Nirmal Rani, Ambala City V. ACIT, Ambala

ITA 609/CHANDI/2013

• Counselvise Citation: 60921514 RSA 2013
• Duration Of Justice: 2 year(s) 5 month(s) 30 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 26-11-2015
• Appeal Filed By: Assessee
• Order Result: Dismissed
• Bench Allotted: B
• Next Hearing Date: 29-10-2015
• Assessment Year: 2009-2010
• Appeal Filed On: 27-05-2013
• Result in Favour of: Revenue
• Court: TRIBUNAL
• Keywords: Gross profit estimation; Additional evidence; Question of law
• Section: 40A(3); 145

Judgement Text

1 IN THE INCOME TAX APPELLATE TRIBUNAL CHANDIGARH BENCHES, CHANDIGARH BEFORE SHRI H.L.KARWA, HON'BLE VICE PRESIDENT & MS. RANO JAIN, ACCOUNTANT MEMBER ITA NO. 609/CHD/2013 ASSESSMENT YEAR: 2009-10 MS. NIRMAL RANI, VS. THE ACIT, PROP. M/S VIKING TANNERS, AMBALA AMBALA CITY PAN NO. ACUPR5354A & ITA NO. 706/CHD/2013 ASSESSMENT YEAR: 2009-10 THE DCIT, CIRCLE, S. VS. MS. NIRMAL RANI, AMBALA PROP. M/S VIKING TANNERS, AMBALA PAN NO. ACUPR5354A (APPELLANT) (RESPONDENT) APPELLANT BY : SH. ROHIT GOEL RESPONDENT BY : MS. CHANDER KANTA DATE OF HEARING : 29.10.2015 DATE OF PRONOUNCEMENT : 26.11.2015 ORDER PER H.L.KARWA, VP THESE TWO APPEALS FILED BY THE ASSESSEE AND REVENUE ARE DIRECTED AGAINST THE ORDER DATED 05.04.2013 OF CIT(A), PANCHKULA REL ATING TO ASSESSMENT YEAR 2009-10. FIRSTLY, WE WILL TAKE UP ASSESSEES APPEAL I.E ITA NO. 609/CHD/2013. SHRI ROHIT GOEL, LD. COUNSEL FOR THE ASSESSEE DID NOT PRESS FOR GROUND NO.5 OF THE APPEAL AND HENCE THE SAME IS DISMISSED. 2 2. GROUND NOS. 1 & 2 OF THE APPEAL READS AS UNDER:- 1. THAT IN THE FACTS AND CIRCUMSTANCES OF THE CAS E THE LD. CIT(A) IS NOT JUSTIFIED IN UPHOLDING THE AD DITION OF RS. 67,11,685/- U/S 40A(3) BY MISCONSTRUING THE STATEMENTS OF THE ORIGINAL PRODUCERS OF THE HIDES A ND SKINS FROM WHOM THE PURCHASES WERE MADE BY THE APPELLANT. 2. THE CIT(A) IS NOT JUSTIFIED WHILE DISALLOWING TH E BENEFIT OF RULE 6DD(E)(II) READ WITH CIRCULAR NO. 4 OF 2006 BY MISREADING THE STATEMENT OF BOTH THE PHERIWALAS RECORDED DURING THE REMAND PROCEEDINGS I N THE PRESENCE OF THE APPELLANT THAT THEY ARE THE OR IGINAL PRODUCERS OF HIDES AND SKINS. 3. BRIEFLY STATED, THE FACTS OF THE CASE ARE THAT A SSESSEE IS MANUFACTURING LEATHER GARMENTS AND LEATHER GOODS, FOR WHICH THE B ASIC RAW MATERIAL IS HIDES AND SKINS OF ANIMALS. THE RAW MATERIAL IS PURCHASED FROM BUTCHERS AND PHERIWALAS WHO ARE GROWERS / PRODUCERS OF HIDES AND SKINS. THESE PHERIWALAS LIVE IN REMOTE-RURAL AREA WHICH IS AN UNORGANIZED S ECTOR. THE ASSESSEE CLAIMED THAT NO FORMAL SALE BILLS WERE ISSUED BY THEM, THE PAYMENTS FOR WHICH WERE MADE BY THE ASSESSEE IN CASH FOR THE PURCHASES MADE FROM THESE BUTCHERS / PHERIWALAS. THE ASSESSING OFFICER OBSERVED THAT ASSESSEE HAD MA DE LARGE NUMBER OF PAYMENTS IN CASH FOR THE PURCHASES MADE. THE ASSES SEE CLAIMED THAT PAYMENTS WERE MADE IN CASH AS PER RULE 6DD(E)(II) OF THE INC OME TAX RULES, 1962. THE ASSESSING OFFICER NOTED THAT PURCHASES MADE IN CASH EXCEEDING RS. 20,000/- WAS MADE IN VIOLATION OF PROVISIONS OF SECTION 40A(3) O F THE ACT. THE TOTAL OF SUCH CASH PURCHASES MADE DURING THE YEAR UNDER CONSIDERA TION CAME TO RS. 67,11,436/-. ACCORDINGLY, RS. 67,11,436/- WAS DISA LLOWED BY THE ASSESSING OFFICER BY INVOKING THE PROVISIONS OF SECTION 40A(3 ) OF THE ACT. . 3 4. ON APPEAL THE CIT(A) CONFIRMED THE ADDITION AND, HENCE, THE ASSESSEE IS IN APPEAL BEFORE THE TRIBUNAL. 