THE ITO, Ward-2(3), Surat V. M/S AMBER TEXTURISERS, Surat

ITA 849/AHD/2007

• Counselvise Citation: [2011] 135 COUNSELVISE.COM (IT) 2047 (ITAT-AHMEDABAD)
• Duration Of Justice: 3 year(s) 11 month(s) 25 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 18-02-2011
• Appeal Filed By: Department
• Order Result: Partly Allowed
• Bench Allotted: D
• Next Hearing Date: 14-02-2011
• Assessment Year: 2003-2004
• Appeal Filed On: 23-02-2007
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Department Lawyers: G S SURYAWANSHI
• Keywords: Unexplained cash credit; Business income; Commercial expediency
• Section: 40A(3); 143(3); 40(b); 143(2); 145

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL AHMEDABAD BENCH 'D' BEFORE SHRI MAHAVIR SINGH,JM & SHRI A N PAHUJA,AM ITA NO.849/AHD/2007 (ASSESSMENT YEAR:-2003-04) INCOME-TAX OFFICER, WARD- 2(3), ROOM NO.205B, AAYAKAR BHAVAN, MAJURA GATE, SURAT V/S M/S AMBER TEXTURISERS, 3/959, MOOCHHALA POLE, NAVAPURA, SURAT PAN: AAEFA 0876 E [APPELLANT] [RESPONDENT] REVENUE BY :- SHRI G S SURYAWANSHI, DR ASSESSEE BY:- NONE O R D E R A N PAHUJA: THIS APPEAL BY THE REVENUE AGAINST AN ORDER DATED 21- 12-2006 OF THE LD. CIT(APPEALS)-II, SURAT FOR THE A SSESSMENT YEAR (AY) 2003-04, RAISES THE FOLLOWING GROUNDS:- 1. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CA SE AND IN LAW, THE LEARNED CIT(A) HAS ERRED IN RESTRICTING THE ADDITIO N TO RS.4,03,642/- ON ACCOUNT OF ESTIMATION OF G.P. AS AGAINST ADDITION O F RS.9,61,831/-. 2. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CAS E AND IN LAW, THE LEARNED CIT(A) HAS ERRED IN DELETING THE ADDITION O F RS.31,26,670/- ON ACCOUNT OF BROKERAGE / COMMISSION EXPENSES. 3. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CAS E AND IN LAW, THE LEARNED CIT(A) HAS ERRED IN DELETING THE ADDITIONS OF RS.85,162/- [83576 + 1586] ON ACCOUNT OF DISALLOWANCE OUT OF VA RIOUS EXPENSES. 4. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CAS E AND IN LAW, THE LEARNED CIT(A) OUT TO HAVE UPHELD THE ORDER OF THE AO ON THE ABOVE ISSUES. 5. IT IS, THEREFORE, PRAYED THAT THE ORDERS OF THE LEARNED CIT(A) MAY BE SET- ASIDE AND THAT OF THE AO MAY BE RESTORED TO THE ABO VE EXTENT. 2 NONE APPEARED ON BEHALF OF THE ASSESSEE NOR ANY R EQUEST FOR ADJOURNMENT WAS PLACED BEFORE US. SINCE NONE APPEA RED EVEN EARLIER WHEN THE APPEAL WAS FIXED FOR HEARING ON 12.1.2010 , 23.6.2010 & 3.1.2011 WHILE THE BUSINESS OF THE ASSESSEE IS STATED TO HA VE BEEN COMPLETELY CLOSED ITA N O.849/AHD/2007 2 DOWN SINCE MAY 2003,CONSIDERING THE NATURE OF ISSUE S INVOLVED, WE, THEREFORE, DECIDED TO DISPOSE OF THE APPEAL AFTER H EARING THE LEARNED DEPARTMENTAL REPRESENTATIVE. 3 ADVERTING FIRST TO GROUND NO.1 IN THE APPEAL, FAC TS, IN BRIEF, AS PER RELEVANT ORDERS ARE THAT RETURN DECLARING LOSS OF RS.59,387/- FILED ON 01-12-2003 BY THE ASSESSEE, MANUFACTURING CRIMPLED YARN, WAS SELECTED FOR SCRUTINY WITH THE SERVICE OF A NO TICE U/S 143(2) OF THE INCOME-TAX ACT, 1961 [HEREINAFTER REFERRED TO A S THE ACT] ON 20-10-2004. DURING THE COURSE OF ASSESSMENT PROCEED INGS, THE ASSESSING OFFICER [AO IN SHORT] NOTICED THAT THE AS SESSEE REFLECTED GROSS PROFIT[GP] OF 3.22% ON THE TURNOVER OF RS.14 ,40,51,736/- AS AGAINST GP OF 2.32% ON THE TURNOVER OF RS.15,56,94, 422/- IN THE IMMEDIATELY PRECEDING YEAR. SINCE THE ASSESSEE DID NOT PRODUCE BOOKS OF ACCOUNTS, STOCK RECORDS,, BILLS, VOUCHERS ETC. DESPITE SUFFICIENT OPPORTUNITY NOR FURNISHED THE ADDRESSES OF PARTIES TO WHOM SALES WERE MADE, THE AO CONCLUDED THAT TRADING RESULTS AS ALSO PURCHASES AND SALES OR EVEN THE EXPENSES OR QU ANTITATIVE DETAILS SUBMITTED BY THE ASSESSEE WERE NOT CAPABLE OF ANY INDEPENDENT VERIFICATION . ACCORDINGLY, THE AO REJE CTED THE BOOK RESULTS HAVING RECOURSE TO PROVISIONS OF 145 OF TH E ACT AND APPLIED THE GROSS PROFIT @ 3.5% ON THE ESTIMATED SALES OF R S.16,00,00,000/- ,RESULTING IN AN ADDITION OF RS.9,61,831/-. 