Seema Garg, Jaipur vs Department Of Income Tax

Jh vkj-ih-rksykuh] U;kf;d lnL; ,oa Jh Vh-vkj-ehuk] ys[kk lnL; ds le{k BEFORE: SHRI R.P. TOLANI, JM & SHRI T.R. MEENA, AM

vk;dj vihy la-@ITA No. 678/JP/2012 fu/kZkj.k o"kZ@Assessment Year : 2008-09

Assistant Commissioner cuke Seema Garg of Income Tax, Vs. Prop. M/s Seema Sales Circle-7, Jaipur. Corporation, Manak Chowk, Old Tonk, Tonk. LFkk;h ys[kk la-@thvkbZvkj la-@PAN/GIR No.: ACXPG 2841 C vihykFkhZ@Appellant izR;FkhZ@Respondent

izR;k{ksi.k@C.O. No. 58/JP/2012 (Arising out of vk;dj vihy la-@ITA No. 678/JP/2012) fu/kZkj.k o"kZ@Assessment Year : 2008-09

Seema Garg cuke Assistant Commissioner of Prop. M/s Seema Sales Vs. Income Tax, Corporation, Manak Chowk, Old Circle-7, Jaipur. Tonk, Tonk. LFkk;h ys[kk la-@thvkbZvkj la-@PAN/GIR No.: ACXPG 2841 C izR;k{ksid@Objector izR;FkhZ@Respondent

jktLo dh vksj ls@ Revenue by : Mrs. Neena Jeph (JCIT) fu/kZkfjrh dh vksj ls@ Assessee by : Shri Praveen Saraswat (C.A.)

lquokbZ dh rkjh[k@ Date of Hearing : 04/06/2015 mn?kks"k.kk dh rkjh[k@ Date of Pronouncement : 17/07/2015 2 ITA 678/JP/2012 & C.O. 58/JP/2012_ ACIT Vs. Seema Garg

vkns'k@ ORDER

PER: T.R. MEENA, A.M.

The appeal by revenue and C.O. by assessee filed against the

order dated 23/04/2012 passed by the learned CIT(A)-III, Jaipur for

A.Y. 2008-09. The effective grounds of the appeal as well as C.O. are as

under:-

Grounds of revenue's appeal ITA No. 678/JP/2012 (A.Y. 2008-09)

"(i) the CIT(A) has erred by cryptically accepting the additional evidence without passing a speaking order.

(ii) The CIT(A) has erred in restricting the trading addition of Rs. 53,89,328/- made by the A.O. by estimating the G.P. @ 29% to Rs. 15,50,170/- by adopting the G.P. rate at 21% even while upholding the rejecting of books of account.

(iii) The CIT(A) has erred in restricting the addition by adopting the G.P. rate of 21 interest of 29% as worked out by the A.O. on the basis of specific instances of disallowances.

(iv) The CIT(A) has erred in deleting the disallowance of interest made by the A.O. on account of non-

charging of interest on debtors of Rs. 43,026/-, even when the assessee had not shown availability of surplus own funds.

(v) The CIT(A) has erred in deleting the disallowance of Rs. 89,330/- under Section 40(a)(ia) by erroneously accepting the availability of Form 15G, with the 3 ITA 678/JP/2012 & C.O. 58/JP/2012_ ACIT Vs. Seema Garg

assessee, at the time of interest payment even when the evidence of its possession was not furnished before the A.O./ any time."

Grounds of assessee's C.O. No. 58/JP/2012 (A.Y. 2008-09)

"1. The learned CIT(A) has erred in upholding the invocation of provisions of Sec. 145(3) of I.T. Act, 1961 and accordingly sustaining trading addition of Rs. 15,50,170/- by applying G.P. rate @ 21% as against 17.89% declared by the assessee."