5. WE HAVE CONSIDERED THE RIVAL SUBMISSIONS. SHRI ROHIT GOEL, LD. COUNSEL FOR THE ASSESSEE SUBMITTED THAT THERE WAS NO VIOLAT ION OF SECTION 40A(3) OF THE ACT AS ALLEGED BY THE REVENUE AUTHORITIES. HE FURTH ER POINTED OUT THAT THE STATEMENTS RECORDED BY THE ASSESSING OFFICER WERE N EVER CONFRONTED TO THE ASSESSEE AND NO OPPORTUNITY WAS AFFORDED TO THE AS SESSEE TO EXPLAIN ITS STAND OR TO CROSS EXAMINE THEM. HE FURTHER POINTED OUT THAT ALL THE SUPPLIERS OF THE ASSESSEE ARE PRODUCERS OF HIDES AND SKINS TO WHOM P AYMENTS ARE MADE IN CASH. IN SUPPORT OF THE ABOVE CONTENTION, THE ASSESSEE PR ODUCED AFFIDAVITS OF ALL THE SUPPLIERS BEFORE THE LOWER AUTHORITIES AND SUPPLIER S HAVE CONFIRMED THAT THEY ARE PURCHASERS OF SKINS AND HIDES. HE FURTHER POINTED OUT THAT THE SELLER NAMELY RAM KUMAR AND HARISH KUMAR WHOSE STATEMENTS WERE RE CORDED BY THE ASSESSING OFFICER HAVE CATEGORICALLY STATED THAT THEY PURCHAS E BAKRA FROM THE MARKET AND PRODUCE HIDES AND SKINS AND ALSO THEY PURCHASE THE SKINS FROM THE OTHER PRODUCERS OF SKIN AND IN TURN THEY SELL THE SAME TO THE ASSESSEE. ON THE CONTRARY, THE CASE OF THE REVENUE IS THAT SHRI RAM KUMAR & SH . HARISH KUMAR HAD STATED ON OATH IN THE STATEMENTS RECORDED BY THE ASSESSING OFFICER ON 21.11.2012 THAT THEY PURCHASED GOATS FROM THE MARKET AND PRODUCED H IDES AND SKINS. THEY ALSO PURCHASED HIDE AND SKINS FROM OTHER PRODUCERS AND T REATED THE SAME BEFORE SELLING TO THE ASSESSEE, THEREFORE, THE CONTENTION OF THE REVENUE IS THAT THESE TWO PERSONS ARE NOT THE ORIGINAL PRODUCERS OF HIDES AND SKINS BY ANY STRETCH OF IMAGINATION. IN OUR CONSIDERED OPINION, THE VIEW TA KEN BY THE REVENUE IN THIS CASE IS NOT TENABLE IN VIEW OF THE JUDGEMENT OF THE HON'BLE CALCUTTA HIGH COURT IN THE CASE OF CIT V CPL TANNERY [2009] 318 ITR 179 (CAL.), WHEREIN THE HON'BLE HIGH COURT HAS CATEGORICALLY HELD THAT PROC ESSORS OF HIDES AND SKINS ARE PRODUCERS WITHIN MEANING OF RULE 6DD (F)(II); HENCE , CASH PAYMENTS MADE TO 4 THEM DO NOT ATTRACT DISALLOWANCE U/S 40A(3) OF TH E ACT. IN THE INSTANT CASE, ON THE BASIS OF STATEMENTS OF SHRI RAM KUMAR AND SHRI HARISH KUMAR, THE REVENUE TOOK THE STAND THAT THE ABOVE PERSONS ALSO PURCHASE D HIDES AND SKINS FROM OTHER PRODUCERS AND TREATED THE SAME BEFORE SELLING TO TH E ASSESSEE. THEREFORE, THEY ARE NOT ORIGINAL PRODUCERS OF HIDES AND SKINS. WE FIND THAT A SIMILAR ISSUE WAS BEFORE THE HON'BLE CALCUTTA HIGH COURT IN THE CASE OF CIT V CPL TANNERY (SUPRA), WHEREIN THE ASSESSING OFFICER ADMITTED THA T THE SMALL SUPPLIERS OF HIDES AND SKINS DID NOT CARRY OUT PROCESSING AFTER OBTAIN ING THE GOODS FROM ORIGINAL SKIN PEELERS. THE HON'BLE HIGH COURT UPHELD THE VIE W OF THE TRIBUNAL AND THE RELEVANT OBSERVATIONS OF THE HONBLE HIGH COURT ARE AS UNDER:- IT APPEARS THAT THE TRIBUNAL HAS SPECIFICALLY HELD AS FOLLOWS:- ' WE HAVE HEARD AND CONSIDERED THE RIVAL SUBMISSION S. WE FIND THAT IN THE IMMEDIATELY PRECEDING YEAR, IN THE ASSE SSEE' S OWN CASE, THERE IS AN ORDER OF THIS TRIBUNAL ACCEPTING THE FACT THAT THE SUPPLIERS OF HIDES AND SKINS ARE PROCESSORS AND ARE TO BE RECOGNIZED AS PRO DUCERS OF HIDES AND SKINS, A CONS EQUENCE OF WHICH THE BENEFIT OF RULE 6DD(F)(II) BECOMES AVAILA BLE TO THEM. THE INCOME-TAX APPELLATE TRI BUNAL IN THE ASSESSEE' S OWN CASE, VIDE I. T. A. NO. 2472/KOL/2005 FOR THE ASSESSMENT YEAR 2002-03 DATED JUNE 16, 2006, HAS OBSERVED AS UNDER : WE HAVE GIVEN OUR THOUGHTFUL CONSIDERATION TO THE ARGUMENTS ADVANCED FROM BOTH SIDES AND ALSO PERUSED CAREFULLY THE RELEVANT PAPERS. WE FIND THAT THE ASS ESSING OFFICER IN HIS ORDER AT PARAGRAPH 3.8 STATES THAT ' THE ASSESSEE HAS ALSO ADMITTED THAT THEY COLLECT RAW HI DES/SKINS FROM