ACIT, Jaipur V. DAMODAR PRASAD KANCHHHAL, TONK

ITA 737/JPR/2010

• Counselvise Citation: [2011] 119 COUNSELVISE.COM (IT) 7193 (ITAT-JAIPUR)
• Duration Of Justice: 1 year(s) 1 month(s) 27 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 12-08-2011
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: A
• Assessment Year: 2006-2007
• Appeal Filed On: 15-06-2010
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: ROSHANTA MEENA
• Keywords: Rejection of books of accounts; Depreciation; Business expenditure; Commercial expediency
• Section: 145

Judgement Text

1 737-10 IN THE INCOME TAX APPELLATE TRIBUNAL JAIPUR BENCH A JAIPUR BEFORE SHRI R.K. GUPTA AND SHRI N.L. KALRA ITA NO. 737/JP/2010 ASSTT. YEAR : 2006-07. THE ACIT, CIRCLE-7, VS. SHRI DAMODAR PRASAD KANC HHAL, JAIPUR. PROP. M/S. EARTH STONE WORLD WIDE, DEOLI, DIST. TONK. (APPELLANT) (RESPONDENT) APPELLANT BY : MS. ROSHANTA MEENA RESPONDENT BY : SHRI MAHENDRA GARGIEY A ORDER DATE OF ORDER : 12/08/2011. PER R.K. GUPTA, J.M. THIS IS AN APPEAL BY DEPARTMENT AGAINST THE ORDER OF LD. CIT (A) RELATING TO ASSESSMENT YEAR 2006-07. 2. GROUND NO. 1 IS AGAINST HOLDING THAT PROVISIONS OF SECTION 145(3) ARE NOT APPLICABLE AND DELETING THE ENTIRE TRADING ADDITION OF RS. 8,27,310/-. 3. THE BRIEF FACTS IN THIS REGARD DISCUSSED BY LD. CIT (A) IN PARA 4.1 ARE AS UNDER :- THE APPELLANT DERIVES INCOME FROM MANUFACTURING AND TRADING OF SLATE AND SAND STONE IN THE NAME OF M/S EARTH STONE WORLD WIDE. DU RING THE YEAR, GP OF 29.14% IS DECLARED ON TOTAL SALE OF RS.9,18,46,106/-, LAST YE AR GP DECLARED WAS OF VARIOUS ITEMS. HE ALSO HELD THAT & POLISHING EXPENSES, CUTTING EXPENS ES, TILE SPLITTING EXPENSES. FARSHI CUTTING EXPENSES, LOADING , UNLOADING & PACKING EXP ENSES, WATER EXPENSES , TOOLS EXPENSES ETC. ARE NOT SUPPORTED BY PROPER VOUCHER, AO REJECTED BOOKS OF ACCOUNT BY INVOKING PROVISIONS OF SECTION 145 TOTAL SALE WERE ESTIMATED AT RS.9,20,00,000/- ON WHICH GP RATE OF 30% WAS APPLIED THIS RESULTED IN TRADING ADDITION OF RS.8,27,310/-. 2 4. DETAILED WRITTEN SUBMISSIONS WERE FILED BEFORE L D. CIT (A) WHICH HAS BEEN REPRODUCED IN THE ORDER OF LD. CIT (A) AT PAGES 2 & 3 OF HIS ORDER. THEREAFTER, THE LD. CIT (A) AFTER TAKING INTO CONSIDERATION THE FINDING OF AO AND THE WRITTEN SUBMISSIONS HELD THAT PROVISIONS OF SECTION 145(3) ARE NOT APPLICABL E ON THE FACTS OF THE PRESENT CASE. IT WAS FOUND THAT THERE WAS A MARGINAL DECLINE IN G.P. WHICH DOES NOT ATTRACT REJECTION OF BOOKS OF ACCOUNT. THE LD. CIT (A) HELD THAT APPLYI NG G.P. RATE OF 30% AGAINST 29.14% DECLARED BY ASSESSEE WAS NOT ALSO JUSTIFIED. ACCOR DINGLY HE HELD THAT PROVISIONS OF SECTION 145(3) ARE NOT APPLICABLE AND TRADING ADDIT ION MADE BY AO WAS WITHOUT ANY BASIS. THEREFORE, THE SAME WAS ALSO DELETED. 