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TMI Blog2015 (4) TMI 538X X X X Extracts X X X X X X X X Extracts X X X X ..... e of the assessee from the business of trading in sale of products by applying the net profit rate of 0.7% of sales - assesee contended that the relevant invoices and other details could not be furnished by the assessee during the course of assessment proceedings as proper and sufficient time was not allowed by the A.O. to do so - Held that:- all these details and documentary evidence in the form of invoices are duly maintained by the assessee. Keeping in view of this submission made by the Ld. Counsel for the assessee, we are of the view that it would be fair and proper and in the interest of justice, to restore this matter to the file of the A.O. for giving one more opportunity to the assessee to produce the relevant invoices and other details in order to support its claim of purchases made by Chennai branch and even the learned D.R. has not raised any objection in this regard. - Decided in favour of assessee for statistical purposes. Disallowance made on account of expenditure claimed by assessee towards salary, wages and bonus, we find that the said disallowance made by the A.O. on adhoc basis is not sustainable. The nature of this expenditure claimed by the assessee is such ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... filed by it on 16.11.2009 declaring total income of ₹ 43,80,004. During the course of assessment proceedings, the assessee company was called upon by the A.O. to produce the books of account along with supporting bills/vouchers for verification. The assessee company was also required by the A.O. to produce the VAT returns of its Hyderabad branch as well as Chennai branch. Although, the assessee produced the relevant details pertaining to Hyderabad branch, it could not produce either the VAT returns or the purchase invoices pertaining to Chennai branch. On verification of the relevant ledger extract pertaining to Chennai branch, it was also observed by the A.O. that the same did not contain the details of purchases made. He, therefore, held that the claim of the assessee for purchases of Chennai branch was not fully verifiable and disallowance of ₹ 1,86,09,868 was made by him on account of unverifiable purchases being 8% of the total purchases of Chennai branch. It was also noted by the A.O. that expenditure of ₹ 27,21,566 claimed by the assessee on account of salaries, wages and bonus was apparently on the higher side when compared to the turnover of the last year ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... pening stock was very much grouped with the purchases. 6. As regards the disallowances made by the A.O. on account of unverifiable purchases of Chennai branch and expenditure claimed on account of salary, wages and bonus, the Ld. CIT(A) held that keeping in view the unverifiable claim of the assessee on account of purchases, salary etc., the books of account of the assessee were liable to be rejected. Accordingly, he directed that the books of account of the assessee be rejected and the net profit be estimated at 0.7% of sales being the net profit rate applied in the case of sister concern of the assessee engaged in the same line of business. This method adopted by the Ld. CIT(A) resulted in enhancement of income of the assessee as computed by the Assessing Officer. The Ld. CIT(A) also confirmed the disallowance of ₹ 10,83,239 made by the A.O. on account of finance charges by invoking the provisions of section 40a(ia). 7. Aggrieved by the order of the Ld. CIT(A), assessee and revenue both are in appeal before the Tribunal on the following grounds : ITA.No.404/Hyd/2014 : A.Y. 2009-2010 (Assessee's Appeal) : 1. The Ld. CIT(A)-III, Hyderabad erred both in law an ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n altering the disallowance made by the A.O. on purchases of Chennai Branch and also on salary without citing any cogent reasons for such relief. 4. The CIT(A) erred on facts and in law in granting relief to the assessee with reference to bogus purchases and bogus salary expenses. 5. Any other that may be taken at the time of hearing. 8. We have heard the arguments of both the sides and also perused the relevant material on record. Ground Nos.1 and 10 raised in the appeal of the assessee and ground No.5 raised in the appeal of the revenue are general in nature requiring no specific adjudication. 9. The common issue raised in ground Nos. 2 and 3 of the assessee's appeal relates to the disallowance of ₹ 10,83,239 made by the A.O. and confirmed by the Ld. CIT(A) on account of finance charges under section 40a(ia) for its failure to deduct tax at source. 10. At the time of hearing before us, both sides have agreed that this issue is squarely covered in favour of the assessee by the decision of Coordinate Bench of this Tribunal in the case of S.S. Net Works vs. ITO rendered vide order dated 28.01.2015 passed in ITA.No.478/Hyd/2013 wherein it was held, following ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... with the turnover of the year under consideration which had drastically come down as compared to the immediately preceding year. 13. On appeal, the Ld. CIT(A) held that in view of unverifiable purchases of Chennai branch as well as unverifiable expenses claimed by the assessee towards salary, wages and bonus, it would be proper to reject the books of account. Accordingly, he rejected the books of account and estimated the net profit of the assessee company from the business of trading in steel products by applying the net profit rate of 0.7% which resulted in enhancement of income. Although, we agree with the contention of the Ld. Counsel for the assessee that the action of the Ld. CIT(A) rejecting the books of account and estimating the income of the assessee by applying net profit rate of 0.7%, which resulted into the enhancement, is not justified in the facts and circumstances of the case especially when no notice of enhancement was given by the Ld. CIT(A) to the assessee, we find it difficult to accept his contention that the addition made by the A.O. by way of disallowance of 8% made out of purchases of Chennai branch is not sustainable in the absence of rejection of books ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... in the turnover of the assessee in the year under consideration, it cannot follow that there has to be a proportionate reduction in the expenditure claimed on account of salary, wages and bonus. This expenditure is substantially in the nature of fixed expenditure and the disallowance made by the A.O. on adhoc basis without pointing out any other specific instance of unverifiable element involved in the expenditure claimed by the assessee, in our opinion, is not well founded. We, therefore, direct the A.O. to delete the same. Ground Nos. 4, 5, 6, 7 and 9 of the assessee's appeal are accordingly allowed, Ground No.8 of the assessee's appeal is treated as allowed for statistical purposes and Ground No. 3 and 4 of the Revenue's appeal are treated as partly allowed for statistical purposes. 15. In ground No. 1 and 2 of its appeal, the Revenue has challenged the action of the Ld. CIT(A) in remitting the issue relating to the addition made on account of non- disclosure of opening stock to the A.O. with a direction to verify the claim of the assessee that the value of opening stock was duly grouped with purchases. 16. After considering the rival contentions and perusing t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... . 88,55,541 Closing balance as on 31.3.09 0 Decrease in stock written off to profit and loss account F.Y. 2007-08/A.Y. 2008-09 88,55,541 2. As could be seen from the P L a/CIT(A) as above that the system of Accounting followed is arriving at the net profit in such that no separate Trading Account is constructed. And thus, no opening stock as on first day of financial year 2008-09 is taken to the debit of trading account and no closing stock as on last day of financial year 2008-09 was credited to trading account. However, some stock adjustment was made to P L account as per item No.6; This represents the decrease in stock, as shown in schedule (N). The decrease in stock has been reduced from the profit. This is done by way of accounting entry by inclusion into expenditure . In fact, this represents addition to the purchases, being the 'costs of the goods sold . 3. It is noticed from the Trading and Profit and Loss account for the A.Y. 2008-09, 2009-10 and 2010-11 that the assessee has been continuously adopting a system of accounting for adjusting the increase ..... X X X X Extracts X X X X X X X X Extracts X X X X
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