VILLAGES FROM THE ORIGINAL SKIN PEELERS, PROCE SS THESE HIDES AND SKINS TO SOME EXTENT AND ONLY AFTER THAT, THOSE SKINS/HIDES ARE SOLD TO TANNERY' . THUS, THE ASSESS ING OFFICER ADMITS THAT THE SMALL SUPPLIERS OF HIDES AN D SKINS DO CARRY OUT PROCESSING AFTER OBTAINING THE GOODS F ROM ORIGINAL SKIN PEELERS. THE COMMISSIONER OF INCOME- TAX (APPEALS) ALSO IN HIS ORDER AT PARAGRAPH 2.2 DESCRI BES THAT PROCESSING IS DONE BY THESE SUPPLIERS. THUS, THE FA CT THAT PROCESSING IS DONE IS NOT DISPUTED BY THE AUTHORITI ES BELOW. THE VIEW THAT PROCESSING IN THIS CASE CANNOT BE EQU ATED TO PRODUCTION WILL RENDER THE INTERPRETATION OF THE WO RD ' PRODUCTION' USED IN RULE 6DD(F) EXTREMELY TECHNICAL AND MEANINGLESS AND WILL FRUSTRATE THE PROVISIONS OF TH E RULE. RULE 6DD WAS CREATED TO CARVE OUT EXCEPTIONS OF THE 5 RIGOURS OF SECTION 40A(3) AND SUCH EXCEPTIONS ARE T O BE UNDERSTOOD IN THE BACKGROUND OF COMMERCIAL EXPEDIEN CY AND OTHER RELEVANT FACTORS. THIS HAS BEEN ACCEPTED BY THE CENTRAL BOARD OF DIRECT TAXES BY ISSUING PRESS NOTE DATED MAY 2, 1969, AND THE VIEW THAT PRODUCTS OTHERWISE C OVERED UNDER RULE 6DD, WHEN SUBJECTED TO SOME PROCESSING S HOULD ALSO QUALIFY FOR EXEMPTION HAS BEEN ADMITTED. IN TH IS VIEW OF THE MATTER AND AFTER CONSIDERING THE ISSUE IN GR EAT DETAIL, WE ARE OF OUR CONSIDERED VIEW THAT THE ADDI TION OF RS. 2.50 LAKHS UNDER SECTION 40A(3) IS UNCALLED FOR AND, HENCE, DELETED. THE FIRST GROUND OF APPEAL THUS SUC CEEDS.' 7.1 ON THE SAME REASONING IN THIS YEAR ALSO THE STA TUS OF THE SAME SUPPLIES CANNOT SUDDENLY CHANGE AND THEY, IN OUR CO NSIDERED OPINION, REMAIN PRODUCERS OF HIDES AND SKINS IN THI S YEAR ALSO. THE REASONING OF THE COMMISSIONER OF INCOME-TAX (APPEAL S) THAT PRODUCTS OF HIDES AND SKINS CANNOT BE REGARDED AS P RODUCTS OF ANIMAL HUSBANDRY BECAUSE THE PRODUCERS ARE NOT DIRE CTLY CONNECTED TO LIVE ANIMALS AT SOME POINT OF TIME, IS, IN OUR O PINION, FAR-FETCHED. THE PLAIN READING OF THE RULE SUGGESTS THAT THE WOR DS (INCLUDING HIDES AND SKINS) ARE SPECIFICALLY INSERTED IN THE R ULE TO DESCRIBE PRODUCTS OF ANI MAL HUSBANDRY. WHEN THE PLAIN READI NG OF THE RULE IS UNAMBIGUOUS, THE PRINCIPLES OF INTERPRETATION SU GGESTS THAT THERE IS NO NECESSITY TO DERIVE OTHER MEANINGS OF THE RUL E BY LOOKING INTO THE DICTIONARY MEANING OR OTHERWISE. THIS CONTENTIO N OF THE COMMISSIONER OF INCOME-TAX (APPEALS) IS NOT ACCEPTA BLE. THE CONTENTION OF THE ASSES SEE THAT HE PURCHASED GOODS FROM SUPPLIERS WHO ARE PRODUCERS OF HIDES AND SKINS, HAS NOT BEEN REFUTED EITHER BY THE ASSESSING OFFICER OR BY THE COMMISSIONER OF INCOME-TAX (APPEALS). THE SECOND CONTENTION OF THE ASSESSEE TH AT OWING TO BUSINESS EXPEDIENCY, OBLIGATION AND EXIGENCY, THE A SSESSEE HAD TO MAKE CASH PAYMENT FOR PURCHASE OF GOODS SO ESSENTIA L FOR CARRYING ON OF ITS BUSINESS, WAS ALSO NOT DISPUTED BY THE AS SESSING OFFICER. THE GENUINITY OF THE TRANSACTIONS, RATE OF GROSS PR OFIT OR THE FACT THAT THE BONA FIDES OF THE ASSESSEE THAT PAYMENTS A RE MADE TO PRODUCERS OF HIDES AND SKINS ARE ALSO NEITHER DOUBT ED NOR DISPUTED BY THE ASSESSING OFFICER. ON THE BASIS OF THESE FAC TS IT IS NOT JUSTIFIED ON THE PART OF THE ASSESSING OFFICER TO D ISALLOW 20 PER CENT. OF THE PAYMENTS UNDER SECTION 40A(3) IN THE P ROCESS OF ASSESSMENT. WE, THEREFORE, DELETE THE ADDITION OF R S. 17,90,571 AND GROUND NO. 1 IS DECIDED IN FAVOUR OF THE ASSESSEE.' IN VIEW OF THAT WE DO NOT FIND THAT THERE IS ANY RE ASON TO ADMIT THIS APPEAL SINCE IN OUR CONSIDERED OPINION, NO SUBSTANT IAL QUESTION OF LAW IS INVOLVED IN THIS MATTER. HENCE, THE APPEAL B EING I. T. A. NO. 186 IS DISMISSED. 