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TMI Blog2024 (9) TMI 1563X X X X Extracts X X X X X X X X Extracts X X X X ..... ng the current AY. The possible evidence which a normal person submits to prove are, electricity bill, land line telephone bills. CIT(A) has accepted the telephone bill as possible claim of the assessee. We do not see any reason to disturb the findings of the Ld CIT(A), accordingly, the ground raised by the revenue is dismissed. GP rate estimation - Rejecting books of accounts - HELD THAT:- We observed from the record that the AO analyzed the financials of the assessee submitted before him and noticed that the assessee has achieved the turnover many fold compared the previous year and there is decline in the GP declared by the assessee. It is relevant to note that he has analyzed the combined financial data of two types of business carried on by the assessee viz., Trading and manufacturing. The assessee should not have missed the opportunity of retaining the profit of previous year. We noticed that previous year, it has achieved 9.39%, if we remove the manufacturing GP of 7.17% (considering the increase in sales and absolute increase in the GP in Manufacturing activities, the declared results seems to be acceptable), the difference of profit is 2.22%, whereas it has actually achiev ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... onsider the delete the amount relating to the income offered by these two parties. With regard to other disallowances, the assessee accepted that they have not maintained proper records and also paid the freight charges in cash. It is difficult to control this aspect and we are inclined to sustain the above said additions excluding the two parties. Accordingly, ground no.1 is partly allowed. Addition u/s 40A - expenses incurred in cash exceeding the limit prescribed - We observed that the assessee made a plea before Ld CIT(A) that the payments were made during the year in different occasions but not substantiated with evidence. After considering the submissions of the both parties, we are of the view that in case the payments are made in difference occasions and the amount is not more than Rs. 20000/- in each case, then AO may allow the expenses. The assessee is directed to file the ledger copy and relevant documents before AO. Accordingly this ground of appeal is allowed for statistical purpose. Penalty u/s 271(1)(c) - As most of the additions proposed by the AO are deleted by the Ld CIT(A) and certain additions were deleted by us in this appeal proceedings. The claim of the asses ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Ld. CIT(A)", for short], dated 05/04/2019 & 08/04/2019 for Assessment Year 2009-10. First we take up the quantum appeals filed by both the parties and followed by penalty appeals. 2. The facts relating to grounds raised by the Revenue and Assessee are, the Assessee is an individual and is regularly assessed to tax in Delhi, during the relevant precious year, the assessee is engaged through his proprietorship concern M/s S.K. Enterprises, in the business of manufacturing and trading in carpets and durries. He filed Return of Income ('ITR/Return") for AY 2009-10 declaring income of Rs. 31,69,270/-. The same was processed u/s 143(1) of the Act and thereafter, the Ld. Assessing Officer ("AO") selected the case for scrutiny by issue of Notice u/s 143(2) of the Act dated 1.09.2010. He called for various details vide notices u/s 142(1) of the Act and after examining the details furnished by the Assessee from time to time, including the books of account, purchase and sales ledger, bills and vouchers etc. He passed the Assessment Order u/s 143(3) of the Act on 29.12.2011 making the following additions / disallowances to the total income thus determining the total income at Rs. 3, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ks cannot be relied for framing the assessment; and ii. Rejection of the books of accounts has been made on whimsical ground no. cogent reasons have been given; and iii. The Ld. AO has applied the GP rate for addition, but has also not allowed the expenses incurred against GP. 5. The Assessee made oral as well as written submission together with the supporting documents and prayed for deletion of the additions made arbitrarily based only on conjectures and surmises. The Ld CIT-A has duly reproduced the assessee's submissions in her order. The Ld CIT(A) called for and obtained the remand report from the AO and after considering the same as well as the rejoinder of the Assessee, passed a detailed order u/s 250(6) of the Act partly allowing the assessee's appeal. 