ITO, Alwar V. DEVENDRA AGARWAL, Alwar

ITA 771/JPR/2013

• Counselvise Citation: [2016] 132 COUNSELVISE.COM (IT) 5162 (ITAT-JAIPUR)
• Duration Of Justice: 2 year(s) 8 month(s) 13 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 22-06-2016
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: B
• Assessment Year: 2009-2010
• Appeal Filed On: 09-10-2013
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: S K JAIN
• Assessee Lawyers: MAHESH JAIN C A DHK
• Keywords: Business income; Depreciation; Tax effect
• Section: 40A(3); 143(3); 133(6)

Judgement Text

VK;DJ VIHYH; VF/KDJ.K] T;IQJ U;K;IHB] T;IQJ IN THE INCOME TAX APPELLATE TRIBUNAL, JAIPUR BENCHE S, JAIPUR JH VH-VKJ-EHUK] YS[KK LNL; ,OA JH YFYR DQEKJ] U;KF; D LNL; DS LE{K BEFORE: SHRI T.R.MEENA, AM & SHRI LALIET KUMAR, JM VK;DJ VIHY LA-@ ITA NO. 771/JP/2013 FU/KZKJ.K O'K Z@ ASSESSMENT YEAR : 2009-10 . INCOME TAX OFFICER, WARD 1(3), ALWAR. CUKE VS. SHRI DEVENDRA AGARWAL PROP. M/S. MAHADEV PRASAD AGARWAL COMMUNICATIONS & M.P. FOOD PRODUCTS, 49,GANESH MARKET, ALWAR. LFKK;H YS[KK LA-@THVKBZVKJ LA-@ PAN/GIR NO. ADRPA 2402 Q VIHYKFKHZ@ APPELLANT IZR;FKHZ@ RESPONDENT VK;DJ VIHY LA-@ ITA NO. 767/JP/2013 FU/KZKJ.K O'K Z@ ASSESSMENT YEAR : 2009-10 . SHRI DEVENDRA AGARWAL PROP. M/S. MAHADEV PRASAD AGARWAL COMMUNICATIONS & M.P. FOOD PRODUCTS, 49,GANESH MARKET, ALWAR. CUKE VS. INCOME TAX OFFICER, WARD 1(3), ALWAR. LFKK;H YS[KK LA-@THVKBZVKJ LA-@ PAN/GIR NO. ADRPA 2402 Q VIHYKFKHZ@ APPELLANT IZR;FKHZ@ RESPONDENT JKTLO DH VKSJ LS@ REVENUE BY : SHRI S.K. JAIN (JCIT) FU/KZKFJRH DH VKSJ LS@ ASSESSEE BY : SHRI MAHESH JAIN (C.A) LQUOKBZ DH RKJH[K@ DATE OF HEARING : 02.05.2016. ?KKS'K .KK DH RKJH[K @ DATE OF PRONOUNCEMENT : 22 /06/2016. VKNS'K@ ORDER PER SHRI LALIET KUMAR, J.M. THESE ARE TWO CROSS APPEALS FILED BY THE REVENUE A ND ASSESSEE AGAINST THE ORDER OF LD. CIT (APPEALS), ALWAR DATED 01.08.2013 FOR THE A.Y. 2009-10. THE GROUNDS RAISED BY THE REVENUE ARE AS UNDER :- 2 ITA NO. 771(2)/JP/2013 ITO VS. SHRI DEVENDRA AGARWAL 1. THAT THE COMMISSIONER OF INCOME TAX (APPEALS), ALWA R HAS ERRED IN LAW AS WELL AS ON THE FACTS AND CIRCUMSTANCES OF TH E CASE IN DELETING THE ADDITION OF RS. 17,34,227/- IN RESPECT OF DISALLOWANCE U/S 40A(3) OF THE I.T. ACT 1961 IN THE CONCERN M/S. MAHADEV PRASAD AGARWAL COMMUNICATIONS. 2. THAT THE COMMISSIONER OF INCOME TAX (APPEALS), ALWA R HAS ERRED IN LAW AS WELL AS ON THE FACTS AND CIRCUMSTANCES OF TH E CASE IN RESTRICTING THE ADDITION OF RS. 1,25,000/- TO RS. 5 0,000/- MADE BY THE AO BY DISALLOWING OUT OF DISCOUNT ALLOWED IN TH E CONCERN M/S. MAHADEV PRASAD AGARWAL COMMUNICATIONS. 3. THAT THE COMMISSIONER OF INCOME TAX (APPEALS), ALWA R HAS ERRED IN LAW AS WELL AS ON THE FACTS AND CIRCUMSTANCES OF TH E CASE IN RESTRICTING THE ADDITION OF RS. 2,19,250/- TO RS. 1 ,00,000/- MADE BY THE AO OUT OF EXCESSIVE SALARY PAID TO FAMILY MEMBE RS AND NEAR RELATIVES IN THE CONCERN M/S. MAHADEV PRASAD AGARWA L COMMUNICATIONS. 4. THAT THE COMMISSIONER OF INCOME TAX (APPEALS), ALWA R HAS ERRED IN LAW AS WELL AS ON THE FACTS AND CIRCUMSTANCES OF TH E CASE IN DELETING THE TRADING ADDITION OF RS. 50,000/- MADE BY THE AO IN THE CONCERN M/S. MAHADEV PRASAD AGARWAL COMMUNICATIONS. THE GROUNDS RAISED BY THE ASSESSEE ARE AS UNDER :- 1. THE LD. COMMISSIONER OF INCOME TAX (APPEALS), ALWAR HAS ERRED ON FACTS AND IN LAW IN CONFIRMING THE ADDITION TO THE EXTENT OF RS. 4,26,944/- ON ACCOUNT OF THE ACCOUNTING TREATMENT O F PURCHASES GIVEN IN THE BOOKS. 2. THE LD. COMMISSIONER OF INCOME TAX (APPEALS), ALWAR HAS ERRED ON FACTS AND IN LAW IN CONFIRMING THE DISALLOWANCE OF RS. 50,000/- ON ACCOUNT OF DISCOUNT PROVIDED TO CUSTOMERS. 3. THE LD. COMMISSIONER OF INCOME TAX (APPEALS), ALWAR HAS ERRED ON FACTS AND IN LAW IN CONFIRMING THE ADDITION OF RS. 1,00,000/- ON ACCOUNT OF EXCESSIVE SALARY PAYMENT U/S 40A(2)(B). 4. THE LD. COMMISSIONER OF INCOME TAX (APPEALS), ALWAR HAS ERRED ON FACTS AND IN LAW IN CONFIRMING THE ADDITION OF RS. 9232/- ON ACCOUNT OF TELEPHONE EXPENSES AND RS. 19,893/- ON ACCOUNT O F CAR MAINTENANCE AND DEPRECIATION. 3 ITA NO. 771(2)/JP/2013 ITO VS. SHRI DEVENDRA AGARWAL 5. THE LD. COMMISSIONER OF INCOME TAX (APPEALS), ALWAR HAS ERRED ON FACTS AND IN LAW IN CONFIRMING THE ADDITION OF RS. 8077/- ON ACCOUNT OF TELEPHONE EXPENSES. 6. THE LD. COMMISSIONER OF INCOME TAX (APPEALS), ALWAR HAS ERRED ON FACTS AND IN LAW IN CONFIRMING THE ADDITION OF RS. 26,312/- ON ACCOUNT OF BUSINESS PROMOTION EXPENSES. 7. THE LD. COMMISSIONER OF INCOME TAX (APPEALS), ALWAR HAS ERRED ON FACTS AND IN LAW IN CONFIRMING THE ADDITION OF RS. 4378/- ON ACCOUNT OF EXPENSES OF CAPITAL NATURE. 8. THE LD. COMMISSIONER OF INCOME TAX (APPEALS), ALWAR HAS ERRED ON FACTS AND IN LAW IN CONFIRMING THE ADDITION OF RS. 44,000/- ON ACCOUNT OF LOW HOUSEHOLD WITHDRAWALS. 2. BRIEF FACTS OF THE CASE ARE THAT THE ASSESSEE IS AN INDIVIDUAL DERIVING INCOME FROM PROPRIETORSHIP CONCERN IN THE NAME AND STYLE O F M/S. MAHADEO PRASAD AGARWAL COMMUNICATIONS WHICH HAS TAKEN FRANCHISEE OF BSNL. THE ASSESSEE HAS FILED HIS RETURN ON 30.09.2009 DECLARING INCOME OF RS. 8,86,3 60/- FOR THE YEAR UNDER CONSIDERATION. THE CASE OF THE ASSESSEE WAS SCRUTI NIZED UNDER SECTION 143(3) OF THE IT ACT AND THE ASSESSMENT WAS COMPLETED ON 30.12.20 11 AT AN INCOME OF RS. 34,92,010/-. DURING THE COURSE OF ASSESSMENT PROCEEDINGS, THE A O DISCUSSED THE MATTER WITH THE A/R OF THE ASSESSEE. ACCORDINGLY, THE ASSE SSEE WAS ASKED TO FURNISH THE DETAILS OF EXPENSES INCURRED ALONG WITH THE EVIDENC ES IN SUPPORT THEREOF. THE AO DEALT WITH THE MATTER GROUND-WISE AS UNDER : GROUND NO. 1 RELATES TO DELETION OF ADDITION OF RS . 