ITO, Jaipur V. AM CEE BEE ( KIRITI EXPORTS), Jaipur

ITA 966/JPR/2010

• Counselvise Citation: 96623114 RSA 2010
• Duration Of Justice: 1 year(s) 1 month(s) 17 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 09-09-2011
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: A
• Assessment Year: 2007-2008
• Appeal Filed On: 23-07-2010
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: D K MEENA
• Assessee Lawyers: M L BORAD
• Keywords: Rejection of books of accounts; Depreciation; Corroborative evidences
• Section: 145

Judgement Text

1 IN THE INCOME TAX APPELLATE TRIBUNAL, JAIPUR BENCHES, A JAIPUR (BEFORE SHRI R.K.GUPTA AND SHRI N.L. KALRA) ITA NO.966/JP/2010 ASSESSMENT YEAR : 2007-2008 INCOME TAX OFFICER VS. M/S. AM CEE BEE WARD-2(4), (KIRTI EXPORTS), JAIPUR. BOTHRA HOUSE, SHYAM NAGAR, JAIPUR. (APPELLANT) (RESPONDENT) APPELLANT BY : SHRI D.K. MEENA RESPONDENT BY : SHRI M.L. BORAD DATE OF HEARING: 10.08.2011 DATE OF PRONOUNCEMENT : 09.09.2011 ORDER PER SHRI N.L. KALRA, A.M. 1. THE REVENUE HAS FILED AN APPEAL AGAINST ORDER OF LD. CIT (A) -1 JAIPUR DATED 5.5.2010. THE GROUNDS OF APPEAL ARE AS UNDER: WHETHER ON THE FACTS AND IN CIRCUMSTANCES OF THE C ASE AND IN LAW THE LD. CIT (A) IS JUSTIFIED IN; (I) DELETING THE ADDITION OF RS.17,18,522/- (II) REDUCING THE DISALLOWANCE OF VARIOUS EXPENSES TO RS.87,722/- FROM RS.1,75,444/- (III) DELETING THE DISALLOWANCE OF SHIPPING EXPEN SES 89,973/- 2. THE ASSESSEE IS ENGAGED IN MANUFACTURING AND EXP ORT OF HANDLOOM WOOLEN CARPETS AND DRUGGETS. THE ASSESSEE HAS SHOWN G.P. RATE OF 9% AND THE A.O. THOUGHT THAT SUCH G.P. 2 RATE IS LOW CONSIDERING THE LINE OF BUSINESS. THE A SSESSEE HAS NOT MAINTAINED STOCK REGISTER AND HENCE VALUATION OF OPENING AND CLOSING STOCK ARE NOT SUBJECT TO VERIFICATION. ASSESSEE HAS NOT MAINTAINED COMPLETE RECEIPTS OF WE AVING CHARGES PAID IN CASH TO THE EXTENT OF RS.72,42,155/- MOST OF THE PAYMENTS IN AG GREGATE TO A SINGLE PERSON EXCEED RS.20,000/-. THE A.O. ISSUED SHOW CAUSE NOTICE TO T HE ASSESSEE TO JUSTIFY THE PAYMENTS. THE ASSESSEE AGAIN FAILED TO FURNISH ANY DETAIL OR EVIDENCE OR JUSTIFICATION IN SUPPORT OF THE EXPENSES. ASSESSEE HAS PURCHASED RAW MATERIAL I N KGS WHILE SALE OF CARPETS IS IN SQ.YARDS OR SQ FEET. HENCE MANUFACTURING DETAILS AR E NOT SUBJECT TO VERIFICATION. THERE ARE OTHER CASH PAYMENTS ALSO. THE A.O. ACCORDINGLY MADE AN ADDITION OF RS.17,18,552/- AFTER