6 SIMILARLY, IN THE CASE OF CIT V K.K.S/K. LEATHER PR OCESSOR (P) LTD (2007) 292 ITR 669 (MAD.), THE HON'BLE HIGH COURT HAS HELD AS UNDER;- 8. WE DO NOT FIND ANY JUSTIFICATION TO ACCEPT THE S AID PLEA OF THE REVENUE. AS A MATTER OF FACT, THE TRIBUNAL NOTED TH AT A LARGE QUANTITY OF SALE OF WET BLUE WAS STATED TO BE OUT O F PREVIOUS YEAR'S CLOSING STOCK AND CURRENT YEAR'S PURCHASES. FURTHER, VERIFICATION OF THE REGULAR ACCOUNTS COULD NOT BE C ONSIDERED AS ADDITIONAL EVIDENCE TO BE CALLED AS VIOLATION UNDER RULE 46A(3). CONSIDERING THE FINDING OF FACT BY THE TRIBUNAL, WE DO NOT FIND ANY QUESTION OF LAW FOR INTERFERENCE. ON THE QUESTION OF ADDITION MADE IN RESPECT OF PAYMENT AT SHANDIES TO BE HELD A S VIOLATIVE OF SECTION 40A(3) READ WITH RULE 6DD, THE ASSESSEE HAS PRODUCED NECESSARY GROUNDS FOR MAKING CASH PAYMENT, CONSIDER ING THE NATURE OF TRADE CARRIED ON BY THE ASSESSEE, THE TRI BUNAL NOTED THAT THESE PAYMENTS WERE MADE TO SMALL TIME VENDORS , WHO COME FROM SURROUNDING VILLAGES TO SELL THE SKIN AND THE PROCESS OF DRESSING THE SKIN DONE WITHOUT THE AID OF POWER. TH E TRIBUNAL ALSO NOTED FROM THE ORDER OF THE COMMISSIONER, THAT CONSIDERING THE FACT THAT THE PURCHASES WERE MADE FROM THE UNOR GANIZED SECTOR, CASH PAYMENTS WERE INDISPENSABLE. IN THE ABOVE CIRCUMSTANCES, THE TRIBUNAL RIGHTLY CAME TO THE CON CLUSION, GIVING THE RELIEF TO THE ASSESSEE. THIS COURT, IN T HE DECISION IN CIT V. CHROME LEATHER COMPANY P. LTD. REPORTED IN [ 1999] 235 ITR 708 , HELD THAT RULE 6DD PROVIDES THAT AN ASSESSEE CAN BE EXEMPTED FROM THE PAYMENT BY A CROSSED CHEQUE OR CR OSSED BANK DRAFT IN THE CIRCUMSTANCES SPECIFIED IN THE RULE. T HE CENTRAL BOARD OF DIRECT TAXES HAS ISSUED CERTAIN GUIDELINES GIVING CERTAIN CIRCUMSTANCES, AND THOSE CIRCUMSTANCES ARE ILLUSTRATIVE AND NOT EXHAUSTIVE AND THE UNDERLYING IDEA OF THE C IRCULAR IS THAT IF THE IDENTITY OF THE PAYEE IS KNOWN, IT WOULD BE POSSIBLE FOR THE INCOME-TAX OFFICER TO CROSS-CHECK, WHETHER THE TRAN SACTION HAD IN FACT TAKEN PLACE. TAKING NOTE OF THE FACT THAT UNDE R SIMILAR CIRCUMSTANCES THIS COURT HAD ACCEPTED THE PLEA OF T HE ASSESSEE, HAVING REGARD TO THE NATURE OF TRADE, WE DO NOT FIN D ANY JUSTIFICATION TO TAKE IT A REASON TO INTERFERE. 7 6. CONSIDERING THE ENTIRE FACTS AND CIRCUMSTANCES A ND CIRCUMSTANCE OF THE PRESENT CASE, WE HOLD THAT THE ASSESSEE HAD MADE PA YMENTS TO SMALL TIME VENDERS WHO SUPPLIED HIDES AND SKINS ON VEHICLES SUCH AS CY CLES, RICKSHAWALAS AND REHRIS. THE PAYMENTS WERE BEING MADE TO THEM AGAINS T KACHA BILLS BECAUSE THE PURCHASES WERE MADE FROM UNORGANIZED SECTORS AND TH E BUTCHERS DO NOT HAVE PRINTED BILLS. IT IS ALSO CLEAR FROM THE STATEMENTS OF SHRI RAM KUMAR AND SHRI HARISH KUMAR THAT THEY CONFIRMED HAVING PURCHASED K UCHA SKINS FROM OTHER BUTCHERS AND AFTER PROCESSING THEM WITH SALT AND MI XTURE THEY SOLD THESE GOODS TO THE ASSESSEE. IN VIEW OF THE DECISION OF THE HON 'BLE CALCUTTA HIGH COURT REFERRED TO ABOVE, WE HOLD THAT THE PAYMENTS MADE B Y THE ASSESSEE IS FULLY COVERED WITHIN THE MEANING OF RULE 6DD(E)(II) OF TH E RULES AND HENCE CASH PAYMENTS MADE TO PROCESSORS OF HIDES AND SKINS ARE PRODUCERS WITHIN THE MEANING OF AFORESAID RULE, AND HENCE NO DISALLOWANC E U/S 40A(3) OF THE ACT IS CALLED FOR. ACCORDINGLY, WE DELETE THE ADDITION. 7. GROUND NO.3 OF THE APPEAL READS AS UNDER:- 3. THAT IN THE FACTS AND CIRCUMSTANCES OF THE CASE THE LD. CIT(A) IS NOT JUSTIFIED IN APPLYING GP RATE OF 11% INSTEAD OF ACCEPTING THE GP RATE SHOWN BY THE APPELLANT WITH REASONS OF FALL IN THE GP RATE SHOWN . 