4. ON APPEAL, THE LEARNED CIT(A) UPHELD THE ACTION OF THE AO IN REJECTING THE BOOK RESULTS U/S 145 OF THE ACT AND R ESTRICTED THE ADDITION TO RS.4,03,642/- IN THE FOLLOWING TERMS: 5. IN THE WRITTEN SUBMISSIONS PLACED BEFORE ME, IT HAS BEEN CONTENDED BY THE AR THAT THE GROSS PROFIT DURING THE YEAR HAD SHOWN AN INCREASE WHEN COMPARED TO THE IMMEDIATELY PRECEDING YEAR. AL L MAJOR DETAILS AND INFORMATION HAD BEEN, FURNISHED BEFORE THE AO IN CO URSE OF THE ASSESSMENT PROCEEDINGS. AMONGST OTHERS, THE DETAILS FURNISHED INCLUDED THAT OF PURCHASES EXCEEDING RS.50,000, ALONG WITH N AMES AND ADDRESSES OF THE PARTIES, DETAILS OF BANK ACCOUNTS, OF ADDITI ON TO FIXED ASSETS, THE QUANTITY, RATE AND VALUE OF THE OPENING AND CLOSING STOCK, LEDGER ACCOUNTS ITA N O.849/AHD/2007 3 OF ALL MANUFACTURING EXPENSES EXCEEDING RS. 1 LAKH, MONTH-WISE DETAILS OF PURCHASES AND SALES WITH QUANTITY AND AMOUNT AS ALS O THE MONTH-WISE DETAILS OF PRODUCTION. APART FROM THESE, THE ASSESS EE HAD ALSO ATTENDED THE ASSESSMENT PROCEEDINGS WITH THE FILE CONTAINING PURCHASE BILLS AND ALSO THE ARE-3 FILE FOR SALES AS ALSO THE CT-35. HO WEVER, THE SALES BILL FILE COULD NOT BE TRACED SINCE BUSINESS HAD COMPLETELY C LOSED DOWN SINCE MAY 2003. THE ARE-3 FILE PROVIDED COMPLETE EVIDENCE AND DETAILS OF THE SALES. IT PROVIDED THE NAMES, AND ADDRESSES OF THE PARTIES , THE QUALITY, QUANTITY, RATE, AMOUNT, DATE, INVOICE NO. AND MEANS OF TRANSP ORT. THE ARE-3 FORMS WERE ALSO CONTRA-SIGNED BY AN OFFICER OF THE CENTRA L EXCISE DEPT. 5.1 THE AO THEREFORE, WAS NOT JUSTIFIED IN OBSERVIN G THAT NEITHER THE PURCHASES NOR THE SALES WERE CAPABLE OF ANY VERIFIC ATION. HE WAS ALSO NOT JUSTIFIED IN ESTIMATING THE SALES AT RS.16 CRORE AN D ALSO IN ADOPTING AN ENHANCED GP RATE OF 3.5% WITHOUT BRINGING ON RECORD ANY COMPARABLE CASE. IN THIS CONTEXT, THE AR HAS PLACED RELIANCE O N THE DECISION OF THE HON. AHMEDABAD BENCH OF THE I. T. A. T. IN THE CASE OF MURLIDHAR CORPORATION V. ACIT (1997) 58 TTJ 699, WHERE IT WAS HELD THAT IF THE GP SHOWN IS SIMILAR TO THAT IN THE EARLIER YEAR, AND T HE SAME TYPE OF ACCOUNTS HAVE BEEN KEPT, THERE IS NO JUSTIFICATION IN INTERF ERING WITH THE BOOK RESULTS. THE ASSESSEE'S BOOKS OF ACCOUNT HAD BEEN ACCEPTED W HILE COMPLETING THE ASSESSMENT U/S. 143(3) OF THE I. T. ACT, IN THE AY. 2002-03. 6. I HAVE CAREFULLY CONSIDERED THE VIEW TAKEN BY TH E AO AS WELL AS THE WRITTEN SUBMISSIONS OF THE AR. I HAVE ALSO GONE THR OUGH THE DECISION IN THE CASE OF MURLIDHAR CORPORATION (SUPRA). IN THE CASE OF THE ASSESSEE THE BOOKS WERE NOT REJECTED ON THE GROUND OF A FALL IN THE GP SINCE, THERE WAS ACTUALLY AN INCREASE. THE REASON WHY THE BOOK RESUL TS WERE REJECTED WAS THE FAILURE OF THE ASSESSEE TO PRODUCE THE SAME, IN SPITE OF SEVERAL OPPORTUNITIES PROVIDED BY THE AO. SINCE, THE BOOKS WERE NOT PRODUCED, IT COULD NOT BE VERIFIED AS TO WHETHER SIMILAR ACCOUNT S HAD BEEN KEPT BY THE ASSESSEE AS IN THE EARLIER YEARS. THE AR HAS ARGUED THAT ALL RELEVANT DETAILS HAD BEEN FURNISHED BEFORE THE AO. IN FACT, HE HAS FILED COPIES OF THE LETTERS ADDRESSED TO THE AO THROUGH WHICH THE DETAI LS WERE FILED. THIS HAS