Income Tax Appellate Tribunal - Jaipur
M/S Silvex & Co. (India) Ltd., Jaipur vs Income Tax Officer, Ward-7-2, Jaipur on 28 October, 2022
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IN THE INCOME TAX APPELLATE TRIBUNAL, JAIPUR BENCHES,"A" JAIPUR
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BEFORE: DR. S. SEETHALAKSHMI, JM & SHRI RATHOD KAMLESH JAYANTBHAI, AM
vk;djvihy la-@ITA. No. 900 & 901/JP/2018
fu/kZkj.ko"kZ@AssessmentYears :2011-12 & 2012-13
M/s Silvex & Company (India) cuke Income Tax Officer,
Ltd., Vs. Ward-7(2),
G1-35 to 37, 47 & 48 EPIP, Jaipur.
Jewellery Zone, Sitapura Industrial
Area, Jaipur.
LFkk;hys[kk la-@thvkbZvkj la-@PAN/GIR No.: AAJCS 4492 C
vihykFkhZ@Appellant izR;FkhZ@Respondent
fu/kZkfjrh dh vksj ls@Assesseeby : Shri Manish Agarwal(C.A.)
jktLo dh vksj ls@Revenue by : Shri P.R. Meena (CIT)
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lquokbZ dh rkjh[k@Date of Hearing 14/09/2022
mn?kks"k.kk dh rkjh[k@Date of Pronouncement : 28/10/2022
vkns'k@ORDER
PER: DR. S. SEETHALAKSHMI, J.M. These are two appeals filed by the assessee against the order of the Learned Commissioner of Income Tax (Appeals)-I, Jodhpur (Camp at Jaipur) [hereinafter referred to as (CIT(A)] both dated 21.05.2018 and 22.05.2018 for the Assessment years 2011-12 & 2012-13 respectively. 2 ITA No. 900 & 901/JP/2018
M/s Silvex & Co. (India) Ltd.
As the issues involved in the present appeals are common and inextricably interlinked or in fact interwoven and of the same assessee. Therefore, the parties argued them together and are disposed off by this common order
2. We take ITA No. 900/JP/2018 for the A.Y. 2011-12 wherein following grounds have been raised by the assessee:-
"1. On the facts and in the circumstances of the case Ld. Commissioner of Income Tax (Appeals) has grossly erred in upholding the provisions of section 145(3) of the Income Tax Act, 1961 invoked by Ld. Assessing Officer without appreciating the nature of business and nature of records maintained, without pointing out specific defects in the books of accounts maintained by the assessee; thus application of provisions of section 145(3) deserves to be held bad in law.
2. On the facts and in the circumstances of the case the Ld. Commissioner of Income Tax (Appeals) has further erred in confirming the addition of Rs. 57,05,309/- made by Ld. AO by applying a Gross profit rate of 6.71% as against 5.77% declared by the assessee without appreciating the fact that there is increase in turnover and change in the pattern of business and other factors, thus addition of Rs. 57,05,309/- made on assumption and presumption deserves to be deleted.
3. On the facts and in the circumstances of the case the Ld. CIT (A) has grossly erred in sustaining the addition to the extent of Rs. 3,29,196/- u/s 40(a)(ia) out of total disallowance of Rs.3,74,196/- without appreciating the facts on records and submission made; therefore the disallowances partly deleted deserves to be fully deleted.3 ITA No. 900 & 901/JP/2018
M/s Silvex & Co. (India) Ltd.
4.On the facts and in the circumstances of the case the Ld. CIT(A) has grossly erred in sustaining disallowance of Rs. 8,020/- on account of TDS demand and Rs. 10,295/- on account of TDS penalty, without appreciating genuineness of claim and submission made therefore the disallowance so made deserves to be deleted.
5.That the appellant craves the right to add, deleted, amend or abandone of any of the grounds of appeal either before or at the time of hearing of appeal."
3. We take ITA No. 901/JP/2018 for the A.Y. 2012-13 wherein following grounds have been raised by the assessee:-
"On the facts and in the circumstances of the case Ld. Commissioner of Income Tax (Appeals) has grossly erred in upholding the provisions of section 145(3) of the Income Tax Act, 1961 invoked by Ld. Assessing Officer merely by alleging the non-maintenance of stock register without pointing out specific defects in the books of account and also without appreciating the facts and circumstances of the case and submissions made before him. Therefore, the order of Ld. AO deserves to be held bad in law.
1.1 That the Ld. CIT(A) has further erred in upholding the invoking of provision of section 145(3) merely for non-maintenance of stock register, while in fact assessee had maintained all the possible details which were ignored by the Ld. AO. Therefore, the invoking of provisions of sec 145(3) by rejecting the books of account of the assessee deserves to be quashed.
2. On the facts and in the circumstances of the case, the Ld. CIT (A) has grossly erred in confirming trading addition of Rs. 47,30,011/- made by Ld. AO arbitrarily, and without properly considering the fairness / 4 ITA No. 900 & 901/JP/2018 M/s Silvex & Co. (India) Ltd.
genuineness of the trading results declared by the assessee in the year under appeal and the preceding years which are at parity and are clearly justifiable, thus the action of the Ld. CIT(A) deserves to be held bad in law and the trading additions deserves to be deleted. 2.1 That, the Ld. Commissioner of Income Tax (Appeals) has further erred in sustaining an arbitrary / unjustifiable GP rate of 5.57% applied by Ld. AO without appreciating the fact that there is increase in turnover of the assessee and therefore, a slight downfall in the GP rate is more than justifiable in the facts and circumstances of the case. Therefore, the trading addition of Rs. 47,30,011/- deserves to be deleted.
3. On the facts and circumstances of the case, the Ld. CIT(A) has grossly erred in confirming the addition of Rs. 87,995/- by way of disallowance u/s 40(a)(ia) in a mechanical manner, without appreciating the nature and genuineness of the payment made which has not been disputed by the Ld. AO. Therefore, addition of Rs. 87,995/-confirmed by the Ld.CIT(A) deserves to be deleted. 3.1 That the Ld. CIT(A) has further erred in ignoring the second proviso to section 40(a)(ia) which in clear terms provides that disallowance u/s ,40(a)(ia) cannot be made if the assessee has not been treated as an `assessee in default' u/s 201(1) of the Income Tax Act, 1961. And this provision though inserted later was only clarificatory in nature, and applies to the year under appeal also Therefore, the addition made u/s 40(a)(ia) deserves to be deleted.
4. On the facts and in the circumstances of the case, the Ld. CIT(A) has grossly erred in upholding the disallowance of Rs. 11,709/- made by Ld. Assessing Officer, being the amount claimed on account of TDS demand when the said amount has been legitimately claimed and are duly 5 ITA No. 900 & 901/JP/2018 M/s Silvex & Co. (India) Ltd.
allowable u/s 37 of the Income Tax Act, 1961, therefore, this addition deserves to be deleted.
5. That the appellant craves the right to add, deleted, amend or abandone of any of the grounds of appeal either before or at the time of hearing of appeal."
4. Brief facts of the case are that appellant is a company and since inception it is engaged in manufacturing of silver / precious / semi precious ornaments and the articles so made are "design based" which may differ from piece to piece. The number of items produced run into thousands and the company having been engaged in "made to order" products had always created different products. The designs produced during the period have exceeded 5000 in number. The company has declared progressive turnover and the gross profit declared would also indicate a logical co-relation between the sales and gross profit. The company has its factory situated at G-1-35 to 37, EPIP Jewellary Zone, Sitapura Industrial Area, Jaipur. The assessee company is being controlled and managed by highly experienced managerial team including its directors who are in the line of business for past many years. The company has mainly been financed by the commercials banks and the nature of bank limits are packing credit limits, cash credits limits and foreign bills discounting. The fact that the commercial banks very objectively deal with a loan proposal and further the physical inspection/ surveillance is also a regular practice adopted by the financing bankers, goes to 6 ITA No. 900 & 901/JP/2018 M/s Silvex & Co. (India) Ltd.
prove that the appellant company had maintained given amount of stocks at all given points of time.
5. Return of total income for the year under appeal was filed on 26.03.2013 declaring loss of Rs. 4,84,227/- which was assessed at Income of Rs. 77,26,750/- by making various additions / disallowances of Rs. 82,10,974/-. Aggrieved of the additions made by ld.AO, Assessee preferred appeal before ld. CIT(A), which was partly allowed. Details of additions made by ld.AO and relief allowed by ld.CIT(A) on various issues is tabulated hereunder for the sake of convenience:
Sl. Particulars Addition Relief by Addition/Di
No. made CIT(A) sallowance
sustained
1. Rejection of Books of 145(3) Rejection -
Accounts invoked confirmed
2. Trading Addition 57,05,309/- NIL 57,05,309/-
3. Disallowance u/s 3,74,196/- 45,000/- 3,29,196/-
40(a)(ia)
4. Disallowance u/s 43B 15,42,573/- 10,89,538/- NIL
(No appeal for
balance)
5. Donation 51,000/- No Appeal -
6. ESI Demand 1,09,115/- 1,09,115/- NIL
7. ESI Penalty 1,17,135/- 1,17,135/- NIL
8. TDS Demand 8020/- NIL 8020/-
9. Penalty for late deposit 10,295/- NIL 10,295/-
7 ITA No. 900 & 901/JP/2018
M/s Silvex & Co. (India) Ltd.
of TDS
10. TDS Demand 8020/- 8020 NIL
(Double
Addition)
10. Receipts not 2,85,311/- 2,85,311/- NIL
disclosed(TDS
deducted on same)
Assessee has preferred present appeal against the additions/disallowances sustained by ld. CIT(A).
