The DCIT, Circle 1, JUNAGADH V. Shri Dhramendra Gordhandas Rajani, JUNAGADH

ITA 82/RJT/2011

• Counselvise Citation: [2013] 140 COUNSELVISE.COM (IT) 67246 (ITAT-RAJKOT)
• Duration Of Justice: 2 year(s) 1 month(s) 24 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 26-04-2013
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: DB
• Next Hearing Date: 22-04-2013
• Assessment Year: 2003-2004
• Appeal Filed On: 04-03-2011
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: M K SINGH DR IU
• Assessee Lawyers: J C RANPURA CA U
• Keywords: Gross profit estimation; Unexplained investment; Gift; Business income; Deemed to accrue or arise in india
• Section: 143(3); 80HHC; 133A; 147; 132

Judgement Text

, IN THE INCOME TAX APPELLATE TRIBU N AL; RAJKOT BENCH, RAJKOT. BEFORE SHRI D . K. TYAGI , JM AND SHRI A. M OHAN ALANKAMONY , AM IT A NO S . 82 & 83 /RJT//2011 I I / ASSESSMENT YEAR 2003 - 04 & 2004 - 05 DCIT, CIRCLE - 1, JUNAGADH ( S / APPELLANT) VS. SHRI DHARMENDRA GORDHANDAS RAJANI, PROP. OF MAJESTIC TRADERS, GIDC - II, JUNAGADH PAN : AGAPR 6571 R YS / RESPONDENT C.O.NO. 34 /RAJ/2011 I N IT A NO . 82 /RJT/2011 & C.O.NO.35/RAJ/2011 IN IT A NO .83/RJT /2011 I I / ASSESSMENT YEAR 2003 - 04 & 2004 - 05 SHRI DHARMENDRA GORDHANDAS RAJANI, JUNAGADH ( S / CROSS - OBJECTOR ) VS. DCIT, CIRCLE - 1, JUNAGADH YS / RESPONDENT 0 U / REVENUE BY SHRI M K SINGH, DR IU /ASSESSEE BY SHRI J C RANPURA, CA U / DATE OF HEARING 22.04.2013 U / DATE OF PRONOUNCEMENT 26 .04.2013 / ORDER PER BENCH: THESE TWO A PPEAL S OF THE REVENUE AND TWO CROSS - OBJECTION S BY THE ASSESSEE ARISES OUT OF THE TWO SEPARATE ORDER S OF THE LD. CIT(A) - XXI , AHMEDABAD IN APPEAL NO S . CIT(A) - XXI/4 90 /CIR.1.JN G /10 - 11 & CIT(A) - XXI/491/CIR.1.JNK/10 - 11 , BOTH DATED 31 .1 2 .201 0 FOR THE ASSESSMENT YEAR S 2 003 - 04 & 2004 - 0 5 RESPECTIVELY PASSED U/S 250 R.W.S. 143(3) OF THE ACT . . F OR THE SAKE OF CONVENIENCE ALL THESE CASES ARE HEARD T OGETHER AND DECIDED BY THIS CONSOLIDATED ORDER. 2 THOUGH THE REVENUE HAS RAISED SIX GROUNDS IN ITS APPEAL NO. 82/RJT/2011 FOR THE AY 2003 - 04 , GROUND NO. 1, 4, 5 & 6 ARE GENERAL IN NATURE AND DO NOT SURVIVE FOR ADJUDICATION. THE OTHER TWO GROUNDS ARE EXTRACTED HEREIN BELOW FOR CONSIDERATION: - 82&83 /RJT2011 CO 3 4&35 /RJT/201 1 2 2. THE LD. CIT(A), HAS ERRED IN LAW AND ON FACTS IN DELETING ADDITION OF RS.12,37,480/ - MADE BY THE AO AS PER THE PROVISION OF SEC. 40A(2)(B), SALES COMMIS SION EXPENSES. 3. THE LD (CIT(A), HAS ERRED IN LAW AND ON FACTS IN DELETING ADDITION OF RS.42,240/ - OUT OF THE TOTAL ADDITION OF RS.82 ,240/ - MADE BY THE AO, OUT OF VEHICLE/MISCELLANEOUS SHOP EXPENSES AND TELEPHONE EXPENSES, WITHOUT CONSIDERING FACT BROUG HT ON RECORDS. 2.1 THE ASSESSEE HAS RAISED TWO GROUNDS IN ITS CROSS - OBJECTION S BEARING C.O.NO.34/RAJ/2011 FOR AY 2003 - 04 , WHEREIN THE FIRST GROUND IS GENERAL IN NATURE AND DO NOT SURVIVE FOR ADJUDICATION. THE OTHER RELEVANT LONE GROUND IS REPRODUCED HE REIN BELOW FOR CONSIDERATION. 2.0 THE LD COMMISSIONER OF INCOME TAX (APPEALS) - XXI, AHMEDABAD [HEREINAFTER REFERRED TO AS THE CIT(A) ] ERRED ON FACTS AS ALSO IN LAW IN SUSTAINING ALLOWANCE OF RS.40,000/ - ON ACCOUNT OF ALLEGED PERSONAL ELEMENT INVOLVED IN CAR, MISCELLANEOUS AND TELEPHONE EXPENSES. THE DISALLOWANCE MAY KINDLY BE DELETED. 