Income Tax Appellate Tribunal - Jaipur
Galaxy Impex , Jaipur vs Dcit, Jaipur on 28 February, 2017
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IN THE INCOME TAX APPELLATE TRIBUNAL, JAIPUR BENCHES, JAIPUR
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BEFORE: SHRI KUL BHARAT, JM & SHRI VIKRAM SINGH YADAV, AM
vk;dj vihy la-@ITA No. 529/JP/2016
fu/kZkj.k o"kZ@Assessment Year : 2012-13
M/s Galaxy Impex, cuke The DC.I.T.,
45, Gem Enclave, Vs. Circle-6,
Pradhan Marg, Malviya Nagar, Jaipur.
Jaipur.
LFkk;h ys[kk la-@thvkbZvkj la-@PAN/GIR No.: AABFG 9397 H
vihykFkhZ@Appellant izR;FkhZ@Respondent
fu/kZkfjrh dh vksj l@
s Assessee by : Shri Mahendra Gargieya (Advocate)
jktLo dh vksj ls@ Revenue by : Shri Prithivi Raj Meena (Add. CIT)
lquokbZ dh rkjh[k@ Date of Hearing : 20/02/2017
mn?kks"k.kk dh rkjh[k@ Date of Pronouncement :28/02/2017
vkns'k@ ORDER
PER: VIKRAM SINGH YADAV, A.M. This is an appeal filed by the assessee against the order of Ld. CIT(A)-2, Jaipur dated 22.03.2016 for A.Y. 2012-13. The grounds of appeal taken by the assessee are as under:-
1.1 The ld. CIT(A) erred in law as well as on the facts of the case in invoking Sec. 145(3) of the Act. The provision so invoked being contrary to the provisions of law and facts, the same kindly be quashed. Consequently the trading addition of Rs.21,48,229/-
kindly be deleted in full.
2 ITA No.529/JP/2016
M/s Galaxy Impex Vs. C.I.T.(A), Jaipur 1.2 Alternatively and without prejudice to above, the ld. CIT(A) further erred in law as well as on the facts of the case in applying the GP rate of 46% as against 44.71% declared by the assessee [47.23% applied by the AO]. Hence, the GP rate so applied and thereby partly sustaining the addition up to Rs.21,48,229/- is totally contrary to the provisions of law and facts on the record and hence, the addition kindly be deleted in full.
2. The ld. CIT(A) erred in law as well as on the facts of the case in partly confirming the disallowances of the following expenses:
S. Head of Expenses Exp. Claimed Disallowed Partly No. by the by AO sustained by assessee the ld.
CIT(A) 2.1 Conveyance Exp. Rs.9,73,835/- 15% of total 10% of total 2.2 Office Exp. Rs.1,75,818/-
2.3 Staff Welfare Exp. Rs.4,79,463/-
Rs.(1,96,282/- + 2,83,181/-) 2.4 Telephone Expenses Rs.2,42,816/-
2.5 Foreign Travelling Rs.36,51,757/
Exp. -
2.6 Sales Promotion Rs.2,29,889/-
Exp.
TOTAL Rs.61,06,705 Rs.9,16,005 Rs.6,10,670
The disallowances so made and partly confirmed by the ld. CIT(A) being totally contrary to the provisions of law and facts of the case, kindly be deleted in full.