6. The Ld. CIT(A) deleted the following additions/disallowances made by the AO:- a. Disallowance of deduction claimed u/s 24(b) of the Act Rs. 1,50,000/- b. Enhancement of Gross Profit and by rejecting books of accounts Rs. 3,06,70,410/- c. Disallowance of rent expenses u/s 40(a)(ia) - Rs. 4,49,000/-. 6. The Ld CIT(A) confirmed the following additions/disallowances made by the AO: a. Disallowance of fre ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... payments were made to different persons on different occasions, so it is liable to be deleted. 4. The appellant craves leave for addition, modification, alteration, amendment, deletion of any of the grounds of appeal. 9. On Department appeal, the Ld DR brought to our notice page 1 and 2 of assessment order and submitted that assessee has claimed payment of interest as allowable claim on the basis of self occupied property. He submitted that the Inspector was deputed to verify the claim of the assessee, as per the ITR reports, it was found that there was no premises existed and also noticed there were no construction activities going on. Since, assessee could not furnish proper record to claim the above expenditure, he submitted that findings of the AO are proper. Further, he brought to our notice page 49 of the appellate order and brought to our notice findings of the Ld. CIT(A) that the report of the ITA was submitted during the assessment proceedings i.e. in the year 2011 whereas the assessee has claimed the expenditure in the financial year 2008- 09. He submitted that the Ld. CIT(A) has merely relied on the telephone bills to grant the benefit as well as approved the claim o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 2011 and the claim made by the assessee during the current FY ie., 2008-09. We cannot rely on the report collected on the existence and occupation of the assessee, when the same was vacated by the assessee due to relocation. It is fact on record that the assessee was incurring interest expenditure for the purpose of taking loan on redevelopment of the house. The issue is whether the assessee has occupied the house during the current AY. The possible evidence which a normal person submits to prove are, electricity bill, land line telephone bills. In this case, Ld CIT(A) has accepted the telephone bill as possible claim of the assessee. We do not see any reason to disturb the findings of the Ld CIT(A), accordingly, the ground raised by the revenue is dismissed. 12. With regard to ground No.2, he brought to our notice page 2 and 3 of the assessment order and submitted that the financial results submitted by the assessee for the current assessment year are not reliable. Considering the fact that Assessing Officer has brought on record and discussed elaborately the reasons for rejecting the submissions of the assessee on Gross Profit declared by the assessee, they are not matching with ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... at apart from relying upon and reiterating before this Hon'ble Bench, the submissions made before the Ld. CIT(A) as summarized by her, the Respondent herein makes the following further submissions for kind consideration of the Hon'ble Bench: a. It is humbly submitted that the AO has passed the Assessment order without considering the detailed submissions made and explanations given for the fall in GP rate from 10.66% in AY 2007- 09 and 9.39% for AY 2008-09 to 4.14% for the relevant A Y 2009- 10. b. He completely ignored the important fact that the turnover for the year had gone up by almost 5 times from Rs. 7.8 crore to Rs. 34.6 crore and while achieving such a huge rise in a short period, the gross profit margin was bound to be affected. The turnover had increased from Rs. 7,80,12,125/- for the A.Y. 2008-09 to Rs. 34,60,30,917/- for the current A.Y. c. The AO also completely ignored the submissions that the trade margin had come down due to focus given to increasing the sales volume and also due to tough competition in the industry. Even though the Assessee time and again submitted that he had not allowed any discount in the bills, but, at the time of accepting the p ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... a mistake in the details and in spite of submitting the correct details, the AO kept on adopting the old figures in order to make out a case for rejection of books of account. g. It is submitted that the AO wrongly compared the appellant's GP rate with that of other business entities whose business profiles were not comparable. The AO has completely ignored the submission that the assessee's business involved both manufacturing and trading of carpets and durries, whereas, Shri Satish Kumar Gupta, who's GP rate had been compared with that of the Appellant, was in the business of trading of carpets. Further he also ignored the fact that Shri Satish Kumar Gupta was