6. The AO assessed the finding that as per the AIR information available in this case, the assessee company not disclosed its receipts against the TDS deducted of Rs. 31,350/- on aggregate receipts of Rs. 2,85,311/-. It was found that that assessee company has not disclosed these receipts in its books of account for the assessment years 2011- 12, therefore an addition of Rs. 2,85,311/- is made to the total income of the assessee for undisclosed receipts. The AO mentioned that it is evident that the assessee has concealed the particulars of his income or furnished inaccurate. Therefore it is a fit case for initiation of penalty proceeding u/s 271(1)(c) of the IT Act read with section 274 of the IT Act.
7. Being aggrieved by the AO the assessee preferred an appeal before the ld. CIT(A) and the findings are reproduced as under:- 8 ITA No. 900 & 901/JP/2018
M/s Silvex & Co. (India) Ltd.
"4.2 I have considered the facts of the case, assessment order and appellant's submissions. The AO noted that there was fall in GP rate, the AO also pointed out several defects in the books of accounts such as quantitative tally not maintained, no proper bills and vouchers in support of expenses etc. Citing all these defects, the AO rejected the assessee's books of accounts u/s. 145(3) of the Act and applied the GP rate of 6.71% i.e. average GP rate of consecutive three years (including GP rate of the year under consideration) to determine the gross profit. This action of the AO resulted in an addition of Rs 57,05,309/- to the total income of the assessee. The appellant has contested this action of the AO by stating that the AO did not consider various reasons advanced before him for fall in GP rate. It was contended by the appellant that the AO was not justified in applying average GP rate of consecutive three years by relying on the same books of accounts which he had already rejected. I have carefully perused the comparative trading results of the appellant. There are two issues to be considered here; first, regarding rejection of books of accounts u/s 145(3) of the Act and second regarding trading addition of Rs. 57,05,309/-. The appellant has contended that non- maintenance of day-to-day stock register and low G.P. does not empower the AO to reject the audited books of accounts. However, I am not inclined to agree with this argument of the ld. AR of the appellant. The appellant has admitted that day to day stock register or quantitative tally was not maintained and there was considerable fall in the GP rate for which various reasons have been given.
The Hon'ble Supreme Court in the case of S. N. NamasivayamChettiar V. CIT 38 ITR 579 (SC) has held that 9 ITA No. 900 & 901/JP/2018 M/s Silvex & Co. (India) Ltd.
non-maintenance of stock register can justify the rejection of accounts. Besides, the AO has also pointed out some other shortcomings/defects in the books of accounts such as unverifiable claim of expenses debited in the trading and P&L account. The AO has also relied on the cases of Basti Ram Narayan Das Maheshwari V/s CIT (210 ITR 438) and CIT vs. British Paints India Ltd. (1990) 188 ITR 44 to emphasize that non-maintenance of day-to-day stock register can lead to rejection of books of accounts as per provisions of Section 145 of the Act.
The ratio of the decision in the case of Rainbow Metals (India)
-- reported in 83 Taxman 160 -- can also be applied wherein it was held that where there was no quantitative tally of opening stock and purchases with sales and closing stock, the best course to follow would be to reject the book results and to estimate business income. In the instant case the appellant failed to provide details and basis of declaration of opening stock as also closing stock and further failed to maintain stock register as also consumption register and labour payment register.
The Hon'ble Bombay High Court in its decision in the case of DhondiramDalichand Vs. CIT -- reported in 81 ITR 609 -- observed that absence of quantitative tally of purchases and sales added with unexplained lowness of GP rate is sufficient material to reject the books of a/c.
The Hon'ble Calcutta High Court in its decision in the case of Amiya Kumar Roy & Brothers Vs. CIT -- reported in 206 ITR 10 ITA No. 900 & 901/JP/2018 M/s Silvex & Co. (India) Ltd.
306 -- observed that failure to maintain stock account is a substantial defect in the accounts.
The Hon'ble Kerala High Court in its decision in the case of Mani & Co. Vs. CIT - reported in 256 ITR 373- observed that where the expenses are not properly vouched, the books of a/c are required to be rejected and profits estimated. The Hon'ble Kerala High Court again in its decision in the case of S. V. Vijalaxmi Vs. ITO -- reported in 260 ITR 138 -- observed that where expenses as recorded in the books of a/c are not supported by bills and vouchers, the AO is justified in rejecting the same.
Considering the factual and legal position as discussed above, the AO's action of rejecting the books of accounts u/s 145(3) of the Act is upheld. The ground regarding this issue is dismissed.
As regards the trading addition of Rs. 57,05,309/-, I find that the appellant failed to put forth any proper justification for fall in GP rate. It is not the case of the appellant that its turnover had increased manifolds. The defects pointed out by the AO remained to be rebutted. It is settled that once the books of a/c are validly and correctly rejected u/s 145(3). The next question, which arises, is the application of appropriate GP or NP rate. It is the consistent opinion of various Tribunals and Courts that the appellant's own results in the preceding assessment years are the best guide in the matter of adoption of a particular GP rate. In the instant case, it is observed that the business of the appellant remained the same and it was carried in the same manner and fashion and 11 ITA No. 900 & 901/JP/2018 M/s Silvex & Co. (India) Ltd.
there was no change. Therefore, the results of the preceding. assessment year are the best guide in the matter of application of a particular GP or NP rate, in this case too. The facts have been gone through and no material has been found to have been placed on record justifying the GP rate of 5.77%. The appellant's explanation that it had shown better turnover as compared to immediate preceding year cannot be taken as granted in absence of any documentary evidences.
In other words, the reason assigned for fall in GP rate do not hold good. The appellant could not place results of any comparable case to prove that it earned equivalent or better GP rate. On overall appreciation of the facts of the .case discussed as above and in the light of the GP rate declared by the appellant in the preceding assessment years appellant's failure in justifying the defects as pointed out in the assessment order and also in explaining the fall in GP rate, I hold that the AO was justified in applying average GP rate of 6.71% on the basis of appellants own past results. In the light of the entire discussion as above, the addition of Rs. 57,05,309/- stands upheld. The ground regarding this issue is dismissed.
5. The ground no. 3 relates to the disallowance of Rs. 3,74,196/- u/s. 40(a)(ia) of the Act. The AO noted that the assessee had made the interest payment of Rs. 239196/- to Tata Capital Ltd, Kotak Refinance and Chholamandalum Finance but it failed to deducts TDS on such payments. The AO further pointed out that the assessee had also made short deduction of TDS on the payment of Rs. 90,000/- made to M/s. Optimal Media Solution Ltd. Besides, the AO further noticed that no 12 ITA No. 900 & 901/JP/2018 M/s Silvex & Co. (India) Ltd.
TDS was deducted on payment Rs. 45,000/- made to contractor. Accordingly, the AO made the disallowance of Rs. 374196/- u/s. 40(a)(ia) of the Act.
5.1. The appellant submitted that before me that interest payment of Rs. 2,39,196/- made to various companies on which TDS was not deducted under bonafide belief that tax is not required to be deducted in respect of these payments. The appellant further submitted that parties receiving these payments had duly declared interest payment as income in their respective return of income. As regards payment of Rs. 90,000/- to Optimal Media Solutions Ltd., the appellant submitted that on this payment TDS was deducted @1% i.e. Rs. 900/- as against @%Rs. 1800/-, hence, disallowing the entire payment of Rs. 90,000/- is against the law and if disallowance is required to be made, the same should have been restricted to Rs. 45,000/- only.
5.2. I have considered the facts of the case and appellant's submissions. As regards non deduction of TDS in respect of interest payment of Rs. 239196/- to Tata Capital Ltd, Kotak Refinance and Chholamandalum Finance, it is observed that the appellant has not deducted TDS and this fact is duly accepted by the appellant itself. Moreover, the appellant failed to furnished any evidences that these parties had shown these interest payments in their respective return of income as income. The decision of Hon'ble Apex Court in the case of Hindustan Coca Cola Beverage (P) Ltd., vs. CIT (2007) 293 ITR 226 (SC) could only held the appellant cause if it would have been able to furnish documentary evidence in support of its claim that 13 ITA No. 900 & 901/JP/2018 M/s Silvex & Co. (India) Ltd.
recipient had included payment as their income. Accordingly, the disallowance of Rs. 2,39,196/- is sustained.
