ACIT, Jaipur V. M/S RAKESH PRAKASHAN, Jaipur

ITA 738/JPR/2011

• Counselvise Citation: 73823114 RSA 2011
• Duration Of Justice: 4 month(s) 12 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 30-12-2011
• Appeal Filed By: Department
• Order Result: Partly Allowed
• Bench Allotted: A
• Assessment Year: 2008-2009
• Appeal Filed On: 17-08-2011
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Department Lawyers: D K MEENA
• Keywords: Rejection of books of accounts; Commercial expediency
• Section: 37

Judgement Text

1 IN THE INCOME TAX APPELLATE TRIBUNAL, JAIPUR BENCHES, A JAIPUR (BEFORE SHRI R.K.GUPTA AND SHRI N.L. KALRA) ITA NO.738/JP/2011 ASSESSMENT YEAR : 2008-2009 ASSTT. COMMISSIONER OF INCOME TAX VS. M/S. RAKES H PRAKASHAN CIRCLE-1, JAIPUR. JAIPUR. (APPELLANT) (RESPONDENT) APPELLANT BY : SHRI D.K. MEENA RESPONDENT BY : WRITTEN SUBMISSION DATE OF HEARING: 28.12.2011 DATE OF PRONOUNCEMENT : 30.12.2011 ORDER PER SHRI N.L. KALRA, A.M. 1. THE REVENUE HAS FILED AN APPEAL AGAINST ORDER OF LD. CIT (A)-1, JAIPUR DATED 1.6.2011. THE FIRST GRIEVANCE OF REVENUE IS AGAINST DELETING THE ADDITION OF RS.3,59,524/- MADE ON A/C OF EXCESS CLAIM OF LOSS BY REJECTING THE BOOKS OF ACCOUNT. 1.1 THE A.O. NOTICED THAT ASSESSEE HAS CLAIMED WAST AGE OF 14% AT DIFFERENT STAGES OF PUBLICATION AND IT IS A UNIFORM RATE. THE A.O. ISSU ED A SHOW CAUSE NOTICE WHICH IS AVAILABLE AT PAGE 4 OF THE ASSESSMENT ORDER. THE A.O. ALSO REFER RED TO THE CASE OF SANJEEV PARKASHAN IN WHICH WASTAGE OF 1.5% IS BEING CLAIMED. THE ASSESSEE IS U SING PAPER OF DIFFERENT SIZES AND HOW THE WASTAGE CAN BE THE SAME. THE ASSESSEE FILED EXPLAIN ATION AND THAT IS AVAILABLE AT PAGE 5 OF THE ASSESSMENT ORDER. THE ASSESSEE HAS EXPLAINED AS TO HOW WASTAGE IN THE CASE OF SMALL PUBLISHER IS LESS. THE A.O. AFTER CONSIDERING THE EXPLAINATION M ADE THE ADDITION AFTER OBSERVING AS UNDER: 2 THE SUBMISSION OF ASSESSEE HAVE BEEN CONSIDERED AND THE SAME ARE GENERAL IN NATURE. THE ASSESSEE HAS 20-30 TYPES OF PRODUCTS AN D HAS CLAIMED A UNIFORM LOSS ON ALL PRODUCTS. SUCH A CLAIM IS NOT SUPPORTED BY A NY PROOF. AS POINTED OUT EARLIER, THE LOSS CLAIMED BY ASSESSEE AT BINDING ST AGE IS 5% WHEREAS AT THIS STAGE SANJEEV PRAKASHAN HAS CLAIMED A LOSS OF 1.5%. HENCE THE BOOKS OF ACCOUNT OF ASSESSEE ARE NOT RELIABLE TO ARRIVE AT CORRECT FIGU RE OF LOSS. THE SAME ARE REJECTED U/S 145(3). THE DIFFERENCE IN CLAIM BY SANJEEV PRAK ASHAN, COMPARABLE CASE, AND THAT OF ASSESSEE IS ABOUT 70%, THAT IS, THE ASSESSE E HAS CLAIMED THE WASTAGE EXCESS BY 70%. HOWEVER CONSIDERING THAT THERE MAY BE CERTA IN DIFFERENCE BETWEEN THE TWO, THE WASTAGE CLAIMED IS RESTRICTED TO 50% TO BE FAIR AND JUST TO THE ASSESSEE. THE ASSESSEE HAS CLAIMED 14% LOSS AND SAME IS RESTR ICTED TO 7%. THE DISALLOWANCE ON THIS ACCOUNT IS WORKED AS UNDER: TOTAL PAPER PURCHASED AND USED IN PRODUCTION IN 200 7-2008 IS RS.49,93,196/-. WASTAGE AT THE RATE OF 7% OF RS.49,93,196/- I.E. RS .3,49,524/- IS DISALLOWED ON ACCOUNT OF EXCESS CLAIM OF WASTAGE OF PAPER AND ADD ED BACK TO THE TOTAL INCOME OF THE ASSESSEE. 