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TMI Blog2003 (5) TMI 193X X X X Extracts X X X X X X X X Extracts X X X X ..... e made to the sister-concern below cost. On the facts the addition is prayed to be deleted. 3. That an addition of Rs. 1,30,410 made by the ITO out of installation and commissioning expenses is upheld by CIT(A) ignoring the basic facts. All the expenses and details furnished are fully vouched and verified. Inflation and increase in value of material, labour, etc., ignored. On the facts and circumstances of the case the addition is prayed to be deleted. 4. That an amount of Rs. 44,068 was disallowed by the ITO under s. 40A(3) of the IT Act and sustained by the CIT(A) on flimsy grounds. The genuineness of the transactions was established and are covered by r. 6-DDJ and Circular No. 220 of the CBDT. The addition is prayed to be deleted. 5. That the assessee begs for leave to add or amend any grounds or appeal before the appeal is finally disposed off." 3. Ground No. 1 is general in nature, so does not require any comments on our part. While vide ground No. 2 the grievance of the assessee relates to the sustenance of addition of Rs. 80,575 out of total addition of Rs. 5,29,475 made by the AO in respect or diversion of profits made to the sister-concern. 3.1 The relevant facts ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... urring losses. It was also stated that the AO had not brought any evidence on record that the submission of the assessee was wrong and the explanation furnished was not to be rejected arbitrarily and without there being any material to the contrary. It was also pointed out that the D.G. set of 125 KVA was sold by the assessee for Rs. 2,05,000 and the same was admittedly sold without any profit onwards by the said concern. The assessee further submitted that the sale price of 20 D.G. sets was at Rs. 8,57,925 which the concern namely M/s S.B. Saini Bros. further sold for Rs. 9,38,500. Therefore, the gross profit Rs. 80,575 gave a G.P. rate of 8.58 per cent which was not abnormal gain made by the said concern from the transaction of sale made by the assessee. It was further stated that the concern M/s S.B. Saini Bros, Jalandhar was subjected to tax in respect of profit arising out of those transactions, and the income earned by that concern out of the sale of the said D.G. set in respect of the said transactions was accepted by the AO while framing the assessment under s. 143(3) of the IT Act. The reliance was also placed on the decision of the Hon'ble Supreme Court in the case of CIT ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... les-tax and income-tax number and also maintaining separate bank accounts. It was also stated that both the concerns were maintaining separate books of accounts and the genuineness of the transaction was established as the sales made by the assessee were onwards made to the Government Departments. Accordingly, it was submitted that there was no justification in sustaining the addition of Rs. 80,575. The reliance was also placed on the decision of this Bench of the Tribunal dt. 28th June, 1993, in the case of ITO vs. Smt. Mohan Kaur in ITA No. 93/Asr/1989 for the asst. yr. 1982-83. 3.5 In his rival submissions, the learned Departmental Representative strongly supported the orders of the authorities below and submitted that the assessee sold D.G. set to its sister concern at lower rates, as such had diverted its profits, therefore, the AO was justified in making the addition in the hands of the assessee on the basis of diversion of profit to the sister concern. 3.6 We have heard both the parties and carefully gone through the material available on the records. In the instant case, it appears that the AO made the addition on the basis that the sale rate to the sister concern were ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... It is also not the case of the Department that the assessee had sold the D.G. sets to the sister concern at a loss. However, it was the explanation of the assessee that the goods were sold to the sister concern at the market price and some profit was earned on the said sales. It is also true that the assessee as well as the sister-concern were assessed at the same rate of tax and the sister-concern is being assessed to the income-tax separately and also had accounted for the profits made by it on the transactions related to the D.G. set in question. It is well settled that there is no law which castes an obligation on a trader to make a profit out of a particular transaction. It is also well settled that law does not oblige a trader to make the maximum profit that he can do out of his trading transaction. The only income which is earned or accrued to a trader is taxable but not the income which ought to have been earned. 3.7 We, therefore, considering the entire facts of the present case as discussed hereinabove are of the view that the learned CIT(A) was not justified in sustaining the addition of Rs. 80,575, considering the same as the profit diverted by the assessee to the si ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... as nothing but a conjectural surmises. The learned CIT(A) confirmed the action of the AO by stating that there was nothing improper in the disallowance. 4.3 Before us, the learned counsel for the assessee reiterated the submissions made before the authorities below and vehemently argued that complete detail of expenses was filed before the AO which was admitted by him in the assessment order. It was stated that the AO had not pointed out any disallowable item except that those expenses were more as compared to the last year and the same were not properly vouched. However, no defect in the vouchers was pointed out by the AO. It was submitted that the expenses incurred were wholly and exclusively for the business purposes. Therefore, without pointing out any specific defect in the details and vouchers produced, the addition made by the AO and confirmed by the learned CIT(A) was not justified. The reliance was placed on the decision of the Tribunal Allahabad Bench 'C' (TM) in the case of Core Health Care Ltd. vs. Dy. CIT (2000) 60 TTJ (Ahd)(TM) 490. 4.4 In his rival submissions, the learned Departmental Representative supported the orders of the authorities below. 