2. The revenue's ground No. (i) to (iii) are against confirming the

addition by the ld CIT(A) at Rs. 15,50,170/- as against the addition

made by the Assessing Officer at Rs. 53,89,328/- on the basis of

accepting the G.P. rate @ 21% as against the G.P. adopted by the

Assessing Officer @ 29%. The assessee's C.O. is against confirming the

rejection of books of account U/s 145 of the Income Tax Act, 1961 (in

short the Act) and trading addition of Rs. 15,50,170/-. The ld Assessing

Officer observed that the assessee is a whole seller of tendu patta. The

return of income for A.Y. 2008-09 was filed on 29/09/2008 declaring

total income of Rs. 58,97,350/-. The case was scrutinized U/s 143(3) of

the Act. During the year under consideration, the assessee had shown

gross profit of Rs. 86,90,749/- on total turnover of Rs. 4,85,51,994/-

4 ITA 678/JP/2012 & C.O. 58/JP/2012_ ACIT Vs. Seema Garg

giving G.P. rate of 17.89%, which was lower than the G.P. rate declared

in earlier years. The yearwise position of sale and G.P. is as under:-

A.Y. Sales G.P. Rate

2006-07 Rs. 18644217 23.65%

2007-08 Rs. 28740431 25.58%

2008-09 Rs. 48551994 17.89%

The Assessing Officer further observed that the assessee was

specifically required to produce books of account and to furnish

details/documents in support of lower GP rate declared in the year

under consideration for her business concern. On verification of books

of account, it was seen that the assessee had not maintained the stock

register, which has been admitted by the assessee on ordersheet dated

07/10/2010. Therefore, it was concluded by the Assessing Officer that

purchase and sales are not subject to verification. The veracity of

opening and closing stock is also not amenable to verification. He

further observed that the assessee had claimed various direct expenses

to the tune of Rs. 89,25,525/-. Out of these salary/filling expenses of

Rs. 52,94,820/- amounting to 59.32% of the direct expenses had been

claimed. The expenses had been claimed/incurred in cash on self made

vouchers. The assessee had not maintained any detail or evidence or 5 ITA 678/JP/2012 & C.O. 58/JP/2012_ ACIT Vs. Seema Garg

any receipt for payment claim for these expenses. As per notesheet

entry dated 07/10/2010, the assessee had admitted before the

Assessing Officer that salary and filling expenses of Rs. 52,94,820/-, fad

expenses of Rs. 54,065/-, Hammali expenses of Rs. 477337/-, truck

rent expenses of Rs. 13,42,845/-, Rent of Jeep and Motor cycle of Rs.

3,00,300/-, building rent of Rs. 35,200/- & delivery expenses of Rs.

1,81,395/- were claimed on the basis of self made vouchers having no

supporting documentary evidences. The ld Assessing Officer gave the

show cause notice on the basis of defect pointed out as above for

rejecting the book result U/s 145(3) of the Act. The assessee's reply

had been reproduced by the Assessing Officer on page 3-4 of the

assessment order. After considering the assessee's reply, the ld

Assessing Officer observed that the salary claimed by the assessee

shows that the details filed include various lists giving out the names

having no address, bio data or any other identity detail. No muster roll

or any permanent record for the claim had been maintained. Thus, the

assessee had failed to maintain any evidence or receipt for claimed

expenses which were totally in cash rendering documentary verification

impossible, which account 59.32% of the direct expenses, the evidence

furnished by the assessee are unsustainable U/s 44AA of the Act. The 6 ITA 678/JP/2012 & C.O. 58/JP/2012_ ACIT Vs. Seema Garg

assessee was allowed sufficient time to substantiate his claim of various

expenses debited in the P&L account. It is further admitted by the

assessee that during the year, price of tendu patta has gone up. On

that basis, the ld Assessing Officer concluded that lesser quantity of

tendu patta was procured during the year and less expenses on salary

is required to be incurred. The assessee had shown salary/filling

expenses of Rs. 3,37,500/- for A.Y. 2006-07 on total purchases of Rs.

99,36,982/- whereas salary/filling expenses of Rs. 52,94,820/- on the

purchases of Rs. 3,23,22,634/- had been claimed during the year under

consideration. The expenses in the year under consideration were

15.68% times to the expenses claimed just two years back i.e. in A.Y.

2006-07. On the contrary, the purchases in the year under

consideration were only about 3.25 times to the purchases made in A.Y.

2006-07. Therefore, he concluded that the rise in salary is not linier

with the purchases made in A.Y. 2006-07 and 2007-08. The ld

Assessing Officer calculated the salary expenses on the basis of

expenses increased in proportionate to sale @ 3.25 times of the

expense in A.Y. 2006-07. The allowable salary has been calculated by

the Assessing Officer at Rs. 10,96,875/-, which gives excess salary

claimed by the assessee at Rs. 41,97,945/-. The other expenses also 7 ITA 678/JP/2012 & C.O. 58/JP/2012_ ACIT Vs. Seema Garg

claimed by the assessee without any supporting evidences and are not

verifiable as per the Assessing Officer, which is liable to be disallowed

@ 10% independently, which calculated at Rs. 2,34,113/-.

