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Income Tax Appellate Tribunal, ‘D’BENCH,
Before: Shri Waseem Ahmed & Shri S.S.Viswanethra Ravi
This appeal by the assessee is directed against the order of the Commissioner of Income Tax (Appeals),2, Kolkata dated 29-07-2016 for the assessment year 2011-12.
In this appeal, the assessee has raised the following grounds of appeal:-
1. For that on the facts and circumstances of the case the Ld. Commissioner of Income-tax (Appeals) erred in confirming the addition made by the Ld. Income-tax Officer of a sum of Rs.1,45,765/- on gross profit.
2. For that on the facts and circumstances of the case the Ld. Commissioner of Income-tax (Appeals) erred in confirming the addition made by the Ld. Income-tax Officer of a sum of Rs.1,97,091/- on account of foreign travel expenses. 738/Kol/16 M/s. Ispat Enterprises Pvt.Ltd 1
The brief facts of the case are that the assessee is a company dealing in the business of trading in Galvanized sheet and iron. The assessee filed its return of income for the A.Y under consideration on 28-09-2011 declaring total income of Rs.6,56,972/-. Under scrutiny notices u/s. 143(2) & 142(1) of the Act were issued. Against which the assessee filed details, books of account, bank statements, bills and vouchers.
Ground No. 1 is against the addition of Rs. 1,45,765/-on account of gross profit. During the assessment proceedings, the AO found that the rate of sale of items was lower than the rate of purchase. In explanation, the assessee submitted that it considered the average value while preparing a chart, wherein Gross Loss of Rs.(-) 145765.11 was shown. The rate was lower than the rate of items found in opening stock and balance outstanding items lying as closing stock was higher rate of items. In support of the contention, the assessee furnished all purchase and sale bills of such items. But on verification the AO found that the assessee has sold almost entire items in quantity showing opening balance, purchase, sale and closing balance from August 2010 to March 2011 as per following charts:-
Open in g St oc k P ur cha se Sa le Clo s in g S to c k Mon th Gr os s P ro fit Qty Va lue Qty Va lue Qty Va lue Qty Va lue Augu st ,1 0 0.3 75 165 19 .1 1 33. 48 0 169 54 87 .00 17. 15 0 844 20 9. 00 16. 70 5 845 97 1. 04 -2 14 66. 07 Septe mber 16. 70 5 845 97 1. 04 5.3 40 289 30 6. 00 21. 67 0 106 53 01 .00 0.3 75 203 16 .4 3 -4 96 59. 60 Oct o ber 0.3 75 203 16 .4 3 0.0 00 0.0 0 0.3 75 180 00 .0 0 0.0 00 0.0 0 -2 31 6.4 3 No ve mb er 0.0 00 0.0 0 0.0 00 0.0 0 0.0 00 0.0 0 0.0 00 0.00 0.0 0 Dece mber 0.0 00 0.0 0 22, 94 5 119 90 3. 00 6.7 90 320 87 1. 00 16. 15 5 844 82 1. 66 -3 42 10. 34 Jan uar y,1 1 16, 15 5 886 82 5. 50 5,2 30 279 42 2. 00 4.5 40 215 19 6. 00 16. 84 5 886 82 5. 50 -2 22 22. 16
M/s. Ispat Enterprises Pvt.Ltd 2 Fe brua r y 16, 84 5 886 82 5. 50 0.0 00 0.0 0 2.6 85 150 09 2. 00 14. 16 0 745 47 0. 41 873 6. 91 Mar ch 14, 16 0 745 47 0. 41 0.0 00 0.0 0 6.7 80 329 73 0. 00 7.3 80 391 11 3. 00 -2 46 27. 41 - 1 4 5 7 6 5 . 1 1 Tot a l lo ss
As the assessee could not produce the entire bills and the AO was of the opinion no businessman will purchase goods at a higher rate and sell the same items in the period on a much lower rate and in the absence of sale bills, the AO added the entire loss of Rs.1,45,765/- to the total income of the assessee.
In appeal, before the CIT-A the assessee submitted a chart showing trading result of gross profit of current year comparing with the last preceding three years 2011-12, 2010-11, 2009- 2010 & 2008-09. The comparative details of which as submitted by the assessee before the CIT-A are reproduced herewith:- Assessment Year 2011-12 Opening stock 9,62,25,152.05 Sales 50,63,25,171.35 Purchase 47,99,92,208.61 Closing stock 7,74,00,547.66 Lifting charges 5,24,191.00 Gross Profit 69,84,167.35 Total 58,37,25,719.01 Gross profit ratio= Rs.1.379% as per para 32(a) of Tax Audit Report. Purchase is net of Rs.29,80,938.40, Credit note and discount received from suppliers Sale is net of Rs120434/-, debit notes raised by customers. Assessment Year 20110-11 Opening stock 2,77,13,898.78 Sales 37,03,74,751.08 Purchase 43,24,59,734.93 Closing stock 9,62,25,152.05 Lifting charges 7,34,222.58 Gross Profit 56,92,046.84 Total 46,65,99,903.13 46,65,99,903.13 Gross profit ratio= Rs.1.537% as per para 32(a) of Tax Audit Report. Purchase is net of Rs.10407905/-, Credit note from suppliers Sale is net of Rs. 2600/-, debit notes raised by customers.
