Income Tax Appellate Tribunal - Delhi
Acit Circle 54(1), New Delhi vs Ritu Mishra, Gurgaon on 19 June, 2023
THE INCOME TAX APPELLATE TRIBUNAL
DELHI BENCH 'F', NEW DELHI
Before Dr. B. R. R. Kumar, Accountant Member
Sh. Yogesh Kumar US, Judicial Member
ITA No. 6829/Del/2019 : Asstt. Year: 2009-10
ITA No. 6831/Del/2019 : Asstt. Year: 2009-10
Ritu Mishra, Vs. ACIT,
D-187, Sushant Lok-1, Circle-54(1),
Gurgaon, Haryana-122001 New Delhi
(APPELLANT) (RESPONDENT)
PAN No. AATPM5732A
ITA No. 6042/Del/2019 : Asstt. Year: 2009-10
ACIT, Vs. Ritu Mishra,
Circle-54(1), D-187, Sushant Lok-1,
New Delhi Gurgaon, Haryana-122001
(APPELLANT) (RESPONDENT)
PAN No. AATPM5732A
Assessee by : Sh. T. M. Shiva Kumar, Adv.
Ms. Priyanka Singh, Adv.
Revenue by : Ms. Indu Bala Saini, Sr. DR
Date of Hearing: 14.06.2023 Date of Pronouncement: 19.06.2023
ORDER
Per Dr. B. R. R. Kumar, Accountant Member:
The present appeals have been filed by the assessee and the revenue against the orders of ld. CIT(A)-35, New Delhi dated 05.04.2019 and 08.04.2019.
2. The assessee is an individual and regularly assessed to tax in De lhi. Dur ing the relevant previous year the assessee was engaged, through his proprietorship concern M/s S.K Enterprises, in the business of manufacturing and trading in 2 ITA Nos. 6042, 6829 & 6831/Del/2019 Ritu Mishra carpe ts and durries. The assessee filed Return of Income for A.Y. 2009-10 declaring income of Rs.41,78,820/-. The same was processed u/s 143(1) of the Act and thereafter the Assessing Officer ("AO") selected the case for scrutiny by issue of Notice u/s 143(2) of the Act dated 13 .09.2010. He called for various details vide notices u/s 142(1) of the Act and after examining the details furnished by the Assessee from time to time, including the books of account, purchase and sales ledger , bills and vouchers etc. he passed the Assessment Or der u/s 250 of the Act on 05.04.2019 making the following additions / disallowances to the total inco me thus determining the total income at Rs.3,58,99,760/-:
a. Disallowance of deduction claimed u/s 24(b) of the Act -
Rs. 1,50,000/-
b. Enha ncement of Gross Profit by reje cting books of accounts - Rs.2,59,27,998/-
c. Disallowance u/s 40(a)(ia) - Rs.98,21,762/-
3. In the fir st appeal filed before the Commissioner of Income Tax (Appeals)-35, New Delhi, the assessee raise d the following grounds of appeal:
"1. That the impugned assessment order is not only bad in law and nature but it also w himsical and there fore, the same is liable to be quashed.
2. That on the facts and circumstances of the case, the L d. Assessing officer has grossly erred in making Disallowance of Deduction u/s 24(b) amounting to Rs. 1,50,000/-, which is illegal and liable to be deleted.3 ITA Nos. 6042, 6829 & 6831/Del/2019
Ritu Mishra
3. That on the facts and circumstances of the case, the L d. Assessing officer has grossly erred in making enhancement of Gross Profit by an amount of Rs.2,59,27,998/-, which is illegal and liable to be deleted.
4. That on the facts and circumstances of the case, the L d. Assessing officer has grossly erred in making disallowance u/s 40(a)(ia) amounting to Rs.98 ,21,762/-, which is illegal and liable to be deleted."
4. The assessee made submissions with the supporting documents and praye d for deletion of the additions made arbitrarily based only and conjectures and surmises. The Ld. CIT(A) has duly reproduced the assessee's submissions in her order. The Ld. CIT(A) called for and obtained the remand report from the AO and after considering the same as well as the rejoinder of the Assessee, passe d a detailed order u/s 250 (6) of the Act partly allowing the assesse's appeal.
5. The Ld. CIT(A) delete d the following additio ns / disallowances made by the AO:
a. Disallowance of deduction claimed u/s 24(b) of the Act -
Rs. 1,50,000/-
b. Enha ncement of Gross Profit and by rejecting books of accounts - Rs.2,59,27,998/-
c. Disallowance u/s 40(a)(ia) - Rs.62,34,632/- made under the following head:
Repa irs and maintenance - Rs.8 ,16,850/-4 ITA Nos. 6042, 6829 & 6831/Del/2019
Ritu Mishra Printing and stationary - Rs.5,13,090/-
Packing charges - Rs.24,35,500 /-
Watch and ward - Rs.7 ,05,190/-
Rent expenses - Rs. 17,64,000/-
6. Ld CIT(A) confirmed the fo llowing additions / disallowances made by the AO:
Disallowance of freight expenses u/s 40(a)(ia) -
Rs.31 ,14,549/-
Disallowance of postage and courier expenses u/s 40(a)(ia) -Rs. 1,32,583/-
Disallowance of legal and professional charges u/s 40(a)(ia) - Rs.3,40,050/-
7. Aggrieve d by the Order of the Ld. CIT(A), the Department as well as the Assessee have filed cross appeals.
8. The gro unds taken by the Revenue in ITA No. 6042/DEL/2019 are as under:
"1. On th e fa c t s a n d c i r cu m st a n ce s o f th e ca s e . Th e C I T( A) h as e r r ed i n d el eti n g t he a d di ti on of R s . 1, 50 ,0 0 0 / - m a d e b y t h e AO , o n th e b a s i s o f di sa ll o w a n c e of d edu cti on cl a im ed b y t h e as s e ss e e u/ s 2 4 ( b ) o f th e I . T . A ct , i n s p it e of t h e f a c t th a t th e pr op e rt y u n d e r q u e s t ion w a s n ot c on s t ru ct ed .
2. On t h e fa c t s a nd c i r cu m s ta nc e s o f th e ca s e , t h e CI T (A ) h as e r r ed i n d e l et in g t h e a d d iti on o f R s. 2 ,5 9, 27 ,9 9 8 / - m a de b y th e A O , on a c c oun t o f s u p p r e s s ed C r o s s P r o fit M a rg in .
3. On t h e f a c t s a n d c ir c u m st a n c e s o f t h e ca s e , t h e C I T(A ) h as e r r ed i n r e st ri c t in g th e a dd it i on o f Rs . 98 ,2 1, 7 6 2 /- m a d e b y AO u / s 4 0 (a ) (i a ) of t he I .T . A c t t o R s . 3 5,8 7 , 18 2 / - in sp i t e o f t h e 5 ITA Nos. 6042, 6829 & 6831/Del/2019 Ritu Mishra fa ct t hat th e assessee had n ot d ed uc t ed TD S a ga in st su c h pay m en t s ."
9. The gro unds taken by the assessee in ITA No. 6829/DEL/2019 are as under:
"1. Th a t Ld . C I T ( A) h a s e r r ed in c on fi rm i ng a d d it i on on a c c oun t of F r ei gh t E xp en s es o f Rs .3 1, 1 4 ,54 9 /- u/ s 4 0( a ) (i a ) of th e I n c om e Ta x A c t , 1 9 61 w it h ou t c ons i de r i ng th e su b mi s si on s ma d e d u ri ng t h e a p p el la t e p r o c e edi ng s th a t th e p a ym en t s h a v e be en ha v e a l r ea d y be en s h own by t he pa rt i e s in t h ei r r e sp e cti v e I n co m e Ta x R et u rn s a n d d is a ll ow a n ce h a v e b e en w r on gl y ma d e in c on t ra r y t o t h e p r o vi s i on s of th e s e c on d pr o vi s o to S ec t i on 4 0 (a ) ( ia ) r ea d w it h p ro vi si on s of fi r st pr o vi s o t o S ec t i on 2 0 1 (1 ) o f th e I n c om e Ta x A c t, 1 9 61 , so i t is li a bl e t o b e d el et ed .