BEEN ACKNOWLEDGED BY THE AO IN HIS REMAND REPORT DA TED 12/12/2006. HOWEVER, THE AO HAS OBSERVED IN THE REMAND REPORT T HAT THE ASSESSEE HAD FAILED TO FURNISH ANY BILL OR VOUCHER OR EVEN T HE BOOKS OF ACCOUNT IN SUPPORT OF THE QUANTITATIVE DETAILS FILED AS PER TH E SAID LETTERS. THIS IS IMPORTANT BECAUSE, EVEN THOUGH THE ASSESSEE MAY HAV E FILED ALL THE REQUISITE QUANTITATIVE DETAILS OF PURCHASE AND SALE S ETC. YET, SUCH DETAILS COULD NOT BE VERIFIED SINCE, THE BOOKS OF ACCOUNT F ROM WHICH SUCH DETAILS OUGHT TO HAVE EMANATED, WERE MADE AVAILABLE. THE VE RY FACT THAT ALL SUCH DETAILS HAD BEEN FURNISHED BY THE ASSESSEE, MEANT T HAT SUCH DETAILS COULD NOT HAVE BEEN PREPARED WITHOUT THE BOOKS OF ACCOUNT . THIS IN TURN SHOWED THAT THE ASSESSEE HAD DELIBERATELY AVOIDED PRODUCIN G THE BOOKS BEFORE THE AO. THE AO, THEREFORE, WAS FULLY JUSTIFIED IN R EJECTING THE BOOK RESULTS U/S. 145 OF THE I. T. ACT. ITA N O.849/AHD/2007 4 6.1 HOWEVER, AFTER REJECTING THE BOOK RESULTS IT WA S THE DUTY OF THE AO TO MAKE A FAIR AND REASONABLE ESTIMATE OF THE ASSES SEE'S GROSS PROFIT. SUCH AN ESTIMATE, AS HELD BY VARIOUS COURTS, WAS TO BE BASED ON THE MATERIALS AVAILABLE ON RECORD OR INFORMATION GATHER ED BY THE AO. THIS COULD BE EITHER THE GROSS PROFIT OF THE EARLIER YEA RS OR THE GP OF OTHER CONCERNS IN SIMILAR LINE OF BUSINESS. UNFORTUNATELY , THE AO DID NOT BRING ANY MATERIAL EVIDENCE ON RECORD BEFORE ESTIMATING T HE TURNOVER AT RS.16 CRORE. IT IS QUITE EVIDENT FROM THE LETTERS ADDRESS ED BY THE ASSESSEE TO THE AO THAT THE ASSESSEE HAD PRODUCED THE ARE-3 FORM RE GISTER DULY CERTIFIED BY THE EXCISE AUTHORITIES, WHICH CONTAINED THE COMP LETE DETAILS OF THE NAMES AND ADDRESSES OF THE PARTIES TO WHOM THE GOOD S WERE SOLD, THE QUALITY, QUANTITY, QUANTITY, RATE, AMOUNT, DATE, IN VOICE NO. AND THE MEANS OF TRANSPORT ETC. THEREFORE, THE TOTAL SALES MADE BY T HE ASSESSEE DURING E YEAR COULD HAVE EASILY BEEN WORKED OUT FROM THE ARE -3 FORMS. CONSEQUENTLY, THERE WAS ABSOLUTELY NO BASIS FOR EST IMATING THE TOTAL SALES OR THE TURNOVER AT RS.16 CRORE, AS AGAINST THE SUM OF RS.14,40,51,736/- SHOWN BY THE ASSESSEE. FURTHER, THE ASSESSEE HAD SH OWN AN INCREASE IN THE GP FROM 2.32% IN THE IMMEDIATELY PRECEDING YEAR TO 3.22% IN THE CURRENT YEAR. IN ALL FAIRNESS, AND GOING BY THE VIE W TAKEN BY THE HON. IT AT, AHMEDABAD BENCH IN SEVERAL CASES, SINCE NO BOOKS OF ACCOUNT HAD BEEN PRODUCED BY THE ASSESSEE TO SUPPORT THE QUANTITATIV E DETAILS AND SINCE, THE DECLARED GP COULD NOT BE VERIFIED, IT WOULD MEE T THE END OF JUSTICE IF THE GP RATE OF 3.5% IS APPLIED TO THE TURNOVER OF T HE CURRENT YEAR. THIS WOULD MEAN THE WORDING OF THE GROSS PROFIT AT A SUM OF RS.50,41,811/-. THE ASSESSEE HAD DECLARED GROSS PROFIT AT RS.46,38, 169/-. THE ADDITION WHICH IS REQUIRED TO BE MADE WOULD THUS BE A SUM OF RS.4,03,642/-. THE AO MADE THE ADDITION OF RS.9,61,831/-. THE ASSESSEE WOULD THEREFORE, GET RELIEF TO THE EXTENT OF RS.5,58,189/-. 5. THE REVENUE HAS NOW IN APPEAL BEFORE US AGAINST THE AFORESAID FINDINGS OF THE LEARNED CIT(A). THE LEARN ED DR MERELY SUPPORTED THE ORDER OF THE AO. 6. WE HAVE HEARD THE LEARNED DR AND HAVE GONE THROU GH THE FACTS OF THE CASE. THERE IS NOTHING TO SUGGEST AS T O WHETHER OR NOT THE ASSESSEE IS IN APPEAL AGAINST THE FINDINGS OF T HE LD. CIT(A),UPHOLDING REJECTION OF BOOKS AND THEREBY, SU STAINING AN ADDITION OF RS.4,03,642/- WHILE THE REGISTRY INFOR MED THAT NO SUCH APPEAL OF THE ASSESSEE IS PENDING FOR DISPOSAL. SINCE THE BOOKS O F ACCOUNTS WERE NOT PRODUCED