Chandra S. Sadhnani ( Prop M.S, Boom ... vs Department Of Income Tax

आयकर अपीलीय अिधकरण, अिधकरण मुंबई IN THE INCOME TAX APPELLATE TRIBUNAL MUMBAI BENCHES 'C' MUMBAI सव ौी आय.पी. बंसल, याियक सदःय एवं चंि पुजार , लेखा सदःय के सम BEFORE SHRI I.P. BANSAL, JUDICIAL MEMBER AND SHRI CHANDRA POOJARI , ACCOUNTANT MEMBER

ITA NO.5857/MUM/2012 (A.Y. 2008-08)

The ITO -19(2)(1), Mrs. Chandra S. Sadhnani, Room No.312, 3rd Floor, (Prop. M/s. Boom Exports Piramal Chambers, Lalbaug, Vs. International), Parel,Mumbai 400012 101-A, Modi Niwas, (Appellant ) 21-B,SV Road, Santacruz (W), Mumbai 400054 PAN: AADPS 6198N (Respondent)

Appellant by : Shri Premanand J. Respondent by : Shri Snehal R. Shah & Ms. Prerana M. Ghag

Date of hearing : 25/02/2015 Date of pronouncement : 25/02/2015

ORDER

PER I.P.BANSAL, J.M:

This is an appeal filed by the Revenue and it is directed against order passed by Ld. CIT(A)-35, Mumbai dated 25/07/2012 for assessment year 2007-08. The grounds of appeal read as under:

"1) On the facts and in the circumstances of the case and in law, the Learned CIT(A) has erred in deleting the disallowances of interest of Rs.10,73,942/- without appreciating the fact that there was no commercial expediency in the diversion of interest bearing funds to interest free 2 ITA NO.5857/MUM/2012 (A.Y. 2008-08)

advances and as such there is no evidence to establish that the transaction was for the purpose of assesse's business.

2) On the facts arid in the circumstances of the case and in law, the Ld. CIT (A) has erred in deleting addition of Rs. 4,76,457/- on account of low Gross Profit without appreciating the fact the Assessing Officer has discussed the issues at length and came to the conclusion that the assessee had not properly maintained the books of accounts alongwith the supporting documentary evidence."

2. At the outset it was submitted by Ld. Counsel for the assessee that both the issues raised by the Revenue are covered by the earlier decision of ITAT Mumbai Benches in assessee's own case in respect of assessment year 2005-06 and 2006- 07 vide order dated 31/05/2011 passed in ITA Nos. 3110 & 5365/Mum/2009. Copy of the said order is placed on record at pages 5 to 14 of the paper book. Ground No.1 was stated to be covered by the following observations:

6. Aggrieved Revenue is in appeal before us and raised the following ground:

"On the facts and in the circumstances of the case and in law, the Ld. CIT(S) has erred in deleting the disallowances of interest of Rs. 5,57,508/- without appreciating the fact that there was no commercial expediency in the diversion of interest bearing funds to interest free advances and that there is no evidence to show the transaction was for the purpose of assessee's business."

7. We find that the Assessing officer observed that borrowed funds on which interest at 9% was paid were utilized for investment in non Revenue yielding assets. Further the AO held that the total loans and advances of Rs. 97,28,695/- includes investment of Rs. 87,09,500/- in V.S. Estate property. The Ld. CIT(A) has pointed out that the AO has failed to appreciate the fact that in this case the assessee is a proprietor and not a 3 ITA NO.5857/MUM/2012 (A.Y. 2008-08)

partnership firm or company. Further the Ld. CIT(A) has observed that if the gross figure of Rs. 87,09,500/- which has been invested in property excluded the remaining amount of Rs. 10,19,195/- shown as loans and advances and the assessee's turnover in the current year of Rs. 1,73,42,369/- which is taken into account the gross figure is very much in adequate to take care of such loans and advances. Therefore in the absence of any evidence brought by the AO that the capital has not been borrowed for the purpose of business, the Ld. CIT(A) deleted the disallowance of interest which the AO had disallowed on mere presumption. In our opinion, the investment made for the purpose of purchasing the flat for residence, Would be covered by the assessee's capital account which shows an opening balance of Rs. 1,23,26,094/-. Even if the assessee has debited the amount of investment in V.S. Estate in property to the capital account, the capital account would still show a credit balance of Rs. 36,16,594/-. The fact that the investment in flat with M/s V.S. Estate has shown separately in the balance sheet cannot lead to conclusion that loans on which the interest at 9% is paid is utilized for the purpose of investment in non-revenue yielding assets. Further it was pointed out by the Ld. Counsel that the major investment of Rs. 76,00,000/- with M/s. V.S. Estate property was made in the previous assessment years. In the year of account, only additional contribution of Rs. 3 lakhs was made and also registration charges of Rs. 8,09,500/- including stamp duty was paid.

