Income Tax Appellate Tribunal - Ahmedabad
Paragkumar R.Shah, Baroda vs Assessee on 1 May, 2012
1 ITA No.1441/Ahd/2010
A.Yr.. 2006-07.
IN THE INCOME TAX APPELLATE TRIBUNAL " C "BENCHAHMEDABAD
(BEFORE SHRI D. K. TYAGI, JM & SHRI ANIL CHATURVEDI A.M.)
I.T.A. No. 1441 /AHD/2010.
(Assessment Year: 2006-07)
Shri Paraggkumar R. Shah Vs. Income Tax Officer,
Prop. Yamuna Trading Co. & Ward 2(2),
Shreeji Transport Co., Aayakar Bhavan,
10,Devki Nandan Complex, Near Race Course Circle,
Makarpura Main Road, Baroda.
Baroda.
(Appellant) (Respondent)
PAN: AJMPS 0597F
Appellant by : Shri J.P.Shah
Respondent by : Shri Vinod Tanwani, Sr. D.R.
आदे श)/ORDER
(आदे Date of hearing : 1-5-2012 Date of Pronouncement : 31-5-2012 PER: SHRI ANIL CHATURVEDI, ACCOUNTANT MEMBER.
This appeal is filed by the assessee against the order of CIT (A)II, Baroda dated 19-1-2010 for the Assessment Year 2006-07.
2. The assessee in his appeal has taken following grounds of appeal:-
" Your appellant being dissatisfied with the order passed by the Ld. CIT (A) II, Baroda, presents this appeal against the same on the following amongst other grounds.2 ITA No.1441/Ahd/2010
A.Yr.. 2006-07.
1. The Ld. CIT (A)-II, has erred in confirming the addition of Rs.19,67,294/- as being hit by provisions of Sec. 40(a)(ia) of the Act on the fact and circumstances of the case, the Ld. CIT (A)-II ought to have deleted the addition.
2. The Ld. CIT (A)-II has erred in confirming the addition of Rs.50,560/- under the provisions of section 40A(3) of the Act.
On the fact and circumstances, the Ld. CIT (A)-II ought to have deleted the addition.
3. The Ld. CIT (A)-II has erred in partly confirming the addition on account of gross profit. The Ld. CIT (A)-II ought to have deleted the entire addition.
3. The brief facts of the case are that the assessee is engaged in the business of trading in hardware and sanitaryware in his proprietary concern by the name of Yamuna Trading Co. He also runs another proprietary concern by the name of Shreeji Transport which is engaged in the business of transportation of bricks, sand etc. The assessee has filed return of income on 20-12-2006 declaring income at Rs.2,67,920/-. Thereafter the case was selected for scrutiny and the assessment was completed on 26- 12-2008 determining the total income at Rs.26,98,620/-after making various additions.
4. 1st ground is with respect to the addition of Rs. 19,67,294/- as being hit by provisions of s. 40(a)(ia) of the Act.
5. During the course of assessment proceeding the A.O. noted that the assessee has debited freight expenses of Rs.19,67,294/- to the Profit and loss account. The A.O. was of the view that these payments were covered u/s. 194C of the I.T. Act. Since the assessee had failed to deduct tax, the 3 ITA No.1441/Ahd/2010 A.Yr.. 2006-07.
A.O. invoked the provisions of section 40(a)(ia) and disallowed the claim of expenses to the extent of Rs.19,67,294/-. The assessee carried the matter in appeal against this disallowance before the CIT (A).
6. CIT (A) held that since the assessee has not deducted and paid the TDS within the prescribed time limit, the A.O. was justified in disallowing the claim of assessee. He however directed the A.O. to allow the cl.aim of Rs.19,67,294/- in the year in which the tax has been deducted and paid to the account of Government.