BEFORE THE AO NOR EVEN BEFORE THE LD. CIT( A), THE LATTER CONCLUDED THAT THE ASSESSEE DELIBERATELY AVOIDED PRODUCING THE BO OKS BEFORE THE AO AND CONSEQUENTLY, REJECTION OF BOOK RESULTS WAS UPHELD. HOWEVER, SINCE ITA N O.849/AHD/2007 5 GP RESULTS WERE BETTER VIS--VIS PRECEDING YEAR, TH E LD. CIT(A) APPLIED GP@ 3.5% ON THE DISCLOSED SALES INSTEAD OF SALES OF RS. 16 CRORES ESTIMATED BY THE AO. THE ONLY DISPUTE BEFORE US IN THIS APPEAL IS REGAR DING ESTIMATION OF PROFITS. NO DOUBT THE AO/CIT(A) SHOULD TRY TO MAKE AN HONEST AND FAIR ESTIMATE OF THE INCOME EVEN IN A BEST JUDGMENT ASSESSMENT AN D SHOULD NOT ACT TOTALLY ARBITRARILY, BUT THERE IS NECESSARILY SOME AMOUNT O F GUESS WORK INVOLVED IN A BEST JUDGMENT ASSESSMENT, AND IT IS THE ASSESSEE HIMSELF WHO IS TO BLAME AS HE DID NOT SUBMIT PROPER ACCOUNTS AND DETAILS.[ KACHWALA G EMS VS JCIT, 288 ITR 10 (2007)(SC) ]. IT IS TRUE THAT ASSESSING OFFICER OR THE CIT(A) ARE NOT FETTERED BY TECHNICAL RULES OF EVIDENCE AND ARE ENTITLED TO ACT ON MATERIALS WHICH MAY NOT BE ACCEPTED AS EVIDENCE IN COURT OF LAW, NEVERTHELESS, THE ASSESSING OFFICER SHOULD ADOPT A METHOD WHICH MUST REFLECT THE PROFITS TRULY AND JUSTLY[ GEMINI PICTURES LTD. VS CIT (1958) 33 ITR 547 (MAD).] SINCE THE AO DID N OT BRING ANY MATERIAL ON RECORD THAT THE ASSESSEE SOLD THE GOODS OUTSIDE T HE BOOKS OF ACCOUNTS NOR SEEMS TO HAVE MADE ANY INDEPENDENT ENQUIRES IN THAT DIRECTION WHILE THE LD. DR DID NOT REFER ANY MATERIAL SO AS TO ENABLE US TA KE A DIFFERENT VIEW IN THE MATTER, WE DO NOT FIND ANY INFIRMITY IN THE FINDINGS OF TH E LEARNED CIT(A),UPHOLDING REJECTION OF BOOK RESULTS AND SUSTAINING THE ADDITI ON TO THE AFORESAID EXTENT. IN THIS VIEW OF THE MATTER, GROUND NO. 1 IN THE APPEAL IS DISMISSED. 7. GROUND NO.2 IN THE APPEAL OF THE REVENUE RELATES TO THE ADDITION OF RS.31,26,670/- ON ACCOUNT OF BROKERAGE / COMMISSION EXPENSES. THE AO NOTICED THAT THE ASSESSEE PAID ASHRAM SIZERS- RS.11,36,970/- AND ASLON METALIC PVT. LTD.- RS.19,8 9,700/-. SINCE BOTH THE CONCERNS WERE SPECIFIED U/S. 40A(2)(B) OF THE ACT, THE AO ASKED THE LD. A.R. OF THE ASSESSEE TO SUBMIT THE DE TAILS OF ORDERS PROCURED THROUGH THEM AND THE REASONABLENESS OF THE BROKERAGE EXPENSES. IN RESPONSE , THE LD. A.R. SUBMITTED THA T THE YARN INDUSTRY HAD BEEN ON THE DECLINE AND WAS FACING SEV ERE RECESSION SINCE 1995-96 AND ACCORDINGLY, FOR PROMOTING THE SA LES AND FOR INTRODUCTION OF NEW CUSTOMERS, THE FIRM PAID COMMIS SION TO ASLON METALIC PVT. LTD. THE LD. AR ALSO SUBMITTED A LIST OF CUSTOMERS INTRODUCED BY M/S. ASLON METALIC PVT. LTD.. AS REGA RDS PAYMENT TO ITA N O.849/AHD/2007 6 ANOTHER SISTER CONCERN, M/S. ASHARAM SIZERS , THE A SSESSEE DID NOT SUBMIT ANY DETAILS. SINCE THE ASSESSEE DID NOT PROD UCE BOOKS OF ACCOUNTS, BILLS, VOUCHERS, ETC. FOR VERIFICATION, T HE AO ASKED THE ASSESSEE TO SHOW CAUSE AS TO WHY THE ENTIRE AMOUNT OF PAYMENT OF BROKERAGE/COMMISSION TO BOTH THE AFORESAID PARTIES SHOULD NOT BE DISALLOWED. IN RESPONSE, THE AR SUBMITTED THAT THE FIRM PAID BROKERAGE AT AN AVERAGE RATE OF 1.14 PER KG. OF QUA NTITY SOLD THROUGH BROKER WHICH WAS QUITE REASONABLE AND COMPARABLE WI TH THE MARKET RATES. HE FURTHER SUBMITTED THAT THE PAYMENT TO M/S ASHARAM SIZERS WAS IN THE NATURE OF RATE DIFFERENCE ON SALES, BUT MISTAKENLY THE SAME WAS TAKEN UNDER THE HEAD OF BROKERAGE AND COMM ISSION. HOWEVER, THE AO DID NOT ACCEPT THE SUBMISSIONS OF T HE ASSESSEE AND DISALLOWED THE AMOUNT OF RS.31,26,670/- ON THE GROUND THAT THE ASSESSEE FAILED TO SUBSTANTIATE ITS CLAIM REGARDING PAYMENT OF BROKERAGE/COMMISSION TO ITS SISTER CONCERNS NOR SUB STANTIATED ITS ASSERTION THAT M/S ASLON METALIC PVT. LTD. PROCURED ORDERS FROM V ARIOUS PARTIES OR THAT THE CLAIM IN RESPECT OF M/S ASHARAM SIZERS WAS ON ACCOUNT O F RATE DIFFERENCE . 