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TMI Blog2015 (10) TMI 2179X X X X Extracts X X X X X X X X Extracts X X X X ..... f being heard to the assessee and the assessee is also directed to produce the relevant records to verify the quantity of sales and purchases as well as opening and closing stock before the AO and also to produce the books of account to verify the gross profit rate. Further it should be verified from the auditor whether he has audited the books of account or not. If yes, then the assessee's expenses for payment of auditor are also required to be verified. - Decided in favour of revenue statistical purposes. Addition u/s electricity expenses u/s 40A(3) - CIT(A) deleted the addition - Held that:- We find from the records that the assessee has paid in cash electricity bill of ₹ 80,092/- for the month of Nov. 2008 to Rajasthan State Electricity Board under the bona fide belief that the payment is made to the Government because of the business expediency and to avoid electricity connection. The ld. CIT(A) has taken into consideration the decision of Hon'ble Delhi High Court in the case of R.C. Goyal vs. CIT (2012 (12) TMI 452 - DELHI HIGH COURT) wherein it is held that cash payments made in view of the business expediency is allowable as per Section 40A(3) of the Act. Thus we ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... issue of the assessee is directly connected with the gross profit rate. We therefore, in the interest of justice set aside this issue to the file of the AO to decide it afresh by providing reasonable opportunity of being heard to the assessee. Disallowance of salary expenses paid to Shri Lokesh Maheshwari - Held that:- We have observed from the records that the Shri Lokesh Maheshwari was the employee of the assessee. Shri Lokesh Maheshwari is assessed to tax and has filed his return of income for A.Y. 09-10 on 21.03.2011 declaring income of ₹ 1,15,800/-. The Copy of his PAN is filed in the paper at page 30. Thus, the identity of the employee is established. In view of the facts, circumstances of the case and the records available, the disallowance of ₹ 70,000/- confirmed by the ld. CIT(A) is deleted. - Decided in favour of assessee. - ITA No. 949/JP/2013, CO No. 4/JP/2014 - - - Dated:- 30-9-2015 - T. R. Meena, AM And Laliet Kumar, JM For the Petitioner : Shri Ajay Malick, JCIT-DR For the Respondent : Shri P C Parwal, CA ORDER Per T. R. Meena, AM. This is an appeal filed by the Revenue against the order of the ld. CIT(A), Ajmer dated 25-09-2 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... turn computer clerk had not mentioned the name of the auditor and due to heavy rush for submitting the return at last date. The AO enquired from M/s. Pawan Ajmer Company whether he had audited the accounts or not but he has not responded to the AO and neither he confirmed nor he denied having been audited the case of the assessee. He further observed that the audit report is incomplete and many enclosures and schedules are not enclosed with the audit report i.e. quantitative details of goods, audited and certified which is the part of form no. 3CD. He further held that the assessee did not maintain the quantitative details of opening and closing stock with valuation of stock and method of valuation and the assessee failed to submit the required information regarding method of valuation of stock. The AO observed that the assessee had not deducted taxes regarding transportation expenses claimed and paid t M/s. Jay Prabha Transport Company, Truck Union, Dausa and J.K. Transport. The total payment amounting to ₹ 4,79,532/- made to the transporters on which taxes were not deducted. The assessee had submitted Form No. 15G for nondeduction of tax as per provisions of Section 194 o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nd AO has not controverted the above claim of the assessee. Further, the appellant has pointed out that gross profit rate 5.73% offered by the assessee is better than gross profit of 4.26% in assessment year 2007-08. From the facts of the case, it is apparent that the assessee has supported its boo results by producing the books of account alongwith the bills for purchase and sales and expenses. None of these transactions have been found to be incorrect by the AO. It has not been shown that purchases are inflated, sales are suppressed or expenses forming part of the trading account are non-genuine. Further, it is seen that assessee has maintained the books of account alongwith the stock register supported by the purchase and sale bills. Though the AO has mentioned that incomplete audit report has been submitted without the quantitative details of goods, that itself cannot made the assessee's boos liable to rejection. The AO has further mentioned that assessee has failed to submit the information regarding stock valuation. However, it has been pointed out by the assessee that all the purchases and sales were accounted by the assessee and entered in the books of account ad s ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ooks of account which has not been sustained, there remains no other reason to enhance the gross profit rate of the assessee without the evidence to this effect. Accordingly, the addition of ₹ 97,77,900/- made by the AO is deleted. 