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TMI Blog2016 (12) TMI 558X X X X Extracts X X X X X X X X Extracts X X X X ..... sits is separately kept under the head “Security Deposits”. Therefore there is no occasion for recording the same under the head “Sales”. Under these circumstances the turnover declared by the assessee should not be disturbed more particularly when the assessee’s record are subject to examination by Central Excise and VAT authorities who have not doubted the turnover declared in the year under appeal. Determination of GP rate - the turnover of the assessee has been on increasing trend and it is an established principal of marketing that the turnover would be increased by lowering the profit margins. In this case certain deficiencies were pointed out by the AO including the recording of purchases of the month of March in April for which it was explained that same process is applied every year and if the effect of the purchases recorded in the month of April for the purchases made in month of March of preceding assessment year vis-à-vis the purchases of the month of March of the year under appeal recorded in subsequent assessment year is considered the resultant figure is worked out at ₹ 2,32,659/- by which at the most the profit is deflated. Thus GP of preceding assessment ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ary certificate is claimed to have been furnished before the lower authorities. Therefore direct the AO to verify this fact and if the claim of the assessee is found correct, no disallowance be made on this account. Hence Ground of the assessee is set aside to the file of the AO for making necessary verification and this ground of the assessee is allowed for statistical purposes. - ITA No. 56/JP/2016 - - - Dated:- 15-11-2016 - SHRI BHAGCHAND, ACCOUNTANT MEMBER For The Assessee : Shri Manish Agarwal For The Revenue : Shri R.A. Verma, Addl.CIT - DR ORDER PER BHAGCHAND, AM The assessee has filed an appeal against the order of the ld. CIT(A)- 3, Jaipur dated 14-12-2015 for the assessment year 2012-13 raising therein following grounds of appeal. 1. That the ld. CIT(A) has erred seriously in law and on the facts in sustaining the action of the AO in applying the provisions of section 145(3) of the Income Tax Act, 1961. 2. That the ld. CIT(A) has erred on facts in sustaining the addition of ₹ 11,98,000/- on account of trading addition . The AO had made addition of ₹ 22,23,000/- under this head by estimating a GP rate of 16% on enhanced turnov ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ding result of 11,98,000/- by observing as under:- 5.3 I have carefully considered the facts of the case, findings of the AO and submission of the appellant. The AO in his order at page no.2, para A((a to h) has given detailed reasons for rejecting the books of accounts of assessee. AO has also given in his order at page 6 to 9, para d , the detailed reasons for rejecting the books of accounts of the assessee. I find the reason given by the AO are very valid and therefore, uphold the rejection of books of accounts. After rejection of books of accounts and considering the defects in the books, the result declared by the assessee cannot be accepted. The AO made the addition by estimating turnover at ₹ 6.50 crores as against 5.94 crores and applied the gross profit rate of 16% as against gross profit rate of 13.77% declared. I find that the turnover estimated at 6.50 crores appears to be on higher side and to meet the ends of justice, I find it reasonable to estimate the same at ₹ 6.25 crores. So far as gross profit rate is concerned, I find that gross profit rate declared at 13.77% is lower than gross profit rate of last year which was 14.70%. I find it reasonable t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... any books neither issue any bills and this a common practice prevailing everywhere that milkmen maintain quantity of milk supplied in their pocket diary and at the end of every month they charge as per quantity sold. Therefore, again this factor cannot be taken adversely to apply the provisions of section 145(3). c) Variation between the details mentioned in manual register and computer records: In this regard, Ld. AO observed variations in dates on which entries are passed in cash book and that in manual register is maintained by Security guard. In this regard, AO had pointed out a payment, which was appearing in cash book on 10.04.2011 whereas in register on 18.04.2011. It is to be noted here that manual register maintained by guard is in respect of quantity of milk supplied by milkmen. However, it is but obvious that payment to them would be made by accounting staff, thus entry would be made by them in cash book as soon as the payment is made. However, guard would record the same after getting intimation regarding payment from accounting staff just for memorandum point of view that payments till a particular date have been cleared. Thus, this reason for rejection of boo ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... is placed on the judgment of Hon ble ITAT, Ahmedabad C Bench rendered in the case of ITO, Wapi, Ward 4 v/s Sanjay Singh Surendra Singh in ITA No. 1734/ASHD/2010 wherein the Hon ble Bench of ITAT allowed the claim of the assessee for electricity charges for which the assessee used to charge on the basis of bills received and disallowance