OBSERVING AS UNDER: THE SUBMISSIONS OF THE ASSESSEE CANNOT BE FULLY REL IED UPON IN ABSENCE OF ANY DETAILS OR DOCUMENT IN SUPPORT OF THE SUBMISSIO NS. LOOKING TO THESE FACTS, DECLARED MANUFACTURING AND TRADING RESULTS A RE NOT VERIFIABLE WITH THE BOOKS OF ACCOUNT AND DETAILS MAINTAINED BY THE ASSESSEE, THEREFORE BOOKS OF ACCOUNT FOR THE BUSINESS PURPOSES ARE NOT OPEN TO COMPLETE VERIFICATION AND TO DEDUCE THE CORRECT PROFIT OF TH E BUSINESS. LOOKING TO THE ABOVE DISCUSSION THERE IS SUFFICIENT REASON TO REJE CT THE BOOKS RESULTS SHOWN BY ASSESSEE. AFTER APPLYING THE PROVISIONS OF SEC. 145 OF THE INCOME TAX ACT, THE GROSS PROFIT OF THE ASSESSEE IS REQUIR ES TO BE ESTIMATED. KEEPING IN MIND THE ABOVE DISCUSSION AND SUBMISSION S MADE BY THE ASSESSEE & THE TRADING RESULTS OF THE YEAR UNDER CO NSIDERATION AS WELL AS PREVIOUS YEAR, IT WILL BE FAIR & REASONABLE TO APPL Y THE GP RATE OF 20% IN THE YEAR UNDER CONSIDERATION ON TOTAL RECEIPTS OF R S.15641442/-, WHICH GIVES OUT THE GROSS PROFIT OF RS.3128288/-, WHEREAS THE ASSESSEE HAS DECLARED GROSS PROFIT OF RS.1409736/- AFTER EXCLUDI NG THE RECEIPTS OF DUTY DRAWBACK AMOUNT OF RS.1327754/-. THEREFORE, THE ADD ITION OF RS.1718552/- IS HEREBY MADE TO THE DECLARED GP RESU LTS OF THE ASSESSEE FOR THE YEAR UNDER CONSIDERATION. 3. THE ASSESSEE HAS DEBITED THE EXPENSES UNDER DIFF ERENT HEADS AS UNDER: REPAIR AND MAINTENANCE RS.66072/- TELEPHONE & TELEX RS.1,13,988/- 3 TRAVELLING EXPENSES RS.46034/- VEHICLE RUNNING AND MAINTENANCE RS.53627/- GENERAL EXPENSES RS.7817/- STAFF WELFARE RS.2500/- GARDEN MAINTENANCE RS.16554/- SALES PROMOTION RS.10,038/- TRAVELLING AND CONVEYANCE RS.20605/- FOREIGN TOUR & TRAVEL RS.4,86,387/- DEPRECIATION ON CAR RS.52500/- DRAW BACK EXPENSES RS.1100/- 4. THE A.O. NOTICED THAT ASSESSEE HAS CLAIMED SOME OF THE EXPENSES ON SELF MADE VOUCHERS AND CLAIMED TO BE IN CASH. PERSONAL USE OF EXPENDITURE ALSO CAN NOT BE DENIED. THE A.O. DISALLOWED 20% OF THE EXPENSES. 5. THE ASSESSEE CLAIMED SHIP EXPENSES OF RS.65,894/ - AND RS.89,973/-. THE A.O. REQUIRED THE ASSESSEE TO FURNISH DETAIL AND DOCUMEN TS ALONGWITH SUPPORTING EVIDENCE IN SUPPORT OF THE EXPENSES. THE ASSESSEE FAILED TO FUR NISH COMPLETE DETAILS/SUPPORTING EVIDENCE IN SUPPORT OF THE CLAIMED EXPENSES AND HEN CE THE A.O. DISALLOWED SHIPPING EXPENSES RS.89,973/- 6. BEFORE THE LD. CIT (A), THE ASSESSEE RAISED THE CONTENTIOUS WHICH ARE SUMMARIZED AS UNDER: (I) TURNOVER DURING THE YEAR IS RS.1,56,41,442/- AS COMPARED TO TURNOVER OF RS.1,11,03,539/- OF THE IMMEDIATELY PRECEEDING YEAR . 