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TMI Blog2015 (1) TMI 606X X X X Extracts X X X X X X X X Extracts X X X X ..... dition on account of low gross profit which includes disallowance of deliberate loss of ₹ 31,35,469/- incurred on sale of gray cloth in the post-survey period - CIT(A) deleted the addition - Held that:- he Revenue could not point out any specific error in the order of the CIT(A). The Revenue could not point out the amount of loss incurred on sales made to sister concerns and that to other parties. Further, no material was brought on record by the Revenue to show that on the date of sale made to sister concerns the assessee had made sales to other parties at a price more than that charged from sister concerns. In absence of the same, we do not find any good reason to interfere with the order of the CIT(A) which is confirmed and thus, these grounds of appeal of the Revenue are dismissed. - Decided against revenue. Disallowance made out of the excess claim of expenditure under the head 'Brokerage' to its sister concerns - CIT(A) deleted the disallowance - Held that:- Assessing Officer made disallowance out of brokerage expenses of ₹ 2,60,385/- u/s 40A(2)(b) of the Act as he observed that the brokerage paid to sister concerns was at the rate of 5.25% of the job receipt; ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ome Tax Act, 1961. 3. The brief facts of the case are that a survey action u/s 133A of the I.T. Act was carried out at the business premises of the assessee on 17.12.2002. During the course of survey proceedings it was noticed by the Assessing Officer that the assessee was carrying out construction of shed and had also carried out some repairing/renovation work in the factory building. The assessee had admitted a sum of ₹ 13,83,807/- was incurred towards construction of shed and repair and renovation of factory building which was not recorded in the books of account. Therefore, the Assessing Officer disallowed the expenditure of ₹ 13,83,807/- u/s 69C of the Incometax Act on the ground of capital expenditure, relying on the judgment of Hon'ble Gujarat High Court in the case of Fakir Mohamed Haji Hassan, reported in 247 ITR 290 and held that the same could not be credited in the profit and loss account for claiming deduction u/s 30 of the Act under the head 'repairs to building.' 4. On appeal, the Commissioner of Income Tax (Appeals) confirmed the disallowance by observing as under:- 9. I have gone through the findings of the Assessing O ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n (supra) which was considered and overruled by the subsequent judgment of Hon'ble Gujarat High Court in the case of Shilpa Dyeing Printing Mills (P.) Ltd., reported in 219 Taxman 279, wherein it was held as under:- 9. We may further notice that the decision in case of Fakir Mohmed Haji Hasan Vs. Commissioner of Income Tax (supra) came-up for consideration in case of Deputy Commissioner of Income Tax Vs. Radhe Developers India Ltd. and anr (supra),it was observed as under: 'The decisions of this Court in the case of Fakir Mohmed Haji Hasan (supra) and Krishna Textiles (supra) are neither relevant nor germane to the issue considering the fact that in none of the decisions the Legislative Scheme emanating from conjoint reading of provisions of sections 14 56 of the Act have been considered. The Apex Court in the case of D.P.Sandu Bros.Chembur P. Ltd.,(supra) has dealt with this very issue while deciding the treatment to be given to a transaction of surrender of tenancy right. The earlier decisions of the Apex Court commencing from case of United Commercial Bank Ltd. Vs. CIT (1957) 32 ITR 688 (SC) have been considered by the Apex Court and, hence, it is ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n of the Hon'ble Gujarat High Court in the case of of Shilpa Dyeing Printing Mills (P.) Ltd. (Supra). 10. We find that in the case of Shilpa Dyeing Printing Mills (P.) Ltd. (supra), the issue came up for consideration of the Hon'ble Gujarat High Court was that the loss suffered by the assessee under any other head is to be allowed as set off or not against the income deemed u/s 69 which is assessable under the head income from other sources . We find the issue involved in the present case is quite distinct and different from the issue which was involved in the case before the Hon'ble Gujarat High Court. In the instant case, the issue of unexplained expenditure which is covered by Section 69C is involved, whereas in the case before the Hon'ble Gujarat High Court the issue was in respect of income covered by section 69 of the Act. We find that the Proviso to Section 69C reads as under:- 69C. . [Provided that, notwithstanding anything contained in any other provision of this Act, such unexplained expenditure which is deemed to be the income of the assessee shall not be allowed as a deduction under any head of income.] 