3 ITA No.529/JP/2016
M/s Galaxy Impex Vs. C.I.T.(A), Jaipur
2. In respect of ground no. 1(i) and 1(ii), the brief facts of the case are that the assessee deals in manufacturing and trading of stones at Jaipur & Chennai and also exports the same outside India. During the year under consideration, on a total turnover of Rs.1659.84 lakhs, a gross profit of Rs.742.04 lakhs & net profit of Rs.185.55 lakhs i.e. a gross profit rate of 44.71% and net profit rate of 7.75% has been returned. In the previous year, the gross profit rate and net profit rate stood at 49.74% and 10.53% respectively and the same had decreased significantly in the current year. The Assessing Officer found that wastage in the course of manufacturing had been claimed at 15.80% as against 8.93% in the preceding assessment year. The quantitative details as indicated in the annexure attached with the form No.3CD gave details in terms of sq. meter and pieces only of all quality of goods. The Assessing Officer opined that such inventory did not provide details of manufacturing goods and of the yield. It was also noted that assessee had not furnished the details of item wise inventory of various goods purchased like sandstone, grey stone, rough sandstone and others used for manufacture, export and trading. The details of sold inventory do not indicate how the same can be bifurcated and differentiated with each item of inventory for the purpose of examination. The assessee had stated that it is not possible to maintain such an inventory in a large 4 ITA No.529/JP/2016 M/s Galaxy Impex Vs. C.I.T.(A), Jaipur manufacturing unit, item wise. The assessee was asked to explain the increase in manufacturing expenses and it was submitted that the rate of raw materials have increased ranging between 10% to 160% and a chart to that extent was submitted, the decrease in gross profit was explained largely through the increased cost of raw material. The Assessing Officer observed that the assessee failed to produce item wise quantitative stock maintained at Jaipur and Chennai and had also failed to produce item wise details of such inventory month wise as well as copies of stock statements filed with the banks from whom the limits had been taken. Further not being satisfied with expenditure under the head freight inward and packing material being abnormally high and could not be explained, the Assessing Officer not being satisfied with the details, opined that the book results declared by the assessee cannot be relied upon and in absence of complete details, true profit could not be deduced and rejected the book results invoking Section 145(3) of the I.T. Act, 1961. After rejecting the books, the gross profit was estimated at 47.23% i.e. average of the gross profit of preceding assessment year at 49.74% and current year at 44.71%.
3. Against the said assessment order, the assessee preferred an appeal before the Ld. CIT(A) and objected to the rejection of books of 5 ITA No.529/JP/2016 M/s Galaxy Impex Vs. C.I.T.(A), Jaipur accounts under Section 145(3) of the I.T. Act, 1961. As regards the stock register, the ld AR relied on the Tax Audit report to claim that the same had been certified and details of raw material and finished goods had been maintained. He further reiterated that yield of finished goods, percentage of yield and wastage/rejection figures had been provided for both the units i.e. Jaipur and Chennai separately. He further contended that details of all expenditure were provided and also that purchases details were also provided since they were from unrelated parties, the same should have been accepted and the abnormal increase in purchases prices and raw material was also the reason for the decreased gross profit. Further, the figure of wastage had been wrongly mentioned at 15.80% in the current year against 8.97% of previous year by the Assessing Officer, and the appellant contended that in fact in the current year, the wastage was 8.93% which was lesser than the previous year. The appellant thus contended that the rejection of books of accounts was not in order and also that even if the same are rejected, an addition need not necessarily be made. The ld AR claimed that the fall in gross profit was due to increase in cost of raw material as well as due to decrease in turnover which decreased from Rs.21,85,71,128/- to Rs.16,59,84,045/- in the current year. Thus, the ld AR submitted that even though past history is considered to be a good guide but in the 6 ITA No.529/JP/2016 M/s Galaxy Impex Vs. C.I.T.(A), Jaipur assessee's case, since he had explained the peculiar facts of the current year, the same need not be applied. After considering the assessee's submission, the ld CIT(A) upheld the rejection of books of accounts but gross profit was determined at 46% as against 44.71% disclosed by the assessee. The relevant finding of the ld CIT(A) is reproduced as under:
"During the year, there has been a decrease in the turnover of the assessee as well as in the gross profit. It is contested that the stock register and stock details were submitted to the Assessing Officer. The decrease is claimed due to increase in raw material price and decrease in turnover. The Assessing Officer for reasons discussed earlier rejected the books of accounts. The wastage, it is claimed, has been taken wrongly at a higher figure by the Assessing Officer which is found to be true. However, as regards the stock details, the assessee was dealing in different types of stones and the same was being converted into finished goods and then sold/exported. The Assessing Officer has held that this bifurcation of the stock and relating the same to finished goods could not be explained by the assessee. Further even before me when asked to explain how the figures of finished products were being arrived at as per the quantities, the Authorized Representative had expressed his inability for the same. Thus, considering the defects pointed out by the 7 ITA No.529/JP/2016 M/s Galaxy Impex Vs. C.I.T.(A), Jaipur Assessing Officer, the rejection of books of accounts is upheld. Now coming to the percentage to be adopted, in the previous year the gross profit was 49.74% while in the current assessment year it is only 44.71%. The decrease is explained through increase in raw material cost and decrease in total turnover. It is true that the turnover has decreased by about 24% and there was increase in the price of raw material and hence it will be reasonable to adopt the gross profit at 46% of the total turnover. This ground is partly allowed.