17,34,227/- IN RESPECT OF DISALLOWANCE U/S 40A(3) OF THE IT ACT. THE AO ON P ERUSAL OF THE COPY OF ACCOUNT OF BSNL IN THE BOOKS OF THE ASSESSEE, NOTICED THAT OUT OF TOTAL PAYMENTS MADE OF RS. 4 ITA NO. 771(2)/JP/2013 ITO VS. SHRI DEVENDRA AGARWAL 13,13,93,127/- AGAINST PURCHASES, THE FOLLOWING PA YMENT TO THE BSNL HAVE BEEN MADE IN A DAY IN CASH, I.E. OTHER THAN BY WAY OF AC COUNT PAYEE CHEQUE DRAWN ON A BANK OR ACCOUNT PAYEE BANK DRAFT, EXCEEDS RS. 20,00 0/- WHICH ARE IN CONTRAVENTION OF THE PROVISIONS OF SECTION 40A(3) OF THE IT ACT, 1961 :- DATE MODE OF PAYMENT MADE AMOUNT IN RUPEES 17.05.2008 CASH RS. 6,39,579/ - 24.07.2008 CASH DEPOSITED IN PNB OF BSNL ACCOUNT RS. 5,27,500/ - 12.12.2008 - DO - RS. 5,32,500/ - 12.12.2008 - DO - RS. 34,648/ - RS. 17,34,227/ - ON BEING CONFRONTED ON THIS ISSUE, THE LD. A/R OF T HE ASSESSEE VIDE WRITTEN REPLY DATED 19.12.2011 HAS SUBMITTED THAT DURING THE YEAR UNDER CONSIDERATION ASSESSEE HAS MADE CASH PAYMENT TO BSNL AGAINST PURCHASES MAD E OF AMOUNTING TO RS. 17.00 LACS (APPROX.). THE LD. A/R SUBMITTED THAT SINCE B SNL IS A GOVERNMENT COMPANY AND AS PER RULE 6DD(B) READ WITH SECTION 40A(3) OF THE IT ACT, IF ANY PAYMENT EXCEEDING RS. 20,000/- IS MADE OTHERWISE THAN BY AN ACCOUNT PAYEE CHEQUE OR DEMAND DRAFT TO GOVERNMENT (BOTH CENTRAL AND STATE) THEN THE PAYMENT IS VERY MUCH ALLOWABLE AND NOTHING IS DISALLOWED UNDER SEC. 40A(3). THEREFORE, CASH PAYMENT MADE TO BSNL IS ALLOWABLE AND NOTHING IS TA XABLE AT THIS POINT OF TIME. THE LD. A/R FURTHER SUBMITTED VIDE LETTER DATED 27.12.2 011 THAT AS REGARDS THE PAYMENT TO BSNL THROUGH THEIR BANK ACCOUNT, AS PER RULE 6DD OF THE IT RULES, 1962, IT SPECIFIES THE CASES AND CIRCUMSTANCES IN WHICH A PA YMENT EXCEEDING TWENTY THOUSAND RUPEES MAY BE MADE TO A PERSON IN A DAY, O THERWISE THAN BY AN ACCOUNT PAYEE CHEQUE DRAWN ON A BANK OR ACCOUNT PAYEE BANK DRAFT. THE SAID RULE CLEARLY STATES THAT NO DISALLOWANCE UNDER SUB-SECTION (3) O F SECTION 40A SHALL BE MADE AND 5 ITA NO. 771(2)/JP/2013 ITO VS. SHRI DEVENDRA AGARWAL NO PAYMENT SHALL BE DEEMED TO BE THE PROFITS AND GA INS OF BUSINESS OR PROFESSION UNDER SUB-SECTION (3) OF SECTION 40A WHERE A PAYMEN T OR AGGREGATE OF PAYMENTS EXCEEDING TWENTY THOUSAND RUPEES IS MADE TO THE GOV ERNMENT. THE LD. A/R FURTHER SUBMITTED THAT IN THE INSTANT CASE, PAYMENT HAS BEE N MADE TO BSNL, WHICH IS A GOVERNMENT COMPANY UNDER SECTION 617 OF THE COMPANI ES ACT, 1956, THUS THE EXCEPTION SPECIFIED IN RULE 6DD WOULD APPLY TO PAYM ENT MADE TO BSNL AND THE PAYMENT MADE BY THE ASSESSEE BY WAY OF DEPOSITING T HE SAME IN ACCOUNT OF BSNL SHOULD NOT BE DISALLOWED. IN SUPPORT OF HIS ARGUME NT, THE LD. A/R PLACED RELIANCE ON THE DECISION OF COORDINATE BENCH IN THE CASE OF MAH ESHWARI INDUSTRIES VS. ACIT (95 TTJ 111)(ITAT JODHPUR). THE AO CONSIDERED THE SUBMISSIONS MADE BY THE LD. A/R OF THE ASSESSEE, BUT HE FOUND IT NOT CONVINCING FOR THE REASONS THAT (1) BSNL IS A GOVERNMENT OWNED COMPANY AND NOT A GOVERNMENT DEPARTMENT, HENCE THE EXCEPTION GIVEN UNDER RULE 6DD IS NOT APPLICABLE IN THE CASE OF THE ASSESSEE, (2) THE CASE OF THE ASSESSEE DOES NOT SQUARELY COVERED BY THE DECISION OF ITAT RELIED BY THE LD. A/R, (3) THERE IS NO EXCEPTION UNDER RULE 6DD IN RESPECT OF THE PAYMENT MADE IN CASH BY A PERSON BY WAY OF CASH DEPOSITED IN THE BANK ACCOUNT TO WHOM T HE PAYMENT IS BEING MADE. THEREFORE, IN VIEW OF THE FACTS MENTIONED ABOVE AN D KEEPING IN MIND PROVISIONS OF SECTION 40A(3), THE AO DISALLOWED THE CASH PAYMENTS AGGREGATING TO RS. 17,34,227/- AND ADDED TO THE TOTAL INCOME OF THE ASSESSEE. BEING AGGRIEVED, THE ASSESSEE HAS FILED APPEAL BEF ORE LD. CIT (A) WHO AFTER DISCUSSING THE MATTER IN DETAIL AT PAGES 11 TO 15 O F HIS ORDER, ALLOWED THE CLAIM OF 6 ITA NO. 771(2)/JP/2013 ITO VS. SHRI DEVENDRA AGARWAL THE ASSESSEE BY DELETING THE ADDITION MADE BY THE A O. THE RELEVANT OBSERVATIONS OF THE LD. CIT (A) ARE AS UNDER :- (I) I HAVE GONE THROUGH THE SUBMISSIONS AND FIND THAT THOUGH THE PROVISIONS OF RULE 6DD HAVE BEEN AMENDED BY THE IT (SEVENTH AMENDMENT) RULES 2008, W.E.F. ASSESSMENT YEAR 2009- 10, TO PROVIDE FOR SPECIFIC CIRCUMSTANCES UNDER WHICH PAYMENTS MAD E IN CASH ARE TO BE ALLOWED AS A DEDUCTION. THESE RULES DO NOT LEAVE ANY DISCRETION WITH ANY AUTHORITY IN THEIR APPLICATION. BUT IN VIE W OF THE JUDGMENT OF THE HONBLE TRIBUNAL CITED ABOVE, WHEREIN ALL THE A SPECTS OF RULE 6DD AND SECTION 40A(3) OF THE IT ACT HAVE BEEN CONSIDER ED IN DETAIL AND A FINDING HAS BEEN GIVEN THAT IN THE CASE OF AN ASSES SEE WORKING AS A FRANCHISEE (AGENT) OF BSNL, THE SAID PAYMENTS MADE IN CASH, DO NOT FALL WITHIN THE AMBIT OF THE PROVISIONS OF SECTION 40A(3) OF THE IT ACT, THE CONTENTIONS OF THE APPELLANT ARE ACCEPTED. THE FACTS AND CIRCUMSTANCES IN THE ABOVE MENTIONED CASE ARE IDENT ICAL TO THE FACTS IN THIS CASE. FURTHER, IT IS BROUGHT ON RECORD BY THE AR THAT IN A SIMILAR CASE OF ANOTHER AGENT OF BSNL, MY LD. PREDECESSOR H AD VIDE ORDER IN APPEAL NO. 261/11-12, DATED 16.05.2013, DELETED THE ADDITION MADE U/S 40A(3) OF THE IT ACT ON ACCOUNT OF CASH PAYMENT S MADE TO BSNL. IN VIEW OF THE