Income Tax Appellate Tribunal - Jaipur
Prem Chand Jain, Jaipur vs Assessee on 21 September, 2015
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IN THE INCOME TAX APPELLATE TRIBUNAL,
JAIPUR BENCHES, JAIPUR
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BEFORE: SHRI R.P. TOLANI, JM & SHRI T.R. MEENA, AM
vk;dj vihy la-@ITA No. 486/JP/2013
fu/kZkj.k o"kZ@Assessment Year : 2008-09
Shri Prem Chand Jain cuke The Addl. CIT
P/o M/s. Bajaj Scrap Vs. Range -2
Traders, 557, Chawani, Kota
Kota
LFkk;h ys[kk la-@thvkbZvkj la-@PAN/GIR No.: ABTPJ 9673 Q
vihykFkhZ@Appellant izR;FkhZ@Respondent
fu/kZkfjrh dh vksj ls@ Assessee by : Shri P.C. Parwal, CA
jktLo dh vksj ls@ Revenue by :Shri Dilip Sharma, JCIT
lquokbZ dh rkjh[k@ Date of Hearing : 24/07/2015
?kks"k.kk dh rkjh[k@ Date of Pronouncement : 21/09/2015
vkns'k@ ORDER
PER R.P. TOLANI, JM
This is an appeal filed by the assessee against the order of the ld. CIT(A), Ajmer dated 21-03-2013 for the assessment year 2008-09 wherein following grounds have been raised by the assessee:-
''1. The ld. CIT(A) has erred on facts and in law in upholding the rejection of books of account by applying provisions of Section 145(3) of the Act.
1.1 The ld. CIT(A) has erred on facts and in law in confirming the action of AO in making trading addition of Rs. 9,76,312/- by applying gross profit rate of 2.34% i.e. 2 ITA No. 428/JP/2013 Shri Prem Chand Jain vs. Addl. CIT, Range-2, Jaipur average last two preceding years as against rate of 1.90% declared by the assessee.
2. The ld. CIT(A) has erred on facts and in law in confirming disallowance / addition of Rs. 5,39,791/- out of following.
Car & Conveyance Expenses Rs. 21,952/-
Wages Expenses Rs. 1,57,952/-
Shop Expenses Rs. 15,877/-
Mobile & Telephone expenses Rs. 19,660/-
Transportation expenses Rs. 28,919/-
House hold expenses Rs. 1,06,815/-
Penalty expenses Rs. 1,78,540/-
Cash Creditors Rs. 39,400/-
Commission expenses Rs. 22,000/-
2.1 The ld. CIT(A) has further erred on facts and in law in not allowing the set off of trading addition of Rs.
9,76,312/- confirmed by him against the disallowance / addition in respect of transportation expenses, house hold expenses and cash creditor made by him resulting into double addition.
2.1 First of all, we take up ground 1 and 1.1 of the assessee wherein brief facts of the case are that the assessee is engaged in the trading of iron scrap in the name and style of M/s. Bajaj Scrap Traders and the AO has observed therein as under:-