As regards the disallowance of Rs. 90,000/-, I find that the appellant had made payment to M/s. Optimal Media Solutions Ltd., however, it deducted TDS @1% as against 2% required as per law. Considering the ratio laid down in judicial decision in the case of CIT vs. S. K. Tekriwal (90 DTR 26 Cal) and decision of Hon'ble ITAT, Jaipur Bench in the case of M/s. M. C. Sharma Associates &,Consultant (P) Ltd, 1028/JP/2011 as relied on by the appellant, it is held that the disallowance should be restricted to Rs. 45,000/- only as against Rs. 90,000/- made by the AO.
Regarding the disallowance of Rs. 45,000/-, it is observed that the appellant made this payment to contractor on which no TDS was deducted. In the written submissions filed before me, no explanation has been furnished by the appellant. Hence, the disallowance of Rs. 45,000/- is sustained.] In view of the above, out of the total disallowance of Rs. 3,74,196/-, the appellant gets relief of Rs. 45,000/- (as against addition of Rs.90,000/-) and addition to the extent of Rs. 3,29,196/- is sustained. The ground no. 3 is partly allowed.
6. Ground No. 4 rela tes to the addition of Rs.
10,89 ,538/ - on ac count of disallowa nce of contribution to PF. The AO m ade this disallo wance after o bservi ng t hat contributi on to PF was made on 3 1. 03.2 011 i.e. after the due date o f f iling of return. The appellant sub mitted tha t appellant com pan y' s contribution o f PF was payable on 31.03 .2011 and the said amount wa s depo sited befo re the 14 ITA No. 900 & 901/JP/2018 M/s Silvex & Co. (India) Ltd.
prescrib ed due d ate of filing of i ncome tax return on 13.06 .2011 and 1 7.06.2011. In sup po rt of its claim, the appellant furnis hed proof of d epos its a nd claime d t hat these were als o su bmitted b efore the AO. The appellant also relied on decision of Hon'ble Apex Court in the case of CIT vs. Vinay Cement 313 ITR (ST) 1 and requested the addition made on this account may be directed to be deleted.
6.1. I have considered the assessment order and submissions of the appellant. The AO has made the addition of Rs. 10,89,538/- observing that the assessee failed to deposit the contribution towards PF/ESI within the due date. The appellant has submitted that it had made payment within the grace period or before due date of filing of return of income, hence the same is allowable deduction as per sec. 43B of the Act. I have also gone through various judicial precedents on this issue and I find that the Hon'ble Supreme Court in case of CIT vs. Alorn Extrusions Ltd. reported in 319 ITR 306 held that omission of second proviso to sec 43B and the amendment of first proviso by Finance Act, 2003, bringing about uniformity in payment of tax, duty, cess and fee on one hand and contribution to employees' welfare funds on the other, are curative in nature, and thus, effective retrospectively w.e.f. 1-4-88 i.e. the date of insertion of first proviso. It was further held that where Provident Fund and Employees State Insurance Contribution were paid by the assessee before filing of the return and proof of payment was submitted before the Assessing Officer, the amounts were deductible as deduction.
The Hon'ble Delhi High Court in case of CIT vs. Aimil Ltd &Ors. reported in 321 ITR 508 held as under:-15 ITA No. 900 & 901/JP/2018
M/s Silvex & Co. (India) Ltd.
"As soon as employees' contribution towards PF or ESI is received by the assessee by way of deduction or otherwise from the salary/ wages of the employees, it will be treated as 'income' at the hands of the assessee. It clearly follows there from that if the assessee does not deposit this contribution with PF/ESI authorities, it will be tax as income at the hands of the assessee. However, on making deposit with the concerned authorities, the assessee becomes entitled to deduction under the provisions of s. 36(1)(va). Sec. 43B(b), however, stipulates that such deduction would be permissible only on actual payments. This is the scheme of the Act for making an assessee entitled to get deduction from income insofar as employees' contribution is concerned. Deletion of the second proviso has been treated as retrospective in nature and would not apply at all. The case is to be governed with the application of the first proviso. If the employees' contribution is not deposited by the due date prescribed under the relevant Acts and is deposited late, thp employer not only pays interest on delayed payment but can incur penalties also, for which specific provision are made in the Provident Fund Act as well as the ESI Act. Therefore, the Acts permit the employer to make the deposit with some delays , subject to the aforesaid consequences. Insofar as the I T Act is concerned, the assessee can get the benefit if the actual payment is made before the return is filed. - CIT vs. Vinay Cement Ltd. (2007) 213 CTR (SC) 268, CIT vs. Dharmendra Sharma (2007) 213 CTR (del) 609 : (2008) 297 ITR 320 (Del) and CIT vs. P. M. Electronics Ltd. (2008) 220 CTR (del) 635 : (2008) 15 DTR (del) 258 followed."16 ITA No. 900 & 901/JP/2018
M/s Silvex & Co. (India) Ltd.
Apart from the above decisions, the following decisions are also applicable on the issue at hand:-
CIT vs. Orbit Resorts (P) Ltd (48 SOT 23 (URO) ACIT vs. Ranabaxy Laboratories Ltd. (2011) 7 ITR (Trib) 161 (DLH) ACIT vs. M/s. Anil Special Steel Industries Ltd. (decision of Jaipur Bench in ITA No. 1100/JP/2011) From the above decisions, it is clear that payment or contribution made to the provident fund authority any time before filing of the return for the year in which the liability to pay accrued is an allowable expenditure. It is seen that in the present case, all the payments were deposited by the appellant before due date for filing of return of income, therefore, in view of the decision of the Hon'ble Supreme Court in the case of CIT vs. Alom Extrusions Ltd (supra) and decision of the Hon'ble Delhi High Court in the case of CIT vs. Aimil Ltd &Ors (supra), the payments made before due date for filing of return of income are allowable. Considering the factual and legal position as discussed above, the addition made at Rs. 10,89,538/- is directed to be deleted. This ground of appeal is allowed.
7. Vide ground no. 5, the appellant contended that the AO erred in making the disallowance of Rs. 1,09,115/- on account of ESI demand and Rs. 1,17,135/- on account of PF penalty. The AO disallowed these amounts holding that these were not allowable as business expenses.
On the contrary, the appellant submitted before me that these amounts were paid under business expediency due to some calculation difference and it is an allowable expenditure u/s. 37 of the Act. 17 ITA No. 900 & 901/JP/2018
M/s Silvex & Co. (India) Ltd.
Considering the appellant's submissions and legal precedent cited in the written submissions, it is held that these amounts were paid under due course of business and allowable as business expenses. Hence, the addition of Rs. 1,09,115/- on account of ESI demand and Rs. 1,17,135/- on account of PF penalty are hereby deleted. The ground of appeal is allowed.
8. Vide ground no. 6, the appellant contended that the AO erred in making the disallowance of Rs. 8,020/- on account of TDS demand and Rs. 10,295/- on account of TDS penalty. The AO noted that the assessee company claimed expenses of Rs. 8,020/- for TDS demand and Rs. 10,295/- for late deposit of TDS, which was not allowable expenses. The appellant by citing provisions of sec. 40(a)(ia) contended that the same are not disallowable under this section and it is allowable expenditure u/s. 37 of the Act. However, I am not inclined to agree with the appellant's contention. The AO disallowed these sums holding that these are not allowable business expenses. The question of disallowance u/s. 40(a)(ia) does not arise. The appellant failed to explain before me how these expenses were incurred in due course of business and allowable as business expenditure u/s. 37 of the Act. Hence, the disallowance of Rs. 8,020/-on account of TDS demand and Rs. 10,295/- on account of TDS penalty is hereby sustained. The ground of appeal is dismissed."
8. The ld. AR for assessee submitted a detailed written submissions which are as under:-
900/JP/2019 Submission 18 ITA No. 900 & 901/JP/2018 M/s Silvex & Co. (India) Ltd.
"Ground of Appeal No. 1 to 2:
In ground of appeal No.1, assessee has challenged the action of ld. CIT(A) in confirming the action of ld.AO in rejecting the books of accounts by invoking the provisions of section 145(3) of the Act, whereas in Ground of Appeal No.2, Trading Addition of Rs.57,05,309/- made by applying the G.P. Rate of 6.71 % as against 5.77% declared by the assessee is challenged. As both the grounds of appeal are interrelated, the same are dealt with together for the sake of convenience.
So far as question of rejection of books of accounts by invoking 145(3) is concerned, it is submitted that the assessee is in this line of trade since inception and is maintaining regular books of accounts consisting of cash book, ledger, purchase book, sales book, bank book and purchase and sale vouchers as well as vouchers for expenses and complete details of day to day stock register by following the method of accounting employed regularly on year to year basis and the same are duly audited by a reputed firm of Chartered Accountants who had not pointed out any irregularity in the books of accounts. The method of accounting employed is consistently followed by assessee on year to year basis. All the expenses as claimed in the Profit & Loss Account are duly supported by necessary evidences. All the books of accounts maintained as stated above and vouchers were produced before the Ld. AO which were examined by him and no specific defect whatsoever was noticed by the ld. AO as is evident from the assessment order itself except the observations made about the non-maintenance of stock register on quality basis which looking to the nature of business is almost impossible. A detailed submission in respect of reasons given by ld.AO for invoking provisions of section 145(3) was furnished before ld. CIT(A), who brushed aside the same and confirmed the action of ld.AO.19 ITA No. 900 & 901/JP/2018
M/s Silvex & Co. (India) Ltd.