ABOVE DISCUSSION, I DELETE THE ADDIT ION MADE BY THE AO OF RS. 17,34,227/- U/S 40A(3) OF THE IT ACT. NOW THE REVENUE IS IN APPEAL BEFORE US. THE LD. D/R SUPPORTED THE ORDER OF THE AO. ON THE OTHER HAND, THE LD. A/R FOR THE ASSESSEE RE ITERATED THE SUBMISSIONS AS MADE BEFORE LD. CIT (A) WHO HAS PASSED A JUSTIFIED ORDER TO THE EXTENT OF DELETING THE ADDITION MADE BY THE AO AND PRAYED THAT THE ORD ER OF LD. CIT (A) BE CONFIRMED. WE HAVE HEARD RIVAL CONTENTIONS AND PERUSED THE MA TERIAL ON RECORD. THE LD. CIT (A) WHILE DEALING WITH THE ISSUE HAS RELIED ON THE DECISIONS OF THE COORDINATE BENCH OF THE TRIBUNAL IN THE CASES OF S. RAHUMATHUL LA VS. ACIT (2011) 135 TTJ (COCH) 720 AND VODAFONE ESSAR CELLULAR LTD. VS. ASS T. CIT (2010) 129 TTJ (COCH) 222 WHEREIN ALL THE ASPECTS OF RULE 6DD AND SECTION 40A(3) OF THE IT ACT HAVE BEEN 7 ITA NO. 771(2)/JP/2013 ITO VS. SHRI DEVENDRA AGARWAL CONSIDERED IN DETAIL AND A FINDING HAS BEEN GIVEN T HAT IN THE CASE OF AN ASSESSEE WORKING AS A FRANCHISEE (AGENT) OF BSNL, THE SAID P AYMENTS MADE IN CASH, DO NOT FALL WITHIN THE AMBIT OF THE PROVISIONS OF SECTION 40A(3) OF THE ACT AND THE CLAIM OF THE ASSESSEE WAS ACCEPTED. SINCE IN THE CASE IN HA ND, THE FACTS AND CIRCUMSTANCES ARE EXACTLY THE SAME, WE DO NOT FIND ANY INFIRMITY IN THE ORDER OF LD. CIT (A). THE SAME IS HEREBY UPHELD. THE GROUND OF THE DEPARTMENT IS DISMISSED. GROUND NO. 2 RELATES TO RESTRICTING THE ADDITION O F RS. 1,25,000/- TO RS. 50,000/- IN RESPECT OF DISCOUNT ALLOWED. DURING TH E ASSESSMENT PROCEEDINGS, ON PERUSAL OF TRADING ACCOUNT OF COMMUNICATION BUSINES S, THE AO NOTICED THAT THE ASSESSEE HAS DEBITED A SUM OF RS. 44,62,358/- UNDER THE HEAD DISCOUNT. ON EXAMINATION OF THE DETAILS AND EVIDENCES FURNISHED BY THE ASSESSEE, THE AO FOUND THAT A LARGE AMOUNT OF DISCOUNT HAS BEEN GIVEN ON C ASH VOUCHERS WITHOUT MENTIONING THE NAME OF CUSTOMER AND THE SAME IS NOT SUBJECT TO PROPER VERIFICATION. THE AO ALSO NOTED THAT IN THE PRECEDING ASSESSMENT YEAR SIMILAR DISALLOWANCE OF RS. 1,00,000/- WAS MADE ON THE BASIS OF PAST HISTORY OF THE ASSESSEE THAT IN A PRECEDING ASSESSMENT YEAR, THE LD. CIT (A), ALWAR CONFIRMED T HE DISALLOWANCE OF RS. 36,000/- OUT OF RS. 54,000/- MADE ON SIMILAR BASIS. IN THE YEAR UNDER CONSIDERATION, ASSESSEE HAS DEBITED A SUM OF RS. 44,62,358/- UNDER THE HEAD DISCOUNT IN COMPARISON TO A SUM OF RS. 22,62,364/- FOR THE PREC EDING ASSESSMENT YEAR. ACCORDINGLY, DESPITE THE QUANTUM OF DISCOUNT ENHANC ED DURING THE YEAR, THE AO DISALLOWED A SUM OF RS. 1,25,000/- OUT OF TOTAL PAY MENT OF DISCOUNT. ON APPEAL, THE LD. CIT (A) ALLOWED THE CLAIM OF TH E ASSESSEE PARTLY BY RESTRICTING THE DISALLOWANCE TO RS. 50,000/- BY OBS ERVING AS UNDER :- 8 ITA NO. 771(2)/JP/2013 ITO VS. SHRI DEVENDRA AGARWAL I HAVE GONE THROUGH THE ASSESSMENT ORDER AND SUBM ISSIONS MADE BY THE AR AND ALSO SOME OF THE PHOTO COPIES OF THE BIL LS IN SUPPORT OF THE DISCOUNT GIVEN TO THE CUSTOMERS. KEEPING IN VIEW TH E PAST HISTORY OF THE CASE, AS MENTIONED IN THE ASSESSMENT ORDER, A D ISALLOWANCE OF RS. 50,000/- IS CONFIRMED TO PREVENT ANY LEAKAGES OF RE VENUE ON THIS ACCOUNT AND THE REMAINING ADDITION OF RS. 75,000/- IS DELETED. NOW THE ASSESSEE IS IN APPEAL BEFORE US. THE LD. D/R FOR THE REVENUE SUPPORTED THE ORDER OF AO. ON THE OTHER HAND, THE LD. A/R FOR THE ASSESSEE SU BMITTED THAT THE ASSESSEE HAS INCURRED THE AMOUNT OF RS. 44,62,358/- UNDER TH E HEAD DISCOUNT WHICH WAS GIVEN TO THE CUSTOMERS IN ORDER TO COMPETE IN THE M ARKET. THE SAME WAS SUPPORTED WITH FULL VOUCHERS AND HAS BEEN GIVEN TO THE CUSTOM ERS IN THE BILLS ONLY. THE LD. A/R ALSO SUBMITTED THAT THE DISCOUNT WAS GIVEN BY THE A SSESSEE AS PER THE DIRECTIONS OF THE BSNL. THEREFORE, THE LD. A/R REQUESTED THAT TH E GROUND OF THE REVENUE IS LIABLE TO BE REJECTED. WE HAVE HEARD RIVAL CONTENTIONS AND PERUSED THE MA TERIAL AVAILABLE ON RECORD. LOOKING TO THE PAST HISTORY OF THE ASSESSEE S CASE, FACTS AND CIRCUMSTANCES IN THE YEAR UNDER CONSIDERATION BEING SAME, THEREFORE, TO PREVENT ANY POSSIBLE LEAKAGE OF REVENUE, THE LD. CIT (A) HAS RIGHTLY SUSTAINED T HE DISALLOWANCE TO THE EXTENT OF RS. 50,000/-. THEREFORE, WE FIND NO REASON TO INTERFER E INTO THE ORDER OF LD. CIT (A). THE SAME IS HEREBY UPHELD. THE GROUND IS DISMISSED. GROUND NO. 3 RELATES TO RESTRICTING THE ADDITION O F RS. 2,19,250/- TO RS. 1,00,000/- IN RESPECT OF EXCESSIVE SALARY PAID TO F AMILY MEMBERS. ON PERUSAL OF THE PROFIT & LOSS ACCOUNT, THE AO NOTICED THAT THE ASSE SSEE HAS DEBITED A SUM OF RS. 11,06,420/- IN THE YEAR UNDER CONSIDERATION, IN COM PARISON TO RS. 4,76,343/-IN THE 9 ITA NO. 771(2)/JP/2013 ITO VS. SHRI DEVENDRA AGARWAL PRECEDING YEAR, WHICH IS 132% HIKE, WHEREAS THE SAL ES MADE DURING THE YEAR UNDER CONSIDERATION IS REDUCED BY 10%. IT REVEALED FROM THE DETAILS OF SALARY PAYMENT THAT MOST THE SALARY INCREASED HAS BEEN PAID TO THE FAMILY MEMBERS/NEAR RELATIVES. ON ASKING THE ASSESSEE TO JUSTIFY THE INCREASE IN S ALARY, THE LD. A/R FOR THE ASSESSEE SUBMITTED THE REASONS FOR INCREASE IN SALARY AS UND ER :- (I) PERMANENT NATURE EMPLOYEE INCREASED FROM 3 PERSONS TO 5 PERSONS. (II) INCREMENT IN SALARY IN COMPARISON TO PREVIOUS YEAR. (III) INCREASE IN THE LOAD OF WORK AS EARLIER IT WAS THE PRACTICE OF BSNL TO PREPARE COMPLETE FILES WHILE IN THE RELEVAN T YEAR THEY SHIFTED THE BURDEN ON THE ASSESSEE TO MAKE, PREPARE AND COMPLETE