2.1 He further observed that on perusal of the purchase bills and sale

bills in respect of tendu leaves lot No. 1938 Surlakhapa, it was observed

that the sale bill had been issued on 16/03/2008 for the tendu leaves at

the rate of Rs. 1300/- per bag but the purchases in respect of the same

lot had been claimed to be made at the rate of Rs. 1469/- per bag. The

ld Assessing Officer concluded that this clearly reflected that the

assessee had done under billing in order to adjust the profits declared

by her for the year. The assessee had submitted a stock statement as

on 25/03/2008, just six days before the closing date of the year under

consideration, against hypothecation for loan taken from Punjab

National Bank. In its stock statement the assessee had shown stock of

Rs. 1,38,70,020/- as on 25/03/2008. He verified the sale made after

25/3/2008, which was to the tune of Rs. 1,92,62,273/- till 31/03/2008.

No purchases had been made after 25/03/2008, which has also been

confirmed by the assessee vide ordersheet entry dated 10/11/2010. The

ld Assessing Officer calculated the closing stock as on 31/3/2008 at Rs.

26,65,040/-. These facts also had admitted by the assessee vide his 8 ITA 678/JP/2012 & C.O. 58/JP/2012_ ACIT Vs. Seema Garg

submission dated 10/11/2010. The assessee made sale after 25/3/2008

vide bill No. 12-13 dated 31/3/2008 for 6614 bags valued Rs.

1,92,62,273/-. He further observed that the assessee had sold 6614

bags as against the availability of 6277 bags. This clearly revealed that

the assessee had sold 337 bags more than the stock available with her.

The average price of stock hypothecation with the figure calculated at

Rs. 2209.65 per bag, thus the value of 337 bags comes to Rs.

7,44,654/-, which represents unexplained investment in stock. As per

details of purchases furnished by the assessee for the year under

consideration, the total purchases of 19531.417 bags had been made at

the total cost of Rs. 3,23,22,635/-. The average price thus comes to Rs.

1655/-. However, in the stock statement furnished by the assessee to

the bank as on 25/3/2008 price of 1820 and Rs. 2290/- per bag had

been quoted. This implies that the assessee had factored in the direct

cost. On the basis of this calculation, he recasted the trading account

for the period from 25/3/2008 to 31/3/2008, which is as under:-

Particular Amount Particular Amount To opening 13870020 By sales 19262273 stock and purchases To gross profit 7557293 By closing stock 2165040 Total 21427313 21427313 9 ITA 678/JP/2012 & C.O. 58/JP/2012_ ACIT Vs. Seema Garg

The gross profit rate on that basis had been worked out @ 39.23%

whereas the assessee had shown G.P. rate @ 17.89% only during the

year. Thus, there was a vast variation in the gross profit declared by the

assessee. On the basis of various defects pointed out by the Assessing

Officer, it has been concluded by him that the assessee has not

disclosed true profit on the basis of true sale in the books of account.

Therefore, the assessee's true and correct income cannot be deduced

on the basis of books result disclosed by her. Hence, he applied Section

145(3) of the Act and relied upon the decision of Hon'ble Allahabad

High Court in the case of Avdesh Pratap Singh Abdul Rehman &

Brothers (1994) 76 taxman 616 and decision in the case of Dhadi Ram

Dulichand Vs. CIT (1971) 8 ITR 609 (Bombay). Since the regular books

of accounts and trading results of the assessee had been rejected,

thereafter ld Assessing Officer remained to estimate the correct profit of

the business of the assessee on estimation. On the basis of material

available on record and specific finding given by the Assessing Officer,

he considered fair and reasonable to apply the GP rate @ 29% on

turnover of Rs. 4,85,51,994/- which gives out the gross profit at Rs.

1,40,80,078/-. After reducing the gross profit declared at Rs.

86,90,750/-, the difference of Rs. 53,79,328/- was added in the trading 10 ITA 678/JP/2012 & C.O. 58/JP/2012_ ACIT Vs. Seema Garg

result of the assessee. It is further observed that the addition would

cover the disallowances proposed in salary, other direct expenses and

unexplained investment in stock as discussed above.

3. Being aggrieved by the order of the Assessing Officer, the

assessee carried the matter before the learned CIT(A), who had allowed

the appeal partly by observing as under:-

"2.3.3 In the light of above factual position, my findings cum observations, i.r.o. various issues under consideration, are being summarized as under:-

(i) Validity of rejection of books of accounts:- As far as the validity of rejection of the books of account u/s 145(3) of the Act is concerned. It is evident that the assessee has not maintain the proper books of accounts; stock register and the major expenses are not supported with proper and adequate documentary evidences and the same are found incorrect in cash only, therefore, not fully verifiable.

