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Income Tax Appellate Tribunal, JAIPUR BENCHES, JAIPUR
Before: SHRI VIJAY PAL RAO, JM & DR. ARJUN LAL SAINI, AM vk;dj vihy la-@ITA No. 336/JP/2015
आयकर अपीलीय अधिकरण] जयपुर न्यायपीठ] जयपुर IN THE INCOME TAX APPELLATE TRIBUNAL, JAIPUR BENCHES, JAIPUR Jh fot; iky jko] U;kf;d lnL; ,oa MkW0 vtqZu yky lSuh] ys[kk lnL; ds le{k BEFORE: SHRI VIJAY PAL RAO, JM & DR. ARJUN LAL SAINI, AM vk;dj vihy la-@ITA No. 336/JP/2015 fu/kZkj.k o"kZ@Assessment Year : 2011-12 cuke Bharti Malpani, I.T.O. Vs. Pro.p- Bharti Exports, Ward 1(2), 11, Film Colony, Chaura Rasta, Jaipur. Jaipur. LFkk;h ys[kk la-@thvkbZvkj la-@PAN/GIR No.: ADGPM 6495 G vihykFkhZ@Appellant izR;FkhZ@Respondent vk;dj vihy la-@ITA No. 265/JP/2016 fu/kZkj.k o"kZ@Assessment Year : 2012-13 cuke Bharti Malpani, I.T.O. Vs. Pro.p- Bharti Exports, Ward 1(2), 11, Film Colony, Chaura Rasta, Jaipur. Jaipur. LFkk;h ys[kk la-@thvkbZvkj la-@PAN/GIR No.: ADGPM 6495 G vihykFkhZ@Appellant izR;FkhZ@Respondent fu/kZkfjrh dh vksj ls@ Assessee by : Shri Bimal Chopra (CA) jktLo dh vksj ls@ Revenue by : Shri P.P. Meena (JCIT) lquokbZ dh rkjh[k@ Date of Hearing : 08/11/2017 mn?kks"k.kk dh rkjh[k@ Date of Pronouncement : 08/01/2018 vkns'k@ ORDER PER: VIJAY PAL RAO, J.M. These two appeals by the assessee are directed against the two separate orders dated 10/02/2015 and 18/01/2016 of ld. CIT(A)-I, Jaipur for the A.Y.2011-12 and 2012-13 respectively. For the appeal of 2011-12, the assessee has raised following grounds of appeal:
ITA 336/JP/2015 & 265/JP/2016_ 2 Bharti Malpani Vs ITO “1. That the Ld. CIT (Appeals) has erred in law and on facts in rejecting the books of account without pointing any discrepancy or defect in the books of account except that some registers were not maintained as it was neither possible nor needed as details are available in the books of account.
That the Td. CIT (Appeals) has erred in law and on facts in upholding Gross Profit Rate of 17% as against 15.36% declared even though the turnover has been accepted and ignoring our submissions including that turnover has increased by three times and predecessor Ld CIT(A) applied G.P. Rate of 14% for AY 2009- 10.
That the Ld. CIT(Appeals) has erred in law and on facts in confirming the addition of Rs 15,27,073 on the ground that interest charged from family members at 6% while interest paid is 12% and has not considered our submission & business expediency in charging 6% of interest from family members and Ld AO has no power to decide rate of interest at which money received or lent.
That the Ld. CIT(Appeals) has erred in law and on facts in confirming addition of Rs 15,27,073/- without appreciating that revenue has failed to prove nexus between borrowings and loans and advances given to family members for their business and ignoring the availability of capital and has not appreciated the real income theory.”
Grounds No. 1 and 2 of the assessee’s appeal are regarding rejection
of books of account and trading addition made by the Assessing Officer and
confirmed by the ld. CIT(A). The assessee is carrying on business of export
of silver articles and semi precious stones under the trade name M/s Bharti
Exports. During the course of assessment proceedings, the Assessing
Officer noted that the assessee has not furnished day to day stock
inventory of all the items in terms of quantity and value thereof for
ITA 336/JP/2015 & 265/JP/2016_ 3 Bharti Malpani Vs ITO verification of opening stock and closing stock shown in the books of
account. The Assessing Officer further noted that the tax auditor in his tax
audit report has also commented that no such record is maintained by the
assessee. Hence in absence of stock record, the valuation of the stock
shown by the assessee was not verifiable. Accordingly, the Assessing
Officer invoked the provisions of Section 145(3) of the Income Tax Act,
1961 (in short the Act) and rejected the book result of the assessee. The
Assessing Officer then estimated the income of the assessee by applying
G.P. rate of 17% on the turnover.
On appeal, the ld. CIT(A) has upheld the action of the Assessing
Officer of rejection of books of account as well as the G.P. rate @ 17%
applied by the Assessing Officer.
