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TMI Blog2018 (9) TMI 871X X X X Extracts X X X X X X X X Extracts X X X X ..... mber) 1. Aforesaid appeal by revenue for Assessment Year [AY] 2012-13 contest the order of the Ld. Commissioner of Income-Tax (Appeals)-30 [CIT(A)], Mumbai, Appeal No.CIT(A)-30/19(3)/318/15-16 dated 23/01/2017 by raising the following effective grounds of appeal:- 1. "Whether on the facts and circumstances of the case and in Law, the Ld. CIT(A) has erred in deleting the addition ₹ 2,06,97,863/- on account of difference of GP declared by the assessee and adopted by the AO without considering the facts that the books of account did not reflect true and correct picture of its profit, on analysis of it's labour charges, stock valuation and loss incurred during the jewellery manufacturing and same were rejected u/s 145(3) of the IT Act by the AO?" 2. "Whether on the facts and circumstances of the case and in Law, the Ld. CIT(A) has erred in deleting the addition of ₹ 14,76,000/- and ₹ 5,55,991/- on account of commission expenses and foreign travel expenses respectively without considering the facts that the assessee failed to submit any justification of the purpose and basis of commission payment and whether travel foreign expenses were incurred for the purpose o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... f 10.53% reflected by the assessee which resulted into impugned additions of ₹ 206.97 Lacs in the hands of the assessee. 2.2 The second addition is out of commission expenses of ₹ 56.94 Lacs claimed by the assessee. Out of this amount, ₹ 30.95 Lacs was paid by the assessee to two family members i.e. his wife and mother. Accordingly, summons were issued to the spouse of the assessee and her statement was recorded, the relevant extract of which have been reproduced in the quantum assessment order. Finally, not convinced, Ld. AO disallowed commission expenses of ₹ 14.76 Lacs, being expenses claimed by the two payees against commission stated to be received from the assessee. 2.3 The third addition pertains to expenses incurred by assessee on account of foreign travelling expenses for visit to London / Italy & Bangkok stated to be made to remain competitive in the business environment. However, the same could not favor of Ld. AO and accordingly disallowed and added to the income of the assessee. 3. Aggrieved, the assessee contested the same with success before Ld. CIT(A) wherein the matter was concluded in the following manner:- 7.3.3.2 I have carefully con ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... employ for the purpose of his trade his own method of keeping accounts and for that purpose to value his stock in trade either at cost or market price. A method of accounting adopted by the trader consistently and regularly cannot be disturbed by the Departmental Authorities on the view that he should have adopted a different method of keeping account or of valuation". 7.5 In view of the factual and legal position discussed as above, I am not in a position to agree with the reasons mentioned in the assessment order by the Ld. AO reject the books of accounts of the appellant u/s 145(3) of the Act and estimating the GP margin @15% and adding the difference amount of ₹ 2,06,97,863/- between the GP declared of 10.53% and GP estimated of 15%. Accordingly, the addition made of ₹ 2,06,97,863/- on this count, is deleted. Appellant succeeds on Ground Nos. 2, 3 & 4 of the appeal. 8. In Ground No. 5, the appellant raised the issue of disallowing the expenses incurred by the recipient towards commission paid. In the ground, which is subdivided into three parts, it is stated that AO has erred in disallowing the expenses incurred by the recipient of commission, which is ou ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ng year and same was taken up for appeal before the CIT(A)-27 who was pleased to allow the same in favour of your appellant vide his Appellate Order dated 01-05-2014 in ITA No. 473/2013-14 on page no. 29 & 30. Therefore, it is prayed that the addition on this account made by the Ld. AO is not maintainable and same is requires to be deleted to render the justice. 8.3 I have carefully considered the rival contentions on this issue and also the evidences furnished by the appellant in the form of assessment order of Smt. Kalpana Bansali and the appellate order passed for the A.Y. 2011-12. The total amount of commission paid for the year is 56,94,926/-, and out of that an amount of ₹ 30,95,419/- was paid to two of the appellant's family members. AO noticed that the recipients claimed certain expenses in the returns of income filed by them against such commission income. As there is no basis for the commission payment, AO disallowed the expenses claimed by the recipients to the extent of ₹ 14.76 lakhs which is equivalent to the expenses claimed by the recipients against the commission income offered in the returns. As seen from the evidences furnished the commission paid i ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... g to ₹ 5,55,991/-, and added to the total income. 9.2 I have carefully considered the rival submissions on the issue on hand. When asked to justify the expenses incurred are for the business purpose, the appellant stated that the places visited are centres of innovative designs in the jewellery, the appellant is dealing with and to keep updated and be competitive in the business the visits are essential. However, AO is not satisfied with the explanation and added the expenses incurred towards foreign travel on the ground that the appellant failed to explain how the tours actually lead to increase the sales and profit margins. In the present case, the appellant-is. into the business of manufacturing of jewellery made from gold, silver, cut and polished diamonds and on perusal of the explanation submitted, the nature of expenditure incurred is for the business purpose as the visits are said to be made to know the latest trends in designing and the places where the appellant visited are the trendsetters for new designs. However, at the same time one cannot ignore the element of the personal expenses in such tours. In view of the same, entire amount cannot be treated as incurr ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e could not be rejected in a light manner without pointing out grave discrepancies therein. However, at the same time, it is also a matter of fact that the assessee's expenditure registered steep increase which was not commensurate with the growth in sales turnover. As per assessee's submissions, the labor charges registered marginal increase of ₹ 17 Lacs during impugned AY, however, the expenditure increased by more than ₹ 64.94 Lacs for which no suitable justification is available on record. The Ld. AO noted that all the labor payments were in cash and supported by self-made vouchers only. Nothing on record suggest that the assessee was consistently following LIFO method of accounting to value the stock. Further, the ratio of stock wastage of earlier years as claimed by the assessee is also not available on record. So far as the commission payments are concerned, we find that more than 54% of aggregate commission has been paid by the assessee to two of the family members. However, the details of specific sales against which the commission was paid, basis of payment etc. could not be demonstrated by the assessee. So far as deduction of foreign travelling expenses is co ..... X X X X Extracts X X X X X X X X Extracts X X X X
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