Income Tax Appellate Tribunal - Jaipur
Dcit, Jaipur vs Handmade Paper & Board Ind., Jaipur on 22 November, 2016
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IN THE INCOME TAX APPELLATE TRIBUNAL, JAIPUR BENCHES, JAIPUR
Jh dqy Hkkjr] U;kf;d lnL; ,oa Jh foØe flag ;kno] ys[kk lnL; ds le{k
BEFORE: SHRI KUL BHARAT, JM & SHRI VIKRAM SINGH YADAV, AM
vk;dj vihy la-@ITA No. 345/JP/2014
fu/kZkj.k o"kZ@Assessment Year : 2009-10.
Deputy Commissioner of Income Tax,
Circle-7,
C-95, Lal Kothi Scheme,
Jaipur.
cuke
Vs.
M/s. Handmade Paper & Board Ind.
1/282, Gramodyog Road,
Sanganer, Jaipur.
LFkk;h ys[kk la-@thvkbZvkj la-@PAN No. AABFH 9173 L
vihykFkhZ@Appellant
izR;FkhZ@Respondent
vk;dj vihy la-@ITA No. 377/JP/2014
fu/kZkj.k o"kZ@Assessment Year : 2009-10.
M/s. Handmade Paper & Board Ind.
1/282, Gramodyog Road,
Sanganer, Jaipur.
cuke
Vs.
Asstt. Commissioner of Income Tax,
Circle-7,
C-95, Lal Kothi Scheme,
Jaipur.
LFkk;h ys[kk la-@thvkbZvkj la-@PAN No. AABFH 9173 L
vihykFkhZ@Appellant
izR;FkhZ@Respondent
jktLo dh vksj ls@ Revenue by : Shri O.P. Bhateja (Addl. CIT)
fu/kZkfjrh dh vksj ls@ Assessee by : Ms. Sadaf Rais (C.A)
lquokbZ dh rkjh[k@ Date of Hearing : 02.11.2016.
?kks"k.kk dh rkjh[k@ Date of Pronouncement : 22/11/2016.
vkns'k@ ORDER
PER SHRI KUL BHARAT, JM.
These are two cross appeals by the revenue and the assessee filed against the order of ld. CIT (A)-III, Jaipur dated 27.02.2014 pertaining to assessment year 2009-10. Both the appeals are being disposed off by this consolidated order, for the sake of convenience. First we take up revenue's appeal in ITA No. 345/JP/2014. The revenue has raised the following grounds of appeal :-
" On the facts and circumstances of the case, the CIT (A) has erred in Restricting the trading addition to Rs. 6,57,792/- granting relief of Rs. 6,20,970/- without considering the fact that G.P. rate applied by the A.O. was comparable to the G.P. rates of A.Y. 2006-07 and 2007-08 and no books of accounts were produced.
Granting relief of Rs. 42,10,868/- from disallowance of depreciation o Rs. 43,19,590/- without considering the fact that the genuineness of the claim was not proved and the depreciation on non business assets was not examined.
Granting relief of Rs. 38,87,779/- from disallowance of interest expenses of Rs. 65,43,820/- without considering the utility of the interest bearing funds including investments for non business purposes.
Granting relief of Rs. 4,72,765/- from disallowance of certain expenses of Rs. 8,31,272/- without considering the fact that books of accounts and supporting vouchers were not produced before the AO and the genuineness of the claim was not proved. "
2. Briefly stated the facts are that while framing the assessment under section 143(3) of the Income Tax Act, 1961 (hereinafter referred to as the Act), the AO made various additions and disallowances by rejecting the book of accounts and assessed the total income at Rs. 1,19,50,148/-. The assessee aggrieved by this order, preferred an appeal before ld. CIT (A), who after considering the submissions, partly allowed the appeal.