3. THE REVENUE HAS RAISED ELEVEN GROUNDS IN ITS APPEAL NO.83/RJT/2011 FOR THE AY 2004 - 05. THE GROUND NO. 1, 9, 10 & 11 ARE GENERAL IN NATURE AND DO NOT SURVIVE FOR ADJUDICATION. THE OTHER SIX GROUNDS ARE EXTRACTED HEREIN BELOW FOR CONSIDERATION: - 2. THE LD. CIT(A), HAS ERRED IN LAW AND ON FACTS IN DELETING THE ADDITION OF RS.15,0,055/ - MADE BY THE AO U/S 69A, AS BUSINESS INCOME, BEING DECLARED DURING SURVEY PROCEEDING. 3. THE LD. CIT(A) HAS ERRED IN LAW AND ON FACTS IN DELETING THE ADDITION OF RS.4,12,761/ - OUT OF THE TOTAL MADE BY THE AO OF RS.5, 12,761/ - ON ACCOUNT OF LOW GP. 4. THE LD. CIT(A) HAS ERRED IN LAW AND ON FACTS IN DELETING THE ADDITION OF RS.53,650/ - MADE BY THE AO ON ACCOUNT OF UNEXPLAINED INVESTMENT IN STOCK. 5. THE LD. CIT(A) HAS ERRED IN LAW AND ON FACTS IN DELETING THE ADDITION OF RS.50,000/ - MADE BY THE AO ON ACCOUNT OF UNEXPLAINED INVESTMENT IN STOCK OF STRAP ROLL. 6. THE LD. CIT(A) HAS ERRED IN LAW AND ON FACTS IN DELETING THE ADDITION OF RS.2,53,120/ - MADE BY THE AO AS PER THE PROVISIONS OF THE SEC.40A(2)(B), BEING SALES COMMISSION EXPENSES. 7. THE LD. CIT(A) HAS ERRED IN LAW AND ON FACTS IN DELETING THE ADDITION OF RS.7,69,920/ - MADE BY THE AO OUT OF VARIOUS EXPENSES, WITHOUT CONSIDERING THE FACTS BROUGHT ON RECORDS. 82&83 /RJT2011 CO 3 4&35 /RJT/201 1 3 8. THE LD. CIT(A) HAS ERRED IN LAW AND ON FA CTS IN DELETING THE ADDITION OF RS.42,350/ - MADE BY THE AO OUT OF CAR/MISCELLANEOUS EXPENSES, WITHOUT APPRECIATING THE FACTS BROUGHT ON RECORD BY THE AO. 3.1 THE ASSESSEE HAS RAISED THREE GROUNDS IN ITS CROSS - OBJECTION BEARING NO.35/RJT/2011 FOR AY 2004 - 05 , WHEREIN THE FIRST GROUND IS GENERAL IN NATURE AND DO NOT SURVIVE FOR ADJUDICATION. THE OTHER TWO RELEVANT GROUNDS ARE REPRODUCED HEREIN BELOW FOR CONSIDERATION. 2.0 THE LD COMMISSIONER OF INCOME TAX (APPEALS) - XXI, AHMEDABAD [HEREINAFTER REFERRED TO AS THE CIT(A)] ERRED ON FACTS AS ALSO IN LAW IN SUSTAINING ALLOWANCE OF RS.30,000/ - ON ACCOUNT OF ALLEGED PERSONAL ELEMENT INVOLVED IN CAR, MISCELLANEOUS AND TELEPHONE EXPENSES. THE DISALLOWANCE MAY KINDLY BE DELETED. 3.0 THE LD CIT(A) ERRED ON FAC TS AS IN LAW IN CONFIRMING THE ADDITION OF RS.1,0,000/ - OUT OF THE TOTAL ESTIMATED ADDITION OF RS.5,12,761/ - MADE ON ACCOUNT OF ALLEGED LOW GP IN THE CURRENT YEAR AS COMPARED TO THE IMMEDIATE PRECEDING YEAR. THE ADDITION MAY KINDLY BE DELETED. 4. BRIEF FACTS : - THE ASSESSEE IS AN INDIVIDUAL, EARNING INCOME FROM BUSINESS OF TRADING IN TEA ON WHOLESALE BASIS IN THE NAME AND STYLE OF M/S.MAJESTIC TRADERS, FILED HIS RETURN OF INCOME FOR THE AY 2003 - 04 ON 27.11.2003 DECLARING TOTAL INCOME OF RS.5,80,690/ - . I NITIALLY THE RETURN WAS PROCESSED U/S 143(1) OF THE ACT. SUBSEQUENTLY THE CASE WAS REOPENED BY ISSUING NOTICE U/S 147 DUE TO THE INFORMATION RECEIVED FROM I NVESTIGATION UNIT - I (2) MUMBAI VIDE LETTER DATED 03.01.2005 THAT THE ASSESSEE HAD RECEIVED THE BOGU S GIFT AMOUNTING TO RS.5 LACS FROM SHRI BABULAL D. VISROLIA. THEREAFTER ASSESSMENT WAS COMPLETED U/S 143(3) R.W.S. 147 AND 148 OF THE ACT FOR BOTH THE ASSESSMENT YEARS 2003 - 04 & 2004 - 05 WHEREIN CERTAIN ADDITIONS WERE MADE BY LD AO , SOME OF WHICH ARE UNDER APPEAL BEFO RE US BY THE REVENUE AS WELL AS BY THE ASSESSEE AGAINST THE RELIEF GRANTED BY THE LD CIT(A). ITA NO .82/RJT/2011 REVENUES APPEAL FOR THE AY 2003 - 04 . 