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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 ..... 0(a) in column 17(f) of the form 3CD report; 4. Deleting the addition of interest expenses of Rs. 85,950/- made by the AO when the assessee had failed to submit the proof of submission of form 15G to the Department; 5. Deleting the addition of Rs. 7,39,409/- on account of short weight expenses made by the AO as the assessee failed to furnish evidence before the AO." 3.1 The assessee has raised following grounds in his C.O. "1. The ld. CIT(A) has erred on facts and in law in confirming disallowance of transportation expenses of Rs. 50,365/- paid to Jai Bharat Transport Company for goods transported by Truck No.RJ34G0246 u 40(a)(ia) 2. The ld. CIT(A) has erred on facts and in law in confirming disallowance of salary expenses of Rs. 70,000/- paid to Shri Lokesh Maheshwari." 4.1 The first ground of the Revenue is against deletion of trading addition of Rs. 97,77,900/- after rejecting the books of account u/s 145(3) by the AO. 4.2 Brief facts of the case are that the assessee deals in purchase and sale of Till. The assessee filed his return of income on 30-09-2010 at Rs. 57,33,650/-. The case of the assessee was scrutinized u/s 143(3) of the Act. The AO observed that the asse ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... new address of the employee by claiming that he is residing in Bhilwada. The AO observed while examining the ledger account of construction of new building that mostly payments were made in cash and about 60% payments were made and payments vouchers were produced without signature of the recipient to ascertain the authenticity of the payments made. In view of the above discrepancies pointed out by the AO, the AO invoked the provisions of Section 145(3) of the Act and rejected the book result and thus applied gross profit rate on total turnover @ 9.55% as shown in the last previous year. Thus the AO made trading addition of Rs. 97,99,900/- on turnover of Rs. 25,61,65,240/-. 4.3 Being aggrieved by the order of the AO, the assessee carried the matter before the ld. CIT(A) who has deleted the addition by observing at page 3.3 of his order as under:- "3.3 I have considered the contentions of th appellant as well as assessment order. The AO has observed that gross profit rate of the assessee has decreased from 9.55% in the last year to 5.73% and accordingly enhanced the gross profit rate after rejecting the books of account. The assessee has mentioned that all the books of accounts we ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... building do not effect the gross profit rate of the assessee and cannot be the reason for rejecting the trading results. In view of the above discussions, it cannot be said that accounts maintained by the assessee are incorrect or incomplete and income cannot be properly determined from method employed by the assessee. In this context, it has been held in the case of Malani Ramjivan Jagannath vs. ACIT, 316 ITR 120 (Raj.) as under: (Headnote) "Accounts - Rejection - Estimation of gross profit rate - Quantum and value of purchase and sales were not disputed inasmuch as they were found to be fully vouched - Value of opening stock also cannot be disputed as it is the closing stock of the previous year - Inventory of closing stock was also not found to be incorrect - Thus, there being no dispute regarding purchases and sales, non-maintenance of stock register loss significance so far as determination of GP is concerned- All the lower authorities have accepted the reason for fall in GP rate namely, stiff competition in the market and the huge loss incurred by assessee in a particular transaction - Therefore, neither the rejection of books of account nor estimation of GP by applicatio ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... firmed on Page 1 of the assessment order. No defect is found by AO in these books of accounts. Therefore simply because there is a decline in GP rate during the year cannot be ground for making the trading addition, when no defect as such is found in the trading account of the assessee. 2. So far as the decline in g.p rate as compared to the last year is concerned, from the trading account for AY 2008-09 and AY 2009-10 along with the quantity and value of Tilli purchased and sold placed at PB 1-5, it can be noted that the gross margin in Tilli purchased and sold in AY 08-09 was 9.98 % (44.19- 39.78/44.19*100) whereas in AY 09-10 it is 6.62% (65.44- 61.11/65.44*100). This is because the average margin have declined during the year as compared to the last year though there is increase in the rates of purchase and sales as compared to last year. It may be noted that the prices of the Tilli are fluctuating and governed by market forces. In each month rather on each day the prices fluctuate as is evident from the average monthly purchase and sale rate chart placed at P.B 4-5.Therefore, there cannot be a constant margin in this trade. This