4. The ld. Counsel for the assessee has submitted as under:
4.1 It was submitted that the assessee has admittedly maintained complete books of accounts consisting of Cash Book, Ledger, Journal and Stock Register of Raw Material & Production, Stock Register of Finished Goods. All the purchases and sales are fully vouched. All the expenses were fully supported by vouchers. The financial accounts and the other subsidiary & Quantitative records were duly maintained.
Further the accounts were subjected to Tax Audit u/s 44AB(PB 1-9). The same were produced before the AO also alongwith other details from time to time. The AO has not at all judiciously considered submissions made before the AO.
8 ITA No.529/JP/2016
M/s Galaxy Impex Vs. C.I.T.(A), Jaipur 4.2 The contention that the assessee has maintained complete day to day quantitative details, is duly supported by the examination done by the learned tax auditor wherein through Annexure G (PB 18) with reference to clause no.28 of TAR (PB 8), the quantitative details have been furnished of raw materials and finished goods both. The relevant extract from TAR, are as under:
9(b) Books of accounts maintained. Purchases Book, Sales Book, (In case books of account are Cash Book, Bank Book, maintained in a computer Journal, Ledger (Books of system, mention the books of account generated by account generated by such computer system and Stock computer system). Register.
9(c) List of Books of account Same as mentioned in 9(b)
examined. above.
4.3 The objection of the learned AO that the assessee had maintained the quantitative details as indicated and annexure attached with the Form No.3CD in terms of square meter and pieces only of all quantity of goods. However, such inventory and details attached with Form 3CD are giving the extracts of raw material and of finished goods but does not provide the details of manufactured goods and of the yield. 9 ITA No.529/JP/2016
M/s Galaxy Impex Vs. C.I.T.(A), Jaipur In fact, it appears a gross misconception of fact on the part of the AO on the face of the record itself in as much as a perusal of PB 18 to 19 being Annexure G to TAR, clearly shows and also admitted by the AO as well that the assessee has maintained the details of raw material and finished goods both still however, his grievance was that the assessee has not provided the details of manufactured goods and of the yield. A bare perusal of this annexure shall reveal that for Jaipur Unit, the assessee has shown the yield of finished goods in absolute term i.e. 136506.46 sq. mtr. And the percentage of yield being 89.34%, as also the absolute figure of wastage/rejection being 16,287.52 sq. mtr., meaning thereby the wastage percentage was 10.66%. similarly for Chennai Unit also which was engaged in trading and manufacturing both, similar figures of raw material consumption, production and yield have been given. After obtaining finished goods, there could not have been any wastage or rejection thereafter. Therefore, the allegation of the AO is grossly incorrect on the face of it. Further separate chart of wastage given to AO (PB 78).
4.4 The allegation of the AO that the assessee did not furnish the details of item-wise inventories of various purchased goods, is something impossible and impracticable for any trader/businessman in this line, 10 ITA No.529/JP/2016 M/s Galaxy Impex Vs. C.I.T.(A), Jaipur which otherwise is not a prevailing trade practice for the reason that there are several types of stones running into hundreds and the price variation is very nominal. The assessee has been following the same method of maintenance of stock register and valuing the stock at average cost price since inception, which otherwise is in accordance with the prevailing trade practice. The AO when confronted on this aspect the assessee, he duly replied the above facts however, thereafter the AO did not raise any query meaning thereby he felt satisfied. 4.5 As regards the AO's allegation that the assessee made purchases at higher prices as compared to the preceding year, it is submitted that the fact is admitted that the assessee made purchases from the outside parties only and no one was in relation of the partners of the assessee firm. That being the position, S. 40A(2) does not apply and the genuineness of the expenditure and the fact of making payment not having being under doubt, it has to be accepted that the assessee made purchases at the prevalent prices in the best business interest. The AO could and should have made inquiries directly from those suppliers to bring the truth on record, had he got some doubt. Further as regards the expectation of the AO that the sale price should have also been increased by the assessee similarly to that extent, firstly, suffice to say 11 ITA No.529/JP/2016 M/s Galaxy Impex Vs. C.I.T.(A), Jaipur that it was a businessman decision taking into the prevailing trade conditions, facts and circumstances, in the best business interest and secondly, the purchase had to be made at higher prices however, the supplies were to be made to the importers/buyers, with whom, the assessee had already entered into agreement. Therefore the assessee was contractually obliged to honour the commitment already made. In other words, the assessee had already committed the sales prices however, in the meanwhile the raw material prices went up and hence the assessee was not in a position to recoup the increase in the prices more particularly, in the absence of an escalation clause. Ref. Pr. 2.6 also.