5. GROUND NO.2 DELETING OF ADDITION OF RS.12,37,480/ - MADE BY AO ON ACCOUNT OF SALES COMMISSION EXPENSES U/S. 40A(2)(B) OF THE ACT : - DURING THE COURSE OF ASSESSMENT PROCEEDINGS LD A O OBSERVED THAT THE ASSESSEE HAD DEBITED RS.12,37,480/ - TOWARDS SALES COMMISSION. IT WAS FURTHER OBSERVED THAT THE ABOVE AMOUNT WAS TO BE P AID TO THE BROTHER OF THE ASSESSEE. THE LD 82&83 /RJT2011 CO 3 4&35 /RJT/201 1 4 AO REQUIRED THE ASSESSEE TO FURNISH THE DOCUMENTARY EVIDENCE TO ESTABLISH THAT HIS BROTHER HAD ACTUALLY RENDERED SERVICE TO THE ASSESSEE. SINCE THE ASSESSEE COULD NOT FURNISH ANY DOCUMENTARY EVIDENCE, THE LD AO DISALLOWED RS.12,37,480/ - INVOKING SECTION 40A(2)(B) OF THE ACT. WHEN THE MATTER WAS BROUGHT BEFORE THE LD CIT(A), THE LD CIT(A) AFTER EXAMINING THE ISSUE IN DETAILS DELETED THE ADDITION WITH THE FOLLOWING OBSERVATIONS: - 4.2. I HAVE PERUSED THE ASSESSM ENT ORDER AND ALSO THE ARGUMENT PUT FORTH BY THE LD AR OF THE ASSESSEE. I FIND THAT THE DISALLOWANCE WAS MADE ON MERE SURMISE THAT THE PERSONS TO WHOM THE SALES COMMISSION HAVE BEEN MADE ARE IN THE SIMILAR LINE OF BUSINESS AND THEREFORE THEY DO NOT HAVE TI ME FOR CARRYING OUT THE SALES OF THE ASSESSEE. THIS IS HIGHLY HYPOTHETICAL AND IS NOT SUPPORTED BY ANY MATERIAL EVIDENCE ON RECORD. AS CAN BE SEEN FROM THE CONTENTION OF THE ASSESSEE THAT, THIS FINDING OF THE AO IS MISPLACED IN AS MUCH AS THE RESPECTIVE AGENTS HAVE KNOWLEDGE IN THE FIELD AND RENDERED SERVICES IN MARKETING GOODS. THEREFORE, THE DISALLOWANCE MADE U/S 40A(2)(B) IS WITHOUT ESTABLISHING THE FACT THAT THERE EXISTED UNREASONABLENESS ON THE PART OF THE ASSESSEE TO PART WITH COMMISSION INCOME. S INCE THE AO FAILED TO BRING ANYTHING MATERIAL EVIDENCE ON RECORD, THE DISALLOWANCE MADE U/S 49A(2)(B) IS DIRECTED TO BE DELETED. HENCE THE ASSESSEES SECOND GROUND OF APPEAL IS ALSO ALLOWED. 5.1 LD DR ARGUED IN SUPPO RT OF THE ORDER OF THE LD. AO AND PRAYED THAT THE ORDER OF THE LD AO MAY BE RESTORED ON THIS ISSUE, WHILE AS THE LD AR SUBMITTED THAT THE LD CIT(A) HAD EXAMINED THE ISSUE IN DETAIL AND PASSED A SPEAKING ORDER AND PRAYED THAT THE SAME MAY BE SUSTAINED. 6. WE HAVE HEARD THE RIVAL SUBMISSION AND CAREFULLY PERUSED THE MATERIALS ON RECORD. THE CONTENTION OF THE APPELLANT WAS THAT IN ORDER TO ACHIEVE HIGHER TURNOVER HE HAD ENGAGED THE SERVICE OF HIS BROTHER AND OTHER PERSONS. FURTHER IT WAS DIFFICULT TO HAND LE BUSINESS SINGLE HANDEDLY THEREFORE IT WAS ESSENTIAL TO OBTAIN TH E HELP FROM OTHER INDIVIDUALS AND THE ASSESSEE PREFERRED TO TAKE THE SERVICE OF HIS BROTHER. FURTHER THE ENTIRE AMOUNT WAS PAID BY ACCOUNT PAYEE CHEQUE AFTER DULY DEDUCTING TAX AT SOURCE. THE APPELLANTS BROTHER WAS ALSO AN ASSESSEE POSSESSING PAN NUMBER. THE ASSESSEE HAS ALSO PLACE RELIANCE IN THE DECISION S OF VARIOUS HIGHER JUDICIAL AUTHORITIES TO JUSTIFY HIS CLAIM VIZ. 1) S.A. BUILDERS V. CIT 288 ITR 1 (SC), 2) NARSINGDAS SURAJMAL PROP ERTIES PVT LTD V. CIT, 3) STATE OF MADRAS VS. G.J. GOELHO (1964) 53 ITR 186 (SC), 4) CIT V. PANIPAT WOOLEN AND GENERAL MILLS CO. LTD. (1976) 82&83 /RJT2011 CO 3 4&35 /RJT/201 1 5 103 ITR 66, 71 (SC) & 4) CIT V. DHANRAJGIRJI RAJA NARASINGIRJI (1973) 91 ITR 544 (SC) . CONSIDERING THE NATURE OF E XPENDITURE THE ASSESSEE HAD INCURRED AND THE BUSINESS OF THE ASSESSEE, WE DO NOT FIND ANY REASON AS TO WHY THE EXPENDITURE BEING SALES COMMISSION PAID TO THE BROTHER OF THE ASSESSEE BE DISALLOWED. FURTHER THE LD CIT(A) HAS DELIBERATED THE ISSUE IN DETAIL AND HAS ALLOWED THE EXPENDITURE. AT THIS STAGE, WE DO NOT FIND IT NECESSARY TO INTERFERE WITH THE ORDER OF THE LD CIT(A) ON THIS ISSUE. THEREFORE, WE HEREBY UPHOLD THE DECISION OF LD CIT(A) ON THIS ISSUE AND ACCORDINGLY DISMISS THIS GROUND RAISED BY THE REVENUE. 