Income Tax Appellate Tribunal - Jodhpur
Ganesh Foundry vs Assistant Commissioner Of Income Tax on 13 August, 2002
Equivalent citations: (2003)78TTJ(JODH)736
ORDER
B.L. Khatri, AM.
1. This is an appeal by the assessee against the order of the CIT(A), Jodhpur, for the asst. yr. 1992-93.
2. Ground No. 1 has not been pressed. Hence, dismissed.
3. Ground Nos. 2 and 4 are regarding trading addition of Rs. 2,42,255 on account of low gross profit after invocation of provisions of Section 145 by the AO and ground No. 3 is regarding some mistake in calculation of gross profit addition.
4. The brief facts of the case are that the appellant is engaged in manufacturing and supply of diesel locomotive parts to the railways. Trading results compared to last two years are as under:
Asst. yr.
Sales (Lacs) Gross profit Percentage 1990-91 26.36
5.84 lacs 22.16% 1991-92 40.92 7.08 lacs 17.30% 1992-93 47.52 7.65 lacs 17.11% The AO pointed out that the assessee was not maintaining day-to-day stock register regarding various items of raw material purchased and consumed. He, therefore, invoked the provisions of Section 145(2) of the Act and applied enhanced gross profit rate of 20 per cent which was confirmed by the CIT(A).
5. The learned authorised representative explained that the purchases and sales are fully vouched and verifiable as has been mentioned and admitted by the AO in the assessment order. The authorised representative further stated that the AO had made general and routine remarks without pointing out any specific defects in the maintenance of books of account. This is an established fact that the overall expenditure during the year under consideration was at a lower side and, therefore, there was no reason and basis' for the AO to say that the expenses are not properly vouched.
6. The appellant is in this line of business for the last so many years and due to that its turnover has been increasing because of supplying the material to Indian Railways all over the country. The appellant had to withstand the competition of the other suppliers and, therefore, the realisation rates of the finished products as compared to preceding year's rates every year reduces which, of course, does not put the appellant to overall loss because of increase in the turnover and further enhancement of its goodwill which is ultimately to benefit the appellant. The AO was, therefore, wrong in saying that there should be no reason for coming the margin so down sharply. If the G.P. rate is compared to the just preceding year's assessment which was 17.30 per cent this year's gross profit was low by 1.2 per cent only. Trading addition made by the AO and sustained by the CIT(A) had been deleted by Tribunal for the asst. yr. 1990-91 through its order dt. 4th April, 2000 passed in ITA No. 81/Jp/1994 [reported as Ganesh Founding v. ITO (2000) 67 TTJ (Jd) 434). The learned authorised representative relied upon the Tribunal's order (supra).
7. The learned Departmental Representative relied upon the orders of the authorities below.
8. We have heard the rival submissions. We find that purchases and sales are fully vouched in this case. The sales are exclusively made to the Railway Department. Mere non-maintenance of stock register of purchase and consumption of raw material will not lead to invocation of the provisions of Section 145(2) of the Act. The AO cannot invoke the provisions of Section 145(1) or 145(2) of the Act on this basis alone. The AO should have pointed out any specific mistake or deficiency in the books of account. Without recording the finding that the profits and gains cannot be properly deduced from such books of account, correctness of book results cannot be challenged and the AO cannot resort to the provisions of Section 145(2) of the Act. Besides, the AO could have made a separate remark for excess consumption of raw material in comparison to other years, if any. Therefore, the trading addition of Rs. 2,42,255 made by the AO and sustained by the CIT(A) is hereby deleted. Since the addition is deleted, ground No. 3 regarding mistake in calculation is not being decided.
9. Ground No. 5 is regarding addition of Rs. 72,000 made by the AO under Section 68 of the Act for unexplained cash credit and interest thereon at Rs. 4,560.
10. The learned authorised representative submitted that the statements of the cash creditors were recorded. All the persons confirmed the payments. As a matter of fact the assessee has established the genuineness of cash credits. As regards producing of proof of their agricultural holdings, the learned authorised representative submitted that during the assessment the AO had not insisted upon the concerned creditors to produce any evidence of agricultural holdings. Therefore, the AO did not require the appellant to lead evidence about the agricultural land of the concerned depositors.
11. The learned Departmental Representative relied upon the order of the AO.
12. We have heard the rival submissions. The AO had made an addition of Rs. 72,000 on account of cash credit as per the following details :
Name Amount Interest Rs.
Rs.
Sukhdeo 18,000 Baksuram 16,000 Ramkishore 19,000 2,280 Ramchandra 19,000 2,280 Total 72,000 4,560 The AO has discussed the facts of the case in detail. It is necessary for the assessee to prove prima facie the transaction which results in a cash credit in the books of account. Such proof includes proof of identity of his creditor, capacity of such creditor to advance the money and, lastly, the genuineness of the transaction. These things must be proved prima facie by the assessee and only after the assessee has adduced evidence to establish prima facie the aforesaid, the onus shifts on the Department. After having examined the facts of the case the AO concluded that the assessee could not prove the source of deposit by the persons. However, the learned authorised representative contended that the AO had not specifically asked either the cash creditor or the appellant to produce record of land holding. Had the AO asked for such proof the appellant could have produced before the AO. Therefore, this issue of genuineness of cash credits and also interest is being restored to the file of the AO with a direction that he should asked the assessee to produce the record of land holding along with the details of types of crops being grown and after having estimated the expenditure on earning agricultural income and also household expenses and social activities, he should work out the net savings of the persons and after examination in detail, he may decide this issue afresh after allowing fresh opportunity of being heard to the assessee.
13. Ground No. 6 is regarding telescoping the addition made on account of unexplained cash credit with that of trading addition. This issue is immaterial as the trading addition has already been deleted by us.
14. Ground No. 7 is regarding the following disallowances made by the AO and sustained by the CIT(A) :
1. Rs. 20,000 out of Rs. 70,970 out of travelling expenses
2. Rs. 3,000 out of Rs. 15,676 on account of conveyance and vehicle maintenance expenses.
3. Rs. 7,000 out of Rs. 45,061 out of telephone expenses.
15. We have heard the rival parties and we have considered the facts on record. As regards the disallowance of travelling expenses, we have perused the details. The AO has stated that these expenses are fully vouched. However, the journey has not been undertaken for the purpose of business. We find that the tours and travels were conducted for the purpose of business and the disallowance was made without pointing out any item of disallowable nature. The learned authorised representative has submitted a chart as required under Rule 6D of the IT Rules. Therefore, the disallowance made by the AO and sustained by the CIT(A) of Rs. 20,000 is hereby deleted.
16. As regards the disallowance out of vehicle maintenance and telephone expenses, I find that the same has been disallowed by the AO and sustained by the CIT(A) after considering the reasonableness of the expenditure. Therefore, we decline to interfere with the order of the CIT(A).
17. Ground No. 8 has not been pressed. Hence, dismissed. Ground Nos. 9 and 10 are general in nature.
18. In the result, the appeal is partly allowed.