3. Aggrieved, now both the parties have income in appeal before us.
4. Ground No. 1 is against restricting the trading addition to Rs. 6,57,792/-.
4.1. The ld. D/R supported the order of the AO and submitted that the ld. CIT (A) was not justified in disturbing the finding of the A.O. 4.2. On the contrary, ld. Counsel for the assessee reiterated the submissions as made in the written submission and submitted that in earlier year the ld. CIT (A) had deleted the addition. On appeal by the revenue, the same was dismissed by the Tribunal. The ld. Counsel submitted that during the preceding year GP rate of 23.10% was declared but the AO applied GP rate of 33%. The ld. CIT (A) restricted the trading addition to the extent of R. 5,00,000/- meaning thereby GP @ 23.77% was sustained by ld. CIT (A). However, in the year under appeal, the assesee declared GP at 24.99% which is higher than the rate declared in earlier year. Even the AO in the subsequent year 2013-14 has applied GP @ 26.05%. Therefore, applying the GP rate at 33% by the AO in the year under consideration is highly excessive and contrary to the facts on record.
4.3. We have heard rival contentions, perused the material available on record and gone through the orders of the authorities below. In the light of above facts, we do not find any merit in the contention of the ld. D/R. Hence ground no. 1 of the revenue's appeal is rejected.
5. Ground No. 2 relates to granting relief from disallowance of depreciation.
5.1. The ld. D/R vehemently supported the order of the AO and submitted that the ld. CIT (A) was not justified in disturbing the finding of the A.O. 5.2. On the contrary, the ld. Counsel for the assessee reiterated the submissions as made in the written submissions. It was submitted that the assessee claimed depreciation of Rs. 43,19,590/- during the year under appeal. The ld. Counsel submitted that the ld. CIT (A) allowed depreciation on opening WDV of the fixed assets but did not allow depreciation on addition to the fixed assets made by the assessee during the year under consideration. The ld. Counsel submitted that the addition to the fixed assets were only Rs. 10,43,748/- whereas the ld. CIT (A) has held that no depreciation is allowed on addition of Rs. 26,32,362/-. The ld. Counsel submitted that the assessee has rightly claimed depreciation on fixed assets owned and used by the assessee for the business purposes. The ld. Counsel submitted that the observations of the ld. CIT (A) is not sustainable that the evidence regarding addition to fixed assets were submitted before the ld. CIT (A) first time as an additional evidence which was rejected by him. The ld. Counsel submitted that the evidence regarding addition to the fixed assets were duly filed along with return of income which was available in the file before AO wherein date-wise and item-wise details were furnished in respect of the fixed assets. The ld. Counsel submitted that the Explanation-5 to section 32(1) of the Act was inserted with effect from A.Y. 2002-03. As per this Explanation, depreciation under section 32 is allowable even if the same is not claimed by the assessee. Therefore, ld. Counsel submitted that depreciation be allowed to the assessee.
5.3. We have heard rival contentions, perused the material available on record and gone through the orders of the authorities below. We find that the ld. CIT (A) rejected the claim of the assessee on the ground that during the year the assessee has purchased new assets of Rs. 26,32,362/- of which no evidence was furnished. However, the contention of the assessee is that the total addition to the depreciable fixed assets comes to Rs. 10,43,748/-. We find that the AO has observed that during the year under consideration, the assessee has shown addition to fixed assets of Rs. 15,94,381/- upto 30th September, 2008 and of Rs. 17,60,064/- after 30th September, 2008. As against this sale of assets has been shown at Rs.7,22,083/-. Therefore, net addition to fixed assets after reducing the reduction of fixed assets works out to Rs. 26,32,362/-. The contention of the assessee is that the ld. CIT (A) has wrongly taken the figure of Rs. 26,32,362/- as against Rs. 10,43,748/-. This fact requires verification by the AO. Therefore, on this issue the order of ld. CIT (A) is set aside and matter is restored to the file of the AO for decision afresh.