11. Before us, the AR of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... working of the excess stock by the assessee, we do not find any justification for not accepting the same and making the addition on the basis of excess stock worked out at the time of survey in hurried manner or on estimated basis. 16. He further placed reliance on the decision of this Bench of the Tribunal in the case of Smt. Babiben R. Patel Vs. ITO and Shri Dashrathbhai Prahladbhai Patel Vs. ITO in ITA Nos.32 33/Ahd/2004 for Assessment Year 2000-01, order dated 16.07.2010, wherein the Tribunal relying on the decision of Hon'ble Kerala High Court in the case of Paual Mathews and Sons v. CIT (2003) 263 ITR 101 (Ker.) held that the statement elicited during the survey operation had no evidentiary value and power to examine a person on oath is specifically conferred on authorized officer only u/s 132(4) of the Act in the course of search or seizure. Whenever it is thought fit and necessary to confer such power to examine a person on oath, the Income-tax Act has expressly provided for it, whereas Section 133A does not empower the Assessing Officer to examine any person on oath. Thus, any statement made by any person during such examination u/s 133A of the Act, is not given ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ; 31,35,469/- incurred on sale of grey cloth in the post-survey period. (ii) On the facts and in the circumstances of the case and in law, the ld. CIT(A)-I, Surat has erred in accepting the assessee's contention that it had furnished confirmatory letters, contra accounts, etc. of the customers to whom sales were made in cash ignoring the fact that no such details were furnished by the assessee, as communicated to it vide notice U/s 142(1) dated 15.12.2004 alongwith query letter as highlighted in para 4.3(q) of the order u/s 143(3) and also order sheet entry dated 22.12.04. (iii) On the facts and in the circumstances of the case and in law, the ld. CIT(A)-I, Surat has erred in not accepting the fact and holding that the sales made in post-survey period were at the prevailing market rate ignoring the fact that the assessee had failed to establish that sales were made at prevailing market rate. (iv) On the facts and in the circumstances of the case and in law, the ld. CIT(A)-I, Surat has erred in applying the ratio of Bombay High Court's decision in the case of R.B. Jessaram Fatehchand Vs. CIT, 75 ITR 33, ignoring the fact that the ratio laid down in the d ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ding loss on sale of grey at the market rate. According to the Assessing Officer, the assessee-company had purchased substantial portion of grey cloth from its sister concerns at a much higher rate than the sale price and sold the same at lower rates. In support of his finding, the Assessing Officer stated that the sale rate of grey in the market in general were higher i.e. almost at ₹ 13/- per mtrs as against the sale rate shown by the assessee-company at ₹ 11.75 per mtrs and he accordingly observed that the difference between the purchase rate of grey as made from its sister concern and that of sale at which the grey was sold by it would be disallowable u/s 40A(2)(b) of the I.T. Act, 1961. The Assessing Officer has further mentioned that the plea of the assessee-company that it was passing through some financial crunch was also baseless as it was having sufficient cash flow during the period under consideration. On comparison of the GP ratio it was seen that in the year under review the assessee-company had shown GP @ 13.97% as compared to GP of 20.24% shown in the immediately preceding assessment year. This fact was coupled with the specific defect in the form of unv ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... wer rate than the prevailing market rate. However, it is seen that the AO could not establish the manner in which the appellant should have sold its grey and therefore failed to prove his viewpoint that the goods were sold at a lower rate which resulted in artificial loss to it. 9.2 Further, the AO has observed that the appellant company did not maintain proper records of parties to which cash sales were made and in absence of it genuineness of transactions resulting into losses could not be verified. It is seen that during the course of assessment proceedings, the appellant company had submitted complete details of the parties including their addresses and PAN and contra confirmations in support of its stand and also requested the AO to verify the transactions by calling the information from some of the parties, but it is found that the AO did not attempt to verify the same. It is also seen that the appellant company has quoted the decisions of Honourable Mumbai High Court Kerala High Court(as referred above) wherein the Honourable Courts