Similarly, I find that the explanation of the Ld. AR viz. the other issues like improper valuation of closing stock, unaccounted investment in stock etc., as not fully convincible and plausible as such. In similar situation the courts have opined that the rejection of books u/s 145 is valid and proper act on the part of the A.O. The above view is echoed in following case laws-

1. Shri Ram & Co. 316 ITR 139 (Raj.) 11 ITA 678/JP/2012 & C.O. 58/JP/2012_ ACIT Vs. Seema Garg

2. Rajendra Prasad Subhasgh Chandra 237 CTR 382 (Raj.) Considering the above factual and legal aspect and serious defects and incriminating aspects etc., I find that the A.O. is justified in invoking the provisions Sec. 145(3), in the present case. Accordingly, the rejection of books of account is hereby confirmed.

(ii) Validity of Multiple Additions:- As discussed above, the A.O. has made various additions, in the form of partial disallowances of various expense and unexplained sale of goods etc., while observing specific defects in the maintenance of books of accounts etc. However, while giving the telescope effects, subsequently same were considered as covered against the trading addition made u/s 145(3) of the Act.

As far as making the separate additions U/s 145(3) is concerned, it is viewed by court that once the trading addition u/s 145(3) of the Act is made, then no further related additions, could be made in this regard. The decision of Singh Construction & Co. Vs. ACIT (1998) 64 ITD 153 (Patna ITAT) is found applicable, in this regard, wherein it is held that since the method of accounting adopted by appellant-contractor was not found completed, by which income could properly be deduced and the A.O. had to resort to estimate in immediately past and subsequent years, first proviso to s. 145(1) stood impliedly invoked and there was no need to go into specific items of 12 ITA 678/JP/2012 & C.O. 58/JP/2012_ ACIT Vs. Seema Garg

expense; assessment had to be made by applying a net profit rate in the year under consideration too. The above issue has also been dealt and decided by the Hon'ble ITAT, Jaipur Bench in the case of M/s Choudhary & Brothers. While deciding the above appeal, for A.Y. 07-08, in their Order No. ITA 1177/JP/2010 dated 31/5/2011, the finding of the Hon'ble Bench has been reproduced on page 10 of the CIT(A)'s order.

From the above, it is evident the Hon'ble Bench has disapproved the multiple additions U/s 145(3), i.r.o. the improper and non maintenance of books of accounts and viewed that a composite addition to the GP/NP ratio would be sufficient to take care of all such discrepancies. In view of the above and factual and legal position, it is clear that the facts and issues under consideration of the present case are akin to the above case, as decided by the Hon'ble ITAT, Jaipur Bench. Accordingly, it is felt that as per the "Principle of Judicial Discipline", the views and ratio, as upheld in the above decision, are also applicable in the present case also. Accordingly, it is held that the A.O. is not justified in making separate additions u/s 145(3) of the Act, by making ad hoc disallowances of major expenses related to the core activity of the appellant.

(iii) In view of the above conclusion, now the question arises how to estimate a proper and reasonable income u/s 145(3) of the I.T. Act. Regarding the estimation of income 13 ITA 678/JP/2012 & C.O. 58/JP/2012_ ACIT Vs. Seema Garg

u/s 145(3), the decision of Hon'ble S.C. in the case of Kanchwala Gems (288 ITR 10) is found quite relevant and applicable, wherein it is held that if the rejection of books result of several defects found therein than the estimation of income even on guess work is justified. It is settled law that under such circumstances, to estimate the income of the appellant, the past history of appellant would be one of the most reliable guideline in this regard. The similar view is also expressed in the following decisions-

(i) M/s Inani Marbles- 316 ITR 125 (Raj. H.C.) (ii) M/s Action Electricals- 258 ITR 188 (Del. H.C.)

Conclusion:- In view of the aforesaid factual and legal position, it is held that the above ratio upheld, i.r.o. estimation of income u/s 145(3) is binding in the present case also and accordingly the past history of the appellant to be looked into on this account. As observed from the past year's result, it is found that the appellant has offered 12.78% to 25.58% GP, over the years. However, it is not clear from the assessment order that on what basis the A.O. has estimated the GP at 29%, u/s 145(3) of the Act, as no reasons and justifications, in this regard, has been given in the impugned order. It is also noteworthy that the A.O. has also simply ignored the crucial fact that the turnover of the assesse has substantially increased (by 70%), in compare to the previous year, to some extent which could also be a valid reason for having lower GP in 14 ITA 678/JP/2012 & C.O. 58/JP/2012_ ACIT Vs. Seema Garg