Assessment Year 2009-2010 Opening stock 4,91,62,411.62 Sales 25,74,36,552.50 Purchase 23,08,99,093.45 Closing stock 2,77,13,898.78 Lifting charges 4,47,220.00 Gross Profit 46,41,726.21 Total 28,51,50,451.28 28,51,50,451.28 Gross profit ratio= Rs.1.803% as per para 32(a) of Tax Audit Report. Purchase is net of Rs.6316167.21, net Credit note from suppliers.
Assessment Year 2008-2009 Opening stock 3,37,29,919.47 Sales 20,83,86,594.00 Purchase 21,78,56,307.28 Closing stock 4,91,62,411.62 738/Kol/16
M/s. Ispat Enterprises Pvt.Ltd 3 Lifting charges 3,82,647.00 Gross Profit 55,80,131.87 Total 25,75,49,005.62 25,75,49,005.62 Gross profit ratio= Rs.2.677% as per para 32(a) of Tax Audit Report. Purchase is net of Rs.3569063.20, net Credit note from suppliers.
In support of the contentions, the assessee has also relied on the followings:- 1) Ramchandar Sivnarayan v. CIT (1978) 111 ITR 263(SC) 2) Sutlej Cotton Mills Ltd v. CIT (1979) 116 ITR 1 (SC) 3) Davidson of India P.Ltd v. CIT (1983) 140 ITR 344 (Cal). 4) CIT v. Dhnarigiri Raja Narsingiriji 91 ITR 544(SC) 5) CIT v. Dalmia Cement Ltd 254 ITR 377, and 6) CIT v. National Rayan Commercial Co. Ltd 193 ITR 744
The CIT-A has not accepted the submissions of assessee for the reason that the assessee in most of cases sold the goods directly to the sale party by not taking any delivery and confirmed the addition made by the AO for non submission of confirmation from third party.
Before us the ld.AR of the assessee submits that the AO examined such items, which sold at lower rate and did not see the profits by the assessee on other items. The assessee filed all the required details before the AO and also referred to the order of assessment to show that the AO acknowledged the submissions of relevant details.
On the other hand, the Ld.DR appearing on behalf of the revenue has relied on the orders of the AO and the CIT-A.
Heard rival submissions and perused the material available on record. We find that the AO examined only such items, which were sold by the assessee at lower rates as formulated by the 738/Kol/16 M/s. Ispat Enterprises Pvt.Ltd 4 AO in his order at page-6, but before the CIT-A the assessee filed the details of gross profit for the last three years comparing the gross profit of current year. We find that the AO and CIT-A only doubted the transactions that the assessee sold the same items to the same purchase party in the same month at lower rate. Before us the ld.AR of the assessee submits that some items were sold at lower rates. We find force in the chart as submitted/filed before the AO/CIT-A, wherein the assessee has furnished the details of purchase/opening stock, sale/closing stock. The case laws as relied on by the assessee are relevant and applicable to the present facts of the case. The AO and CIT-A both have not considered the same. The addition made by the AO and confirmed by the CIT-A is not justified. We also find that the assessee has substantiated its claim by furnishing the details before the AO/CIT-A. Accordingly, the addition made on this issue requires to be deleted. Therefore, ground no.1 as raised by the assessee is allowed.
Next ground relates to disallowance of Rs.1,97,091/- on account of foreign travel expenses.
On examination of bills and vouchers as produced by the assessee before the AO, he found that an amount of Rs.1,97,091/- was incurred by the assessee on account of foreign travel expenses for its director, Sri Sanjay Kumar Jain, his wife, Smt. Rakhi Jain and their son, Sri Saurav Jain and daughter, Surbhi Jain. The said tour was organized by Travel Agent, M/s. Cox & Kings, Kolkata. On verification, the AO found that the said tour was arranged for entertainment and in the 738/Kol/16 M/s. Ispat Enterprises Pvt.Ltd 5 absence of any evidence showing that the said expenditure was incurred wholly and exclusively for the purpose of assessee’s business, he AO disallowed and added an amount of Rs.1,97,091/- to the income of the assessee
The CIT-A confirmed the action of the AO by observing that the assessee could not produce any evidence showing that such expenditure was incurred for the benefit of business of assessee.
Before us the ld.AR of the assessee submits that the said tour was on suo motu to examine and analyse the business prospects of assessee in the trade of iron and steel in the European market. In support of his contention, he referred to Resolution Passed by the Board of Directors at page 8 of the paper book wherein Sri Sanjan Kumar Jain was one of its directors since inception of the company. The ld.AR of the assessee has relied on the following case laws:- 1. CIT v. Woodcraft Products Ltd (1993) 69 Taxman 415(Cal) 2.CIT v. J.K Industries (P) Ltd (1969) 71 ITR 594(Cal)
The ld.DR has relied on the orders of the AO/CIT-A.
Heard rival submissions and perused the material available on record. We find that the assessee could not adduce anything before the authorities below that such expenditure was incurred for the purpose of business and information said to have been so collected was utilised for the benefit and purpose of assessee’s business. The ld.AR except showing the Board Resolution nothing has been placed on record that information 738/Kol/16 M/s. Ispat Enterprises Pvt.Ltd 6 so collected from such tour agent was put to benefit of assessee’s business. Therefore, we are of the view that the assessee could not produce anything to substantiate its claim that the said expenditure was incurred for the purpose of assessee’s business. We find that the said tour was fully personal. Thus, we are not inclined to interfere with the order of the CIT-A, who confirmed and upheld the action of the AO in doing so. We uphold the order of the CIT-A on this issue. Accordingly, this ground of assessee’s appeal is dismissed.
In the result, the appeal of assessee is partly allowed. ORDER PRONOUNCED IN OPEN COURT ON 10 /02/2017