The submissions on the allegations made by the Ld. Assessing Officer for invoking the provisions of section 145 [as submitted before ld. CIT(A)] is as under:
(i) Comparative figures of previous year in Profit & Loss Account & and their mismatch/ discrepancies with current year figure and mismatch of figure of ITR and Balance Sheet :
AO alleged that "the expenses claimed under various heads are grouped or regrouped or rearranged in different manner from time to time either while preparation of accounts or while filing of return of income or while auditing the accounts or while preparation of balance sheet of the next year etc. this practice of this assessee leads to create doubts that the accounts were not maintained in proper manner."
In this regard it is submitted that during the course of assessment proceedings the assessee has furnished comprehensive explanations and reconciliation of the so called mis-match and discrepancies in comparative figures of previous year in Profit & Loss account and of the current years figures as appearing in ITR Form and as per audited Trading, Profit & Loss Account and Balance Sheet. The figures were re- grouped and rearranged for better presentation which has resulted in to some differences in presentation, however the difference was just due to change in format and ultimate results were unaltered.
Further as regards to the mismatch in figures mentioned in ITR form and audited Balance Sheet it was explained with proper reconciliation of each head of Balance Sheet and the main reason for that is the fact that the books of accounts of the assessee company is maintained on tally software in which accounts of the parties were maintained under various groupings which, if seen in the summary format, shows only net figures 20 ITA No. 900 & 901/JP/2018 M/s Silvex & Co. (India) Ltd.
at front of the Balance Sheet irrespective of their balance (whether debit or credit), and these net figures were filled in the ITR by the clerical staff of the assessee company. However, the auditors has shown the gross figures in their audit report on the basis of exact nature of ledger account and as per the reporting requirement of the Companies Act and figures have been net off while reporting in the ITR which were based on the print outs of balance sheet and profit & loss account taken from tally, however the same has not affected the end results of the company in any manner and reconciliation of each item/head was submitted before the Ld. AO.
However the Ld. AO without appreciating the submission made and explanation and reconciliation filed, has given the observations that "although the explanation regarding the mismatch of the entries has been submitted as explained as above but the same is not acceptable as still in some heads the difference in the figures remains unexplained. The assessee tried to explain the above discrepancies by regrouping / rescheduling of the various heads either receipts or expenditure." While observing so the Ld. AO has failed to point out in which head differencein the figures remains unexplained and there had been a change in end result of the company due to regrouping/rescheduling of various heads, the ld. AO without any logical ground summarily rejected explanation of the assessee. Similarly, ld.CIT(A) also confirmed the action of ld.AO without any specific discrepancy, thus such observations of ld. AO and ld. CIT(A) deserve to be ignored.
(ii) Verification of opening and closing stock is not possible:
Allegation of AO at page 7:21 ITA No. 900 & 901/JP/2018
M/s Silvex & Co. (India) Ltd.
On the examination of the details and documents produced by the assessee it is gathered that although the assessee has claimed to maintain quantitative details, no stock register was produced for verification during the course of assessment proceedings. Therefore, verification of the opening & closing stock shown by the assessee in not possible in the case.
In the matter it is submitted that during the year under appeal, assessee had maintained stock records. The assessee firm was maintaining complete quantitative details bifurcated in three parts i.e. raw stone, raw silver/gold & finished goods. The stock details so kept are maintained in a manner so as to keep a close watch on the items as each and every item is expensive and any shortage may result into a heavy loss. Further opening and closing stock of the company have been valued at cost and certified by the management of the company based on FIFO method. During the course of assessment proceedings the appellant has produced complete details, vouchers of purchases made of raw material and other consumables, wherein not a single defect is pointed out by lower authorities.
The trade in which the assessee company deals, it is not possible to maintain quality-wise stock register because if the details are maintained in this manner the stock register would increase the no. of items to 1000's and as a prudent business policy and management saying "If a person tries to control everything its would end up with nothing" will definitely be proved. Therefore allegation of the Ld. AO that stock is not verifiable is without any logical ground and without properly considering nature of the business of the appellant therefore same deserves to be ignored.22 ITA No. 900 & 901/JP/2018
M/s Silvex & Co. (India) Ltd.
Moreover, it is held in a number of judicial pronouncements that mere non maintenance of stock register would not entitle assessing officer to reject the books of accounts. Reliance is placed on:
326 ITR 223 CIT v. Smt. Poonam Rani (Delhi) Rejection of accounts- Fall in gross profit-No defects found in accounts-Absence of stock register alone not a ground to infer that accounts inaccurate or incorrect-Commissioner (Appeals) as well as Tribunal accepting explanation of assessee for fall in gross profit-
Finding of fact-Income-tax Act, 1961 s. 145(3).
Thus in the circumstances, it is submitted that appellant has discharged its onus but on the other side the Ld. AO as well as ld. CIT(A) have totally brushed aside the submission made. It is thus prayed that the book results so declared by the appellant company are correct as there is no material / evidence available on record which could prove that invoking of section 145 is justified. After invoking the provisions of section 145(3), the Ld. AO applied G.P. rate of 6.71% (i.e. average GP rate of past three years) as against G.P. 5.77 % declared by the assessee. From the perusal of trading results declared for the year under appeal and of preceding assessment years from the table below, your goodself would appreciate the fact that the assessee has been able to achieve betters trading results as under:
Assessment Turnover (Rs.) G.P. (Rs.) G.P. Rate (%) Year 2009-10 50,87,64,622.25 4,29,89,399.84 8.45 2010-11 55,57,84,715.84 3,29,05,716.99 5.92 23 ITA No. 900 & 901/JP/2018 M/s Silvex & Co. (India) Ltd.
2011-12 60,73,67,651.25 3,50,49,060.13 5.77 It is an established principle of marketing that higher turnover can be achieved by lowering the gross margin in the competitive market. During the year under consideration the GP of the assessee company has reduced slightly (from 5.92% to 5.77% i.e. 2.6%) though the turnover was increased from 55.57 crores to 60.73 crores (i.e. 9.29%) and company has been able to achieve better gross profit in terms of quantum. The purchases and sales are fully backed by respective bills and vouchers and duly audited by the statutory auditors and were not doubted by Ld. AO. In the circumstances, trading results declared by the assessee deserve to be accepted. But the ld. AO without appreciating these facts made the addition of RS. 57,05,309/- by applying such a high G P rate at 6.71%.
Hon'ble Rajasthan High Court in the case of M/s Gotan Lime Khanij Udyog reported in 256 ITR 243" has held that rejection of books of accounts need not necessarily lead to any addition to the income.
The AO has rejected the books of accounts u/s 145(3) of the Income Tax Act, 1961 merely on the basis of alleged defects in maintenance of stock register and presentation mismatch in balance sheet and profit & loss account with previous years figures without indicating any specific defects. Assessee has been able to maintain the GP rate @ 5.77 % coupled with increase in turnover, therefore, no addition can be made without any adverse material / evidence available on record. It is further submitted that assessee's turnover is mainly comprising of export out of India (Rs. 50,99,76,876.03) and it is a matter of fact that due to worldwide recession the price had fallen coupled with decrease in the exchange rate of US Dollars which has also affected the profitability of the assessee.
24 ITA No. 900 & 901/JP/2018
M/s Silvex & Co. (India) Ltd.
In the circumstances, it is humbly submitted that the trading addition made at Rs. 57,05,309/- without any material after examination of the books of accounts, deserves to be deleted.
Reliance is further placed on the following decisions:
St. Teresa's Oil Mills v. State of Kerala, (1970) 76 ITR 365, 367-8 (Ker) Accounts regularly maintained in the course of business have to be taken as correct unless there are strong and sufficient reasons to indicate that they are unreliable. The department has to prove satisfactorily that account books are unreliable, incorrect or incomplete before it can reject accounts, which may be done by showing that important purchases are omitted there from or proper particulars or vouchers are not forthcoming or the accounts do not include entries relating to a particular class of business. Rejection of accounts should not be done light-heartedly.
CIT v. Vikram Plastics, (1998) 147 Taxation 699, 701 (Guj) Where a finding has been recorded that there were no discrepancies or defects pointed out in the books of account and further that they were regularly maintained and also on the finding that there was no material brought on record to establish that purchases or expenses were inflated or sales suppressed and also in view of the finding that this was not a case that there was no method of regular accounting employed, the Tribunal was held fully justified in coming to the conclusion that the provisions of section 145 (2) could not be invoked Ground of Appeal No. 3:25 ITA No. 900 & 901/JP/2018
M/s Silvex & Co. (India) Ltd.
In this ground of appeal, assessee has challenged the action of ld.CIT(A) in sustaining the addition to the extent of Rs.3,29,196/- u/s 40(a)(ia) of the Act out of total addition of Rs. 3,74,196/-.