THE FILE OF THE CUSTOMER TO SUBMIT TO BSNL , SO MAJOR WORK WAS SHIFTED TO ASSESSEE PART. SO TO MEET OUT T HE WORK BURDEN ADDITIONAL EMPLOYEES WERE RECRUITED, HENCE S ALARY BURDEN INCREASED. THE AO CONSIDERED THE REPLY OF THE ASSESSEE AND FOU ND IT NOT CONVINCING FOR THE REASON THAT DURING LAST YEAR, THE NUMBER OF TOTAL E MPLOYEES WERE 14 (INCLUDING 4 FAMILY PERSONS/NEAR RELATIVES). DURING THE YEAR TH E ASSESSEE HAS INCREASED THE TOTAL NUMBER OF EMPLOYEES TO 29 (INCLUDING 5 FAMILY MEMBE RS/NEAR RELATIVES). THIS IS EVIDENT THAT THE ASSESSEE HAS INCREASED HIS EMPLOYE ES OTHER THAN FAMILY MEMBERS/NEAR RELATIVES DURING THE YEAR TO 24 FROM 1 0 OF LAST YEAR. THE AO COMPARED THE SALARY PAID TO THE EMPLOYEES DURING TH E YEAR IN COMPARISON TO LAST YEAR AS UNDER :- CURRENT YEAR : 1. NO. OF EMPLOYEES (OTHER THAN FAMILY MEMBERS & NEAR RELATIVES) 24 (A)TOTAL SALARY PAID TO THEM RS. 4,18,420/ - (B)AVERAGE SALARY PAID PER EMPLOYEE RS. 17,434/ - 10 ITA NO. 771(2)/JP/2013 ITO VS. SHRI DEVENDRA AGARWAL 2. NO. OF EMPLOYEES WHO ARE FAMILY MEMBERS/NEAR RELATIVES 5 (A) TOTAL SALARY PAID TO THEM RS. 6,88,000/ - (B) AVERAGE SALARY PAID PER EMPLOYEE RS. 1,37,600/ - LAST YEAR : 1. NO. OF EMPLOYEES (OTHER THAN FAMILY MEMBERS & NEAR RELATIVES) 10 (A)TOTAL SALARY PAID TO THEM RS. 1,76,363 / - (B)AVERAGE SALARY PAID PER EMPLOYEE RS. 17, 636 / - 2. NO. OF EMPLOYEES WHO ARE FAMILY MEMBERS/NEAR RELATI VES 4 (A) TOTAL SALARY PAID TO THEM RS. 3,00,000/ - (B) AVERAGE SALARY PAID PER EMPLOYEE RS. 75,000/ - FROM THE ABOVE CHART, IT CLEARLY REVEALED THAT THE PAYMENT OF AVERAGE SALARY MADE TO PER FAMILY MEMBER/NEAR RELATIVE IS INCREASED FRO M RS. 75,000/- TO RS. 1,37,600/- WHICH GIVES AN INCREASE OF 183%. ON THE OTHER HAND , AVERAGE SALARY PAID TO AN EMPLOYEE OTHER THAN THE FAMILY MEMBERS HAS ALMOST S AME AS WAS PAID IN LAST YEAR. AS REGARDS THE ASSESSEES CLAIM OF BURDEN OF WORK L OAD OF BSNL SHIFTED ON THE ASSESSEE, THE SAME IS COVERED IN THE NUMBER OF EMPL OYEES INCREASED DURING THE YEAR. THE AO ALSO NOTED THAT THE SALARY PAID TO FAM ILY MEMBERS/NEAR RELATIVES IS GENERALLY NOT PAID. AFTER CREDITING THE SAME IN THE IR RESPECTIVE ACCOUNT OF UNSECURED LOAN ACCOUNT, THE INTEREST IS ALSO ALLOWED IN NEXT YEAR ON TWO TIMES IN DECEMBER & MARCH. THIS FACT CLEARLY SHOWS THAT THE PAYMENT OF SALARY MADE TO THE FAMILY MEMBERS IS NOT REAL EXPENSES INCURRED, IS FICTITIOU S EXPENSES AND MERELY AN APPROPRIATION OF THE PROFIT DERIVED DURING THE YEAR WHICH IS DIVERTED TOWARDS THE FAMILY MEMBERS/NEAR RELATIVES, IN THEIR HANDS EITHE R THE TAX IS NOT CHARGEABLE OR THE TAX IS CHARGED AT LOWER RATE OF TAX. IN VIEW OF TH E ABOVE FACTS, AFTER MAKING 11 ITA NO. 771(2)/JP/2013 ITO VS. SHRI DEVENDRA AGARWAL CALCULATION AT PAGE 9 OF HIS ORDER, THE AO DISALLOW ED A SUM OF RS. 2,19,250/- AND ADDED THE SAME TO THE INCOME OF THE ASSESSEE. BEING AGGRIEVED BY THE ORDER OF AO, THE ASSESSEE P REFERRED APPEAL BEFORE LD. CIT (A) WHO RESTRICTED THE DISALLOWANCE TO RS. 1,00 ,000/- BY OBSERVING AS UNDER :- I HAVE GONE THROUGH THE ASSESSMENT ORDER AND SUBM ISSIONS MADE BY THE AR AND FIND THAT THE SALARIES PAID DURING THE Y EAR HAVE INCREASED BY 132% AS COMPARED TO THE PRECEDING YEAR, WHEREAS THE SALES HAVE DECREASED BY 10% AS COMPARED TO THE LAST YEAR. THE APPELLANT HAS JUSTIFIED THE INCREASE IN SALARIES ON ACCOUNT OF SH IFT OF SOME WORK BURDEN FROM BSNL TO THE ASSESSEE AS REGARDS PREPARA TION OF FILES OF THE CUSTOMERS. THE AO HAS DONE A COMPARATIVE ANALYS IS OF THE PERCENTAGE INCREASE IN THE SALARIES OF FAMILY MEMBE RS/RELATIVES OF ASSESSEE VIS-A-VIS THE SALARIES OF OTHER EMPLOYEES AND WORKED OUT THE EXCESSIVE PAYMENT MADE TO THE RELATIVES/FAMILY MEMB ERS OF THE ASSESSEE U/S 40A(2)(B). EVEN AFTER CONSIDERING THE FACT THAT THE FAMILY MEMBERS MAY HAVE CONTRIBUTED MORE IN TERMS OF WORK EFFORT AND OTHER CIRCUMSTANCES, I STILL FIND FORCE IN THE ARGUMENTS OF THE AO AS THE APPELLANT HAS ALSO FAILED TO LEAD ANY EVIDENCE OF C ONTRIBUTION BEING MADE BY THE PERSONS SPECIFIED IN THE AMBIT OF THE P ROVISIONS OF SECTION 40A(2)(B) OF THE IT ACT. THUS, I HOLD THAT THE PAYM ENTS MADE TO RELATIVES ARE EXCESSIVE AND NOT JUSTIFIABLE. ACCORD INGLY, I CONFIRM AN ADDITION OF RS 1 LAKH ON ACCOUNT OF EXCESSIVE SALAR Y PAYMENT U/S 40A(2)(B) AND DELETE THE BALANCE ADDITION OF RS. 1, 19,250/- BY GIVING DUE REGARD TO THE ARGUMENTS OF THE APPELLANT AS STA TED ABOVE. NOW THE REVENUE IS IN APPEAL BEFORE US. THE LD. D/R FOR THE REVENUE SUPPORTED THE ORDER OF AO. ON THE OTHER HAND, THE LD. A/R FOR THE ASSESSEE RE ITERATED THE SUBMISSIONS AS MADE BEFORE LD. CIT (A) WHO HAS PASSED A JUSTIFIED ORDER TO THE EXTENT OF DELETING THE ADDITION MADE BY THE AO AND PRAYED THAT THE ORD ER OF LD. CIT (A) BE CONFIRMED. WE HAVE HEARD THE RIVAL CONTENTIONS AND PERUSED TH E MATERIAL AVAILABLE ON RECORD. ON GOING THROUGH THE FACTS AND CIRCUMSTANC ES OF THE CASE, IT IS OBSERVED 12 ITA NO. 771(2)/JP/2013 ITO VS. SHRI DEVENDRA AGARWAL THAT THE EXCESSIVE SALARY INCREASE HAS BEEN MADE TO THE FAMILY MEMBERS / NEAR RELATIVES ONLY THAT TOO WHEN THE BUSINESS OF THE AS SESSEE WAS REDUCED BY 10% OF THE TOTAL SALES OF THE PRECEDING YEAR. THE ASSESSE E HAS ALSO FAILED TO LEAD ANY EVIDENCE OF CONTRIBUTION BEING MADE BY THE PERSONS SPECIFIED IN THE AMBIT OF THE PROVISIONS OF SECTION 40A(2)(B) OF THE IT ACT. ON ANALYZING THE FACTS AND CIRCUMSTANCES OF THE CASE, WE ARE