4.6 The AO also alleged that the assessee failed to produce item-wise quantitative sock register maintained at Jaipur and Chennai and had also failed to provide item-wise details of such inventory month wise as well as copies of stock statements filed with the bank from whom the limits have been taken.
It is submitted that the assessee did maintain all the possible quantitative details meticulously on day to day basis and the same is evident from the various copies of chart showing Stock Register of Raw Material & Production, Stock Register of Finished Goods. However, the 12 ITA No.529/JP/2016 M/s Galaxy Impex Vs. C.I.T.(A), Jaipur same were even duly produced before the AO time to time for his verification. Hence this allegation is factually incorrect. However the AO never asked of furnishing copies of stock statement filed with the bank, as evident from the query letter dated 05.11.2014 (PB 79-82) 4.7 The AO alleged that the freight inward expenses of Rs.117.83 lacs and expenses of packing material of Rs.157.91 lacs were very high. However, such allegation is without making any comparison or giving other details which made him to allege like this. Thus, his objection appears to be vague and baseless. No payment to related parties have been made and paid to third parties as per prevailing rates. 4.8 The allegation of the AO that the assessee had not given any reason for the increase in the cost at pg 4 pr 1, is completely baseless and contrary to the facts in as much as he himself has admitted in the earlier part of the order at pgs 2-3 that the assessee submitted the reason behind fall in G.P. rate being increase in the purchase price of raw material ranging between 10% to 160% (which is correctly 4.3% to 37.2% and from Rs.10 per sq. mtr. to Rs.160 per sq. mtr). The purchases were made from unrelated outside various parties at the prevailing market prices, as evident from the copies of invoices (PB 84-
98). The AO could have made inquiries from those parties directly. 13 ITA No.529/JP/2016
M/s Galaxy Impex Vs. C.I.T.(A), Jaipur 4.9 The AO appears to have wrongly mentioned the figure of wastage and appears to have proceeded on misconception of facts by saying that the assessee declared wastage of 15.80% this year as against 8.93% in the preceding assessment year and alleged that there was no reason for such a sharp increase in the wastage. However, the correct facts are otherwise. The assessee, in fact, declared much lesser wastage of 8.93% this year as against 15.80% in AY 2010-11. In AY 2011-12 the assessee declared 13.82%. Thus, the percentage of wastage is constantly coming down and has sharply decreased. Kindly refer the comparative chart (PB 78). The very basis of S. 145 remains no more. 4.10 The AO alleged that the details of sold inventory does not indicate how the same can be bifurcated and differentiated with each items of inventory for the purpose of examination. It was stated by the assessee that it is not possible to maintain such inventory in a large manufacturing unit item-wise. It is submitted that firstly there appears no specific query raised by the AO as stated nor the assessee ever gave any submission as mentioned.
Thus, none of the objections raised could be made a basis of invoking Sec. 145.
14 ITA No.529/JP/2016
M/s Galaxy Impex Vs. C.I.T.(A), Jaipur 4.11 The ld. CIT(A), as evidently clear from her order has summarily confirmed the application of Sec. 145 without appreciating the various factual submissions and the case laws cited and even without appreciating the practical difficulties in the maintenance of the quantitative records, the way the revenue wants more particularly, when there is no prescription u/s44AA r/w Rule 6F. In fact, the AO wanted the assessee to do something humanely impossible. It has been held in various cases that maintenance of the accounts & records in a particular manner, the accounts cannot be rejected. Further, rejection of accounts is a serious matter and unless specific defects are pointed out and it is shown that due to such defect, the profits are not reasonably ascertainable, the accounts cannot be rejected in a casual or routine manner.