4.5 After cons ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... by the provisions of s. 40A(3) of the IT Act. The assessee submitted before the AO that the goods purchased from M/s S.B. Saini Bros, Jalandhar were on wholesale and discounted price on the condition of cash payment. The assessee also filed a certificate from that concern regarding the fact of cash payment. However, the AO did not find any merit in the explanation of the assessee and made the addition of Rs. 44,068. 5.2 Before the learned CIT(A), the assessee submitted that the disallowance ought not to have been made as the transaction in question was fully covered in the exceptions laid down by the CBDT Circular No. 220 dt. 31st May, 1977. It was stated that the requisite certificate as required by the said Circular of the CBDT was also furnished before the AO who had not been able to rebut the explanation furnished before him. 5.3 The learned CIT(A) after considering the submissions of the assessee observed that the transactions between the assessee and its sister concern were not genuine. According to him, the AO was fully justified in making the disallowance, since the transaction in question was not covered under r. 6DD(J) or by the circular of the Board. He, therefore, c ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he sale-tax Department and our sale-tax No. is 27905112 dt. 16th June, 1967. We are regular income-tax assesses with P.A. No. 29-602-DT-8544 with ITO 2(1), Jalandhar. Dated: Jalandhar City dt. 11th Jan., 1992" From the above certificate it would be clear that the seller i.e., M/s S.B.Saini Brothers was in dire need of cash in those days and they confirmed that the goods were sold to the assessee at discounted prices, if the payment was made on cash. In the aforesaid certificate, the said concern had given its sale-tax number as well as Permanent Account Number which shows that the concern was a genuine concern. It is also noticed that the CBDT in Circular No. 220 dt. 31st May, 1977 stated at p. 4 as under: "All the circumstances in which the conditions laid down in r. 6DD(J) would be applicable cannot be spelt out. However, some of them which would seem to meet the requirements of the said rule are: a to e.... f. specific discount is given by the seller for payment to be made by way of cash." From the above clarification, it is clear that the case of the assessee was covered by the CBDT Circular No. 220 (F. No. 206/17/76/IT(AII)) dt. 31st May, 1977. 5.7 Considering th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ix engines (five being in the custody of Bank of India under Lock and key and one hypothecated with the bank as on 30th May, 1988) were kept outside the books of account. When asked to explain the source of availability of excess DG sets 20 in numbers and six engines, the assessee could not explain his position satisfactorily. It is, therefore, held that investment on those 10 DG sets and six engines was made out of the books of account but from undisclosed sources. Coming to the value of these DG sets and engines, the average rate of various sizes of DG sets as per bank statement comes to Rs. 68,765 per set (Rs. 23.38 lacs value divided by the number of 34 DG sets). The value of these 10 DG sets which has not been disclosed by the assessee in his books of account thus comes to Rs. 6,87,650. Similarly, the value of 6 engines comes to Rs. 3,85,000 approx. (taking the value as shown in the bank statement as per engine). Hence, the value of unrecorded and unexplained DG sets and engines are valued at Rs. 10,72,650. Since the assessee has failed to explain satisfactorily the source of investment on the purchase of these DG sets/engines, the total sum of Rs. 10,72,650 is treated as the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e books of the assessee. On the basis of the aforesaid explanation, it was stated that the AO was not justified in considering that 10 DG sets amounting to Rs. 6,87,650 were kept outside the books of account. 8.3 As regards to the remaining addition of Rs. 3,85,000 in respect of six engines, the assessee submitted that the position was clarified vide letter dt. 17th July, 1991, to the AO by explaining the position of engines purchased and the sale of D.G. sets. It was stated that the opening stock of the assessee at Rs. 53,17,678 as on 1st April, 1988, consisted of various items of goods like engine etc. It was submitted that the assessee explained the monthwise position of purchase and consumption of engines vide letter dt. 17th July, 1991, which was available with the AO. The assessee submitted that the AO ignored the facts available on the records and made the addition of Rs. 3,85,000 by stating that the six engines were neither covered in the opening stock of Rs. 53,17,678 nor in the closing stock of Rs. 57,99,818. The learned CIT(A) deleted the addition made by the AO by observing as under: "3. The learned counsel has submitted relevant extracts bills, vouchers and compila ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tentions and the matter had been discussed with the AO. He further noted that the position in respect of excess stock hypothecated had been explained and there was no case of any unaccounted stock available with the assessee for hypothecation to the bank. The aforesaid observation of the learned CIT(A) had not been controverted by the learned Departmental Representative. 8.6 From the above noted facts, it is clear that the assessee had been able to explain the position in the presence of the AO to the learned CIT(A) in respect of discrepancies pointed out at the assessment stage. We, therefore, do not see any merit in the ground of the Departmental appeal. Moreover, in this case, the assessee was dealing with the excisable goods and the AO was not able to point out any mistake or shortcoming in the statements furnished by the assessee to the qustom and Excise Department. The AO has also not pointed out that the assessee inflated its purchases or suppressed its sales. In that view of the matter also, the AO was not justified in rejecting the books of the assessee. Therefore by considering the fats of the present case, we do not see any valid ground to interfere with the findings o ..... X X X X Extracts X X X X X X X X Extracts X X X X
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