the current year, to survive in the competitive market, as such. Accordingly, the A.O's estimation of GP @ 29% u/s 145(3), is found rather on higher side and unsubstantiated. Thus, in the light of the above fact and circumstances, I am of the considered view that applying the G.P. rate @ 21%, in the current year, would be fair, proper and sufficient to meet the both ends of the justice, as such. Accordingly, the A.O. is directed to restrict the estimation of income u/s 145(3), by adopting the GP rate at 21% on the turnover of Rs. 48551994/- only. The above proposition would result into the confirmation of the trading addition to the extent of Rs. 15,50,170/- [Rs. 10195919 (revised GP figure)--Rs. 8690749 (the GP offered by the appellant], against the addition of Rs. 5389328/-, as estimated u/s 145(3) of the Act, by the A.O. Accordingly, the addition made in this regard is partly upheld upto Rs. 15,50,170/- only. Needless to say that the above trading addition would also cover all the other discrepancies noted by the A.O. i.r.o. the direct expenses and unaccounted investment etc. Consequently, this ground of appeal is partly upheld."

4. Now the revenue is in appeal before us. The learned D.R.

vehemently supported the order of the learned Assessing Officer and

argued that the Assessing Officer had pointed out various defects in the

books of account particular in salary and filling expenses, which were 15 ITA 678/JP/2012 & C.O. 58/JP/2012_ ACIT Vs. Seema Garg

more that 59% of the total expenses. She also submitted that the

defects pointed out by the Assessing Officer are sufficient to apply

Section 145(3) of the Act. The payments were also claimed on the basis

of cash payment and are not verifiable whether actual salary was paid

to that extent or not. Salary had increased during the year compared to

preceding year more than 3.2 times. The assessee has not maintained

any stock register, therefore, opening, closing as well as

sales/purchases are not verifiable. The ld Assessing Officer particularly

pointed out the defects on account of stock statement submitted on

25/3/2008 before the bank. Thereafter no purchase was made by the

assessee but sales were made by her on that basis also. The assessee

has sold 337 bags more than stock available with her. The ld Assessing

Officer recasted the trading account on the basis of sale and closing

stock shown by the assessee and GP rate has been found @ 39.23%

even the ld Assessing Officer was further reasonable to apply G.P. rate

@ 29% on total sales disclosed by the assessee. Therefore, she

requested to confirm the order of the Assessing Officer.

5. At the outset, the learned counsel for the assessee has submitted

that the ld Assessing Officer had mis-constructed the grounds of appeal

No. i,ii and iii as the ld CIT(A) after detailed submissions evidenced on 16 ITA 678/JP/2012 & C.O. 58/JP/2012_ ACIT Vs. Seema Garg

record and considering the past history of the case had given part

relief. So called additional evidence was also essential being part of the

record and after taking opinion of the Assessing Officer, same has been

considered. Therefore, the ld Assessing Officer wrongly stated that it

had been cryptically accepted. The ld Assessing Officer could not

understand modus operandi of business and maintenance of books of

account as mentioned by the assessee and other persons in this trade.

The books of account of the assessee was audited. The purchases from

government department, which are subject to verification. The opening

stock has been accepted by the Assessing Officer in previous year in

scrutiny assessment. The closing stock is also verifiable from the record.

Thus, there was no defect in maintenance of books of account and

principal of accountancy. The ld CIT(A) has wrongly and summarily

observed that books of account and expenses vouchers has not been

properly maintained, valuation of stock un-accounted investment in

stock etc.. The ld CIT(A) had not given a single findings on it. He

applied provisions of Section 145(3) of the Act without any basis. The ld

AR further argued that on the basis of seven years result declared by

the assessee, the GP rate vary from 11.54% to 25.58% year to year,

which depends due to various reasons such as demand and supply, 17 ITA 678/JP/2012 & C.O. 58/JP/2012_ ACIT Vs. Seema Garg

heavy rain, climate change etc. being a seasonal business, which could

not be fixed. This year turnover was increased by 70% in compared to

earlier years so the GP was declined from earlier year. Hence the

application of the provisions of Section 145(3) and G.P. @ 29% is not

justified. The expenses in various direct expenses had been increased

to some extent due to increase in turnover and hike in labour charges.

The details of the same had been provided to Assessing Officer and

vouchers of payment had also been produced before him. The ld AR

has drawn our attention on Annexure 4 at page 23. Most of payments

have been given in jungle so payment were made in cash and through

self made vouchers. The ld Assessing Officer had not given a single

voucher, which were found bogus or fake or represented non business

or personal expenses. Therefore, summary rejection of books of

account is not justified. He further relied on the decision in the case of

Bajrang Trading Co. Vs. ITO, Sawai Madhopur, Tax World XLV Page 23.