an exporter of carpets and his profit margins are generally higher than that of the appellant, who's buyers were based in India. The AO also wrongly compared the appellant's GP rate with that of his wife's concern ignoring the submission that her business profile was completely different. The raw materials used in the business of the appellant and that of his wife, as well as the sources of those raw materials were different and hence the results were not comparable. AO ignored his own finding tha ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... considered opinion that rejection of books of account is not correct, based on wrong figures adopted by AO and consequently addition made on estimate basis alleging suppression of sale and Gross Profit is not correct, accordingly additions made by AO of Rs. 3,06,70,410/- is hereby deleted. Accordingly, the Ground No. 2 and 4 are allowed. In view of the above it is submitted that there is no merit in present ground raised in the Departmental appeal which deserves to be dismissed. 14. Considered the rival submissions and material placed on record. We observed from the record that the AO analyzed the financials of the assessee submitted before him and noticed that the assessee has achieved the turnover many fold compared the previous year and there is decline in the GP declared by the assessee. It is relevant to note that he has analyzed the combined financial data of two types of business carried on by the assessee viz., Trading and manufacturing. We observed that the business has grown from Rs. 7.80 crores in FY 2008-09 to Rs. 34.60 crores in FY 2009-10. On careful analysis, we observed that the assessee has achieved the turnover and GP as under: TRADING ACCOUNT FOR THE YEAR END ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tivities are reasonable. With regard to valuation of closing stock also, the purchase and stocks holding period are different for both type of activities and cannot be combined and valued. To meet the ends of justice, we are of the view that assessee could have achieved better profit in the trading activities, considering the fact that it gave good discount to its customers and failed to maintain the margin in its case, may looking at the future prospects. 15. After analyzing the overall results, in our view, the assessee should not have missed the opportunity of retaining the profit of previous year. We noticed that previous year, it has achieved 9.39%, if we remove the manufacturing GP of 7.17% (considering the increase in sales and absolute increase in the GP in Manufacturing activities, the declared results seems to be acceptable), the difference of profit is 2.22%, whereas it has actually achieved 0.50%. We cannot expect to receive similar margin in the trading activities also. The risk factor is very less and hence the expected profit also thin. Due to increase in volume of sales achieved in trading, the GP achieved is not at mark and in our view, it should have achieved at ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... issions made before CIT(A) and the break up of the payments are small and within the limits prescribed under the provisions of section 194J. Therefore, we do not see any reason to disturb the findings of First Appellate Authority. Accordingly, the ground raised by the revenue is dismissed. 19. In the result, the appeal filed by the revenue is partly allowed. 20. With regard to Assessee appeal, we observed that Ld CIT(A) has sustained following disallowances: a. Disallowance of Freight expenses u/s 40(a)(ia) - Rs. 20,00,000/- b. Disallowance of Auditor Fees - u/s 40(a)(ia) -Rs.35,000/- c. Disallowance of Stationery Expenses u/s 40A(3) - Rs. 50,000/- 20.2 In this regard, Ld AR brought to our notice Para-16 of assessment order and Page-60 to 62 of order of Ld CIT(A) and submitted that the assessee has made following justification for not deducting tax at source and cash payments not being beyond the limit prescribed u/s 40A(3) of the Act. a. Freight expenses: Even though the payment towards freight expenses were made to a number of persons/ transporters, only one person's name was mentioned in the voucher giving all the break up as annexure. However, while preparing the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... by payer have been included by the payee in its return of income for the relevant assessment year, filed under Section 139 of the Act and has paid the tax due on the income declared in such return, to the extent recipient from such assessee is included the sum in his return of income and filed the same, no disallowance under Section 40(a)(ia) of the Act can be made by the Ld. AO in view of the 2nd Proviso to Section 40(a)(ia) r.w.s. First Proviso to Section 201(1) of the Act. iii. The 2nd Proviso to Section 40(a)(ia) of the Act inserted by Finance Act, 2012 and on furnishing of certificate in Form 26A as prescribed under Proviso to Section 201(1) r.w. Rule 31ACB of IT Rules, no disallowance under Section 40(a)(ia) of the Act can be made. However this opportunity was denied at the threshold by the authorities below. iv. The 2nd Proviso to Section 40(a)(ia) of the Act has been inserted in the statute by the Finance Act, 2012 w.e.f. 01.04.2013 but has retrospective effect from 01.04.2005 as held by Hon'ble Delhi High Court in Commissioner of Income Tax -1 vs Ansal Land Mark Township (P.) Ltd [2015] 377 ITR 635 (Delhi) and in CIT vs Rajinder Kumar [362 ITR 241]. 