OF THE VIEW THAT THE ASSESSEE WAS NOT JUSTIFIED IN MAKING PAYMENT OF EXCESSIVE SALARY INCREASE TO THE FAMILY MEMBERS/ NEAR RELATIVES WITHOUT PROVING THEIR EXTRA CONTRIBUTION TOWARDS BU SINESS OF THE ASSESSEE. WE, THEREFORE, RESTORE THE ORDER OF AO TO THE EXTENT OF ADDITION OF RS. 2,19,250/-. THE GROUND OF THE REVENUE IS ALLOWED. GROUND NO. 4 RELATES TO DELETION OF TRADING ADDITI ON OF RS.50,000/- MADE BY THE AO. DURING THE COURSE OF ASSESSMENT PROCEEDING S, ON EXAMINATION OF THE DETAILS FURNISHED IN RESPECT OF M/S. M.P. FOOD PRODUCTS, AN OTHER CONCERN OF THE ASSESSEE, THE AO FOUND THAT RATIO OF GROSS PROFIT RATE OF THE ASSESSEE HAS BEEN DECREASED IN COMPARISON TO PRECEDING YEAR, AS UNDER :- A.Y. SALES G.P. G.P. RATIO N.P. N.P. RATIO 2009 - 10 4,91,90,394 80,07,503 16.28% 1,75,095 0.36% 2008 - 09 3,93,38,394 68,91,538 17.52% 1,20,101 0.31% 2007 - 08 3,51,45,886 53,39,764 15.19% ( - ) 53,599 NIL (LOSS) ON ASKING THE REASONS FOR FALL IN GROSS PROFIT RATE , THE LD. A/R FOR THE ASSESSEE VIDE REPLY DATED 22.11.2011 HAS SUBMITTED THAT G.P RATE HAS BEEN DECREASED BECAUSE OF INCREASE IN SALES. THE LD. A/R SUBMITTED THAT TO RE MAIN STABLE IN THE PRESENT COMPETITIVE MARKET, THESE TRENDS ARE TO BE FOLLOWED . 13 ITA NO. 771(2)/JP/2013 ITO VS. SHRI DEVENDRA AGARWAL THE AO CONSIDERED THE SUBMISSIONS. ON PERUSAL OF T HE DETAILS OF THE VALUATION OF CLOSING STOCK OF RAW MATERIAL, PACKING MATERIAL AND BREAD, THE AO FOUND THAT THE VALUATION OF A FEW ITEMS HAS BEEN SHOWN LESS THAN T HE AVERAGE INWARD (PURCHASE) AND OUTWARD (CONSUMED/SALE) RATES PER UNIT, AS UNDE R :- STOCK RATES : ITEM INWARD RATE OUTWARD RATE CLOSING ACETIC ACID N 55.24 53.42 51.00 POLY 400 GM N 140.76 145.96 136.69 BREAD TAJ MAHAL 10.56 12.21 9.00 THE AO, THEREFORE, HELD THAT THE DISCREPANCY NOTICE D IN THE VALUATION OF THE CLOSING STOCK, THE TRADING RESULTS DECLARED BY THE ASSESSEE CANNOT BE TREATED FULLY AND TRULY SHOWN. THEREFORE, INVOKING PROVISIONS OF SECTION 14 5(3) OF THE ACT, HE MADE A LUMP SUM TRADING ADDITION OF RS. 50,000/- TO THE INCOME OF THE ASSESSEE TO COVER UP ANY POSSIBLE LEAKAGE OF REVENUE TO THE DEPARTMENT. ON APPEAL BY THE ASSESSEE, THE LD. CIT (A) DELETED THE ADDITION BY OBSERVING AS UNDER :- I HAVE GONE THROUGH THE ASSESSMENT ORDER AND SUBM ISSIONS MADE BY THE AR AND FIND THAT AO HAD MADE THE ADDITION ON TH E GROUND OF FALL IN THE GP RATE DURING THE YEAR AND ON ACCOUNT OF VARIA TION IN THE VALUATION OF CLOSING STOCK. IT HAS BEEN STATED THAT SLIGHT FALL IN THE GROSS PROFIT RATE DURING THE YEAR IS ON ACCOUNT OF INCREA SE IN THE TURNOVER OF THE BUSINESS BY MORE THAN RS. 90 LAC, DURING THE YE AR. I HOLD THAT IN THE ABSENCE OF ANY SPECIFIC INFIRMITY IN THE BOOKS OF ACCOUNTS OF THE APPELLANT, THE AO WAS NOT JUSTIFIED IN MAKING A TRA DING ADDITION, I ACCORDINGLY DELETE AN ADDITION OF RS. 50,000/- MADE ON THIS ACCOUNT. NOW THE REVENUE IS IN APPEAL BEFORE US. 14 ITA NO. 771(2)/JP/2013 ITO VS. SHRI DEVENDRA AGARWAL THE LD. D/R SUPPORTED THE ORDER OF AO. ON THE OTHER HAND, THE LD. A/R FOR THE ASSESSEE RE ITERATED THE SUBMISSIONS AS MADE BEFORE LD. CIT (A) WHO HAS PASSED A JUSTIFIED ORDER TO THE EXTENT OF DELETING THE ADDITION MADE BY THE AO AND PRAYED THAT THE ORD ER OF LD. CIT (A) BE CONFIRMED. WE HAVE HEARD THE RIVAL CONTENTIONS AND PERUSED TH E MATERIAL AVAILABLE ON RECORD. THE AO HAD MADE THE TRADING ADDITION OF RS. 50,000/- ON THE GROUND THAT THE DISCREPANCY WAS NOTICED IN THE VALUATION OF CLO SING STOCK. THE TRADING RESULT DECLARED BY THE ASSESSEE CANNOT BE ACCEPTED AS TRUE AND CORRECT. THEREFORE, BY INVOKING PROVISIONS OF SECTION 145(3) OF THE ACT, L UMP SUM ADDITION OF RS. 50,000/- WAS MADE BY THE AO. HOWEVER, THE LD. CIT (A) HAS DE LETED THE TRADING ADDITION OF RS. 50,000/- AND ALSO HELD THAT INVOCATION OF PROVI SIONS OF SECTION 145(3) WAS NOT IN ACCORDANCE WITH LAW. HOWEVER, WHILE FILING THE APPE AL BEFORE US, THE REVENUE HAS NOT CHALLENGED THE ORDER OF LD. CIT (A) WHEREBY THE INVOCATION OF PROVISIONS OF SECTION 145(3) WAS HELD NOT IN ACCORDANCE WITH LAW AS BOOKS OF ACCOUNTS WERE DULY MAINTAINED BY THE ASSESSEE. SINCE THE REVENUE HAS N OT CHALLENGED THE ORDER OF LD. CIT (A) ON 145(3), THEREFORE, THE TRADING ADDITION DELETED BY THE LD. CIT (A), IN OUR VIEW WAS IN ACCORDANCE WITH LAW AND, THEREFORE, THE APPEAL OF THE REVENUE IS REQUIRED TO BE DISMISSED. THOUGH WE HAVE DISCUSSED THE GROUNDS OF APPEAL OF THE REVENUE ON MERITS, HOWEVER, THE CBDT CIRCULAR ISSUED BY THE REVENUE ON 10.12.2015 CLEARLY PROVIDES WITHDRAWAL OF APPEAL WHERE THE TAX EFFECT IS LESS T HAN RS. 10 LAKHS. IN VIEW THEREOF, THE APPEAL OF THE REVENUE IS REQUIRED TO BE DISMISS ED. 15 ITA NO. 771(2)/JP/2013 ITO VS. SHRI DEVENDRA AGARWAL IN THE RESULT, APPEAL OF THE REVENUE IS DISMISSED. NOW WE TAKE UP THE ASSESSEES APPEAL. GROUND NO. 1 RELATES TO CONFIRMING ADDITION OF RS. 4,26,944/- ON ACCOUNT OF ACCOUNTING TREATMENT OF PURCHASES GIVEN IN THE BOOK S. DURING THE COURSE OF ASSESSMENT PROCEEDINGS, THE AO ON GOING THROUGH THE BALANCE SHEET AS ON 31.03.2009 OF FRANCHISEE BUSINESS, NOTICED THAT THE ASSESSEE HAS SHOWN THE SUNDRY CREDITORS AT RS. 13,52,063/- WHICH ALSO INCLUDES A LIABILITY OF RS. 4,27,280/- PAYABLE TO BSNL. WHEREAS, PERUSAL OF COPY OF BSNL ACCOUNT IN THE BOOKS OF THE ASSESSEE REVEALS THAT EACH AND EVERY PAYMENT OF RECHARGE & A CTIVATION CARD PURCHASES FROM THE BSNBL WAS MADE REGULARLY