The ld Assessing Officer also compared salary and filling expenses with

A.Y. 2006-07, which is not justified. The assessee has also drawn our

attention on page No. 25 of paper book and argued that the cost of

direct expenses were Rs. 526.68 per standard bag during the A.Y.

2007-08. Whereas in the year under consideration was Rs 346.38 per 18 ITA 678/JP/2012 & C.O. 58/JP/2012_ ACIT Vs. Seema Garg

standard bag. He further relied on the decision of the Hon'ble ITAT,

Jaipur Bench in the case of M/s Choudhary Brothers ITA No.

1177/JP/2010 dated 31/5/2011 as well as also considered the basis of

principle of judicial discipline. Thus the disallowance of direct expenses

has been considered in estimation of G.P. rate even otherwise expenses

claimed by the assessee were well justified, it could not be added

separately. The ld Assessing Officer has computed the G.P. rate on the

basis of stock statement given to the Punjab National Bank up to

25/03/2008 but the ld Assessing Officer had not considered the direct

expenses in calculating the G.P. rate @ 39.23%. The assessee always

submitted that in the stock up to 25/3/2008, the Devari godown stock

was not included in the statement while enclosing stock in detail stock

of 337 of Devari godown was included, for which he has drawn our

attention on page No. 26 of paper book, which showed that the

assessee had sent 292 bags from Devari to Nizamabad. The rates given

were on approximate basis to meet out banks obligation. No evidence

contrary to it put on record while assessee's purchases and sales rates

are verifiable and accepted. He has drawn our attention on page No. 52

of paper book and asked that in bank's account only Junia and

Burhanpur stock was submitted, no Devari godown of 337 bags was 19 ITA 678/JP/2012 & C.O. 58/JP/2012_ ACIT Vs. Seema Garg

taken into consideration in the stock statement submitted before the

bank. He further relied on the decision in the case of CIT Vs. Santosh

Box Factory (P) Ltd., Ludhiana, 12 Taxman.com 411 (P&H) for stock

statement given to the bank on estimated basis, cannot be treated as

value of stock for computation of income. Thus, this year mainly due to

increase in purchase cost, material and less sale price in comparison to

earlier year, GP was declined in this year. However, expenses cost was

less from earlier year. The purchase price also had increased during the

year under consideration @ 2.46% from the last year for which he has

drawn our attention on page Nos. 57-58 of the paper book. He further

submitted as under:-

"The assessee in rejoinder on remand report of A.O. has explained that:

The learned A.O. has not considered the fact on record as well as specific averment of assessee at para-2 of application Under Rule 46(A)(1) dated 16/09/2011, regarding stock of Devari Godown of 337 bags.

The assessee has already submitted that statement given on bank on 25/3/2008 was for the Junia and Baharanpur (6277 Bags) stock as the same has met out, the requirement of bank, in whch already available stock of Devari godown 337 bags was not included (explained in detail vide letter dated 19/08/2011 (Para D page 5) and

20 ITA 678/JP/2012 & C.O. 58/JP/2012_ ACIT Vs. Seema Garg

para 1(iv) of letter dated 16/09/2011. So far proof assessee has given way bill of 292 bags, which shows that goods to this extent was sent to Nizamabad on 29/03/2008 (APB Annexure-7 of letter dated 16/09/2011 page 26) and balance was in stock, as appearing detail of closing stock, which was appearing in trading account also submitted with A.O. alongwith Q. Tally at the time of assessment also.

The evidence of remaining stock, sale was already available on record, even if considered as additional evidence it directly related and relevant to route of core issue under consideration. Hence, learned CIT(A) has rightly admitted the same.

The assessee has also explained main reasons for decline G.P. that The A.O. has wrongly mentioned short comings in assessment order, the reply of same is as above. Those were no reasons for decline in G.P. rate.

The main reason for decline in G.P. rate is due to high purchase value in comparison to earlier year, a chart is enclosed (APB-Annexure- 7A Page 27) which is self explanatory. Similarly a chart comparing purchase and sale value (APB-Annexure-8 page 28) in which you will find that in A.Y. 2007-08 the cost of per Kg. was @ 29.85 and its sale value was Rs. 41.17 per kg (Profit 13.14 per Kg.), while in A.Y. 2008-09 purchase value was Rs. 47.66 per Kg. and sale value was Rs. 57.44 Per Kg (Profit 9.78 Kg.). Hence profit margin was less in this year. The assessee has categorically stated before A.O. that due to higher sale price in A.Y. 2007-08, the tender was given for high value in A.Y. 2008- 09, but market could not be picked up as in A.Y. 2007-08. All evidences 21 ITA 678/JP/2012 & C.O. 58/JP/2012_ ACIT Vs. Seema Garg

of it have been produced before A.O., but A.O. ignored the same and adopted another theory, on the basis of surmises and conjectures, which has no legal legs and by hook and cook made trading addition.