'1- O;kikfjd vfHko`f) %& djnkrk us vkykSP; o"kZ esa dqy fcØh :-22]02]99]282@& n'kkZbZ gS ftl ij ldy equkQk :-41]78]691@& crk;k gS tks 1-90 izfr'kr dh nj ls vkrk gS A for o"kZ 2006&07 ds nkSjku dqy fcØh :-7]98]58]688@& n'kkZ dj ldyequkQk 18]26]910@& crk;k gS tks 2-29 izfr'kr vkrk gS A blh izdkj for o"kZ 2005&06 ds nkSjku dqy fcØh :-5]30]61]611@& n'kkZ dj ldy equkQk :-12]80]946@& crk;k gS tks 2-41 izfr'kr vkrk gS A ldy equkQs dh nj vkykSP; o"kZ ds nkSjku fiNys nksuksa forh; o"kksZ esa 3 ITA No. 428/JP/2013 Shri Prem Chand Jain vs. Addl. CIT, Range-2, Jaipur n'kkZ;s x;s ldy equkQs dh nj ls dkQh de gS A djnkrk }kjk fiNys o"kksZ dh [kjhn fcØh ,oa ldy ykHk dk rqyukRed fooj.k fuEu izdkj ls izLrqr fd;k x;k gSa %& d-fu-
fu-o"kZ fcØh ldy ykHk ldy ykHk nj 2007&08 7]98]58]688@& 18]26]910@& 2-29izfr'kr 2006&07 5]30]61]611@& 12]80]946@& 2-41izfr'kr
mijksDr rqyukRed v/;;u ls Li"V gS fd djnkrk us ldy ykHk fiNys o"kksZ esa vf/kd crk;k Fkk fdUrq bl o"kZ fcØh fiNys o"kZ ls rhu xquk crk;h gS tks fd djnkrk ds O;kikj esa mUufr dk |ksrd gS A djnkrk ls ldy ykHk esa deh ds dkj.k izLrqr djus dk fuosnu fd;k x;k A mlus lquokbZ ds nkSjku voxr djk;k fd bl forh; o"kZ esa fiNysa o"kksZ ds eqdkcys vf/kd fcØh gqbZ gS]a vr% ldy equkQs dh nj esa deh vkbZ gS A rRi'pkr~ bl lEcU/k esa [kjhn fcyksa ls fcØh fcyksda dk feyku djus gsrq djnkrk }kjk izLrqr ys[kk iqLrdksa ,o [kjhn o fcØh fcyksa dh vkaf'kd tkWp a dh xbZ A djnkrk }kjk tkjh fcØh fcyksa esa LØsi dk fooj.k] mldh fdLe bR;kfn dk fooj.k fy[kk gqvk ugha gS] vr% [kjhn fcyksa ls n'kkZ;s x;s [kjhn ewY; ds vk/kkj ij ldy ykHk dh lkFkZdrk fl) djus ds fy;s dgk x;k ijUrq dj fu/kkZj.k dh dk;Zokgh ds nkSjku dksbZ Li"V vk/kkj izLrqr ugha fd;k x;k A djnkrk us eky dk dksbZ LVkWd jftLVj vFkok nSfud ys[kk tks[kk izLrqr ugha fd;k] ftlls dh [kjhn o fcØh ds okLrfod ekftZu dk vkadyu fd;k tk lds A bl ifjiz{s ; esa djnkrk }kjk [kjhn o fcØh ds fcyksa ds vk/kkj ij okLrfod ykHk ,oa ykHknj dk rqyukRed v/;;u fd;k x;k A djnkrk }kjk izLrqr ys[kk iqLrdksa dk vkaf'kd lR;kiu fd;k x;k ftlds nkSjku fuEufyf[kr vfu;ferrk;sa ik;h xbZ %& ¼v½ djnkrk ds Ø; ,oa foØ; gsrq izLrqr fooj.k ns[kus ij ik;k x;k fd vfUre LVkWd esa yksgs esa deh n'kkZbZ gS tks lky ds vfUre eghus esa gh gksuk crk;k gS tks lgh ugha gSa A bl O;olk; dh izd`fr dks ns[krs gq, bl gn rd deh gksuk Hkh lEHko ugha gSa A ¼c½ djnkrk ds tuojh ls ekpZ dh fcØh dk vkSlr ewY; [kjhn ewY; ls de ik;k x;k ftldk dkj.k djnkrk dk viuh ikfjokfjd QeksZ esa ykHk dk foHkktu gksuk ik;k x;k A ¼l½ djnkrk ds vfUre LVkWd dh x.kuk djnkrk }kjk crkbZ xbZ i}fr ,QvkbZ,Qvks ds vuqlkj u ysdj vkSlru vk/kkj ij yh xbZ gS tks de gSa A us Øsrk ,oa foØsrkvksa dh lwph izLrqr dh ftldk ys[kk iqLrdksa ls lR;kiu fd;k x;k ik;k dh eS- vfurk ,aVjizkbZtt s ] eS-