4 (II) QUNATATIVE DETAILS OF RAW MATERIAL & FINISHED STOCKS ARE AVAILABLE. (III) MANUFACTURING DETAILS OF DIFFERENT SIZES OF CARPETS WERE FILED BEFORE THE A.O. (IV) FULL DETAILS OF WEAVERS WITH THEIR NAME AND AD DRESS ARE AVAILABLE. THE WEAVERS ARE ILLITERATE AND HENCE PAYMENTS ARE IN CA SH. NO SINGLE INSTANCE OF PAYMENT EXCEEDING RS.20,000/- HAS BEEN POINTED O UT. (V) BESIDES INCREASE IN TURNOVER EXCEEDING 40%, G.P . RATE HAS ALSO INCREASED BY 4.66% I.E. INCREASED TO 17.5% AS AGAINST 12.84% OF THE PRECEEDING YEAR. (VI) THE A.O. HAS NOT POINTED OUT ANY INFLATED PUR CHASES OR SALES. (VII) NOT A SINGLE INSTANCE OF BOGUS OR EXCESSIVE P AYMENT TO WEAVERS HAS BEEN POINTED OUT. 7. THE LD. CIT (A) AFTER CONSIDERING THE ABOVE SUBM ISSIONS DELETED THE TRADING ADDITION AFTER OBSERVING AS UNDER: CONTENTION OF THE AR IS CONSIDERED. EXCEPT THAT WEA VING CHARGES PAID IN CASH THERE IS NO MATERIAL WHICH CAN ESTABLISH THAT THE BOOKS OF ACCOUNTS ARE NOT RELIABLE. ANY PAYMENT MADE BY CASH ITSELF C ANNOT BE BASIS FOR REJECTION OF BOOKS OF ACCOUNTS. THE AOS OBSERVATIO N THAT MOST OF THE PAYMENTS IN CASH EXCEED RS.20,000/- WAS PROVED WRON G AS THE AO HAS NOT PROPOSED ANY ADDITION U/S 40A(3). SIMPLY, BECAUSE A DDRESSES OF SOME OF THE WEAVERS WERE NOT AVAILABLE THE EXPENSES CANNOT BE DENIED. THE REASONABLENESS OF THE EXPENSES SHOULD BE VIEWED IN TERMS OF TOTAL TURN OVER OR THE MANUFACTURING COST. THE AO FAILED TO PO INT OUT ANY SINGLE INSTANCE OF WEAVERS PAYMENT WHICH CAN BE CONSIDERED AS NON GENUINE. IF ANY EXPENSES IS NOT SUPPORTED BY VOUCHERS THE AO WA S DUTY BOUND TO MAKE TOTAL OF SUCH EXPENSES AND DISALLOW. THE REASONS GI VEN BY THE AO FOR REJECTING BOOKS OF ACCOUNTS ARE VAGUE. NO SPECIFIC DEFECT HAS BEEN POINTED OUT EITHER IN THE STOCK REGISTER OR IN THE ACCOUNTI NG SYSTEM OR PURCHASES OR SALES. WHEN ALL THE MANUFACTURING DETAILS INCLUDING THE PRODUCTION IN KGS. HAS BEEN GIVEN AND FINISHED PRODUCTS I.E. CARPETS H AS BEEN MEASURED IN 5 SQ. YDS OR SQ. FT. THEN AOS OBSERVATION OF NON MAI NTENANCE OF STOCK REGISTER IS AUTOMATICALLY PROVED WRONG. ON ACCOUNT OF SOME CASH PAYMENTS OR EXPENSES SUPPORTED BY SELF MADE VOUCHER S, THE BOOKS OF ACCOUNTS CANNOT BE REJECTED. NO SUPPRESSION OF SALE S OR