2015 (6) TMI 420 - AT - Income Tax

Trading addition - CIT(Appeals) confirming the action of the Assessing Officer in applying a GP rate of 56.17% in export division - Held that - The estimation made by the Assessing Officer appears to be on the higher side in spite of the fact that the ld CIT(A) has accepted the explanation may be to some extent which is not defined. In the facts and circumstances of the present case, no addition is called for when the explanation of fall in G.P. appears to be satisfactory. In the present case, the finding of the Coordinate Bench in A.Y. 2005-06 to 2007-08 are squarely applicable as no specific defect in purchase and sale has been pointed out by the Assessing Officer. In local sale, the G.P. had increased from 34.46% to 34.53% compared to preceding year. In export division, the GP was constant as shown in A.Y. 2007-08 @ 49.07% and in year under consideration @ 49.06%. Therefore, by respectfully following the decision of the Coordinate Bench, we delete the addition confirmed by the ld CIT(A). - Decided against assessee. Disallowance of commission - Held that - In past, similar additions were made by the Assessing Officer, which has been either deleted by the CIT(A) or confirmed by the CIT(A) but finally the Coordinate Bench had confirmed a lump sum addition of ₹ 50,000/- in each year. The ld CIT(A) has specified the defects with reference to bills and not deduction TDS on commission payment but he is not allowed the assessee to explain the reasons for not deducting TDS. The discrepancy is specific and commission payment in this line of business is accepted in general as the handicraft emporiums generally pay the commission to the guides, taxi drivers, auto drivers. They come from outside and had dealing occasionally and it was not fair to pay commission in front of customers. It is just like a secret commission and a very short duration is available with the assessee to complete the formalities for paying commission. Therefore, there may be defects in the receipts of commission payment but it is a part and parcel of the business dealings. Therefore, we confirm the disallowance under this head at ₹ 1 lac out of total disallowance made by the Assessing Officer at ₹ 16,54,883/- - Decided partly in favour of assessee. Disallowance of employee s contribution towards PF - the assessee paid PF on 21/5/2007 and 28/09/2007 whereas the due date was on 15/5/2007 and 15/09/2007, accordingly AO made addition U/s 36(1)(va) read with Section 2(24)(x) - CIT(A) confirmed the addition U/S 43B(b) - Held that - We consider the issue after considering the argument of both the sides and the Hon ble Rajasthan High Court decision in the case Jaipur Vidyut Vitran Nigam Ltd. (2014 (1) TMI 1085 - RAJASTHAN HIGH COURT) had decided that these payments are allowable U/s 43 of the Act even paid before due date of return. The assessee had filed return on 06/10/2008 whereas payments were made in the month of May and September, 2007 in accounting year itself, therefore, we delete the addition made by the Assessing Officer and confirmed by the ld CIT(A). Decided in favour of assessee.

Summary

Issues Involved:
1. Application of Gross Profit (GP) rate in export and local divisions.
2. Disallowance of commission payments.
3. Disallowance of entertainment expenses.
4. Disallowance of employee's contribution towards PF.

Detailed Analysis:

1. Application of Gross Profit (GP) Rate in Export and Local Divisions:
The assessee challenged the application of a GP rate of 56.17% in the export division and 36% in the local division, resulting in trading additions of Rs. 20,30,516/- and Rs. 17,06,982/-, respectively. The Assessing Officer (AO) rejected the assessee's books of account under Section 145(3) of the Income Tax Act due to the absence of a day-to-day stock register and unverifiable purchases from unregistered dealers (URDs). The AO relied on past assessments where similar defects were noted and applied historical GP rates. The CIT(A) upheld the AO's decision, citing the assessee's failure to rebut the AO's findings and the lack of verifiable quantitative details. However, the Tribunal noted that the assessee's GP rates for the current year were consistent with previous years, and no specific defects in purchases and sales were pointed out by the AO. Consequently, the Tribunal deleted the trading additions, following the principle that past history is the best guide in such cases.

2. Disallowance of Commission Payments:
The AO disallowed Rs. 16,54,883/- out of the total commission payments claimed by the assessee, citing unverifiable identities and addresses of commission recipients. The CIT(A) confirmed the disallowance, highlighting discrepancies in commission vouchers and the lack of TDS deduction. The Tribunal observed that similar disallowances in past years were reduced to a lump sum addition of Rs. 50,000/- by higher appellate authorities. The Tribunal acknowledged the practical difficulties in maintaining perfect records for commission payments in the handicrafts business and partially allowed the assessee's appeal by confirming a disallowance of Rs. 1,00,000/- instead of Rs. 16,54,883/-.

3. Disallowance of Entertainment Expenses:
The assessee did not press this ground of appeal, and hence, the Tribunal dismissed it as not pressed.

4. Disallowance of Employee's Contribution Towards PF:
The AO disallowed Rs. 24,600/- on account of delayed payment of employee's contribution towards PF, invoking Section 36(1)(va) read with Section 2(24)(x) of the Act. The CIT(A) upheld the disallowance, referencing a decision by the Pune Tribunal. However, the Tribunal noted that the payments were made within the accounting year and before the due date for filing the return. Citing the Rajasthan High Court's decision in Jaipur Vidyut Vitran Nigam Ltd., the Tribunal allowed the assessee's appeal and deleted the disallowance.

Conclusion:
The Tribunal provided relief to the assessee by deleting the trading additions related to GP rate application and reducing the disallowance on commission payments. The disallowance of entertainment expenses was dismissed as not pressed, and the disallowance of employee's contribution towards PF was deleted, aligning with judicial precedents. The assessee's appeal was partly allowed.