9911796707
TMI Blog2004 (9) TMI 590X X X X Extracts X X X X X X X X Extracts X X X X ..... e and M/s. Navin Projects Pvt. Ltd. (NEPL for short) having 10% share. The firm is engaged in the business of manufacturing and fabrication of rollers, CI parts, solar equipments, etc. 3. During the assessment year under reference the assessee has shown sales of Rs. 66,26,000 and gross profit has been shown amounting to Rs. 52,866 yielding the GP rate of 0.79% as against the GP rate of 16.5% shown in the Assessment year 1993-94 and 11.12% for assessment year 1994-95. The turnover of Rs. 66,26,000 shown for the assessment year under reference comprises of the following items :- (i)Sales - Rs. 53,82,940 (ii)Design and dyeing charges - Rs. 8,50,000 (iii)Job Charges - Rs. 3,93,095 4. The design charges of Rs. 8,50,000 credited as above have been received from a sister concern, namely M/s. Telecom Products (P.) Ltd. and if these design charges are excluded from the trading account, the balance gross profit rate would come down to a negative figure. When called upon by the Assessing Officer to explain the reasons for the steep fall in the gross profit, the assessee submitted vide its letter dated 2-12-1997 as under :- "The increase in manufacturing expenses more particularly ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Rs. 4,750 has been made and the balance amount of Rs. 2,32,750 has been shown as outstanding in the books as on 31st March, 1995. 8. With a view to scrutinizing the genuineness of the fabrication expenses, the Assessing Officer called upon the assessee to produce evidence regarding the material supplied to the abovementioned fabricators as well as receipt of fabricated goods along with the challans, gate pass, stock register records, manufacturing records, etc. However, the assessee stated that no goods were dispatched to the abovementioned fabricators and the labour of these fabricators came to the business premises of the assessee for doing the fabrication job for the assessee. 9. The Assessing Officer issued summons under section 131 to the above three fabricators, but the same could not be served. The Inspector reported that the fabricators M/s. R.K. Enterprises were not available at the address given by the assessee at F-99, Harkesh nagar. The Inspector reported that one Shri Nagpal was residing there and has no connection whatsoever with the fabricator R.K. Enterprises. At 12-Sham Nagar, one Shri Jagjit Singh was found to be residing by the Inspector and this person was no ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of the assessment order that the entire sales have been made to M/s. Navin Projects Pvt. Ltd., 235, Okhla Industrial Estate, New Delhi, the company being a partner in the firm with 10% share. As we have already mentioned above the firm comprises two partners M/s. NEPL having 10% share, other partner Shri Navin Kohli having 90% share. Shri Navin Kohli, Partner is also the Director of the above said company. The constitution of the firm, thus, clearly indicates that Shri Navin Kohli is the key person controlling and running the firm. The Assessing Officer noted that goods allegedly sold by the assessee to NEPL are directly supplied to Century Pulp & Papers under the same GR number of the transporter whereas corresponding sale bill raised by NEPL is for a much higher figure. The comparative figures along with other particulars like bill No. as well as GR No. have been given by the Assessing Officer at page 5 of the assessment order as under :- Sold by the assessee Sold by the partner NEPL S.No. Bill Date Amount GR No. Truck No. Bill Amount No. (Rs.) No. (Rs.) 1. 6 2-8-94 110000 82537 HY02465 33 180700 2. 11 8-9-94 78514 85502 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... /s. NEPL at an understated price even less than the cost price so as to reduce its tax liability. Placing reliance on the decision of Supreme Court in the case of McDowell & Co. Ltd. v. CTO [1985] 154 ITR 1481 the Assessing Officer concluded that colourable device has been adopted by the assessee to avoid tax liability by understating the sale made to the sister concern. 15. The Assessing Officer further noted that apart from the aforesaid sales made to the sister concern, NEPL assessee has sold the solar system to the said sister concern in the month of February, 1995 vide bill No. 101/94-95 dated 22-2-1995 for a consideration of Rs. 20.50 lakhs. Cost of production of such a solar system has been furnished by the assessee as Rs. 30.55 lakhs. The Assessing Officer, therefore, concluded that solar system has been sold at a loss of Rs. 11,05,000 and applying the provisions of section 40A(2) the Assessing Officer made an addition of Rs. 11,05,000 on this score. The Assessing Officer rejected the books of account by invoking the provisions of section 145(2) for the various discrepancies enumerated at page 9 of the assessment order as under :- "(i)Bogus expenses booked in the trading ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... der of the CIT(A). Therefore, there is no dispute before us regarding the rejection of accounts of the assessee. The Revenue has assailed the order of the CIT(A) firstly on the relief allowed to the extent of Rs. 1,94,622 out of the addition of Rs. 9,67,466. From the facts as discussed herein before, it is clear that the Assessing Officer has analyzed the total turnover of the assessee amounting to Rs. 66,26,000 which comprise the following 4 items as indicated vide para 2.3 of the appellate order :- "(i)Solar equipment - Rs. 25.50 lakhs (ii)Designing and Engineering - Rs. 8.50 lakhs (iii)Structural fabrication - Rs. 28,33,000 (iv)Job work - Rs. 3.93 lakhs" 19. The Assessing Officer has stated that the entire sales of Rs. 28.33 lakhs [being S.No. (iii) as above] comprising various items of structural fabrication have been sold to NEPL at grossly understated price. NEPL which is a partner in the assessee firm has sold the same goods vide the same consignments at a much higher price to M/s. Century Pulps and Papers and in para 5 of the assessment order bill-wise comparative details have been given in the assessment order, extracted hereinbefore which indicate that assess ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rate of 13.6% and worked out the gross profit at Rs. 9,67,466. Obviously the sale of solar system shown by the assessee at Rs. 20.50 have been excluded by the Assessing Officer while working out the gross profit on sale of structural fabrication. The CIT(A) has upheld the working of the GP. He has, however, held that expenses claimed in the P&L. Account amounting to Rs. 2,06,147 have got to be deducted to arrive at the net profit and further an amount of Rs. 11,05,025 shown as other income which has not been considered by the Assessing Officer would have to be added for adopting the figure of net income. On this basis the CIT(A) reduced the addition from Rs. 9,67,466 to Rs. 7,72,844 allowing a relief of Rs. 1,94,622. We feel that the finding of the CIT(A) is correct inasmuch as once gross profit on the sale of structural fabrication has been worked out by the Assessing Officer, naturally, the expenses relatable to P&L. Account are liable to be deducted while computing the net income of the assessee. Therefore, relief of Rs. 1,94,622 allowed by the CIT(A) is justified. Ground No. 1 is, therefore, dismissed. 20. Now, we take up Ground No. 2 against the deletion of the addition of Rs ..... X X X X Extracts X X X X X X X X Extracts X X X X
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