2. Th at Ld . C I T ( A) h a s e r r ed in c on fi rm i ng a d d it i on on a c c oun t of P o st a g e & C ou ri e r Ex p en s e s o f R s .1 ,3 2 ,58 3 /- u /s 4 0( a) (ia ) o f t h e In c om e Ta x A ct , 1 96 1 w it h out c on s i d e ri ng t he s ub mi ss i on s m a d e d u ri n g th e a p p el la t e p r oc e e di ng s t ha t ha v e a lr e ad y b e en s ho w n b y th e p a rt i es i n t h ei r r e s p e c ti v e In c o me Ta x R et u rn s a nd dis a l l ow a n c e h a v e be en w r on gl y m a d e in c ont ra r y t o t h e p r ov is i on s o f t h e s e con d p r o vi s o t o S e c t ion 4 0( a) (i a) r ea d w i t h pr o v i si on s o f fi r st p r ovi s o t o S e ct ion 2 01 (1 ) of t h e I n c o me T a x A ct , 1 96 1 , s o i t i s l ia b l e t o b e del e t ed .
3. Th at Ld . C I T ( A) h a s e r r ed in c on fi rm i ng a d d it i on on a c c oun t o f L ega l & P r of e s si on a l Ch a r g e s of R s. 3 ,4 0 , 0 50 / - u /s 4 0( a) (ia ) of th e I n c om e Ta x A ct ,19 6 1 , w ith ou t c on s i d er i ng t he s ub mi ss i on s ma d e du ri n g t h e a p pe l la t e p ro c e ed i ng s t h a t th e pa y m en t s ha v e b e e n ma d e t o di ff e r en t p e r s on s/ sm a l l pa ym en t s to d i ff e r en t p e r s on s , s o i t i s l ia b l e t o b e d el et ed . "6 ITA Nos. 6042, 6829 & 6831/Del/2019
Ritu Mishra Assessee's Submissions on Revenue's Appeal:
Disallowance of deduction u/ s 24(b):
10. The AO had disallowed the claim on the basis of the Inspector's report that the premises were demo lished and the construction work was being do ne. (Ref: Para 2 and 2(a) of Asst Order). The report of the Inspector w as for the FY 2011-12 whereas the claim pertained to the self occupation of the property during the FY 2008-09 when the premises was under
self occupation: The CIT(A) has allowed the claim duly appreciating this fact. The relevant para on Page 49 of the Order of CIT(A) is as under:
" Th e s u bm i s si on s of t he a pp e ll a nt ha v e b e en c on si d er e d a n d in t h e i n st ant ma t t e r , i t i s s e en t ha t th e A O h a s r eli ed up on t h e r ep o rt o f I T I su b mi tt ed du ri ng t h e as s e ss m en t p r o c e edi ng s i . e . i n t h e y ea r 20 1 1 , w h e r ea s th e ded uc t i on h a s b e en cl a i m ed b y a pp el la nt f or th e F i n a n ci a l Ye a r 20 0 8- 09 . Th e A pp e ll a nt on t h e oth e r h a n d su b m i tt e d t h e T el e ph on e Bi ll s f o r Mo bil e , as w el l a s Fi x ed C o nn e ct i on in sta l l ed a t t he s a m e p r em is e s s up p o rti ng h i s vi ew th a t th e a pp e ll a nt w a s r e sid i ng i n su ch p r o p er t y du rin g t h e p e ri o d u nd e r ap p ea l . B a s ed on the fa c t s and su b mi s s i ons made a b o v e, the app ell an t h a s m ad e hi s p oi n t w it h su p p o rti n g e v id en c e s t ha t th e p r op e rt y w a s in h abi t a b l e c on d it i on d u rin g th e p e ri od r el e v a n t t o A . Y. 20 0 9 -1 0 an d th e r e f o r e, t h e ap p el la n t h a s c o r re ct l y c l a im ed t h e d edu c ti on . In t h e s e f a c ts an d c ir cu ms tan c e s, t he c la i m of th e a pp e ll a n t is f oun d t o be c or r e ct a n d th e r e f o r e, the AO is h e r eb y di r e ct e d to a ll o w th e d edu ct i on of Rs. 1 ,5 0 , 0 00 / - a s clai m ed b y t he a p p el l a n t in h is in co m e t a x r e tu rn , a s pe r th e pr o vi si on s of S e c ti on 2 4 (b ) of t h e A c t. Th e G r ou nd n o . 3 is a c co r di ng l y all ow ed . "
11. It is submitted that in view of the above there is no merit in the ground raised by the Revenue and it is prayed that the same may kindly be dismissed.
7 ITA Nos. 6042, 6829 & 6831/Del/2019Ritu Mishra
12. After hearing the ld. DR, we find no mistake in the order of the ld. CIT(A) in deleting the addition.
GP Addition on Enhanced Tur nover:
13. It is submitted that the assessee has a proprietary concern by the name M/s K.K. Enterprises which is engaged in manufacturing as well as trading in carpets and durries. The assessee dur ing the year has earned a Gross Pro fit of Rs.2,89,72,002/- on gross sales of Rs.44,57,14,638/- and declared Net Profit from business at Rs.44,43,821/-.
14. The GP rate for manufacturing was 22.01% for the relevant Previous Year as compared to 25.15% in the immediately prece ding assessment year. Similarly the GP ra te for trading activity was 2.24% as against 5.21% for the immediately prece ding assessment year. [GP figures at para-8 of AO ] The combined GP rate for the relevant assessment yea r was 6.5% as against 18.80% in the immediately prece ding asse ssment year.
15. The AO compared the combined GP rates a chieved by the assessee and called for explanation on the fall in GP. Dissatisfied with the explanation and submission made by the Assessee, the AO rejected the books of account and estimated the G P for the current year at 9% [para-15 of AO], He also enhanced the total turnover to Rs.61,00,00 ,000/- on an estimate basis [para-14(b) of AO].
8 ITA Nos. 6042, 6829 & 6831/Del/2019Ritu Mishra
16. The comparative combined gross profit figures as mentioned in Para 3 of the asse ssment order is as under:
A.Y. 2007-2008 2008-09 2009-10 F.Y. 2006-07 2007-08 2008-09 Turno ver 3,75,62,348/- 7,80,12,125/- 34,60,30,917/- GP In % 10.66% 9.39% 4.14%
17. The stand of the AO as duly summarized by Ld. CIT(A) as below:
"15.2.2.2. In the Ground, no.2 , the appellant objected to the rejec tion of books of accounts and framing of assessment u/s 144 of the Act and Ground no, 4 is with regard to enhancement of Gross Profit by an amount of Rs.2,59,27,998/-.
The appellant during the instant year has been in the business of manufactur ing and trading of carpets and durries under the name & style of M/s K.K. International. T he appellant during the year has shown Gross Sales and Gros s Profit of Rs.44 ,57,14,638/- and Rs.2,89,72,002/- respectively. Net Profit from busines s has been show n at Rs.44,43,8 21/-. The AO compared the Gross Profit for the current y ear with the prece ding tw o years and observed that Gross Profit has marginally de clined to 6.50% during the year in comparison to the previous year G.P. ratio of 18.80%, whereas Turnover has increased more than 3 times in comparison to figures for previous year . The AO asked the appellant for the reason for decline in Gross Profit ratio, whereby the appellant submitted that due to tough competition and serious interna tional financial/ trade problems, appellant has been forc ed to lower its 9 ITA Nos. 6042, 6829 & 6831/Del/2019 Ritu Mishra margins and thereby there has been decline in GP ratio. It was also submitted by the appellant that due to higher trading sales; Gross Profits have been lower because Gross Profits in case of sale of manufactured products, are gene rally higher in comparison to trading sales. The AO not satisfied with the explanation of appellant observed that appe llant has not exporting any of its products and all its buyers are indigenous buyers and therefore, there should not be impact of any inter national financial/trade pro blem. The AO further observed that there is no negative impact on the turnover of appellant as the same has increase d by almost 3.5 times in comparison to imme diately preceding previous year and the perce ntage realization to total sale is better and there have bee n no negative impa ct on the business of appellant.
