M/s. Silk Museum, Navsari v. The Income tax Officer, Ward-4,, Navsari

ITA 1173/AHD/2007 | 2003-2004
Pronouncement Date: 26-02-2010 | Result: Partly Allowed

Appeal Details

RSA Number 117320514 RSA 2007
Assessee PAN AAJFS8680Q
Bench Ahmedabad
Appeal Number ITA 1173/AHD/2007
Duration Of Justice 2 year(s) 11 month(s) 7 day(s)
Appellant M/s. Silk Museum, Navsari
Respondent The Income tax Officer, Ward-4,, Navsari
Appeal Type Income Tax Appeal
Pronouncement Date 26-02-2010
Appeal Filed By Assessee
Order Result Partly Allowed
Bench Allotted C
Tribunal Order Date 26-02-2010
Date Of Final Hearing 24-02-2010
Next Hearing Date 24-02-2010
Assessment Year 2003-2004
Appeal Filed On 19-03-2007
Judgment Text
IN THE INCOME TAX APPELLATE TRIBUNAL AHMEDABAD BENCH C AHMEDABAD BEFORE SHRI N.S.SAINI ACCOUNTANT MEMBER AND SHRI MAHAVIR SINGH JUDICIAL MEMBER ITA NO.1173 & 3148/AHD/2007 ASSESSMENT YEARS:2003-04 & 2004-05 DATE OF HEARING:24.2.10 DRAFTED:24.2.10 M/S. SILK MUSEUM 4/235-1/2 MOTA BAZAR NAVSARI 396 445 PAN NO.AAJFS8680Q V/S . INCOME TAX OFFICER WARD-4 NAVSARI (APPELLANT) .. (RESPONDENT) ASSESSEE BY :- SHRI J.P. SHAH AR REVENUE BY:- SHRI M.C. PANDIT SR-DR O R D E R PER MAHAVIR SINGH JUDICIAL MEMBER:- THESE TWO APPEALS BY THE ASSESSEE ARE ARISING OUT OF DIFFERENT ORDERS OF COMMISSIONER OF INCOME-TAX (APPEALS)-VALSAD IN APPE AL NO. CIT(A)/VLS /107 & 451/06-07 BY DATES 22-11-2006 AND 21-03-2007. THE A SSESSMENTS WERE FRAMED BY THE INCOME-TAX OFFICER WARD-4 NAVSARI U/S.143(3) O F THE INCOME-TAX ACT 1961 (HEREINAFTER REFERRED TO AS THE ACT) VIDE HIS DIF FERENT ORDERS DATED 28-03-2006 AND 29-12-2006 FOR THE ASSESSMENT YEARS 2003-04 AND 200 4-05. FIRST WE WILL TAKE UP ASSESSEES APPEAL IN ITA NO.1 173/AHD/2007. 2. THE FIRST TWO INTER-CONNECTED ISSUES IN THIS APP EAL OF THE ASSESSEE IS AGAINST REJECTION OF BOOK RESULTS U/S.145 OF THE ACT AND TH EREBY MAKING ADDITION ON ACCOUNT OF LOW GROSS PROFIT (GP) CONFIRMED BY CIT(A). FOR T HIS ASSESSEE HAS RAISED FOLLOWING GROUND NO.1 & 2 :- 1) THE LEARNED COMMISSIONER OF INCOME TAX (APPEALS ) HAS ERRED IN LAW AND ON FACTS IN CONFIRMING THE ASSESSING OFFICERS ACTIO N OF REJECTING THE BOOKS RESULTS. ITA NO.1173 & 3148/AHD/2007 A.YS. 03-04 & 04-05 M/S. SILK MUSEUM NVS V. ITO WD-4 NVS PAGE 2 2) THE LEARNED COMMISSIONER OF INCOME TAX (APPEALS) HAS ERRED IN LAW AND ON FACTS IN CONFIRMING THE ADDITION OF RS.3 34 420/ - ON ACCOUNT OF FALL IN GROSS PROFIT. 