Manju Aggarwal, New Delhi vs Department Of Income Tax

ACIT ,Circle 20(1), Vs. Smt. Manju Aggarwal, New Delhi 3754/12, Old Subzi Mandi, Delhi GIR / PAN:AENPA4821J (Appellant) (Respondent)

Appellant by : Shri R. K. Chauhan, Adv. Respondent by : Shri Vikram Sahay, Sr. DR

Date of hearing : 15.04.2015 Date of pronouncement : 15.04.2015

ORDER

PER R.S. SYAL, AM:

This appeal of Revenue is directed against the order passed by the CIT(A) on 31.10.2012 relating to the Assessment Year 2007-08.

2. The first ground is against the deletion of trading addition amounting to Rs. 5,78,378/-, which was made by the Assessing Officer (A.O.) after rejecting the books of account of the assessee. Briefly stated, the facts of the case are that the assessee derived income from manufacturing and sale of ice. During the year under 2 ITA No.330/Del/2013

consideration, sale of ice was shown at Rs.1,64,73,708 giving gross profit (G.P.) rate of 28.48%, as against the immediately preceding year's sale of Rs.1.87 crore with G.P. rate of 34.08%. On being called upon to explain the reason for decline in the G.P. rate, the assessee submitted that it had to incur more Repairs & maintenance expenses in this year amounting to Rs.17.58 lac as against Rs.11.60 lac incurred in the immediately preceding year. The A.O. observed that the assessee had not maintained quantitative details of production and most of the sales were shown in cash. He further observed that the assessee did not disclose any closing stock of Packing material and Ammonia gas. Considering all these facts, the A.O. invoked the provisions of Section 145(3) of the Act and rejected the books of account maintained by the assessee. Thereupon, a G.P. rate of 31% was applied on estimated sales of Rs.1.70 crore, which resulted into the making of a trading addition to the tune of Rs.5,78,378/-. The ld. CIT(A) deleted the addition.

3. We have heard rival submissions and perused the relevant material on record. We have meticulously gone through the reasons given by the A.O. for rejecting the books of account maintained by assessee. We find that the A.O. got swayed by the decline in G.P. rate as a reason for rejection the books of account.

3 ITA No.330/Del/2013 We want to emphasize that mere reduction in G.P. rate cannot be a reason in itself for rejection of books of accounts. In order to invoke powers u/s 145(3) of the Act, it is necessary for the A.O. to demonstrate as to how the books of account maintained by the assessee were not capable of divulging the correct income therefrom. A mere fall in the gross profit rate, as a consequence of an increase in a particular expenditure during the current year vis- à-vis of earlier year, cannot be a ground for the rejection of books of account. If the expense of Repair & maintenance incurred by the assessee was found by the A.O. to be higher, then it was upon him to indicate whether such expense incurred by the assessee was genuine or not and whether it was incurred for the purpose of business. Having not done so, the A.O. cannot take assistance from this fact for rejecting the books of account. As regards no closing stock of Packing material and Ammonia gas, the assessee contended before the ld. CIT(A) that earlier the assessee was adopting the practice of having stock, but from this year onwards, it was being written off in the year of purchase itself without considering the value of closing stock. In fact, the assessee changed its method of accounting in so far as recording of these expenses was concerned. The AO has not contradicted this contention about the change in the practice of writing off the amount of such expense on year to year basis. Further, when we 4 ITA No.330/Del/2013

consider the nature of business carried out by the assessee, being a seasonal business of manufacturing and sales of ice, there can be hardly any objection in making sales in cash. Even otherwise, the making sale of ice in cash, is not prohibited under any other law. When we consider totality of the facts and circumstances of the instant case, the only irresistible conclusion which follows is that the ld. CIT(A) was justified in rejecting the A.O.'s point of view on this aspect of the matter and consequently deleting the addition. We, therefore, uphold the same and dismiss this ground of the appeal.

4. The next ground is against the deletion of disallowance of Rs.5,15,310/-, being the expenses incurred for the earlier year. The facts apropos this ground are that the assessee debited Repair and maintenance expenses at Rs.17.58 lacs. On perusal of details of certain bills, it was found that a sum of Rs. 88,310/- pertained to the preceding year, inasmuch as two bill nos. 137 and 138, both dated 13.03.2006 issued by Kirloskar Motors, pertained to the earlier year. The ld. CIT(A) got convinced with the submissions advanced by the assessee and ordered for the deletion of addition.

5. After considering the rival submissions and perusing the relevant material on record, we find that the ld. CIT(A) has 5 ITA No.330/Del/2013

recorded a categorical finding that the A.O. erred in correctly noting the dates inasmuch as these expenses actually related to the year in question. No material has been placed on record by the ld. D.R. to controvert this finding given by the ld. first appellate authority. We, ergo, uphold the impugned order on this score. This ground is not allowed.

6. The last ground is against disallowance of certain expenses. which were treated by A.O. as capital in nature. The facts and circumstances of this ground are that the assessee claimed deduction for expenses amounting to Rs.4,28,563/- incurred for purchase of Containers and Starters. The A.O. treated such amount as capital in nature. After allowing depreciation @ 15%, he made a disallowance for the remaining amount of Rs.3,64,279/-. The ld. CIT(A) deleted this addition.

7. After considering rival submissions and perusing the relevant material on record, it is noted from the last page of the impugned order that each Ice container and Starter costed less than Rs.1,000/. Such containers are used on daily basis and remain in salted water bringing rust to them. After getting rust, they start leaking and need to be replaced on regular basis. It can be seen from the submissions made by the assessee before the A.O. that she had 6 ITA No.330/Del/2013

2,800 containers in factory and on an average 500-600 containers were being replaced every year. In view of these facts, we do not find any difficulty in holding such expenditure to be of a revenue nature. As such, we are of the considered opinion that ld. CIT(A) was right in deleting this addition. This ground fails.

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

9. Order pronounced in the open court on 15th April, 2015.

Sd./- Sd./-

( A. T. VARKEY) (R. S. SYAL) JUDICIAL MEMBER ACCOUNTANT MEMBER Date: 15.04. 2015 Sp

Copy forwarded to:- 1. The appellant 2. The respondent 3. The CIT 4. The CIT (A)-, New Delhi.

5. The DR, ITAT, Loknayak Bhawan, Khan Market, New Delhi. True copy.

By Order

(ITAT, New Delhi).

7 ITA No.330/Del/2013 S.No. Details Date Initials Designation 1 Draft dictated on 15/4 Sr. PS/PS 2 Draft placed before author 15/4 Sr. PS/PS Draft proposed & placed before the 3 JM/AM Second Member Draft discussed/approved by Second 4 AM/AM Member 5 Approved Draft comes to the Sr. PS/PS 15/4 Sr. PS/PS 6 Kept for pronouncement 15/4 Sr. PS/PS 7 File sent to Bench Clerk 15/4 Sr. PS/PS Date on which the file goes to Head 8 Clerk 9 Date on which file goes to A.R. 10 Date of Dispatch of order

*