The AO in or der to e xamine the reaso n for de cline in Gross Profits and in order to verify the purchases, sales and c losing stock for the year under consideration, asked the appellant to submit the de tails. Based on the item w ise details of purchase, sales and clos ing stock and details of profit & loss account for the three financial years filed by the appellant, the AO observed that there has been marginal increase in the purchase rate, which has bee n compensated by the increase in sale value and increase in the cost o f raw material is marginal. For instance, the AO has observed that the carpet Malai Dori 10/14 Jaipur has been purchased at @ Rs.3,500/- per mtr. in A.Y.2008.09 whereas the purchase price for the curre nt year o f the said item has been at Rs. 3,410/- per mtr. and Malai Dori Item has been sold in the preceding previous year at price of Rs . 3,682.35 per unit whereas in the year under consideration, the sale price per 10 ITA Nos. 6042, 6829 & 6831/Del/2019 Ritu Mishra unit is Rs.4,311.95. Thus, the AO observed that sale pr ice of one of the major ite m has increased and be tter than the imme diate preceding previous year.
The AO further observed in the assessment o rder that the closing stock of 5832.127 mtr o f wool durries has been shown @ Rs.862.76 per mtr., w hereas the average purchase rate of this item is Rs. 781.25 per mtr. Thus, the value of closing stock show n is not correct since in no case the value of closing stock can be less than the purchase value meaning thereby the closing stock of Wool Durries (FCM) have been undervalued by atleast Rs.81.51 per sq, mtr. [862.76-781.25] a nd by this way alone the GP has been suppressed by an amount of Rs.4,75,376/- [81.51 x 5832.127].
The AO has further observed that there has been a number of instances proving that the figures given by appella nt is incorrect. The AO noted that the details of expenses inc urred under the head finishing charges, washing charge s and weaving charges shows that all the expenses have been incurred in cash and the appe llant during the course of assessment proceeding has neither produced cash book nor the bills o f purchases & sales and also pertaining to the expenses debite d. The AO also compared the Gross Profit of appellant with Shr i Satish Kumar Gupta, other assessee engaged in the similar trade and has show n Gross Profit of 10.09%, alongwith Gross Profits of Shri Swadesh Kumar Mishra, husband of appellant having Grogs Profit @ 10.66 and @ 9.39% for A.Y.2007-08 and A.Y.2008-09 respectively. The AO thus state d that this prove that ar tificial decline in the gross profit has been reported by appellant. The AO thus show caused the appe llant to invoke the provis ion of 11 ITA Nos. 6042, 6829 & 6831/Del/2019 Ritu Mishra section 145(3 ) of the Act by rejecting the books o f accounts and propo sed to estimate the Gross profit @ 15% on the tur nover show n by appellant in her financial statements. The AO on various occas ions reiterated that despite of asking time to time to produce the books o f accounts, however, the books were not produced by the appellant during assessment proc eedings.
The AO further compared the quantity and rate s of appellant and her husba nd Shri Swadesh Kumar Mishra and observe d that items worth R s. 19.26 Crores have bee n bought by appellant from M/s S.K. Enter prises, proprietorship co ncern of Sh. Swadesh Kumar Mishra. It has also bee n observe d that despite the fact that a lmost ha lf of the purchases have been made from M/s S.K. Enterprises, neither the quantity nor the price o f any item is same in case of both the parties and thus, the AO was fortified that the de tails of purchases/sales shown by the appellant are not correct. The AO fur ther observed that the details of purchase made by the appellant from her husband's propr ietorship concern i.e. M/s S.K. Enterprises has not been reported in the Tax Audit Repor t u/s 40A(2)(b). The AO further produced the details o f purchase, sales and closing stock which have been reproduced as under:12 ITA Nos. 6042, 6829 & 6831/Del/2019
Ritu Mishra Particulars Opening Balance Purchase/manufactured Sale/consumed Closing balance Quant Rate Value Quantity Rate Value Quantit Rate Value Quantity Rate Value ity y Carpets Trading 10.5 /48 1.960 5000. 9800.00 1.960 5000. 9800.00 MTR mtrs 00 mtrs 00 12/12 0.540 3800. 2052.00 0.540 3800. 2052.00 JAIPUR mtrs 00 mtrs 00 2.400 5500. 13200.0 2.400 5500. 13200.0 12/60 mtrs 00 0 mtrs 00 0 KASHAN 18/18 SILK 4/25 409.52 2250. 921420. 409.5 2250. 921420.
GABBEH 0 mtrs 00 00 20 mtrs 00 00 5/28 1520.0 5002. 7603040 1520.0 5004. 7606080 GABBEH 00 mtrs 00 .00 00 00 .00 mtrs 5/40 3.920 3800. 14896.0 3.920 3800. 14896.0 BIDJAR mtrs 00 0 mtrs 00 0 9/54 0.980 5500. 5390.00 0.980 5500. 5390.00 BIDJAR mtrs 00 mtrs 00 9/60 2.800 3300. 9240.00 2.800 3300. 9240.00 KASHAN mtrs 00 mtrs 00 NAPAL I 2310. 1413187 2518.3 5353. 1348133 143.0 0 5310. 759330.
2661.3 00 4.00 70 20 8.29 00 00 70 mtrs mtrs TUFFT 1492.8 4287. 6399728 1492.8 4287. 6399728 ED 00 mtrs 00 .43 00 06 .43 mtrs WOOL EN 284.0 319784. 1126. 284.0 319784.
1126.0 HAND 0 00 000 mtrs 0 00 00 mtrs TUFFE D 10/14 3410. 6563894 1881.8 3700. 6962696 42.64 9 341 145466.
1924.4
Jaipur 77 .65 11 00 .28 mtrs 0.77 01
60 mtrs
(Durry) mtrs
CHINDI 10.980 2200. 24156.0 10.98 0 220 24156.0
DURRY mtrs 00 0 mtrs 0.00 0
HAND 198.60 2600. 516360. 198.6 00 260 516360.
LOOM 0 mtrs 00 00 mtrs 0.00 00
JUTE 2300. 133883. 58.21 230 133883.
58.210
DURRY 00 00 0 0.00 00
mtrs
13 ITA Nos. 6042, 6829 & 6831/Del/2019
Ritu Mishra
MALAI DORI 1702. 350 59601 40515. 4305. 1744190 4311. 1796861 16.67 5 430 235343
41671.
890 0.00 35.00 468 00 89.74 95 45.60 mtrs 5.00 5.88
683
mtrs mtrs
SAGGY 4500. 1753155 ...59 0 450 175315
389.59
00 .00 mtrs 0.00 5.00
0 mtrs
TWIST ED 2600. 42432.0 16.32 0 260 42432.0
16.320
DURRY 00 0 mtrs 0.00 0
mtrs
Mix Fabric 6078.0 170.0 1033260 875568. 6078. 170. 103326
00 mtrs 0 .00 00 000 mtrs 00 0.00
Fabric 10064. 87.00 875568. 10064. 87.00 9384518 nnn 00 nnn mtrs mtrs Fabric 62261 135.5 8436460 62261 135.5 3103628 (Polyester) 7 yard 0 3.50 7 yard 0 79.77 TOTAL 59601 2991568 6082575 805726 (A) 35.00 27 9 3 MANUFACTURING DETAILS Woold Durry 50208 195.3 9806384 50208 195.3 9806384 (FCM) 4 136 9.22 4 136 9.22 12552 781.2 9806384 11968 1130. 1353517 862. 503173 5832.
1.727 5 9.22 9.600 85 58.48 76 6.1
127 mtrs
MTRS mtrs
130890
00.00
TOTAL 1961276 2334156 503173
(B) 98.4 07.68 6.00
GRAND 59601 4952845 8420413 130890
TOTAL 35.00 25 67 00
(A+B)
The AO based on the a bove de tails, observed that whereas the total of opening and closing stock tallies with the value shown in the trading account, but the value of total of purchase s and sale have been totally different from the figures shown by appellant. The total value of purchase & sales as per chart prepared by AO comes to Rs.29,91,56,827/- &.
14 ITA Nos. 6042, 6829 & 6831/Del/2019Ritu Mishra Rs.60 ,86,25,759/-, whereas in the trading A/c, these figures have been shown at Rs.39,72,20,676.24 & Rs.44 ,57,14,638.25 respectively. Further, adding the figures of items purchased for manufacturing i.e. 'Wool Durry (FCM)' of Rs.9,80 ,63,849/- and another item (not named) ofRs.9,80,63,849/-, the value of total purchases will be Rs. 49,52,84,525/- and adding the value of corresponding sale of these two items will make the gros s sate to Rs.84,20,41,367/-. Even if Wool Durry (FCM) and another unnamed item is considered as consumed for manufacturing, then also the gross turnover is Rs.60,86,25,759/-, as a gainst the total sales reported at Rs.44,57,14,368/- in the trading account.
