2004-VIL-263-ITAT-JDP

Equivalent Citation: TTJ 083, 582, [2004] 3 SOT 632 (JODH.)

Income Tax Appellate Tribunal JODHPUR

IT APPEAL NO. 462 (JODH.) OF 1998

Date: 24.03.2004

INCOME TAX OFFICER.

Vs

KUNDANMAL SURANA.

BENCH

Member(s)  : HARI OM MARATHA., N. K. SAINI.

JUDGMENT

This appeal by the Department pertaining to asst. yr. 1994-95 has been preferred against the order dt. 15th July, 1998 passed by the CIT(A).

2. The facts in brief are that the assessee, who deals in cloth business, declared a total income of Rs. 72,790 for the year under appeal. While completing the assessment, various additions were made, including trading additions, disallowance of salary paid to the karta of the HUF, disallowance of interest, brokerage, inter alia. The CIT(A) deleted the additions and consequently the Department is in further appeal before the Tribunal.

3. We have heard the parties. The first issue pertains to the deletion of trading addition of Rs. 1,90,279 added by the AO. The AO made the trading addition for the reasons given on pp. 2-6 of the assessment order, which included—

(i) Because the stock register had not been maintained;

(ii) Because the inventory of opening and closing stock had not been maintained;

(iii) Because the purchase could not be linked with the sales;

(iv) Because entries of purchase return written by mistake had not been posted in the ledger;

(v) Because the purchases had been entered before the delivery date; etc

The AO applied the provisions of s. 145(2), although he did not specifically mention that the books of account are being rejected. The CIT(A) concluded that in view of the reasons mentioned by the AO, the provisions of s. 145(2) are applicable but he deleted the addition on the ground that in the given facts and circumstances of the case, the addition could not be sustained. After considering the rival submissions made before us, we are also of the opinion that the AO has rightly applied the provisions of s. 145(2) but for making the addition after applying the provisions of s. 145(2), it is imperative on the part of the AO to apply a particular g.p. rate either w.r.t. the past history of the assessee’s case or w.r.t. any other comparable case available. The g.p. rate shown during the year is 9.42 per cent, whereas in the immediately preceding assessment year the assessee showed a g.p. rate of 7.74 per cent. This shows that the assessee had shown better g.p. rate this year as compared to the last year. The g.p. rate was accepted by the Department in the last year. Therefore, the best comparable case is the past g.p. rate of the assessee, that too of the immediately preceding year. Needless to say that the assessee has declared better g.p. rate this year. In our opinion, the guide stone should be the last year’s g.p. rate and not any other comparable case, unless the AO could distinguish the last year g.p. rate on facts available on record. Moreover, there seems to be no reason or basis on which the AO has applied a g.p. rate of 11.5 per cent this year because the AO has not given any reasons for applying the same. In our opinion, the finding recorded by the CIT(A) is perfectly alright and in line with our finding in similar cases. In view of our clear-cut finding, there is no need to refer to any other decision relied upon by the assessee in this regard. The ground stands rejected.

4. The next issue pertains to the deletion of disallowance of salary of Rs. 45,000, which was paid to the karta of the assessee-HUF. The assessee is a HUF and a salary of Rs. 45,000 was paid to its karta during the year under appeal. The AO made the disallowance on the ground that there was no valid agreement between the assessee and the karta. From the assessment order, it is not clear as to whether the AO disputed the services rendered by the karta for the purposes of the assessee’s business. We are convinced that there was a valid agreement between the assessee and the karta. Moreover, such like salary was paid in the earlier year also for the same services and there was no disallowance made. So far as the reasonableness of the salary payment is concerned, the same has not been challenged in proper perspective but we feel that in the given facts the salary paid is reasonable. The karta of the HUF has received salary for the services rendered for the purposes of the business of the firm. We are convinced that in case the karta had not provided the services in question, then the assessee-HUF would have to employ another person for the services. In our opinion, there is no justification for the impugned disallowance of the salary paid to the karta as such. The karta is stated to have duly shown the income in his return, who has been duly assessed as well. The learned authorised representative relied on the decision of the Supreme Court reported in Jugal Kishore Baldeo Sahai vs. CIT (1967) 63 ITR 238 (SC). The facts of the assessee’s case are duly covered by the ratio of the said decision and as such the salary paid is allowable. The ground is rejected.

