9911796707
TMI Blog2010 (10) TMI 1256X X X X Extracts X X X X X X X X Extracts X X X X ..... immediately preceding year on turnover of Rs. 4.17 crores. The assessee was asked to explain the fall in GP rate. It was explained that there was a tough competition in the market and, therefore, this was the main reason for fall in GP rate. The AO by observing that there was a minor difference in valuation of 18 ct. gold and therefore, the assessee failed to explain the reason for fall in GP rate. The AO further noted that assessee was asked to produce M/s Sterling Gems Inc. from whom the purchases of Rs. 4,91,120 and M/s Laxmi Dia Gold Jewellers from whom the purchases of Rs. 1,65,000 have been shown. However, the accountant of M/s Sterling Gems Inc. was produced who presented the books of account and he admitted that goods were sold to the assessee. However, the AO observed that since the payments were made in cash, therefore, the purchases made from M/s Sterling Gems Inc. remain unproved. In case of M/s Laxmi Dia Gold Jewellers, no one attended in spite of repeated opportunity. The AO drew an inference that purchases shown by assessee remain unproved and gross profit shown at 19.93 per cent is on lower side. Accordingly the AO rejected the books of account and estimated GP rat ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 0 from M/s Sterling Gems Inc. and of Rs. 1,65,000 from M/s Laxmi Dia Gold Jewellers were not found verifiable as the payment to M/s Sterling Gems Inc. was made in cash. Accountant of the firm was produced before AO along with books of account. He had admitted in having made sales to the assessee. Therefore, no doubt remains that this purchase made from M/s Sterling Gems Inc. of Rs. 4,91,120 was genuine. Small purchases from M/s Laxmi Dia Gold Jewellery of Rs. 1,65,000 remain unverified as the seller could not be produced. There may be so many reasons for not producing the seller viz. address may have changed. This is not a case that M/s Laxmi Dia Gold Jewellers was involved in issuing bogus bills as no such findings are given by the AO. Assessee had shown the purchases and it is not his duty to produce all the sellers before the AO. There is no adverse material with the Department in respect to M/s Laxmi Dia Gold Jewellers. Therefore, adverse inference drawn by AO was not justified. Without bringing any cogent material, rejection of material in our considered view was not justified. On similar facts the Tribunal has taken a view that rejection of books of account was not justified ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... not justified. The Hon'ble Rajasthan High Court in the case of Malani Ramjivan Jagannath vs. Asstt. CIT (2007) 207 CTR (Raj) 19 : (2009) 316 ITR 120 (Raj) has held that merely on account of deviation in GP rate it cannot be a ground for rejecting the books of account and disturbing the trading result. The AO has relied upon two cases for disturbing the trading result whereas assessee has cited four cases including the two cases relied upon by AO and it is seen that GP rate shown by all these assessees was less than the GP rate declared by the assessee. Therefore, for this reason also, in our considered view disturbance in the trading result was unjustified. Accordingly, we direct the AO to accept the GP rate declared by the assessee. The AO is also directed to delete the addition of Rs. 2,44,950. 11. We further noted that in case of sister concern of assessee i.e., M/s Shankar Gems, trading addition was made by invoking provisions of s. 145(3). Matter reached to the stage of Tribunal and the Tribunal has held that provision of s. 145(3) was wrongly invoked and the trading addition made and sustained by learned CIT(A) was deleted. This appeal was decided by the Tribunal in ITA N ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ons of s. 92 of the Act. As per Circular No. 12 of 2001, dt. 23rd Aug., 2001 [(2001) 169 CTR (St) 45], the AO was not authorized to determine ALP of an international transaction. It was also submitted that the AO has taken rate of Rs. 78.44 per dollar to make huge addition without any justification. It was further submitted that once the AO has accepted the export sales declared, he cannot make any trading addition as held in the case of ITO vs. Mahrishi Industries 27 Tax World 505. It was also submitted that since the transaction exceeds Rs. 5 crores, therefore, the matter should be referred to the TPO. After considering the submissions and perusing the material on record, the learned CIT(A) found that the AO's action is correct. Accordingly, he confirmed the order of AO. The learned CIT(A) further observed that provisions of ss. 92 and 92A to 92F came into force w.e.f. 2002-03 and hence the ground that no addition can be made once the sale is accepted was found incorrect. Accordingly, he confirmed the action of the AO. 17. The learned counsel of the assessee filed written note in respect to this issue. Copy of order of Tribunal in case of Addl. CIT vs. Tej Diam (2010) 130 TTJ ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... r the ALP by attracting provisions of s. 92. The learned CIT(A) held that TNMM is not applicable on the facts of the present case. On appeal by Department, the Tribunal has held that TNMM is not applicable and the addition made by the AO is not justified. Accordingly the appeal of the Department was dismissed. While dismissing the appeal of the Department various decisions of the Tribunal were taken into consideration, which were in case of UCB India (P) Ltd. vs. Asstt. CIT (2009) 124 TTJ (Mumbai) 289 : (2009) 26 DTR (Mumbai)(Trib) 458 : (2009) 121 ITD 131 (Mumbai), though in that case the Tribunal has held that TNMM is not applicable. However, we find that on the basis of finding of Tribunal TNMM is applicable on the facts of the present case. For application of s. 92F various definitions have been taken into consideration by the Tribunal while deciding the issue in case of Tej Diam (supra). Definitions of s. 92F are extracted for ready reference are shown as under : (ii) ALP means a price which is applied or proposed to be applied in a transaction between persons other than AEs, in uncontrolled conditions. (v) 'transaction' includes an arrangement, understanding or action ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... gaged is determined. Thereafter a relative contribution by each AE for earning such combined profit is evaluated on the basis of functions performed, asset employed, risk assumed and external market data. The combined net profit split in the enterprise in proportionate to their relative contribution. 23. The AO while employing profit split method had adopted the capital employed funds deployed, stock and fixed assets which are appearing in the close of the year as against balance in the first day of the previous year. Therefore, in our considered view the AO has committed a mistake by holding that profit split method is applicable. It is further seen that AO had noted that the AE i.e., M/s Sunshine Exim Trader had very high risk of bad debt whereas there is no such risk with the assessee firm. The AO further observed that the business of AE totally depends on the marketing and the risk involved therein and in order to meet justice at both the ends the AO held that the AE is entitled for profit at 45 per cent of the combined net profit and rest of the profit of 55 per cent will be treated as profits of assessee and thus he had made an addition of Rs. 11,20,786. It has been explained ..... X X X X Extracts X X X X X X X X Extracts X X X X
|