vk;Z Qkm.Mªh bUth- dks djnkrk us fnu&izfrfnu 19&20 gtkj esa uxn esa fd;k crk;k A blh izdkj vU; ekeyksa esa Hkh x;k A 4 ITA No. 428/JP/2013 Shri Prem Chand Jain vs. Addl. CIT, Range-2, Jaipur Djnkrk dh jksdM+ cgh esa i;kZIr 'ks"k jgrs gq, Hkh VqdMksa esa uxn esa Hkqxrku fd;k x;k A djnkrk }kjk [kpksZ ds Hkqxrku esa Hkh :- 20]000@& ls de VqdM+ksa esa djuk crk;k gS tcfd jksdM cgh esa i;kZIr 'ks"k jgk gS A Djnkrk ds vU; [kpksZ esa tSl& s VªkaliksVZ [kpZ :- 1]44]596@& dk Hkqxrku uixn esa fnu&izfrfnu 19&20 gtkj esa nsuk rFkk fuekZ.k [kpZ :-9]72]000@& esa ls :-2]84]410@& Nr dqVkbZ ds n'kkZ;s gq, gS tks vlkekU; [kpZ gS vkSj rF;ksa dks ns[krs gq, tks laHko ugha gks ldrk A mijksDr rF;ksa ds vk/kkj ij djnkrk }kjk n'kkZ;h x;h ldy ykHk nj pwfa d okLrfod izrhr ugh gksrh gS] vr% djnkrk dks fnukad 28@12@2010 dks ikbZ xbZ lHkh dfe;ksa ds ckjs esa crk;k x;k A lkFk gh djnkrk dks voxr djk;k x;k fd vkids ekeys esa ykHk dh lgh&lgh x.kuk djus ds fy, vkSlru ykHk nj ls x.kuk D;ksa u dh tk;s ftlds tokc esa djnkrk us vkMZj 'khV fnukad 28@12@2010 ij viuh lgerh nh ¼QksVks izfr layXu gS½ A djnkrk ds }kjk LVkWd rFkk fcØh dk dksbZ ek=kRed o xq.kkRed fooj.k ugh j[kk x;k gS A vr% djnkrk ds ldy ykHk dk iqu% fu/kkZuj.k vko';d gS A blfy, djnkrk dh O;kikj ls vk; ds laHkkfor {kj.k ls jktLo gkfu dks de djus gsrq vk;dj vf/kfu;e 1961 dh /kkjk 145¼3½ ds izko/kkuksa dks ykxw djrs gq;]s djnkrk ds }kjk nf'kZr ldy ykHk dks vkSlr vk/kkj ij 2-34 izfr'kr vuqekfur fd;k tkrk gS A djnkrk ds izdj.k esa djnkrk }kjk ?kksf"kr dqy fcØh :-22]02]99]282@& ij ldy ykHk nj 2-34 izfr'kr dh nj ls laxf.kr fd;k tkrk gS ,oa vUrj dh jkf'k ¼51]55]003&41]78]691½ :-9]76]312@& djnkrk dh dj ;ksX; vk; esa tksM+h tkrh gSa A In nutshell, the AO rejected the books of account of the assessee by applying the provisions of Section 145(3) of the Act. Thereafter, the AO made trading addition of Rs. 9,76,312/- by applying the gross profit rate of 2.34% i.e. taking the mean of last two preceding years as against gross profit rate of 1.90% declared by the assessee for the assessment year 2008-09.
2.2 The ld. CIT(A) has confirmed the rejection of books of account u/s 145(3) of the Act and also upheld the addition of Rs. 9,76,312/- made by 5 ITA No. 428/JP/2013 Shri Prem Chand Jain vs. Addl. CIT, Range-2, Jaipur the AO by applying the gross profit rate of 2.34% based on earlier years results. The observation of the ld. CIT(A) to this effect is as under:-
''4.4 I have considered the contention of the appellant as well as the assessment order. It is seen that the assessee's case was taken up for scrutiny u/s 143(2) as per the provisions of the Act. The Section 143(2) is in the statute for purpose of verification of correctness of income declared by assessee. The only requirement for the issuance of notice u 143(2) is that the Assessing Officer should consider it necessary or expedient to ensure that the assessee has not understated the income or has not computed excessive loss or has not under paid the tax in any manner. In the present case, the case was selected for scrutiny as per the guidelines of the CBDT which are meant for the guidance of the officers, so that case was taken up for scrutiny as per the provisions of Act.