21. On the ot ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... quantum addition stood deleted the penalty would not survive. Further submitted that the irrelevant limb in the penalty notice has not been struck off. It is an omnibus notice. The penalty order is void ab initio. [Hon'ble Jurisdictional High Court in Pr.Commissioner of Income Tax vs M/s Sahara India Life Insurance Company Ltd ITA 475/2019 & Ors.; M.A. Projects Pvt Ltd vs ACIT Circle-13, New Delhi ITA No. 1636/DEL/2022 dated 12.04.2023; Late Srizia Usmani through L/H and wife Smt. Mehvish Usmani vs CIT(A), Allahabad ITAT ITA No. 143/ALLD/2019]. Similar appeal filed by the Department in assessee's wife case has been dismissed by the Hon'ble ITAT in ITA No.6019/Del/2019. ITA No.6812/Del/2019 for AY 2009-10 (Penalty u/s 40(a)(ia)) 27. With regard to assessee's appeal, Ld AR submitted that there is no concealment of income as there is no merit in disallowance made by AO and confirmed by CIT(A). Disallowances are not warranted as each payment was less than the amount prescribed under the said sections. CIT(A) also does not dispute the facts stated by the Assessee and confirms penalty in a mechanical manner. 27.1 Further submitted that mere disallowance of a claim made in the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Income Tax (Appeals), New Delhi dated 08.04.2019 in Appeal No. 226/18-19 issued in the Assessee's case for AY 2009-10 whereby the Ld. CIT(A) has confirmed the penalty of Rs. 10,44,255/-levied by the Ld. AO u/s 140A(3) of Income Tax Act, 1961 (the Act) vide his order dated 27.06.2012. 32. The AO noticed that the self-assessment tax payable under section 140A of the Act on the returned income had remained payable at the time of filing the return. The breakup of the said the self-assessment tax payable was as under: 2. As per the return, a sum of Rs. 10,44,260/- had been shown as tax payable u/s 140A of the Income Tax Act, 1961. The bifurcation of the same is as under: a. Taxes payable Rs. 9,69,600/- b. Default in payment of advance tax (Sec. 224B) Rs. 38,784/- c. Default in payment of advance tax (Sec. 234C) Rs. 35,871/- 33. The AO also noted that even until the date of finalization of the Assessment order, the assessee had not paid the said Self Assessment tax. He therefore, issued a show cause notice u/s 140A(3) of the Act on 29.12.2011 seeking compliance on 10.01.2012. On failure of the assessee to respond to the said show cause notice, the AO followed it up with two mo ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of not depositing the tax on time and the good and sufficient reasons for not depositing the tax were totally ignored by the Ld. CIT(A). (b) the imposition of the penalty is discretionary in nature and not mandatory and the facts of the case were not considered in correct perspective and the discretion of imposing the penalty were made arbitrary. (c) the reasons stated by the appellant were not disputed,, but simply not considered whereas before rejection of the same there is a burden on the revenue to prove that the reasons stated for not depositing the tax were not good and sufficient enough to confirm the imposition of the penalty. (d) the citations to justify the stand of assessee were not controverted before confirming the penalty. 2. The appellant craves leave for addition, modification, alteration, amendment, deletion of any of the grounds of appeal. " 38. The assessee has also filed an application along with an affidavit seeking condonation of delay in filing the present appeal. In the said application it has been stated that the assessee was not served the copy of the appellate order which was received by him by hand on 14.05.2019. Further, it has been stated ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... it he deposited the same. Kind attention is invited to the fact that the appellant has been promptly depositing on time the taxes for AY 2010-11, 2011-12 and 2012-13. The default was on account of bonafide reasons as the consultant who handled the matter did not inform the same to the appellant. He had filed the return without informing that SA tax had remained payable. In view of the above it is submitted that there was a reasonable cause for the default in payment of SA tax within the meaning of Proviso to Section 221(1) of the Act which for the relevant period read as under: "Provided further that where the assessee proves to the satisfaction of the AO that the default was for good and sufficient reasons, no penalty shall be levied under this section." 