was made by the Ld. AO by treating the electricity bill for last month of the accounting year as pertaining to that year. The Hon ble ITAT considered that this was a consistent practice of the assessee and hence claim was to be allowed. f) Deposits for deep freezers indicated that appellant used not to record sale of ice cream in the garb of free coupons to those parties from whom the deposit received was more than cost of deep freezer: In this regard, it submitted that as per usual practice being followed by all ice cream manufacturers security deposit is always charged from dealer / distributors against supply of deep freezers to secure its investment but it is never more than cost of deep freezer. The assessee is running business in completely competitive market wherein similar types of goods are being manufactured and sold by large n ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ereas fridges purchased during the year were 17 only. In this regard, it is submitted that not only newly purchased machines but also, machines earlier issued to dealers and returned back are also issued to another dealers/ distributors. Thus rejection of books on this account is not correct. i) Opening and closing inventory of various materials were produced but in absence of consumption records the same are not verifiable: The Ld. AO has made this observation without properly appreciating the practical situation. As mentioned hereinabove the assessee adopts best possible and scientific method of measuring consumption of various raw materials. Further, Ld. AO has not brought any evidence to prove that any excess consumption or disproportionate consumption for any raw material has been claimed by the appellant. Therefore, comments of AO are merely based on conjectures and surmises. On perusal of above, your honours would appreciate that reasons enumerated for rejection by Ld. AO, it is are either very general in nature, without pointing out any specific defect or in the nature of mistakes/ accounting treatment of a particular income /expense which is unavoidable looki ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t has been held that The estimate of turnover and fixation of gross profit rate are two important parameters which affect the assessment. If these are fixed or calculated in such a way that they adversely affect the assessee s case, then he is entitled to know the basis and to be given an opportunity to rebut the same. The rule of law on this subject has been well settled that estimates framed without giving the basis for their fixation or without furnishing to the assessee the material on which the rate of gross profit is arrived at or without giving an opportunity to the assessee to rebut it are bad. In view of above factual and legal scenario, it is requested that rejection of books of accounts may kindly be held as bad in law and book results shown by assessee, deserves to be accepted. Without prejudice to above, it is submitted that so far as application of G.P. rate is concerned, it is settled principle that unless circumstances indicate otherwise, past history of the case is best guide to decide GP rate. Accordingly, at the outset, GP rate of assessee for last 3 years is reproduced herewith: Asstt. Year Turnover (Rs. in ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... deviation in G.P., trading addition was not justified. Hon ble Rajasthan High Court in the case of M/s Gotan Lime Khanij Udyog reported in 256 ITR 243 has held that rejection of books of accounts need not necessarily lead to any addition to the income. Hon ble Gauhati High Court in the case of Aluminum Industries (P) Ltd. v. CIT ITR No. 12/1990, observed that, a lower rate of gross profit declared by the assessee as compared to the previous year would not justify any addition. The mere fact that the percentage of loss of gross profit is high or low in particular year does not necessarily lead to an inference that there has been suppression. Low profit is neither a circumstance or material to justify addition of profits. It was further held in the case of Madnani Construction v. Commissioner Of Income-Tax ..[2008] 296 ITR 45, that the Income Tax Officer is not fettered by any technical rules of evidence and pleadings, and he is entitled to Act on material which are not acceptable in evidence in a court of law, but while making the assessment under the principles of best-judgment, the ITO is not entitled to make a pure guess without reference to any e ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... y Central Excise and VAT authorities who have not doubted the turnover declared in the year under appeal. As regards the application of the GP rate, I find that the turnover of the assessee has been on increasing trend and it is an established principal of marketing that the turnover would be increased by lowering the profit margins. In this case certain deficiencies were pointed out by the AO including the recording of purchases of the month of March in April for which it was explained that same process is applied every year and if the effect of the purchases recorded in the month of April for the purchases made in month of March of preceding assessment year vis- -vis the purchases of the month of March of the year under appeal recorded in subsequent assessment year is considered the resultant figure is worked out at ₹ 2,32,659/- by which at the most the profit is deflated. Looking to these facts and circumstances of the case, in my considered view the GP of preceding assessment year is to be applied on the declared turnover of ₹ 5,93,59,027/- (5,93,59,027x 14.70% = 87,25,776) which has resulted into the GP of ₹ 87,25,776/- as against the GP declared at ₹ 8 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d be accounted for in books of accounts as sale to dealer / distributor and accordingly reduced from the cost of block of Deep Freezer. To record this sale amount lying in security deposit account of respective dealer/ distributor is debited by crediting the Deep Freezer account, which would result in cancellation of security deposit and equivalent amount is reduced from the WDV of deep freezers. However, Ld. AO proceeded to make addition on the wrong allegation that security deposit received from dealers/ distributors, which was subsequently forfeited has not been shown as Sales by observing as under (Page 11 Para 1 of order) : Though in the above reply the assessee has admitted that on forfeiture the assessee makes entries in her books showing this transaction as if she had sold the depreciated deep freeze to the dealer against the securities deposit being its sale consideration however no such sale has been booked . The action of Ld. AO was confirmed by Ld. CIT(A) without giving any independent finding. In this regard, it is submitted that observation of Ld. AO for making addition is completely incorrect on law as well as on facts as the Deep fridges are refle ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... as reduced from the written down value of plant machinery. It is contended that the assessee has claimed depreciation on such deep freezers and the amount of security forfeited has been reduced from the written down value and the depreciation was claimed on such reduced value. Therefore, there is no occasion to declare such receipts separately in the Profit Loss Account. After verification of these facts from the assessee's paper book page 99, it is found that as against the total amount of ₹ 14,20,581/-(as per AO s order page 11) assessee has reduced the value of plant machinery by ₹ 14,18,501/- therefore the same is hereby directed to be deleted and the balance amount of ₹ 2,080/- is hereby upheld. Thus the ground No. 3 of the assessee is partly allowed. 5.1 As regards ground No. 4 of the assessee, brief facts of the case are that assessee has paid interest of ₹ 2,74,132/- to Religare Finance Ltd. on which no tax was deducted though a certificate from CA under form 26A was submitted before the AO in view of the amended proviso of section 40(a)(ia) inserted by Finance Act, 2012 w.e.f. 01.07.2012. Therefore, the claim of interest of ₹ 2,74 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... deration. In this regard it is submitted that though the amendment has taken place from AY 2013-14 however, it is a beneficial provision and insertion of the same in the statute clearly shows the intention of the legislature to give relief in the case where the payee has paid the due taxes, further disallowance in the hands of the payer caused to the serious hardship. The intention behind the insertion of provision of section 40(a)(ia) was to brought those persons in the tax net in whose case no TDS is deducted though they are enjoying the taxable income, thus where the payee has already paid the due taxes on the payments on which no TDS is deducted by payer, there remained no reason to make disallowance in the hands of the payer. The Hon ble Apex court in the case of CIT (Central-1) Delhi Vs. Vatika Township Pvt. Ltd. reported in 367 ITR 466 (relevant para 30-37) has held that the beneficial amendment which effect the public generally and where to confer such benefit appears to have been the legislators object, then the presumption would be that such a legislation, giving it a purposive construction, would warrant it to be given retrospective effect. Recently, the Hon ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... essee has deducted and paid tax on such sum subject to furnishing on the certificate by the chartered accountant. Though this amendment has been made w.e.f. 01.04.2013 yet the Hon ble Delhi High Court in the case of CIT Vs. Ansal Landmark Township Pvt. Ltd. 377 ITR 635 has held that amendment has declaratory and curative in nature and has retrospective effect w.e.f. 01.04.2005. This view has also been taken by the Agra Bench of ITAT in the case of Rajeev Kumar Agarwal Vs. Addl. CIT 149 ITD 363. Respectfully following the orders of Hon ble Delhi High Court and Agra Bench of ITAT (supra) , I am of the view that no deduction could be made u/s 40(a)(ia) if the assessee is not declared as assessee in default u/s 201(1) for which the necessary certificate is claimed to have been furnished before the lower authorities. I therefore direct the AO to verify this fact and if the claim of the assessee is found correct, no disallowance be made on this account. Hence Ground No. 4 of the assessee is set aside to the file of the AO for making necessary verification and this ground of the assessee is allowed for statistical purposes. 6.0 In the result, the appeal of the assessee is partly allowe ..... X X X X Extracts X X X X X X X X Extracts X X X X
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