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TMI Blog2019 (11) TMI 801X X X X Extracts X X X X X X X X Extracts X X X X ..... f 7.5% on the sales outside the books of accounts. The said GPR applied by the CIT(A) was better than the GPR disclosed by the Assessee and accepted by the Department for the Assessment Year 2014-15 at 6.97% in the scrutiny assessment. The Ld. CIT(A) also mentioned that if the disclosure of the Assessee amounting to ₹ 24,56,010/- is taken into account, the declared GPR rises to 11.75% which was reasonable by considering the history of the GPR declared by the Assessee. No valid ground to interfere with the findings given by the Ld. CIT(A) for modifying the various trading additions made by the A.O. by considering the entire sales outside the books of accounts as undisclosed income of the Assessee. Addition of notional interest - It is noticed that the Ld. CIT(A) after examining the records categorically stated that the Assessee was having regular business dealing with M/s Garg Trading Company of Phillaur till the F.Y. 2008-09 and the said concern was appearing as a sundry debtors. Therefore the amount outstanding in the name of M/s Garg Trading Company amounting to ₹ 2,64,755/- was a trading debit balance on account of business expediency. A.O. was not justified ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ock as per the books of accounts. The Assessee in his return of income disclosed ₹ 24,56,010/- on account of additional stock, however the A.O. neither mentioned the same in the assessment order nor made any discussions with regard to the disclosure of stock found verified during the survey. The Assessee filed the return of income on 22/11/2014 declaring an income of ₹ 34,08,070/-. The case was selected under compulsory scrutiny as per the guidelines laid by the CBDT. The A.O. framed the assessment under section 143(3) of the Act and made the following additions. Sno. Particulars Amount 1. Addition on account of understated sales by estimating actual sale price 1,62,66,878 2. Unrecorded sales of 2,07,942 based on impounded documents 2,07,942 3. Three other instances of unrecorded sale based on impou ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 4.1 The Ld. CIT(A) asked the Assessee to show cause as to why the books of accounts should not be rejected in view of the non maintenance of the stock register and other errors. In response, the assessee submitted as under: While imported timber/wood is purchased from the parties of Gandhidham in Gujarat, indigenous/local woods are purchased from the parties of Arunanchal Pradesh, Madhya Pradesh and Himachal Pradesh. This timber/wood is segregated quality wise and size-wise. Generally, the timber/wood of medium quality (being easily marketable due to competitive sale rates) is purchased. Pertinent to mention here is the universal fact that the sale rates of timber/wood are based on the quality, size and seasoning quotients. The assessee also has his own saw mill within the business premises to cut the logs to the requirements of customers. There is nominal trading in plywood etc. also. All sales (majority of them being wholesales were made to traders) are evidenced by regularly issued sale invoices, wherein all material particulars of the purchaser, description of timber/wood sold, per unit sale rate, quantity and total sale valu ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ₹ 1,62,66,878/-. The Assessee submitted before the Ld. CIT(A) as under: The act of Ld. A.O. in making additions to the tune of ₹ 1,62,66,878/- by enhancing by 31.57% the sale value of timber/wood/plywood, over and above the actual sales achieved by the assessee, is not tenable in law, as it has been made by applying some presumptive sale rates, while arbitrarily rejecting the sale rate and value recorded in the Sale Invoices issued for each and every individual sale transaction. 3.3.2 Humbly submitted at the outset, that the rates of timber and wood vary with the variation in the quality of timber and it was for this reason that the assessee had purchased different types of timber/wood at varying rates throughout the period under reference. Pertinent to mention here itself, is another well know/ fact contributing towards variation of rates that a log bigger in length commands higher rate than the smaller one. Higher the thickness of log, higher will be rate as it results in lower wastage. All these facts are verifiable from the trade and this fact of varying rates had been accepted by the Ld. A.O. while framing assessments under secti ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ged suppressed sales by applying some mathematical formula coined by him. 3.3.5 Your appellant has drawn details relating to the purchase and sale of different types of timber/wood purchased during the entire period under reference on the line of Ld. A.O., and these details are being filed herewith for kind appreciation