In this regard it is submitted that in the assessment order addition of Rs. 3,74,196/- (being 2,39,196/- + 90,000 + 45,000) was made u/s 40(a)(ia) on account of non deduction of TDS. The above addition includes payment of interest of Rs. 2,39,196.74 to M/s Tata Capital Ltd., Kotak refinance and Chholamandalum Finance on which tax was not deducted by the appellant company and disallowance of interest of Rs. 90,000/- paid to M/s Optimal Media Solution Ltd and Rs. 45,000/- on account of TDS short deducted on amount paid to M/s Optimal Media Solution Ltd. On appeal, ld. CIT(A) deleted the disallowance to the tune of Rs.45,000/- out of addition in the case of Optimal Media Solutions Ltd. and balance disallowance of Rs.3,29,196/- was sustained.
With regards to disallowance sustained by ld. CIT(A), it is submitted that in case of interest payment of Rs. 2,39,196/- made to various financing companies on which TDS not deducted by the appellant company it is submitted that aforesaid amount was paid by the appellant company during the year under consideration and duly offered by these parties in their returns of income and taxes due, based on return filed were already paid by these companies. The assessee was under bona fide belief that tax is not required to be deducted on interest payment made to finance companies therefore tax was not deducted at source inadvertently.
It is further submitted that even in case it is held that assessee is in default for non deduction of tax, it cannot be held liable to pay principal amount of 'tax' as the same would have been already been paid by the concerned parties and recovery of the same from the assessee company would result in double taxation. In this connection, Section 191 of the Act provides that where income tax has 26 ITA No. 900 & 901/JP/2018 M/s Silvex & Co. (India) Ltd.
not been deducted in accordance with the provision of Chapter XVII, income tax is to be paid by the assessee directly i.e. by the payee. Further the tax being deducted at source by the assessee is the tax on the income of the deductee and not the income of the assessee-deductor. Further, explanation to the said section also clarifies that the Appellant who was obliged to, but had not deducted tax at source, could not be asked to pay the same where the deductee had paid it by showing the amount received by him as his income. Further, we also wish to draw your attention to the provision of section 202 of the Act which states that deduction of tax at source is only one mode of recovery of tax and this mode is without prejudice to any other mode of recovery. In other words, the purpose of tax deduction provisions is only to ensure early recovery of tax. Once tax is recovered by any other mode, it is not permissible to recover the same tax again by tax deduction. There cannot be recoveries of the same tax twice.
The Hon'ble Supreme Court in the case of Hindustan Coca Cola Beverage (P) Ltd. vs. CIT [2007] 293 ITR 226 (SC) also held that where the deductee, recipient of income has already paid taxes on amount received from the deductor, the department once again cannot recover tax from deductor on the same income by treating the deductor to be assessee in default. Once the payee has paid the tax, he must be impliedly treated as being discharged from the liability of deducting tax and paying the tax deducted to the Government.
Further, the Central Board of Direct Taxes ('Board') has issued an instruction F. No. 275/201/95-IT(B) on January 29, 1997 which reads as under:
"The Board is of the view that no demand visualized under Section 201(1) of the Income Tax Act, 1961 should be enforced after the deductor has satisfied the officer in charge of TDS that taxes have been paid by the deductee- assessee."
Reliance in this regard could also be placed on the following decisions:27 ITA No. 900 & 901/JP/2018
M/s Silvex & Co. (India) Ltd.
1. Mahindra & Mahindra Limited vs DCIT (TDS) (Special Bench) 2009- TIOL-255-ITAT-MUM-SB,
2. CIT vs Adidas (I) Marketing (P) Ltd 288 ITR 379 (Delhi)
3. CIT v Mahindra and Mahindra 242 ITR Statute 187 (SC)
4. A.P. Power Generation Corporation Ltd. vs. Assistant Commissioner Of Income-tax (Hyd) (2007) 105 ITD 423, Further, it is pertinent to bring the kind attention of your honour to the second proviso to section 40(a)(ia) inserted by the Finance Act, 2012, which reads as under:
Provided further that where an assessee fails to deduct the whole or any part of the tax in accordance with the provisions of Chapter XVII-B on any such sum but is not deemed to be an assessee in default under the first proviso to sub-section (1) of section 201, then, for the purpose of this sub-clause. It shall be deemed that the assessee has deducted and paid the tax on such sum on the date of furnishing of return of income by the resident payee referred to in the said proviso.
As per this proviso, no disallowance u/s 40(a)(ia) can be made if the assessee has not been treated as an 'assessee in default' u/s 201(1) of the Act. It is submitted that in the present case, since the assessee has not been treated as an 'assessee in default' within the meaning of section 201(1) and therefore, no disallowance u/s 40(a)(ia) can be made. It is also submitted that though the amendment has taken place from AY 2013-14 however, it is a beneficial provision and insertion of the same in the statute clearly shows the intention of the legislature to give relief in the case where the payee has paid the due taxes, further disallowance in the hands of the payer caused to the serious hardship. The intention behind the insertion of provision of section 40(a)(ia) was to bring those persons in the tax net in whose case no TDS is deducted though they are 28 ITA No. 900 & 901/JP/2018 M/s Silvex & Co. (India) Ltd.
enjoying the taxable income, thus where the payee has already paid the due taxes on the payments on which no TDS is deducted by payer, there remained no reason to make disallowance in the hands of the payer. The hon'ble Apex court in the case of CIT (Central-1) Delhi Vs. Vatika Township Pvt. Ltd. reported in 367 ITR 466 (relevant para 30-37) has held that the beneficial amendment which effect the public generally and where to confer such benefit appears to have been the legislators object, then the presumption would be that such a legislation, giving it a purposive construction, would warrant it to be given retrospective effect.
It is pertinent to note here that actually an amount of Rs. 90,000/- was paid to Optimal media Solution Ltd. on contract basis on which TDS was required to be deducted @ 2% i.e. Rs. 1800/- however assessee deducted TDS @ 1% i.e. Rs. 900/- only and therefore in the auditor's report amount on which TDS short deducted was shown at Rs. 45,000/- (considering that Rs. 900/- has been deducted on balance 45000/- @ 2%). Since the assessee has deducted TDS though at a lower rate which mean the provisions of Chapter XVII-B are duly complied with and merely for lower deduction no disallowance u/s 40(a)(ia) should be made which is applicable where either tax was not deducted or deducted but not deposited. In this regard reliance is placed on the decision of Hon'ble Calcutta High Court in the case of Commissioner of Income Tax v. S.K. Tekriwal reported in 90DTR 26(Cal) wherein it has been held as under:
Disallowance under s. 40(a)(ia) - Assessee deducted tax @1% under s. 194C(2) from the payments made to sub-contactors - Held - the conditions laid down u/s 40(a)(ia) of the Act for making addition is that tax is deductible at source and such tax has not been deducted. If both the conditions are satisfied then such payment can be disallowed u/s 40(a)(ia) of the Act but where tax is deducted by the assessee, even 29 ITA No. 900 & 901/JP/2018 M/s Silvex & Co. (India) Ltd.
under bonafide wrong impression, under wrong provision of TDS, the provisions of section 40(a)(ia) of the Act cannot be invoked.
Further reliance is placed on the decision of Hon'ble ITAT, Jaipur Bench given in the case of M/s M.C. Sharma Associates & consultants (P) Ltd. ITA NO 1028/JP/2011 (APB 24-27).
In the circumstance it is humbly prayed that the disallowance of Rs. 3,29,196/- confirmed by ld. CIT(A) deserves to be deleted.
Ground of Appeal No. 6:
In this ground of appeal, assessee has challenged the action of ld. CIT(A) in confirming the action of ld.AO in making disallowance of Rs. 8,020/- on account of TDS demand and Rs. 10,295/- on account of interest on late deposit TDS, arbitrarily without appreciating genuineness of claim.
In the matter with regard to allowability of TDS demand of Rs. 8020/- (shown under administrative expenses head) and interest on late deposit of TDS of Rs. 10,295/- it is submitted that the provision of section 40(a)(ii) of the Income Tax Act, 1961 is reproduced as under :-
"any sum paid on account of Income Tax ( i.e. any rate or tax levied on the profits or gains of any business or profession) is not deductible. Similarly, any interest, penalty, fine for non-payment or late payment of Income tax is not deductible. This rule is applicable whether Income-Tax payable in India or Outside India."
The words "profits or gains of any business of profession" in section 40(a)(ii) have reference only to profits or gains as determined u/s 28 and 29 of the Income Tax Act, 1961 and cannot cover the net profit or gains arrived other than that provided by section 28 and 29 of the Income Tax, 1961. Thus the Interest on late payment of TDS or any demand of interest on TDS is not 30 ITA No. 900 & 901/JP/2018 M/s Silvex & Co. (India) Ltd.
covered under the section 40(a)(ii) of the Income Tax Act, 1961 and it is allowable expenditure u/s 37 of the Income Tax Act, 1961. The Ld. AO has made the disallowance without appreciating genuineness of claim and submission made therefore the disallowances so made deserves to be deleted."
