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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 ..... 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 achieved ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... sider 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 assesse ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... T(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. 3,65,23,680/- (in pla ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tion 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 freight expenses u/s 40(a)(ia) - Rs. 20,00,000/- b. Disallowance of expenses in ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 of the assessee that assessee was residing on that place during the impugned year under considerati ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 the turnover declared by the assessee. He brought to our notice that the turnover declared by the assesse ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... arized 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 purchase order he had agreed to lower the price so as to increase the sales volume, the AO kept on reiterating that the discount al ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... jection 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 that almost half of the appellant's sales were to his wife's concern which would mean that the finished products from the appellant's busines ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... lleging 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 ENDED ON 31st MARCH 2009 Particulars Qty Amount (Rs.) Particulars Qty Amount (Rs.) To Opening Stock 1,777.23 40,64,450.00 By Sales 50,991.52 15,71,08,554.65 To Purc ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 least 2% of the sales, without going into the intricacies like competition, heavy discounts offered merely to achieve sales target etc., in our view, it could have been at 2%. The difference of GP of 1.5% on trading activities, propose to sustain the addition will meet the ends of justice. We ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n 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 data for submission before the Ld. AO, the staff had not understood the gravity of the issue and had submitted the payments as made to the single person appearing in the voucher. The same was discovered when the AO raised the query, and the figures had been submitted before the AO which have not been pro ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nce 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 other hand, Ld DR relied on the orders of lower authorities. 22. Considered the rival submissions and material placed on record. We observed that the Ld CIT(A) has rejected the submissions of the assessee by observing that the amended provisions in section 40(a)(ia) are applicable prospectively and not applicable to AY 2009 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... y 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 Return would not amount to giving inaccurate particulars of income or concealment of income. [Commissioner of Income Tax v. Reliance Petroproducts Pvt. Ltd. (2010) 322 ITR 158]. 27.2 Technical disallowances like disallowance of freight expenses or auditor's fees u/s 40(a)(1)(a) for failure to make TDS or disallowance for cash ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e 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 more notices dated 18.04.2012 and 13.06.2012. Since there was no response from the assessee, he proceeded to finalise the penalty proceedings by treating the assessee as Assessee in default and levied a penalty of Rs. 10,44,255/- u/s 140A(3) r.w.s. 221(1) of the Act. He issued order u/s 140A(3) r.w.s. 221(1) of the Act on 27.06.2012 whereby he impose ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ed 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 that the assessee was in his native place in Mirzapur and after his return from there he became busy in attending to litigation proceedings including prosecution matters initiated by the Income Tax department and in the meantime the limitation period for filing the appeal had expired. It has been submitted that the delay was on account of bonafide reasons and that it was not caused ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 proceedings before the AO. The appellant had also not reee.ved any notices and it is in that background that the minor default payment of SA tax in time had occurred. As submitted before the Ld. CIT(A) the appellant has been promptly depositing the tax amount on time for AY 2010-11. 2011-12 and 2012-13 without any default. Payment of SA tax was further delayed as Department of Revenue Intelligence h ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ot 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 31.03.1989 and was amended by the Direct Tax Laws (Amendment) Act, 1987, and the erstwhile provision read as under:- (3) If any assessee fails to pay the tax or any part thereof in accordance with the provisions of sub-section (1), the Assessing Officer may direct that a sum equal to two per cent of such tax or part thereof, as the case may be, shall be recovered from him by way of penalty for every month during which the de ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d 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 penalty envisaged Sec. 1404(3) in the unamended provision was on the statute alongwith the penalty envisaged u/s 221 of the Act. Once Sec. 1404(3) of the Act has been amended w.e.f. 01.04.1989, as we have seen earlier, there is no amendment of Sec. 221 of the Act and it continues to remain the same. What we are trying to emphasise is if the plea of the Revenue is to be accepted, based on the amendment to Sec. 140A(3) of the Act, it would mean that prior to 01.04.1989 the same default invite ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... sessing 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) penalty is a tool to the assessee to levy penalty in order to force the assessee to comply, however, the assessee is also prone to pay the relevant penal interest till the relevant tax are paid. In this case, no doubt the assessee was not paid and also reasonable causes to submitted before the authorities that the payments were made as soon as it came to the notice of the assessee and also when he was in a position to make the payment. It was also submitted that the consultant has not brought to the notice of the assessee the rele ..... X X X X Extracts X X X X X X X X Extracts X X X X
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