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TMI Blog2020 (5) TMI 116X X X X Extracts X X X X X X X X Extracts X X X X ..... ross profit rate than the past years results, gross profit so declared should be accepted and the same cannot be disturbed applying the same basis pursuant to which the books of accounts have been rejected. The addition of ₹ 4,26,419/- so sustained by the ld CIT(A) is hereby set-aside. In the results, the ground no. 2 of assessee s appeal is allowed. Disallowance of indirect expenditure - apportioning the total indirect expenditure between non-SEZ unit and SEZ Unit on the basis of total turnover of the units - HELD THAT:- Where common indirect expenditure has been incurred by the assessee and which has either not been incurred by a specific unit or cannot be indentified to a specific unit, applying the turnover basis for apportioning such expenditure is reasonable and we donot see any basis to disturb the said allocation basis in absence of any other basis so highlighted by the assessee. However, as far as claim of expenditure exclusively incurred by the SEZ unit, we agree with the contention of the ld AR. The matter is accordingly set-aside to the file of the AO to verify and exclude expenditure which is claimed by the assessee as specifically incurred by the SEZ uni ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ; 9,72,65,328/- and seeing the volume of the business, total sales being export sales and fully verifiable, the sale proceeds having been received in foreign exchange through proper banking channels, the learned AO as well as the learned CIT(A) should have ignored the issue of alleged unverifiable purchases and no addition whatsoever should have been made by the AO nor it should have been upheld by the learned CIT(A). 4. It was submitted by the ld AR that for every sale, there has to be a purchase and without purchase, there can t be sales and particularly export sale. The AO has also admitted the declared turnover. When sales are admitted there is no reason to suspect a negligible amount of purchase which too duly supported by sale invoice, duly recorded in stock register, payment to seller having been made through proper banking channels and the goods purchased from above named party, namely, Rose Impex, having directly been exported by Unit-I of M/s. Ashok Jewels. 5. It was submitted by the ld AR that the assessee has kept and maintained individual trading account of different precious and semi precious stones in terms of weight and value and no kind of leakage or irregula ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... into account. In appellant s case average GP rate of preceding year is 28.80%. It was submitted that the GP rate of the year under appeal is 28.85% which is higher than the average GP rate of past years. It was submitted that GP rate being above the average GP rate of past years, book results should have been accepted by the lower authorities and no amount of addition should have been sustained by the learned CIT(A). 9. It was further submitted by the ld AR that the learned AO as well as learned CIT(A) failed to appreciate that the alleged unverifiable goods of total amount of ₹ 39,44,460/- purchased by the appellant from two selling dealers, namely, A2 Jewels and M/s. Mouli Gems at ₹ 4,43,460/- and ₹ 35,01,000/- respectively were used in manufacturing by the SEZ Unit and such manufactured goods were exported. That the assessee has kept and maintained full record in terms of weight of the rough purchased, rough put to manufacturing, finished goods manufactured out of manufacturing operations, wastage occurred during manufacturing, yield, labour charges paid to various karigars and all these record was produced before the AO more than once. The learned CIT(A) fa ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 41/- to the income of the appellant, being 25% of bogus purchased of ₹ 47,16,164/-. 11. It was further submitted that the appellant has declared total turnover of ₹ 14,27,85,791/- in non SEZ unit and turnover of ₹ 10,58,09,156/- in SEZ unit. The AO has not disputed the sales made by the appellant and thus, the purchases must have been made for making the sales. The AO has doubted the genuineness of the purchases on the ground that the suppliers were found to be accommodation entries providers and the purchases from entities controlled by Shri Bhanwar Lal Jain could not be verified during the assessment proceedings. 12. It was further submitted that the books of accounts of the appellant have been rejected by the AO u/s 145(3) of the Act as the appellant could not substantiate the real delivery of goods from the entities controlled by entry provides providing accommodation purchase bills and thus, the trading results of the appellant were not verifiable. Thus, the rejection of books of accounts by the AO was also upheld by the ld CIT(A) and thereafter, he has estimated the gross profit rate. It was accordingly submitted that there is no infirmity in the order ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... expenses of ₹ 1,00,000/- by the learned CIT(A) by applying theory of apportionment of expenses in regard to indirect expenses claimed in Unit-I (Non-SEZ) and Unit-II (SEZ unit claiming exemption of income). 17. It was submitted by the ld AR that all these expenses are incidental to and directly related to the business and as such no disallowance can be made. All the above referred expenses have been incurred in the course of carrying on of regular business activities. Full details of all these expenses stands filed with the A.O. in the course of assessment proceedings. All supporting evidence in the form of invoices and vouchers duly signed by the concerned persons were produced before the A.O. in the course of assessment proceedings. The learned AO has not pointed any specific defects in the books of accounts nor in the nature of expenses or supporting evidence for making disallowances. There is a consensus of judicial opinion that an expenditure necessary for earning an income is an allowable expenditure. The learned AO has not given any specific reason as to why he is making disallowance of the expenses and as to how these expenses are not related to the carrying on ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ve submissions and in the alternative, it was submitted that while making disallowance of expenses by adopting theory of apportionment , the AO has also included following expenses totalling to ₹ 5,71,727/- which clearly and conspicuously have been exclusively incurred by the SEZ Unit and no such expenditure has been incurred by the Non-SEZ Unit and as such while using theory of apportionment, these expenses should be deducted from the gross total expenses of both units totalling to ₹ 56,93,090/- and only net resultant amount of ₹ 51,21,363/- [gross total of indirect expenses of both units ₹ 56,93,090/- minus expenses exclusively incurred by the SEZ Unit ₹ 5,71,727/-] should have been considered for apportionment purposes. The details of such expenses are as under: 1. Building Rent 1,63,800 2. Conveyance(Bus) of Staff 2,40,000 3. Freight Cartage 7,900 4. Repairs Maintenance of Building 1,60,027 5. Tunc Ex ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... is noted that the appellant has debited travel expenses of 4,15,363/- in non SEZ unit while ₹ 2,35,248/- in SEZ unit. As SEZ unit is 100% export oriented, the foreign travel expenses are bound to be more in SEZ unit than in non SEZ unit. In absence of specific details of travelling and its benefit to different units some disallowance is justified. Considering the totality of facts, the disallowance made by the AO out of total expenditure is restricted to ₹ 1 lac. The appellant gets relief of ₹ 1,02,421/-. 22. We have heard the rival contentions and pursued the material available on record. The issue is limited to the basis of apportionment of common indirect expenses which have been claimed by the assessee in respect of its two units where one of the units is eligible for tax holiday being located in a SEZ area and other unit located in a domestic tariff area. The AO has apportionment the whole of the common indirect expenses in the ratio of turnover of the respective units and has disallowed ₹ 2,20,421/- in respect of non-SEZ unit. The ld CIT(A), while accepting the basis of such apportionment, has held that since the said apportionment has been done ..... X X X X Extracts X X X X X X X X Extracts X X X X
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