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TMI Blog2004 (1) TMI 291X X X X Extracts X X X X X X X X Extracts X X X X ..... ut at Rs. 12,12,321 which gave a GP rate of 13.65 per cent. The AO examined the past results of the assessee as below: Asst. yr. Sales GP GP rate 1993-94 88,82,885 12,12,321 13.65 % 1992-93 (II Pd.) 15,15,549 5,41,427 35.72 % 1992-93 (1st Pd.) 64,14,582 6,40,697 9.99 % 1991-92 61,32,078 9,35,630 15.26 % 5. Thus, he noticed that there was a drastic fall in GP rate as compared to the GP rate of 2nd period. The assessment of asst. yr. 1992-93 was not made under s. 143(3) of the IT Act, 1961. Thus, the assessee was required to explain why the books of account may not be rejected since (a) the quantitative details of consumption (of raw material) and production have not been filed (b) no stock register of consumption of spares was maintained and (c) the stock was not verifiable from any records. The assessee was also required to justify the profit rate shown. The basis of closing stock was also required to be given. The AO also mentioned that the assessee had not maintained any record of consumption of spare parts, which was a major part of the expenditure of trading account nor any day-to-day production record has been maintained. The AO, aft ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e has further submitted that the assessee has duly maintained finished goods register and production register in the shape of stock register. Day-to-day purchase and sales were also recorded in purchases and sales journals and ledger which are duly verifiable with reference to vouchers for purchases and sales. He has further submitted that the decline in GP was duly explained and was justified. Further, the AO without citing any comparable cases, agreed to apply GP rate shown in the 2nd part of the relevant asst. yr. 1992-93 which was shown at abnormal and excessive rate due to specific circumstances and special reasons. Whereas overall GP for that year for the single assessment that has been completed for two periods has worked out to only 14.9 per cent the AO wrongly applied GP rate of 30 per cent shown in the second period relevant to asst. yr. 1992-93. According to the learned counsel, the GP rate applied by the learned CIT(A) at 15.25 per cent on enhanced turnover is also not justified keeping in view the facts and circumstances of the case. 8. On the other hand, the learned Departmental Representative has submitted that the AO was justified to apply GP rate of 30 per cent ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 5. On appeal before the CIT(A), it was submitted that the AO wrongly held that no confirmations were filed. In fact there were no new loans and these pertained to the period 1983-89 and earlier years when these were duly examined. Thus, the learned CIT(A) has held that the AO had acted on whims in making the disallowance. Hence, he directed to delete the same. 16. We after having heard the parties, find no infirmity in the order passed by the CIT(A) inasmuch as the Revenue has placed no material to rebut that these loans pertained to the year under consideration and not to the period prior to the year under consideration. In view thereof, we uphold the order passed by the CIT(A). 17. The ground No. 3 states that the learned CIT(A) has erred in law and on facts in allowing relief of Rs. 9,694 out of salary paid to one of the partners without appreciating the fact that it attracted the provisions of s. 40A(2) of the IT Act, 1961. 18. Briefly stated, facts are that a sum of Rs. 48,472 were debited as remuneration to the partners. The AO noted that one of the working partners has been allowed remuneration of Rs. 19,389 (Shri G.K. Agarwal) whereas the other partner Shri A.K. Ag ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... en allowed as a deduction provided it is within the limit prescribed. The relevant sub-cl. (v) of cl. (b) of s. 40 is as under." 21. The Ahmedabad Bench has further held as under: "In the light of language and context of the provision introduced w.e.f. 1st April, 1993, there is no scope to argue that AO has power to go into the question of reasonableness of remuneration paid to a partner. Of course, he can only examine whether the remuneration paid is not exceeding the prescribed limits of the book profit. But he has no power to scale it down from the above percentage by saying that working partner did not render services to earn profit of the partnership. Accordingly, we hold that provision of s. 40A had no application to a case governed by s. 40(b) of the IT Act. This intention is more clearly manifested after amendment of above provision w.e.f. 1st April, 1993. Even otherwise, s. 40(b) is applicable only to the payment made by a firm to its partner whereas provision of s. 40A(2) is of general nature applicable to several situations. It is settled law that a special provision governing a special situation has to be applied when that situation arises and not a general provis ..... X X X X Extracts X X X X X X X X Extracts X X X X
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