It is further submitted that in C.I.T. IX Vs. Jasjack Elegance Exports Hon'ble Delhi High Court 191 Taxman 386 has held that since maintaining stock register was not feasible considering nature of business being run by assessee, so Sec. 145(3) cannot be applied in instant case (APB Page 44-47).

Thus above ground of A.O. has no merits, deserves to be rejected and finding of Learned CIT(A) to this extent is on after detailed discussion on facts and evidences on record. So we support the learned CIT(A) order to this extent."

6. We have heard the rival contentions of both the parties and

perused the material available on the record. The various defects

pointed out by the Assessing Officer as mentioned in preceding paras

are sufficient to reject the book result U/s 145(3) of the Act. Therefore,

we have to examine the GP rate applied by the Assessing Officer is

reasonable or not. The AR of the assessee had not justified the salary

expenses increased and payments made in cash. Most of payments

were made in cash. The assessee has not demonstrated that the

assessee had followed the labour law on PF and ESI. Further there is no

chart of employee/labourers which can be shown whether the salary 22 ITA 678/JP/2012 & C.O. 58/JP/2012_ ACIT Vs. Seema Garg

paid to the employees are casual in nature or permanent. The assessee

undisputedly admitted that no stock register has been maintained by

her. It is fact that sale during the year under consideration has

increased substantially with decline in G.P. rate also substantial during

the year under consideration compared to preceding year. The

correlation between increase in sale and decrease in G.P. rate is always

found in trading line except in certain cases but abnormal decline in

G.P. rate explained by the assessing in his arguments has not

convinced us that the assessee had disclosed trading result correctly.

There was a defect in the stock statement submitted before the bank.

On the basis of stock statement submitted before the bank, the ld

Assessing Officer has recasted the trading result for the period

25/3/2008 to 31/3/2008 and worked out the G.P. rate @ 39.23%.

However, the ld Assessing Officer applied G.P. @ 29%. The ld CIT(A)

considered the assessee's argument and submission and came to

conclusion that correct income cannot be deduced on the basis of books

of account maintained by the assessee. However, he confirmed the G.P.

rate @ 21% on the basis of past history for A.Y. 2002-03 to A.Y. 2008-

09. Therefore, we are of the considered view that average of G.P. rate

for A.Y. 2006-07 and 2007-08 is applied for the year under 23 ITA 678/JP/2012 & C.O. 58/JP/2012_ ACIT Vs. Seema Garg

consideration i.e. 24.61%. Accordingly, the Assessing Officer is directed

to calculated the income on the basis of G.P. rate @ 24.61%. Thus, the

revenue's appeal is allowed partly and C.O. of the assessee is

dismissed.

7. The ground No. (iv) of the revenue's appeal is against deleting

the disallowance of interest made by the Assessing Officer on non-

charging of interest at Rs. 43,026/-. The ld Assessing Officer observed

that the assessee had paid interest Rs. 21,12,183/- @ 12% on the sum

borrowed by her. On the other hand, no interest is being charged on

the debtors. The Assessing Officer gave reasonable opportunity of being

heard as to why on all five debtors with transactions amounting to Rs.

3,58,547/- should be calculated. It is also clarified that these debtors

had been carry forwarded for the same amount from the immediate

previous year. As per sale bills filed by the assessee shows that the

assessee charged interest @ 18% on outstanding not received within

the period of one month from the delivery. It was submitted by the

assessee that the assessee has closed her business with these five

parties but the assessee's reply was not found convincing to the A.O..

Therefore, he disallowed interest @ 12% on debtors of Rs. 3,58,547/-, 24 ITA 678/JP/2012 & C.O. 58/JP/2012_ ACIT Vs. Seema Garg

which was calculated at Rs. 43,026/- and disallowed the same out of

total interest payment of Rs. 21,12,183/-.

8. Being aggrieved by the order of the Assessing Officer, the

assessee carried the matter before the ld CIT(A), who had deleted the

addition by following the own findings in A.Y. 2007-08 in assessee's

own case on same disallowance.