8. ON APPEAL, THE LEARNED CIT(A) AFTER HAVING A REM AND REPORT DELETED THE ADDITION IN THE FOLLOWING TERMS:- 9 IN ADDITION TO WHAT WAS SUBMITTED BEFORE THE AO , IT HAS BEEN CONTENDED BY THE AR IN THE WRITTEN SUBMISSIONS THAT , THE ASSESSEES BUSINESS WAS ON A DECLINE AND THE FIRM WAS ON THE V ERGE OF CLOSURE. IT THEREFORE, BECAME NECESSARY TO ENGAGE THE BROKER, I .E. M/S ASLON METALIC PVT. LTD. WHICH WAS A RELATED CONCERN. THE DETAILS OF THE CUSTOMERS INTRODUCED BY THE SAID CONCERN ALONG WITH THE NAMES AND ADDRESSES AS WELL AS THE QUANTITY SOLD THROUGH THE SAID CONCERN, HAD BEEN FURNISHED BEFORE THE AO. THE SAME HAS ALSO BEEN FURNISHED BEF ORE ME ALONG WITH THE WRITTEN SUBMISSIONS. IT HAS BEEN FURTHER CONTEN DED THAT CONTRA- CONFIRMATION FROM M/S ASLON METALLIC ALONG WITH A C OPY OF THE AUDIT REPORT, AND THE ACKNOWLEDGMENT OF THE RETURN FILED BY THEM, HAD BEEN SUBMITTED BEFORE THE AO. THE ASSESSEE HAD ALSO DEDUCTED TAX A T SOURCE ON THE PAYMENT MADE. AS REGARDS THE RATE DIFFERENCE PASSED ON TO M/S. ASHRAM SIZERS, IT HAS BEEN SUBMITTED THAT THIS WAS A COMMO N PRACTICE IN THE MARKET, AND WAS BASED ON THE QUALITY, QUANTITY AND THE MODE AND METHOD OF PAYMENT. THE RATE DIFFERENCE OR DISCOUNT PROVIDE D TO THE SAID CONCERN WAS COMPARABLE TO THE MARKET RATE. THE ASSESSEE HAD THUS FULLY DISCHARGED ITS ONUS OF ESTABLISHING THE GENUINENESS OF THE PAYMENT MADE ITA N O.849/AHD/2007 7 TO M/S. ASLON METALLIC AND OF THE RATE DIFFERENCE P ASSED ON TO M/S. ASHRAM SIZERS. THE AO WAS PROVIDED WITH ALL RELEVANT DETAI LS, FOR HIM TO VERITY THE GENUINENESS AS WELL AS THE NECESSITY OF SUCH PAYMEN TS. ON HIS PART, THE AO HAD NOT BROUGHT ON RECORD, ANY EVIDENCE TO SHOW THAT THE SAID PAYMENTS WERE EITHER UNREASONABLE OR EXCESSIVE. IN SUPPORT OF HIS CONTENTIONS, THE AR HAS RELIED UPON THE FOLLOWING C ASE-LAWS: [I] VOLTAMP TRANSFORMERS PVT. LTD. V. CIT (1981) 12 9 ITR 105 (GUJ) [II] DCIT V. SETALVAD BROTHERS (2004) 90 TTJ (AM) 1 93 [III] MTHTA TRANSPORT CO. V. ITO (1988) 31 TTJ 48 ( AHD) [IV] SUDERSHAN ENGG. WORKS VS. ITO (1983) 15 TTJ (C HD) 116 [V] S.R. ENTERPRISES V.ACIT (1994) 49 TTJ (DEL) 363 9. I HAVE CAREFULLY CONSIDERED THE VIEW TAKEN BY THE A O AS WELL AS THE WRITTEN SUBMISSION OF THE AR. THE MAIN GROUND ON WH ICH THE AO DISALLOWED THE EXPENDITURE WAS THE FACT THAT THE AS SESSEE HAD NOT PRODUCED THE RELEVANT BOOKS OF ACCOUNT FOR THE AO T O VERIFY THE PAYMENTS. HE ALSO OBSERVED THAT, THE CLAIM THAT M/S. ASLON ME TALLIC PVT. LTD. HAD PROCURED ORDERS FROM VARIOUS PARTIES, WAS ALSO NOT VERIFIABLE IN THE .ABSENCE OF THE BOOKS. HOWEVER, THE POINT TO NOTE I S THAT, THE ASSESSEE HAD NOT ONLY FURNISHED A CONTRA-CONFIRMATION FROM M /S. ASLON METALLIC BUT ALSO A, COPY OF THEIR AUDIT REPORT ALONG WITH THE P ROFIT AND LOSS ACCOUNT AND THE BALANCE SHEET, IN WHICH THE RECEIPT OF THE SUM OF RS.19,89,700/- WAS CLEARLY SHOWN IN SCHEDULE-9 OR THE ACCOUNTS. THE AS SESSEE HAD ALSO FURNISHED A COPY OF THE ACKNOWLEDGMENT OF THE RETUR N OF INCOME FILED BY M/S. ASLON METALLIC FOR THE RELEVANT ASSESSMENT YEA R, AS ALSO A LIST OF THE PARTIES FROM WHOM, ORDERS HAD BEEN PROCURED BY THE SAID CONCERN HAD PROCURED ORDERS FOR A TOTAL OF 17,44,144.6. KGS., FROM SIX DIFFERENT PARTIES. ALL THESE DETAILS HAD BEEN FURNISHED BY