8. DURING THE CURRENT YEAR THE GP RATE DECLARED BY THE ASSESSEE @ 9.87% WAS CONSIDERED VERY LOW BY THE ASSESSING OFFICER AS AGA INST OF GP RATE OF 17% DECLARED IN THE IMMEDIATLY PRECEDING YEAR. THE ASSE SSING OFFICER APPLIED GP RATE OF 15% ON GROSS SALES DECLARED BY THE ASSESSEE AT RS. 12,23,72,378/-. THUS, THERE WAS A DIFFERENCE OF RS. 62,75,575/- BETWEEN T HE GROSS PROFIT SHOWN BY THE ASSESSEE (RS. 1,20,80,282 /-). THE SAID DIFFERENCE WAS ADDED TO THE TOTAL INCOME OF THE ASSESSEE. 8 9. ON APPEAL, THE CIT(A) RESTRICTED THE ADDITION TO RS. 13,80,680/- OBSERVING AS UNDER:- 4.5 THE RIVAL SUBMISSIONS HAVE BEEN CONSIDERED BY THE UNDERSIGNED. THE ADDITION WAS MADE BY THE LD. AO ON ACCOUNT OF APPLICATION OF A HIGHER GP RATE @ 15% AS COMPARED T O 9.87% DECLARED BY THE APPELLANT. THE REASON GIVEN WAS THA T HIGHER GP @ 17% WAS DECLARED BY THE APPELLANT IN THE PRECEDING YEAR. DURING APPELLATE PROCEEDINGS THE APPELLANT FILED A COMPUTA TION CHART FOR THREE YEARS AFTER CONSIDERING DIRECT EXPENSES IN TR ADING ACCOUNT AS UNDER- COMPARATIYE CHART_GF_GROSS PROFIT A.Y. 2007-08 A.V. 2008-09 A.Y. 2009-10 PARTICULARS YEAR ENDED 31.03.2007 YEAR ENDED 31.03.2008 YEAR ENDED 31.03.2009 GROSS SALE 459.13 504.43 1223.72 JOB WORK 50.86 186.77 178.32 CLOSING STOCK 201.89 168.25 8.46 TOTAL 711.88 859.45 1410.50 OPENING STOCK 198.54 201.89 168.25 PURCHASES 364.75 529.55 1060.63 WAGES & SALARY 19.95 21.28 23.65 JOB WORK 21.61 3.50 1.28 IMPORT EXPENSES 25.84 13.08 15.43 BUILDING EXPENSES 1.23 0.00 0.00 ELECTRICITY EXPENSES 1.63 5.60 0.68 MACHINERY EXPENSES 6.72 2.40 1.33 FUEL A POWER 23.22 ' 21.16 31.87 CARRIAGE INWARD 5.12 4.52 12.25 GROSS PROFIT 43.27 56.47 95.13 TOTAL 711.88 859.45 1410.50 9 G.P. RATIO 9.42% 11.19% 7.77% 4.6 THE DISCREPANCY IN THE GP RATE DECLARED I N A.V.2008-09 AS PER AUDIT REPORT AND AS PER CHART FILED DURING AS SESSMENT/ APPELLATE PROCEEDINGS IS DUE TO CONSIDERATION OF DIRECT EXPENSES IN T HE TRADING ACCOUNT BY THE APPELLANT IN THE CHART (SUPRA). 4.7 IT WOULD BE FAIR AND REASONABLE TO APPLY TH E GP RATE OF 11.19% ON THE GROSS SALES OF RS. 12,23,72,378/- AS SHOWN BY HIM IN THE PRECEDING YEAR. IN THE SUCCEEDING YEAR ALSO THE GP RATE IS 11%; G ROSS PROFIT BY APPLYING AVERAGE GP RATE AT THE RATE OF 11% WORKS OUT TO RS.1,34,60, 962/- AS AGAINST RS.1,20,80,282/-DECLARED BY THE APPELLANT. ACCORDIN GLY, AN ADDITION OF RS.13,80,680/- IS MADE TO THE INCOME OF THE APPELLA NT ON ACCOUNT OF LOW GP RATE AS AGAINST THE ADDITION OF RS.62,75,575/- MADE BY T HE A.O. THE APPELLANT GETS A RELIEF OF RS.48,91,895/-. IN THE RESULT, THIS GROUN D OF APPEAL IS PARTLY ALLOWED. 10. WE HAVE HEARD THE RIVAL SUBMISSIONS. SHRI ROHIT GOEL LD. COUNSEL FOR THE ASSESSEE SUBMITTED THAT DURING THE YEAR UNDER CONSI DERATION THE SALE HAS INCREASED TO RS. 1223.72 LAKHS AS COMPARED TO THE S ALE OF RS. 504.43 LAKHS DURING THE IMMEDIATELY PRECEDING YEAR. BESIDES SELL ING LEATHER GARMENTS AND LEATHER GOODS, ASSESSEE IS ALSO ENGAGED IN TANNING (JOB WORK) OF RAW LEATHER AS PER THE REQUIREMENTS OF THE CLIENTS. HE FURTHER STA TED THAT THERE IS INCREASE IN THE SALE ALMOST TO THE TUNE OF 242.60% AS COMPARED TO T HE PRECEDING YEAR, WHEREAS THERE IS A SLIGHT DECREASE IN JOB WORK AS COMPARED TO THE LAST YEAR. SHRI ROHIT GOEL, LD. COUNSEL FOR THE ASSESSEE SUBMITTED THAT R EASONS FOR LOWER GP RATE DURING THE YEAR I.E. 7.77% IS BECAUSE THERE IS HUGE DIFFERENCE IN RATIO BETWEEN SALES AND JOB WORK. THE GP OF JOB WORK IS ALWAYS HIGHER AS