5. THE LD. D/R SIMPLY RELIED ON THE ORDER OF A.O. 6. ON THE OTHER HAND, THE LD. COUNSEL OF THE ASSESS EE PLACED RELIANCE ON THE ORDER OF LD. CIT (A). 7. AFTER CONSIDERING THE ORDERS OF AO AND LD. CIT ( A), WE FIND NO INFIRMITY IN THE FINDING OF LD. CIT (A). FINDING OF LD. CIT (A) HAV E BEEN RECORDED IN PARA 4.3 TO 4.5 AT PAGES 3 ARE AS UNDER :- 4.3 AO HAS FAILED TO MAKE OUT A CASE FOR REJECTION OF BOOKS OF ACCOUNTS IN THIS CASE. THE ACCOUNTS ARE AUDITED AND THERE AR E NO ADVERSE COMMENTS OF AUDITOR. NO THIRD PARTY ENQUIRY HAS BEEN MADE AND N O MATERIAL HAS BEEN BROUGHT ON RECORD THAT BOOK RESULTS ARE NOT RELIABLE. NOT A SINGLE INSTANCE OF PURCHASE OR SALE HAS BEEN IDENTIFIED, WHICH IS NOT RECORDED IN REGULAR BOOKS OR INCORRECTLY RECORDED. NO MATERIAL HAS BEEN BROUGHT ON RECORD BY AO TO HOLD THAT THE APPELLANT HAS SUPPRESSED HIS SALES. THE OBSERVATION S OF AO REGARDING VOUCHERS OF VARIOUS EXPENSES ARE OF GENERAL NATURE, WHICH COULD HAVE BEEN A CAUSE FOR SUSPICION OF AO. BUT NO ADDITION IS JUSTIFIED MEREL Y ON THE BASIS OF SUSPICION OF AO. THE FACTS MENTIONED BY THE AO IN THE ASSESSMENT ORDER ARE NOT SUFFICIENT TO 3 CONCLUDE THAT APPELLANT SUPPRESSED HIS PROFIT. IN T HE ABSENCE OF ANY SPECIFIC MATERIAL BEING BROUGHT ON RECORD, THE ACTION OF AO IN REJECTING THE BOOKS OF ACCOUNT AND ESTIMATION OF SALES AT RS.9,20,00,000/- IS NOT JUSTIFIED. THERE IS ALSO NO REASON FOR APPLYING GP RATE OF 30% AS AGAINST 29 .14% DECLARED BY THE APPELLANT IN THE ABSENCE OF ANY SPECIFIC DEFECT POI NTED OUT IN THE BOOKS OF ACCOUNTS. 4.4 IN THE CASE OF GAUTAM LIME KHANIJ UDHYOG LTD, HON BLE JURISDICTIONAL HIGH COURT MADE THE FOLLOWING OBSERV ATION:- SECTION 145 OF THE INCOME TAX ACT 1961 ONLY PROVID ES THE BASIS ON WHICH COMPUTATION OF INCOME TO BE MADE FOR THE PURP OSE OF DETERMINING THE AMOUNT OF TAX. THE PROVISION BY ITSELF DOES NOT DEAL WITH THE ADDITION OR DELETION TO THE INCOME. THEREFORE, MERE REJECTIO N OF OR SOME DEFICIENCY IN THE BOOKS OF ACCOUNTS WOULD NOT MEAN THAT IT MUS T NECESSARILY LEAD TO ADDITION TO THE RETURNED INCOME. HENCE SIMPLY BECAU SE SECTION 145 IS APPLICABLE SHOULD NOT BE CRITERIA FOR MAKING TRADIN G ADDITION MORE PARTICULARLY WHEN PURCHASES AND SALES ARE FULLY VOU CHED AND NO DISCREPANCY AS SUCH WAS FOUND IN THE BOOKS OF ACCOU NTS MAINTAINED BY THE ASSESSEE. WHERE THERE IS NO MAJOR DEFICIENCY IS FOU ND IN THE BOOKS OF ACCOUNTS THEN ADDITION TO THE INCOME OF ESTIMATION OF HIGHER GROSS PROFIT RATE IS NOT PERMISSIBLE U/S 145. IN THE PRESENT CAS E EVEN THE PROVISION OF SECTION 145 IS NOT APPLICABLE. 