In view of the above, the AO concluded that the quantity and value of purchases and sales are found to be inc orrect and the appellant has also suppressed the tur nover. Considering the above and factors discussed above, the AO invoked the provisions of Section 145(3) of the Act and rejec ted the tr ading results shown by appellant and estimated the turnover of appellant from the business of carpet trading & manufacturing at R s. 61 crores. The AO further considering the increa se in sales and other factor s also estimated the Gross Profit @ 9% and applying the Gross Profit rate @ 9% on the turnover of Rs. 61 Crores determined the Gross Profit at Rs.5,40,00,000/- and there by made addition to the tune of Rs.2,59,27,998/- to the income of appellant.
18. The submissions of the appellant made before the Ld. CIT(A) as summarized in the appellate or der are under:
15 ITA Nos. 6042, 6829 & 6831/Del/2019Ritu Mishra " Du ri ng th e a p p ell a t e p r o c e ed in g s , t h e A R o f t h e a p p ell a n t ma d e w r it t en a s w ell a s o ral su bm is s i on s , w h ic h h a v e b e en ca r efu ll y c ons id e r e d. Th e AR sub mi tt ed th at al l th e d et a i l s a n d d o c u me n t s w e r e su b m i tt e d du rin g th e as s e ss m en t p r oc e e d i n gs . H o w ev e r , th e sa m e w e r e ign o r e d by AO a n d i n s om e c a s es w r on gl y a d op t e d th e fi gu r e s to s h o w t ha t t h e d et a il s fi ll ed w er e in c o rr e ct , i n o rd e r t o s ho w t ha t t he b oo k s of a c cou n t s m a in t a i n ed by th e a pp ell an t a r e in c o rr e c t a nd t o m a k e a dd iti on s i n h a n ds o f a pp el l a nt b y r ej e ct in g th e b o ok s o f a c c oun t s a nd e st i m a ti n g t h e t u rn o v er a s w ell a s G r o ss P r of i t of a pp ell a nt t aki n g i ma g i n a r y fi gu r e s ba s ed on w r on g f ac ts an d w r on gl y t y p e d d et a il s.
Th e a pp el l ant fu r t he r s u bmi t t ed t ha t in pa ra 6 (b ) and 6 (c) of th e as s e ss m en t o rd e r, t h e A O h a s c om p a r e d th e pu r ch a s e p r ic e of i t em 10 / 14 J a ipu r of c ur r en t y ea r of R s.3 4 10 /- p e r mt r . wi th th e p ur ch a s e p ri ce o f it e m M al a i D o ri 1 0 / 14 J a i pu r R s .3 5 0 0 / - pe r mt r. f o r pr e c edi ng p r e vi ou s y ea r w h e r e as th e s a le p r ic e o f R s .36 8 2. 3 5 p e r u n it o f s a m e i te m M a l a i D o ri 1 0/ 14 Ja ip u r f o r p r e vi ou s y ea r h a s b e en c o m pa r ed wi t h th e ot h e r i t em i . e.
Ma l ai D o ri h av in g s a l e p ri c e o f R s .4 3 1 1 .9 5 , wh e r ea s th e i t em 10 / 14 J aipu r h a s s al e p r ic e o f R s .3 7 0 0/ - p e r u ni t a n d t h e A O h a s c omp a r e d th e c u r r ent y ea r sal e p ri c e o f R s. 4 3 1 1 . 9 5 w it h p r e v iou s y e a r s a l e p ri c e of Rs . 3 7 00 / -, bu t n ot c om p a r ed t he cu r r en t y ea r p u r c ha s e p ri ce o f R s . 4 3 05 / - w i th th e pr e vi ou s y e a r pu r c h a s e p r ic e o f R s .35 0 0 /- , w hi ch sh ow s th a t th e pu r c ha s e pri c e o f t h e it e m h a s b e en i n c r ea s ed by R s . 8 0 5/ - p e r m t r , wh e r ea s th e sa l e p ri ce h a s b e e n in c r ea s ed b y on l y R s . 6 11 .9 5 p e r mt r. , w h ic h ha s u lt ima t el y t h e m a in r ea s on f o r, d e cl in e in Gr o s s P ro fit f o r th e cu r r en t y ea r in co mpa ri s on t o th e p r e c ed i ng p r e v i ou s y ea r. T h e a p pe ll a n t a ll eg e d t ha t th e A O m an i pu l at ed th e figu r e s b y t a k i ng w r on g fig u r e s t o r ej e ct t h e bo o ks o f app ell ant a nd t o m a k e a d d it i on s i n h e r h a nd s .
Th e app el la nt h a s fu rt h e r sub mi tt e d t ha t t he A O h a s in pa r a 6( e) o f as s e ss m en t o rd e r h a s o bs e r v ed th a t C l os i ng S t o c k of 5 8 32 .1 2 7 m t r . o f W o ol D u r ry h a s b e en s h ow n a t R s .8 6 2.7 6 p er mt r. w h e r ea s t h e A v g. pu r c ha se p r i c e o f s u c h - i t e m i s R s. 78 1 . 25 p e r m t r . a n d c l o si ng s t o ck p ri c e h a s b e en l o w er a g a in s t t h e a v g . pu r cha se p ri c e by R s . 8 1.5 1 p er m t r. w hi c h is not p o s s ib l e and th e r e f o r e, b o ok s of a c c ou nt s are w r on g ly ma i nt a i n ed , w h e r ea s a ft e r c a r e fu l ex a mi na t i on of fi gu r e s , it i s fou n d th at am oun t o f Rs .8 6 2 . 76 a t w hi ch cl o si n g s t o c k h a s b e en va lu ed , is in fa c t 16 ITA Nos. 6042, 6829 & 6831/Del/2019 Ritu Mishra h igh e r in c om pa ri s on t o t h e A vg . P ur ch a s e P ri c e of R s . 78 1 .25 Mt r. Th e app ell an t th u s all eg ed t h a t th e A O j u st f or th e sak e of m a k i ng a d di ti on s in th e han d s of ap p el l a nt m a d e w r on g ob se rv a t i on s fo r r ej e cti ng t h e b oo k s o f ac c oun t s and e s ti m a t in g t h e t u rn ov e r a n d Gr o s s P r ofi t r e s u lt s j u st t o ma k e e x or b ita nt a dd i t i on s in th e h a n d s o f a p p ell a nt .
Th e a pp ell a nt ha s f u rt h e r su b mit t e d th a t t h e e xp en ses , s uc h a s fin i s hi n g cha rg e s , w a sh in g c h a rg e s a n d w ea vi ng c ha rg e s h a v e b e en p a id in ca sh a n d sub mi tt ed th at s u ch t y p e o f b ig g e r ma n u fa ct u rin g un it , ma n u fa ct u ri ng D a ri & C a rp et , co nv e r s i on o f th r ea d to ma k i ng of D a ri & C a r pet , ca n n ot ru n w it h o ut in v o l v e m en t of hu m a n i n t er v en t i on . I t h a s b e e n s u b m it t ed th a t th e u ni t of t he ap p e l la n t i s h i gh l y la bo u r i nt en s i v e an d th e l a bou r i s r eq ui r ed f or wa sh in g , d y i ng , we a v i ng & ot h e r s o ma n y a ct i vit i es r equ ir e d to ma k e th e p r od u ct s sa l e a b le a nd m a rk et a bl e a n d in th i s r ega r d, th e a p p ell a n t pr odu c ed th e l ed g e r a c c oun t s of t h e s e e xp en s e s a s s ub m i t te d d u ri n g th e as s e ss m en t p r o c e e di ng s a n d a s d i s cu s se d in th e a s s es sm en t o r d er . Th e app ell an t fu rth e r s u bm it t ed th a t th e b o ok s o f a c c oun t s w e r e du ly a ud i t e d by t h e C ha rt e r ed A c c ou n ta n t a s p e r t h e p r ov i si on s o f S e ct i on 4 4 AB o f th e In co m e T ax Ac t a nd su bm i tt ed du r i ng th e a s s ess m e nt pr o c e ed in gs , w h er e a s th e AO ign o r ed t h e b o ok s o f a cc ou nt s a n d k e ep s on st a t in g in th e as s e ss m en t o rd e r t h a t b o ok s of a cc ou n ts w e r e n ot p ro du c ed , i t w a s al s o sub mi tt ed th a t th e a ct of A O r ej e ct in g th e b o ok s o f a cc ou n ts i s c ont ra r y t o th e p r o v is i on s o f l a w a nd ill eg a l.