Before us, the ld AR of the assessee has submitted that the entire
sale of the assessee is export and therefore there is no scope of under
valuation of closing stock by the assessee. Further the assessee is getting
the job work done through outsourcing to the parties. He has further
submitted that for the A.Y. 2006-07, this Tribunal has considered an
identical issue and directed the Assessing Officer to apply G.P. rate @
7.50%. Thus, the ld AR has submitted that the G.P. rate applied by the
Assessing Officer and confirmed by the ld. CIT(A) is without any basis or
ITA 336/JP/2015 & 265/JP/2016_ 4 Bharti Malpani Vs ITO justification. He has referred to the past history of the assessee declaring
the G.P. rate and therefore, submitted that the Tribunal for the A.Y. 2006-
07 applied the average G.P. of the past years whereas for the year under
consideration, the A.O. has not applied such criteria.
On the other hand, the ld DR has relied on the orders of the
authorities below. He has further submitted that in the A.Y. 2010-11, the
assessee has declared G.P. @ 10.49% whereas the Assessing Officer
applied G.P. @ 17%, which was not disputed by the assessee as no appeal
was filed against the said decision, therefore, for the year under
consideration when the assessee has declared G.P. of 15.36% then the
estimation of income by applying G.P. rate of 17% by following the decision
on this issue for the A.Y. 2010-11 is justified.
We have considered the rival submissions as well as relevant
materials available on the record. It is not in dispute that this Tribunal in
assessee’s own case for the A.Y. 2006-07 has upheld the rejection of books
of account on the similar defects found by the Assessing Officer in the
books of account, therefore, following the earlier order of this Tribunal in
assessee’s own case for the A.Y. 2008-09 and 2009-10, the action of the
Assessing Officer in rejecting the books result is upheld.
ITA 336/JP/2015 & 265/JP/2016_ 5 Bharti Malpani Vs ITO 6.1 As regard the G.P. rate applied by the Assessing Officer @ 17% as
against the G.P. rate declared by the assessee at 15.36%, there is no
dispute that after rejection of books of account, the income of the assessee
is required to be estimated on best judgment of the Assessing Officer.
However, even after rejection of books of account and the income is
estimated, it may not necessarily result any addition to the income declared
by the assessee if the G.P. declared by the assessee for the year under
consideration is in line with the average G.P. rate for the past year which
has been accepted by the Assessing Officer or has attained the finality.
Thus, it is settled proposition of law on the point that while estimating the
income after rejecting the books of account, the average G.P. of the past
years, which has attained the finality or accepted by the revenue would be
a proper and reasonable basis for adopting the G.P. for the current year.
Accordingly, we set aside this issue to the record of the Assessing Officer
for computing the average G.P. of past years to be adopted for the year
under consideration to estimate the income of the assessee.
Grounds No. 3 and 4 of the assessee’s appeal are regarding the
addition made by the Assessing Officer on account of interest charged from
the related parties @ 6% as against the interest paid by the assessee @
12%. The assessee has given loan to relatives and charged 6% interest as
ITA 336/JP/2015 & 265/JP/2016_ 6 Bharti Malpani Vs ITO against the interest paid by the assessee on borrowings @ 12%. The
Assessing Officer disallowed the proportionate interest and made the
addition of Rs. 15,27,073/- on this account.
Before us, the ld AR of the assessee has submitted that the
Assessing Officer has made this addition by assuming wrong facts. He has
pointed out that the assessee has charged interest @ 12% from the some
of the related parties which has not been taken into consideration either by
the Assessing Officer or by the ld. CIT(A). The ld AR has further contended
that the financial position of the related persons were not good and even
the recovery of principal was doubtful hence, on commercial expediency
concessional interest was paid. Further it was submitted that the money
received from the assessee by these relatives was utilized in the business
as evident from the computation sheet of these members showing income
from business and profession. However, all these contentions of the
assessee were not duly considered by the authorities below but were
rejected summarily. He has referred to advance given to one Rahul
Bhandari and submitted that the interest received from the said person was
@ 12% and not @ 6% and therefore no disallowance is called for in this
respect. The ld AR has further submitted that when the recovery of loan
amount itself is doubtful from these persons due to their poor financial
ITA 336/JP/2015 & 265/JP/2016_ 7 Bharti Malpani Vs ITO condition then the interest charged from these persons is based on the
concept of real income.
On the other hand, the ld DR has relied on the orders of the
authorities below and submitted that there is no dispute that the assessee
has charged interest from related parties @ 6% whereas the assessee has
paid interest @ 12%, therefore, the proportionate differential amount
attributable to the loan given to the related party at lower rate of interest is
required to be added.