THE ASSESSE E ALONG WITH ITS LETTER, WHICH IS UNDATED BUT A COPY OF WHICH HAS BEEN FURNI SHED ALONG WITH THE WRITTEN SUBMISSIONS.. THE RECEIPT HAS BEEN CONFIRME D BY THE A.O. IN THE REMAND REPORT BUT AT THE SAME TIME, IT HAS BEEN OBS ERVED BY THE AO THAT THE ASSESSEE HAD FAILED TO FURNISH ANY CONFIRMATION FROM THE RECIPIENTS OF THE BROKERAGE / COMMISSION, ALONG WITH EVIDENCE OF SUCH RECEIPTS HAVING BEEN OFFERED FOR TAXATION IN THEIR RESPECTIVE HANDS . THIS STATEMENT THOUGH FACTUALLY INCORRECT, MAY HAVE BEEN MADE PURELY DUE TO OVERSIGHT. BE THAT AS IT MAY, THE GENUINENESS OF THE PAYMENT MADE TO M /S. ASLON METALLIC AS WELL A$ THE PURPOSE FOR WHICH THE PAYMENT WAS MADE, INCLUDING THE COMMERCIAL EXPEDIENCY, WAS CLEARLY ESTABLISHED, EVE N THOUGH THE AO FAILED TO TAKE NOTE OF THE SAME, NOT ONLY DURING TH E ASSESSMENT PROCEEDINGS, BUT ALSO IN COURSE OF THE REMAND PROCE EDINGS. 9.1 COMING TO THE RATE DIFFERENCE OR SALES DISCOUNT OF RS.11,36,970/-, IT HAS BEEN SUBMITTED BY THE AR THAT THE DISCOUNT OR T HE RATE DIFFERENCE WAS ITA N O.849/AHD/2007 8 OFFERED TO M/S. ASHARAM SIZERS BECAUSE OF INFERIOR QUALITY OF MATERIAL SUPPLIED TO THEM. THIS RESULTED FROM DEFECTIVE RAW- MATERIALS IMPORTED BY THE ASSESSEE. IT HAS ALSO BEEN CONTENDED BY THE AR THAT IF SUCH RATE DIFFERENCE WAS NOT GENUINE AND IF THE ASSESSEE WANT ED TO REDUCE THE INCIDENCE OF TAX ARTIFICIALLY, IT COULD HAVE EASILY CHARGED A LOWER SELLING PRICE TO THE SISTER CONCERN ON THE SALES MADE TO TH EM. AND SUCH DIFFERENCE COULD NOT HAVE BEEN DETECTED. I FIND MERIT IN THE A RGUMENTS OF THE AR. THERE WERE MANY WAYS THROUGH WHICH THE ASSESSEE COU LD HAVE SUPPRESSED ITS INCOME. THE AR HAS BEEN ABLE TO ESTA BLISH THAT THE IMPORT OF DEFECTIVE OR LOW QUALITY RAW MATERIALS HAD RESUL TED IN THE MANUFACTURE OF INFERIOR QUALITY GOODS WHICH IT HAD SUPPLIED TO THE SISTER CONCERN. BECAUSE OF THE INFERIOR QUALITY, THE ASSESSEE WAS FORCED TO SELL AT A DISCOUNT, WHICH AMOUNTED TO THE SUM OF RS.11,36,970/-. THE RATE DIF FERENCE ALLOWED BY THE ASSESSEE IS COMPARABLE WITH THE MARKET RATE AND WAS EVEN ACCEPTED BY THE EXCISE DEPARTMENT. IF IT WAS OTHERWISE, THE EXC ISE DEPARTMENT WOULD NOT HAVE ALLOWED SUCH PASSING OR RATED DIFFERENCE, AS IT WOULD HAVE LED TO A LOSS OF EXCISE COLLECTIONS. 9.1 TAKING THE ABOVE INTO CONSIDERATION, I AM OF T HE VIEW THAT THE AO WAS NOT JUSTIFIED IN REJECTING THE ASSESSEE'S CLAIM ONLY ON THE GROUND OF THE ASSESSEE HAVING FAILED TO PRODUCE ITS BOOKS OF ACCOUNT ALL OTHER RELEVANT EVIDENCE AND DETAILS WERE AVAILABLE WITH T HE AO TO TAKE A CONSIDERED DECISION. UNFORTUNATELY, HE FAILED TO TA KE INTO CONSIDERATION SUCH DETAILS BOTH IN THE ASSESSMENT PROCEEDINGS AS WELL AS IN THE REMAND PROCEEDINGS. THIS LEADS ME TO HOLD THE VIEW THAT TH E DISALLOWANCE OF THE SUM OF RS.31,26,670/- BEING EXPENDITURE I NCURRED ON BROKERAGE AND RATE DIFFERENCE / DISCOUNT, WAS NOT REALLY JU STIFIED. THE AO IS DIRECTED TO DELETE THE ADDITION OF THE SAID SUM. 9. THE REVENUE IS NOW IN APPEAL BEFORE US AGAINST T HE AFORESAID FINDINGS OF THE LEARNED CIT(A). THE LEARNED DR MERE LY SUPPORTED THE FINDINGS GIVEN THE AO. 10. WE HAVE HEARD THE LEARNED DR AND GONE THROUGH T HE FACTS OF THE CASE. WE FIND THAT THE LD. CIT(A) AFTER HAVING A REMAND REPORT FROM THE AO CONCLUDED THAT THE ASSESSEE HAD NOT ONLY FURNISHED A CONTRA-CONFIRMATION FROM M/S. ASLON METALLIC BUT ALSO A COPY OF THEIR AUDIT REPORT ALONG WITH THE PROFIT AND LOSS ACCOUNT AND THE BALANCE SHEET, IN WHICH THE RE CEIPT OF THE SUM OF RS.19,89,700/- WAS