The assessee's claim is that books can not be rejected as low G.P. was due to increase in turnover and for the stock valuation, it was stated that books have been audited. In this context, it may be mentioned that the AO has pointed out various defects in the books of accounts viz. decrease in gross profit rate as compared to earlier years associated with non-maintenance of qualitative and quantitative records of the sale bills as well as non-maintenance of the stock register. Further the closing stock has been valued at the average rate not as per the FIFO method followed by the assessee. Moreover, the selling rate of the goods in the month of January to March, 2008 were lower than the purchase rate of the goods. All these defects have not been controverted by the assessee during assessment stage and assessee has merely contended that average G.P. rate may be applied in his case as is evident from the notings in the order that sheet annexed with the assessment order. During 6 ITA No. 428/JP/2013 Shri Prem Chand Jain vs. Addl. CIT, Range-2, Jaipur appeal, the findings of the AO have not been controverted. In view of above, assessee's contention that books results were rejected without any basis is not acceptable. Further, there is nothing on record that assessee was forced to give any consent for applying the gross profit rate as claimed by the assessee. In view of the above discussion, the rejection of books of account u 145(3) is upheld and addition of Rs. 7,97,312/- by applying of gross profit rate of 2.234% based on the earlier years results is confirmed.'' 2.3 During the course of hearing, the ld. AR of the assessee has filed the written submission praying therein to this issue in question which is reproduced as under:-
''1. The various discrepancies pointed out by the AO is explained as under:-
(i) The assessee maintains day to day books of accounts, which is subject to audit. These books are duly supported with bills and vouchers. The lower authorities have not pointed out any sales or purchase which is out of the books or not vouched. The month-wise quantitative details of stock is at page 3 of the paper book. In these facts, the observation of AO regarding non maintenance of day to day stock register has no relevance & thus this can't be a reason for rejecting the books and applying provisions of section 145(3).
(ii) The shortage shown is justified in as much as assessee purchases scrap from various parties and during its bundling and cutting, material is lost which is not usable as attached with material like rubber/paper/paint/loose iron etc. The shortage is just 0.0057% in shape of dust/useless material. This was explained to the AO vide letter filed in assessment proceedings . This shortage is reasonable and 7 ITA No. 428/JP/2013 Shri Prem Chand Jain vs. Addl. CIT, Range-2, Jaipur shown month wise . Therefore, the observation of the AO that it is shown in the last month of the year is incorrect.
(iii) The AO has incorrectly observed that selling rate in some months is less than the purchase cost ignoring that the iron and scrap which has various qualities are not sold in the month in which it is purchased. The assessee has more than 200MT of stock in opening and it is not necessary that scrap purchased in a particular month is sold in the same month. Hence the selling rate cannot be compared with the purchase rate of related month. This was explained to the AO in assessment proceedings
(iv) It is a settled law that the choice of adopting a particular method of valuation of stock is on assessee. The only condition is that whatever method of valuation is adopted by the assessee, the same should be consistently followed. The assessee has consistently valued the stock of scrap at average rate. This was explained to the AO vide letter filed in assessment proceedings. The basis of the valuation of the stock has been adopted by the assessee since last number of years. In earlier years, such method of valuation of stock has been accepted.
2. The Ld. CIT(A) without considering the above explanation of the assessee has incorrectly held that the various defects pointed out by the AO in the books of accounts have not been controverted by the assessee during the assessment stage or in appeal.
3. Otherwise also, only because stock register is not maintained but quantitative details are furnished or there are some insignificant discrepancies, books of accounts cannot be rejected as held in the following cases:-
(1) Ganesh Foundry Vs. ACIT 78 TTJ 736 (Jod.) 8 ITA No. 428/JP/2013 Shri Prem Chand Jain vs. Addl. CIT, Range-2, Jaipur (2) CIT Vs. Jacksons House 198 Taxman 385(Del.) (3) M/s Antiquariat Vs. ACIT XXXVII Tax world 145 (Jpr.) (4) DCIT Vs. Associated Stone Industries Limited 22 TW 155 (Jpr.) In view of above, the AO be directed to accept the books of accounts.