INFLATION OF PURCHASES OR EXCESSIVE CLAIM OF EXPENSES OR ANY OT HER SPECIFIC DEFECT IN MAINTENANCE OF BOOKS OF ACCOUNTS HAS BEEN POINTED O UT AND, THEREFORE, REJECTION OF BOOKS OF ACCOUNTS IS NOT JUSTIFIED. FU RTHER, THE DECLARED G.P. RATE INCLUDING DUTY DRAW BACK COMES TO 17.50% WHICH IS BETTER THAN 12.84% SHOWN IN THE IMMEDIATE PRECEDING YEAR INSPIT E OF SUBSTANTIAL INCREASE IN TURN OVER. IF THE DUTY DRAW BACK IS EXC LUDED THEN DURING THE YEAR UNDER CONSIDERATION THE GP. RATE COMES TO 9% W HICH IS AGAIN BETTER THAN 6.5% DECLARED IN THE IMMEDIATE PRECEDING YEAR THOUGH THE TURN OVER HAS INCREASED BY 40%. AS THE TURN OVER AS WELL AS G .P. RATE ARE SUBSTANTIALLY INCREASED, IN ABSENCE OF ANY SPECIFIC DEFECT IN MAINTENANCE OF ACCOUNTS, APPLICATION OF HIGHER G.P. RATE CANNOT BE APPROVED. FURTHER, THE AO HAS NOT GIVEN ANY REASON FOR ESTIMATING GP. RATE OF 20%. AS THE REJECTION OF BOOKS OF ACCOUNTS IS NOT APPROVED AND IT IS A CASE OF HIGHER G.P. RATE, THE TRADING ADDITION MADE BY THE AO IS H EREBY DELETED. THE GROUNDS OF APPEAL ARE DECIDED IN FAVOUR OF THE APPE LLANT. 8. IN RESPECT OF DISALLOWANCE OF EXPENSES, THE A.R. CONTENDED AS UNDER: CONTENTION OF THE AR IS THAT ALL THE EXPENSES WERE INCURRED IN THE COURSE OF BUSINESS AND FULL DETAILS ARE AVAILABLE. EXPENSE S ARE SUPPORTED BY SUPPORTING EVIDENCES. PERSONAL USE OF TELEPHONE AND CAR CANNOT BE DENIED. AS AGAINST TURN OVER OF MORE THAN RS.1.5 CRORES THE EXPENSES CLAIMED OF RS.877222/- IS REASONABLE. IN ANY CASE THE DISALLOW ANCE MADE BY AO IS ON HIGHER SIDE AND, THEREFORE, SAME MAY BE RESTRICTED TO 10% OF THE EXPENSES CLAIMED. 9. THE LD. CIT (A) REDUCED THE DISALLOWANCE AFTER O BSERVING AS UNDER: AFTER CONSIDERING SUBMISSION OF THE AR, THE AO IS D IRECTED TO REDUCE THE DISALLOWANCE TO 10% OF THE EXPENSES CLAIMED. AS A R ESULT, DISALLOWANCE OF RS.175444/- IS REDUCED TO RS.87722/-. THE GROUND OF APPEAL IS DECIDED PARTLY IN FAVOUR OF THE APPELLANT. 10. IN RESPECT OF SHIPPING EXPENSES, THE FOLLOWING CONTENTION WAS RAISED: CONTENTION OF THE AR IS THAT SHIPPING EXPENSES ARE IN RELATION TO EXPORT OF GOODS. THE ENTIRE SALES ARE EXPORT SALES AND SHIPPI NG EXPENSES WERE INCURRED IN RELATION THERETO. THE AO IS NOT CORRECT IN HIS OBSERVATION AS 6 THE APPELLANT HAS FILED DAY TO DAY DETAILS OF SHIPP ING EXPENSES. RS.89973/- WERE INCURRED AT JAIPUR HEAD OFFICE AND RS.65895/- WERE INCURRED AT BHADOHI BRANCH OFFICE. 