of your goodself with the summary thereof, as under: S.No Item Quantity Sold in CBM Average Sale Rate Rate determined byA.O. 1 Imported Sawn Meranti 995.8281 21,658/- 21,222/40 2 Imported Mix Wood 498.3545 22,451/- 30,176/- 3 Meranti Mix Size It is part of Imported Sawn Meranti ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e has been calculated at ₹ 18,920/- per cbm for consequential enhancements and drawing adverse inference for enhancing the sales by 31.57% although the average sale rates as per the account books/records for this type of timber were much higher than the presumptive rates. (iii) 'Hollok' The working of the presumptive sale rate at ₹ 25,861/- per cbm for this type of timber by the Ld. A.O. reflects that the sales made by assessee were at higher value than what could be ascertained by applying the formula coined by the Ld. A.O. and he has chosen to draw the inference at ML 'as recorded at Page 5 of the impugned order or rather not to consider it for making arbitrary calculations. Yet the sale value thereof which comes to ₹ 28,95,722/-, for the entire year, has been taken into consideration for making enhancements and consequent additions, (iv) Teak Wood' The assessee had also conducted sales of Teak Wood' during the period under reference, to the tune of ₹ 95,37,044/-, with the average purchase rate of ₹ 31,442/- per cbm (before freight expenses) and a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the impugned order, has worked out some unrealistic rate differences for further raising the presumption of alleged suppressed sales. He has enhanced the total sales by 31.57% although the quantity of timber/wood sold and recorded in the Sale Invoices, has been accepted. This arbitrary estimation of sales has resulted in unrealistic Gross Profit Rate of22.66%, while the same Officer has accepted the Gross Profit Rate of 6.97% for the preceding Asst. Year 2013-14 while finalizing assessment for that period under section 143(3). 3.3.7 On the other hand, the Ld. A.O. has not pointed out even a single specific instance of alleged understatement of sales, in view of the irrebuttable evidence furnished by the assessee by way of duly confirmed copies of accounts received from the purchasing parties i.e. traders. If the Ld. A.O. wanted to make some additions allegedly forunder-pricing of sale, he should have brought some positive material on record to prove that the assessee actually realized more than that recorded in the books of account. Such additions could not be made on mere fancy or surmises or on such irrational comparisons of sales rates relating to the sales mad ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... earned is not made taxable on income accruing to him. 3.3.10 Kind attention, at the cost of repetition, is further drawn to the very important fact that the same Assessing Officer, while framing assessments for the preceding A. Years 2012-13 and 2013-14, had accepted the varying sale rates of different types of timber/wood on the basis of identical sale records i.e. Sale Invoices, the amount of sales and resultant book results and nothing adverse has been found in the records for the current Assessment Year to depart from that conclusions. Therefore, the addition made on account of alleged underpricing is absolutely baseless, factually wrong and illegal and as such invalid. 6. The Ld. CIT(A) after considering the submissions of the Assessee observed that there was some basis in the Assessee s assertion that in such type of businesses it was not possible to maintain quantitative detail item wise. The Ld. CIT(A) held that the books of accounts of the Assessee were defective and the profit could not be determined accurately. He also observed that the detailed sale bills which were produced before the A.O. revealed that those bills c ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of the GP regularly offered by the Appellant and the nature of the timber trade the AO, the GP of the appellant merits a recast at 7.5 %. The turnover of the appellant for the previous year relevant to the AY of the impugned order is ₹ 5,15,26,381/- of which turnover attributable to timber and wood is ₹ 4,92,44,325/- .If the disclosure of the appellant of ₹ 24,56,010/- is taken into account, the declared GP for the impugned Previous year rises from 6.97% to 11.75% which in my considered view is reasonable given the history of the GP declared by the appellant . On this point the appeal of appellant is the appellant succeeds. Thus ordered. 