4. Without prejudice to above, even if books of accounts are rejected it is not necessary that there should be a trading addition. After rejection of books of accounts, assessment is to be made in the manner provided u/s 144. This would require to take into consideration all the circumstantial facts & the past history. It is to be noted that overall gross profit has been increased from Rs. 18,26,910/- to Rs. 41,78,691/- as compared to last year. The slight decline in the G.P. Rate of 0.39% is on account of increase in the turnover, which has increased by three times as compared to the last year. The assessee is interested in the volume of profit & not in the rate of profit. Thus, when the amount of profit declared by the assessee is better as compared to the results declared in earlier years, application of G.P. rate of 2.34% i.e. average of last two preceding years as against G.P. rate of 1.90% declared by the assessee is unwarranted.
5. The another reason for applying the average G.P. rate of the last two years is that assessee has agreed to the same as per order sheet entry dated 28.12.2010. From the order sheet entry dated 28.12.2010, it can be noted that the assessee agreed for the assessment by applying average G.P. rate to avoid litigation and to buy peace of mind subject to the condition that no penalty proceedings be initiated. However, the AO has initiated penalty proceedings u/s 271(1)(c). Therefore, when AO has not accepted the condition on which assessee agreed for application of average G.P. rate, trading addition made by the AO and confirmed by CIT(A) only on the basis of offer of the assessee is not justified.
9 ITA No. 428/JP/2013
Shri Prem Chand Jain vs. Addl. CIT, Range-2, Jaipur The ld. AR of the assessee relied on following case laws:-
(i) Malani Ram Jagannath vs. ACIT , 316 ITR 120 (Raj.)
(ii) CIT vs. Smt. Poonam Rani, 41 DTR 194 (Del) 2010
(iii) CIT vs. Gotan Lime Khanij Udyog, 256 ITR 243 (Raj.) The ld. AR of the assessee thus prayed for that the books of account be directed to be accepted and trading addition of Rs. 9,76,3412/- confirmed by the ld. CIT(A) be deleted.
2.4 The ld. DR relied on the orders of the authorities below. 2.5 We have heard the rival contentions and perused the material available on record including the written submissions of the assessee. First of all, it is noted that gross profit rate during the year has fallen to 1.90% as against 2.29% in A.Y. 2007-08 and 2.41% in assessment year 2006-07. In order to examine the reasons for fall in gross profit rate, the AO has called for the books of accounts and after examining the books of accounts, he has rejected the books of accounts and in that regard had made certain observations which have been reproduced in para 1 above . Firstly, it is noted that while rejecting the books of account of the assessee, the show cause was issued to the assessee on 28-12-2010. Thereafter, there is entry in the order sheet by the assessee on the same date and the assessment order has also been passed on the same date 10 ITA No. 428/JP/2013 Shri Prem Chand Jain vs. Addl. CIT, Range-2, Jaipur which shows that the matter has not been given considered thought by the AO. It is a clear case of lack of opportunity to the assessee to submit its submissions and relevant documents. Secondly, in terms of the observations of the AO as well as submissions of the assessee, it is noted that the AO wanted to examine the fall in gross profit rate i.e. quantitywise as well as qualitywise and the corresponding margins in the sales effected during the year as well as corresponding purchases made during the year besides opening stock. The assessee has mentioned that it has maintained day to day books of account which are duly supported by bills and vouchers. Further monthwise quantitative details are also maintained. It is, therefore, important that the AO should examine both quantitative as well as qualitative details as maintained by the assessee in order to determine the reasons for fall in gross profit rate as compared to past years. Thirdly, the assessee has mentioned that the gross profit has increased in absolute terms from Rs. 18,26,910/- (A.Y. 2007-08) to Rs. 41,78,691/- (A.Y. 2008-09) but there is only marginal decline in gross profit rate i.e. 0.39% on account of increase in turnover. The assessee has further stated that he was interested in volume of the profit and not in rate of profit. To our mind, this justification on stand alone basis cannot stand the test of judiciary without any corroborative evidence. What is really 11 ITA No. 428/JP/2013 Shri Prem Chand Jain vs. Addl. CIT, Range-2, Jaipur required to be demonstrated by the assessee as a prudent businessman is that what are the key business circumstances in context of the prevailing market conditions which led to the fall in gross profit rate. In the light of above discussions and especially the fact that the assessee has been denied a reasonable opportunity of being heard, the mater is set aside to the file of the AO to determine afresh whether the assessee has declared correct gross profit or not. Thus Ground No. 1 and 1.1 of the assessee is allowed for statistical purposes.