8. The Ld. Counsel for the assessee also pointed out that no new loans were taken on 23.11.2004 and on 29.3.2005 when payments of Rs. 3,00,000/- and Rs. 8,09,500/- were made from Bank of India in which the business receipts are regularly deposited. Evidence was produced that the amount of Rs. 3,00,000/- was paid by way of two cheques of Rs. 1,50,000/- each on the Over draft account taken against the FDR from Bank of India and therefore the payment was not from interest bearing fund. The copies of the bank statement and copy of the account with M/s. V.S Estate property were produced by the assessee in the Paper book to show that no interest bearing funds were utilized for investment in V.S. Estate property. Further, the 4 ITA NO.5857/MUM/2012 (A.Y. 2008-08)

turnover of the assessee for the current year is Rs.

1,73,42,369/- which is substantial enough to cover the investment as well as loans and advances. Therefore, relying on the ratio laid down by the decision in the case of CIT v. Reliance Utilities & Power Ltd., (313 ITR 304), we confirm the order of the Ld. CIT(A) and dismiss the revenue's appeal on this ground.

3. Ground No.2 is stated to be covered by the following observations:

9. The second ground raised by the revenue reads as follows:

"On the facts and in the circumstances of the case and in law, the Ld. CIT(A) has erred in deleting the G.P. addition of Rs. 7,68,028/- made by the AO."

10. The AO has made this addition as no stock register was maintained and therefore the auditor has qualified their report in Form No. 3CD. The AO was of the view that part of the expenses under the head labour and packing charges were not properly vouched.

11. Before the Ld. CIT(A), the AR of the assessee submitted that she has shown GP of 27.68% on a turnover of Rs. 1,73,42,369/-. The assessee has furnished a comparative statement of GP and turnover and highlighted the fact that the GP is generally high when the turnover was low. For the immediately preceding year the GP was 31.5% on a turnover of Rs. 1,04,20,894/-. Thus there is an increase this year of about Rs. 69 lakhs in turnover which is 66% over the previous year while the GP has fallen by 3.8% only. The AR further stated that this year the export of fabrics where the GP is more is reduced by Rs. 9.75 lakhs whereas in respect of export of furniture where the GP is low, the same has gone up by Rs. 10 lakhs. The assessee filed details in the paper book highlighting the fact that GP in textiles as well as Handicrafts is about 42.49% while for any furniture is 25.32%. He further stated that the fall in GP is due to difference in foreign exchange rate at the time of export and the realization of export price. AR filed customs documents showing that export of handicrafts, textile fabrics to Taiwan @ Rs. 45.450 per US$ on 5.11.2004. When the amount was realized on 24.3.2005, the rate has gone down to Rs. 43.68 per US$ 1. He submitted a copy of the bank realization certificate dt. 4.5.2005 in support of the same.

5 ITA NO.5857/MUM/2012 (A.Y. 2008-08) 12. The assessee was also of the view that the presence or absence of stock register is not material or would depend upon the type of business. The business of the assessee being that of export and so quantity exported would always match the qty. purchased and therefore absence of stock register is immaterial to the provisions of Sec. 145(3) of the I.T. Act, 1961.

13. The Ld. CIT(A) held as follows:

"I have perused the assessment order as well as the reasons furnished by the appellant at the assessment stage as well as the appellate stage for decline in GP. The AO has invoked the provisions of Sec. 145(3) on the ground that the appellant did not maintain stock register. Absence of day today stock records by itself cannot be a sufficient ground for rejecting the books of accounts and invoking of the Proviso of Sec. 145(3) of the Act. The accounts of the appellant have been regularly audited u/s. 44AB of the I.T. Act. Simply because a register is not maintained will not make the accounts unreliable so as to be rejected on the facts of the case.

