D.C.I.T CC - XX,KOLKATA, KOLKATA vs. M/S TODAYS WRITTING PRODUCTS LTD, KOLKATA

Ground Nos.1 and 1.1. raised by the revenue read as follows :-

The Assessee is a company. It is engaged in the business of manufacturing and trading in ball point pens, refills and allied components and stationery items. For A.Y.2008-09 assessee filed return of income disclosing total income of Rs.13,28,45,300/-. The assessee had claimed deduction u/s 80IB of the Act of a sum -M/s. Todays Writing Products ltd.-A.Y.2008-09 of Rs.6,41,34,622/-. AO found that in the earlier assessment years i.e. A.Y.2006-07 and 2007-08 the books of account of the assessee has been rejected and assessments were completed by estimating business profits of the assessee. In the present assessment year the assessee produced books of account and other details. The AO was, however, found that the assessee had not produced the stock register and had claimed expenses in the books of account without proper supporting bills and vouchers. He therefore rejected the books of account u/s 145(3) of the Act. He thereafter estimated income of the assessee at 10% of the turn over of Rs.2,16,18,93,260/-. Thus the profit from manufacturing activity was determined by the AO at Rs.21,61,89,326/-. There was a loss in the trading activity and after setting off loss from the trading activity, AO determined the income from the business of the assessee.

Before CIT(A)the assessee pointed out that it was a listed company and was subject to tax audit besides statutory audit under the Companies Act and quarterly audits. The assessee pointed out that the AO did not find any mistake in the audited books of account and that complete books of account in the form of soft copy on computer was produced before the AO. The assessee also pointed out that the stock register was also maintained in the computer and the soft copy produced before the AO due to the technical reasons could not exhibit the stock register maintained by the assessee. The assessee relied on the decision of Hon’ble Punjab and Haryana High Court in the case of Pandit Brothers vs CIT 26 ITR 159 wherein it was held that books of account cannot be rejected merely because quantitative details with respect to materials (stock register) are not produced or not maintained.

CIT(A) called for a Remand Report from the AO. In his Remand Report, the AO accepted that the assessee had produced soft copy of the stock register and that the AO had checked those details. No adverse comments were given in the Remand report by the AO on the books of account of the assessee.

CIT(A) on a consideration of the remand report was of the view that the assessee was maintaining stock register and the quantitative details of the stock, purchase and sales were verified by the AO and no adverse comments were given by the AO. Taking these circumstances into consideration the CIT(A) deleted the addition made by AO.

Aggrieved by the order of CIT(A) revenue has raised ground no.1 and 1.1 before the Tribunal.

We have heard the submissions of the learned DR, who relied on the order of AO. The learned counsel for the assessee filed before a copy of the remand report dated 19.12.2012 filed by the AO in the proceedings before CIT(A) and relied on the order of CIT(A).

We have considered the rival submissions and are of the view that in the light of the remand report of the AO accepting the correctness and completeness of the books of account of the assessee, the CIT(A) was fully justified in holding that rejection of books of account of the assessee u/s 145(3) of the Act and estimation of profits done by AO was not proper. Accordingly ground nos. 1 and 1.1 raised by the revenue are dismissed.

Ground no.2 raised by the revenue reads as follows :- “2.That on the facts and circumstances of the case, Ld. CIT(A) had erred both in facts as well as in deleting the disallowance of expense of Rs.20,00,000/- travelling and conveyance expense of Rs.6,02,187/- and legal & professional expenses of Rs.5,21 ,371/- without appreciating that it failed to substantiate the expense claims.”

As already stated the assessee incurred a loss in its trading activity of Rs.2,42,14,618/-. AO was of the view that loss from trading activity was excessive and such loss was because of improper allocation of expenses between the trading -M/s. Todays Writing Products ltd.-A.Y.2008-09 activity and manufacturing activity. He therefore disallowed Rs.20,00,000/- out of the expenses claimed in the profit and loss account on an estimate basis.

On appeal by the assessee, CIT(A) called for a remand report from the AO, who in his remand report submitted that the assessee has produced bills and vouchers of major expenses such as legal and professional expenses, trading purchases, travelling expenses, advertising expenses and miscellaneous expenses etc and that they were randomly checked.

CIT(A) found that identical disallowance of expenses in A.Y.2007-08 was deleted by his predecessor by coming to a conclusion that disallowances made by AO was purely on presumptions, conjectures or surmises. Following the decision of the Hon’ble Supreme Court in the case of Dhakeshwari Cotton Mills Ltd., vs CIT 26 ITR 775 (SC), CIT(A) had deleted the disallowance of expenses for A.Y.2007-08. Following the aforesaid order, the CIT(A) in the present A.Y. deleted the addition made by AO.

AO also noticed that the assessee had claimed under the head travelling and conveyance expenses of Rs.60,21,865/-. AO was of the view that looking into the nature and quantum of parties in respect of whom travelling and conveyance expenses were incurred, it was not possible to verify each and every one of the expenses and he therefore he disallowed 10% of travelling and conveyance expenses. Similarly the assessee had claimed legal and professional expenses of Rs.1,04,27,424/-. AO was of the view that looking into the nature of the business the quantum of expenses was higher and he therefore disallowed 5% of legal and professional expenses.

On appeal by the assessee CIT(A) following the order of his predecessor on identical issue in A.Y.2007-08 deleted the addition made by AO. CIT(A) also took note of the remand report given by the AO accepting the production of bills and vouchers for major expenses which had been randomly test checked and no adverse comments were given by the AO.

Aggrieved by the order of CIT(A) revenue has raised ground no.2 before the Tribunal.

We have heard the learned DR, who relied on the order of AO. The learned counsel for the assessee relied on the order of CIT(A). We are of the view that the order of CIT(A) on this issue does not call for any interference. Admittedly in the remand report AO has not given any adverse comments after due verification of the bills and vouchers. In such circumstances we are of the view that the addition made by AO was purely on the basis of conjectures, presumptions and surmises and was rightly deleted by CIT(A). Consequently ground no.2 raised by the revenue is dismissed.

In the result the appeal by the revenue is dismissed.