Th e A pp e ll ant fu rth e r su bm i t t ed t h a t t h e G r os s P ro fi t r e s ul t o f a p p ell an t ar e n ot c omp a rabl e t o th e G r o ss P r o fi t r e su lt s o f ot h e r a s s es s e e s i . e . S h ri Sa t i sh Ku m a r Gup t a a n d M /s S .K . Ent e rp ri s e s, p r op ri et o r shi p c on c e rn o f Sh . Sw ad e sh K u ma r Mi s h ra , h u s b a nd o f a pp ell a nt b ec a u s e S h r i S ati s h K um a r Gu pta h a s b e en in th e bu si n e s s of t ra d i ng o f c a r p e ts , w h e r ea s t he app ell an t ha s b e en in th e b u si n e s s of m a nu fa ctu rin g a s w el l a s t ra d in g of D u r ri e s a nd ca rp et s . I t w a s a rgu ed th a t sou r c e o f ra w m a t er i a l a n d th e de s ti n ati on o f en d p r odu ct v e ry mu ch ma t t e r s in t hi s fi e l d , a s Sh ri S at i sh K um a r Gu pt a i s a n e xp o rt e r w h e r e t h e pr o fi t m a rg in s a r e gen e ra ll y h igh e r w h er e a s th e a p p el l a nt h a s it s b uy e r s b a s ed in I n di a , w h o a r e a l s o t ra de r s an d t h er e f o r e, m a r gi n s in c a s e o f a p pel la n t a r e l ow d u e t o bu s in ess t o bu s in e s s t ran sa cti o n s . Th e r efo r e , com pa ri son of a p p el la n t gr o ss p r o fit r e s ul t s w i th o t h e r a s s e ss e e i . e. S h ri S a ti sh K u ma r G u pt a c o u ld n o t b e 17 ITA Nos. 6042, 6829 & 6831/Del/2019 Ritu Mishra ma d e a s th e i r bu si n e ss i s n o t c om pa ra b l e a t a l l. F u rth e r , it w a s su bm i tt ed th a t th e A O h a s b e en c o mp a rin g t h e G r o ss P r o fit of a p p el l a n t o f cu r r en t y ea r i . e . A . Y . 20 0 9 - 1 0 w it h t h e G r o s s P r of it ra t i o s fo r th e A .Y .2 00 7 -0 8 a n d A.Y .2 0 0 8 -0 9 of M/ s S .K . En t e rp ri se s, w h i ch a r e n ot c om pa ra b l e a s e v e ry y ea r i s a s ep a rat e y ea r h a vi n g d i f fe r e nt c i rcu m st a n ce s a nd m a r k et s a n d th e r e f o r e, n ot c o mp a ra bl e at a ll. The a p p e l la n t wi th r ega rd to th e ob se rv at i on o f A O th a t t h e pu rch a s es ma d e fr om M/ s S .K . En t e rp ri s e s ( pr o p r i et o rsh i p c on c e rn o f hu s b a n d of a p pe l la n t) h a s n ot b e en d i s c l os e d i n th e T a x A ud it R e p o rt a s r eq ui r e d u / s 4 0A (2 ) ( b ) o f th e A ct , h a s s ub mi tt ed th a t t h e a p p e l lan t h a s m a de pu r ch a s e s f ro m th e r e la t i v e p a rt y M/ s S .K . En t e rp r i s e s a nd G r o s s pr o fi t ra ti o o f a p pel l a nt h a s b e en h i g he r th a n o f M / s S.K . En t e rp ri s es , w h ic h s h ow s th a t a p pel la n t h a s b e en on b et t e r fo o t in g s an d pu rch a s es ha v e b e en m a d e a t A rm ' s l en gt h p ri c e.
Th e a p p el lan t fu rt h e r s ub mi tt e d th a t th e wh il e t y pi ng t h e it e m- w i s e d eta il s o f pu rc ha se, sa l es a n d c l osi n g s to ck , t he A O w r on gl y typ ed th e d eta i l s , w h er e s o m e fig u r e s ha v e b e en m is s ed out a nd s o m e fig u r e s ha v e b e en mi s qu ot ed i n w r on g ro w s a ga i n s t di ff e r en t it em s, su b -t o ta l s h a v e b e en aga i n c on sid e r e d i n t o ta l a l on g wi th ot he r i nd i v i du a l i t e m s a n d t h u s , th e app ell an t su b mi t t ed t h e c o r r e ct d eta i ls , r ep r odu c ed h er e un de r:
Particulars Opening Balance Purchase/ Sale /cons umed Closing balance manufactured Quan Rate Value Quanti Rate Value Quanti Rate Value Quant Rate Value tity ty ty ity Carpets Trading 10.5/48 1.960 5000 9800.00 1.960 5000 9800.00 MTR mtrs . mtrs . 00 00 12/12 0.540 3800 2052.00 0.540 3800 2052.00 JAIPUR mtrs . mtrs . 00 00 12/60 2.400 5500 13200.0 2.400 5500 13200.0 0 KASHAN mtrs . 00 0 mtrs . 00 18/18 SILK 4/25 GABBEH 409.5 2250 921420. 409.5 2250 921420.
20 . 00 0 0 20 . 00 00
mtrs mtrs
18 ITA Nos. 6042, 6829 & 6831/Del/2019
Ritu Mishra
1520. 5002 760304 1520. 5004 760608
5/28 GABBE
000 .00 0.00 000 .00 0.00
H
mtrs mtrs
5/40 3.920 3800 14896.0 3.920 3800 14896.0 0
BIDJAR mtrs . 00 0 mtrs .00
9/54 0.980 5500 5390.00 0.980 5500 5390.00
BIDJAR mtrs . 00 mtrs .00
9/60 2.800 3300 9240.00 2.800 3300 9240.00
KASHAN mtrs . 00 mtrs .00
NAPALI 2661. 2310 141318 2518. 5353 134813 143.0 5310 759330.
370 . 00 74 .00 370 .20 38 .29 0 .00 00
mtrs mtrs
TUFFTED 1492. 4287 639972 1492. 4287 639972 800 .00 8.43 800 m .06 8.43 mtrs trs WOOLEN 1126. 284. 319784. 1126. 284. 319784.00 HAND TUFFE 000 00 00 000 00 D mtrs mtrs Durry 10/14 Ja ipur 1924. 3410 656389 1881. 3700 696269 42.64 3410 145466.01 (Durry) 460 .77 4.65 811 .00 6.28 9 .77 mtrs mtrs mtrs CHINDI 10.98 2200 24156.0 10.98 2200 24156.00 DURRY 0 mtrs .00 0 0 .00 mtrs HAND LOOM 198.6 2600 516360. 198.6 2600 516360.00 00 .00 00 00 .00 mtrs JUTE DURRY 58.21 2300 133883. 58.21 2300 133883.00 0 mtrs .00 00 0 .00 MALAI DORI 1702. 3500 59601 40515 4305 174419 41671 4311 179686 16.67 4305 2353435 .88 890 .00 35.00 .468 .00 089.74 .683 .95 145.60 5 .00 mtrs mtrs mtrs SAGGI 389.5 4500 175315 389.5 4500 1753155.00 90 .00 5.00 90 .00 mtrs mtrs 19 ITA Nos. 6042, 6829 & 6831/Del/2019 Ritu Mishra TWISTED 16.32 2600 42432.0 16.32 2600 42432.00 DURRY 0 mtrs .00 0 Omtr .00 s Mix 6078. 170. 103326 6078. 170. 1033260.00 Fabric 000 00 0.00 000 00 mtrs mtrs Fabric Cloth 10064 87.0 875568. 10064 87.0 875568.