3.1 Now we take up Ground No. 2 and 2.1 of the assessee as mentioned hereunder
2. The ld. CIT(A) has erred on facts and in law in confirming disallowance / addition of Rs. 5,39,791/- out of following.
Car & Conveyance Expenses Rs. 21,952/-
Wages Expenses Rs. 1,57,952/-
Shop Expenses Rs. 15,877/-
Mobile & Telephone expenses Rs. 19,660/-
Transportation expenses Rs. 28,919/-
House hold expenses Rs. 1,06,815/-
Penalty expenses Rs. 1,78,540/-
Cash Creditors Rs. 39,400/-
Commission expenses Rs. 22,000/-
2.1 The ld. CIT(A) has further erred on facts and in law in not allowing the set off of trading addition of Rs. 9,76,312/- confirmed by him against the disallowance / addition in respect of transportation expenses, house hold 12 ITA No. 428/JP/2013 Shri Prem Chand Jain vs. Addl. CIT, Range-2, Jaipur expenses and cash creditor made by him resulting into double addition.
3.2 In both the above grounds, the facts and submissions as enumerated by the assessee through its written submission are as under:-
''Disallowance out of car & conveyance expenses and shop expenses 20% of above expenses were disallowed for the reason that expenses were paid in cash, on self- made vouchers, not fully verifiable and cannot be said to be wholly for business purpose ignoring that nature of such expenses are such that there cannot be a pakka bill for these expenses. The expenses are reasonable considering the turnover. Otherwise the disallowance is excessive and be restricted to 10% of the expenses looking to the size and volume of the business vis-à-vis the expenditure incurred last year.
Disallowance out of wages expenses Disallowance is made out of outstanding liability of Rs.1,57,592/- as on 31.03.08 for the reason that when the assessee has availability of cash balance than there is no reason to keep the payment outstanding. From the details of the salary and wages expenses, it can be noted that the outstanding is partly for the month of February, 2008 and March, 2008.
Only because assessee has the availability of cash, cannot be a reason for disallowance of salary/wages payable. It is not the case of the AO that expenses are non- genuine or inflated. Further, the wages payable of Rs.83,912/- is a part of trading account. Therefore, once income is estimated by application of the g.p rate, separate disallowance of wages payable cannot be made. Hence, disallowance made by AO and confirmed by CIT(A) without considering these factual aspects be deleted.
Disallowance out of mobile and telephone expenses 20% of the expenses has been disallowed for personal use which is excessive considering the volume of the business and the same be restricted to 10%.
13 ITA No. 428/JP/2013
Shri Prem Chand Jain vs. Addl. CIT, Range-2, Jaipur Disallowance out of transportation expenses 20% of the expenses is disallowed for the reason that the expenses are incurred on self- made vouchers. From the details of expenses, it can be noted that all expenses are supported by the GR/ receipts/ receipt issued by western railway. Further, these expenses are part of trading account. Therefore, once income is estimated by application of the g.p rate, separate disallowance of transportation expenses cannot be made. Hence, disallowance made by AO and confirmed by CIT(A) without considering these factual aspects be deleted.