3. WE HAVE HEARD THE RIVAL CONTENTIONS AND GONE THR OUGH THE FACTS AND CIRCUMSTANCES OF THE CASE. WE HAVE ALSO PERUSED TH E CASE RECORDS INCLUDING THE ASSESSEES PAPER BOOK ORDER OF CIT(A) AND ASSESSME NT ORDER. AT THE OUTSET THE LD. COUNSEL FOR THE ASSESSEE FAIRLY STATED THAT HE IS NOT INTEREST IN PROSECUTING THE FIRST GROUND REGARDING APPLICATION OF THE PROVISION S OF SECTION 145 OF THE ACT FOR REJECTION OF BOOK RESULTS. ACCORDINGLY THIS ISSUE IS DISMISSED AS NOT PRESSED. THE BRIEF FACTS LEADING TO THE ISSUE OF APPLICATIO N OF GP ARE THAT THE ASSESSING OFFICER MADE ADDITION OF RS.3 34 420/- MADE ON ACCO UNT OF FALL IN GP RATE. THE AO NOTED THAT THERE IS FALL IN GP AT 1.09% AS COMPARED TO LAST YEAR AND IN THE ABSENCE OF ANY CLARIFICATION AS WELL AS THE QUANTITATIVE RE CORDS HE REJECTED THE GP OF THE ASSESSEE DECLARED AT 24.03% AND APPLIED THE GP OF E ARLIER YEAR DECLARED BY THE ASSESSEE AT 25.26%. AGGRIEVED THE ASSESSEE PREFER RED APPEAL BEFORE CIT(A). THE CIT(A) ALSO CONFIRMED THE ACTION OF THE ASSESSING O FFICER BY GIVING FOLLOWING FINDINGS IN PARA-5.2 OF HIS APPELLATE ORDER:- 5.2 I HAVE CONSIDERED THE CONTENTIONS OF THE APPE LLANT AS WELL AS THE OBSERVATIONS OF THE AO IN THE ASSESSMENT ORDER. THE AO HAS MADE GP ADDITION AFTER TAKING INTO ACCOUNT THE REAL ASPECT OF NATURE OF BUSINESS OF THE APPELLANT. IT CANNOT BE IGNORED THAT COUNTER SALES OF THE APPELLANT AND DISCOUNTS ALLOWED ARE NOT CROSS-VERIFIABLE AND THE APPELLANT HAS FAILED TO PRODUCE CONFIRMATIONS IN RESPECT OF THE DISCOUNTS A LLOWED WHICH IS CLAIMED TO HAVE RANGING FROM 0% TO 20%. IT IS ALMOST IMPOSSIBL E AND NOT PRACTICABLE TO SWALLOW THAT THE APPELLANT HAS PASSED ON SUCH HANDS OME DISCOUNTS THROUGH THE YEAR TO ITS CUSTOMERS. AT THE SAME TIME IN VIEW OF THE HIGHER PURCHASING POWER OF THE NRI CUSTOMERS THE CLAIM OF DISCOUNTS UP TO 20%ON SALES IS QUITE EXCESSIVE UNREASONABLE AND HARD TO DIGEST. IN A LI MITED WAY I DO AGREE WITH THE ARGUMENTS OF THE APPELLANT THAT THE FINDINGS AN D FACT OF DECLARATION OF ADDITIONAL INCOME DURING THE SURVEY PROCEEDINGS CAR RIED OUT AT THE PREMISES OF THE APPELLANT DURING SUCCEEDING PREVIOUS YEAR CAN NOT BECOME A BASIS FOR REJECTION OF BOOK RESULT AND ESTIMATION OF HIGHER P ROFITS IN THE YEAR UNDER APPEAL BUT I DO AGREE WITH THE AO THAT AT THE SAME TIME THESE FACTS CANNOT BE COMPLETELY IGNORED ALSO AS CONTENDED BY THE AO. IT IS TRUE THAT THE APPELLANT HAS FAILED TO MAINTAIN QUANTITATIVE RECORDS AND THE INVENTORY OF CLOSING STOCKS QUALITY AND QUANTITY-WISE IN RESPECT OF EACH VARIET Y AND INVENTORY OF STOCKS HELD. I DISAGREE WITH THE VIEW OF THE AR OF THE APP ELLANT THAT IT IS NOT FEASIBLE TO MAINTAIN QUANTITATIVE RECORDS IN LINE OF THE APP ELLANTS BUSINESS AS IN TO- DAYS COMPUTER EAR IT IS EVEN POSSIBLE TO MAINTAIN RECORDS OF THOUSAND AND LACS OF VARIETY OF GOODS WITH THE USE OF COMPUTER A ND AT A VERY LOW COST AND THE DEPARTMENTAL STORES ARE THE FANTASTIC EXAMPLES IN WHICH ACCURATE QUANTITATIVE RECORDS ARE BEING MAINTAINED IN RESPEC T OF LARGE INVENTORY THROUGH ITA