.000 0 00 .000 0 00
mtrs mtrs
Fabric 62261 135. 843646 62261 135. 938451 7 yard 50 03.50 7 yard 50 82 Th e a p p el lan t s ub m i tt ed th a t fr o m th e co m pa ri s on of th e tw o t a b l e s , it c oul d b e f ou nd t h a t t he A O w h il e t yp i ng t h e fig ur e s in th e a s s e s sm ent o rd e r , h as w ro ng l y t y p ed th e fig u r e of Sa l e of C a r p et "N a pa l i" of R s .1 ,3 4 , ,8 1 ,3 38 . 2 9 a s Rs .1 3, 8 1 ,33 8 . 2 9 , w h e r e d i git o f 4 a t 3 ra pl a c e fr om le ft , ha s b e en om i t t ed t o b e t y p ed . Th e sa t e figu r e of i t e m Fa b ri c C ot t on of R s .8 ,7 5 ,5 6 8/ - has be en w r ong l y t yp e d a g a in st sale of " M ix F a br i c ", w h er e a s th e r e ha v e b e en n o s a l e o f i t e m " Mi x Fa b ri c " a s t he t ot a l qu a n ti t y o f p u rch a s e o f6 07 8 mt rs . h a v e b e en s h ow n a s Cl o s in g St o c k , Si mi la r l y , th e sa l e fi g u r e of it em F a b ri c ( P ol y s t e r) " of R s. 9 , 38 ,4 5 ,1 8 2 .8 0 ha s b e en w r on gl y ty p e d ag a i ns t sa l e o f " Fa b ri c Co t t on" , w h e r ea s th e s a l e o f F ab ri c C o tt on h as b e en o n ly R s .8 ,7 5 ,5 68 /- i n c omp a ri s on t o th e Q t y. a nd ra t e of sa l e of it em . Fu r t h e r , t h e Ap p ell a n t s ub mit t e d t h a t th e A O h a s t a k en th e to t a l o f T ra di ng S a le of R s. 3 1 ,03 ,6 2, 8 7 9 . 77 , a s t h e s a l e o f it e m " F ab ri c ( P oly s t e r) " in st e ad o f s a l e o f R s. 9 , 3 8 , 45 , 1 82 .8 0 a n d th er eb y m a k in g th e sub -t o t al o f t r a di ng sa l e a t R s. 6 0 ,8 6 , 2 5, 7 5 9/ - , in st ea d o f c or r e ct sa l e o f R s .3 1 ,0 3 , 6 2 ,87 9 .7 7 . Ag a in , th e A O ta k en t h e a m ou n t of ma n u fa ct u ri n g pu r c ha se of It em " W o ol Durry ( F C M), of R s. 9 , 8 0 ,6 3 , 8 49 .2 2 , as sa l e w h er e a s th e s aid a m ou n t h a s b e en tr a n s fe r r ed t o S a l e i n n ext r ow a s pu r c ha se s/ ma n u fa c t ur ed a nd th en t h e i t e m h a s b e en s o l d a t s a t e p ri c e of R s .1 3 ,5 3 , 5 1 ,75 8 .4 8 ; h o w ev e r , th e Ld . AO c o n si d e r ed t he a b ov e sai d am oun t o f R s. 9 , 8 0 ,6 3 ,8 49 .2 2 t wi c e i n p ur ch a s e a n d w r on gl y i n S al e s , w h er e a s th e s aid a m ou nt ha s been pu r ch a s ed and t ra n s f e r r ed to ma n u fa ct u rin g i n n e xt r ow a n d t h e r ef o r e , th e L d. A O i nc r e a s ed th e a m ou nt o f pu rch a s es and sa l e s b y R s. 9 , 8 06 3 ,8 4 9 . 2 2 a n d fu rth e r in c r ea s ed th e 20 ITA Nos. 6042, 6829 & 6831/Del/2019 Ritu Mishra sa l e s by R s .3 1 ,0 3,6 2 , 87 9 .77 and the sales was de c r ea s ed by R s .1 ,2 1 ,0 0 , 0 00 / - ( 1 ,3 4 ,8 1 , 3 38 .2 9 - 1 3 , 8 1, 3 3 8 .2 9 ).
Th u s, th e r ec on ci li a ti on o f S al e s is sub mi tt ed a s un d e r:
Pa rt i c u l a r s A m o un t ( Rs . )
Tu rn ov e r d et e rm i n e d b y A O 8 4, 2 0 ,41 ,3 6 7 . 0 0
Ad d: S a l es d ec r ea sed du e t o 1 ,2 1 , 0 0 ,0 0 .00
om is si on of dig it "4"
( 1,3 4 , 81 ,3 3 8 . 2 9 - 1 3 ,8 1, 33 8 .29 )
L es s: S u b- t ot a l w r o n gl y co ns i d e r ed 3 1, 0 3 ,62 ,8 7 9. 7 7 in t ot al L es s: A m ou n t of P u r ch a s e of R a w 9 ,8 0 , 6 3 , 8 4 9 .2 2 Mat e ri al t r a n sf e r r ed to Man u fa ct u ri ng Sal e s Sh ow n i n T ra din g A c c oun t by 4 4, 5 7 ,14 ,6 3 8. 0 1 a pp ell an t Th e AR o f t h e a p p ell a nt , b a s ed on th e s ub mi ss i on ma d e a b o v e, a r gu ed t ha t th e a p p ell an t h as s ub mi tt ed t h e co r r e ct d et a il s du l y m a tch in g w i th th e fig u r e s a s st a t ed i n F in a n ci a l S ta t e m en t s, w h e r e a s th e AO h a s w r ong ly typ ed t h e sa id fi g u r e s a nd ba s ed on su c h w r on gl y t yp ed fi gu r es , th e in v ok in g t h e p r ov i s ion s of S ec ti on 1 4 5 ( 3) of th e a ct a n d r ej e ct in g th e bo ok s o f a cc ou n t s is n o t on l y i ll eg a l a n d a g a in st th e p r ov is i ons a c t b ut vo id a b in it i o. T h e AR su b mi tt ed th a t a l l th e d et a il s , su ch a s b o ok s o f ac c oun t s , b ill s and v ou ch e r s were d u ly p r odu c ed by a p pe l la n t d u rin g as s e ss m en t , a s w e ll a s a pp el l a t e p r o ce e d in gs a n d f r om th e det a il s o f it em - w is e pu r ch a s e a n d s a l e s , i t c a n b e fo un d th a t p u r ch a s e a n d s a l es h a v e be en du ly mat ch i ng w i th t h e F in a n ci a l st a t e m en t s fi l ed f o r t he y ea r u n d er c ons i d e rat i o n, pa y m en t s made to l a b ou r ha v e b e en pu r el y bu si n e s s e xp en s es , w h e r e p a y m en t s h a v e b e en m a d e on da i ly ba s i s t o l a b ou r e rs , st o ck ha s b e en v a l u ed a t c os t b a s ed on th e pu rch a se p ri c e s a t F IF O b a si s, in clu di ng e xp en s e s in c u r r ed on m a n uf a c tu ri ng a n d t h e r ef o r e , t h e A O ha s w r on gl y r ej e ct ed t h e b o ok s o f a cc ou n ts of a p p e l la n t a nd e s ti ma t i o n o f sa l e s a t R s. 6 1 C r o r e a n d e s ti ma t i on o f G r o s s P r o fi t @ 9 % i s e r r on e ou s , w hi c h i s w ith ou t a n y ba s i s a n d i s on l y a n a ss um pt i on of A . 0 a nd a d di ti on s 21 ITA Nos. 6042, 6829 & 6831/Del/2019 Ritu Mishra c oul d n o t b e m a d e b a se d on th e a s sum pt i ons a n d p r e s um p ti on s. Th e app ell an t sub mi tt ed t ha t a ll t h e s e d et a i ls a nd d o c u m en t s w er e su b mi t t ed to th e A O , b u t h e h a s c on s id e r e d t h e g o od p r oo f a s n o p r o o f a n d vi ola t in g th e j u dgm ent p r on oun c ed i n th e c a s e o f S r e el ek h a B o n e r g e e F s . C IT ( 19 63 ) 4 9 I TR 112 ( SC ) w h e r ein the d epa rt m en t c a n not , by m e r el y r ej e ct in g u n r ea s on a b ly a g o od e xp l a n a t i on , c on v er t g oo d pr o o f in t o n o pr o o f. I t w a s a l s o s u b mit t e d th a t c on t e nt ion of t h e A O h a s be en ou t o f hi s w hi m s an d c onj u n ct u r e s a nd has b e en made pu r el y on th e b a si s of su s pi ci on , wh i ch i s n ot p e rmi tt ed in th e vi e w o f th e d e c i si o n o f A p e x C ou r t in th e c a s e o f D h a k e sw a ri C ott on M il l s Ltd v s . C I T 2 6 I TR 77 5 , 78 2 ( S C) . Ba s ed on th e ab o v e s u b m is si on s , t h e a p p e l la n t f in a ll y su b mi t t e d t h at bo ok s of a cc ou nt s o f a pp e ll a n t h a v e b e en w r on g l y , r ej ect e d a n d est im at ed add it i on s a r e li abl e to b e d el et ed ."