1.2 BEFORE THE LD. CIT (A), THE ASSESSEE SUBMITTED AS UNDER: (A) NO DEFECTS IN METHOD OF ACCOUNTING OR IN BOO KS HAVE BEEN POINTED OUT BY AO. COMPLETE SALES, PURCHASES ARE VO UCHED AND VERIFIABLE FROM RECORDS. THE SAME ACCOUNTING METHOD AND PRINCIPLES ARE FOLLOWED FOR YEAR TO YEAR. THE BOOKS OF ACCOUNT ARE AUDITED U/SEC. 44AB OF INCOME TAX ACT, 1961 AND NO QUALIFICATION THEREIN MADE BY THE AO. COMPLETE G .P. CHART OF LAST 3 YEARS SHOWN AS UNDER:- F.Y. 2007-08 2006-07 2005-06 TURNOVER 13995076/- 12819434/- 11326451/- GROSS PROFIT 6786248/- 5282447/- 7520726/- NET PROFIT 2904877/- 1358036/- 1284961/- G.P. RATIO 48.49% 41.21% 33.60% N.P. RATIO 20.76% 10.59% 11.34% (B) THAT ASSESSEE FIRM IS PUBLISHING PRINTING THE O NE WEEK SERIES/PASS BOOKS OR HELPING BOOKS OR MATERIAL; THE QUALITY OF PAPER THEREOF IS VERY ROUGH AND CHEAP TO MAKE IT COMPETITIVE. 3 (C) FURTHER VARIOUS PUBLICATIONS ARE OF VARIOUS SIZ ES, LENGTH AND VOLUME WHICH NEEDS ADJUSTMENTS ON MACHINE AND BINDING. A P UBLICATION CAN BE OF 20 PAGES AND ANOTHER CAN BE OF 200 PAGES DEPENDING ON TYPE OF LITERATURE AND SUBJECT. THE STAGES OF PUBLICATION ARE PROOF READING, THREAD ING, PASTING, BINDING & CUTTING OF SIZE. (D) M/S. SANJEEV PRAKASHAN, JAIPUR AS STATED BY THE AO IS NOT A COMPARABLE CASE. SINCE THEY ARE ENGAGED IN PUBLICATION AND PRI NTING OF TEXT BOOKS AND NOT ONE WEEK SERIES OR HELPING BOOKS. SINCE THE QUA LITY OF PAPER IS TO BE ENSURED. IN ONE WEEK SERIES THE PAPER IS CHEAPER OR ROUGH SINCE LIFE OF STUDY MATERIAL IS ONE MONTH WHEREAS TEXT BOOK LIFE IS ONE YEAR OR MORE. THUS THE CHEAPER THE PAPER (QUALITY WISE) THE MORE HIGHER CHANCES OF WASTAGE IS THERE. (E) THE AO HIMSELF IS NOT SURE ABOUT PERCENTAGE OF WASTAGE OR TYPE OF WORK AND HAS HIMSELF ESTIMATED THE SAID WASTAGE AT 7% AG AINST CALCULATED WASTAGE AT 14% BY APPLYING THE PROVISION OF SECTION 145(3) OF INCOME TAX ACT, 1961. HE RELIED ON THE FOLLOWING CASE LAWS:- (I) AS HELD IN CASE OF BRIJ BHUSHAN LAL PRADUMAN KU MAR V/S CIT (1978) 115 ITR 524 (SC) THAT ANY ESTIMATION MADE MU ST BE HONEST AND FAIR. (II) (1991) 101 TAXATION 94 (DELHI) (AT) R.B. CHY R UCHI RAM KHATTAR & SONS. (F) THE PROVISIONS OF SECTION 145(3) CAN BE APPLIED ONLY WHEN THE ASSESSING OFFICER IS NOT SATISFIED ABOUT THE CORRECTNESS OR C OMPLETENESS OF THE ACCOUNTS OF THE ASSESSEE, OR WHERE THE METHOD OF AC COUNTING PROVIDED IN SUB SECTION (1) OR ACCOUNTING STANDARDS NOTIFIED UN DER SUB SECTION (2) HAVE NOT BEEN REGULARLY FOLLOWED BY THE ASSESSEE. (G) THE AO HAS NO WHERE POINTED OUT ANY SUCH DEFECT S IN BOOKS OR IN METHOD OF ACCOUNTING. FURTHER THE COMPARABLE CASE AS COMPA RED BY AO HAS ALSO BEEN GRANTED INCOMPLETE INFORMATION E.G., QUANTUM O F SALES, NATURE OF BUSINESS, PROCESS INVOLVED, EACH PROCESS LOSS ETC., RESULTING INTO UNWARRANTED ADDITION. LOOKING TO THESE FACTS IT WAS REQUESTED TO DELETE THE ADDITION. 