JAI HIND AGARWAL,JAIPUR vs. ITO, JAIPUR

आयकर अपीलीय अधिकरण] जयपुर न्यायपीठ] जयपुर IN THE INCOME TAX APPELLATE TRIBUNAL, JAIPUR BENCHES (SMC), JAIPUR Jh Hkkxpan] ys[kk lnL;] ds le{k BEFORE: SHRI BHAGCHAND, ACCOUNTANT MEMBER vk;dj vihy la-@ITA Nos. 999 & 1000/JP/2016 fu/kZkj.k o"kZ@Assessment Years : 2011-12 & 2012-13 cuke Jai Hind Agarwal, Income Tax Officer, Vs. 301, Mahaveer Marg, Ward -5(4) C-Scheme, Jaipur. Jaipur. LFkk;h ys[kk la-@thvkbZvkj la-@PAN/GIR No.: ABEPA 3189 P vihykFkhZ@Appellant izR;FkhZ@Respondent fu/kZkfjrh dh vksj ls@ Assessee by : Shri S.L. Poddar (Adv) jktLo dh vksj ls@ Revenue by : Shri R.A. Verma (Addl.CIT) lquokbZ dh rkjh[k@ Date of Hearing : 28/04/2017 mn?kks"k.kk dh rkjh[k@ Date of Pronouncement : 15/05/2017 vkns'k@ ORDER

PER: BHAGCHAND, A.M. Both appeals are filed by the assessee arise against the two separate orders dated 26/10/2016 passed by the ld CIT(A)-II, Jaipur for the A.Y. 2011-12 & 2012-13. In both the appeals, the assessee has taken following grounds of appeal: Grounds of ITA No. 999/JP/2016 “1. Under the facts and circumstances of the case the ld. CIT(A) has erred in sustaining the addition of Rs.

ITA 999 & 1000/JP/2016_ 2 Jain Hind Agarwal Vs ITO

50,000/- on account of trading addition out of Rs. 1,21,190/-. 2. Under the facts and circumstances of the case the ld. CIT(A) has erred in sustaining the addition of Rs. 2,90,000/- U/s 68 of the Income Tax Act, 1961 on account of advances given to staff. 3. Under the facts and circumstances of the case the ld. CIT(A) has erred in confirming the addition of Rs. 11,09,269/- U/s 40A(3) of the Income Tax Act, 1961. 4. Under the facts and circumstances of the case the ld. CIT(A) has erred in confirming the addition of Rs. 85,455/- @ 10% out of sales commission expenses. 5. Under the facts and circumstances of the case the ld. CIT(A) has erred in confirming the addition of Rs. 57,236/- @ 10% out of sales promotion expenses. 6. Under the facts and circumstances of the case the ld. CIT(A) has erred in confirming the addition of Rs. 33,842/- @ 10% out of other expenses debited in P&L account.” Grounds of ITA No. 1000/JP/2016 “1. Under the facts and circumstances of the case the ld. CIT(A) has erred in sustaining the addition of Rs. 2,00,000/- on account of trading addition out of Rs. 5,00,000/-. 2. Under the facts and circumstances of the case the ld. CIT(A) has erred in sustaining the addition of Rs. 97,939/- @ 10% out of sales commission debited in P&L account. 3. Under the facts and circumstances of the case the ld. CIT(A) has erred in sustaining the addition of Rs.

ITA 999 & 1000/JP/2016_ 3 Jain Hind Agarwal Vs ITO

60,952/- @ 10% out of sales promotion expenses debited in P&L account. 4. Under the facts and circumstances of the case the ld. CIT(A) has erred in sustaining the addition of Rs. 58,848/- @ 10% out of other expenses debited in P&L account.” 2. Both the appeals are being heard together, therefore, for the sake

of convenience and brevity, a common order is being passed.

In the grounds No. 1,4, 5 and 6 of the appeal, the ld. CIT(A) has

sustained the addition of Rs. 50,000/- on account of trading addition out

of Rs. 1,21,190/-, sustained the addition from being 10% out of the sales

commission expenses of Rs. 85,455/-, sustained 10% of sales promotion

expenses amounting to Rs. 57,236/- and sustained 10% out of other

expenses debited in P&L account at Rs. 33,842/- respectively. It was

pleaded that once the trading addition has been made and sustained by

invoking the provisions of Section 145(3) of the Act after rejecting books

of account, no other addition should have been made out of the various

expenses debited in P&L account being commission on sales, sales

promotion expenses and other expenses debited to P&L account. Ld. AR

pleaded to delete the additions so made. Ld. DR relied on the order of

the Assessing Officer.