19. As may be noted the main allegation agains t the appellant was decline in GP Rate from 18.80% in the immediately prece ding year to 6.5% for the current A.Y. 2009- 10. T he AO was not satisfied with the explanations given by the asse ssee. However, he did not find any defects in the boo ks of accounts produced before him. The AO's effort throughout the assessment order ha s only been to point out supposed defic iencies in the appellant's e xplanations. He had not find any suppression of sales or inflation of expenditure fr om the details available before him. Even though all the details of the parties for purchase and sales as well as purchase and sales register and all the relevant documents were produced before him, the AO did not make any enquiries with the supplie rs or with the buyers. It is submitted that all the observations made by the AO have been found to be defective and made on the basis of wrong assumptions - be it on the lowering of the mar gin in order to achieve higher sales margin or non-availability of disco unt details or on method of valuatio n of clos ing stock or on 22 ITA Nos. 6042, 6829 & 6831/Del/2019 Ritu Mishra the compariso n of GP Rates of concerns of Shri Satish Kumar Gupta or of appellant's husband or the suppo sed mis match between the quality and quantity of goods purchase d by appellant and as per books of her husband etc. The AO has rejec ted the books based on wrong details and based on wrong observations such as observing the closing sto ck at average price of opening stock and purchases instead of at cost or net realizable value. He ha s rejecte d the boo k on the basis of wrong comparables whose business profile as well as supplier and custo mer base were not comparable to that of the appellant. In these circums tances the Ld. CIT (A), it is respectfully submitted, has r ightly allowed the grounds relating to rejection of books of accounts and enhancement of Gross Profit and Gross turno ver.
20. Apart from relying upon and reiterating, before this Bench, the submissio ns made before the L d. CIT(A) as summarized by her, the Respondent herein made the following submissions for kind co nsideration of the Bench:
a. It is submitted that the AO has passed the Assessment order without considering the detailed submissions made and explanations given for the fall in GP rate from 18.98% in AY 2007-09 and 18.80% for AY 2008-09 to 6.5% fo r the relevant AY 2009-10.
b. The AO completely ignore d the important fact that the turno ver for the year had gone up by almost 3.5 times from Rs.13 .4 crore to Rs. 44.5 crore and while achieving such a huge rise in a shor t period, the gross profit margin wa s bound to be affected. The turnover had increased from Rs.13,42,96,583/- for the A.Y. 2008-09 to Rs.44,57,14,638/- for the current A.Y. 23 ITA Nos. 6042, 6829 & 6831/Del/2019 Ritu Mishra c. The AO also completely ignored the submissions that the trade margin had come down due to focus given to increasing the sales volume and also due to tough competition in the indus try. Eve n though the Assessee time and again submitted that he had not allowed any discount in the bills, but, at the time of accepting the purchase order he had agreed to lower the price so as to increase the sales vo lume, the AO kept on reiterating that the discount allowed by the assessee was not available.
d. The AO has typed the wrong figures in the chart reproduced by him in the order as duly submitted before the Ld CIT(A) and reproduced by her at pages 7 & 8 and pages 14-16 of her order and thus made wrong inferences regarding the correctness of the accounts.
e. The bas ic hypothesis of the AO that the increase in purchase price of items has bee n compensated by corresponding increase in sa les price s was ill founded as for example in the case of Item 10/14 Jaipur the sale price per unit for the current year increased only by 611.95 per meter where as the Purchase price for the same item had increased by Rs.805 per meter as duly explained in Par a third para from top on page 8 of Ld CIT(A) order which is one the main reasons for decline in GP rate.
f. The AO also wrongly kept on ignoring the settled accounting pr inciple of valuatio n of closing stock. He held that the value of c losing stock inventory can never be less than the average purchase price. This stand of the AO is c ontrary to the ICDS-II "Valuation of inventories" of Income Co mputation and 24 ITA Nos. 6042, 6829 & 6831/Del/2019 Ritu Mishra Disclosure Sta ndards (ICDS) issued by the Gover nment of India in exercise of powers conferred to it under section 145(2) of the Act according to which the stock can be valued at cost or at net realizable value, whichever is lower. The AO ignored the fact that accounting has been done , as per the regular accounting syste m followed by the assessee and there was no question of adopting aver age purchase price for valuation of the c losing stock. The appellant had value d the closing stock at lower of the cost or the market value on FIFO basis whereas the AO has deter mined the closing stock of durries taking average of opening stock and purchases during the year. Thus he had adopted incorrect figures and methods for valuing the c losing stock in order to ma ke out the case for rejec ting books of accounts. It is submitted that the AO had again and again considered the wrong details which were submitted due to clerical mistake and even after submitting the co rrect inventory and purchase details, the AO has kept on adopting the incorrect figures.
g. As already submitted, the appellant's concern was engaged in manufactur ing as well as trading activity. The AO completely went wrong in adding the sale value of manufac turing with the sales in the trading account again and thus ho lding that the sales figure a nd purchase figures do no t tally w ith the figures given in Form 3 CD re port. Further, in spite of intimating him that there was a mistake in the details and in spite of submitting the correct details, the AO kept on adopting the old figures in order to make out a case for rejectio n of books of account.25 ITA Nos. 6042, 6829 & 6831/Del/2019
Ritu Mishra h. It is submitted that the AO wrongly compared the appellant's GP rate with that of other business entities whose business profiles were not comparable. The AO has completely ignored the submissio n that the assessee's business involved both manufacturing and trading of carpets and durries, whereas, Shr i Satish Kumar G upta, who's GP rate had been compared with that o f the Appellant, was in the busine ss of trading of carpets. Further he also ignored the fact that Shri Satis h Kumar Gupta was an exporter of carpets and his profit margins are generally higher than that of the appellant, who's buyers were based in India. The AO also wrongly compare d the appellant's GP rate with that of her husband's co ncern ignoring the submission that his business profile w as completely different. The raw materials used in the business of the appellant and that of her husband, as well as the sources of those raw ma terials were different and hence the results were not comparable. AO ignored his own finding that almost half of the husband's sales were to the assessee's concern which would mean that the finished products of her husband's business were the raw materials for the appellant's business and thus the two cannot be comparable.
i. The AO was also wrong in holding that even though a lmost half of the sales of her husband's concern were made to appellant, the quantity and value of any of the items wa s not matc hing. The AO tried to compare the banner products (broad classification of the goods), viz., Carpets and Durries mentioned in her husband's sa les ledger with the individual items mentioned in the inve ntory de tails of the appellant's concern. He thus arrived at wrong conclusions.26 ITA Nos. 6042, 6829 & 6831/Del/2019
Ritu Mishra j. As noted by Ld, CIT(A) in her order, the AO has held at various place s in the assessme nt order that the Assessee did not produce books of accounts which is factually incorrect as the same were duly produced before him during the asses sment proceedings as also during the remand /appeal pr oceedings. The Appe llant had also produced the purchase and sales register and bills and vouc hers for verification by the AO. The appellant had also produced various details as called for u/s 142(1) of the Act though the Counsel had taken some time to submit all the required deta ils. In the remand report, the AO has changed his stand on submission of books of accounts and bills and vouchers and has submitted that the assessee had not produce d the purchase and sale bills for verification.