4.4 Now the Revenue is before us wherein the ld. DR supported the order of the AO and argued that the assessee failed to submit the information regard stock valuation during the assessment proceedings. The ld. CIT(A) only allowed the appeal on the submissions made by the assessee before him that all the purchases and sales were accounted by the assessee and entry in the books of account and stock register was maintained without verifying the fact. The assessee's audit report was defective as per the form prescribed in Form No. 3CD. The AO verified from the CA whether he has made audit in this case. The concerned CA has not responded to the notice issued by the AO which proves that assessee's books of account were not properly audited and thus the AO initiated separate penalty proceedings u/s 271B of the Act. It is further argued that the assessee had claimed shortage in weight. The salary expenses was not verifiable and even the TDS wa ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ection 145(3) is unjustified and consequently,trading addition made by AO by application of GP rate of last year is unwarranted. 3. The other reasons given by the AO as to nondeduction of TDS on transport payment or unverifiability of salary payments/construction expenses has no relevance with the trading results declared by the assessee more particularly when AO has separately disallowed the expenses on this account. So far as the valuation of closing stock is concerned, the same has been consistently valued at market rate as specified in Form No. 3CD of tax audit report. At the end of the year, the closing stock was 300337 kg which is valued at ₹ 2,01,22,579/- giving an average rate of ₹ 67 per kg whereas the average market rate of purchase for the month of March is 64.93 per kg.(PB 4).Thus the valuation of closing stock is fully verifiable from the records available before AO. Hence for these reasons also application of section 145(3) is not justified. 4. It is a settled law that when assessee has maintained complete and proper books of account from which profits are deducible, section 145(3) cannot be invoked only because there is decline in the g.p rate. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... directed to produce the relevant records to verify the quantity of sales and purchases as well as opening and closing stock before the AO and also to produce the books of account to verify the gross profit rate. Further it should be verified from the auditor whether he has audited the books of account or not. If yes, then the assessee's expenses for payment of auditor are also required to be verified. Accordingly, this Ground No. 1 of the Revenue is set aside to the file of the AO for de novo adjudication. 5.1 The second ground of the Revenue is that the ld. CIT(A) has erred in deleting electricity expenses of ₹ 80,092/- u/s 40A(3) of the Act. 5.2 Brief facts of this ground are that the assessee made cash payment of ₹ 80,092/- on account of electricity expenses. The AO observed that such expenses paid by the assessee on account of electricity expenses are not permissible u/s 40A(3) of the Act. Therefore, the AO disallowed the expenses of ₹ 80,092/- and added the same to the income of the assessee. 5.3 Being aggrieved by the order of the AO, the assessee carried the matter before the ld. CIT(A) who deleted the electricity expenses of ₹ 80,092/- ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tain constant supplies in the trains and ensure that at no point in time can the passengers be deprived of these articles (which are food articles, soft drinks and other items necessary for travel). In the course of such transactions, it sources these articles from SR. Apparently, that concern is also a small time one and insists on cash payments for ensuring continuity and timely supplies. Whilst, the Court is conscious and does not in any manner wish to comment adversely on the larger public interest element embedded in s.40A and the underlying principle, at the same time, the Court also notes that the proviso seeks to relieve to a certain extent, the measure of hardship which might be imposed upon small business and professionals who are engaged in activities and are depended entirely on timely cash flow.It is in such cases that r.6DDwhich was formulated as proviso toS.40A(3)steps into aid such assessee and concerns. In this context, the statutory mandate in r.6DD(K), at least in the circumstances of the case, has to be so construed as to mean that but for the cash payment, the assessee would have been deprived the benefit of supplies itself. This Court clarifies that the interp ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ransport Co. ₹ 1,82,956/- Truck Union, Dausa ₹ 2,23,855/- J.K. Transport ₹ 72,721/- The AO while verifying the ledger account and vouchers of the above expenses observed that assessee has not deducted TDS u/s 194C of the Act for which the AO asked the reasons from the assessee for not deducting the TDS of the above parties but the assessee could not explain the reasons for the same. The AO therefore, applied the provisions u/s 40(a)(ia) for not deducting the tax and thus disallowed the expenses to the tune of ₹ 4,79,532/- 6.4 Being aggrieved by the order of the AO, the assessee carried the matter before the ld. CIT(A) who had confirmed the disallowance of transportation expenses of ₹ 50,364/- paid to Jai Bharat Transport Co. and deleted the remaining disallowance by giving the following findings:- 5.3 I have considered the contentions of the appellant as well as assessment order. It is seen that the assessee has purchased Tilli from various places in Rajasthan on freight to pay basis. The trucks were booked by above transportation concern ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... h truck owner/ driver towards the freight is less than ₹ 20,000/- in each case and does not exceed ₹ 50,000/- in the financial year as is evident from the copy of bilty and truck wise detail of payment placed at PB 10-11.The assessee has no written/oral agreement with the transporter or issuer of bilty for carrying out the transport of material from the place of the supplier to the place of the assessee.He is not making any payment to transport companies in as much as the payment of freight is made to truck owner/truck driver who transport the goods.It is also not the case of AO that freight charges were paid to the transport agency in pursuance of a contract for a specific period, quantity or price. In these facts section 194C is not applicable and therefore no disallowance u/s 40(a)(ia) is called for. Reliance is placed as under:- (i) CIT Vs. United Riceland Ltd. 322 ITR 594 (Pun. Har.) (ii) R.K Steels Vs. ACIT (Jpr.)