6. Ground No. 3 relates to granting relief from disallowance of interest expenses.
6.1. The ld. D/R supported the order of the AO and submitted that ld. CIT (A) was not justified in deleting the same.
6.2. On the contrary, the ld. Counsel for the assessee supported the order of ld. CIT (A) and submitted that ld. CIT (A) has given a finding of fact that these funds were utilized for fixed assets.
6.3. We have heard rival contentions and perused the material available on record. The ld. CIT (A) has decided the matter in favour of the assessee by observing as under :-
"11.3. I have carefully considered the findings of the A.O. as also the submission of the appellant It may be noted that the assessee has claimed interest expenses amounting to Rs. 6543820/-. As per A.O. the assessee has not filed any details as to how the borrowed funds on which such interest was incurred were used for the business purposes. The A.O. has also noted that the assessee's turnover was only for Rs.1.59 Crores and that on such turnover interest liability of Rs. 65.43 lacs may not be incurred. The A.O. also referred to the loans and advances amounting to Rs.6.72 Crores on which no interest has been charged. The A.O. has also mentioned that the fix assets valued for Rs.8.80 Crores is having certain assets valued for Rs. 5 Crores which are not part of the business of the assessee and is part of the investment. Accordingly the A.O. disallowed such interest of Rs. 6543820/-. On the other hand the appellant case is that such interest was paid on the loan raised from Exim and vehicle loans from ICICI Bank and HDFC Bank Ltd. It is stated that loan from Exim was taken to finance existing manufacturing facilities and construction of factory building both at Sanganer and Sitapura Unit and that the Sitapura Unit has been let out to Infosys Ltd. from where rental income was earned amounting to Rs. 7970604/-. As regards advancing of Rs. 6.72 Crores on which no interest has been charged it has been stated that the assessee has not charged any interest on capital of partners standing to their credits amounting to Rs. 26873889/-. It was also stated that on the same basis interest has been charged in earlier years also. It was accordingly requested that the addition made by the A.O. may be deleted.
On careful consideration of all relevant fact, it is noted that the assessee has shown interest payment of Rs. 5962348/- to Exim and another interest payment of Rs. 581471/- is also shown which is stated to be on vehicle loans raised from HDFC and ICICI Bank. The loan liability of the assessee was for Rs. 16.57 Crores as per detail below :-
S.No. Particulars Amount (Rs.) Exim Bank of India 1 Export Import Bank of India(lMN) 80655 & 80943 3,090,962.05 2 Export Import Bank of India 3mn-82080 12,79,14,488.49 3 Export Import Bank of India(T/L2.50)7524 1,37,29,850.73 4 Export Import Pre ship. 2mn-81670, 81855 16,8,00,660.43 5 HDFC Bank 11,90,291.00 6 HDFC Bank 25,25,055.00 7 HDFC Bank 2,41,519.53 8 ICICI Bank 1,04,027.30 9 ICICI Bank 1,73,063.00 On perusal of the balance sheet of the assessee it is noted that the appellant was having partners capital for Rs. 2.69 Crores approximately whereas the loan liabilities are for Rs. 16.57 Crores approximately. The utilization of these available funds including of borrowed funds is mainly in fixed assets for Rs. 8.81 Crores and sundry loans and advances for Rs. 6.73 Crores approximately. The remaining deployment of funds is on account of closing stock and other business assets etc. It may be noted that the appellant has made interest free advances amounting to Rs. 67283594/- and prima facie the appellant has not indicated any business expediency for making such loans. In other words there is nothing on record which may indicate that such loans have been made for the purpose of business or that such loans and advances were related to the business. The list of such sundry loans and advances is as under : S.No. Particulars Amount 1 Abdul Salam A. Sattar 120000.00 2 Ahteshamuddin Kagzi 397917 3 ALIM HAND MADE PAPER IND.
(1664075.73) 4 Alimuddin Kagzi 514974.01 5 Al-Saieedan Tradg. Cont. & Trans. Co. (Qatar) 11994724 6 Atramuddin Kagzi 532514.97 7 Ghaziabad Technocrat Consultants Pvt.Ltd.