COMPARED TO GP ON SALES. DURING THE YEAR UNDER CONSIDERATION THERE IS IN INCREASE IN THE SALES TO THE TUNE OF 242.60% AS COMPARED TO THE PRECEDING YEAR A ND THERE IS SLIGHT DECREASE IN THE JOB WORK. WHICH WAS 186.77 LAKHS DURING THE PRECEDING YEAR AS COMPARED TO 178.32 LAKHS DURING THE YEAR UNDER CONSIDERATION . IT IS RELEVANT TO OBSERVE HERE THAT BOTH THE AUTHORITIES BELOW HAVE NOT PROPE RLY APPRECIATED THE EXPLANATION OF THE ASSESSEE REGARDING LOW GP DECLAR ED IN THIS YEAR. IN THE 10 INSTANT CASE, THE ASSESSING OFFICER HAS APPLIED ADH OC GP RATE OF 15% WITHOUT POINTING OUT ANY DISCREPANCY IN THE AUDITED BOOKS O F ACCOUNT REGULARLY MAINTAINED BY THE ASSESSEE. THE ASSESSING OFFICER H AS NOT INVOKED THE PROVISIONS OF SECTION 145 OF THE ACT. EVEN THE LD. CIT(A) HAS NOT PROPERLY APPRECIATED THE CONTENTION OF THE ASSESSEE. IT IS A TRITE LAW THAT MERELY LOW PROFIT MADE MAY PROVOKE AN ENQUIRY, BUT THAT ITSELF WITHOUT MORE CANNOT JUSTIFY AN ADDITION TO THE PROFIT SHOWN. IT APPEARS THAT AU THORITIES BELOW HAVE NOT FOUND ANY DISCREPANCY IN THE BOOKS OF ACCOUNT AND ALSO IN THE METHOD OF ACCOUNTANCY REGULARLY FOLLOWED BY THE ASSESSEE. . IT IS ALSO TR UE THAT THE GP RATE CANNOT BE UNIFORM IN ALL THE YEARS. IT DEPENDS ON MANY FACTOR S NAMELY GENERAL MARKET CONDITIONS BASED ON DEMAND AND SUPPLY POSITION, THE RISE AND FALL IN MARKET RATES, THE CAPITAL POSITION VIZ-S-VIS TURN OVER AC HIEVED AND MANY OTHERS. THE EXPLANATION OFFERED BY THE ASSESSEE IS SELF EXPLANA TORY. IN OUR OPINION, THE FIRST APPELLATE AUTHORITY WAS NOT JUSTIFIED IN SUSTAINING A PART OF ADDITION MADE BY THE ASSESSING OFFICER BECAUSE LOW PROFIT IS NEITHER A C IRCUMSTANCE NOR MATERIAL TO JUSTIFY THE ADDITION OF PROFITS. THERE MUST BE SOM ETHING MORE THAN A MERE SUSPICION TO SUPPORT THE ESTIMATION. LOW PROFIT IN A PARTICULAR YEAR IS ITSELF CANNOT BE GROUND FOR MAKING THE ADDITION. IN THE I NSTANT CASE THE SUBMISSIONS OF THE ASSESSEE IS THAT RATE IN THIS LINE OF TRADE VAR Y FROM LOT- TO-LOT, SIZE TO SIZE AND AS PER THE GRADE AND LENGTH OF THE LEATHER / S KINS, SHINE OF THE SKIN ETC. SECONDLY, THE DESCRIPTION ALWAYS REMAINS THE SAME B UT THE RATES CHANGES WITH REFERENCE TO THE SIZES AND QUALITY WHICH IS THE MAT ERIAL FACT IN THIS LINE OF TRADE BECAUSE THE SMALLER SIZES THE FINISHED GOODS ARE NO T OF GOOD QUALITY IN THIS LINE OF TRADE. AS WE HAVE OBSERVED HEREINABOVE, THE ASSE SSING OFFICER HAS NOT INVOKED THE PROVISIONS OF SECTION 145 OF THE ACT. T HE BOOKS OF ACCOUNT OF THE ASSESSEE ARE AUDITED AND THE AUDITORS HAVE NOT GIVE N ANY ADVERSE REMARKS. THE ASSESSING OFFICER HAS COMPUTED THE SUPPRESSED SALES WITHOUT POINTING OUT ANY DISCREPANCY IN THE BOOKS OF ACCOUNT REGULARLY MAINT AINED BY THE ASSESSEE. IT IS OBSERVED THAT CIT(A) HAS ALLOWED A SUBSTANTIAL REL IEF TO THE ASSESSEE BUT WE 11 ARE OF THE OPINION THAT THERE IS NO JUSTIFICATION I N SUSTAINING THE ADDITION OF RS. 13,80,680/-, PARTICULARLY WHEN IT IS NOT THE CASE O F THE ASSESSING OFFICER THAT THE ASSESSEE HAS NOT DECLARED THE TRUE PROFITS AND THE BOOKS OF ACCOUNT ARE NOT RELIABLE AS HE HAS NOT REJECTED THE BOOK RESULTS. T HUS, CONSIDERING THE ENTIRE FACTS OF THE PRESENT CASE AND ALSO SETTLED LEGAL PO SITION, WE DO NOT FIND ANY REASON TO SUSTAIN THE ADDITION OF RS. 13,80,680/- A ND ACCORDINGLY WE DELETE THE SAME AND ALLOW THIS GROUND OF APPEAL. 