1.3 THE LD. CIT (A) AFTER CONSIDERING THE SUBMISSIO NS OF THE ASSESSEE DELETED THE ADDITION AFTER OBSERVING AS UNDER: 4 I HAVE CAREFULLY PERUSED THE ORDER OF THE AO & SUBM ISSIONS OF THE AR. REGARDING REJECTION OF BOOKS OF ACCOUNTS BY THE AO AND DISALL OWANCE OF RS.3,49,524/- OUT OF CLAIM OF WASTAGE OF PAPERS, IT IS SEEN THAT THE AO HAS NOT POINTED OUT ANY SPECIFIC DEFECTS IN THE AUDITED BOOKS OF ACCOUNT OF THE ASSE SSEE. THE AO HAS MERELY SAID THAT THE ASSESSEE HAS CLAIMED UNIFORM LOSS ON 20 TO 30 TYPE OF PRODUCTS WHICH IS NOT SUPPORTED BY ANY PROOF AND HAS REJECTED HIS BOO KS OF ACCOUNT U/S 145(3). NO ADVERSE FINDING WAS GIVEN REGARDING VERIFIABILIT Y OF THE SALES AND PURCHASES. THERE IS CONSISTENCY IN THE ACCOUNTING METHOD FOLLO WED BY THE ASSESSEE AND THE BOOKS OF ACCOUNTS HAVE BEEN AUDITED U/S 44AB. AS NO SPECIFIC DEFECTS HAVE BEEN MENTIONED BY THE AO THE REJECTION OF BOOKS OF ACCOU NTS OF THE ASSESSEE U/S 145(3) IS NOT UPHELD. WHILE MAKING THE DISALLOWANCE OF WASTAGE CLAIMED BY THE ASSESSEE THE AO HAS COMPARED THE ASSESSEES CASE WITH M/S. SANJEEV PRAK ASHAN HOLDING IT AS COMPARABLE. THE AR OF THE ASSESSEE HAS SUBMITTED THAT CASE OF M /S. SANJEEV PRAKASHAN IS NOT COMPARABLE SINCE THEY OBTAINED TEXT BOOK WHILE THE ASSESSEE PUBLISHED KUNJIS OR PASS BOOKS. THESE ARE ESSENTIALLY PUBLISHED ON C HEAP PAPERS WHEREIN WASTAGE IS HIGHER. I FIND THE SUBMISSION OF THE AR ACCEPTABLE. MOREOVE R, THE TURNOVER DURING THIS YEAR HAS IMPROVED SINCE LAST YEAR FROM RS.1,28,19,4 34/- TO RS.1,39,95,076/-. ON THIS INCREASED TURNOVER THE G.P. RATE TOO HAS IMPRO VED FROM 41.12% TO 48.49%. GIVEN THE FACT THAT THE G.P. RATE IS MUCH BETTER ON INCREASED SALES AND EVEN THE N.P. HAS INCREASED DURING HE YEAR FROM 10.95% LAST YEAR TO 20.76% THIS YEAR ON INCREASED TURNOVER THE ADDITION ON ESTIMATE BASIS A PPEARS UNJUSTIFIED. THEREFORE, THE ADDITION MADE OF RS.3,49,524/- ON ACCOUNT OF WA STAGE CLAIMED ON ESTIMATE BASIS BY THE AO IS DELETED. 1.4 WE HAVE BEARD BOTH THE PARTIES. THE ASSESSEE IS HIS WRITTEN SUBMISSIONS HAS REFERRED TO THE ORDER OF LD. CIT (A). NEITHER THE A.O. NOR THE LD. CIT (A) HAS REFERRED THAT ASSESSEE IS MAINTAINING DAY TO DAY QUANTATIVE DETAILS OF PURCHA SES AND CONSUMPTION. THE ASSESSEE IN HIS WRITTEN SUBMISSIONS BEFORE US HAS SUBMITTED AS UNDE R: COMPLETE QUANTATIVE DETAILS OF PAPER PURCHASED DAT E WISE CONSUMPTION AND REASONS FOR WASTAGE WAS FILED. 5 IF THE ASSESSEE HAS MAINTAINED SUCH DETAILS THEN N O ADDITION CAN BE MADE UNLESS THE A.O. CAN HAVE MATERIAL TO SAY THAT DETAILS ARE WRONG. TH E A.O. CAN EXAMINE THE PERSON WHO HAS MAINTAINED SUCH REGISTER. IF WASTAGE IS BEING CLAIM ED ON THE BASIS OF QUANTATIVE DETAILS PREPARED AT THE END OF THE YEAR THEN THE ONUS WILL BE ON THE ASSESSEE TO ESTABLISH THE PERCENTAGE OF WASTAGE. HENCE THE ISSUE OF DISALLOWANCE ON ACCOUNT OF WASTA GE IS RESTORED BACK ON THE FILE OF THE A.O. 2. THE SECOND GRIEVANCE OF THE REVENUE IS THAT LD. CIT (A) HAS ERRED IN DELETING THE ADDITION OF RS.17,54,890/- MADE BY A.O. ON ACCOUNT OF EXPENS ES