NO.1173 & 3148/AHD/2007 A.YS. 03-04 & 04-05 M/S. SILK MUSEUM NVS V. ITO WD-4 NVS PAGE 3 BAR-CODED SYSTEM. I HAVE CONSIDERED THE ARGUMENTS O F THE AR AND AUTHORITIES RELIED UPON BY HIM. THE FACTS OF THE CASE OF THE AP PELLANT ARE DISTINGUISHABLE AND THE RATIO LAID DOWN IN THE AUTHORITIES RELIED U PON BY THE AR ARE NOT AT ALL APPLICABLE TO THE INSTANT CASE AS THE APPELLANT IS FOUND TO HAVE FAILED TO FURNISH COGENT EVIDENCES IN SUPPORT OF THE DISCOUNT S ALLOWED COMMISSION PAID ETC. AND IN ABSENCE OF QUANTITATIVE RECORDS I T IS NOT POSSIBLE TO RELY ON THE RESULTS DECLARED BY THE APPELLANT AS THE SALES OF THE APPELLANT IS ALSO COUNTER CASH SALES AND NOT CROSS-VERIFIABLE. ONE CA N ALSO OBSERVE THAT THE APPELLANT DID NOT FURNISH ANY SPECIFIC REPLY IN SUP PORT OF THE FALL IN GROSS PROFIT AND THE REPLY IS TOO GENERAL AND NOT SUPPORTED BY S PECIFIC INSTANCES OF COMPARATIVE SALE DISCOUNT ETC. WHICH COULD HAVE B ROUGHT OUT ON RECORD. SINCE THE APPELLANT HAS FAILED IN DISCHARGING ITS BURDEN OF ESTABLISHING GENUINENESS OF THE EXPENDITURE LIKE DISCOUNTS COMM ISSION ETC. DEBITED TO ITS PROFIT AND LOSS ACCOUNT THE AO HAS RIGHTLY REJECTE D THE BOOK RESULTS. AFTER TAKING INTO ACCOUNT THESE PECULIAR FACTS I AM OF T HE CONSIDERED VIEW THAT THE AO IS JUSTIFIED IN REJECTING THE BOOK RESULT AND MA KING G.P ADDITION OF RS.3 34 420/- AFTER APPLYING THE G.P RATE OF 25.26% IN CASE OF THE APPELLANT FIRM ITSELF IN THE IMMEDIATELY PRECEDING PREVIOUS Y EAR. THE ADDITION MADE BY THE AO IS UPHELD AND THE APPELLANTS GROUND NO.1 AN D 2 ARE REJECTED. 4. WE FIND FROM THE ASSESSMENT ORDER THE APPELLATE ORDER AND THE ARGUMENTS OF BOTH THE SIDES THAT THE ASSESSEE HAS NOT MAINTAINED QUANTITATIVE RECORDS AND INVENTORY OF CLOSING STOCK QUALITY-WISE AND QUANTIT Y-WISE. THE ASSESSEES ARGUMENT WAS THAT THERE IS FALL IN GP DUE TO INCREASED COMPE TITION AND INCREASED IN COST AS HIGHER DISCOUNT AS COMPARED TO DISPROPORTIONATE RIS E IN THE SALES. ACCORDING TO HIM THE ASSESSEE PREFERRED TO ACHIEVE HIGHER VOLUME AT A LITTLE LOWER MARGIN. HE STATED THAT THE FALL IN GP AT 1.09% IS MARGINAL AND IT DOE S NOT MAKE ANY DIFFERENCE IN THE INCOME OF THE ASSESSEE BUT THE LD. COUNSEL STATED T HAT IN CASE A REASONABLE ESTIMATE CAN BE MADE ON LUMP SUM BASIS OF GP THAT WILL BE ACCEPTABLE. AS THE ASSESSEES SALE HAS INCREASED TO THE EXTENT OF RS.2 5 LAKHS APPROXIMATELY AND THE FALL IN GP IS VERY MARGINAL TO THE EXTENT OF 1.09% WE ARE OF THE VIEW THAT A REASONABLE ESTIMATE OF GP SHOULD BE MADE. THE ASSE SSEE HAS DECLARED THE GP AT 24.03% AND THE AO HAS ADOPTED THE GP OF LAST YEAR A T 25.26% WE FEEL THAT THE GP SHOULD HAVE BEEN ADOPTED AT 25% WHICH WILL MEET TH E ENDS OF JUSTICE. ACCORDINGLY ASSESSING OFFICER IS DIRECTED TO ADOPT THE GP AT 25 % AND RE-COMPUTE THE INCOME. ACCORDINGLY THIS ISSUE OF THE ASSESSEES APPEAL IS PARTLY ALLOWED. 