ITA 999 & 1000/JP/2016_ 4 Jain Hind Agarwal Vs ITO

AR has force. Once the books of account has been rejected and the

trading addition has been made then there is no scope for making

further disallowances from expenses debited under the heads sales

commission, sales promotion and other expenses debited in P&L account.

Therefore, considering the pleading of both the sides I uphold the

trading addition of Rs. 50,000/- sustained by the ld. CIT(A) on. Relevant

para of the ld. CIT(A)’s order is as under:-

“I have perused the facts of the case, the assessment order and the submissions of the appellant. As noted in the assessment order, on examination of books of accounts and evidences produced by the assessee it was found that the assessee is not maintaining stock register, purchases of an amount of Rs.3.33 crores have been made through credit card, bills for which do not bear the details of weight of the precious metal/stone and the cost for the same, in some bills of other sales also the name of the item and quantity is not mentioned. In view of the above the books of accounts were rejected under section 145(3) and an addition of Rs. 1,21,190/- was made under this head adopting the net profit at 15.51% as shown by the assessee in the previous year. In the present proceedings, it is submitted that the books of accounts have been properly maintained and subject to audit under section 44AB. As regards non-maintenance of stock register it has been stated that the business of the assessee is such where maintenance of stock register was not possible or maintaining such detailed accounts of stock and consumption of material on day to day basis was not possible. It was contended that defects pointed out are superficial and not of any

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significance. As regards absence of details on bills, it was claimed that the same were available on most bills except jewellery purchased from Anuj Jewels worth Rs.26,18,656/- which is hardly 7% of the total purchases. It was further claimed that the turnover has increased and the gross profit rate has also marginally improved. In view of above, it was submitted that the trading addition be deleted. It is seen that the assessee is itself admitting that the stock register is not maintained. Further, it is also not denied that certain bills are not subject to scrutiny as they do not provide the basic details of weight and rate applied of the items sold. In view of the above, the rejection of books is upheld. However, instead of adopting the net profit at 15.51% which is of an earlier year, a lump sum disallowance of Rs.50,000/- would be in order. This ground of appeal is accordingly partly allowed.”

Thus, ground No. 1 of the assessee’s appeal is dismissed and grounds

No. 4,5 and 6 of the appeal are allowed.

sustaining the addition of Rs. 2,90,000/- U/s 68 of the Act. On this issue,

the ld AR has pleaded that this was the recovery of advances given to

the employees. However, the lower authorities have invoked the

provisions of Section 68 of the Act. He also pleaded that for deciding this

issue in proper perspective, he has filed additional evidence, which are

necessary to reach at the correct facts. These evidences could not be

filed before lower authorities and he had explained the reasons for not

submitting these documents before lower authorities.

ITA 999 & 1000/JP/2016_ 6 Jain Hind Agarwal Vs ITO

5.1 Similarly on the ground No. 3 of the appeal where the addition of

Rs. 11,09,269/- has been sustained U/s 40A(3) of the Act. On this issue

also, the ld AR of the assessee has pleaded that he has submitted

additional evidence in the form of confirmation from the persons to

whom payments were made. He also pleaded that once the books of

account has been rejected then there was no scope for addition U/s

40A(2) of the Act.

evidences should not be admitted. Further if admitted, then the matter

must be restored back to the Assessing Officer as these documents

which are now filed by the assessee has not been examined by the

Assessing Officer. He further submitted that the addition U/s 40A(3) of

the Act can be made even when the books of account were rejected and

addition is made. He relied on the decision of the Hon’ble ITAT Jaipur

Bench in ITA No. 492/JP/2011 and in the case of Ramesh Chand Soni in

ITA No. 527/JP/2006 order dated 14/12/2007.

pleadings and looking into the facts and circumstances, I admit these

additional evidences in relating to grounds No. 2 and 3 of the appeal.