can be more perceived from the GP rate of last ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... book which shows that on that basis we can verify the gross profit rate which comes to 5.73% during the year under consideration and it was at 9.55% in preceding year. The assessee had made valuation of closing stock at the average of Rs. 67/- per kg whereas his average purchases of till during the year under consideration is at Rs. 61.11 per kg. The valuation of the closing stock is made at a higher price which also increased the gross profit meaning thereby that gross profit was lesser than disclosed by the assessee. The ld. CIT(A) simply accepted the submissions without making any verification on the huge addition made by the AO and there is no whisper in his order that on what basis he has accepted the sales and purchases without any verification and just on the submissions of made by the assessee. The valuation has not been submitted by the assessee before the AO. The gross profit figure shown by the assessee is also contradictory at every level. There was also discrepancy in the gross profit declared by the assessee in the return form. The ld. AR has also not submitted the shortage chart as well as quantity chart of last two years. The ld. AR has also not filed the copy of ex ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of R.C. Goyal vs. CIT, 213 Taxman 305 (Del.) (supra) that cash payments made in view of business expediency is allowable as per Section 40A(3) of the I.T. Act. In view of above discussion, the addition made by the AO of Rs. 82,092/- is deleted." 5.4 The ld. DR relied on the order of the AO. 5.5 The ld. AR of the assessee mainly contended that the assessee has paid the electricity bill of Rs. 80,092/- for billing month Nov. 2008 in cash on 1.12.2008 vide R.No. 30 to Rajasthan State Electricity Board (RSEB). The payment was made in cash as it was the last date of payment, otherwise the electricity connection could have been disconnected. The assessee was also under the bonafide belief that payment is made to the Government and therefore payment can be made in cash. In these circumstances, when payment in cash has been made due to business exigencies, no disallowance u/s 40A(3) r.w.r 6DD is called for. For this preposition, the ld. AR of the assessee relied on decision of Hon'ble Delhi High Court in the case of R.C Goel Vs. CIT 213 Taxman 305 (Delhi) wherein it was held as under:- "The assessee engages itself in executing catering contracts for Railway in respect of two train ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... al vs. CIT (supra). 5.7 We have heard the rival contentions and perused the materials available on record. We find from the records that the assessee has paid in cash electricity bill of Rs. 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 (supra) 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 do not find any infirmity in the order of the ld. CIT(A) on this issue which is sustained. Therefore, Ground No. 2 of the Revenue is dismissed. 6.1 The third ground of the Revenue is that the ld. CIT(A) has erred in restricting the addition to Rs. 50,364/- as against the addition made by the AO for Rs. 4,79,532/- as the assessee himself had shown inadmissible expenses u/s 40(a) in column 17(f) of the form 3CD report. 6.2 The Ground No. 1 of the assessee in his C.O. is regarding confirming the disallowance of transportatio ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... page 11, the payment of more than Rs. 50,000/- has been made in respect of goods transported by Truck No. RJ 34 G 0246 (engaged through Jai Bharat Transport Co.). The total freight payment in respect of above truck is Rs. 50,364/- (Rs.10,224 + Rs. 9,720 + Rs. 9,900 + Rs. 10,368 + Rs. 10,152). So, the above payment is in violation of provisions of sec. 194C of the IT Act. Accordingly, addition made by the AO to the extent of Rs. 50,364/- u/s 40(a)(ia) of the IT Act is confirmed and the balance amount is deleted." 6.5 The ld. DR relied on the order of the AO. 6.6 During the course of hearing, the ld. AR of the assessee as to Ground No. 1 of the C.O. made following submissions before us for confirming the part disallowance of Rs. 50,364 by the ld. CIT(A). "The assessee purchases "Tilli" from various places in the state of Rajasthan on freight to pay basis. The various suppliers arranged the trucks from various truck owners and goods are sent by them through different transport Companies who only issue the bilty. Sample copy of transport bills is at PB 12-14. These transport companies have no role except to get the commission from the concerned truck owner for issuing the bilty an ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... o consider all the aspects as to disallowance transportation expenses of Rs. 4,79,532/- u/s 40(a)(ia) of the Act made by the AO. However, for confirming disallowance of Rs. 50,364/- paid to M/s. Jai Bharat Transport Co. by the ld. CIT(A), we feel that the transport company has no role except to get the commission from the truck driver for issuing bilty and it is the truck owner /driver who is paid freight by the assessee. It is also seen that individual payment to each truck owner/ driver towards the freight is les than Rs. 20,000/- in each case and it does not exceed Rs. 50,000/- in the financial year which is evident from the bilty and other records. Thus keeping in view the above case laws cited by the assessee and in the facts and circumstances of the case, we feel no hesitation to delete the addition of Rs. 50,364/- confirmed by the ld. CIT(A) in the case of Jai Bharat Transport Co. Thus Ground No. 3 of the Revenue is dismissed and the Ground No. 1 of the C.O. of the assessee is allowed. 