7. Aggrieved by the decision of CIT (A), the assessee is in appeal before us.
8. Before us it was contended by the Ld. A.R. that the assessee on becoming aware about its responsibility to deduct TDS, has deducted TDS and paid it to the account of the Government. He pointed out to the submission made by it before CIT (A) and which has stated in para 2.2. of the CIT(A) order. He therefore, submitted that since the assessee has made the payment of TDS the disallowance made by the A.O. be deleted. The Ld. A.R. further relied on the decision of Special Bench in the case of Merilyn Shipping & Transport vs. ACIT (ITAT Vishakapatnam) (ITA No.477/Viz/2008). He therefore, urged that the addition u/s. 40 (a) (ia) be deleted.
9. The Ld. D.R. on the other hand relied on the order of the A.O. 4 ITA No.1441/Ahd/2010 A.Yr.. 2006-07.
10. We have heard the rival contentions and perused the material on record. It is an undisputed fact that the assessee has paid freight charges and TDS u/s. 194C was also deductible on the same. The assessee did not deduct TDS before making the payment. Before us it was submitted that the TDS has been paid subsequently and therefore it has complied with the provisions of the Act. However, the lower authorities have not given any finding as to whether the assessee has made all the payments of freight charges before the year end. In the case of Merilyn Shipping & Transports vs. ACIT (supra) the Special Bench of the Tribunal has held that only outstanding amount or the provision for expenses (and not the amount already paid) is liable to disallowance if TDS is not deducted. Sec. 40(a) (ia) can apply to expenditure which is "payable" as on 31st March and does not apply to expenditure which has already been paid. Respectfully following the decision of Special Bench, we remit the issue to the file of A.O. for verification and direct him to allow as per the decision of Special Bench. The A.O. shall grant adequate opportunity of hearing to assessee. This ground is therefore allowed for statistical purpose.
11. Ground. No. 2 is with respect to the addition of Rs.50,560/- made u/s. 40A(3) of the Act. On verification of the Bank account and statement, it was noted by the A. O. that the assessee had made payments aggregating to Rs.2,52,800/- by cash/bearer cheque each of which were more than Rs.20,000/-.
12. The A.O. invoked the provisions of Sec. 40A(3) and disallowed 20% of the payment made in cash (disallowance being Rs.50,560/-). Aggrieved by the decision of A.O. the assessee carried the matter before CIT (A).
5 ITA No.1441/Ahd/2010A.Yr.. 2006-07.
13. After considering the submissions of the A.R., CIT (A) upheld the decision of A.O. by holding that assessee's did not fall under any of the special conditions specified in Rule 6DD of the I.T. Rules.
14. Against the above confirmation of the disallowance the assessee is now in appeal before us.
15. The Ld. A.R. submitted that the payments in cash were made to transporters who were unknown parties and they demanded cash payments. It was further stated that payments in cash were made out of compulsion. He therefore, urged that the disallowance made u/s. 40(a)(ia) be deleted.
16. The Ld. D.R. on the other hand relied on the order of the A.O.
17. We have heard the rival contentions, perused the records. Before us the assessee has not been able to conclusively demonstrate that its case falls under the exceptions as provided under Rule 6DD. In view of these circumstances we are of the view that no interference is called for in the order of the CIT (A). Therefore, this ground of appeal of the assessee is dismissed.
18. The third ground of appeal of the assessee relates to the addition on account of Gross Profit. It was noted by the A.O. that in the proprietary concern M/s. Yamuna Trading Co., the gross profit declared in the earlier yeas was 10.81% as compared to the current year of 5.54%. In the case of M/s. Shreeji Transport the company has shown gross profit @ 3.02% 6 ITA No.1441/Ahd/2010 A.Yr.. 2006-07.
against 3.61% declared in the previous year. The A.O. noted that the assessee had not produced the books of accounts, bills and vouchers. However, on verification of Bank statement produced, several payments were found to be exceeding Rs.20,000/-.In the absence of books of accounts, bills and vouchers the veracity of the expenses claimed could not be established. The A.O. therefore, rejected the books u/s. 145(3) of the I.T. Act and estimated the gross profit of M/s. Yamuna Trading Co. at 10% and of M/s. Shreeji Transport at 4%, thus an addition of Rs.65,366/- was made in the account of M/s. M/s. Shreeji Transport and Rs.3,46,578/- in the account of M/s. Yamuna Trading Co. In all the A.O. added Rs.4,11,944/- to total income. Assessee aggrieved by the decision of A.O., carried the matter in appeal before the CIT (A).