11. GROUND NO.4 OF THE APPEAL, READS AS UNDER:- 4. THAT IN THE FACTS AND CIRCUMSTANCES OF THE CASE, THE LD. CIT(A) IS NOT JUSTIFIED IN UPHOLDING THE ADDITION OF RS. 5,39,772/- ON ALLEGED SUPPRESSED SA LES OF RS. 49,03,385/- TO THE SISTER CONCERN BY COMPARI NG 2 - 3 BILLS WITHOUT APPRECIATING THE QUALITY OF THE MATERIAL AND WITHOUT CONTROVERTING THE FACTS THAT S OME ITEMS HAD BEEN SOLD TO SISTER CONCERN AT HIGHER RAT ES ALSO. 12. THE ASSESSING OFFICER NOTED THAT THE ASSESSEE W AS SELLING ITS GOODS TO ITS SISTER CONCERN M/S M/S VIKING GARMENTS, AMBALA CITY AND M/S DHARMINDRA SKIN, AMBALA CITY. ON VERIFICATION OF SALES BILLS F OR SALES MADE TO SISTER CONCERN, THE ASSESSING OFFICER NOTICED THAT THE PRI CES CHARGED FROM THE OTHER PARTIES I.E SALE BILL NO. 642 DATED 16.4.2008 SHOWE D THAT SHEEP NAPPA BLACK WAS SOLD BY THE ASSESSEE TO ITS SISTER CONCERN M/S VIKING GARMENTS, AMBALA CITY @ RS.4/- PER DMS WHEREAS ON 15.4.2008 VIDE SALE BIL L NO. 641, SHEEP NAPPA BLACK HAD BEEN SOLD TO INDIGGO, GURGAON @ RS. 5.75 PER DMS. SIMILARLY, THE ASSESSING OFFICER HAS QUOTED OTHER BILLS IN THE ASS ESSMENT ORDER. THE ASSESSING OFFICER COMPUTED THE TOTAL SUPPRESSED SALES AT RS. 49,03,385/- ON WHICH GP RATE OF 15% WAS APPLIED AND MADE ADDITION OF RS. 7,35,50 8/- . 12 13. ON APPEAL, THE CIT(A) CONFIRMED THE VIEW TAKEN BY THE ASSESSING OFFICER BUT HE HAS APPLIED GP RATE OF 11% AS AGAINST GP RAT E OF 15% ADOPTED BY THE ASSESSING OFFICER. THE LD. CIT(A) HAS NOT DISTURBED THE SUPPRESSED SALES OF RS. 49,03,385/- AS WORKED OUT BY THE ASSESSING OFFICER. THE CIT(A) ALLOWED A RELIEF OF RS. 1,96,136/-. 14. WE HAVE CONSIDERED THE RIVAL SUBMISSIONS AND HA VE ALSO PERUSED THE MATERIALS AVAILABLE ON RECORD. SHRI ROHIT GOEL LD. COUNSEL FOR THE ASSESSEE RELIED ON THE DECISION OF HON'BLE HIGH COURT OF PUN JAB & HARYANA IN THE CASE OF CIT V SIYA RAM GARG (HUF) [2012] 20TAXMANN.COM (622 ) (P&H) WHEREIN IT HAS BEEN HELD THAT SISTER CONCERNS WERE BEING TAXED AT A SAME RATE AT WHICH THE ASSESSEE WAS BEING TAXED AND THERE WAS NO REASON FO R THE ASSESSEE TO SHOW PURCHASE AT HIGHER RATE FROM ITS SISTER CONCERNS AN D, THEREFORE, TRIBUNAL WAS JUSTIFIED IN DELETING THE ADDITION MADE BY THE ASSE SSING OFFICER ON ACCOUNT OF EXCESS PAYMENTS MADE TO THE SISTER CONCERNS. SHRI ROHIT GOEL, LD. COUNSEL FOR THE ASSESSEE ALSO SUBMITTED THAT RATE IN ASSESSEES LINE OF TRADE VARY FROM LOT- TO-LOT, SIZE TO SIZE AND AS PER THE GRADE AND LENGT H OF THE LEATHER / SKINS, SHINE OF THE SKIN ETC. CONSIDERING THE ENTIRE FACTS AND C IRCUMSTANCES OF THE PRESENT CASE, WE OBSERVE THAT ON THE BASIS OF CERTAIN BILLS , THE ASSESSING OFFICER CAME TO THE CONCLUSION THAT THE ASSESSEE WAS SELLING THE GO ODS TO ITS SISTER CONCERN AT A LOWER PRICE AS COMPARED WITH THE SALES MADE TO OTHE R PARTIES. IT IS ALSO NOTICED THAT DURING THE REMAND PROCEEDINGS THE ASSESSEE SUB MITTED TWO BILLS HAVING BILL NOS. 716 DATED 25.10.2008 IN WHICH MATERIAL WAS SOL D TO THE SISTER CONCERN @ 4.50 PER SQ DM AND ANOTHER HAVING BILL NO. 719 DATE D 15.10.2008 VIDE WHICH MATERIAL WAS SOLD TO M/S INDIGGO @ 3.15 PER SQ.DM. ACCORDING TO THE ASSESSEE THE RATE OF GOODS SOLD TO SISTER CONCERN IS HIGHER THAN THE GOODS SOLD TO THE OTHER PARTIES. THUS, CONSIDERING THE ENTIRE FACTS AND CIR CUMSTANCES OF THE CASE, WE ARE 13 OF THE VIEW THAT THERE IS NO JUSTIFICATION IN SUSTA INING THE IMPUGNED ADDITION. THE ASSESSING OFFICER CANNOT DICTATE TERMS TO THE A SSESSEE AS TO HOW SUCH PROFIT IS TO BE EARNED. THERE ARE NO BASIS FOR MAKING THE IMPUGNED ADDITION. IN THE RESULT, THE APPEAL IS ALLOWED PARTLY. ITA NO. 706/CHD/2013 15. VIDE GROUND NO. (I) AND (II) OF THE APPEAL, THE REVENUE HAS CHALLENGED THE ACTION OF THE CIT(A) IN APPLYING GP RATE OF 11% ON GROSS SALES OF RS. 12,23,72,378/- AS AGAINST 15% APPLIED BY THE ASSESS ING OFFICER. 