Addition on account of household expenses The AO observed that assessee submitted the details of household withdrawals vide reply dated 10.09.10 in which he has shown household withdrawals of Rs.1,37,900/- in his name and Rs.42,000/- in the name of his wife. Thereafter, vide letter dated 24.09.2010, household expenses is claimed at Rs.1,20,000/- in his name and Rs.1,46,951/- in the name of his wife. The AO accepted the household expenses in the hands of the assessee at Rs.1,20,000/- and in the hands of the wife at Rs.58,000/- and thus made addition of Rs.1,06,815/- (17,900+88,915) for the reason that in earlier detail assessee claimed household expenses higher by Rs,17,900/- and from the verification of the return of the assessee it is found that assessee has not declared any rental income of Rs.88,951/-. It is submitted that in earlier letter assessee has incorrectly shown the household withdrawals in his hands at Rs.1,37,900/- whereas the actual withdrawals were Rs.1,20,000/-. Therefore, this difference cannot be added. Further, in earlier letter assessee claimed household withdrawal in the hands of his wife at Rs.42,000/- whereas the actual withdrawals in her hands were Rs.1,46,951/-. The AO has accepted the household withdrawals in the hands of assessee's wife at Rs.58,000/- but incorrectly ignored the withdrawal of Rs.88,951/- in respect of withdrawal out of personal/rental income by referring to the return of the assessee instead of 14 ITA No. 428/JP/2013 Shri Prem Chand Jain vs. Addl. CIT, Range-2, Jaipur referring to the return of the assessee's wife. From the capital account of assessee's wife , the withdrawals of Rs.1,46,951/- is verifiable which is partly out of rental income of Rs.72,000/- and partly out of personal withdrawal and withdrawal from the firm in which she is partner/proprietor. In these fats the addition for household withdrawals made by AO and confirmed by CIT(A) be deleted.
Disallowance of penalty expenses The AO disallowed the restoration charges of Rs.1,17,540/- paid to RIICO ignoring that the same is not claimed as expenditure in M/s Bajaj Industries, Kota but is debited to the capital account of the assessee. Therefore, the disallowance made by the AO and confirmed by CIT(A) without looking to the facts is incorrect and the same be deleted. Addition of Rs.39,400/- u/s 68 AO observed that assessee has shown loan of Rs.19,900/- from Sh. Ratan Chand and Rs.19,500/- from Rashmi Jain to whom summons u/s 131 were issued but in spite of seeking dates time and again they did not appear and assessee shown his inability to produce them. He therefore, made the addition.
It is submitted that in respect of the above two creditors assessee vide letter dated 24.09.2010 filed the confirmation . Thereafter, the copy of the income tax return was filed . Both the creditors are assessed to tax. The AO has accepted the amount received by them from cheque but has added the amount received in cash. Further, when these persons have confirmed giving loan to the assessee, are assessed to income tax and summons have been served on them, assessee has discharged his burden of proof and therefore, the addition made by AO and confirmed by CIT(A) is unjustified. This apart when trading addition is made, addition u/s 68 should not have been made as per the ratio laid down in the following cases:-
CIT Vs. Tyaryamal Bal Chand 165 ITR 453 (Raj.) (HC) 15 ITA No. 428/JP/2013 Shri Prem Chand Jain vs. Addl. CIT, Range-2, Jaipur CIT Vs. G.K Contractor 19 DTR 305 (Raj.) CIT Vs. KSM Guruswamy Nadar & Sons 149 ITR 127 (Mad.) Anantharam Veerasinghaiah & Co. Vs. CIT 123 ITR 457(SC) Disallowance out of commission expenses.
AO disallowed the commission payment u/s 40(a)(ia) for the reason that tax is not deducted at source. From the copy of bill, it can be noted that commission was paid during the year itself and no amount is outstanding at the end of the year. Therefore, no disallowance u/s 40(a)(ia) is warranted in view of the decision of Hon'ble Allahabad High Court in case of CIT vs. Vector Shipping Services (P) Ltd. where the decision of Special Bench of ITAT in case of Merilyn Shipping and Transport Ltd. 136 ITD 23 is approved and the SLP of the Department agaisnt the decision of Hon'ble Allahabad High Court is dismissed by Hon'ble Supreme Court . Hon'ble ITAT in case of Girdhari Lal Bagrotia in ITA No. 757/JP/12 has held also held no disallowance u/s 40(a)(ia) is to be made if the amount is not outstanding at the end of the year.'' 3.3 The ld. CIT(A) has confirmed all the above disallowances as made by the AO relating to Ground No. 2 and 2.1 of the assessee.