7 . GROUND 3 OF REVENUES APPEAL AND GROUND NO.2 OF THE ASSESSEES CROSS - OBJECTION S - DELETING THE ADDITION OF RS.42,240/ - OUT OF THE TOTAL ADDITION OF RS.82,240/ - MADE BY THE AO, OUT OF VEHICLE/MISCELLANEOUS SH O P EXPENSES AND TELEPHONE EXPENSES: - THE LD AO HAD DISALLOWED RS.38,970/ , RS.12,330/ - , RS.30,940 BEING ONE FORTH OF TOTAL EXPENDITURE INCURRED TOWARDS CAR, MISCELLANEOUS AND TELEPHONE EXPENSE RESPECTIVELY ON THE PREMISES THAT THE ASSESSEE WOULD HAVE ALSO USED THESE FACILITIES FOR PERSONAL USE. HOWEVER, THE LD CIT(A) HAS GIVEN RELIEF TO THE ASSESSEE TO THE EXTENT OF RS.42,240/ - AND SUSTAINED THE ADDITION OF RS.40,000/ - . 7.1 THE LD DR JUSTIFIED THE STAND OF THE LD AO AND ARGUED THAT THE LD AO HAD JUDICIOUSLY DISALLOWED ONLY ONE FORTH OF THE TOTAL EXPENDITURE INCURRED BY THE ASSESSEE BECAUSE THERE WAS AN ELEMENT OF PERSONAL USE WHICH WAS NOT PROPERLY RECORDED BY THE ASSESSEE. IT IS THEREFORE PRAYED THAT THE ORDER OF THE LD. AO MAY BE RESTORED. LD AR ON THE OTHER HAND SUBMITTED TH AT THE ADDITION MADE BY THE LD AO WHICH WAS FURTHER PARTLY SUSTAINED BY THE LD CIT(A) FOR RS.40,000 / - WAS NOT WARRANTED BECAUSE THERE WAS NO ELEMENT OF PERSONAL USE. IT IS THEREFORE SUBMITTED THAT THE ADDITION SUSTAINED BY THE LD CIT(A) MAY BE DELETED. 7.2 AFTER HEARING BOTH THE SIDES AND CAREFULLY PERUSING THE MATERIALS BROUGHT BEFORE US, WE DO NOT FIND ANY INFIRMITY IN THE ORDER PASSED BY LD 82&83 /RJT2011 CO 3 4&35 /RJT/201 1 6 CIT(A). THOUGH LD AO HAS RIGHTLY OBSERVED THAT THE ASSESSEE HAS NOT MAINTAINED PROPER RECORDS FOR PERSONAL USE FOR THE EXPENDITURE INCURRED BY THE OFFICE OF THE ASSESSEE, THE LD CIT(A) HAS JUDICIOUSLY GIVEN RELIEF OF RS.42,240/ - CONSIDERING THE FACT THAT THAT LD AO HAS NOT BROUGHT ANY EVIDENCE TO DRAW SUCH ADVERSE INFERENCE. THEREFORE WE HEREBY CONFIRM THE ORDER O F LD CIT(A). ACCORDINGLY THE GROUND RAISED BY THE REVENUE IS DISMISSED AND ALSO THE GROUND RAISED BY ASSESSEE IN HIS CROSS - OBJECTION IS ALSO DISMISSED. ITA NO .83/RJT/2011 REVENUES APPEAL FOR THE AY 2004 - 05 . 8. GROUND NO.2 - DELETING OF THE ADDITION OF RS. 15,00,055/ - MADE BY AO U/S. 69A, AS BUSINESS INCOME, SIC TREATING THE EXCESS STOCK FOUND DURING THE COURSE OF SURVEY OF RS.15,00,055/ - AS BUSINESS INCOME AS AGAINST DEEMED INCOME U/S 69A HELD BY THE LD AO: - DURING THE COURSE OF SURVEY U/S. 133A IT WAS REVEALED THAT THE ASSESSEE HAD AN UNACCOUNTED STOCK OF RS.15,00,055/ - . THE ASSESSEE HAS ALSO ACCEPTED THE SAME. THE LD AO MADE ADDITION OF THE AFORESAID AMOUNT U/S 69A OF THE ACT AND DISALLOWED ANY DEDUCTION UNDER THE HEAD INCOME FROM BUSINESS/PROFE SSION RELYING ON THE DECISION OF THE JURISDICTIONAL HIGH COURT IN THE CASE FAQIR MOHD HAJI HASSAN V. CIT (2002) 247 ITR 290 (GUJ) . ON APPEAL BEFORE THE LD CIT(A) , RELYING UPON THE VARIOUS DECISIONS CITED BY THE ASSESSEE AND DISTINGUISHING THE FACTS OF THE CASE DECIDED BY THE JURISDICTIONAL HIGH COURT IN THE CASE FAQIR MOHD HAJI HASSAN V. CIT (2002) 247 ITR 290 (GUJ) HELD THAT SUCH ADDITIONS HAS TO BE MADE