901/JP/2018 submission "Ground of Appeal No. 1 to 2:
In ground of appeal No.1, assessee has challenged the action of ld. CIT(A) in confirming the action of ld.AO in rejecting the books of accounts by invoking the provisions of section 145(3) of the Act, whereas in Ground of Appeal No.2, Trading Addition of Rs.47,30,011/- made by applying the G.P. Rate of 5.57% as against 4.97% declared by the assessee is challenged. As both the grounds of appeal are interrelated, the same are dealt with together for the sake of convenience.
So far as question of rejection of books of accounts by invoking 145(3) is concerned, it is submitted that the assessee is in this line of trade since inception and is maintaining regular books of accounts consisting of cash book, ledger, purchase book, sales book, bank book and purchase and sale vouchers as well as vouchers for expenses and complete details of day to day stock register by following the method of accounting employed regularly on year to year basis and the same are duly audited by a reputed firm of Chartered Accountants who had not pointed out any irregularity in the books of accounts. The method of accounting employed is consistently followed by assessee on year to year basis. All the expenses as claimed in the Profit & Loss Account are duly supported by necessary evidences. All the books of accounts maintained as stated above and vouchers were produced before the Ld. AO which were examined by him and no specific defect whatsoever was noticed by the ld. AO 31 ITA No. 900 & 901/JP/2018 M/s Silvex & Co. (India) Ltd.
as is evident from the assessment order itself except the observations made about the non-maintenance of stock register on quality basis which looking to the nature of business is almost impossible. A detailed submission in respect of reasons given by ld.AO for invoking provisions of section 145(3) was furnished before ld. CIT(A), who brushed aside the same and confirmed the action of ld.AO.
The submissions on the allegations made by the Ld. Assessing Officer for invoking the provisions of section 145 [as submitted before ld. CIT(A)] is as under:
(iii) Comparative figures of previous year in Profit & Loss Account & and their mismatch/ discrepancies with current year figure and mismatch of figure of ITR and Balance Sheet :
AO alleged that "the expenses claimed under various heads are grouped or regrouped or rearranged in different manner from time to time either while preparation of accounts or while filing of return of income or while auditing the accounts or while preparation of balance sheet of the next year etc. this practice of this assessee leads to create doubts that the accounts were not maintained in proper manner."
In this regard it is submitted that during the course of assessment proceedings the assessee has furnished comprehensive explanations and reconciliation of the so called mis-match and discrepancies in comparative figures of previous year in Profit & Loss account and of the current year's figures as appearing in ITR Form and as per audited Trading, Profit & Loss Account and Balance Sheet. The figures were re-grouped and rearranged for better presentation which has resulted in to some differences in presentation, however the difference was just due to change in format and ultimate results were unaltered.32 ITA No. 900 & 901/JP/2018
M/s Silvex & Co. (India) Ltd.
Further as regards to the mismatch in figures mentioned in ITR form and audited Balance Sheet it was explained with proper reconciliation of each head of Balance Sheet and the main reason for that is the fact that the books of accounts of the assessee company is maintained on tally software in which accounts of the parties were maintained under various groupings which, if seen in the summary format, shows only net figures at front of the Balance Sheet irrespective of their balance (whether debit or credit), and these net figures were filled in the ITR by the clerical staff of the assessee company. However, the auditors has shown the gross figures in their audit report on the basis of exact nature of ledger account and as per the reporting requirement of the Companies Act and figures have been net off while reporting in the ITR which were based on the print outs of balance sheet and profit & loss account taken from tally, however the same has not affected the end results of the company in any manner and reconciliation of each item/head was submitted before the Ld. AO.
However the Ld. AO without appreciating the submission made and explanation and reconciliation filed, has given the observations that "although the explanation regarding the mismatch of the entries has been submitted as explained as above but the same is not acceptable as still in some heads the difference in the figures remains unexplained. The assessee tried to explain the above discrepancies by regrouping / rescheduling of the various heads either receipts or expenditure." While observing so the Ld. AO has failed to point out in which head differencein the figures remains unexplained and there had been a change in end result of the company due to regrouping/rescheduling of various heads, the ld. AO without any logical ground summarily rejected explanation of the assessee. Similarly, ld.CIT(A) 33 ITA No. 900 & 901/JP/2018 M/s Silvex & Co. (India) Ltd.
also confirmed the action of ld.AO without any specific discrepancy, thus such observations of ld. AO and ld. CIT(A) deserve to be ignored.
(iv) Verification of opening and closing stock is not possible:
Allegation of AO at page 6:
On the examination of the details and documents produced by the assessee it is gathered that although the assessee has claimed to maintain quantitative details, no stock register was produced for verification during the course of assessment proceedings. Therefore, verification of the opening & closing stock shown by the assessee in not possible in the case.
In the matter it is submitted that during the year under appeal, assessee had maintained stock records. The assessee firm was maintaining complete quantitative details bifurcated in three parts i.e. raw stone, raw silver/gold & finished goods. The stock details so kept are maintained in a manner so as to keep a close watch on the items as each and every item is expensive and any shortage may result into a heavy loss. Further opening and closing stock of the company have been valued at cost and certified by the management of the company based on FIFO method. During the course of assessment proceedings the appellant has produced complete details, vouchers of purchases made of raw material and other consumables, wherein not a single defect is pointed out by lower authorities.
The trade in which the assessee company deals, it is not possible to maintain quality wise stock register because if the details are maintained in this manner the stock register would increase the no. of items to 1000's and as a prudent business policy and management saying "If a person tries to control everything it would end up with nothing" will definitely be proved. Therefore allegation of the Ld. AO that stock is not verifiable is without 34 ITA No. 900 & 901/JP/2018 M/s Silvex & Co. (India) Ltd.
any logical ground and without properly considering nature of the business of the appellant therefore same deserves to be ignored.
Moreover, it is held in a number of judicial pronouncements that mere non maintenance of stock register would not entitle assessing officer to reject the books of accounts. Reliance is placed on:
Paramount Impex Vs ACIT (ITAT Chandigarh) 1097/Chd/2016 decision dated 30/06/2020 (Relevant extracts reproduced)
8. We have heard both the parties and have carefully gone through the orders of the authorities below.
9. We shall first take up the issue relating to rejection of books of accounts u/s 145(3) of the Act, whether it was as per law raised in Ground of appeal No.1(a),(b),(c). Undeniably the power to reject books of accounts is to be exercised only when the books are found incorrect or incomplete for determining the true and correct profits earned by the assessee.This power is implied in the Income Tax Officers power to inquire into the total income of the assessee.
10. In the present case, undisputedly the only basis for rejecting the books of accounts is non maintenance of stock register and the incorrect method of valuation of stock adopted by the assessee. No other defect has been pointed out by the Revenue authorities for rejecting the books of accounts. As for the non maintenance of stock register the assessee has explained the non feasibility of maintaining it considering the fact that it was dealing in a large number of small items. It was also explained that the assessee was consistently following the method of physically verifying its stock at the end of the year .35 ITA No. 900 & 901/JP/2018
M/s Silvex & Co. (India) Ltd.
11. Considering the above facts ,we are not in agreement with the Revenue that the non maintenance of stock register was sufficient for exercising the power of rejecting the books of the assessee. It is not unusual for businesses dealing in large number of small items and operating at a small or medium scale to do away with the maintenance of any stock register since it is not feasible maintaining movement of stock of every such item. Such businesses usually verify physically their stock at the end of the year and all wastages ,pilferages and other losses therefore get automatically accounted for in the process, reflecting thus the true profits earned by the assesses. In the present case the assessee has been doing the same consistently, following the method of determining its stock at the end of the year by physically verifying the same and not maintaining any stock register since it was dealing in a large number of small items. We fail to understand how the non maintenance of stock register has affected the determination of true and correct profits of the assessee in the circumstance. The Revenue has found no other defect in the books of the assessee. All purchase and sale vouchers and other records have been found to be in order . The Revenue has not demonstrated before us as to how the non maintenance of stock register has been a hindrance in determining the true and correct profits earned by the assessee and also what was the infirmity in the method adopted by the assessee of physically verifying its stock at the end of the year. Therefore in our opinion the mere fact of non maintenance of stock register cannot be the basis for rejection of books of accounts. Hon'ble Rajasthan High Court in the case of MalaniRamjivan Jagannath Vs. Assistant Commissioner Of Income Tax (2009) 316 ITR 120 has held as under:-
36 ITA No. 900 & 901/JP/2018
M/s Silvex & Co. (India) Ltd.