(Trib.) ITA No. 434/JP/10dt. 29.10.10 A.Y. 2006-07(PB15-21) The Ld. CIT(A) has incorrectly held that there is a oral contract with the truck operators/owners. This finding is incorrect. The supplier of the goods arranges the transport of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s of the case are that the AO while verifying the books of account of the assessee observed that the assessee had paid interest to the following parties. 1. Asha Devi Ludhani ₹ 41,400/- 2. Deepak Ludhani ₹ 14,600/- 3. Ramchandra Ludhani ₹ 14,600/- 4. Rama Khandelwal ₹ 15,350/- The AO observed that as per provisions of Section 194A of the Act, the assessee was required to deduct tax while making payment of interest to the above parties for which the assessee was asked to explain as to why TDS was not deducted on interest paid to the above parties. The AO further observed that the assessee failed to submit Form 15G as to nondeduction of tax as proof. Therefore, the AO disallowed the payment of interest to the above parties amounting to ₹ 85,950/- u/s 194A of the Act and added the same to the income of the assessee. 7.3 Being aggrieved by the order of the AO, the assessee carried the matter before the ld. CIT(A) who has deleted th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... vailable before the AO while framing the assessment.Therefore, there is no reason to disallow the interest on non deduction of tax at source. In this case also, Form 15H/G were available before the AO in course of assessment proceedings and therefore the disallowance under section 40(a)(ia) is not justified. In view of above, CIT(A) has rightly deleted the addition and thus the ground of the department be dismissed. 7.6 We have heard the rival contentions and perused the materials available on record. We find from the records that the assessee has submitted the Form No. 15G before the AO for claiming certain interest payment without deduction of tax u/s 194A of the Act. However, the AO disallowed the same because of non-production of proof of submission of above forms to the Department at the time of framing the assessment. The ld. CIT(A) considering the order of this Bench in the case of Shyamsunder Kailash Chand vs. ITO (supra) deleted the addition made by the AO observing that the same were available to the AO while framing the assessment. Thus in this view of the matter, we find no infirmity in the order of the ld. CIT(A) which is confirmed on this issue. Hence, Groun ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... hortage account. The assessee had submitted the copy of Dhaval Agro Exports Rajkot, Navjot International Mumbai and Mac Agree Export Mumabi who are the major parties claiming the shortage in the goods received. In view of the above discussion, it is apparent that weight shortage is inherent in this line of business. The AO has not shown that there was no shortage in the goods delivered to the various parties. In view of above discussion, the disallowance of ₹ 7,39,909/- made by the AO is deleted. 8.4 The ld. DR supported the order of the AO. 8.5 During the course of hearing, the ld. AR of the assessee submitted through the written submission as under:- 1. The assessee sells the goods with the condition of door delivery. The Tilli when processed has some moisture. Further, the difference in weight arises on account of transit shortage and weightment on bigger weight bridge(BadaKanta). For all these reasons, when the goods reaches to the receiving party, there arises some difference in weight as per the sale bill and the weight actually received by them. For such difference,they raise debit note which is debited to weight short expenses. All these facts were explain ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... y expenses of ₹ 70,000/- paid to Shri Lokesh Maheshwari. 9.2 The brief facts of the case are that the AO while examining the salary expenses has observed that the assessee had claimed salary of ₹ 1.20 lacs on account of payment to Shri Lokesh Maheshwari but he observed that the payment vouchers of the concerned employee were unsigned. The AO issued summon u/s 131 of the Act on the given address to the employee Shri Lokesh Mahehswari but the same was returned by the postal authority with the remarks Incomplete address . The AO further asked the assessee to furnish the complete address of the employee but the assessee intimated that the concerned employee had left job and he has no full details of his address. In view of this, the AO disallowed the salary expenses of ₹ 1.20 lacs and added the same to the income of the assessee. 9.3 Being aggrieved by the order of the AO, the ld. CIT(A) carried the matter before the ld. CIT(A) who confirmed the salary expenses to the extent of ₹ 70,000/- by observing as under:- 7.3 I have considered the contentions of the appellant as well as assessment order. It is seen that as per the details of salary payment, sa ..... X X X X Extracts X X X X X X X X Extracts X X X X
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