6.2 The Ld. CIT(A) also restricted the addition by applying the GPR of 7.5% on the unaccounted sales of ₹ 2,07,942/- made by the A.O. by observing as under: I have carefully examined the submission of the Ld AR, the findings of the Ld AO and contextualized these to the facts of the case. Of around 45 entries of sale mentioned cryptically in the loose sheets, the appellant was unable to reconcile 9 entries Significantly, of these entries 2 related to timber and 7 to plywood. That it is not ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d in Annexure B-4, has been wrongly made. It was brought to the knowledge of Ld. Officer that the details recorded there in were just periodic stock check up and did not relate to any sale transaction. The perusal of this document supports the above submission of assessee as there is neither any rates have been recorded therein nor any amount has been worked out for drawing adverse inference which warranted additions of ₹ 25,452/- as unaccounted sales. As the findings of the Ld. Officer to the contrary, are based on conjectures and surmises only and without any basis, it is submitted that the addition so made, deserve to be deleted. At the cost of repetition, humbly it is submitted that it is not the case of Ld. A.O. that the above referred alleged unaccounted sales of ₹ 18,900/- ( or ₹ 65,000/- as held by A.O.), ₹ 19,125/- and ₹ 25,452/-, had been made out of some unaccounted purchases. In view of the above fact, the addition only to the extent of Profit Margins, as per the book results, could be made and not the entire amount thereof as by no stretch of imagination it could be held that the entire sale consideration constituted tha ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 377; 84,125 or ₹ 6400. The appellant partly succeeds on this ground of appeal. 9. The another addition of ₹ 31,758/- was made by the A.O. under section 36(1)(iii) of the Act, on account of interest on advances given for non business purposes. The A.O. observed that the Assessee had given an advance of ₹ 2,64,755/- to M/s Garg Trading Company to whom no goods were supplied during the year. The A.O. disallowed proportionate interest @ 12%. The submissions of the Assessee before the Ld. CIT(A) were as under: It is submitted that the Ld. A.O. has also erred in disallowing an amount of ₹ 31,758/- out of the Expenses incurred towards Interest Expenses'. It is stated that the assessee had regular business dealings with M/s. Garg Trading Co. of Phillaur till the Financial Year 2008-09. However, a dispute had arisen and there was an outstanding advance of ₹ 2,64,655/- as on 31.03.2010. This amount (advanced for the purpose of business only and not as loan) has been distinctly reflected under the head ofS. Debtors and this fact has not been controverted by the Ld. A.O.. There was thus ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ompany advances borrowed money to a subsidiary and the same is used by the subsidiary for some business purposes, the assessee would, in our opinion, ordinarily be entitled to deduction of interest on its borrowed loans. This principle has been further affirmed by Hon'ble Supreme Court in the case of Hero Cycles 379 ITR 347 (SC) wherein the Hon'ble Court has ruled as under: i. ..It would be pertinent to mention that insofar as the advance given to M/s. Hero Fibres Limited is concerned, the case put up by the assessee even before the Assessing Officer was that it had given an undertaking to the financial institutions to provide M/s. Hero Fibres Limited the additional margin to meet the working capital for meeting any cash loses. It was further explained that the assessee company was promotor of M/s. Hero Fibres Limited and since it had the controlling share in the said company that necessitated giving of such an undertaking to the financial institutions. The amount was, thus, advanced in compliance of the stipulation laid down by the three financial institutions under a loan agreement which was entered into between M/s. Hero Fibres Lim ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... essment order. It was further submitted that the additions were made by the A.O. on the basis of the documents found during the course of survey which proved that the Assessee was engaged in the sales outside the books of accounts. Therefore, the additions were rightly made by the A.O, the Ld. CIT(A) was not justified in deleting the same and directing the A.O. to apply the GPR on the sales outside the books of accounts. 13. As regards to the addition on account of the notional interest it was stated that the Assesee on the one hand had given interest free advances and on the other hand was paying interest on the loans received by him, therefore the A.O. was justified in making the addition on account of interest on interest free advances. 14. In his rival submissions the Ld. Counsel for the Assessee reiterated the submissions made before the authorities below and strongly supported the observations made by the Ld. CIT(A) in the impugned order. 15. We have considered the submissions of both the parties and perused the material available on the record. In the present case it is noticed that there were various discrepancies in the va ..... X X X X Extracts X X X X X X X X Extracts X X X X
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