It is observed that the turnover of the appellant has increased this year by 66% whereas the decline of GP is only 3.8%. The appellant is engaged in the business of export which is a highly competitive so such fluctuations are common more so when it is correspondingly linked to increase by 66% in turnover by last year. The appellant has also pointed out that the profit in furniture business is less than that of textiles and handicrafts and this year there is increase in furniture turnover by Rs. 10 lakhs while that of textiles and handicrafts has reduced by Rs. 9.75 lakhs. This fact is borne from records and can not be ignore. In an export business foreign exchange fluctuation have a material effect. The profit margin and adjustments invariably have to be made on that account. The AO has summarily rejected this solely on the ground that stock register is not maintained. The appellant has demonstrated with the facts and figures the reasons for low GP, while the AO has adopted the GP at 32% on an estimated basis. Such GP addition cannot be sustained on the facts of the case and therefore deleted."

6 ITA NO.5857/MUM/2012 (A.Y. 2008-08) 14. Aggrieved, Revenue is in appeal before us. We find that the AO has adopted the GP rate of 32% as against the G.P. rate of 27.68% disclosed by the assessee. From the reading of annexure-V pointed out by the Ld. Counsel for the assessee it appears that the auditors have relied on the admission of the assessee that the assessee had physically verified the stock as on 31.3.2005 and has been valued as per annexure 'F. The auditors have expressed their inability to certify the stock. Hence the AO has wrongly brought on the basis that the auditors were not able to verify the stock. This apprehension on the part of the AO has led to the conclusion that the assessee is not able to explain the fall in G.P. of 3.8% when compared with the G.P. of immediately preceding year. We find that the fall in GP is due to the fall of value of Rupee against in dollar in which the invoices were raised.. The total turnover of the assessee is Rs. 1,73,42,369/- fall in the rate of exchange by Re. 1/- to a Dollar could account for the loss of Rs. 4,00,000/- approx. ( 45.45 per $). Further the assessee has pointed out that whenever there is an increase in turnover, there is a fall in GP rate. The assessee further pointed out that the increase in furniture turnover is Rs. 10,00,000/- while that of textiles and handicrafts has reduced by 9.75% and these facts have contributed to the fall in GP rate. Considering the explanation of the assessee, we are convinced that the order of the CIT(A) deleting the addition of Rs. 7,68,028/- is to be confirmed. This ground of the revenue is dismissed.

4. Ld. DR did not controvert the aforementioned submissions of Ld. AR and submitted that these issues are covered by the aforementioned decisions of the Tribunal.

5. In this view of the situation, after hearing both the parties, we pass similar order and both the grounds of appeal by the Revenue are dismissed.

6. In the result, appeal filed by the Revenue is dismissed.

Order pronounced in the open court on 25/02/2015 आदे श क" घोषणा खुले यायालय म& 'दनांकः 25/02/2015 को क" गई ।

Sd/- Sd/- (चंि पुजार /CHANDRA POOJARI ) (आय.पी. बंसल / I.P. BANSAL) लेखा सदःय /ACCOUNTANT MEMBER याियक सदःय / JUDICIAL EMBER मुंबई Mumbai; 'दनांक Dated 25/02/2015 7 ITA NO.5857/MUM/2012 (A.Y. 2008-08)

आदे श क" ूितिल.प अमे.षत/Copy षत of the Order forwarded to : 1. अपीलाथ1 / The Appellant 2. ू2यथ1 / The Respondent. 3. आयकर आयु3(अपील) / The CIT(A)- 4. आयकर आयु3 / CIT 5. .वभागीय ूितिनिध, आयकर अपीलीय अिधकरण, मुंबई / DR, ITAT, Mumbai 6. गाड फाईल / Guard file.

आदे शानुसार/ ार BY ORDER, स2या.पत ूित //True Copy//

उप/सहायक उप सहायक पंजीकार (Dy./Asstt. Registrar) आयकर अपीलीय अिधकरण, अिधकरण मुंबई / ITAT, Mumbai व.िन.स./Vm, Sr. PS