3.4 The ld. DR relied on the orders of the lower authorities.
3.5 We have heard the rival contentions and perused the materials available on record including the written submission.
3.5.1 Regarding disallowance of car & conveyance and shop expenses amounting to Rs. 21,952/-, disallowance of mobile and telephone expenses amounting to Rs. 19,660/-, disallowance of transportation expenses amounting to Rs. 28,919/-, it is noted that these expenses pertain to 20% of total expenses which have been incurred by the assessee. From the perusal of the order of the AO, we do not find any 16 ITA No. 428/JP/2013 Shri Prem Chand Jain vs. Addl. CIT, Range-2, Jaipur specific finding which has been given while disallowing these expenses.
It is thus an adhoc disallowance made by the AO which is not justified. Thus we delete the adhoc disallowance of expenses of 20% on the above heads and do not sustain the order of the ld. CIT(A) on these issues. 3.5.2 As regards disallowance of salary and wages expenses amounting to Rs. 1,57,592/-,it is claimed by the assessee that part of the wages expenses were shown under direct expenses which have already suffered disallowance by application of adhoc gross profit rate by the AO. The AO is directed to verify the same and in light of the findings given in context of Ground No. 1 and 1.2 , this issue is set aside to the file of the AO. 3.5.3 As regards addition on account of house hold expenses, the assessee has submitted detailed submission in respect of house hold withdrawal in his name as well as in the name of his wife. The AO is directed to verify the same and allow the same after due verification. 3.5.4 Regarding disallowance of penalty expenses, the assessee has submitted that the restoration charges of Rs. 1,17,540/- have been debited to the account of the assessee and has not been claimed as expenditure in the profit and loss account. The AO is thus directed to verify the same and if the claim of the assessee is supported by the treatment done in the 17 ITA No. 428/JP/2013 Shri Prem Chand Jain vs. Addl. CIT, Range-2, Jaipur financial statement as claimed by the assessee, the same should be allowed.
3.5.5 Regarding addition of Rs. 39,400/- u/s 68 of the Act, it is noted that the assessee has submitted the confirmation from Shri Ratan Chand and Smt. Rashmi Jain during the course of assessment proceedings. Further the Income Tax Returns were also filed and both the creditors are assessed to tax. Both these persons have confirmed the loan transactions made with the assessee and the transactions are duly verifiable and the creditors have been duly identified. Thus in view of these facts, the addition made u/s 68 is deleted. Hence, the order of the ld. CIT(A) is not sustainable on this point and addition sustained by the ld. CIT(A) is deleted.
3.5.6 As regards the commission expenses amounting to Rs. 22,000/-, the assessee has not deducted the TDS on the said amount though no justification has been given to this effect. The assessee has taken the legal plea that in the light of decision of the Jaipur Bench in the case of ACIT vs Girdhari Lal Bagroti in ITA No. 757/JP/2012, no disallowance u/s 40(a)(ia) is to be made if the amount is not outstanding at the end of the year. Thus in the light of decision taken earlier by this Bench in case of 18 ITA No. 428/JP/2013 Shri Prem Chand Jain vs. Addl. CIT, Range-2, Jaipur ACIT vs Girdhari Lal Bargoti (supra) we delete the addition. Hence, the order of the ld. CIT(A) is not sustainable on this issue. 4 In the result, the appeal of the assessee is partly allowed for statistical purposes Order pronounced in the open court on 21/09/2015.
Sd/- Sd/- ¼Vh-vkj-ehuk½ ¼vkj-ih-rksykuh½ (T.R. Meena) (R.P.Tolani) ys[kk lnL;@ Accountant Member U;kf;d lnL;@Judicial Member Tk;iqj@Jaipur fnukad@Dated:- 21st SEPT 2015 *Mishra
vkns'k dh izfrfyfi vxzfs 'kr@Copy of the order forwarded to:
1. vihykFkhZ@The Appellant- Shri Prem Chand Jain, Kota
2. izR;FkhZ@ The Respondent- The Addl. CIT, Range-2, Kota
3. vk;dj vk;qDr¼vihy ) @ CIT(A)
4. vk;dj vk;qDr@ CIT,
5. foHkkxh; izfrfuf/k] vk;dj vihyh; vf/kdj.k] t;iqj@DR, ITAT, Jaipur
6. xkMZ QkbZy@ Guard File (ITA No.486/JP/2013) vkns'kkuqlkj@ By order, lgk;d iathdkj@ Assistant. Registrar