AS INCOME FROM THE ASSESSEES ROUTINE BUSINESS. THE LD CIT(A) MADE THE FOLLOWING OBSERVATIONS WHI LE ARRIVING AT THE ABOVE DECISIONS: - 5.0 I HAVE PERUSED THE ASSESSMENT ORDER AS ALSO THE ARGUMENTS PUT FORTH BY THE LD AR OF THE ASSESSEE. A SURVEY WAS CARRIED OUT AT THE BUSINESS PREMISES OF THE ASSESSEE. DURING THE COURSE OF SURVEY, THOUGH VARIOUS I NCRIMINATING DOCUMENTS WERE FOUND WHICH WERE ALSO IMPOUNDED, HOWEVER, NONE OF THEM ESTABLISHES THE FACT THAT THE ASSESSEE WAS HAVING INCOME FROM ANY OTHER SOURCES EXCEPT FROM THE BUSINESS OF TEA. THEREFORE, THE DISCREPANCY IN STOCK OF TEA FOUND DURING THE SURVEY, IN NO WAY REPRESENTS INCOME FROM OTHER SOURCES. THE SAME REPRESENTS INCOME FROM BUSINESS ONLY. THEREFORE, THE AO WAS NOT JUSTIFIED IN TAXING IT SEPARATELY AS INCOME FROM OTHER SOURCES AND THUS, DENYING THE ASSESSEES CLAIM OF UNABSORBED DEPRECIA TION 82&83 /RJT2011 CO 3 4&35 /RJT/201 1 7 AND EARLIER YEARS LOSSES. SINCE THE AO COULD NOT ESTABLISH THAT THERE EXISTED SOURCE OF INCOME OTHER THAN THE ASSESSEES REGULAR TEA BUSINESS, HE OUGHT TO HAVE TREATED THE DISCREPANCY IN STOCK AS PART OF THE ASSESSEES BUSINESS. THEREFORE, HE IS DI RECTED TO TREAT THE DISCREPANCY IN STOCK AS FROM ASSESSEES ROUTINE BUSINESS. ACCORDINGLY THIS GROUND OF ASSE SS EES APPEAL IS ALLOWED. 8.1 LD DR ARGUED IN SUPPORT OF THE ORDER OF THE LD. AO WHILE AS TH E LD AR REITERATED ITS SUBMISSION BEFORE THE LD CIT( A) AND ALSO RELIED ON THE ORDER OF THE JURISDICTIONAL HIGH COURT IN THE CASE ACIT V. PRABHUDAS S. PAREKH, RAJKOT & VARIOUS OTHER JUDICIAL PRONOUNCEMENTS AND PRAYED THAT THE ORDER OF THE LD CIT(A) MAY BE SUSTAINED. 8.2 WE HAVE HEARD BOTH THE PARTIES AND CAREFULLY PERUSED THE MATERIALS ON RECORDS. ON PERUSING THE ORDER OF JURISDICTIONAL GUJARAT HIGH COURT CITED SUPRA BY THE LD AR, WE FIND THAT THE ISSUE IS SQUARELY COVERED. THE HONBLE GUJARAT HIGH COURT HAD OBSERVED THUS IN THE CASE OF THE ASSESSEE SHR I PRABHUDAS S. PAREKH WHO IS AN INDIVIDUAL ENGAGED IN THE BUSINESS OF MANUFACTURE, EXPORT AND TRADI NG OF GOLD AND SILVER ORNAMENTS, FROM WHOM CERTAIN UNACCOUNTED JEWELRY WAS FOUND DURING ACTION U/S 132 OF THE ACT AND THE ASSESSING OFFICER HAD DENIED IT TO BE TREATED AS INCOME FROM BUSINESS WHILE AS THE LD CIT(A) DIRECTED THE AO TO TR EAT THE SAME AS BUSINESS INCOME : - 5. IN THE PRESENT CASE, SEARCH WAS CONDUCTED AND SOME UNACCOUNTED JEWALLERY WAS FOUND. THE DEPARTMENT ACCEPTED THE STATEMENTS MADE BY THE ASSESSEE. AFTER CONSIDERING THE FACTS AND THE CIRCUMSTANCES AS DISCUSSED ABOVE AND IN VIEW OF LEGAL POSITIONS, WE ARE OF THE CONSIDERED OPINION THAT THE LEARNED CIT(A) IS PERFECTLY JUSTIFIED IN TREATING THE INCOME OF THE ASSESSEE FROM BUSINESS AND HE HAS CORRECTLY DIRECTED THE ASSESSING OFFICER TO RECOMPUTED THE DEDUCTION UNDER SEC. 80HHC TREATING THE DISCLOSED INCOME AS BUSINESS INCOME. THE FINDINGS OF THE LEARNED CIT(APPEALS) DO NOT REQUI RE ANY INTERFERENCE FROM OUR SIDE AND HIS FINDINGS ARE UPHELD. 8.3 SINCE THE FACTS OF THIS CASE BEFORE US AND THE FACTS OF THE CASE DECIDED BY HONBLE JURISDICTIONAL HIGH COURT (SUPRA) ARE IDENTICAL , WE ARE BOUND BY THE DECISION OF THE HONBLE JURISDICTIONAL HIGH COURT AND ACCORDINGLY WE HEREBY DIRECT THE LD AO TO TREAT THE EXCESS STOCK FOUND DURING THE COURSE OF SURVEY AS INCOME DERIVED FROM BUSINESS . ACCORDINGLY WE HEREBY CONFIRM THE 82&83 /RJT2011 CO 3 4&35 /RJT/201 1 8 ORDER OF THE LD CIT(A) ON THIS ISSUE. T HUS THIS GROUND RAI SED BY THE REVENUE IS DISMISSED. 