9. Now the revenue is in appeal before us. The ld DR has

vehemently supported the order of the Assessing Officer. At the outset,

the ld AR reiterated the arguments made before the ld CIT(A) and also

relied upon the Hon'ble Jaipur ITAT decision in the case of M/s

Choudhary & Brothers in ITA 1177/JP/2010 dated 31/5/2011.

Therefore, he requested to confirm the order of the ld CIT(A).

10. We have heard the rival contentions of both the parties and

perused the material available on the record. This issue has already

been considered by the ld CIT(A) in A.Y. 2007-08 also, it appears that,

it has not been challenged by the revenue before the ITAT. The

assessee's explanation that she has closed her business with these

debtors, therefore, not charging interest on it. Similarly she is also not

paying the interest to the creditors, therefore, ITAT's decision referred 25 ITA 678/JP/2012 & C.O. 58/JP/2012_ ACIT Vs. Seema Garg

by the assessee is squarely applicable and we do not see any reason to

intervene in the order of the ld CIT(A). Accordingly we confirm the

order of the ld CIT(A) on this ground.

11. Ground No. 5 is against deleting the disallowance of Rs. 89,330/-

U/s 40(a)(ia) of the Act without verifying the 15G certificate by the ld

CIT(A). The ld Assessing Officer observed that the assessee had paid

interest of Rs. 89,330/- without deducting TDS. Declaration of

concerned person in form No. 15G had been submitted, no

documentary evidence had been filed regarding its timely submission in

CIT office, therefore, he made addition of Rs. 89,330/- U/s 40(a)(ia) of

the Act.

12. Being aggrieved by the order of the Assessing Officer, the

assessee carried the matter before the ld CIT(A), who had allowed the

appeal by following the ITAT Mumbai Bench decision in the case of Shri

Vipin P Mehta Vs. ITO (39II ITCL 408) as the assessee was having

possession of form No. 15G at the time of assessment proceedings and

when the interest of payment was made to the concerned person,

therefore, TDS is not liable to be deducted.

26 ITA 678/JP/2012 & C.O. 58/JP/2012_ ACIT Vs. Seema Garg

13. Now the revenue is in appeal before us. The ld DR supported the

order of the Assessing Officer and as per law the certificate under Rule

15G is to be submitted in the office of CIT in prescribed time. However,

the same has not been furnished by her.

14. At the outset, the ld AR has reiterated the arguments made

before the ld CIT(A) and relied on the decision of Hon'ble Mumbai

ITAT's decision in the case of Vipin P Mehta Vs. ITO (supra) and argued

that the assessee was having possession of 15G certificates at the time

of assessment and payment of interest which is sufficient compliance of

Section 194A of the Act.

15. We have heard the rival contentions of both the parties and

perused the material available on the record. The various ITAT has held

that if the assessee has taken 15G from the recipient at the time of

payment of interest, which could be produced before the Assessing

Officer at the time of assessment proceedings, is sufficient compliance

U/s 194A of the Act, therefore, no TDs is liable U/s 194A. Thus,

disallowance made by the Assessing Officer U/s 40(a)(ia) of the Act is

not justified. Therefore, we are of the considered view that the ld 27 ITA 678/JP/2012 & C.O. 58/JP/2012_ ACIT Vs. Seema Garg

CIT(A) was justified in allowing the appeal on this ground. Accordingly,

we uphold the order of the ld CIT(A).

16. In result, the revenue's appeal is partly allowed and C.O. of the

assessee is dismissed.

Order pronounced in the open court on 17/07/2015.

Sd/- Sd/- ¼vkj-ih-rksykuh½ ¼Vh-vkj-ehuk½ (R.P.Tolani) (T.R. Meena) U;kf;d lnL;@Judicial Member ys[kk lnL;@Accountant Member Tk;iqj@Jaipur fnukad@Dated:- 17th July, 2015 *Ranjan

vkns'k dh izfrfyfi vxzsf'kr@Copy of the order forwarded to:

1. vihykFkhZ@The Appellant- The A.C.I.T., Central circle-7, Jaipur.

2. izR;FkhZ@ The Respondent- Smt. Seema Garg, Tonk.

3. vk;dj vk;qDr@ CIT

4. vk;dj vk;qDr¼vihy½@The CIT(A)

5. foHkkxh; izfrfuf/k] vk;dj vihyh; vf/kdj.k] t;iqj@DR, ITAT, Jaipur

6. xkMZ QkbZy@ Guard File (ITA No. 678/JP/2012 & C.O. 58/JP/2012) vkns'kkuqlkj@ By order,

lgk;d iathdkj@Asst. Registrar