CLEARLY SHOWN IN SCHEDULE-9 OF T HE ACCOUNTS AND THAT THE GENUINENESS OF THE PAYMENT MADE TO M/S. ASLON METAL LIC AS WELL AS THE PURPOSE FOR WHICH THE PAYMENT WAS MADE, INCLUDING THE COMME RCIAL EXPEDIENCY, WAS CLEARLY ESTABLISHED. LIKEWISE IN RESPECT OF SALES D ISCOUNT OF RS.11,36,970/-, THE LD. CIT(A) CONCLUDED THAT THAT THE IMPORT OF DEFEC TIVE OR LOW QUALITY RAW MATERIALS ITA N O.849/AHD/2007 9 RESULTED IN THE MANUFACTURE OF INFERIOR QUALITY GOO DS WHICH HAD BEEN SUPPLIED TO THE SISTER CONCERN. DUE TO THE INFERIOR QUALITY, THE ASSESSEE WAS FORCED TO SELL AT A DISCOUNT AND THE RATE DIFFERENCE ALLOWED BY THE A SSESSEE WAS COMPARABLE WITH THE MARKET RATES AND WAS EVEN ACCEPTED BY THE EXCIS E AUTHORITIES. IN THE LIGHT OF THESE UNDISPUTED FINDINGS OF THE LD. CIT(A) AND THE REVENUE HAVING NOT PLACED BEFORE US ANY MATERIAL SO AS TO ENABLE US TO TAKE A DIFFERENT VIEW IN THE MATTER, WE HAVE NO HESITATION IN UPHOLDING THE FINDINGS OF THE LD. CIT(A). THEREFORE, GROUND NO.2 IN THE APPEAL IS DISMISSED.. 11. GROUND NO.3 RELATES TO ADDITION OF RS.85,162/- [83576+1586]. THE AO NOTICED THAT THE ASSESSEE DEBITED THE FOLLO WING EXPENSES IN THE P&L ACCOUNT AS UNDER: SR. NO. ITEM AMOUNT (RS.) 1 COMPUTER REPAIRS 17875 2 DISCOUNT 38554 3 ELECTRICAL EXPENSES 182992 4 INTEREST EXPENSES 90367 5 LEGAL EXPENSES 59500 6 OFFICE EXPENSES 42025 7 SALARY EXPENSES 120000 8 FACTORY EXPENSES 81085 9 LOAN INTEREST 138614 10 SECURITY EXPENSES 69500 11 STATIONARY EXPENSES 5253 TOTAL 835765 TO A QUERY BY THE AO, THE ASSESSEE DID NOT SUBMIT ANY DETAILS EXCEPT LEDGER ACCOUNT OF FEW EXPENSES NOR PRODUCED THE RELEVANT BOOKS OF ACCOUNTS AS AFORESAID. ACCORDINGLY , THE A O DISALLOWED AN AMOUNT OF RS,83,576/- I.E., 10% OF THE ABOVE REFERR ED EXPENSES FOR WANT OF VERIFICATION. ITA N O.849/AHD/2007 10 12. ON APPEAL, THE LEARNED CIT(A) DELETED THE ADDIT ION IN THE FOLLOWING TERMS:- 12. IN THE WRITTEN SUBMISSIONS, THE AR HAS CLAIMED THAT ALL THE EXPENSES HAD BEEN INCURRED FOR THE PURPOSE OF BUSIN ESS. WITH REGARD TO THE INTEREST EXPENSES, THE ASSESSEE HAD FURNISHED C ONFIRMATION OF UNSECURED LOANS AND MOREOVER, THE LOAN INTEREST OF RS.1,38,614/- HAD BEEN PAID TO THE BANK. ALL THESE EXPENSES HAD BEEN DULY VOUCHED AND THEREFORE, THE ADHOC DISALLOWANCE @ 10% SHOULD NOT HAVE BEEN MADE. 13. I HAVE CAREFULLY CONSIDERED BOTH THE POSITIONS. THE AO MADE THE DISALLOWANCES EVEN AFTER MAKING AN ADDITION TO THE GROSS PROFIT ON ESTIMATE. THIS WAS NOT CORRECT. IN THE CASE OF MADD I SUDARSANAM OIL MILL CO. V. CIT (1959) 37 ITR 369, THE HON. ANDHRA PRADE SH HIGH COURT HELD THAT, AFTER REJECTION OF THE BOOKS OF ACCOUNT AND E STIMATING THE GP, THE AO CANNOT RELY UPON THE SAME BOOKS FOR MAKING FURTHER DISALLOWANCES. THIS VIEW WAS SUBSEQUENTLY FOLLOWED BY THE SAME HIGH COU RT IN THE CASE OF INDWELL CONSTRUCTIONS V. CIT (1998) 232 ITR 776 WHE N THE COURT HELD THAT, WHEN AN ESTIMATION IS MADE AFTER THE REJECTION OF B OOKS, SUCH ESTIMATE SUBSTITUTES THE INCOME THAT IS TO BE COMPUTED U/S. 29 OF THE I. T. ACT. IN SUCH A SITUATION, ALL DEDUCTIONS WHICH ARE REFERRED TO U/S. 29, ARE DEEMED TO HAVE BEEN TAKEN INTO ACCOUNT WHILE MAKING SUCH E STIMATE. SIMILAR VIEW WAS ALSO EXPRESSED BY THE HON. ALLAHABAD HIGH COURT IN THE CASE OF CIT V. BHANWARILAL BANSHIDHAR (1998) 229 ITR 229. THEREFOR E, IN THE CASE OF THE ASSESSEE ALSO, THE AO COULD NOT HAVE MADE ANY FURTH ER DISALLOWANCE AFTER ESTIMATING AND MAKING ADDITION TO THE ASSESSEE'S GR OSS PROFIT. THE AO IS THEREFORE, DIRECTED TO DELETE THE ADDITIONS OF THE SUMS OF RS.83,576/- AND OF RS.1,586/-. 