4.12. During the course of hearing before the ld CIT(A), when the assessee was asked to clarify how the yield and wastage was arrived at and whether after doing some work, the stone and the ultimate product has changed the shape, a chart showing the mathematical working of wastage of 8.93% was submitted, as under:
Assessment Year 2012-13 Goods Issued for Production (Sq. Mtr) 15 ITA No.529/JP/2016 M/s Galaxy Impex Vs. C.I.T.(A), Jaipur Jaipur 152793.98 Chennai 67450.00 220243.98 Finished Goods Production Jaipur 136506.46 Chennai 64077.50 200583.96 Wastage Jaipur 16287.52 Chennai 3372.50 19660.02 % of Wastage on Goods issued for Production Wastage(19660.52) X 100 Goods Issued for Production (220243.98) 8.93% It was submitted that the raw/rough/crude stone as available in the mother earth or in rocks is unearth/quarried/excavated by the mine owners and is of different shape and size. It is purchased as a raw material. Sizing is done. Edge cutting is done by machines as well as by tools manually. Various natural flaws such as color variation, joints, fissures moles, patches, hairline, cracks etc. are removed by 16 ITA No.529/JP/2016 M/s Galaxy Impex Vs. C.I.T.(A), Jaipur hand/machine process and by use of various tools, chemicals, polish, resin, vex etc. Dressing & Cutting, Washing, Lavigation, Calibration, tumbling, molding and other upgrading techniques are applied. As per requirement Slabs and Tiles are produced. The Slabs and Tiles exported by the assessee firm are different than raw materials purchased by the assessee firm. In the export business the quality of product is of utmost importance. Even a single defect in quality of goods, the entire shipment is rejected by the buyer.
However, in the order, there appears no adverse remark of the claim of wastage made by the assessee this year at 8.93% and thus, the contentions of the AO have been impliedly rejected. It is submitted that when the ld. CIT(A) has neither found any fault in the submissions explaining the reason of fall in the GP/NP rate as also has justified the wastage claimed this year, there was no reason yet to upheld the part addition by applying GP rate of 46%. Hence, the impugned addition kindly be deleted in full.
4.13. Minor irregularities, even assuming were there, cannot be made a basis of the rejection of the books of accounts or of trading addition. Kindly refer Padampath Ramgopal (1970) 76 ITR 719 (SC). 17 ITA No.529/JP/2016
M/s Galaxy Impex Vs. C.I.T.(A), Jaipur 4.14. It was further submitted that the assessee has been carrying on the same business in the same set up and under the same facts and circumstances. Even the manner and method of recording the transactions has also been the same since AY 2003-04. All along in the past, the cases of the assessee are being selected for scrutiny in almost every year except in A.Y. 2010-11. The same books of accounts and the other ancillary record showing financial and quantitative details, maintained in a similar manner in the past also, were duly produced before the earlier assessing officers yet however, in none of these years, the AO has ever invoked S.145 and rejected the accounts either directly or indirectly or even remotely. Therefore, there appears no special reason as to why the AO should have departed from the settled position on facts and on law between the parties and to unsettled the same. Kindly refer copies of assessment order for AY 2011-12 (PB 109-112), AY 2009-10 (PB 113-120), AY 2008-09 (PB 121-126), AY 2007-08 (PB 127-
132). Similarly even in later years A.Y. 2013-14, 2014-15 assessment completed u/s 143(3), yet S.145 was not invoked (copies submitted). 4.15 In the impugned assessment order, the AO has not whispered a single word as to why he is breaking the rule of consistency, which otherwise is binding upon him. In these circumstances therefore the 18 ITA No.529/JP/2016 M/s Galaxy Impex Vs. C.I.T.(A), Jaipur doctrine of res judicata certainly applies on the facts of the present case, so far as this aspect is concerned.
It has been held that though the doctrine of res judicata do not apply to Income Tax proceeding yet however, unless there is a change in the facts and circumstances, the view taken earlier should normally be taken consistently. For this kindly refer Sardar Kehar Singh v/s CIT (1991) 92 CTR 88(1992) 195 ITR 769 (Raj.), and a recent decision in CIT v/s Excel Industries Ltd. (2013) 358 ITR 295 (SC).