AT THE TIME OF ITEMS I SSUED BY BSNL, EXCEPT THE CREDIT ENTRY OF RS. 4,27,280/- RECORDED ON 19.04.20 08 BY THE ASSESSEE ON ACCOUNT OF RECHARGE & ACTIVATION CARD PURCHASES (CLAIM RECEIVE D FOR RATE DOWN). GOING THROUGH THE ENTIRE FACTS IN THIS REGARD, THE AO NOTICED THA T ON SUCH DATE THE BSNL SUPPLIED THE RECHARGE & ACTIVATION CARD ETC. TO THE ASSESSEE WITHOUT CHARGING ANY COST OF SUCH ITEMS ISSUED ON ACCOUNT OF THE SALE RATE OF TH E ITEMS ISSUED TO THE ASSESSEE EARLIER REDUCED TO SUCH EXTENT BY THE BSNL, MEANING THEREBY THAT THE STOCK OF THE ASSESSEE ON SUCH DATE INCREASED IN QUANTITY/VOLUME, BUT NOT IN COST/VALUE OF PURCHASES. WHEREAS, THE ASSESSEE HAS ALSO GOT THE VALUE OF THE PURCHASES MADE FROM BSNL INCREASED BY THE VALUE OF THE ITEMS OF PU RCHASES WHICH WERE ISSUED TO THE ASSESSEE TO COMPENSATE THE REDUCTION IN THE SAL E RATE ALLOWED EARLIER. ON ASKING THE ASSESSEE TO FURNISH THE PROOF IN RES PECT OF THE LIABILITY OF THE BSNL IN THE YEAR IN WHICH THE SAME WAS MET OUT, THE LD. A/R OF THE ASSESSEE VIDE 16 ITA NO. 771(2)/JP/2013 ITO VS. SHRI DEVENDRA AGARWAL WRITTEN REPLY DATED 19.12.2011 HAS SUBMITTED THAT T HIS LIABILITY IS ADJUSTED IN THE F.Y. 2010-11 AGAINST PURCHASES. IN SUPPORT, HE FURNISHED THE EXTRACT OF THE LEDGER ACCOUNT OF THE BSNL IN THE BOOKS OF THE ASSESSEE. ON PERUSAL OF THESE DETAILS IN THE LEDGER, IT CLEAR LY REVEALED THAT THE BOGUS LIABILITY PAYABLE TO BSNL SHOWN BY THE ASSESSEE DUR ING THE YEAR HAS ULTIMATELY BEEN CORRECTED/ADJUSTED IN THE BOOKS OF ACCOUNT WITHOUT MAKING ANY PAYMENT TO THE BSNL. THIS FACT IS EVIDENT THAT THE PURCHASES OF T HE ASSESSEE DURING THE YEAR ARE INFLATED BY THE AMOUNT OF RS. 4,27,280/- BY WAY OF RAISING BOGUS LIABILITY OF THE BSNL WHICH RESULTED IN GROSS PROFIT ARRIVED LOW BY THIS AMOUNT. INFORMATION U/S 133(6) OF THE ACT CALLED FROM THE ACCOUNTS OFFICER (CMTS) O/O GMTD, BSNL, ALWAR VIDE HIS LETTER DATED 20.12.2011 HAS ALSO CONFIRMED THAT AS PER RECORD OF THEIR OFFICE, 3815 TOP UP WERE ISSUED ON 19.04.2008 FOR ADJUSTMENT OF RATE REDUCTION IN PRICE OF EXCELL SIM CARDS ON 31.08.2006 MIDNIGHT FOR COSTING OF RS. 4,27,280/- (3815*112) AND NO COST HAS BEEN CHARGED IN THIS REGARD ON 19.04.2008 AND THERE IS NO SUCH RECOVERY AGAINST M/S. MAHADEO PRASAD AGARWAL COMMUNICATIONS WAS OUTSTANDING AS ON 31.03.2009. IN VIEW OF THE ABOVE POSITION, THE AO MADE AN ADDITION OF RS. 4,27,280/- AND ADDED TO THE TOTAL INCOME OF THE AS SESSEE. BEING AGGRIEVED BY THE ORDER OF AO, THE ASSESSEE PR EFERRED APPEAL BEFORE LD. CIT (A), WHO HAS CONFIRMED THE ADDITION OF RS. 4,26 ,944/- BY OBSERVING AS UNDER :- 5.4.(I) 3815 TOP UP SIM CARDS WERE ISSUED BY THE B SNL TO THE APPELLANT ON 19.04.2008. THE PURPOSE WAS TO ISSUE T HESE CARDS AS AN ADD ON TO THE EXISTING CARDS SO AS TO ENHANCE THE B ENEFIT TO THE CUSTOMER. 17 ITA NO. 771(2)/JP/2013 ITO VS. SHRI DEVENDRA AGARWAL (II) THE APPELLANT BOOKED THE COST OF THESE TOP UP SIM CARDS AT THEIR FACE VALUE OF RS. 4,27,280/- (3815X112) BY PASSING JOURNAL ENTRIES IN THE BOOKS OF ACCOUNT AS A REGULAR PURCHASE. (III) IN THE CLOSING STOCK, AS ON 31.03.2009 ONLY, 3 SIM CARDS OUT OF 3815 WERE LEFT WITH THE APPELLANT HAVING VALUE OF R S. 336 (3X112). (IV) IN THE BALANCE SHEET OF THE APPELLANT AS ON 31/03/2 009, ON THE LIABILITY SIDE, AN AMOUNT OF RS. 4,27,280/- HAS BEE N SHOWN AS PAYABLE TO MTNL. (V) THIS AMOUNT OF LIABILITY OF RS. 4,27,280 HAS BEEN W RITTEN OFF BY THE ASSESSEE IN THE NEXT FINANCIAL YEAR. 5.5. LET US FIRST ANALYZE THE IMPACT OF THE ACCOUNT ING TREATMENT WHICH HAS BEEN GIVEN BY THE ASSESSEE IN HIS BOOKS O F ACCOUNTS ON THE PROFITS DECLARED, BEFORE DECIDING ON THE CORRECTNES S OF THE CLAIM. (A) THE AR HAS STATED IN THE SUBMISSIONS THAT EVEN IF THE PURCHASES WERE DEBITED IN THE TRADING ACCOUNT, IT HAD NO IMPA CT ON THE PROFITS DECLARED BY HIM AS THE SAME AMOUNT WAS INCLUDED IN THE CLOSING STOCK. FURTHER IN THE BALANCE SHEET ON THE LIABILITIES SID E THERE IS AN AMOUNT OF RS. 4,27,280/- OCCURRING AS PAYABLE TO BSNL AND ON THE ASSET SIDE SAME AMOUNT WOULD BE INCLUDED IN THE CLOSING STOCK, THUS MAKING REALLY NO DIFFERENCE TO THE PROFITS SO DECLARED. (B) LOGICLALY SPEAKING WHAT IS STATED IN (A) AB OVE SHOULD BE TRUE, PROVIDED THE FIGURES ARE SAME IN ALL THE FOUR HEADI NGS (I.E. PURCHASES, STOCK, LIABILITIES & ASSETS), SO STATED. (C) HOWEVER, A CLOSER LOOK WOULD REVEAL THAT IT IS NOT SO. THIS FOR THE REASON THAT IN THE PURCHASES ACCOUNT AN AMOUNT OF R S. 4,27,280 HAS BEEN DEBITED, AND IN THE CLOSING STOCK ONLY AN AMOU NT OF RS. 336 IS INCLUDED (AS ON 31.03.2009). THE APPELLANT HAS ADMI TTED IN PARA 5.3 ABOVE, THAT OUT OF THE 3815 TOP UP SIM CARDS OF RS. 4,27,280/-, ONLY 3 TOP UP SIM CARDS OF THE VALUE OF RS. 335.71 WERE LE FT IN THE CLOSING STOCK OF 8,06,920/- AS ON 31.03.2009. THEREFORE, BY MAKING THIS ENTRY IN THE BOOKS FOR THE VALUE OF STOCK FOR WHICH NO AM OUNT WAS CHARGED BY THE BSNL, THE PROFITS GET UNDER STATED BY AN AMO UNT OF RS. 4,26,944/- (427280-336). (F) THUS, THE ENTRIES MADE IN THE BOOKS OF ACCOUNTS ON 19.04.2008 SHOWING AN AMOUNT OF RS. 4,27,280/- AS PAYABLE TO B SNL ON ACCOUNT OF SIM CARDS ISSUED BY IT ARE NOT CORRECT. FURTHER, ACCOUNTS OFFICER, BSNL, ALWAR HAS ALSO CONFIRMED (VIDE HIS LETTER DAT ED 20.12.11) DURING THE COURSE OF ASSESSMENT PROCEEDINGS THAT NO COST W AS CHARGED FROM THE APPELLANT WHILE ISSUING THE SIM CARDS ON 19.04. 