"10. In the face of these undisputed facts and circumstances, the Tribunal in our opinion could not have interfered with the order of CIT(A). In doing so, it had ignored all admitted facts noticed by us above, in the face of which there was no occasion for the AO to have resorted to estimate method. The GP is primarily result of excess of sales over purchases, opening stock, closing stock, the unsold stock at two terminals is only balancing factor. Admittedly out of this four components of trading result, there could not have been any ground for the Revenue to arrive at different result. So far as closing stock is concerned, inventories of existing stock were not found to be incorrect by the AO i.e. that position of stock as shown in the account books was not incorrect. There being no dispute about the sales and purchases, non- maintenance of stock register lost its significance so far as arriving at GP is concerned. Therefore, the CIT(A) was right in his reasoning about admitted state of affairs. Resorting to estimate of GP rate was founded on no material. It was merely a case of making certain additions on the basis of certain defects pointed out by the AO and which he has shown in different account by giving margin of unvouched expenses. He has disallowed certain expenses.
11. The Tribunal committed basic error in not appreciating the reasoning given by the CIT(A). It is trite to say that in the facts and circumstances of present case, account books are maintained as they were ordinarily maintained years after years and which were found to yield a fair result. Mere deviation in GP rate cannot be a ground for rejecting books of account and entering realm of estimate and guesswork. Lower GP rate shown in the books of account during current year and fall in GP rate was justified and also admitted by the AO as well as CIT(A) as well as the Tribunal. Therefore, fall in GP 37 ITA No. 900 & 901/JP/2018 M/s Silvex & Co. (India) Ltd.
rate lost its significance. Having accepted the reason for fall in GP rate, namely, stiff competition in market and also that huge loss caused in particular transaction, neither the rejection of books of account was justified nor resort to substitution of estimated GP by rule of thumb merely for making certain additions. We are, therefore, of the opinion that the findings arrived at by the Tribunal suffers from basic defect of not applying its mind to the existing material which were relevant and went to the root of the matter. When all the data and entries made in the trading account were not found to be incorrect in any manner, there could not have been any other result except what has been shown by the assessee in the books of account. We are, therefore, unable to sustain the order of the Tribunal."
M/s Pawan Enterprises vs ITO 76/JP/2018 (Jaipur ITAT) In case, Hon'ble bench had allowed the appeal of assessee against rejection of books relying upon decision in assessee's own case is earlier years, decision para and relevant extracts of order of earlier years are as under:
"7. We have heard the rival contentions and perused the materials available on record. The facts of the case are that the AO during the course of assessment proceeding noted that the assessee had neither maintained day to day stock register nor any detail pertaining to the day to day consumption of raw material or production of finished. For want of complete details, the AO invoked the provisions of section 145(3) of the Act and made the trading addition of Rs.59,49,319/- by applying the g.p. rate of 20.50% on the declared turnover of Rs. 23,98,17,303/- as against g.p. rate of 18.02% shown by the assessee. The relevant observation of the AO is as under:-38 ITA No. 900 & 901/JP/2018
M/s Silvex & Co. (India) Ltd.
''Considering all acts and circumstances of the case and on the basis of data available on record, it is considered reasonable to apply G.P.rate of 20.50% on the declared turnover of Rs. 23,98,17,303/-. This would result in estimated gross profit of Rs. 4,91,62,547/-. After reducing the gross profit already shown by the assessee at Rs. 4,32,13,228/-, the net difference of Rs. 59,49,319/- is hereby added to the total income of the assessee.'' In first appeal, the ld. CIT(A) has confirmed the rejection of books of account in the absence of production of any qualitative details either in the assessment proceeding or before him, however, the ld. CIT(A) applied the gross profit rate of 20% instead of 20.50% applied by the AO. We have also taken into consideration the detailed written submission of the assessee holding that AO's action to reject the books of account is not tenable and further observed that ITAT Jaipur bench in assessee's own case for the Assessment Year 2011-12 had granted relief to the assessee for the same issue. The ld.AR of the assessee during the course of hearing submitted the reason of decrease in percentage of G.P. is increase of input cost in comparison to previous year and the cost of material and wages increased due to production of high quality product but the price of the product could not be increased in same proportionate due to stiff competition with China. Taking into consideration all these facts and circumstances of the case and also the order of ITAT Jaipur bench for the 15 ITA 76/JP/2018_ M/s Pawan Enterprises Vs ACIT Assessment Year 2011-12 in assessee's own case besides the case laws relied upon by the ld.AR of the assessee (supra), we do not concur with the findings of the ld. CIT(A) and hold that the G.P. rate shown by the 39 ITA No. 900 & 901/JP/2018 M/s Silvex & Co. (India) Ltd.
assessee at 18.02% is justifiable. Thus the appeal of the assessee is allowed.
326 ITR 223 CIT v. Smt. Poonam Rani (Delhi) Rejection of accounts- Fall in gross profit-No defects found in accounts-
Absence of stock register alone not a ground to infer that accounts inaccurate or incorrect-Commissioner (Appeals) as well as Tribunal accepting explanation of assessee for fall in gross profit-Finding of fact- Income-tax Act, 1961 s. 145(3).
324 ITR 95 (Delhi) CIT Vs Jas Jack Elegance Exports:-
Accounting- rejection of Accounts- Fall in Gross profit- Finding that accounts not defective- Explanation given by Assessee accepted by Commissioner (Appeals) as well as Tribunal and addition deleted- Finding of Fact- Income Tx Act, 1961 s.145(3).
Thus in the circumstances, it is submitted that appellant has discharged its onus but on the other side the Ld. AO as well as ld. CIT(A) have totally brushed aside the submission made. It is thus prayed that the book results so declared by the appellant company are correct as there is no material / evidence available on record which could prove that invoking of section 145 is justified.
After invoking the provisions of section 145(3), the Ld. AO has applied G.P. rate of 5.57% as against G.P. 4.97 % declared by the assessee. From the perusal of trading results declared for the year under appeal and of preceding assessment years from the table below, your honours would appreciate the fact that the assessee has been able to achieve better trading results as under:
Assessment Year Turnover (Rs.) G.P. (Rs.) G.P. Rate (%) 40 ITA No. 900 & 901/JP/2018 M/s Silvex & Co. (India) Ltd.
2010-11 55,57,84,715.84 3,29,05,716.99 5.92
2011-12 60,73,67,651.25 3,50,49,060.13 5.77
2012-13 79,71,12,509.13 3,96,69,455.58 4.97
It is an established principle of marketing that higher turnover can be achieved by lowering the gross margin in the competitive market and ultimate goal of a prudent businessman is to earn results. During the year under consideration the GP of the assessee company has reduced slightly (from 5.77% to 4.97%) though the turnover was increased from 60.73 crores to 79.71 crores and company has been able to achieve better gross profit in terms of quantum. The purchases and sales are fully backed by respective bills and vouchers and duly audited by the statutory auditors and were not doubted by Ld. AO. In the circumstances, trading results declared by the assessee deserves to be accepted. But the ld. AO without appreciating these facts made the addition of Rs. 47,30,011/- by applying such a high G P rate at 5.57% the without any logical basis.
Hon'ble Rajasthan High Court in the case of M/s Gotan Lime Khanij Udyog reported in 256 ITR 243" has held that rejection of books of accounts need not necessarily lead to any addition to the income.
The AO has rejected the books of accounts u/s 145(3) of the Income Tax Act, 1961 merely on the basis of alleged defects in maintenance of stock register and presentation mismatch in balance sheet and profit & loss account with previous years figures without indicating any specific defects. Assessee has been able to maintain the GP rate @ 4.97 % coupled with almost 31% increase in turnover, therefore, no addition can be made without any adverse material / evidence available on record. It is further submitted that assessee's turnover is mainly comprising of export out of India (Rs. 71,10,78,674/-) and it is a matter 41 ITA No. 900 & 901/JP/2018 M/s Silvex & Co. (India) Ltd.
of fact that due to worldwide recession the price had fallen coupled with decrease in the exchange rate of US Dollars which has also effected the profitability of the assessee.
In the circumstances, it is humbly submitted that the trading addition made at Rs. 47,30,011/- without any material after examination of the books of accounts, deserves to be deleted.
Reliance is further placed on the following decisions:
St. Teresa's Oil Mills v. State of Kerala, (1970) 76 ITR 365, 367-8 (Ker) Accounts regularly maintained in the course of business have to be taken as correct unless there are strong and sufficient reasons to indicate that they are unreliable. The department has to prove satisfactorily that account books are unreliable, incorrect or incomplete before it can reject accounts, which may be done by showing that important purchases are omitted there from or proper particulars or vouchers are not forthcoming or the accounts do not include entries relating to a particular class of business. Rejection of accounts should not be done light-heartedly.
CIT v. Vikram Plastics, (1998) 147 Taxation 699, 701 (Guj) Where a finding has been recorded that there were no discrepancies or defects pointed out in the books of account and further that they were regularly maintained and also on the finding that there was no material brought on record to establish that purchases or expenses were inflated or sales suppressed and also in view of the finding that this was not a case that there was no method of regular accounting employed, the Tribunal was held fully justified in coming to the conclusion that the provisions of section 145 (2) could not be invoked Ground of Appeal No. 3 & 3.1:42 ITA No. 900 & 901/JP/2018
M/s Silvex & Co. (India) Ltd.
Not pressed Ground of Appeal No. 4:
In this ground of appeal, assessee challenged the action of ld.CIT(A) in confirming the action of ld. AO in making disallowance of Rs. 11,709/- on account of TDS demand, arbitrarily without appreciating genuineness of claim.