9 . GROUND NO.3 OF THE REVENUES APPEAL & GROUND NO.3 OF THE ASSESSEES CO - DELETING THE ADDITION OF RS.4,12,761/ - OUT OF THE TOTAL ADDITIONS MADE BY THE AO FOR RS.5,12,761 ON ACCOUNT OF LOW GP AND THE A SSESSEES CROSS - O BJECTIONS FOR SUSTAINING THE ADDITION OF RS.1 LAC BY THE LD CIT(A): - DURING THE COURSE OF ASSESSMENT PROCEEDINGS, THE LD AO OBSERVED THAT THE ASSESSEE HAS DISCLOSED GP RATE OF 13.99% AS AGAINST 20.99% DISCLOSED IN THE IMMEDIATE PRECEDING YEAR. THE ASSESS EE HAD EXPLAINED BEFORE THE LD AO THAT DURING THE RELEVANT PREVIOUS YEAR THE TEA RATE WAS FLUCTUATING AND ALSO THERE WAS STIFF COMPETITION IN THE MARKET WHICH RESULTED IN THE LOW PROFIT MARGIN. HOWEVER, NOT CONSIDERING THE REASONING OF THE ASSESSEE AS GEN UINE THE LD AO TREATED THE GP OF THE ASSESSEE AT 15% AND THUS MADE AN ADDITION OF RS.5,12,761/ - TO THE INCOME OF THE ASSESSEE. LD CIT(A) CONSIDERING THE ADDITION MADE BY THE LD AO NOT SUPPORTED BY ANY MATERIAL EVIDENCE AND ALSO CONSIDERING THE ADDITIONS SUS TAINED FOR DISCREPANCY IN STOCK , SUSTAINED AN ADDITION OF RS.1 LAC. 9.1 LD DR ARGUED IN SUPPORT OF THE ORDER OF THE LD AO AND SUBMITTED THAT THE SAME MAY BE UPHELD, WHILE AS THE LD AR PLEADED THAT THE ENTIRE ADDITIONS IS BASED ON PRESUMPTIONS AND THE REFORE THE SAME MAY BE DELETED. 9.2 AFTER HEARING BOTH THE SIDES AND CAREFULLY PERUSING THE MATERIAL ON RECORD, WE FIND THAT THE REVENUE HAS MADE THE ADDITIONS ON ACCOUNT OF LOW GP ARBITRARILY AND PURELY BASED ON PRESUMPTIONS AND ASSUMPTIONS. BOTH THE REVENUE AUTHORITIES HAVE NOT BROUGHT ANY MATERIALS ON RECORD TO ESTABLISH THAT THE ASSESSEE HAD UNFAIRLY DECLARED LOW PROFITS. FURTHER THE LD AO HAS NOT UNEARTH ED ANY EVIDENCE TO ESTABLISH THAT THE BOOKS OF ACCOUNTS AND RECORDS MAINTAINED BY THE ASSESSEE ARE NOT RELIABLE. THEREFORE FROM THE FACTS AND CIRCUMSTANCE OF THE CASE, WE ARE OF THE CONSIDERED VIEW THAT THE LD AO HAD ARBITRARILY MADE THE ADDITIONS WHICH WAS FURTHE R SUSTAINED BY THE LD CIT (A) WHICH IS DESERVED TO BE DELETED. ACCORDINGLY WE HEREBY D ELETE THE 82&83 /RJT2011 CO 3 4&35 /RJT/201 1 9 ADDITIONS MADE BY THE LD AO WHICH WAS FURTHER PARTLY SUSTAINED BY THE LD CIT(A) ON ACCOUNT OF LOW GP. THUS THIS GROUND RAISED BY THE REVENUE IS DISMISSED AND THE GROUND NO.3 RAISED BY THE ASSESSEE IN HIS CO IS ALLOWED. 10 . GROUND NO S .4 & 5 OF THE REVENUES APPEAL - DELETING THE ADDITION OF RS.53,650/ - & RS.50,000/ - MADE BY THE AO ON ACCOUNT OF UNEXPLAINED INVESTMENT IN STOCK: - DURING THE COURSE OF SURVEY ACTION, IT WAS OBSERVED BY THE LD AO THAT CERTAIN ARTICLES SUCH AS TIFFIN , MILK CAN, STEEL BOXES AND STRAP ROLLS WERE FOUND WHICH WERE NOT RECORDED IN THE BOOKS OF ACCOUNTS. THE LD AO MADE AN ADDITION OF RS.5 3 ,650/ - AND RS.50,000/ - AS UNEXPLAINED INVESTMENTS IN STOCK. IT WAS SUBMITTED BY THE ASSESSEE BEFORE THE LD CIT(A) THAT DURING THE YEAR UNDER CONSIDERATION THE ASSESSEE HAD LODGED A SCHEME FOR DISTRIBUTION OF ARTICLES SUCH AS TIFFIN, MILK CAN, STEEL BOXES AS GIFTS . THE ASSESSEE FURTHER EXPLAINED THE AMOUNT OF RS.53,650 / - WAS TREATED AS PURCHASES AND CHARGED TO PROFIT AND LOSS ACCOUNT SINCE THEY WERE GIFT ARTICLES KEPT FOR DISTRIBUTION. LD CIT(A) CONSIDERING THE ARGUMENTS OF THE ASSESSEE AND FURTHER GIVING THE TELESCOPIC