PAYABLE ON THE SALES RETURN FOR THE YEAR 06-07 BY NOT TREATING THE SAME AS CONTIGENT LIABILI TY. 2.1 THE A.O. NOTICED THAT THE ASSESSEE CLAIMED RS.2 1,11,484/- AS SALES RETURN BY THE DEBTORS DURING THE PERIOD UNDER CONSIDERATION. THE ASSESSEE FILED REPLY VIDE LETTER DT. 25.11.2010. SALES RETURN OF RS.3,56,504/- WAS SHOWN IN THE ACCOUNT OF NEW BOOK CO. BALANCE WAS SHOWN IN THE BALANCE SHEET AS SALES RETURN FROM DEBTORS. ACCORDI NG TO THE A.O. THE ASSESSEE HAS MADE PROVISION OF RS.17,54,980/- I.E. DIFFERENCE OF RS.2 1,11,164/- MINUS 3,56,504/- AND ASKED THE ASSESSEE TO EXPLAIN. THE ASSESSEE FILED THE FOLLOWI NG EXPLAINATION. THIS IS WITH REFERENCE TO THE SALES RETURNS AND CRE DIT NOTES OF RS.21,11,484/- CLAIMED BY OUR ASSESSEE IN THE FINANCIAL YEAR 2007- 08. DURING THE FINANCIAL YEAR 2007-08, THE ASSESSEE HAD RECEIVED THE UNSALEABLE GOODS RETURNED BY ITS DEBTOR AS FOLLOWS: 30 TH APRIL, 2007 RS.7,99,699/- 31 ST MAY, 2007 RS.10,24,875/- 28 TH JUNE, 2007 RS.19,814/- 31 ST MARCH, 2008 RS.3,56,504/- ---------------------- TOTAL RS.22,00,892/- ----------------------- 6 OUT OF THE ABOVE, UN-SALEABLE GOODS RECEIVED IN THE MONTHS OF APRIL, MAY AND JUNE, 2007 AMOUNTING TO RS.18,44,388/- WERE THE GOO DS, OF WHICH SALES WERE MADE IN F.Y. 2006-07 AND THE SAME HAS NOT BEEN CLAI MED AS EXPENSE IN THE F.Y. 2006-07, THOUGH THE SAME HAS BEEN RECEIVED IN F.Y. 2007-08. IN THE EXACT SAME WAY UN-SALEABLE GOODS GOT RETURNED IN THE MONTHS OF APRIL, MAY AND JUNE, 2008 AMOUNTING TO RS.17,54, 980/- HAVE BEEN CLAIMED AS E XPENSE IN THE F.Y. 2007-08 FOR THE SAME REASON. THIS IS THE CONSISTENT PRACTIC E FOLLOWED IS ALSO IN CONFORMITY WITH THE ACCEPTED ACCOUNTING PRINCIPLES. IN THIS CONNECTION WE WANT TO DRAW YOUR ATTENTION T OWARDS THE NATURE OF THE BUSINESS OF THE ASSESSEE. THE BOOKS PUBLISHED BY TH E ASSESSEE HAVE A TIME VALUE I.E., THEY ARE SMALL BOOKS PREPARED FOR THE ENSUING EXAMINATION OF THE SCHOOL AND COLLEGE STUDENTS AND WITH THE PASSAGE OF TIME, I.E, AFTER THE EXAMINATIONS ARE OVER THEY ARE COMPLETELY USELESS AND BECOME UNSALABLE, S INCE THEY HAVE THE PARTICULAR STUDY MATERIAL FOR THAT PARTICULAR EXAMINATION ONLY . THIS IS LIKE THE DAILY NEWSPAPER WHICH ON PASSES OF THAT PARTICULAR DAY AN D TIME BECOMES COMPLETELY USELESS I.E, BECOMES RADDI IN GENERAL LANGUAGE. THERE IS A GENERAL PRACTICE IN THE TRADE OF THE ASS ESSEE THAT THE STOCK REMAIN UNSOLD WITH THE RETAILERS AND DISTRIBUTORS IS RETUR NABLE UP TO A CERTAIN TIME I.E, AFTER THE EXAMINATIONS ARE OVER. GENERALLY, THE EXA MINATIONS ARE BEING CONDUCTED BY THE BOARD OF SECONDARY EDUCATION, RAJASTHAN AND THE UNIVERSITIES IN THE STATE OF RAJASTHAN IN THE MONTH OF MARCH EVERY YEAR. IN T HE CASE OF OUR ASSESSEE ALSO, THE GOODS REMAIN UNSOLD OF THAT PARTICULAR YEAR HAV E BEEN RETURNED BY VARIOUS RETAILERS AND DISTRIBUTORS TO OUR MAIN DISTRIBUTOR AND THAT DISTRIBUTOR RETURNED SUCH BOOKS TO THE ASSESSEE IN THE MONTH OF APRIL, M AY AND JUNE OF THE NEXT FINANCIAL YEAR. SINCE THE ASSESSEE IS