4.5 IT HAS BEEN HELD BY HONBLE ITAT, JAIPUR BENCH IN T HE CASE OF PRASADILAL DEVKINANDAN IN ITA NO. 653/JB/2003 (97-9 8) AND HONBLE ITAT, JODHPUR BENCH IN THE CASE OF HINDUSTAN PROCESSORS L TD. (ITA NO. 639/SDPR/2006) THAT NON-MAINTENANCE OF QUANTITATIVE DETAILS IS NOT SUFFICIENT TO REJECT BOOKS OF ACCOUNTS AND TO INVOKE THE PROVISIO NS OF SECTION 145. IN SUCH A CASE, AO IS NOT JUSTIFIED TO REJECT THE AUDITED BOO KS OF ACCOUNTS ON THE FLIMSY GROUND THAT CERTAIN EXPENSES ARE NOT SUPPORTED BY P ROPER VOUCHERS. THEREFORE, 4 TRADING ADDITION OF RS.8,27,310/- IS DIRECTED TO BE DELETED. GROUND NO. 1 AND 2 OF THE APPEAL ARE THUS ALLOWED. 8. THE ABOVE FINDING NEITHER COULD BE CONTROVERTED NOR ANY OTHER MATERIAL WAS BROUGHT ON RECORD, THEREFORE, WITHOUT GOING INTO DE TAIL FURTHER, WE CONFIRM THE FINDING OF LD. CIT (A). 9. GROUND NOS. 2, 3, 4, 5 & 6 WHICH RELATE TO DELET ING THE ADDITION OF RS. 14,518/-, 29,640/-, RS. 14,795/-, RS. 27,667/- AND RS. 39,005 /- MADE BY THE AO ON ACCOUNT OF MACHINE REPAIR AND SPARE PARTS, ON ACCOUNT OF POSTA GE AND COURIER EXPENSES, ON ACCOUNT OF TELEPHONE AND FAX, ON ACCOUNT OF VERONA FAIR AND ITALY EXPENSES AND ON ACCOUNT OF DEPRECIATION ON VEHICLE. 10. THE ABOVE STATED DISALLOWANCES WERE MADE BY THE AO BY OBSERVING THAT THERE ARE SELF MADE VOUCHERS AND ENTIRE EXPENSES CLAIMED BY A SSESSEE ARE NOT VERIFIABLE. THEREFORE, PART DISALLOWANCES WERE MADE BY THE AO. DETAILED S UBMISSIONS WERE FILED BEFORE LD. CIT (A) WHO AFTER CONSIDERING THE DETAILED SUBMISSIONS HELD THAT THERE WAS NO JUSTIFICATION IN MAKING THE DISALLOWANCE BY THE AO AS ASSESSEE HAS F ILED ALL THE RELEVANT DETAILS. ALL THE EXPENSES ARE VOUCHED. NO SPECIFIC DEFECT WAS POINTE D OUT BY THE AO THAT HOW THE EXPENSES ARE NOT ALLOWABLE AS BUSINESS EXPENSES. AC CORDINGLY, THE LD. CIT (A) ALLOWED THE ISSUE IN FAVOUR OF THE ASSESSEE. 11. THE LD. D/R HAS PLACED RELIANCE ON THE ORDER OF THE AO, 12. ON THE OTHER HAND, LD. COUNSEL OF THE ASSESSEE PLACED RELIANCE ON THE ORDER OF LD. CIT (A). 13. AFTER CONSIDERING THE ORDERS OF THE AO AND LD. CIT (A), WE FIND THAT LD. CIT (A) HAS GIVEN A FINDING OF FACT. THE LD. CIT (A) HAS OB SERVED THAT THE AO HAS MADE 5 DISALLOWANCE WITHOUT ANY BASIS. ALL DETAILS WERE F ILED BEFORE THE AO. HOWEVER, WITHOUT GOING INTO DETAILS AND WITHOUT BRINGING ANY MATERIA L ON RECORD, DISALLOWANCE WAS NOT JUSTIFIED. WHILE HOLDING SO, THE LD. CIT (A) HAS PL ACED