BENEFIT FOR THE ADDITION MADE ON ACCOUNT OF LOW GP DELETED THIS ADDITION OF RS.53,650/ - . AFTER HEARING BOTH THE S IDES, WE ARE OF THE VIEW THAT THE REVENUE IS NOT JUSTIFIED IN MAKING THE ADDITION OF RS.53,650/ - BEING GIFT ARTICLES PURCHASED BY THE ASSESSEE. THESE ARE PETTY ITEMS PURCHASED FOR DISTRIBUTION TO VARIOUS PEOPLE FOR PROMOTION OF THE BUSINESS. THESE ITEMS C ANNOT BE CONSIDERED AS STOCK IN TRADE OR INVESTMENTS. MOREOVER, THE VALUE OF THESE ITEMS INDIVIDUALLY ARE VERY LESS. CONSIDERING THE NATURE OF EXPENDITURE AND THE ITEMS PURCHASED AND KEEPING IN VIEW OF THE ACCOUNTING CONCEPT OF MATERIALITY WE HEREBY DELE T E THE ADDITIONS OF RS.53,650/ - AND SUSTAINED THE ORDER OF LD CIT(A). 10.1 LD AO HAD FURTHER MADE AN ADDITION OF RS.50,000/ - FOR THE STRAP ROLL OF 211KGS FOUND DURING THE COURSE OF SURVEY WHICH ARE NOT RECORDED IN THE BOOKS OF ACCOUNTS. THE ASSESSEE HAS SUBMITTED BEFORE THE LD CIT(A) THAT THE STRAP ROLLS WERE NOT PURCHASED BY THE ASSESSEE BUT WERE PART OF PACKING MATERIAL RECEIVED FROM SUPPLIERS OF TEA AND THE S AME ARE TO BE SOLD - OF AS SCARP. THE 82&83 /RJT2011 CO 3 4&35 /RJT/201 1 10 LD CIT(A) HAS DELETED THE ADDITIONS WI TH THE FOLLOWING OBSERVATIONS CONSIDERING THE SUBMISSION S OF THE ASSESSEE: - 7.1 I FIND SUBSTANTIAL FORCE IN THE CONTENTION OF THE LD AR IN THE MATTER. TEA IS PROCURED IN WOODEN BOXES WHICH ARE PACKED WITH STRAP ROLLS. THESE STRAP ROLLS ARE NOT ASSESS EES TRADING ITEMS. THEY ARE USUALLY SOLD AS SCRAP. THEREFORE, MAKING ADDITION BY TREATING THE SAME AS UNEXPLAINED INVESTMENT DOES NOT ARISE AND THEREFORE NO ADDITION IS CALLED FOR. THEREFORE, THIS GROUND OF ASSESSEES APPEAL IS ALSO ALLOWED. 10.2 WE FULLY AGREE WITH THE FINDIN GS AND REASONING OF THE LD CIT (A) ON THIS ISSUE AND THEREFORE CONFIRM HIS ORDER. THUS, BOTH THE GROUND NO S .4 & 5 RAISED BY THE REVENUE ARE DISMISSED. 11 . GROUND NO.6 - DELETING THE ADDITION OF RS.2,53,120/ - MADE BY THE AO AS PER THE PROVISIONS OF THE SECTION 40A(2)(B), BEING SALES COMMISSION EXP ENSES: - THIS IDENTICAL ISSUE HAS BEEN CONSIDERED AND ADJUDICATED IN THE ASSESSEES OWN CASE FOR THE AY 2003 - 04 (SUPRA) IN PARA NO.6 IN FAVOUR OF ASSESSEE . FOLLOWING THE SAME WE HEREB Y CONFIRM THE ORDER OF LD CIT(A) ON THIS ISSUE. 12 GROUND NO.7 DELETING THE ADDITION OF RS.7,69,920/ - MADE BY THE AO OUT OF VARIOUS EXPENSES: - DURING THE COURSE OF ASSESSMENT PROCEEDINGS, LD AO OBSERVED THAT ASSESSEE HAD INCURRED DURING THE PREVIOUS YEA R VARIOUS EXPENDITURE AGGREGATING TO RS.7 6 , 99,228 / - WHICH WERE PREDOMINATELY NOT INCURRED BY THE ASSESSEE DURING THE IMMEDIATELY PRECEDING YEAR . THE DETAILS OF WHICH WERE LISTED HEREIN BELOW : - SR. NO. EXPENSE HEAD AMOUNT RS. THIS YEAR AMOUTN RS. PRECEDING YEAR 1 PACKING GOOD EXP. 32,90,750 71,551 2 ADVERTISEMENT EXP. 7,12,999 NIL 3 CASH DISCOUNT 9,36,565 NIL 4 DRIVER SALARY 96,000 NIL 5 SALES MAN SALARY 1,79,491 NIL 6 GRAHK SCHEME EXP. 18,93,701 NIL 7 SCHEME RTBD EXP. 2,44,244 NIL 8 SCHEME RTBD EXP. 95,228 NIL 9 SALES PROMOTION EXP. 2,50,250 NIL TOTAL 76,99,228/ - 12.1 FURTHER THE AUDITOR IN HIS AUDIT REPORT HAS STATED THAT THE PAYMENT MADE TO VARIOUS PARTIES FOR THE ABOVE MENTIONED EXPENDITURES WERE SUBJECT TO 82&83 /RJT2011 CO 3 4&35 /RJT/201 1 11 THEIR CONFIRMATION. THEREFORE, THE LD AO REQUIRED THE ASSESSEE TO FURNISH THE CONFIRMATION LETTER FROM ALL THESE