k. It is submitted that all the above aspects have been r ightly appreciated by the Ld CIT(A) w ho has allowed the ground with the following operational portion of her order:
" I ha v e ca r e fu ll y c on s id e r ed t h e a ss e ss m ent o rd e r pa ss ed by A O an d sub mi s si on s m a d e b y a p p e l la n t . I n t h is c a s e , t h e A O ha s r ej e ct ed th e bo ok s of app el lan t b a s ed on t h e w ro ng ly ty p ed d et a il s , w r on g- a s s u mpt i on s su c h a s ob s e rvi n g cl o s in g st o c k p ri c e l o w e r th a n the pu r c ha s e p r ic e , w h er e a s t h e fa ct s w er e op p o sit e , b a sed on w r on g co mp a r a bl e su ch as c omp a rin g t h e pu r c ha s e p ri c e o f tw o i te m s wi th S a l e P r i c e s of d if f e r ent it e m s a n d th e r ef o r e , t h e A O h a s b e en on w ro ng , fo oti ng s w h il e r ej e cti n g th e b o o k s o f a c c ou nt s a nd e sti m a t in g th e t u rn ov e r a s w ell a s a G ro ss Pr o fit , w h e r e as th e A O c ou ld n ot p oi nt e d out a si ng l e in st a n c e p r ovi n g t hat th e s al e s ha v e b e en ou t s id e b o ok s of a c c ou n t . In these f a c ts an d ci r cum s ta n c e s of t h e c a s e, I a m o f th e c on s id e r ed opi ni on t ha t r ej e cti on o f bo ok s of a cc ou n t i s not c o rr e ct b a s ed o n w r ong fi gu r e s a d o p te d b y A O a n d c ons e q u en tl y add i t i on m a d e on es t im a t e b a si s a ll egi ng su p pr e s s i on o f s al e an d G r os s p r o fit .i s n ot c o r re ct a cc o rdi n g ly a d d i ti on s ma d e b y A O o f. R s .2 ,5 9 ,2 7 , 9 98 / - i s h e r eb y d el et ed .27 ITA Nos. 6042, 6829 & 6831/Del/2019
Ritu Mishra Ac c o rd in gl y , the G r oun d N o. 2 and A dd it i on a l G r oun d s of a pp e a l are all ow ed . "
21. Having heard the arguments of the ld. DR who relied on the Assessment Order, we find no mistake in the order of the ld. CIT(A) in deleting the addition made erroneously on acco unt of the GP.
Disallowance u/s 40(a)(ia):
22. The disallowances u/s 40(a)(ia) made by the AO which were deleted by Ld CIT(A) are as under:
a. Repairs and maintenance - Rs.8,16,850/- b. Printing and stationary - R s.5,13,090/-
c. Packing c harges - Rs.24,35,500/- d. Watch and ward - Rs.7,05,190/- e. Rent expenses - Rs. 17,64,000/-
23. We find that the Ld. CIT(A) has rightly appreciated that the payments made by the Appellant me ntioned at "a, b and c"
above were in the nature of purchase of materials and the payment mentioned at "d" and "e" were made to different perso ns and were be low the limits prescribed under section 192B and 1941 of the Act. [Ref: middle para on page 69 of order of CIT(A).].
24. Hence, there is no merit in the grievance of the Revenue.28 ITA Nos. 6042, 6829 & 6831/Del/2019
Ritu Mishra ITA No. 6829/Del/2019 (Assessee's appeal)
25. The ld. CIT(A) confirmed the following additions / disallowances made by the AO:
a. Dis allo wance o f
Freight expenses u/s 40( a)(ia) - Rs.31,14,549/-
Postage and Courie r expenses u/s 40( a)(ia) -R s.
1,32,583/-
Legal and professional charges u/s 40(a)( ia) -
Rs.3,40,050/-
26. The submissions of the ld. AR are as under:
a. Freight expenses: Even though the payment towards freight expenses were made to a number of persons / trans porters, mini te mpos, hand carts, thela walas, however only one per son's name was mentioned in the voucher giving all the break up as annexure. However , while preparing the data for submission before the AO, the staff had not understood the gravity of the issue and had submitted the payments as made to the single person appearing in the voucher. The same wa s discovered when the AO raise d the query, and the figures had been submitted be fore the AO which have not been properly appreciated by the AO and the L d. CIT(A).
b. Posta ge and C ourier expenses: As regards the Po stage and Cour ier expenses the same had been incurred in amounts ranging from Rs. 100-200 on Blue Dart, DHL or First Flight [Ref: table above at Para-16(a) of the assessment order and 4th para from top on Page 52 of order of Ld. CITA(A)] 29 ITA Nos. 6042, 6829 & 6831/Del/2019 Ritu Mishra and there was no par ty-wise accounts maintained in the books as these were incurred on the spot in c ash as a petty expenditure. This submission was also not properly appreciated by the AO and the Ld. CIT(A). Further the parties involved are big courier companies and they would have certainly accounted for the receipts in their income and hence second proviso to se ction 40(a)(ia) r.w.s 201(1 ) of the Act are clearly applicable which was not lo oked into by the Author ities below.
c. Legal and pro fessional charges: The commission paid to an individual for procuring order, the remuneration paid to Auditors and the fees paid tow ards legal advice etc have not been appreciated in the proper pers pective by the AO as well as the Ld CIT(A).
Further, even in respect of these payments the second proviso to section 40(a)(ia) r.w.s 201(1) of the Act are clearly applicable which was not loo ked into by the Authorities below. The said proviso is applicable retrospectively from 2005.
27. The Ld. CIT(A) has re jected the submission w.r.t. applicability o f 2nd pro viso to section 40(a)(ia) r .w.s 201 (1) of the Act by holding that the same was no t applicable to AY 2009- 10 as the same was e ffective w.e.f. 01 .04.2013 [last page of order of CIT(A)].30 ITA Nos. 6042, 6829 & 6831/Del/2019
Ritu Mishra
28. In this regard, it was submitted that, i. The 2nd Proviso to Section 40(a)(ia) of the Act r.w. Proviso to Sec tion 201 (1) of the Act pro vides that disallo wance of expenses under Section 40(a)(ia) of the Act c annot be made unles s the as sessee has been treated as asses see in default under Section 201(1) of the Act for its failure to deduct tax at source.
ii. In the event if the amount paid by payer have been included by the payee in its re turn of income for the re levant assessment year, filed under Section 139 of the Act and has paid the tax due on the income declared in such return, to the extent recipie nt from such asse ssee is included the sum in his retur n of income and filed the same, no disallowance under Section 40(a)(ia) of the Act can be made by the Ld. AO in view of the 2nd Proviso to Section 40(a)(ia) r.w.s. First Proviso to Section 201(1 ) of the Act.
iii. The 2 n d Proviso to Section 40(a)(ia) of the Act inserted by Finance Act, 2012 and on furnishing of certificate in Form 26A as prescribed under Proviso to Section 201(1) r.w. Rule 31ACB of IT Rules, no disallowance under Section 40(a)(ia) of the Act can be made . However this opportunity was denied a t the threshold by the authorities below.
iv. The 2 n d Proviso to Section 40(a)(ia) of the Ac t has been inserted in the statute by the Finance Act, 2012 w.e.f. 01.04.2013 but has retrospective effect from 01.04.2005 as held by Hon'ble Delhi High Co urt in Commissio ner of Income 31 ITA Nos. 6042, 6829 & 6831/Del/2019 Ritu Mishra Tax-1 vs. Ansal Land Mark Tow nship (P.) Ltd [2015] 377 ITR 635 (Delhi) and in CIT vs. Rajinder Kumar [362 IT R 241].
29. With regard to the addition on account of Rs.35,87,182/- u/s 40(a)(ia), owing to the threshold of payments ma de on account of freight expenses, postage & courier expenses and legal & professional charges are directed to be de leted.
30. Owing to the adjudication in ITA No. 6042 & 6829/Del/2019, the penalty le vied u/s 271(1)(c) in IT A No. 6831/Del/2019 is liable to be de leted.
31. In the re sult, the appeals of the assessee are allowed and that of the revenue is dismissed.
Order Pronounced in the Open Court on 19/06/202 3.
Sd/- Sd/-
(Yogesh Kumar US) (Dr. B. R. R. Kumar)
Judicial Member Accountant Member
Dated: 19/06/2023
*Subodh Kumar, Sr. PS*
Copy forwarded to:
1. Appellant
2. Respondent
3. CIT
4. CIT(Appeals)
5. DR: ITAT
ASSISTANT REGISTRAR