It is a judicially accepted principle that when the facts are same, a uniform view should be adopted for the subsequent years in the income tax proceedings unless there is a material change in the facts, which has not be established by the AO. Kindly refer Radhasoami Satsang v/s CIT(1992) 193 ITR 321 (SC), on the theory of consistency, has held as under:
"Strictly speaking, res judicata does not apply to the income tax proceedings. Though, each assessment year being a unit, what was decided in one year might not apply in the following year, where a fundamental aspect permeating through different assessment years has been found as a fact one way or the other and parties have allowed that position to ne sustained by not challenging the order, it would not be at 19 ITA No.529/JP/2016 M/s Galaxy Impex Vs. C.I.T.(A), Jaipur all appropriate to allow the position to be changed in a subsequent year".
4.16. Alternatively and without prejudice to above submissions on merits also, it is submitted that no trading addition at all was called for in view of the following facts and submissions:
4.17 Addition need not be made, even if Sec. 145 Invoked: It is submitted that even invoking of Sec. 145 does not confer blind powers upon the AO and he is not at liberty to assess the income at whatever figure he wants. He is bound to make an honest estimation of income.
In the case of CIT vs. Gotan Lime Khaniz Udyog (2002) 256 ITR 243 (Raj), it has been held that mere rejection of books of accounts need not necessarily lead to additions to the returned income. However, it will appear that in the present case, the ld. AO has not made a fair estimation in conformity of the above settled judicial guideline. It is not denied that the assessee was engaged in the business of manufacturing, trading and export of stones in the past as also in the later years. Therefore, there is no reason still not to consider the past history which is the best material to be used for fair estimation as per the binding decisions. The ld. AO is totally silent on this aspect. 20 ITA No.529/JP/2016
M/s Galaxy Impex Vs. C.I.T.(A), Jaipur 4.18 As regards the following G.P./N.P. rate this year, the assessee made categorical submissions before the AO vide letter dated 12.01.2015 (PB 73-74) reading as under:
"In respect of query No.15 of your query letter, we enclose herewith comparative GP and NP chart for last three years alongwith turnover details. The assessee firm has declared a GP rate of 44.71% on Total Turnover of Rs.16,59,84,045/- for the year under reference as against GP rate of 49.74% declared on Total Turnover of Rs.21,85,71,128/- for the immediately preceding year. The NP rate declared for the year under reference was 7.75% as against NP rate of 10.53% declared for the immediately preceding previous year.
The main reason for fall in the GP rate for the year under reference was due to increase in cost of Raw Materials in the year under reference. We enclose herewith a statement showing break up of Trading Account for the year ended 31.03.2012 and 31.03.2011. It is evident from the enclosed statement that the cost of purchases in the year under reference was 41.15% of total turnover whereas in the immediately preceding year i.e. financial year 2010-11 it was 36.70% of total turnover of that year. There 21 ITA No.529/JP/2016 M/s Galaxy Impex Vs. C.I.T.(A), Jaipur was about 5.03% increase in the cost of purchases made during the year under reference. We produce herewith the details of purchases made during the year under reference with purchase bills of Raw Materials cost comparison for the financial year 2010- 11 and 2011-12 (PB 84-98) alongwith copies of purchase bills of raw materials in support of increase in cost of Raw Materials in the year under reference. The perusal of enclosed statement (PB 83) shows that increase in Raw Materials cost in the year under reference was about 4% to 37% as compared to cost of immediately preceding year. The purchases and sales are fully vouched and transactions of purchases and sale are through banking channels. Further the books of accounts are duly audited and backed by stock records and quantitative tally.(PB 100). The other main reason for fall in the GP rate for the year under reference was due to decrease in turnover for the year under reference. The turnover of the assessee firm decreased from Rs.21,85,71,128/- to Rs.16,59,84,045/- in the over under reference. There was a fall of about 24% in turnover in the year under reference. The fall in the turnover resulted in fall in the GP rate due to increase in percentage of cost of fixed nature of 22 ITA No.529/JP/2016 M/s Galaxy Impex Vs. C.I.T.(A), Jaipur expenditure and other direct expenditure. Int. & dep. increase this year by 32 lacs i.e. 1.93% more w.r.t. turnover (PB 70). The main reason for fall in the NP rate for the year under reference was due to decrease in GP rate for the year under reference by about 5% which resulted fall in NP rate for the year under reference."
