M/S. RAKESH KUMAR GOYAL,MUMBAI vs. THE ITO 12(2)(1), MUMBAI

01/12/2020 सुनवाई क� तार�ख / Date of Hearing घोषणा क� तार�ख /Date of Pronouncement 07/12/2020 आदेश / O R D E R

PER PAVAN KUMAR GADALE - JM:

1. The Ld. CIT(A) has erred in applying estimated GP rate of 1% on local sales and wrongly added Rs. 32,21,938/- to total income. /Mum/2007 Rakesh Kumar Goyal, Mumbai. - 3 - It is explained to the Ld. CIT(A) that there was Export as well as local sales in the A.Y 2002-03. There was profit in the export sales and loss in the local sales and same should be allowed. In fact the loss in the local sales was due to sale of the Acrylic Toe and Synthetic waste which was not useable. As we have the opening stock of Acrylic Tow and Synthetic waste due to bulk buying in earlier years, to got the quantity discount. These material was regularly used by us. Due to moisture some of the material deteriorate and was not useable. It is simply waste for us. After negotiation and showing the material to different parties/agents/suppliers some of the quantity sent to them for approval basis at the agreed price, lower than purchase price

3. The Brief facts of the case are that, the assessee is engaged in the business of trading and export of Hosiery goods and woolen items. The return of income for the A.Y 2002-03 was filed on 20.10.2002 declaring the total income of Rs.1,84,810/-.The return of income was processed u/s 143(1) of the Act. Subsequently, the case was selected for scrutiny and notice u/s 143(2) and 142(1) of the Act along with questioner were issued. In compliance, the Ld. AR of the assessee appeared from time to time and furnished the details. The assessee was deriving income from salary and was engaged in the business /Mum/2007 Rakesh Kumar Goyal, Mumbai. - 4 - of trading of export of Hosiery goods in the name and style of proprietary concerns M/s. Braun Textile Processors and M/s. Shirdi Overseas Imports and exports. Whereas M/s. Braun Textile Processors existed up to 31.10.2001 and later was converted to partnership. The assessee has claimed deduction u/s 80 HHC of the Act of Rs. 65,23,387/- in respect of proprietary concern M/s. Braun Textile Processors and the report u/s 80HHC(4) in form No.10CCAC is furnished along with the return of income. The A.O found that in the current financial year, the assessee has disclosed export sales, High seas sales, and the gross profit worked out to Rs. 71,59,208/-.The A.O on verification of the credit sales found that the assessee has shown more than 1% of gross profit. Whereas, in respect of cash sales, loss has been disclosed, further cash sales could not be verified as no evidence of bills/vouchers were produced by the assessee. The A.O made the analysis of the gross profit ratio for the A.Y 1999-2000 to 2000-2001 and increase in gross profit percentage. The A.O dealt on disputed issue at para 4 of the order and made addition of difference in gross profit of Rs. 32,21,938/- in respect of High seas /Mum/2007 Rakesh Kumar Goyal, Mumbai. - 5 - sales. Similarly A.O dealt on the issues of deduction u/s 80HHC of the Act and disallowed the claim and with other additions assessed the total income of Rs. 1, 08,04,600/- and passed the order u/s 143(3) of the Act dated 29.03.2005.

4.Aggrieved by the order, the assessee has filed an appeal with the CIT(A). The Ld. CIT(A) considered the grounds of appeal, findings of the A.O and submissions of the assessee and granted the relief on other grounds of appeal but has confirmed the addition of difference of gross profit of Rs. 32,22,930/-as the assessee has not filed any supporting evidences in respect of the claims before the A.O, and even before the CIT(A) no evidence could be furnished to substantiate the sale price. In respect of loss declared by the assessee, the A.O has rejected the set off and was confirmed by the CIT(A) and the appeal of the assessee was partly allowed.. Aggrieved by the order of the CIT(A), the assessee has filed an appeal with the Tribunal.

6.We heard the Ld. DR submissions and perused the material on record. The assessee has raised the sole ground of appeal that, the A.O has made addition of 1% of gross profit rate on local sales and made addition of Rs. 32,21,938/-. On perusal of the submissions made before the A.O and CIT(A),no evidence was filed in spite of providing opportunities of hearing to substantiate the sale price and the goods which were sold are only waste and un-useable material. We find the Ld CIT(A) has dealt on the findings of the A.O and the submissions of the assessee in the appellate proceedings referred at page 2 para 1.3 to 1.12 of the order as under:

“1.3 Before the undersigned the appellant during the hearing of the appeal proceedings, submitted that the G.P /Mum/2007 Rakesh Kumar Goyal, Mumbai. - 7 - rate of export sales even credit sales cannot be applied to local cash sales such goods are rejected and are poor quality items. Therefore, they are sold in the local market at a lower rate of gross profit.

1.4 Further it was pleaded that due to bulk buying in earlier years, the opening stock of acrylic tow and synthetic waste gathered moisture and therefore after negotiations they were sold at a lower price.

1.5 The undersigned has carefully perused through the rival contentions.

1.6 It is however an admitted fact that no supporting details was furnished before the A.O.

1.7 Moreover, even before the undersigned, yet the appellant furnished a few copies of bills regarding the purchases of materials mentioned above, yet no evidence could be furnished to substantiate the sales prices. No evidences were either furnished in support of the stated reasons that such goods sold locally were only waste and unusable material.

1.8 Now coming to the ground taken in appeal the only grievance of the appellant is, that the A.O should have added Rs. 71,836/- only (being 1% of cash sales of Rs. 71,83,595/-) in place of Rs. 94,530/- (being 1% of total sales of Rs. 94,53,020/-). In the ground of appeal filed with the form No. 35, the appellant agreed that the AO at best, could have added 1% GP on cash sales only.

1.9 The undersigned has considered all the relevant details. It is noted that it is a fact that on credit sales the profit margin is higher than on the cash sales as it is the normal business practice. /Mum/2007 Rakesh Kumar Goyal, Mumbai. - 8 - 1.10 Therefore on principle the AO action of rejecting the loss declared by the appellant, is confirmed. However the addition made of Rs. 94,530/- by the A.O is reduced to Rs. 71,836/- only, in view of the observations and findings in the earlier paragraphs. 1.11 Thus the main ground is rejected but the alternate ground of the appellant is allowed. 1.12 Therefore, for statistical purposes, this ground is treated as partly allowed.