PARTIES, WHICH THE ASSESSEE FAILED TO DO SO. THEREFORE, THE LD AO OPINIONED THAT THE ASSESSEE HAD DELIBERATELY INFLATED THE EXPENDITURE IN ORDER TO REDUCE THE PROFIT AND SET OFF THE INCOME DISCLOSED DURING THE COURSE OF SURVEY FOR RS.15,00,055/ - . CONSIDERING THESE FACTS, THE LD AO DISALLOWED ONE TENTH OF THE EXPENDITURE AND ADDED THE AMOUNT OF RS.7,69,920/ - TO THE INCOME OF TH E ASSESSEE. HOWEVER, ON APPEAL THE LD CIT(A) DELETED THE ADDITION WITH THE FOLLOWING OBSERVATIONS: - 9.2 I HAVE PERUSED THE ASSESSMENT ORDER AND THE SUBMISSION PUT FORTH BY THE LD . AR OF THE ASSESSEE AND I FIND SUBSTANTIAL FORCE IN THE SAME. THE ASSES SEES TURNOVER HAD INCREASED BY 10 TIMES AND IT IS NOT POSSIBLE TO ACHIEVE A PHENOMENAL RISE WITHOUT INCURRING COAST ON SALES PROMOTION ACTIVITIES. THE AOS STAND THAT SUCH EXPENDITURE DID NOT EXIST IN THE PRECEDING YEAR HOLDS NO GROUND AS THERE WAS NOT M UCH BUSINESS IN THE IMMEDIATE PRECEDING YEAR. THE VOLUME OF BUSINESS INCREASED MANIFOLD AND TO KEEP UP WITH SUCH A PACE, IT IS NATURAL THAT THE ASSESSEE WOULD HAVE INCURRED EXPENSES FOR PROMOTION OF SALES. THEREFORE, THE DISALLOWANCE IS UNCALLED FOR AND THE SAME IS DIRECTED TO BE DELETED. THEREFORE, THE ASSESSEES THIS GROUND OF APPEAL IS ALSO ALLOWED. 12.2 LD DR SUPPORTED THE ORDER OF LD AO AND SUBMITTED THE SAME MAY BE SUSTAINED WHERE AS THE LD AR RELIED ON THE ORDER OF LD CIT(A). 12.3 AFTER HEA RING BOTH THE SIDES AND CONSIDERING THE MATERIALS ON RECORD BEFORE US, WE ARE OF THE CONSIDERED VIEW THAT THE LD CIT (A) HAS JUDICIALLY DELETE THE ADDITION CONSIDERING THE INCREASE IN TURNOVER OF THE ASSESSEE, THEREFORE WE HEREBY CONFIRM HIS ORDER. ACCORDING THIS GROUND RAISED BY THE REVENUE IS DISMISSED. 13 . GROUND NO.8 DELETING THE ADDITI ON OF RS.42,350/ - MADE BY AO OUT OF CAR/MISCELLANEOUS EXPENSES: - THIS IDENTICAL ISSUE HAS BEEN CONSIDERED AND ADJUDICATED IN THE ASSESSEES OWN CASE FOR THE AY 2003 - 04 (SUPRA) IN PARA NO.7.2 WHEREIN THE ORDER OF LD CIT(A) S WAS SUSTAINED WHO HAD PARTLY ALLOWED IN FAVOUR OF THE ASSESSEE. THEREFORE FOLLOWING THE SAME , WE HEREBY CONFIRM THE ORDER OF LD CIT(A) WHICH IS SIMILAR TO THE ORDER RENDERED BY HIM FOR THE AY 2003 - 04. ACCORDINGLY, WE HEREBY DISMISS THE APPEAL OF THE 82&83 /RJT2011 CO 3 4&35 /RJT/201 1 12 REVENUE AND CONSEQUENTLY THE CROSS - OBJECTIONS RAISED BY THE ASSESSEE IN GROUND NO.2 ALSO STANDS D ISMISSED. 20 IN THE RESULT, THE APPEAL OF THE REVENUE IN ITA NO. NO.82/RJT/2011 FOR THE AY 2003 - 04 IS DISMISSED AND THE CROSS - OBJECTIONS OF THE ASSESSEE IN CO NO.34/RJT/2011 FOR AY 2003 - 04 IS ALSO DISMISSED. 21. IN THE RESULT, THE APPEAL OF THE REVENUE IN ITA NO. NO.83/RJT/2011 FOR THE AY 2004 - 05 IS DISMISSED AND THE CROSS - OBJECTIONS OF THE ASSESSEE IN CO NO.35/RJT/2011 FOR AY 2004 - 05 IS PARTLY ALLOWED. T HIS O RDER IS PRONOUNCED IN THE O PEN COURT ON THE DATE MENTIO NED HEREINABOVE. SD/ - SD/ - (D .K. TYAGI) ( A. M OHAN ALANKAMONY ) 0 / JUDICIAL MEMBER OHAN / ACCOUNTANT MEMBER N/ ORDER DATE 26 .04.2013 /RAJKOT BT T RJO O / COPY OF ORDER FORWARDED TO: - 1. S / APPELLANT - DCIT, CIRCLE - 1, JUNAGADH 2. YS / RESPONDENT - DHARMENDRA GORDHANDAS RAJANI, JUNAGADH . D / CIT CONCERNED 4. D - / CIT (A) - XXI, AHMEDABAD 5. ( , , / DR, ITAT, RAJKOT 6. I / GUARD FILE. / BY ORDER , TRUE COPY SENIOR PRIVATE SECRETARY INCOME TAX APPELLATE TRIBUNAL, RAJKOT.