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TMI Blog2012 (11) TMI 792X X X X Extracts X X X X X X X X Extracts X X X X ..... ities while working out the average rate of GP. Further the samples taken by the AO cannot be taken as representative samples, as he has not taken samples randomly over the entire year. - Thus, in our view, the rate of GP worked out by the AO also cannot be considered to be a perfect one. - the average rate of GP on sale of spare parts may be fixed at 9% and in our view the same would meet the ends of justice. Disallowance made from the expense claimed under the head Telephone expenses – assessee had disallowed 1/20th of the expenses claimed under this head towards personal use. The AO however enhanced the disallowance to 1/4th of the total claim – Held that:- Assessee himself had disallowed a part of telephone expenses towards personal use on ad-hoc basis. The said action of the assessee establishes the fact that the telephones were put to personal use also - 1/5th of the expenses claimed disallowed Disallowance made from the expense claimed under the head “Vehicle expenses” and also from depreciation claimed on Motor car towards personal use – Held that:- Assessee himself had disallowed a part of telephone expenses towards personal use on ad-hoc basis. The said action of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ing a total income of Rs.63,89,956/-. However the AO completed the assessment by determining the total income at Rs.2,60,68,590/- by making various additions. The assessee challenged all the additions made in the assessment order before Ld CIT (A) and got partial relief. Still aggrieved, the assessee is in appeal before us. The revenue is challenging the relief granted by Ld CIT (A). 3. Both the parties are in cross appeals in respect of the following issues, since the Ld CIT (A) has granted partial relief on those issues. The assessee is seeking further relief, while the revenue is assailing the relief granted by Ld CIT (A). (a) Disallowance made from Salary and Bonus (b) Disallowance made from Telephone expenses (c) Disallowance made from Motor Car expenses and Depreciation on Motor car We shall dispose of these issues first. 3.1 The first common issue pertains to disallowance made from the expense claimed under the head Salary and Bonus . The assessee had claimed an amount of Rs.1,27,37,469/- under this head. On verification of the said claim, the AO noticed that a sum of Rs.68,19,704/- was paid in cash and also without deducting P.F there from. The AO asked the ass ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... sion of Ld CIT (A), both of them have failed to produce any material before us in order to compel us to interfere with the decision rendered by Ld CIT (A) on this issue. We notice that the assessee himself had disallowed a part of telephone expenses towards personal use on ad-hoc basis. The said action of the assessee establishes the fact that the telephones were put to personal use also. However, the assessee has failed to furnish any material to substantiate the quantum of disallowance made by it. Hence we find no reason to interfere with the decision of Ld CIT (A) on this issue. 3.1.3 The last common issue pertains to disallowance made from the expense claimed under the head Vehicle expenses and also from depreciation claimed on Motor car towards personal use. As in the case of Telephone expenses discussed in the preceding paragraph, the assessee had disallowed 1/20th of the said claim. The AO enhanced the disallowance to 1/4th and the Ld CIT (A) sustained the disallowance to 1/5th of the claim. The view taken by us in respect of the Telephone Expenses shall apply with equal force to this issue also. Accordingly, we uphold the order of Ld CIT (A) on this issue also. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n by reverse method, arrives at the value of closing stock of spare parts, which is not normally followed. The assessee submitted that the above said method of reverse working is also a recognized method of arriving at the value of closing stock and the said method is called as Retailer method . Since the value of closing stock is determined, after determining the amount of Gross Profit, the AO proceeded to verify the correctness of the GP rate of 6.21% adopted by the assessee. Accordingly, the AO asked the assessee to calculate the GP rate of certain items of spare parts from the sales invoices. For that purpose, ten sales invoices raised in the beginning of the year were taken in to consideration. The calculations made by the assessee were attached as Annexures A to D to the assessment order. In Annexure A, 40 items of spare parts were considered for the said purpose. In Annexure B, C and D, the number of items considered were 30, 63 and 94 respectively. The AO noticed that the above said list of items also included certain items, which were replaced at free of cost during the warranty period. Since there will not be any profit element on the items replaced at free of cost, the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... in support of his contentions that there is no necessity to disturb the results shown by it. We discuss those case law briefly hereunder: (a) ITA No.3225/A/2004 Pradipbhai D Shah Vs.ACIT:- Where GP is more as compared to earlier years and which has been accepted by the revenue, no addition is required. (However the assessee did not submit a copy of the said order and hence we could peruse the same.) (b) The Ld CIT (A) has held that there is no justification in invoking the provisions of sec. 145(3) of the Act and in rejecting the book results. The said finding was not challenged by the revenue. In the absence of any challenge to the finding recorded by ld CIT (A), the books results declared by the assessee shall have to be accepted. Reliance was placed on the decision rendered by this bench in the case of ITO Vs. M/s P.T. Synthetics (ITA No.4520/Ahd/2007); M/s P.T. Synthetics Vs. ITO (ITA No.4543/Ahd/2007 and ACIT Vs. Shri Ramanbhai B Patel (HUF) (ITA No.1948/Ahd/2008). (c) Even if day to day stock register is not maintained, the book results cannot be rejected. ITO Vs. Mansi Prints Pvt. Ltd (ITA No.498 and 872/Ahd/2009). On the contrary, the Ld D.R pointed out that the a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... to ascertain the veracity of the rate of GP adopted by the assessee and consequently the amount of Gross Profit. 4.1.4 The Ld A.R, during the course of arguments, submitted that the selling price of spare parts and also the margin thereon are determined by M/s Tata Motors Ltd. There appears to be no dispute on this point. We notice that the average rate of GP has been worked out only on the basis of sales invoices maintained by the assessee. However, we find that the assessee has not taken steps (a) to bring instances from other sales invoices to prove its claim that the rate of GP was low in majority of items of spare parts. (b) to work out the GP rate from the rates determined by M/s Tata Motors Ltd, as the purchase price and selling price are determined in advance by the said company. There cannot be any dispute that the rate of GP depends upon the purchase price and selling price of a product. The assessee could have done a meaningful exercise to substantiate the average rate of GP of 6.21% declared by it on the basis of purchase and sales invoices by adopting weighted average method. However, we notice that the assessee has chosen to substantiate the rate of GP adopted ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 0% there of. However, the Ld CIT (A) noticed that the assessee had paid a sum of Rs.1.19 crores by way of crossed cheques out of the total claim of Rs.2.95 crores. The Ld CIT (A) also recognized the fact that the credit notes are not usually signed by the recipients. In respect of customers who failed to respond to the summons issued by the AO, the assessee had explained the manner as to how the discounts were paid to those customers. The assessee also gave some satisfactory explanation with regard to the contradictory replies given by some customers. The Ld CIT (A) also recognized the fact that the relationship between the assessee and its customer normally ends after the completion of sales and hence there is no compulsion for the customers to appear before the income tax authorities. Accordingly the Ld CIT (A) opined that the AO could not have taken adverse inference against the assessee for non-appearance of certain customers. The Ld CIT (A) also noticed that the AO has failed to adduce the opportunity of cross examining the persons who have given contradictory statements. In view of the various reasons discussed above, the Ld CIT (A) did not find any merit in the impugned di ..... X X X X Extracts X X X X X X X X Extracts X X X X
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