2008. IN FACT 3815 TOP UP WERE ISSUED FOR ADJUSTMENT OF RATE REDUCTION IN THE PRICE OF EXCEL SIM CARDS WHICH HAD ORIGINALLY BEEN ISSUED ON 31.08.2006 AND 18 ITA NO. 771(2)/JP/2013 ITO VS. SHRI DEVENDRA AGARWAL THE VALUE OF THIS TOP UP WAS RS. 4,27,280/- (3815X1 12). THEREFORE, IT WAS SUBMITTED BY THE ACCOUNTS OFFICER, BSNL THAT NO PAYMENT WAS PENDING FROM M/S. MAHADEO PRASAD AGARWAL COMMUNICAT IONS ON 31 ST MARCH, 2009. (G) THE SUBMISSIONS MADE DURING THE COURSE OF APPEL LATE PROCEEDINGS THAT THIS AMOUNT HAS BEEN WRITTEN OFF B Y THE ASSESSEE IN THE NEXT FINANCIAL YEAR, HAS NO FORCE AS THE LIABIL ITY DID NOT EXIST IN THE PERIOD UNDER CONSIDERATION. IN VIEW OF THESE FACTS, I HOLD THAT PROFITS DECLARE D BY THE APPELLANT ARE UNDERSTATED BY AN AMOUNT OF RS. 4,26,944/- MADE ON ACCOUNT OF THE ACCOUNTING TREATMENT GIVEN IN THE BOOKS. THE APPELL ANT WOULD ACCORDINGLY GET A RELIEF OF RS. 336/- ON THIS ACCOU NT. NOW THE ASSESSEE IS IN APPEAL BEFORE US. THE LD. A/R FOR THE ASSESSEE REITERATED THE SUBMIS SIONS AS MADE BEFORE LD. CIT (A) AND PRAYED THAT THE ORDER OF LD. CIT (A) BE SET ASIDE BY DELETING THE ADDITIONS CONFIRMED BY HIM. ON THE OTHER HAND, THE LD. D/R FOR THE REVENUE SUP PORTED THE ORDER OF THE LD. CIT (A) TO THE EXTENT OF CONFIRMING THE ADDITION. WE HAVE HEARD RIVAL CONTENTIONS AND PERUSED THE MA TERIAL AVAILABLE ON RECORD. WE HAVE GONE THROUGH THE ORDERS OF THE AUTH ORITIES BELOW. THE ISSUE IN QUESTION HAS BEEN DISCUSSED IN DETAIL BY THE LD. CI T (A) JUDICIOUSLY IN HIS ORDER. AFTER CONSIDERING THE DETAILED RECORDS VIZ. TRADING ACCOUNT, PROFIT & LOSS ACCOUNT, CLOSING STOCK, LIABILITIES SHOWN IN THE BALANCE SHE ET AND THE STATEMENT OF BSNL OFFICIALS, WE DO NOT FIND ANY INFIRMITY IN THE ORDE R OF LD. CIT (A), WHO HAS RIGHTLY SUSTAINED THE ADDITION. THEREFORE, WE CONFIRM HIS O RDER. THE GROUND OF THE ASSESSEE IS REJECTED. 19 ITA NO. 771(2)/JP/2013 ITO VS. SHRI DEVENDRA AGARWAL GROUND NO. 2 RELATES TO CONFIRMING DISALLOWANCE O F RS. 50,000/- ON ACCOUNT OF DISCOUNT PROVIDED TO CUSTOMERS. SINCE WE HAVE DECIDED THIS ISSUE IN THE APPEAL OF THE REVENUE BY DISMISSING THE GROUND OF THE REVENUE, THEREFORE, THE GROUND OF THE ASSESSEE HAS BECOME INFRUCTUOUS AND THE SAME IS DISMISSED. GROUND NO. 3 RELATES TO CONFIRMING AN ADDITION OF RS. 1,00,000/- ON ACCOUNT OF EXCESSIVE SALARY PAYMENT U/S 40A(2)(B). THIS GROUND WE HAVE DECIDED IN THE APPEAL OF THE R EVENUE BY DISMISSING THE GROUND OF THE REVENUE. THEREFORE, THIS GROUND OF TH E ASSESSEE HAS BECOME INFRUCTUOUS AND THE SAME IS DISMISSED AS INFRUCTUOU S. GROUND NO. 4 RELATES TO CONFIRMING AN ADDITION OF RS. 9232/- ON ACCOUNT OF TELEPHONE EXPENSES AND RS. 19,893/- ON ACCOUNT OF C AR MAINTENANCE AND DEPRECIATION. DURING ASSESSMENT PROCEEDINGS, THE AO NOTICED THAT THE ASSESSEE HAS DEBITED A SUM OF RS. 92,320/- TO PROFIT & LOSS ACCOUNT. NO DETAILS/LOG BOOK IS MAINTAINED SHOWING THAT TELEPHONE WAS USED ONLY FOR BUSINESS P URPOSES. THEREFORE, USE OF TELEPHONE FOR PERSONAL AND NON-BUSINESS PURPOSES CA NNOT BE RULED OUT. IN THE IMMEDIATELY PRECEDING YEAR ALSO 10% OF SUCH EXPENSE S WERE DISALLOWED WHICH WAS CONFIRMED BY LD. CIT (A). THUS THE AO DISALLOWED TE LEPHONE EXPENSES TO THE EXTENT OF 10% WHICH COMES TO RS. 9,232/-. 20 ITA NO. 771(2)/JP/2013 ITO VS. SHRI DEVENDRA AGARWAL SIMILARLY, THE ASSESSEE DEBITED A SUM OF RS. 69,62 4/- ON ACCOUNT OF REPAIR AND MAINTENANCE EXPENSES OF CARS AND RS. 1,29,306/- ON ACCOUNT OF DEPRECIATION ON CAR. ON VERIFICATION OF THE DETAILS SUBMITTED BY T HE ASSESSEE, THE AO HELD THAT USE OF THIS FACILITY FOR PERSONAL & NON BUSINESS PURPOS ES CANNOT BE RULED OUT. IN THE IMMEDIATELY LAST YEAR ALSO, 10% OF SUCH EXPENSES WE RE DISALLOWED BY THE AO AND THE SAME WAS CONFIRMED BY LD. CIT (A). THEREFORE, FOR THIS YEAR ALSO, THE AO DISALLOWED 10% OF SUCH EXPENSES WHICH COMES TO RS. 19,893/- I.E. 10% OF (RS. 69,624 + RS. 1,29,306/-) OUT OF CAR EXPENSES AND CA R DEPRECIATION. AGGRIEVED BY THE ORDER OF AO, THE ASSESSEE PREFERR ED APPEAL BEFORE LD. CIT (A) WHO CONFIRMED THE DISALLOWANCES BY OBSERVING AS UNDER :- I HAVE GONE THROUGH THE ASSESSMENT ORDER AND SUBM ISSIONS MADE BY THE AR AND KEEPING IN VIEW THE PAST HISTORY OF THE CASE, NO INTERFERENCE IN THE ORDER OF AO IS CALLED FOR. ACC ORDINGLY, THE ADDITIONS OF RS. 9,232/- ON ACCOUNT OF TELEPHONE EXPENSES AND ADDITIONS OF RS. 19,893/- ON ACCOUNT OF CAR MAINTENANCE AND DEPRECIA TION ARE CONFIRMED. NOW THE ASSESSEE IS IN APPEAL BEFORE US. WE HAVE HEARD THE RIVAL CONTENTIONS AND PERUSED TH E MATERIAL AVAILABLE ON RECORD. CONSIDERING THE FACTS AND CIRCUMSTANCES OF THE CASE AND THE PAST HISTORY OF THE ASSESSEE, WE ARE OF THE VIEW THAT POSSIBILITY O F USE OF TELEPHONE AND CAR FOR PERSONAL AND NON-BUSINESS PURPOSES CANNOT BE DENIED . THEREFORE WE DO NOT FIND ANY INFIRMITY IN THE ORDER OF LD. CIT (A) WHICH IS UPHE LD. THE GROUND OF THE ASSESSEE IS DISMISSED. 