13. THE REVENUE IS NOW IN APPEAL BEFORE US AGAINST THE AFORESAID FINDINGS OF THE LEARNED CIT(A). THE LEARNED DR SUPP ORTED THE FINDINGS OF THE AO. 14. WE HAVE HEARD THE LEARNED DR AND GONE THROUG H THE FACTS OF THE CASE. THE LD. CIT(A) DELETED THE ADDITION MEREL Y ON THE GROUND THAT AFTER REJECTION OF BOOK RESULTS, NO FURTHER DI SALLOWANCE CAN BE MADE OUT OF EXPENSES DEBITED IN PROFIT AND LOSS ACC OUNT, DESPITE HIS FINDINGS THAT THE ASSESSEE DELIBERATELY DID NOT PR ODUCE THE BOOKS OF ACCOUNTS. THE FACT THAT THE AO REJECTED TRADING RESULTS AND ESTIMATED GP ,DOES NOT MEAN THAT THE AO CAN NOT MAK E ANY DISALLOWANCE OUT OF EXPENSES BELOW THE LINE IN THE PROFIT AND LOSS ACCOUNT. THE FACT THAT A BEST JUDGMENT ASSESSMENT H AS BEEN MADE ITA N O.849/AHD/2007 11 BY ESTIMATING GROSS PROFITS DOES NOT NECESSARILY ME AN THAT THE BOOKS OF ACCOUNTS ARE TO BE IGNORED ALTOGETHER. IT WILL N OT ONLY BE OPEN BUT ALSO NECESSARY TO REFER TO ACCOUNTS AND RELY ON SO ME OF THE ENTRIES AND TRANSACTIONS THEREIN REFLECTED WITH SUCH MODIFI CATIONS AND ADJUSTMENTS AS THE AO MAY CONSIDER NECESSARY. IF T HE VIEW OF THE LD. CIT(A) IS ACCEPTED, THEN NO ADDITION CAN BE MAD E EVEN IF SOME UNEXPLAINED CREDIT OR EXPENDITURE IS NOTICED IN THE BOOKS. IN CIT V. BHANWARILAL BANSHIDHAR (1998) 229 ITR 229.)RELIED U PON BY THE LD. CIT(A), DISALLOWANCE U/S 40A(3) WAS BEING MADE ON ACCOUNT O F CASH PURCHASES AFTER REJECTION OF BOOK RESULTS .SUCH IS NOT THE SITUATIO N IN THE PRESENT CASE. IN THE CASE OF INDWELL CONSTRUCTIONS V. CIT (1998) 232 ITR 776(AP) RELIED UPON BY THE LD. CIT(A),DISALLOWANCE WAS MADE U/S 40(B) ON ACCOU NT OF INTEREST AND REMUNERATION TO PARTNERS AFTER REJECTION OF BOOK RE SULTS. SUCH ARE NOT THE FACTS IN THE INSTANT CASE. THEREFORE, RELIANCE ON THESE DECI SIONS BY THE LD. CIT(A) IS TOTALLY MISPLACED. MOREOVER THE VIEW TAKEN IN MADDI SUDARS ANAM OIL MILL CO. V. CIT (1959) 37 ITR 369(AP) ALSO RELIED UPON BY THE LD. C IT(A) IS CONTRARY TO THE VIEW TAKEN BY THE HONBLE APEX COURT IN KALE KHAN MOHAM AD HANIF VS. CIT,50 ITR 1(SC),WHEREIN IT WAS HELD THAT NOTHING PREVENTS THE AO TO TAX BOTH THE UNEXPLAINED CASH CREDIT AND ESTIMA TED BUSINESS INCOME AFTER REJECTING THE BOOKS OF ACCOUNTS OF THE ASSESSEE AS UNRELIABLE. SIMILAR VIEW WAS TAKEN IN CIT VS. DEVI PRASAD VISHWANATH PRASAD,72 ITR 194(SC). IN THE LIGHT OF V IEW TAKEN BY THE HONBLE APEX COURT IN THESE DECISIONS, WE CONSIDER IT FAIR AND APPROPRIATE TO VACATE THE FINDINGS OF THE LD. CIT(A) AND RESTO RE THE MATTER TO HIS FILE WITH THE DIRECTIONS TO EXAMINE T HE MATTER RELATING TO DISALLOWANCE OF AFORESAID EXPENSES ON MERITS AND TH EREAFTER, PASS A SPEAKING ORDER IN ACCORDANCE WITH LAW AFTER ALLOWIN G SUFFICIENT OPPORTUNITY TO BOTH THE PARTIES. WITH THESE DIRECTI ONS, GROUND NO. 3 IS DISPOSED OF. 15. GROUND NOS. 4 &5 BEING MERE PRAYER AND NO SU BMISSIONS HAVING BEEN MADE BEFORE US, DO NOT REQUIRE ANY SEPA RATE ADJUDICATION AND ARE, THEREFORE, DISMISSED. ITA N O.849/AHD/2007 12 16. IN THE RESULT, APPEAL IS PARTLY ALLOWED, BUT F OR STATISTICAL PURPOSES. ORDER PRONOUNCED IN THE COURT TODAY ON 18 -02-201 1 SD/- SD/- (MAHAVIR SINGH) JUDICIAL MEMBER (A N PAHUJA) ACCOUNTANT MEMBER DATED : 18 -02-2011 COPY OF THE ORDER FORWARDED TO: 1. M/S AMBER TEXTURISERS, 3/959, MOOCHHALA POLE, NA VAPURA, SURAT 2. ITO, WARD-2(3), SURAT 3. CIT CONCERNED 4. CIT(A)-II, SURAT 5. DR, ITAT, AHMEDABAD BENCH-D, AHMEDABAD 6. GUARD FILE BY ORDER DEPUTY REGISTRAR ASSISTANT REGISTRAR ITAT, AHMEDABAD