FOLLOWING THE MERCANTILE SYST EM OF ACCOUNTING AND TO ASCERTAIN THE PROFIT OR LOSS OF THE YEAR IT IS NOT ONLY NECESSARY BUT ESSENTIAL TO ACCOUNT FOR PROPERLY THE VALUE OF THE UN-SALEABLE G OODS RETURNED BY THE CUSTOMER. SINCE THE GOODS GOT RETURNED BY THE ASSESSEE HAVE N O SALEABLE VALUE HENCE THE AMOUNT IS TO BE GOT ADJUSTED WITH THE SALES FIGURES OF THAT PARTICULAR YEAR TO ARRIVE AT TRUE AND FAIR PROFIT OR LOSS OF THE YEAR. FURTHER, THE FIGURES OF SALES RETURN AND CREDIT NOT ES ARE ACTUAL AND NOT BASED ON ANY ESTIMATE, HENCE A CONCLUSION DRAWN FROM THE ACC OUNT TO TREAT IT AS PROVISION IS NOT PROPER. IT CAN NOT BE ASSUMED AS A PROVISION AND FURTHER CANNOT BE ASSUMED AS A CONTINGENT LIABILITY. PROVISION MEANS AN ESTIM ATE WHICH CAN NOT BE MADE ACCURATELY AND A CONTINGENT LIABILITY MEANS A LIABI LITY THAT MAY ARISE OR MAY NOT ARISE, BUT IN THIS CASE THERE IS NO UNCERTAINTY AND THE AMOUNT OF THE RETURNED GOODS HAS BEEN ARRIVED AT FROM ACTUAL FIGURES AND I T IS CONSISTENT SYSTEM OF ACCOUNTING. IN THE CASE OF THE ASSESSEE ALSO, THE AMOUNT OF THE RETURNED GOODS HAS BEEN ADJUSTED WITH THE SALES OF THAT PARTICULAR YEAR, WH EN THE SALES WAS ACTUALLY MADE AND THE AMOUNT OF RETURNED UN-SALEABLE GOODS IS AN ACTUAL LIABILITY AND NOT A CONTINGENT LIABILITY. FURTHER, THE SAME PRACTICE IS BEING FOLLOWED YEAR-AFTER-YEAR. 7 THERE IS NO DEVIATION IN THE PRACTICE FOLLOWED FOR THE YEAR UNDER CONSIDERATION ALSO. WE ARE PRODUCING HEREUNDER THE FIGURES OF UN-SALEAB LE GOODS RETURNED BY THE CUSTOMERS OF OUR ASSESSEE IN THE MONTHS OF APRIL, M AY AND JUNE FOR LAST THREE YEARS WHICH HAVE BEEN TREATED IN THE SAME WAY FOR Y OUR READY REFERENCE AND PERUSAL. F.Y.2006-07 RS.1710388/- PERTAINING TO THE SALES OF FY 2005-06 F.Y.2007-08 RS.1844388/- PERTAINING TO THE SALES OF FY 2006-07 F.Y.2008-09 RS.1754980/- PERTAINING TO THE SALES OF FY 2007-08 FROM THE VIEW POINT OF THE INCOME TAX DEPARTMENT AL SO IT HAS NOT ESCAPED ANY AMOUNT TO BE TAXED. BY FOLLOWING THIS PRACTICE, REV ENUE OF THE DEPARTMENT HAS NOT BEEN AFFECTED IN ANY WAY AND THE FINAL STATEMENTS O F THE FIRM DEPICT TRUE AND FAIR PROFIT FOR THE YEAR. THE ACCOUNTING STANDARDS OF TH E INSTITUTE OF CHARTERED ACCOUNTANTS OF INDIA ALSO CONFORMS THE SAME WAY OF TREATING SUCH AN ACCOUNTING PRACTICE. 2.2 THE A.O. MADE AN ADDITION OF RS.17,54,980/- AFT ER OBSERVING AS UNDER: THE ARGUMENTS OF ASSESSEE ARE NOT TENABLE. THE FACT IS THAT MOST OF EXAMINATIONS ARE NOT OVER BEFORE APRIL & MAY. THE SALES RETURNS IF ANY ARE NOT CRYSTALLIZED OR ASCERTAINED DURING THE ACCOUNTING YEAR. THE OTHER R ELEVANT FACT IS THAT THE ASSESSEE EFFECTS ITS SALES THROUGH A SOLE PURCHASER NAMELY NEW BOOK CO, A SISTER CONCERN, AND THAT IN TURN SELLS TO THE SMALL SELLER S IN EACH TOWN/CITY. THE CREDIT NOTES ARE ALSO ISSUED BY THE NEW BOOK CO. ONLY AFTE R END OF THE ACCOUNTING PERIOD. THUS THE SALES RETURN ORIGINATE FROM THE INDIVIDUAL SMALL SELLERS IN EACH TOWN, WHOM THE NEW BOOK CO. ISSUES CREDIT NOTES AND IN TU RN ISSUES