However, it appears that the AO & ld. CIT (A) have not appreciated these submissions judiciously. These submissions having been made and duly supported with the evidences, remaining un-rebutted, there is no reason that why the AO should have made the addition. 4.19 Otherwise A.Y. 2011-12 distinguishable: Since the assessee had already successfully distinguished the facts of the preceding year A.Y. 2011-12 from the peculiar facts available in this year, which fact is not disputed by the AO & ld. CIT (A), hence there was no justification even of computing an average of the two years of the GP rate at 47.23% and to apply the same. The past history though is treated to be a good guide in the matters of estimations however, for fair estimation unless the facts are not found exactly identical, blind application of the past history is also equally not permissible.
23 ITA No.529/JP/2016
M/s Galaxy Impex Vs. C.I.T.(A), Jaipur 4.20 Pertinently the ld. CIT(A) has very clearly accepted the factual contentions raised explaining the reasons behind the fall of GP/NP rate yet however, instead of deleting the complete addition, reduced the GP rate from 47.23% applied by the AO to 46% only but absolutely without furnishing any reason as to why she did not accept declared GP rate of 44.71%. There is absolutely no basis/reasoning behind adopting 46%. Once the ld. CIT(A) has accepted the contentions, she was bound to have allowed the relief more particularly, when the revenue is not in appeal challenging the findings recorded and the relief granted by her.
5. The ld DR is heard who has relied on the order of the lower authorities.
6. We have heard the rival contentions and pursued the material available on record. The principal contention raised by the Assessing Officer while rejecting the books of accounts has been substantial increase in the amount of wastage as compared to previous year where the production has also increased substantially during the year. On perusal of documents available on record, it is noted that the percentage of wastage during the year is 8.93% as against 15.8% in A.Y. 2010-11. The detailed working thereof has been reproduced above. Further, the turnover has, in fact, decreased from Rs.21.85 crore to Rs.16.59 crore 24 ITA No.529/JP/2016 M/s Galaxy Impex Vs. C.I.T.(A), Jaipur during the year. Therefore, on both account, there is clearly an actual inaccuracy which has crept in or wrongly appreciated by the Assessing Officer which has resulted in rejection of books of accounts. The other reason mentioned by the Assessing Officer while rejecting the books of accounts has been the decrease in the GP rate vis-à-vis last year and non-maintenance of quantitative details in terms of raw material and finished goods account. On perusal of the record, it is noted that the fall in GP rate has been reasonably explained by the assessee through facts and figures and as far as the quantitative details of raw material and finished goods are concerned, the same have been appropriately disclosed in the Tax Audit Report and therefore, details have been submitted during the course of assessment and the appellate proceedings. In the light of above, we do not see any justifiable reason for rejection of books of accounts in the instant case. Further, no reasonable basis has been given for estimating the GP rate by the lower authorities. In the overall facts and circumstances of the case and also taking into consideration the fact that in the previous years as well as in the subsequent years, the books of accounts have been accepted by the Revenue, we do not see any justifiable basis for rejection of books of accounts in the instant year. In the result, we are of the view that A.O was not justified in rejecting the books of accounts and making the GP 25 ITA No.529/JP/2016 M/s Galaxy Impex Vs. C.I.T.(A), Jaipur above. Pursuant thereto the ground taken by the assessee is therefore allowed.
7. In respect of ground no.2, the brief facts of the case are that the Assessing Officer has made an addition on account of expenses under the head conveyance of Rs.9,73,835/-, Office expense Rs.1,75,818/-, Staff welfare expenses with staff-mess expenses Rs.4,79,463/-, Telephone expenses Rs.2,42,816/-, Vehicle repairing expenses Rs.3,53,127/-, Foreign travelling expenses Rs.36,51,757/-, and Sales promotion expenses Rs.2,29,889/- which in total works out to Rs.61,06,705/-. During the course of assessment proceeding, the Assessing Officer has found that no call register, ledger, vouchers and log book maintained by the assessee, hence the Assessing Officer made 20% of the above disallowance.
8. The ld CIT(A) held that the disallowance made by the Assessing officer is on the higher side, hence the addition made by the Assessing Officer is restricted to 10%.