21 ITA NO. 771(2)/JP/2013 ITO VS. SHRI DEVENDRA AGARWAL GROUND NO. 5 RELATES TO CONFIRMING THE ADDITION OF RS. 8077/- ON ACCOUNT TELEPHONE EXPENSES. (M.P. FOOD PRODUCTS). THE ASSESSEE DEBITED A SUM OF RS. 80,767/- UNDER T HE HEAD PROFIT & LOSS ACCOUNT DURING THE YEAR. THE AO OBSERVED THAT THIS FACILITY FOR PERSONAL AND NON- BUSINESS PURPOSES CANNOT BE RULED OUT. IN THE LAST YEAR ALSO, 10% OF SUCH EXPENSES WERE DISALLOWED AND THE LD. CIT (A) CONFIRMED THE S AME. SIMILARLY, THE AO DISALLOWED A SUM OF RS. 8,077/- I.E. 10% OF THE TELEPHONE EXPE NSES IN THIS YEAR. ON APPEAL, THE LD. CIT (A) CONFIRMED THE SAME OBSE RVING THAT KEEPING IN VIEW THE PAST HISTORY OF THE CASE AND APPELLATE ORD ERS FOR THE PRECEDING YEAR, AN ADDITION OF 10% OF THE EXPENSES I.E. RS. 8,077/- IS CONFIRMED. WE HAVE HEARD THE RIVAL CONTENTIONS AND GONE THROU GH THE ORDERS OF THE LOWER AUTHORITIES. AFTER CONSIDERING THE PAST HIST ORY OF THE CASE AND PERSONAL USE OF TELEPHONE CANNOT BE DENIED, WE DO NOT FIND ANY INFI RMITY IN THE ORDER OF LD. CIT (A). THEREFORE, THE ADDITION SUSTAINED BY LD. CIT (A) IS CONFIRMED. GROUND NO. 6 RELATES TO CONFIRMING ADDITION OF RS. 26,312/- ON ACCOUNT OF BUSINESS PROMOTION EXPENSES. DURING ASSESSMENT PROCEEDINGS, THE AO NOTED THAT T HE ASSESSEE HAS DEBITED A SUM OF RS. 2,63,117/- UNDER THE HEAD BUSINESS PRO MOTION EXPENSES. THE AO NOTED THAT IN THE IMMEDIATELY PRECEDING ASSESSMENT YEAR 10% OF SUCH EXPENSES WERE DISALLOWED BY THE AO AND THE LD. CIT (A) VIDE HIS ORDER DATED 25.03.2010 HAS CONFIRMED THE SAME. THE AO TAKING INTO CONSIDERATIO N THAT THE FACTS INVOLVED IN THIS 22 ITA NO. 771(2)/JP/2013 ITO VS. SHRI DEVENDRA AGARWAL YEAR ARE SAME AND THE EXPENSES ARE NOT VERIFIABLE, THEREFORE, DISALLOWED RS. 26,312/- I.E. 10% OF SUCH EXPENSES AND ADDED THE SA ME TO THE TOTAL INCOME OF THE ASSESSEE. ON APPEAL, LD. CIT (A) CONFIRMED THE DISALLOWANCE BY OBSERVING AS UNDER :- I HAVE GONE THROUGH THE SUBMISSIONS MADE IN THIS REGARD AND KEEPING IN VIEW THE PAST HISTORY OF THE CASE AND AP PELLATE ORDERS FOR THE PRECEDING YEAR, AN ADDITION OF 10% OF THE EXPEN SES I.E. RS. 26,312/- IS CONFIRMED. WE HAVE HEARD THE RIVAL CONTENTIONS AND PERUSED TH E MATERIAL ON RECORD. CONSIDERING THAT THE EXPENSES INCURRED BY THE ASSES SEE UNDER THIS HEAD ARE NOT VERIFIABLE AND ALSO LOOKING TO THE PAST HISTORY OF THE CASE, WE DO NOT FIND ANY INFIRMITY IN THE ORDER OF LD. CIT (A). THEREFORE, T HE DISALLOWANCE IS CONFIRMED. GROUND NO. 7 RELATES TO CONFIRMING THE ADDITION OF RS. 4378/- ON ACCOUNT OF EXPENSES ON CAPITAL NATURE. THE AO NOTICED THAT THE ASSESSEE HAS DEBITED A SUM OF RS. 5,150/- UNDER THE HEAD TRAVELLING EXPENSES ON ACCOUNT OF MOBILE PURCH ASED ON 20.04.2008. HE TREATED THIS EXPENDITURE AS CAPITAL IN NATURE. THER EFORE, THE AO AFTER ALLOWING DEPRECIATION @ 15%, ADDED A SUM OF RS. 4,378/- TO T HE TOTAL INCOME OF THE ASSESSEE. ON APPEAL, THE LD. CIT (A) CONFIRMED THE ADDITION OF RS. 4,378/- TREATING THE EXPENDITURE AS CAPITAL IN NATURE AFTER ALLOWING DEP RECIATION @ 15%. 23 ITA NO. 771(2)/JP/2013 ITO VS. SHRI DEVENDRA AGARWAL GROUND NO. 8 RELATES TO CONFIRMING ADDITION OF RS. 44,000/- ON ACCOUNT OF LOW HOUSEHOLD WITHDRAWALS. THE AO NOTED THAT AS PER CAPITAL ACCOUNT, THE ASSE SSEE HAS SHOWN HOUSEHOLD EXPENSES AT RS. 85,500/- ONLY AS AGAINST RS. 1,20,0 00/- SHOWN IN THE IMMEDIATELY PRECEDING YEAR. THE ASSESSEES FAMILY CONSIST OF S ELF, WIFE AND MINOR SON. THE AO, KEEPING IN VIEW THE QUANTUM OF HOUSEHOLD WITHDRAWAL S OF THE LAST YEAR, THE HOUSEHOLD WITHDRAWALS OF THE ASSESSEE FOR THE YEAR UNDER CONSIDERATION HAS ESTIMATED AT RS. 1,30,000/- BEING A SMALL FAMILY. T HUS THE DIFFERENCE OF RS. RS. 44,500/- (1,30,000 85,500) WAS REQUIRED TO BE ADD ED TO THE INCOME OF THE ASSESSEE, BUT NO SEPARATE ADDITION WAS MADE IN THIS REGARD IN VIEW OF THE TRADING ADDITION MADE OF RS. 50,000/-. ON APPEAL, THE LD. CIT (A) CONFIRMED THE PROPOSED ADDITION BY OBSERVING AS UNDER :- I HAVE GONE THROUGH THE ORDER OF THE AO AND SUBMI SSION OF AR AND FIND THAT IN FINAL COMPUTATION NO SEPARATE ADDITION WAS MADE BY AO ON ACCOUNT OF THE FACT THAT A TRADING ADDITION OF RS. 50,000/- HAD BEEN MADE. A FINDING WITH REGARD TO TRADING ADDITION HA S ALREADY BEEN GIVEN SEPARATELY IN THIS ORDER. HOWEVER, KEEPING IN VIEW THE LEVEL OF TOTAL HOUSEHOLD WITHDRAWALS SHOWN BY THE APPELLANT DURING THE YEAR AND COMPARING THE SAME TO THE WITHDRAWALS SHOWN IN THE PRECEDING YEARS, I CONFIRM THE PROPOSED ADDITION OF RS. 44,00 0/- ON ACCOUNT OF LOW HOUSEHOLD WITHDRAWALS. NOW THE ASSESSEE IS IN APPEAL BEFORE US. WE HAVE HEARD RIVAL CONTENTIONS AND PERUSED THE MA TERIAL AVAILABLE ON RECORD. CONSIDERING THE FACTS AND CIRCUMSTANCES OF THE CASE AND PAST HISTORY OF THE 24 ITA NO. 771(2)/JP/2013 ITO VS. SHRI DEVENDRA AGARWAL ASSESSEE, WE ARE OF THE VIEW THAT THE LD. CIT (A) H AS RIGHTLY CONFIRMED THE PROPOSED ADDITION ON ACCOUNT OF HOUSEHOLD WITHDRAWALS. THE HOUSEHOLD EXPENSES SHOWN FOR THE YEAR UNDER CONSIDERATION IS ON A VERY LOWER SID E. WE DO NOT FIND ANY INFIRMITY IN THE ORDER OF LD. CIT (A) AND THE SAME IS CONFIRMED. 17. IN THE RESULT, APPEAL OF THE REVENUE IS DISMISS ED WHEREAS THE APPEAL OF THE ASSESSEE IS PARTLY ALLOWED. ORDER PRONOUNCED IN THE OPEN COURT ON 22/06/20 16. SD/- SD/- VH-VKJ-EHUK YFYR DQEKJ (T.R. MEENA) (LALIET KUMAR) YS[KK LNL;@ ACCOUNTANT MEMBER U;KF;D LNL;@ JUDICIAL MEMBER TK;IQJ@ JAIPUR FNUKAD@ DATED:- 22/06/2016 DAS/ VKNS'K DH IZFRFYFI VXZSFKR @ COPY OF THE ORDER FORWARDED TO: 1. VIHYKFKHZ @ THE APPELLANT- THE ITO, WARD 1(3), ALWAR. 2. IZR;FKHZ @ THE RESPONDENT- SHRI DEVENDRA AGARWAL, ALWAR. 3. VK;DJ VK;QDR @ CIT 4. VK;DJ VK;QDRVIHY @ THE CIT(A) 5. FOHKKXH; IZFRFUF/K] VK;DJ VIHYH; VF/KDJ.K] T;IQJ @ DR, ITAT, JAIPUR 6. XKMZ QKBZY @ GUARD FILE (ITA NO. 771(2)/JP/2013) VKNS'KKUQLKJ @ BY ORDER, LGK;D IATHDKJ @ ASST. REGISTRAR 25 ITA NO. 771(2)/JP/2013 ITO VS. SHRI DEVENDRA AGARWAL