16. WHILE DECIDING GROUND NO. (3) OF ASSESSEES APP EAL IN ITA NO. 609/CHD/2013, WE HAVE DISCUSSED THIS ISSUE AT LENGT H, AND THE ADDITION SUSTAINED BY CIT(A) ON ACCOUNT OF LOW GP RATE HAS ALREADY BEE N DELETED BY US. THE DECISION GIVEN IN ITA NO. 609/CHD/2013 SHALL ALSO A PPLY TO THIS GROUND OF APPEAL WITH EQUAL FORCE. THEREFORE, WE DO NOT SEE A NY MERIT IN GROUND NOS. (I) AND (II) OF REVENUES APPEAL. ACCORDINGLY THESE GRO UNDS ARE DISMISSED. 17. GROUND NO.(III) OF THE APPEAL IS DIRECTED AGAIN ST THE ACTION OF CIT(A) IN RESTRICTING THE DISALLOWANCE TO RS. 17,419/- OUT O F TOTAL DISALLOWANCE OF RS. 4 LAKHS MADE BY THE ASSESSING OFFICER ON ACCOUNT OF S ALARY AND WAGES. THE ASSESSEE CLAIMED SALARY AND WAGES AT RS. 23,65,128/ - AND BONUS AT RS. 3,50,432/-. THE ASSESSING OFFICER DISALLOWED RS. 4 LAKHS ON ADHOC BASIS. 18. AGGRIEVED BY THE ORDER OF THE ASSESSING OFFICER THE ASSESSEE WENT IN APPEAL BEFORE THE CIT(A) AND SUBMITTED THAT THE ASS ESSEE BEING A BENEVOLENT EMPLOYER HAS BEEN LIBERAL IN NOT MAKING ANY DEDUCTI ON FROM THE SALARY AND 14 BONUS PAID TO THE EMPLOYEES. THEREFORE, THERE WAS N O JUSTIFICATION IN MAKING ADHOC DISALLOWANCE OF ABOUT 15% OUT OF TOTAL SALARY AND BONUS PAID BY THE ASSESSEE. THE ASSESSEE SUBMITTED THAT THE ADDITION TO THE EXTENT OF MERE DOUBT REGARDING THE PAYMENT OF BONUS TO ONE EMPLOYEE WHO HAD LEFT THE JOB ONE YEAR EARLIER, AMOUNTING OF RS. 17,419/- COULD BE MADE. A DDITION MADE BEYOND THAT AND THAT TOO MERELY ON ADHOC BASIS WHICH IS UNREASO NABLE AND ARBITRARY COULD NOT BE MADE. 20. THE LD. CIT(A)ACCEPTED THE CONTENTION OF THE AS SESSEE AND RESTRICTED THE DISALLOWANCE TO THE DISCREPANCY I.E. RS. 17,419/- A ND ALLOWED A RELIEF OF RS. 3,82,581/- (RS. 4 LAKHS RS. 17,419/- = RS. 3,82,5 81/-). 21. AFTER HEARING THE LD. REPRESENTATIVE OF BOTH TH E PARTIES, WE ARE OF THE OPINION THAT THE ASSESSING OFFICER HAS MADE AN ADH OC DISALLOWANCE OF RS. 4 LAKHS OUT OF SALARY AND WAGES AND BONUS PAID BY THE ASSESSEE TO ITS EMPLOYEES. IT IS APPARENT FROM THE RECORD THAT THE ASSESSEE CL AIMED SALARY PAID TO SHRI UMESH ARYA SHRI R.K ARYA AMOUNTING TO RS. 17,419/- FOR 12 DAYS OF APRIL 2008, WHO HAD LEFT JOB ONE YEAR EARLIER. THE ASSESS EE HIMSELF HAS ADMITTED THAT DISALLOWANCE TO THE EXTENT OF RS. 17,419/- CAN BE MADE. THE ASSESSING OFFICER HAS NOT POINTED OUT ANY DISCREPANCY AND, THEREFORE, THERE WAS NO JUSTIFICATION IN MAKING THE ADHOC DISALLOWANCE OUT OF SALARY WAGES AND BONUS AS MADE BY THE ASSESSING OFFICER. IT IS APPARENT FROM THE RECORDS THAT THE ASSESSEE HAS RECORDED SALE OF RS. 1223.72 LAKHS AND JOB WORK INCOME OF RS . 178.32 LAKHS AND NET PROIFT OF RS. 43.23 LAKHS. THIS HUGE AMOUNT OF SALE S, JOB WORK INCOME AND NET PROFIT CANNOT BE ACHIEVED WITHOUT A PROPER AND ADEQ UATE LABOUR FORCE AND CONCERNS NATURE OF BUSINESS IS THAT OF MANUFACTURI NG JOB WORK OF HIDE AND SKINS AND LEATHER. IN THIS WAY, ALL THE EMPLOYEES WORK D AY TO DAY BASIS. . CONSIDERING 15 THE NATURE OF ASSESSEES BUSINESS AND RELEVANT FACT S, WE ARE OF THE OPINION THAT ORDER OF CIT(A) REQUIRES NO INTERFERENCE AT OUR LEV EL. ACCORDINGLY, WE UPHOLD THE ORDER OF CIT(A) ON THIS ISSUE AND REJECT GROUND NO. (III) OF THE REVENUES APPEAL. 22. IN THE RESULT, THE REVENUES APPEAL IS DISMISSE D. ORDER PRONOUNCED IN THE OPEN COURT ON 26.11.2015 SD/- SD/- (RANO JAIN) (H.L.KARWA) ACCOUNTANT MEMBER VICE PRESIDENT DATED 26 TH NOVEMBER, 2015 RKK COPY TO: 1. THE APPELLANT 2. THE RESPONDENT 3. THE CIT 4. THE CIT(A) 5. THE DR