9. At the time of hearing, the ld. Counsel for the assessee has submitted that a bare reading of the impugned order shall reveal that in almost all the cases the disallowances have been made on ad hoc basis, simply on mere suspicion, surmises and conjectures. No specific instance 26 ITA No.529/JP/2016 M/s Galaxy Impex Vs. C.I.T.(A), Jaipur of any nature whatsoever has been given by the AO in the impugned order to support his contention with the documentary evidence that the expenditures were incurred for non-business purposes, element of personal use was there. An allegation remains a mere allegation unless proved. Suspicion cannot take the place of reality, are the settled principles kindly refer Dhakeshwari Cotton Mills V/S CIT (1954) 26 ITR 775 (SC).
9.1 It was submitted that a businessman is the best judge to take care of its own interest & to take decisions and the AO is not supposed to intervene therein nor he can replace the assessee. Here, whatever decisions were taken by the assessee has to be understood as taken out of commercial expediency. Kindly refer T.T (P) Ltd. v/s CIT (1980) 121 ITR 551 (Kar), CIT v/s Udhoji Shrikrishnadas (1983) 139 ITR 827 (MP), JK Woolen Manufactures V/S CIT (1969) 72 ITR 612 (SC). 9.2 It was further submitted that neither the AO nor the ld. CIT(A) have provided any reasonable basis whatsoever for making the estimated disallowance. They also ignored the vital fact that in the past no such disallowance was ever made. Kindly refer assessment order (PB 111) where total Rs.7,84,388/- were claimed which came to 0.36% of the turnover. It may be clarified that in the assessment order however, (PB 27 ITA No.529/JP/2016 M/s Galaxy Impex Vs. C.I.T.(A), Jaipur 101 & 111) the AO wrongly totaled the same at Rs.10,83,017/-. In that year the AO disallowed Rs.2,16,803/- which comes to 0.10% of the turnover. As against this the subjected expenditure were of Rs.61,06,705/- as selected by the AO and came to 3.68% of the turnover. Some of the expenses were incurred for the first time this year only like Conveyance, Office, Staff Welfare, Foreign Travelling which is 3.18% of the turnover.
9.3 It was submitted that looking to a huge turnover of more than Rs.16.59 crores (approx), claim of expenditure is otherwise very meager. On the above expenses kindly refer a chart (PB 101) herein above. Thus such a meager claim to achieve such a huge turnover is not at all unjustified. All these expenses were incurred exclusively for businesses purpose and are under the provisions of the Act.
10. The ld DR is heard who has relied on the order of lower authorities.
11. We have heard the rival contentions and pursued the material available on record. No specific expenditure has been identified by the Assessing officer which calls for disallowance either in terms of the said expenditure being bogus in nature or not incurred for the purposes of business carried on by the assessee. There is no basis for disallowance on adhoc basis in the eyes of law. In the result, the disallowance made 28 ITA No.529/JP/2016 M/s Galaxy Impex Vs. C.I.T.(A), Jaipur by the Assessing officer and sustained by the ld CIT(A) is deleted. The ground taken by the assessee is thus allowed.
12. Regarding Ground No.3 which is against levy of interest under Section 233B and 234D, since the same is consequential in nature, the same is dismissed.
In the result, appeal filed by the assessee is partly allowed. Order pronounced in the open court on 28/02/2017.
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(Kul Bharat) (Vikram Singh Yadav)
U;kf;d lnL;@Judicial Member ys[kk lnL;@Accountant Member
Tk;iqj@Jaipur
fnukad@Dated:-28/02/2017.
*Sanjeev*.
vkns'k dh izfrfyfi vxzfs 'kr@Copy of the order forwarded to:
1. vihykFkhZ@The Appellant- M/s Galaxy Implex, Jaipur.
2. izR;FkhZ@ The Respondent- The CIT, Circle-6, Jaipur.
3. vk;dj vk;qDr@ CIT
4. vk;dj vk;qDr@ CIT(A)
5. foHkkxh; izfrfuf/k] vk;dj vihyh; vf/kdj.k] t;iqj@DR, ITAT, Jaipur
6. xkMZ QkbZy@ Guard File {ITA No. 529/JP/2016} vkns'kkuqlkj@ By order, lgk;d iathdkj@Asst. Registrar