19. After considering the submissions of the A.R., CIT (A) granted partial relief by observing as under:-
"4.3. I have considered the submissions of the Authorised Representative and the order of the Assessing Officer. Gross profit ratio cannot be constant year to year. At times there will be higher gross profit and depending on the exigencies of the business at other times the appellant may have earned lower gross profit. However, the reasons for fall in gross profit must be clearly brought out. In the case of the appellant he has entered in a new business that of trading in cement, which works on low margins, resulting in decrease of gross profit percentage. However, it does not explain the decrease in gross profit from 10.18% to 7.37% declared by the appellant in the current year on the same goods traded as in the earlier year. Hence while accepting that gross profit percentage cannot remain constant, in the absence of explanation for fall in gross profit in the business of M/s. Yamuna Trading Co., it is held that truth would lie somewhere in between. Therefore, the addition made by the A.O. of Rs.3,46,578/- is confirmed to the extent of 50% i.e. Rs.1,73,289/- and the balance is directed to be deleted. No justification is seen with regard to 7 ITA No.1441/Ahd/2010 A.Yr.. 2006-07.
estimated addition in the case of M/s. Shreeji Transport. The addition of Rs.65,366/- is directed to be deleted."
20. Aggrieved by the decision of CIT (A) in upholding the addition to the extent of Rs.1,73,289/- the assessee is now in appeal before us. Before us, the Ld. A.R. submitted that the assessee started dealing in cement from the current year which has resulted in increase in Turnover. However the margin in cement business was very low as compared to other business, resulting into overall decline in gross profit margin. Further, as the assessee being new to the cement business, had to offer cement at competitive rate to penetrate the market which also resulted in reduction in G.P. In view of these facts the A.R. urged that the addition of Rs.1,73,289/- which has been sustained by CIT (A) be deleted.
21. The Ld. D.R. on the other hand relied on the order of A.O.
22. We have heard the rival contentions, perused the records. The fact that the assessee has started dealing in cement business in the present assessment year and the turnover of the assessee increased due to it is an undisputed fact. It is an accepted fact that to penetrate into an already existing market, the businessmen has to offer competitive rates. These facts are not disputed by the D.R. nor it has brought any material to controvert it. The Ld. CIT (A) has granted the relief to the extent of 50% of net profit estimated by A.O. also on estimation basis. In view of these facts we are of the view that the ends of justice shall be met by confirming the disallowance to the extent of Rs.1.50 lacs as against Rs.1,73,289/- sustained by CIT(A). We direct accordingly. Therefore this ground of appeal of the assessee is partly allowed.
8 ITA No.1441/Ahd/2010A.Yr.. 2006-07.
23. In the result, appeal of the assessee is partly allowed for statistical purpose.
Order pronounced in Open Court on 31- 5 - 2012.
Sd/- Sd/-
(D. K. TYAGI) (ANIL CHATURVEDI)
JUDICIAL MEMBER ACCOUNTANT MEMBER
Ahmedabad.
S.A.Patki.
Copy of the Order forwarded to:-
1. The Appellant.
2. The Respondent.
3. The CIT (Appeals)-II, Baroda.
4. The CIT concerned.
5. The DR., ITAT, Ahmedabad.
6. Guard File.
By ORDER
Deputy/Asstt.Registrar
ITAT,Ahmedabad.
1.Date of dictation 11 - 5 -2012
2.Date on which the typed draft is placed before the Dictating 15 / 5 / 2012 Member................Other Member................
3.Date on which the approved draft comes to the Sr.P.S./P.S 25 - 5 -2012.
4.Date on which the fair order is placed before the Dictating Member for pronouncement 31 - 5 -2012
5.Date on which the fair order comes back to the Sr.P.S./P.S 31 - 5 -2012
6.Date on which the file goes to the Bench Clerk 31 - 5 -2012.
7.Date on which the file goes to the Head Clerk.............
8.The date on which the file goes to the Asstt. Registrar for signature on the order........................
9.Date of Despatch of the Order.................