400000 8 Govind Bihari Gupta 2500000 9 Jitendra Kumar Rajendra Ku.Agrawal 300000 10 Madan Mohan 354400 11 Moinuddin Kagzi 637910.14 12 Naimuddin Kagzi 151398 13 Nizamuddin Kagzi 349292.47 14 Nusrat Kagzi 3820000 15 Patel Udyog 300000 16 Prabhati Lai 300000 17 Pradeep Sales 600000 18 Punit Gupta 75000 19 Purhottam Gujar 2400000 20 Rakhi Devi 75000 21 Ram Babu Khandelwal 500000 22 Ram Prasad S/o Sh. Kalyan 300000 23 Rijin Machinery Factroy China 271215 24 Rohitashwa Kumar 421655 25 Salim Paper Pvt. Ltd.
64856 26 Salim Paper WLL (QTAR) 801567
27.
Salim's Paper Industry 48602.98
28. Sanga Automobiles Pvt. Ltd.
6800,150
29. Sanga Builders Pvt.
28,290,470
30. Shahida Alam 250,000
31. Smt. Shakeela Kagzi 180,000
32. Vertec Communications 110605.36
33. Xiang He International Co. Ltd.
4934983
34. Yaman Packaging (Loan) A/c 150435 TOTAL :
67283595 Most of these loans to have been made either to the sister concerns or the closely related persons. The above fact will indicate that the whole of borrowed fund amounting to Rs. 165769917/- have not been used for the purpose of business in as much as the part utilization of these loans was also on making interest free loans and advances amounting to Rs. 67283594/-.It may be mentioned that if the borrowed fund would have not been utilized on such interest free advances then the liability on account of interest would have decreased. The remaining borrowed funds (excluding Rs. 6.73 Crores) cannot said to be not used for business purposes.
Accordingly it is held that out of total interest bearing funds amounting to Rs. 165769917/-, the appellant has not utilized funds to the extent of Rs. 67283594/- for business purposes and accordingly proportionate interest out of total interest of Rs. 6543820/- arising on such funds amounting to Rs. 2656041/- (6543820/165769917 *67283594) is disallowed out of total interest payment of Rs. 6543820/-. Accordingly, addition to the extent of Rs. 2656041/- is confirmed. The appellant accordingly gets relief of Rs. 3887779/-(6543820 - 2656041).
The ground of appeal is partly allowed."
The above finding of ld. CIT (A) is not rebutted by the revenue. Therefore, we do not see any infirmity in the order of ld. CIT (A), the same is hereby affirmed. The ground of the revenue is rejected.
7. Ground no. 4 relates to granting relief from disallowance of certain expenses.
7.1. The ld. D/R supported the order of the AO and submitted that ld. CIT (A) was not justified in deleting the same.
7.2. On the contrary, the ld. Counsel for the assessee supported the order of ld. CIT (A) and submitted that for smooth operation of business, the assessee has to incur certain expenditure on various accounts like postage & couriers, repairs and maintenance, salary, telephone expenses, tour and travelling expenses, vehicle expenses etc. which cannot be avoided. The ld. Counsel submitted that the expenses have been fully incurred in the interest of business and for the purpose of achieving business objectives. The volume of expenditure is quite reasonable looking to the size and scale of operation of the firm. No personal expenditure of the partners of the firm has been included in these expenses. The AO has disallowed @ 25% of total without any basis or ground. Merely on the basis of surmise and suspicion, no addition can be made in the total income of the assessee.
