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TMI Blog2016 (1) TMI 533X X X X Extracts X X X X X X X X Extracts X X X X ..... the ld. CIT(A) in upholding the addition of ₹ 31.12 lakhs. - Decided against assessee Addition of commission to its directors and sister concern covered u/s 40A(2)(b) - Held that:- It is noticed that the assessee paid salary/commission to its directors in the preceding year as well and such payment of commission at ₹ 7.87 lakhs stood allowed as deduction. The mere fact that no new parties were introduced by these directors etc. of the company, cannot be a reason for making disallowance of commission if the continuation of business is due to the services rendered by the commission agents/directors. The terms of Agreement, referred to in the assessment order, provide that they had undertaken the entire responsibility of the re ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... order against the principles of natural justice was not argued by the learned AR. The same is, therefore, dismissed. 3. Ground No.2 is against confirmation of addition of `31,12,074/- made by the Assessing Officer by not accepting the trading results and applying gross profit rate of 20% as against 13.90% declared by the assessee. 4. Briefly stated, the facts of the case are that the assessee is engaged in the trading of medical equipments and educational goods. During the year under consideration, the assessee declared gross profit of `70,89,542/- on gross turnover of `5.10 crores yielding GP rate of 13.90% as against the preceding year s turnover of `3.02 crores and GP rate of 22.94%. On being called upon to state reasons for the de ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... cept the trading results when the most crucial aspect, being the valuation of closing stock, is unsubstantiated. 6. The ld. AR contended that the books of account were not rejected by the AO and as such he could not have resorted to application of an arbitrary GP rate. There is no weight in the argument advanced by the ld. AR. It is vivid from the assessment order that the AO has given specific reasons for not accepting the gross profit rate declared by the assessee, which was not backed by any worthwhile evidence. The AO has pointed out so many deficiencies in the books of account maintained by the assessee. His action in referring to such deficiencies and then rejecting the gross profit rate is a clear indicator of his implied point of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 5.29%, which is still more than 20% as applied by the AO. 8. It was also submitted that the learned first appellate authority failed to include the amount of excise duty in the cost of purchases of almirahs. On being called upon to invite our attention towards purchase invoices, the learned AR took us through pages 113 onwards of the paper book. On going through such invoices, it can be seen that the purchase of steel almirahs has been made by the assessee from M/s Chandigarh Industries and M/s A.M. Technologies. None of the invoices from these parties include any amount of excise duty which the assessee claims to have been ignored by the learned first appellate authority. When pointed out, he contended that M/s Chandigarh Industries omi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... year are admittedly similar to those of the preceding year, except for an additional item of trading, being Almirahs, in respect of which again the average GP rate comes to 25.29%, we are inclined to go with the results of the preceding year. In our considered opinion, the AO was more than reasonable in applying the GP rate of 20% as against the last year s GP rate of 22.94%. We, therefore, uphold the view taken by the ld. CIT(A) in upholding the addition of `31.12 lakhs. This ground is not allowed. 10. Ground No.3 is against the confirmation of addition of commission amounting to `9,81,876/-. The facts apropos this ground are that the assessee claimed to have paid a sum of `14,14,252/- as commission to its directors and sister concern c ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... cannot be denied. 12. Now comes the question of reasonableness of the amount of commission. In this regard, we find that as against turnover of `3.02 crores in the preceding year, the assessee paid commission of `7.87 lakhs. This gives percentage of 2.60%. In this year, the assessee has paid commission of `14.14 lakhs against total turnover of `5.10 crores. This gives rate of commission at 2.77%. Considering the fact that the payees are related to the assessee and there is no other evidence of commission payable at arm s length rate, we are of the considered opinion that it would be just and fair if the deduction for commission is allowed at the same rate on which it was paid and allowed in the preceding year. This would result into dis ..... X X X X Extracts X X X X X X X X Extracts X X X X
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