DEBIT NOTE TO THE ASSESSEE. THESE DEBIT NOTES AND CREDIT NOTES ARE IS SUED AFTER AND OF THE ACCOUNTING YEAR WHEN THE ACTUAL QUANTITY OF UNSOLD BOOKS IS AS CERTAINED AND CRYSTALLIZED. IN FACT, THOUGH THE CREDIT NOTES/DEBIT NOTES OF SALES RETURN ARE ISSUED NEXT YEAR ON CRYSTALLIZATION OF SUCH RETURN, THE ASSESSEE IS CLA IMING EXACTLY THE SAME AMOUNT IN BOOKS OF THE EARLIER YEAR. THAT MEANS SUCH ENTRIES OF SALES RETURNS ARE NOTHING BUT POST FACTO ENTRIES AFTER AND OF THE YEAR. WHILE CLO SING THE BOOKS IN MARCH THESE AMOUNTS ARE NOT KNOWN TO ASSESSEE. THUS THE DEDUCTI ON OF SALES RETURN CLAIMED BY ASSESSEE IN THE A.Y. 2008-09 IS NOTHING BUT A PROVI SION FOR UNASCERTAINED AND UN- CRYSTALLIZED CONTINGENT LIABILITY, WHICH IS NOT ALL OWABLE AS PER LAW. RELIANCE IN THIS REGARD IS ALSO PLACED ON FOLLOWING CASES: (I) HONBLE HIGH COURT OF MADRAS IN CASE OF COMMISS IONER OF INCOME TAX VS ROTORK CONTROLS INDIA LTD (2007) 209 CTR (MAD)297, HELD THAT THE 8 LIABILITY BEING A CONTINGENT LIABILITY AND NOT AN A SCERTAINED LIABILITY, DEDUCTIONS OF AD-HOC PROVISION COULD NOT BE ALLOWED . (II) HONBLE HIGH COURT OF BOMBAY IN THE CASE OF IN GERSOLL-RAND (INDIA) LTD. VS. CIT (2009) 226 CTR (BOM) 555, HELD THAT THE AMO UNT IS NOT AN ACCRUED LIABILITY BUT ONLY A PROVISION TO MEET A FU TURE LIABILITY, IF ANY, THEREFORE, IT IS NOT ALLOWABLE AS DEDUCTION. IN VIEW OF ABOVE AN AMOUNT OF RS.17,54,980/- IS HEL D TO BE A CONTINGENT LIABILITY AND DISALLOWED AND ADDED TO TOTAL INCOME. 2.3 BEFORE THE LD. CIT (A), THE ASSESSEE SUBMITTED AS UNDER: THE ASSESSEE FIRM IS IN THE BUSINESS OF PUBLICATIO N AND PRINTING OF ONE WEEK SERIES (HELPING BOOKS) FOR SCHOOL AND COLLEGE STUDE NTS. THE SAID HELPING BOOKS, LITERATURE IS USED DURING EXAMINATION DAYS BY STUDE NTS AND IS SUPPLIED TO RETAILERS DURING DECEMBER, JANUARY AND FEBRUARY MONTHS FOR SA LE IN MARCH (DURING EXAMINATION PERIOD) WITH THE CONDITION THAT IF NOT SOLD WOULD BE TAKEN BACK AS SALES RETURN. BEING SEASONAL ITEM AND DUE TO MARKET TRENDS THE SAID STIPULATION IS A MUST. THAT DURING THE YEAR THE ASSESSEE FIRM HAS SHOWN SA LES RETURN OF RS.21,11,164/- FROM THE BOOK SELLERS (RETAILERS) / DEBTORS. THE AS SESSEE HAS ALSO SUBMITTED THE DETAILS & LIST OF SUCH SALES RETURN DETAILS BELOW:- (A) M/S NEW BOOK COMPANY, JAIPUR RS.356504/- (ON ACTUAL RETURN OF GOODS UPTO 31.3.2008) (B) OTHERS RS.1754980/- (SALES RETURN OF BEIN G GOODS RETURNED UPTO 30.6.2007) RS.2111484/- IT IS THE ACCOUNTING PRACTICE OF THE ASSESSEE FOLLO WED FROM YEAR TO YEAR THAT LOOKING TO THE NATURE OF BUSINESS AND LOOKING TO TH E USAGES OF PUBLICATION & ITS LIFE. THE PUBLICATIONS ARE SENT TO RETAILERS FOR SA LE. THEY ARE ALSO ASSURED THAT FOR GOODS REMAINED UNSOLD AND RETURNED UPTO 30 TH JUNE OF EACH YEAR WOULD BE GRANTED CREDIT NOTE SO THAT MAXIMUM SALES CAN BE AC HIEVED. IF THIS STIPULATION IS NOT THERE, THE BOOK SELLERS WILL NOT KEEP MUCH STOC K OF PUBLICATION. SINCE ONE WEEK SERIES IS USUALLY USED BEFORE EXAMS OF SECOND ARY BOARD AND UNIVERSITIES CONDUCTED BETWEEN FEBRUARY TO MARCH OF EACH YEAR AS PER SESSION. THUS UPTO 30 TH JUNE THESE RETAILERS ARE GUARANTEED FOR STOCK RETU RN HAVING NO VALUE OR BECOMES RADDI. FURTHER THE ASSESSEE IS REGULARLY FOLLOWING THE SAM E PROCEDURE OF ACCOUNTING FROM YEAR TO YEAR SALES RETURNS WHICH DETAILS BELOW :- 9 SL.NO. FINANCIAL YEAR AMOUNT (RS.) PERTAINS TO 1. 