have held that regarding the cash transactions, if the addresses of the parties to whom sales were made, were not maintained, books of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the Honourable ITAT Ahmedabad in the cases of M/s Ojas Techno Vs.CIT M/s Suresh Scrap Vs.CIT(supra). It is further seen that in the business premises of M/s Goyal Silk Mills Ltd a search action had taken place and during that the above referred assessee made a huge disclosure but while filing its return of income, it did not offer the entire amount of disclosure for tax. The AO while framing the assessment order made an addition of ₹ 28,88,307/- but the same was deleted by CIT(A) holding that it was not effectively offered for tax by the said assessee. 9.4 While deciding the appeal, it was observed by the Honourable ITAT that the assessee did not offer the disclosed amount and its returned income was quite low. It is further observed by the Honourable Bench that under the facts like in the case under consideration, the Honourable Tribunal Bench, Ahmedabad has adopted a formula that in the case of disclosure u/s 132(4) at the time of search, a fair and reasonable estimation of total income should be the amount disclosed plus current year's profit and in support of this method, the Honourable Bench referred the decisions taken by Honourable ITAT, Ahmedabad in th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... affect the gross profit ratio. 9.8 Thus, on the above discussed facts and also after analyzing the judicial findings as quoted by the AO in support of its arguments and also as relied upon by the AR in support of his contention, I am of the view that the addition made by the AO by estimating the gross profit of the appellant company after rejecting its books of accounts u/s 145 of the I.T.Act,1961 is totally unjustified in the eyes of law. As discussed in detail and also supported by various judicial rulings of various Courts, it is seen that the rejection of books of accounts of the post survey period by the AO was totally uncalled for as he failed to point out any specific defect in the books of account. It is found that the disclosure made by the appellant company during the survey period was offered for taxation and due taxes were paid on it. It is also found that the appellant company on the basis of facts and figures has proved that it had incurred genuine losses in its trading activities during the post survey period. Thus, in the totality of the situation, over all gross profit ratio of 13.97% which was declared by it for the whole year is found acceptable and hence the ad ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 33A was carried out at the business premises of the assessee on 17.12.2002. In the course of survey proceedings, the assessee had admitted a sum of ₹ 90 lacs as unaccounted income which inter-alia inclusive of the following items:- (i) Unrecorded investment in factory shed ₹ 13,83,807/- (ii) Furniture Fixtures. ₹ 7,40,280/- (iii) Unaccounted stock of grey ₹ 50,02,330/- (iv) Unaccounted stock of colour chemicals. ₹ 10,10,201/- (v) Unaccounted stock of screen ₹ 8,23,500/- 2. In the P L account the assessee had credited a sum of ₹ 89,60,118/- under the head 'Disclosed Income'. In the course of assessment proceedings, on detailed verification of books of accounts, it was seen that in the post survey period, the assessee had incurred loss of ₹ 31,35,469/- on gross sales of ₹ 1,24,55,845 (i.e. Opening stock as on 18.12.2002 of ₹ 50,02,330/- + purchase of ₹ 1,05,88,984/- (-) ₹ 1,24,55,845/- sales) ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the assessee. Accordingly, on the same date itself query letter along with notice u/s. 142(1) of the Act highlighting the aforesaid fact was issued to the assessee by the A.O. As per this A.O's letter, the assessee was categorically asked to furnish the confirmatory letters on 22.12.2004 as claimed in its letter dated 15.12.2004 (para 4.3(g) of the order u/s. 143(3) may kindly be referred to). However, on 22.12.2004, the assessee's A.R., attended the office of the A.O. but did not furnish the requisite details (order sheet entry dated 22.12.2004 may kindly be referred to). Accordingly, he was required to furnish the aforesaid details. But, till date of finalization of assessment proceedings, no such details were furnished by the assessee. (2) From the above noted fact and observation as made in the body of order in paras No. 4.3(a) to 4.3(v) on page nos. 24 to 35 of the assessment order u/s. 143(3), it was held that the loss incurred by the assessee on account of sale of grey cloth was a deliberate loss and not an incidental one. Therefore, the same was incurred with a motive to set off the unaccounted income of ₹ 90,00,000/- admitted at the time of survey proc ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ve sold its grey and accordingly, the A.O. could not prove his view point that grey was sold at a lower rate, which resulted into artificial loss (para 9.1 and 9.2 of the appellate order may kindly be referred to). (iv) As regards the applicability of the ratio of Hon'ble ITAT, Ahmedabad's decision in the case of Goyal Silk Mills Pvt. Ltd. Vs. CIT and others, the ld. CIT(A) has distinguished the cases, as discussed in para - 9.4 of the appellate order. (v) In the books of accounts for the post survey period the A.O. did not notice any mistake and accordingly, the rejection of books of accounts u/s. 145 is unwarranted. 