12. In the above background the appellant respectfully submits that the subject penalty was not leviable. This aspect was not appreciated by the Ld. CIT(A) who confirmed the penalty order in a mechanical way without application of mind. He did not appreciate that there were good and sufficient reasons for default in payment of SA tax. The concerned consultant had kept the appellant in dark throughout the assessment and penalty ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... upra) are reproduced below for ready reference: 3. Against the aforesaid background, the plea raised by the assessee before us is quite different from what has been raised before the lower authorities. At the time of hearing, the learned representative has given a new twist to the controversy by pointing out that the provisions of Sec. 140A(3) of the Act, as it stood for the year under consideration, did not envisage levy of penalty for the delay in deposit of self- assessment tax. In order to appreciate the point sought to be raised by the learned representative, the following discussion is relevant. 4. Sec. 140A(3) of the Act, as it stands for the year under consideration, reads as under:- "140A(3) If any assessee fails to pay the whole or any part of such tax [or interest or both) in accordance with the provisions of sub-section (1), he shall, without prejudice to any other consequences which he may incur, be deemed to be an assessee in default in respect of the tax for interest or both) remaining unpaid, and all the provisions of this Act shall apply accordingly." 5. Our attention has been drawn to the erstwhile Sec. 1404(3) of the Act which was operative upto ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ault. The aforesaid legislative intent also gets strength by the fact that simultaneously the legislature prescribed for mandatory charging of interest u/s 234B of the Act for default in payment of self-assessment tax w.e.f. 01.04.1989 onwards. 6. However, a contrary position is taken by the Revenue to the effect that for having defaulted in payment of self-assessment tax within the stipulated period, assessee qualifies to be "an assessee in default" as prescribed in the amended Sec. 140A(3) of the Act and, therefore, if one is to read the same with Sec. 221(1) of the Act, the action of the Assessing Officer in imposing penalty is quite justified. In sum and substance, it is sought to be emphasized on the strength of Sec. 221(1) of the Act that the penalty is leviable so long as the default is in the nature which renders the assessee as an "assessee in default" for payment of tax. Sec. 221(1) of the Act prescribes for penalty when assessee is in default in making the payment of tax. On the face of it, the argument of the Revenue appears to be justified, so however, the same does not merit acceptance if one examines the issue in slight detail. Notably, the pena ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the Act and even in the pre-amended situation, penalty w/s 221 of the Act was not attracted for default in payment of self-assessment tax, which was expressly covered in pre 01.04.1989 prevailing Sec. 140A(3). Thus, without there being any requisite corresponding amendment to Sec. 221 of the Act in consonance with the amendments carried out in Sec. 140A(3) of the Act w.e.f. 01.04.1989, the Assessing Officer erred in levying the impugned penalty. Thus, on this aspect, we hereby set-aside the order of CIT(A) and direct the Assessing Officer to delete the penalty imposed u/s 140A(3) r.w.s 221(1) of the Act. In view of the above the appellant prays that the appeal may kindly be allowed and the penalty order be set aside. 41. Considered the rival submissions and material placed on record. We observe from the facts on record that the assessee could not remit the SA tax due to the fact that the Department of DRI has taken an action against the assessee and the bank accounts were seized. We observe that the AO has levied the penalty due to the reason that the assessee could not make the payment towards SAT till the last date of assessment. This is fact on record that the Sec.221(1) penal ..... X X X X Extracts X X X X X X X X Extracts X X X X
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