2006-07 1710388/- SALES OF F.Y. 2005-06 2. 2007-08 1844388/- SALES OF F.Y. 2006-07 3. 2008-09 1754980/- SALES OF F.Y. 2007-08 THUS IT CANNOT BE ALLEGED FOR A TILL OF TAX EVASIO N AND IF ANY DISALLOWANCE MAD/CONFIRMED SALES RETURN F.Y. 2006-07 RS.1844388/ - SHOULD BE CONSIDERED EXPENDITURE/SALES RETURN FOR THE YEAR. THE AO MERELY RELYING ON IN THE CASE OF INGERSOLL RAND (INDIA) V/S CIT (320 ITR 513) (BOMBAY) HAS CONSIDERED SUCH ACCOUNTI NG PRACTICE AS CONTINGENT LIABILITY PROVISION FOR UNASCERTAINED AND UNCRYSTALISED LIABILITY HAS DISALLOWED THE SAID EXPENSES. WHEREAS THE CITED CAS E LAW SPEAKS ABOUT PROVISION FOR BONUS WHERE THE HONORABLE COURT HAS DECIDED THAT BASED ON PRECEDENTS, AN AMOUNT SET ON U/SEC. 15 OF THE PAYME NT OF BONUS ACT WAS NOT AN ACCRUED LIABILITY BUT ONLY A PROVISION TO MEET A FU TURE LIABILITY IF ANY AND THUS WAS A CONTINGENT LIABILITY AND NOT ALLOWABLE AS A DEDUC TION. THUS THE SAID CASE LAW IS NOT APPLICABLE IN PRESENT CASE, SINCE IN CASE OF ASSESSEE THE PROVISION IS NOT FOR A FUTURE LIABI8LITY OR FOR A CONTINGENT LIABILITY BUT FOR ASCERTAINED LIABILITY AS PER TERMS OF SALE AND SU CH ACCOUNTING IS REGULARLY FOLLOWED FROM YEAR TO YEAR. FURTHER THE AO HAS ALSO RELIED ON THE CASE LAW ROT ORK CONTROLS INDIA (P) LTD. V/S CIT [2007] 209 CTR (MAD.) 297 AND HAS DISALLOWED THE PROVISION, WHEREAS THE HONORABLE SUPREME COURT IN SAME CASE [1 80 TAXMAN 422 (SC)] HAS REVERSED THE POSITION AND HAS FAVOURED TO ASSES SEE. THE HONORABLE SUPREME COURT HAS CONFIRMED THAT:- FOR A PROVISION TO QUALIFY FOR RECOGNITION, THERE MUST BE A PRESENT OBLIGATION ARISING FROM PAST EVENTS, SETTLEMENT OF WHICH IS EX PECTED TO RESULT IN AN OUT FLOW OF RESOURCES AND IN RESPECT OF WHICH A RELIABLE ESTIMA TE OF AMOUNT OF OBLIGATION IS POSSIBLE; IF HISTORICAL TREND INDICATES THAT IN PAS T LARGE NUMBER OF SOPHISTICATED GOODS WERE BEING MANUFACTURED AND DEFECTS EXISTED I N SOME OF ITEMS MANUFACTURED AND SOLD THEN PROVISION MADE FOR WARRA NTY IN RESPECT OF ANY OF SUCH SOPHISTICATED GOODS WOULD BE ENTITLED TO DEDUCTION FROM GROSS RECEIPTS UNDER SECTION 37 (1) PROVIDED DATE IS SYSTEMATICALLY MAIN TAINED BY ASSESSEE. THUS THE CASES CITED BY AO ITSELF PROVES THAT ANY P ROVISION WOULD BE SUBJECT TO QUALIFY FOR RECOGNITION AS EXPENSES IF CRYSTALLIZED AND FOLLOWED AS PER PAST TRENDS & ACCOUNTING. RELIANCE WAS ALSO PLACED BY AR ON THE FOLLOWING C ASE LAWS:- METAL BOX CO. OF INDIA LTD. V/S THEIR WORKMEN (19 69 73 ITR 53 (SC) 10 KEDARNATH JUTE MFG. CO. LTD. V/S CIT (1971) ITR 363 /CIT V/S KERLA TRANSPORT CO. (1990) 239 ITR 183 (KERALA). CIT V/S TRIVENI ENGINEERING & INDUSTRIES