4. The decision of the ld. CIT(A) is not acceptable as the following accounts. 1. As regards the decision of the ld. CIT(A)'s first observation it of furnishing the complete details of customers to sales were made it may be reiterated that during the course of assessment proceedings, the assessee was repeatedly asked to furnish complete postal addresses of the customers to whom sales were made in cash (A.O's office letters along with notice u/s. 142(1) of the Act, dated 07.12.2004, 15.12.2004 and order sheet entr ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ssessee on the above norms laid down in the case of Goyal Silk Mills Pvt. Ltd. Accordingly, in view of these decisions, the ld. CIT(A)'s observation that the ratio laid down above, is not applicable in the instant case is not incorrect. 4. The observation of the ld. CIT(A) that the A.O. could not establish the manner in which the assessee should have sold the grey (para 9.1 of the appellate order may kindly be referred to), it would be suffice to say that the assessee fails to provide material evidence to justify its claim with the resulted to draw an inference that the loss incurred deliberate loss. 5. As regards the ld. CIT(A)'s observation that the A.O. has not noticed any mistake in the books of accounts in the post survey period it may be mentioned that in view of the non verifiable sales coupled with discrepancies noticed during the course of survey proceedings, it would rather be, incorrect to say that the books of accounts of the assessee can be relied upon. 6. .. 5. In the circumstances, it is prayed that the order of ld. CIT(A) may be quashed. 31. We have heard the rival submissions and perused the orders of lower auth ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... #39;s. This brokerage was paid @ 5.25 % of the job receipts brought in by it, as compared to the brokerage charges of 4% paid to others. Thus, as the assessee had paid excess brokerage charges @ 1.25% to that of market rate the disallowance u/s. 40A(2)(b) was made. However, the ld. CIT(A) deleted the merely on the ground that the expenditure was incurred wholly and exclusively for the purpose of promoting the business activities, ignoring the fact that on similar type of activity provided by the others, the assessee had paid lower rate of brokerage. Moreover the ld. CIT (A) had also not considered the fact that in the A.Y. under review Laurel Apparel's had shown negligible income and thereby the assessee company group had benefited by entering the aforesaid expenditure. 5. In the circumstances, it is prayed that the order of ld. CIT(A) may be quashed. 36. We have heard the rival submissions and perused the orders of lower authorities and material available on record. In the instant case, we find that the Assessing Officer made disallowance out of brokerage expenses of ₹ 2,60,385/- u/s 40A(2)(b) of the Act as he observed that the brokerage paid to sis ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... income, the assessee credited the said amount in the P L Account as income and also debited the said amount as expenditure for repairs. Thus, the income of ₹ 13,83,807/- disclosed by the assessee in the return of income was accepted by the Revenue. However, the claim of deduction was found to be not allowable by the Assessing Officer on the ground of it being capital expenditure and in view of the decision of the Hon'ble Gujarat High Court in the case of Fakir Mohamed Haji Hasan (supra). We find that in the quantum appeal the disallowance was confirmed by the Tribunal on account of Proviso to Section 69C of the Act. Thus, it is observed that the genuineness of the expenditure is not in dispute. It is not the case of the Revenue that any bogus expenditure was debited in the P L Account. On the above facts, in our considered view, penalty u/s 271(1)(c) is not exigible only because the expenditure claimed is found to be not allowable because of computation provision of law. Our above view finds support from the decision of Hon'ble Supreme Court in the case of CIT v. Reliance Petroproducts P. Ltd., [2010] 322 ITR 158 (SC), wherein it was held that merely because the asse ..... X X X X Extracts X X X X X X X X Extracts X X X X
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