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TMI Blog2024 (9) TMI 338X X X X Extracts X X X X X X X X Extracts X X X X ..... ails of increase for manufacturing and other expenses, statements showing change in the forex rate, details of increase in ratio of expense, revenue in comparison with the preceding year and details on gross profit and net profit for the last three years, then without any such defect, addition cannot be made. Accordingly, we do not find any reason to deviate from the finding of the CIT(A) and the same is upheld. Consequently, ground no. 1 raised by the Revenue was dismissed. Disallowance on account of commission expenses - AO has made addition simply on the ground that there is 73% increase in commission expenses paid to the selling agents/dealers as against increase in revenue of 39.72%, accordingly, he has treated 33% of the commissions as excessive - HELD THAT:- We are unable to appreciate the approach of the AO who made ad-hoc disallowance of commission simply on the basis that the increase in commission does not correspond with the increase of revenue. At least, he should have brought something on record to reject the explanation of the assessee as incorporated above. If the assessee has given the reason, as to why commission expenses are increased, then such an ad-hoc disallo ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e company is engaged in trading of lights, lighting and related electronic components parts, fitting accessories etc. The assessee has filed the return of income declaring loss of Rs. (-)7,08,26,184/- After noticing this, the Assessing Officer asked the assessee to justify the increase in manufacturing and other expenses and increase in cost of material consumed from Rs. 70,28,15,113/- to Rs. 1,06,08,91,844/-. The assessee contended that one of the main reasons for increase in the cost was forex rate INR/USD, which was on average of 7% and increased cost of material purchased. The assessee also pointed out that there has been increase in Revenue by 39.72% as compared to previous year. He noted that increase in forex rate is only 1.01 crores as compared to previous year. Therefore, he rejected the assessee s contention that increased cost of material consumed is due to increase of forex rate. He further observed that the assessee has not submitted any evidence whatsoever for increased cost of raw material consumed. Accordingly, he made the addition of Rs. 7,88,64,219/- in the following manner: Therefore increased cost of material consumed remains unexplained to the extent of 11.23% ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e assessment years 2016-17 and 2015-16 in the following manner: Particulars AY 2016-17 AY 2015-16 Purchases of stock-in-trade 112,56,61,167 69,61,96,541 Changes in inventories of stock-in-trade (6,47,69,323) 66,18,572 Total cost of sales 106,08,91,844 70,28,15,113 Revenue from operations 168,51,32,899 120,60,67,883 Ratio of cost of sales to revenue from operations 62.96% 58.27% 8. Thus, it was submitted that the difference is only marginal. Apart from that, it is stated that gross revenue from operations has increased around 40% and since the assessee has earned revenue from sale of imported products and there was corresponding increase in the amount of purchases as well as the purchases were made by the assessee in USD and USD has increased from INR 61 per USD in assessment year 2015-16 to 65.50 per USD in assessment year 2016-17 in terms of INR 61,000 in FY 2014-15 resulting in increase of 7% . This was the main reason for increase in these years. Further, there was certain increase of percentage of expenses in each of the year which were very marginal. Learned CIT(A) has deleted the addition after holding as under: 6.3 I have considered the facts of the case and the submission m ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... so been further stated that overall profitability of the assessee has improved from (-) 3.45% to (-) 2.49% in this year. Once, the assessee has submitted the details of increase for manufacturing and other expenses, statements showing change in the forex rate, details of increase in ratio of expense, revenue in comparison with the preceding year and details on gross profit and net profit for the last three years, then without any such defect, addition of Rs. 7,88,64,219/- cannot be made. Accordingly, we do not find any reason to deviate from the finding of the CIT(A) and the same is upheld. Consequently, ground no. 1 raised by the Revenue was dismissed. 10. Insofar as disallowance on account of commission expenses, the AO has made addition simply on the ground that there is 73% increase in commission expenses paid to the selling agents/dealers as against increase in revenue of 39.72%. Accordingly, he has treated 33% of the commissions as excessive. Before the learned CIT(A), it has been contended that increase of 47.91 crores in revenue has been achieved by appointing new partners, dealers and distributors, aggressive commission model etc. Further, it has been submitted before us t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ere furnished and the AO did not specifically ask the appellant to produce any further clarification or evidence and has made the addition without issuing any show cause notice which is mandatory as per Board Instructions. It is further submitted that the addition has been made on adhoc basis. The AR has also explained the reason for increase in commission expenses and has submitted that the same was due to the increase in size and scale of the operations of the appellant. On perusal of the complete facts, I am of the opinion that the AO has made the addition without any application of mind and without giving proper opportunity/show cause notice to the appellant. The addition has been made without any justification. The AO has not brought on record any material to doubt the genuineness of the expenses and it is also not established by the AO that the expenses have not been incurred for the purposes of the business. In view of these facts, the ad-hoc addition made by the AO is deleted and the ground of appeal is allowed. 12. On perusal of materials placed on record and the findings given, we are unable to appreciate the approach of the AO who made ad-hoc disallowance of commission s ..... X X X X Extracts X X X X X X X X Extracts X X X X
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