LTD. AS DE CIDED BY HIGH COURT OF DELHI AS REPORTED IN 196 TAXMAN 94 (2011) 2.4 THE LD. CIT (A) DELETED THE ADDITION AFTER OBSE RVING AS UNDER: I HAVE CAREFULLY PERUSED THE ORDER OF THE AO & SUBM ISSIONS OF THE AR. REGARDING DISALLOWANCE OF RS.17,54,980/-. IT IS SEEN THAT SAL ES RETURNS ARE A REGULAR FEATURE OF THE BUSINESS AND ACCOUNTING PRACTICE OF THE ASSE SSEE. IF THIS DISALLOWANCE IS MADE DURING THIS YEAR THEN BENEFIT WOULD HAVE TO BE GIVEN TO THE ASSESSEE FOR EXPENSES CLAIMED UNDER THIS HEAD DURING LAST YEAR. NO PURPOSE WOULD BE SERVED BY DISTURBING THE ACCOUNTING PRACTICE FOLLOWED BY T HE ASSESSEE FROM YEAR TO YEAR. THEREFORE, THE DISALLOWANCE MADE OF RS.17,54,980/- ON SALES RETURN HOLDING IT AS CONTINGENT LIABILITY IS DELETED. 2.5 WE HAVE HEARD BOTH THE PARTIES. IT IS AN ACCEPT ED PRINCIPLE THAT BUSINESS DECISIONS ARE TO BE TAKEN BY THE BUSINESSMAN AS PER COMMERCIAL EXPED IENCY. IF COMMERCIAL EXPEDIENCY IS THERE THEN SUCH DECISIONS CAN NOT BE OVERRULED BY REVENUE AUTHORITIES. BUSSINESS IS NOT AN EXACT SCIENCE. THE ASSESSEE IS HAVING AN ESTABLISHED SYST EM OF ACCEPTING THE UNSOLD BOOKS. THE LIABILITY IS TO BE ALLOWED AS PER THE SYSTEM OF ACCOUNTING FO LLOWED. IF THE ASSESSEE CAN NOT SCIENFICALLY DETERMINE THE QUANTUM OF UNSOLD BOOKS WHICH ARE LIK ELY TO BE RETURNED THEN ASSESSEE CAN CLAIM THE LIABILITY IN THE YEAR IS WHICH SUCH SALES RETUR N ARE RECEIVED. IF SUCH SALES RETURN ARE RECEIVED AND TO THAT EXTENT IF THE ACCOUNT OF DEBTOR IS WRIT TEN OFF THEN THE CLAIM WILL ALSO BE ALLOWABLE. IN THE INSTANT CASE. THE ASSESSEE HAS PERMITTED HIS CU STOMERS TO RETURN THE UNSOLD BOOKS UPTO 30 TH JUNE OF EACH YEAR. THE LD. CIT (A) HAS FOUND THAT T HERE WAS A CONSISTENT METHOD OF ACCOUNTING AND IT IS NOT THE CASE OF REVENUE THAT BY THIS METH OD OF ACCOUNTING THERE IS LOSS TO REVENUE. HENCE WE FEEL LD. CIT (A) WAS JUSTIFIED IN DELETING THE A DDITION OF RS.17,54,890/- 3. THE LAST GRIEVANCE OF THE REVENUE IS THAT LD. CI T (A) HAS ERRED IN DELETING THE DISALLOWANCE OUT OF FREIGHT & CARTAGE. 11 3.1 THE A.O. HAS DISALLOWED PART OF THE EXPENSES AS THESE HAVE BEEN CLAIMED ON THE BASIS OF SELF MADE VOUCHERS. 3.2 THE LD. CIT (A) HAS DELETED THE DISALLOWANCE ON THE GROUND THAT NET PROFIT AND GROSS PROFIT HAS INCREASED. 3.3 WE HAVE HEARD BOTH THE PARTIES. WE ARE BE NOT H AVING DETAILS OF SUCH EXPENSES AS COMPARED TO LAST YEAR. THE A.O. HAS ALSO NOT SPECIF IED ANY EXPENDITURE WHICH ACCORDING TO HIM UNREASONABLE OR FALSO. HENCE THE LD. CIT (A) WAS JU STIFIED IN DELETING THE ADDITION. IN THE RESULT THE APPEAL OF REVENUE IS PARTLY ALLO WED. THE ORDER IS PRONOUNCED IN OPEN COURT ON 30.12.201 1 SD/- SD/- (R.K.GUPTA) (N.L.KALRA) JUDICIAL MEMBER ACCOUNTANT MEMBER DATED: 30.12.2011 *S.KUMAR* COPY FORWARDED TO:- 1. ASSISTANT COMMISSIONER OF INCOME TAX, CIRCLE-1, JAIPUR. 2. M/S. RAKESH PRAKASHAN, JAIPUR. 3. THE CIT 4. THE CIT(A), 5. THE D/R, ITAT, JAIPUR 6. THE GUARD FILE IN ITA NO.738/JP/2011 BY ORDER ASSISTANT REGISTRAR I.T.A.T., JAIPUR 12