We have considered the submissions of both the parties as well as
relevant materials available on the record. The assessee has raised various
contentions before the ld. CIT(A) including the contention that the
assessee’s own interest free funds are more than the advance given to the
related parties and therefore, no disallowance on account of interest is
called for due to short charging of interest. Further the assessee has
pointed out before us that out of five debtors to whom the advance was
given. The assessee charged the interest @ 12% from one Shri Rahul
Bhandari and therefore, to the extent of loan given to that person, no
disallowance is called for. All these facts and contentions were not properly
examined by the authorities below, therefore, this issue requires a proper
verification and afresh adjudication at the level of the Assessing Officer.
ITA 336/JP/2015 & 265/JP/2016_ 8 Bharti Malpani Vs ITO Accordingly, we set aside this issue to the record of the Assessing Officer to
consider the facts and contentions raised by the assessee regarding the
availability of interest free funds as well as the interest charged @ 12%
from one of the debtors. Hence, this issue is restored back to the file of the
Assessing Officer.
In the appeal of assessee for the A.Y. 2012-13, the assessee has
raised following grounds of appeal.
“1. That the Ld. CIT (Appeals) has erred in law and facts in not holding that assessment order is invalid in law.
That the Ld. CIT (Appeals) has erred in law and facts in upholding the rejection of books of account due to non maintenance of stock and fall in G.P. ratio without considering the fact that maintenance of stock register was not feasible, all the components of trading account are verifiable and fall in G.P. Rate explained as there were major sales to Export parties including sale of 85% around to one party.
That the Ld. CIT (Appeals) has erred in law and facts not considering the contents on merits in respect of trading additions of Rs 10,60,550/-.
That the Ld. CIT (Appeals) has erred in law and facts in not holding that interest income is to be taxed as per real income theory as interest receipts were more as compared to interest paid in the year in which advances given to family members and accordingly interest receipts were taxed as business income.
That the Ld. CIT (Appeals) has erred in law and facts in confirming part disallowance of interest u/s 36(1)(iii) when the genuineness of borrowing stands established for the purpose of business and the
ITA 336/JP/2015 & 265/JP/2016_ 9 Bharti Malpani Vs ITO ratio of law held by Hon’ble Supreme Court in the case of Hero Cycles (P ) Ltd. 379 ITR 347.
That the Ld. CIT (Appeals) has erred in law and facts in confirming disallowance of Rs 76,638 out of various expenses to the extent of 20% of such expenses as personal.”
At the time of hearing, the ld AR of the assessee has stated that the
assessee does want to press grounds No. 1 and 6 and the same may be
dismissed as not pressed. The ld DR has raised no objection if grounds No.
1 and 6 of the assessee’s appeal are dismissed being not pressed.
Accordingly, grounds No. 1 and 6 of the assessee’s appeal are dismissed
being not pressed.
Grounds No. 2 and 3 of the assessee’s appeal are regarding rejection
of books of account and trading addition made by the Assessing Officer and
confirmed by the ld. CIT(A).
We have considered the submissions of both the parties as well as
relevant materials available on the record. An identical issue has been
considered and decided by us in assessee’s own appeal for the A.Y. 2011-
12 in the foregoing paras of this order. Accordingly, grounds No. 2 and 3 of
the assessee’s appeal are partly allowed on the same terms.
Grounds No. 4 and 6 of the assessee’s appeal are regarding
disallowance of interest on account of short charging of interest from the
ITA 336/JP/2015 & 265/JP/2016_ 10 Bharti Malpani Vs ITO related parties. This issue is common as in the assessment year 2011-12.
In view of the our findings for the A.Y. 2011-12, this issue is set aside to the record of the Assessing Officer on same terms.
In the result, both the appeals of the assessee are partly allowed. Order pronounced in the open court on 08/01/2018.
Sd/- Sd/- ¼MkW0 vtqZu yky lSuh½ ¼fot; iky jko½ (Dr. Arjun Lal Saini) (VIJAY PAL RAO) ys[kk lnL;@Accountant Member U;kf;d lnL;@Judicial Member Tk;iqj@Jaipur fnukad@Dated:- 08th January, 2018 *Ranjan आदेश की प्रतिलिपि अग्रेf’ात@ब्वचल वf जीम वतकमत वितूंतकमक जवरू vihykFkhZ@The Appellant- Smt. Bharti Malpani, Jaipur. 1. izR;FkhZ@ The Respondent- The I.T.O. Ward 1(2), Jaipur. 2. vk;dj vk;qDr@ CIT 3. vk;dj vk;qDr¼vihy½@The CIT(A) 4. विभागीय प्रतिनिधि] आयकर अपीलीय अधिकरण] जयपुर@क्त्ए प्ज्Aज्ए Jंपचनत 5. xkMZ QkbZy@ Guard File (ITA No. 336/JP/2015 & 265/JP/2016) 6.
vkns'kkuqlkj@ By order,
सहायक पंजीकार@Aेेज. त्महपेजतंत