OF THE EARLIER YEARS. THEREFORE THE ADDITION MADE BY T HE AO WAS RIGHTLY DELETED BY THE LEARNED CIT(A). WE DO NOT SEE ANY MERIT IN T HIS GROUND OF THE DEPARTMENTAL APPEAL. 18. IN THE RESULT, APPEAL OF THE DEPARTMENT IS DISM ISSED. . (ORDER PRONOUNCED IN THE OPEN COURT ON 12.07.2018 .) SD/ - SD/ - [ KULDIP SINGH ] [ N.K. SAINI ] JUDICIAL MEMBER ACCOUNTANT MEMBER DATED: 12.07.2018 SH ITA NO. 5905/DEL/2014 13 COPY FORWARDED TO:- 1. APPELLANT 2. RESPONDENT 3. CIT 4. CIT(APPEALS) 5. DR: ITAT AS SISTANT REGISTRAR SL. NO. PARTICULARS DATE 1. DATE OF DICTATION 9.07.2018 2. DATE ON WHICH THE DRAFT IS PLACED BEFORE THE DICTATING MEMBER 12 .07.2018 3. DRAFT PLACED BEFORE THE OTHER MEMBER 4. APPROVED DRAFT COMES TO THE SR. PS/PS 5. KEPT FOR PRONOUNCEMENT ON 6. FINAL ORDER RECEIVED AFTER PRONOUNCEMENT 7. FILE SENT TO THE BENCH CLERK 8. DATE ON WHICH FILES GOES TO THE HEAD CLERK 9. DATE ON WHICH FILE GOES TO THE ASSISTANT REGISTRAR 10. DATE OF DISPATCH OF ORDER 11. DATE OF UPLOADING 12. 07.2018