5. The next issue pertains to the deletion of addition of notional interest amounting to Rs. 93,102. The assessee has given certain interest-free advances to different relatives out of business consideration. Major portion of this advance was made in the earlier year, which is evident from para-9 of the assessment order, which narrates opening debit balance of various parties. The assessee, in addition to his capital, was also having interest-free deposits with him, as evident from para-11 of the assessment order, wherein he himself has admitted that the assessee had not paid any interest to some parties and named as well. The AO has also admitted that the assessee has paid interest on much lower rate to Rajendra Kumar Surana HUF. Therefore, the assessee was having interest-free funds as well. The case of the assessee is that there cannot be any justification for estimation of the notional interest and making addition/disallowance on the same basis. On the other hand, the learned Departmental Representative has submitted that the assessee has diverted the funds for extraneous consideration to benefit the relatives. To our mind, the finding recorded by the CIT(A) that the advances were made out of business consideration and that is why the interest was not charged is very reasonable because the AO has not been able to establish the nexus between the interest bearing funds and the interest-free advance. In these circumstances, the estimation of the notional interest and that too without any basis is not justified. Learned authorised representative had relied on various decisions of this Bench of the Tribunal, as given in para 3.6 of the written submissions. We uphold the impugned order on this issue and find no merit in the ground of the Revenue.

6. The next issue pertains to the brokerage payment of Rs. 12,880. The AO has discussed this issue in paras 9-10 of the assessment order and the CIT(A) in para 10 of the impugned order. The AO disallowed the brokerage on the ground that there were no details or basis and that the same pertained to the earlier years. The case of the assessee is that he has paid the brokerage in the relevant year on settlement of the amounts of the brokers. The assessee has made the payments by cheques. The complete details of brokerage have also been filed before us. It is also undisputed fact that no deduction of the amount of brokerage was claimed in the earlier year and that no such disallowance or addition was made in the past. After considering all the facts, we are unable to understand as to what was the reason on which the AO disallowed such brokerage. As such, the arbitrary action of the AO cannot be allowed to perpetrate. In our opinion, the CIT(A) has rightly deleted the impugned disallowance of Rs. 12,880. We uphold his order on this issue and do not find any merit in the ground raised by the Revenue.

7. The last issue relates to the deletion of disallowance of bank bilty commission and interest of Rs. 51,127. The AO has discussed this issue in paras 12-13 of the assessment order and the CIT(A) in para 11 of the impugned order. The AO disallowed the bank bilty commission and interest, which was claimed to have been paid in the relevant year on the ground that the same was in respect of purchase invoices of the earlier year. The assessee is debiting the bank bilty commission and interest when documents are retired and the bank bilty commission and interest are paid. The assessee in the relevant year has paid the bank bilty commission and interest in respect of the purchase/bills documents as pertaining to the earlier year on their retirement/payment in the relevant year. The same were debited in the books of account on their actual payment in accordance with the consistent method of accounting followed by the assessee. The assessee had also submitted complete details of such bank bilty commission and interest before us in the form of paper book. When the assessee is debiting the bank bilty commission and interest in accordance with the accepted accounting principles and that no such disallowance has been made in the past and when the assessee has debited the expenditure on its actual charging by the bank on retirement of the documents, there seems to be no justification in the impugned disallowance. In our opinion, the CIT(A) was fully justified in deleting the disallowance/addition. We confirm the action of the learned CIT(A) in this regard and reject the ground taken by the Revenue.

8. In the result, the appeal is dismissed.

 

DISCLAIMER: Though all efforts have been made to reproduce the order accurately and correctly however the access, usage and circulation is subject to the condition that VATinfoline Multimedia is not responsible/liable for any loss or damage caused to anyone due to any mistake/error/omissions.