7.3. We have heard rival contentions and perused the material available on record. The ld. CIT (A) has restricted the relief by observing as under :-
" 12.3. I have carefully considered the findings of the A.O. and submission of the appellant. It may be noted that the A.O. has disallowed 25% of expenses out of 12 heads of expenses as discussed in para 12.1 by holding that the assessee has not furnished complete details of these expenses as also that as books of accounts were not produced, therefore element of over statement and inflation of expenses cannot be ruled out. On the other hand, the appellant case is that these expenses have been fully incurred in the interest of business. The appellant has also filed comparative chart of various expenses and accordingly claimed that comparatively less expenditure was incurred in comparison to earlier years. It was accordingly requested that the addition made by the AO may be deleted. On careful consideration of all relevant fact, it may be noted that the A.O. has made such addition because of the reason that during the assessment proceedings the appellant has not produced books of accounts and has also not justified such claim. It may be mentioned that the A.O. has disallowed 25% of such expenses on estimate basis out of 12 heads of expenses though the total heads of expenses in the P & L account were 53. It may be mentioned that the AO has disallowed 25% of such expenses out of 12 heads of expenses amounting to Rs. 33,25,086/- mainly because of the reason that the books of accounts have not been produced as also that the inflation of expenses cannot be ruled out. It is also noted that in comparison to the expenses incurred in A.Y. 2008-09, the expenses incurred by the A.O. in A.Y. 2009-10 in all heads of P & L account have decreased. It is further noted that in the 12 heads of expenses from where disallowance of 25% of expenses have been made includes expenses under the head postage and courier, rate difference, salary, bonus and PF and ESI expenses and in such expenses prima facie there may not be any issue of personal element of expenses etc. It is also not a case that the A.O. has detected any expenses which are found to be of bogus nature. Therefore, it will be fair and reasonable if the disallowance is made out of expenses excluding expenses incurred under the head postage and courier, rate difference, salary, bonus and PF and ESI expenses mainly on account of personal element of expenses and possibility of personal element of expenses cannot be ruled out in remaining seven heads of expenses. The expenses incurred on five heads of expenses where prima facie no personal element of expenses may be there are arrived at Rs. 18,91,059/- and the remaining expenses on 7 heads of expenses are accordingly arrived at Rs. 14,34,027/-. Accordingly 25% of expenses out of such expenses of Rs. 14,34,027/- are disallowed resulting into addition of Rs. 3,58,507/-. Accordingly addition to the extent of Rs. 3,58,507/- is confirmed. The appellant therefore gets relief of Rs. 4,72,765/-. The ground of appeal is partly allowed."
The above finding of ld. CIT (A) is not controverted by the revenue. Therefore, we do not see any infirmity in the order of ld. CIT (A), the same is hereby affirmed. The ground of the revenue is rejected.
8. In the result, appeal of the revenue is partly allowed for statistical purposes.
ITA NO. 377/JP/2014 :
9. Now we take up the appeal of the assessee. The assessee has raised the following grounds of appeal :-
On the facts and circumstances of the case and in the law the learned CIT (A) has erred in confirming the trading addition of Rs. 6,57,792/-.
On the facts and circumstances of the case the ld. CIT (A) has erred in not allowing depreciation on addition of fixed assets made during the year under consideration.
The learned CIT (A) has also erred in confirmation various expenditure to the tune of Rs. 3,58,507/-.
The learned CIT (A) has also erred in disallowing discount & Commission Expenses of Rs. 1,86,285/- and late charges of Rs. 1,34,961/-.
10. In respect of ground no. 1, ld. Counsel for the assessee reiterated the submissions as made in the written submission and submitted that in earlier year the ld. CIT (A) had deleted the addition. On appeal by the revenue, the same was dismissed by the Tribunal. The ld. Counsel submitted that during the preceding year GP rate of 23.10% was declared but the AO applied GP rate of 33%. The ld. CIT (A) restricted the trading addition to the extent of R. 5,00,000/- meaning thereby GP @ 23.77% was sustained by ld. CIT (A). However, in the year under appeal, the assesee declared GP at 24.99% which is higher than the rate declared in earlier year. Even the AO in the subsequent year 2013-14 has applied GP @ 26.05%. Therefore, applying the GP rate at 33% by the AO in the year under consideration is highly excessive and contrary to the facts on record.