7.1 The Ground No. 4 of the Revenue is pertaining to deletion of addition of interest expenses of Rs. 85,950/- made by the AO when the assessee had failed to submit the proof of submission of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... en and in her case Form No. 15H was obtainedwhile in case of other three parties Form No. 15G was obtained by the assessee on 31.03.2009 and the same was also submitted to the department(PB 22-29).In earlier year also, such forms were obtained and submitted to the department and on that basis no tax was deducted at source. Therefore, only because assessee could not file the evidence of submitting these forms to the department, interest paid to them cannot be disallowed u/s 40(a)(ia) unless it is established that assessee had not obtained these declaration from the concerned person and not filed the same to the department. 2. In case of Shyam Sunder Kailash Chand vs. ITO 60 DTR 270 (JP), where the depositors submitted declaration in Form 15G to the assessee in time but the same were sent by the assessee to the AO late, it was held that only fault on part of the assessee is that the forms could not be submitted within the time stipulated in the Act. However the same were available 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rence in weight arises due to the los in transit and weighment by the different bridge at the destination of goods. For such a difference in weight, the purchasers raised the debit note as per which assessee claims the weight shortage expenses. In this regard, it has been stated that at the time of assessment, the assessee had submitted the copy of weight shortage account alongwith the details of weight shortage in different accounts in support of the said claim and filed copy of said details during appeal. In the narration in the above account, the various details regarding the shortage of the weight against various bills has been mentioned. It is noted that the claim is mainly regarding the weight shortage alongwith quality claim and rate difference. In fact, assessee has also deducted Rs. 48,531/- on account of weight shortage in respect of purchases made by the assessee form various parties and this amount has been credited in the weight shortage 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, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... aterials available on record. We find from the records that the assessee has not furnished evidence for claiming the expenses on account of short weight expenses amounting to Rs. 7,39,908/- before the AO but the assessee has submitted the same before the ld. CIT(A) who has allowed this ground of the assessee without any verification. This 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. The assessee is directed to furnish the evidences relating to this issue before the AO so that the AO may adjudicate upon this ground as per law. Hence, this Ground No. 5 of the Revenue is allowed for statistical purposes. 9.1 The Ground No. 2 of the C.O. of the assessee is regarding confirming the disallowance of salary expenses of Rs. 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 Rs. 1.20 lacs on account of payment to Shri Lokesh Maheshwari but he observed that the payment v ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 11 declaring income of Rs. 1,15,800/- (PB 31).Copy of his PAN is at PB 30. Thus, the identity of the employee is established. Further the payment of salary made to him is duly recorded in the cash book. The observation of the CIT(A) that Lokesh Maheshwari filed the return only after AO started the enquiry is incorrect in as much as AO started the enquiry on this issue in the month of Dec.2011 only (from 16.12.2011 as evident from the assessment order). In view of above, the disallowance confirmed by the CIT(A) be deleted and the cross objection of the assessee be allowed. 9.5 The ld. DR relied on the order of the AO. 9.6 We have heard the rival contentions and perused the materials available on record. 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 Rs. 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 Rs. 70,000/- confirmed by the ld. CIT(A) is ..... X X X X Extracts X X X X X X X X Extracts X X X X
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