Further I also hold that the addition U/s 40A(3) of the Act can be made

ITA 999 & 1000/JP/2016_ 7 Jain Hind Agarwal Vs ITO

and sustained even when the books of account has been rejected and

trading addition has been made. In the assessee’s case, it is claimed that

these were the purchases of preceding year and the payments have been

made during this year. The provisions of Section 40A(3) of the Act read

as under:-

“Section 40A: (3) Where the assessee incurs any expenditure in respect of which a payment or aggregate of payments made to a person in a day, otherwise than by an account payee cheque drawn on a bank or account payee bank draft, exceeds twenty thousand rupees, no deduction shall be allowed in respect of such expenditure.”

This Section provides regarding expenses or payments not deductible in

certain circumstances. Thus, the expenses and payments, which does not

comply with certain circumstances, deserve to be disallowed by invoking

this section. Therefore, in my considered view, the expenses, which is

deducted and the books of account, which is allowable expenses and

when the books of accounts are rejected then only from such expenses

no other disallowances required. However, Section 40A deals the

expenses or payments, which are not deductible in certain

circumstances, therefore, the assessee’s plea in this respect is not

tenable. Considering all these facts and circumstances and with above

observations, I restore the issue raised in grounds No. 2 and 3 to the file

ITA 999 & 1000/JP/2016_ 8 Jain Hind Agarwal Vs ITO

of the Assessing Officer to decide de novo after considering additional

evidences filed by the assessee.

statistical purposes.

In this appeal also, the assessee has challenged the sustaining the

addition of Rs. 2,00,000/- on account of trading addition out of Rs.

5,00,000/-, the ld. CIT(A) has also sustained the addition out of sales

commission of Rs. 97,939/-, out of sales promotion expenses amounting

to Rs. 60,952/- and out of other expenses of Rs. 58,848/-. While deciding

the ITA No. 999/JP/2016, I have decided that once the addition has been

made and sustained on account of trading addition by way of rejecting

the books of account then no other disallowance, deserves to be

sustained. Therefore, for this year also, I sustain the trading addition of

Rs. 2.00 lacs. Relevant para of the ld. CIT(A)’s order is as under:-

“I have perused the facts of the case, the assessment order and the submissions of the appellant. As noted in the assessment order, on examination of books of accounts and evidences produced by the assessee it was found that the assessee is not maintaining stock register, most bills do not have the complete description and also that the closing stock has not been shown at the correct figure and in some cases VAT

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has been included while in some cases it is not included. The details have been discussed on page 3 of the Assessing Officer’s order. In view of the above the books of accounts were rejected under section 145(3) and a lumpsum addition of Rs.5,00,000/- was made under this head. In the present proceedings, it is submitted that the books of accounts have been properly maintained and subject to audit under section 44AB. As regards non-maintenance of stock register it has been stated that the business of the assessee is such where maintenance of stock register was not possible or maintaining such detailed accounts of stock and consumption of material on day to day basis was not possible. It was contended that defects pointed out are superficial and not of any significance. As regards absence of details on bills, it was claimed that the same were available on most bills except some. As regards closing stock it was stated that the same has been valued at market price and since the prices of diamond studded jewellery had crashed, the same is less than the purchase price. It was also contended that the closing stock has been value after taking into consideration the market value plus the VAT thereon. It was further claimed that the turnover has increased and the gross profit rate has also marginally improved. In view of above, it was submitted that the trading addition be deleted. It is seen that the assessee is itself admitting that the stock register is not maintained. Further, it is also not denied that certain bills are not subject to scrutiny as they do not provide the basic details of weight and rate applied of the items sold. In view of the above, the rejection of books is upheld. However, the lumpsum addition made by the Assessing Officer at Rs.5,00,000/- is reduced to Rs.2,00,000/- which is reasonable. This ground of appeal is accordingly partly allowed.”

ITA 999 & 1000/JP/2016_ 10 Jain Hind Agarwal Vs ITO Considering all these aspects, ground No. 1 of the appeal is dismissed

and grounds No. 2 to 4 of the appeal are allowed.

Order pronounced in the open court on 15/5/2017.

Sd/- ¼Hkkxpan½ (BHAGCHAND) ys[kk lnL;@Accountant Member Tk;iqj@Jaipur fnukad@Dated:- 15th May, 2017

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