10.1. The ld. D/R supported the order of the AO and submitted that the ld. CIT (A) was not justified in disturbing the finding of the A.O. 10.2. We have heard rival contentions, perused the material available on record and gone through the orders of the authorities below. The AO rejected the books of account and proceeded to apply the GP @ 33% on the total turnover disclosed at Rs. 1,59,63,225/-. The basis of applying this rate was that the GP rate during the year under consideration is lower than the earlier year. Therefore, considering the past history of the assessee, the AO applied the rate of 33%. The submission of the assessee in this regard before the authorities below was that in earlier years matter travelled upto the stage of this Tribunal and this Tribunal was pleased to confirm the finding of the ld. CIT (A) who had upheld the GP rate at 33.33% as disclosed by the assessee in the A.Y. 2005-06. In that year the AO had adopted the GP rate at 41%. It was submitted before ld. CIT (A) by the assesee that due to recession in Europe and America, the assessee has cut down the sale prices as all the production of the assessee are exported outside India, especially in these countries. After considering the submission, the ld. CIT (A) adopted the GP rate at 29.11% on the basis of average GP rate of different assessment years. We find that in earlier this Tribunal had confirmed the GP rate for the A.Y. 2005-06 at 33.33% which was disclosed by the assessee. In the assessee's own case in ITA No. 256/JP/2012 pertaining to A.Y. 2008-09 the decision of ld. CIT (A) restricting the adhoc addition to Rs. 5,00,000/- was confirmed by this Tribunal. Though in the year under consideration, there is no change in facts and circumstances of the case, but taking into consideration the fact that there was reasonable cause in the form of international market fluctuations for low GP rate, after considering the fact, we find it reasonable to restrict the GP rate at 28%. Hence the impugned order is modified to this extent and the ground of the assessee is partly allowed.
11. Ground No. 2 relates to disallowance of depreciation on addition of fixed assets.
11.1. Respective Authorized Representatives of both the parties have reiterated the submissions as made in the Revenue's appeal on this issue.
11.2. We have heard rival contentions. Since the issue of allowability of depreciation has already been decided in the revenue's appeal by setting aside the order of ld. CIT (A) thereby restoring the matter to the file of AO for decision afresh. Accordingly this ground of assessee's appeal is allowed for statistical purposes.
12. Regarding ground no. 3 relating to disallowance of certain expenses, while dealing with this ground in the revenue's appeal, we have upheld the order of ld. CIT (A) thereby rejecting the ground of the revenue. Therefore, the ground of the assessee is dismissed.
13. Ground no. 4 relates to disallowing discount and commission expenses of Rs. 1,86,285/-.
13.1. We have heard rival contentions and perused the material available on record. We find that the assessee could not prove nexus between the business and payment of commission. Therefore, we do not see any infirmity in the order of ld. CIT (A), the same is hereby affirmed. The ground of the assessee is rejected.
14. In the result, appeal of the assessee is partly allowed for statistical purposes.
15. In totality, both the appeals of the revenue and assessee are partly allowed for statistical purposes.
Order pronounced in the open court on 22/11/2016.
Sd/- Sd/-
¼foØe flag ;kno½ ( dqy Hkkjr)
(VIKRAM SINGH YADAV) ( KUL BHARAT )
ys[kk lnL;@Accountant Member U;kf;d lnL;@Judicial Member
Jaipur
Dated:- 22/11/2016.
Das/
vkns'k dh izfrfyfi vxzsf"kr@Copy of the order forwarded to:
1. The Appellant- The DCIT Circle-7, Jaipur.
2. The Respondent-M/s. Handmade Paper & Board Ind., Jaipur.
3. The CIT(A).
4. The CIT,
5. The DR, ITAT, Jaipur
6. Guard File (ITA No. 345 & 377/JP/2014)
vkns'kkuqlkj@ By order,
lgk;d iathdkj@ Assistant. Registrar
16
ITA Nos. 345 & 377/JP/2014
M/s. Handmade Paper & Board Ind.