11. THE LD. CIT (A) AFTER CONSIDERING THE CONTENTIO N DELETE THE ADDITION AFTER OBSERVING AS UNDER: CONTENTION OF THE AR IS CONSIDERED. THE APPELLANT H AS MADE EXPORT SALES AND, THEREFORE, SHIPPING EXPENSES IS INCIDENTAL TO BUSINESS. COMPLETE DETAILS OF SHIPPING EXPENSES INCURRED AT JAIPUR OFF ICE AS WELL AS BRANCH OFFICE WERE FILED AND, THEREFORE, THE AO IS DIRECTE D TO ALLOW THE EXPENSES. THE ADDITION OF RS.89973/- IS HEREBY DELETED. THE 5 TH GROUND OF APPEAL IS DECIDED IN FAVOUR OF THE APPELLANT. 12. WE HAVE HEARD BOTH THE PARTIES. THE LD. A/R IN HIS SUBMISSIONS BEFORE US HAS POINTED OUT THAT LD. CIT (A) HAS NOT APPROVED THE R EJECTION OF BOOKS OF ACCOUNT AND THE REVENUE HAS NOT OBJECTED TO SUCH FINDING IN THE GRO UND OF APPEAL. IT IS TRUE THAT A.O. HAS CONSIDERED THE G.P. RATE AFTER REDUCING THE DUTY DR AW BACK. THE LD. CIT (A) HAS NOT COMPARED THE G.P. AFTER REDUCING DUTY DRAW BOOK. WE ARE NOT HAVING THE BENEFIT OF DETAILS OF THE YEAR UNDER CONSIDERATION AND THAT OF PRECEEDING YEAR. THE REVENUE HAS NOT GIVEN SUCH DETAILS IN THE STATEMENT OF FACTS. WE, T HEREFORE FEEL THAT LD. CIT (A) HAS VERIFIED THE CONTENTIONS OF THE ASSESSEE AND WAS SA TISFIED. THERE IS NO MATERIAL ON BEHALF OF REVENUE THAT CONTENTIONS RAISED BEFORE LD. CIT ( A) ARE NOT CORRECT. THE LD. CIT (A) HAS NOTICED THAT TRADING ACCOUNT OF THE YEAR UNDER CONS IDERATION SHOW A BETTER G.P. RATE AS COMPARED TO PRECEEDING YEAR THOUGH TURNOVER HAS INC REASED. WE FEEL THAT THERE IS NO INFIRMITY IN THE ORDER OF LD CIT (A) IN DELETING TH E TRADING ADDITION. 13. IN RESPECT OF DISALLOWANCE OF EXPENSES, WE FEEL THAT ESTIMATE OF DISALLOWANCE IS TO BE MADE THE ESTIMATED OF DISALLOWANCE MADE BY LD. C IT (A) IS IN ORDER. 7 14. THE LD. CIT (A) HAS MENTIONED THAT ASSESSEE HAS FILED COMPLETE DETAILS OF SHIPPING EXPENSES AND ON THAT BASIS, THE DISALLOWANCE HAS BE EN DELETED. THE FINDING OF LD. CIT (A) IS IN ORDER AND NO INTERFERENCE IS NEEDED. IN THE RESULT THE APPEAL OF REVENUE IS DISMISSED. THE ORDER IS PRONOUNCED IN OPEN COURT ON 09.09.201 1 SD/- SD/- (R.K.GUPTA) (N.L.KALRA) JUDICIAL MEMBER ACCOUNTANT MEMBER DATED: 09.09.2011 *S.KUMAR* COPY FORWARDED TO:- 1. THE INCOME TAX OFFICER, WARD-2, (4), JAIPUR. 2. M/S. AM CEE BEE (KIRTI EXPORTS), SHYAM NAGAR, JA IPUR. 3. THE CIT 4. THE CIT(A), 5. THE D/R, ITAT, JAIPUR 6. THE GUARD FILE IN ITA NO.966/JP/2010 BY ORDER A.R., I.T.A.T., JAIPUR