RELIANCE ON THE ORDER OF HONBLE JURISDICTIONAL HIGH COURT IN THE CASE OF LAXMI ENGI NEERING INDUSTRY, 298 ITR 203 WHEREIN IT IS HELD THAT MERELY ON THE BASIS OF SUSP ICION AN EXPENDITURE CANNOT BE DISALLOWED. IN APPLYING COMMERCIAL EXPEDIENCY FOR DETERMINING WHETHER THE EXPENDITURE WAS WHOLLY AND EXCLUSIVELY LAID OUT FOR THE PURPOSE OF THE ASSESSEES BUSINESS, REASONABLENESS OF THE EXPENDITURE HAS TO BE JUDGED FROM THE POINT OF VIEW OF THE BUSINESSMAN AND NOT OF THE DEPARTMENT. AS STATED A BOVE, THESE FINDINGS OF LD. CIT (A) NEITHER COULD BE CONTROVERTED NOR ANY MATERIAL WAS BROUGHT ON RECORD. THEREFORE, WE HOLD THAT DISALLOWANCES DELETED BY LD. CIT (A) WERE CORRECT. ACCORDINGLY, WE CONFIRM THE ORDER OF LD. CIT (A) IN RESPECT OF ALL THE ABOV E STATED DELETIONS. 14. REMAINING ISSUE IS AGAINST DELETING THE ADDITIO N OF RS. 1,77,424/- MADE BY AO ON ACCOUNT OF SUNDRY EXPENSES. 15. THE AO MADE LUMP SUM DISALLOWANCE OF RS. 1,77,4 24/- OUT OF VARIOUS EXPENSES, NAMELY, BUILDING REPAIR MAINTENANCE EXPENSES, BUSIN ESS PROMOTION EXPENSES, CONVEYANCE, FACTORY, OFFICE, REFRESHMENT, STAFF WEL FARE, PRINTING STATIONARY AND TRAVELING EXPENSES ON THE GROUND OF SELF MADE VOUCHERS. IT WA S SUBMITTED BEFORE LD. CIT (A) THAT ALL THE VOUCHERS OF EXPENSES WERE DULY SUPPORTED BY PROPER EVIDENCE AND BILLS. HOWEVER, PETTY AMOUNT OF CONVEYANCE, TEA ETC. ARE DEBITED ON THE BASIS OF DECLARATION OF THE EMPLOYEES. ACCORDINGLY IT WAS SUBMITTED THAT THERE WAS NO BASIS TO DISALLOW ON ADHOC BASIS @ 10% BY THE AO. 6 16. THE LD. CIT (A) AFTER CONSIDERING THE SUBMISSIO NS AND PERUSING THE MATERIAL ON RECORD AND PLACING RELIANCE ON THE HONBLE JURISDIC TIONAL HIGH COURT DECISION IN THE CASE OF M/S. LAXMI ENGINEERING INDUSTRY (SUPRA) DELETED THIS DISALLOWANCE ALSO. 17. AFTER CONSIDERING THE ORDERS OF AO AND LD. CIT (A), AGAIN WE FIND NO INFIRMITY IN THE FINDING OF LD. CIT (A). 18. THE LD. CIT (A) HAS DELETED THE ADDITION AFTER ASCERTAINING THE FACTUAL POSITION THAT ALL EXPENSES ARE VOUCHED AND THEY HAVE BEEN CLAIMED FOR THE PURPOSE OF BUSINESS ONLY. THEREFORE, WE SEE NO REASON TO INTERFERE WITH THE F INDING OF LD. CIT (A). ACCORDINGLY WE CONFIRM THE ORDER OF LD. CIT (A) ON THIS ISSUE ALSO . 19. IN THE RESULT, APPEAL OF THE DEPARTMENT IS DISM ISSED. 20. THE ORDER IS PRONOUNCED IN THE OPEN COURT ON 12 .8.2011. SD/- SD/- ( N.L. KALRA ) ( R.K. GUPTA ) ACCOUNTANT MEMBER JUDICIAL MEMBER JAIPUR, D/- COPY FORWARDED TO :- THE ACIT, CIRCLE-7, JAIPUR. SHRI DAMODAR PRASADKANCHHAL, TONK. THE CIT (A) THE CIT THE D/R GUARD FILE (ITA NO. 737/JP/2010) BY ORDER, AR ITAT JAIPUR.