In the matter with regard to allowability of TDS demand of Rs. 11,709/- (shown under administrative expenses head) it is submitted that the provision of section 40(a)(ii) of the Income Tax Act, 1961 is reproduce as under :-
"any sum paid on account of Income Tax ( i.e. any rate or tax levied on the profits or gains of any business or profession) is not deductible. Similarly, any interest, penalty, fine for non-payment or late payment of Income tax is not deductible. This rule is applicable whether Income-Tax payable in India or Outside India."
The words "profits or gains of any business of profession" in section 40(a)(ii) have reference only to profits or gains as determined u/s 28 and 29 of the Income Tax Act, 1961 and cannot cover the net profit or gains arrived other than that provided by section 28 and 29 of the Income Tax, 1961. Thus the Interest on late payment of TDS or any demand of interest on TDS is not covered under the section 40(a)(ii) of the Income Tax Act, 1961 and it is allowable expenditure u/s 37 of the Income Tax Act, 1961. The Ld. AO has made the disallowance without appreciating genuineness of claim and submission made therefore the disallowances so made deserves to be deleted."
10. Per contra, the ld. DR supported the rejection of books of account by the lower authorities and thereby estimation of profit too and 43 ITA No. 900 & 901/JP/2018 M/s Silvex & Co. (India) Ltd.
supported the arguments advanced in the respective order of the lower authorities on the issue.
11. We have considered the rival contention and perused the orders of the authorities and the material available on record arguments advanced by both the parties and also gone through the judicial decision relied upon by both the parties to drive home to their contentions. ITA No 900/JP/2018 Ground of Appeal No. 1:-
We have considered the rival submissions and perused the material available on record. During the course of assessment proceedings the Assessing Officer has pointed out certain defects in the books of accounts including the discrepancies in "current year and previous year figures" of Balance Sheet filled in the form of return of income, besides it was alleged that the assessee failed to submit the stock register to the satisfaction of the Assessing Officer. Before us, the ld. Counsel has tried to answer the discrepancies in the figures of two Balance Sheets i.e. the current as well as immediately previous preceding year. Regarding the stock register, it is an admitted fact by the assessee that the stock register was not maintained in the desired format which leads to entertaining doubts on the stock figures furnished by the assessee. In view of these facts, we are in agreement with the lower authorities that the books of 44 ITA No. 900 & 901/JP/2018 M/s Silvex & Co. (India) Ltd.
accounts are liable to be rejected. Accordingly, the application of provisions of section 145(3) as invoked by the AO, is hereby upheld.
In ground of appeal No. 2, the assessee has challenged the trading additions of Rs. 57,05,309/- made by AO and upheld by ld. CIT(A) by applying the GP rate of 6.71% as against 5.77% declared by the assessee. The ld. AR submitted that the turnover of the assessee had substantially increased in the year under consideration as compared to the immediately preceding previous years. Though the GP in money terms also increased from 3.29 crores to 3.50 crores however, there is a slight fall in the GP rate which has gone down from 5.92% of the immediately preceding previous year to 5.77% in the year under appeal. The ld. AR relied upon the decision of the Hon'ble Jurisdictional High Court in the case of Gotton Lime KhanijUdhyog reported in 256 ITR 243 to support his contention where in the decision stated supra, it is held that the rejection of books of accounts need not necessarily lead to any addition to the income. The ld. AR further submits that the discrepancies pointed out in the figures filled in the form of return of income filed were fully reconciled and there remained no difference on that score, therefore, it has been prayed that even if the provisions of section 145(3) are invoked, no addition should be made.
On the other hand, the ld. DR has supported the orders of the lower authorities and filed a gist of cases wherein the GP rate higher than the rate applied in the case of the assessee was upheld by Hon'ble High Court. Accordingly, the ld. DR requested for the confirmation of the addition made by the Assessing Officer.45 ITA No. 900 & 901/JP/2018
M/s Silvex & Co. (India) Ltd.
In rejoinder, the ld. AR submits that the case laws relied upon by the ld. DR are distinguishable on facts and had also filed a chart narrating therein the differentiating points that with the appellant's case thus these cases are not applicable in the present case and prayed that no addition should be made.
After considering the arguments, we are of the considered view that the assessee is having progressive history of trading results where the turnover has increased as compared to previous years coupled with the increase in gross profit in monetary terms. However, the fact remains that the assessee has failed to furnish the stock register to the satisfaction of the AO, therefore the value of stock is not subject to verification. In view of these facts and looking to the circumstances of the case, we are of the considered view that the GP rate applied by the AO is on a higher side and by considering the quantum increase of gross profit in the trading operations and further considering the possibility of revenue leakage by imperfections in the stock register, we uphold an addition of Rs. 3 lacs in the trading results to meet the end of justice. In the result these grounds of appeal are partly allowed.
Ground of appeal No. 3 :-
We have heard the rival submissions and material available on record. Assessee has failed to deduct tax at source on the interest payment made to financial companies as well as some short deduction of tax was made. It was contended that the recipient companies are tax payers and had included the interest paid by the assessee in their return of income filed 46 ITA No. 900 & 901/JP/2018 M/s Silvex & Co. (India) Ltd.
and paid tax thereon. However, the assessee has failed to furnish the evidence in this regard, therefore, the claim of the assessee could not be taken as proved. We thus upheld the addition of Rs. 2,39,196/-.
With regard to the remaining disallowance of Rs. 90,000/- made on account of short deduction of tax, it is seen that the assessee has complied with the provisions of TDS and made deduction though at a lower rate. The Hon'ble Calcutta High Court in the case of S.K. Tekriwal reported in 90 DTR page 26 has held that if the assessee has deducted the tax under wrong impression by applying wrong provisions of TDS the section 40A(ia) cannot be invoked. This view is also taken by the coordinate bench of ITAT, Jaipur in the case of M.C. Sharma Associates & Consultants Pvt. Ltd. in ITA No. 1028/JP/11. Thus by respectfully following the decisions of Hon'ble High Court and ITAT, the disallowance of Rs. 90,000/- made is hereby deleted. Thus the assessee gets a relief of Rs. 90000/- in this ground No. 3 of the appeal.
Ground of Appeal No. 4:-
The AO has made a disallowance of Rs. 8,020/- claimed by the assessee as expense for TDS demand and Rs. 10,295/- towards TDS penalty which according to AO and ld. CIT(A) were not allowable as expenditure. During the course of appellate proceedings, the ld. AR reiterated the same arguments which were made before the lower authorities and no new fact is brought on record in support of the claim that the expenditure of TDS demand and penalty are allowable expenditures. Looking to these facts, we are in agreement with the lower authorities that TDS demand and 47 ITA No. 900 & 901/JP/2018 M/s Silvex & Co. (India) Ltd.
penalty being disallowable expenditures since the same are charged for violation of provisions of law, therefore, the same cannot be allowed as expenses. As a result, this ground is dismissed.
In the result, appeal is partly allowed.
ITA No 901/JP/2018 Ground of Appeal No. 1 to 2.1:-
The facts involved in these grounds of appeal are identical to the facts involved in ITA No. 900/JP/2018 wherein we have made a detailed discussion on the issue and after considering the rival submissions trading addition of Rs. 3 lacs is confirmed. As the arguments put forth by both the parties are the same for this year also and facts being identical, therefore looking to the entirety of the facts and for the reasons given in the aforesaid appeal, we hereby uphold the addition of Rs. 2,00,000/- to meet the end of justice. As a result, these grounds of appeal are partly allowed.
Ground of Appeal No. 3 &3.1:-
During the course of hearing the ld. AR of the assessee has not pressed these grounds, therefore the same is dismissed.
Ground of Appeal No. 4:-
Taking into facts and circumstances of the case, AO has made a disallowance of Rs. 11,709/- claimed by the assessee as expense for TDS 48 ITA No. 900 & 901/JP/2018 M/s Silvex & Co. (India) Ltd.
demand which according to AO and ld. CIT(A) were not allowable as expenditure. During the course of appellate proceedings, the ld. AR reiterated the same arguments which were made before the lower authorities and no new fact is brought on record in support of the claim that the expenditure of TDS demand is allowable expenditure.we are of the opinion with the lower authorities that TDS demand being disallowable expenditure since the same is created for violation of provisions of law, therefore, the same cannot be allowed as expenses. As a result, this ground is dismissed.
In the result, the appeals are partly allowed.
Order pronounced in the open Court on 28/10/2022.
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vkns'k dh izfrfyfivxzsf'kr@Copy of the order forwarded to:
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2. izR;FkhZ@The Respondent- ITO, Ward -7(2), Jaipur.
4. vk;djvk;qDr@CIT(A)
5. foHkkxh; izfrfuf/k] vk;djvihyh; vf/kdj.k] t;iqj@DR, ITAT, Jaipur.
6. xkMZQkbZy@Guard File {ITA No. 900 & 901/JP/218} vkns'kkuqlkj@By order, lgk;diathdkj@Asst. Registrar