5. THE NEXT FOUR GROUNDS IS AS REGARDS TO DISALLOWA NCE OF COMMISSION EXPENSES DISCOUNT DISALLOWANCE OUT OF LABOUR CHARGES AND DI SALLOWANCE OF TRAVELING EXPENSES. FOR THIS ASSESSEE HAS RAISED THE FOLLOWI NG FOUR GROUNDS :- ITA NO.1173 & 3148/AHD/2007 A.YS. 03-04 & 04-05 M/S. SILK MUSEUM NVS V. ITO WD-4 NVS PAGE 4 3) THE LEARNED COMMISSIONER OF INCOME TAX (APPEALS ) HAS ERRED IN LAW AND ON FACTS IN CONFIRMING THE DISALLOWANCE OF TOTAL CO MMISSION EXPENSES OF RS.2 69 446/-. 4) THE LEARNED COMMISSIONER OF INCOME TAX (APPEALS) HAS ERRED IN LAW AND ON FACTS IN CONFIRMING THE DISALLOWANCE OUT OF DISC OUNT ALLOWED TO THE TUNE OF RS.2 45 559/-. 5) THE LEARNED COMMISSIONER OF INCOME TAX (APPEALS) HAS ERRED IN LAW AND ON FACTS IN NOT ADJUDICATING THE GROUND RAISED DURI NG APPEAL IN REGARD TO THE DISALLOWANCE OUT OF LABOUR CHARGES TO THE TUNE OF R S.1 15 722/-. 6) THE LEARNED COMMISSIONER OF INCOME TAX (APPEALS) HAS ERRED IN LAW AND ON FACTS IN CONFIRMING THE DISALLOWANCE OUT OF TRAV ELING EXPENSES TO THE TUNE OF RS.26 274/-. 6. WE HAVE HEARD THE RIVAL CONTENTIONS AND GONE THR OUGH THE FACTS AND CIRCUMSTANCES OF THE CASE. THE LD. COUNSEL FOR THE ASSESSEE STATED THAT ONCE THE BOOKS OF ACCOUNT ARE REJECTED U/S.145 OF THE ACT AN D GP IS ESTIMATED THEN NO OTHER ADDITION CAN BE MADE BY DISALLOWING CERTAIN EXPENSE S AS HAS BEEN DONE BY THE ASSESSING OFFICER AND CONFIRMED BY THE CIT(A). WE ARE OF THE VIEW THAT ONCE GP IS ESTIMATED THERE IS NO BAR IN MAKING DISALLOWANCE O F EXPENSES BUT IN CASE THE NET PROFIT IS ESTIMATED NO FURTHER DISALLOWANCE CAN B MADE. HOWEVER IN THE PRESENT CASE THE ASSESSING OFFICER HAS MADE THE DISALLOWANC E OF VARIOUS EXPENSES ON AD HOC BASIS WITHOUT ANY EVIDENCES. TO MEET THE END O F JUSTICE WE MAKE A FAIR ESTIMATE OF DISALLOWANCE OF ALL THE FOUR EXPENSES A T RS.2 LAKHS LUMP SUM. ACCORDINGLY ASSESSING OFFICER IS DIRECTED TO MAKE DISALLOWANCE OF RS.2 LAKHS ON ACCOUNT OF ALL FOUR COUNTS AND COMPUTE THE INCOME A CCORDINGLY. ACCORDINGLY THESE GROUNDS OF THE ASSESSEE ARE PARTLY ALLOWED AS INDIC ATED ABOVE. NOW COMING TO ASSESSEES APPEAL IN ITA NO.3148/AHD/ 2007. 7. THE FIRST TWO INTER-CONNECTED ISSUES ARE REGARDI NG SUPPRESSION OF INCOME AND INFLATION OF PURCHASES. FOR THIS ASSESSEE HAS RAI SED THE FOLLOWING GROUND NO.1 & 2 :- 1) THE LEARNED COMMISSIONER OF INCOME TAX (APPEALS ) HAS ERRED IN LAW AND ON FACTS IN CONFIRMING THE ADDITION OF RS.10 92 013 /- ON ACCOUNT OF ALLEGED SUPPRESSED INCOME. 2) THE LEARNED COMMISSIONER OF INCOME TAX (APPEALS) HAS ERRED IN LAW AND ON FACTS IN CONFIRMING THE ADDITION OF RS.7 477/- O N ACCOUNT OF ALLEGED INFLATED PURCHASES. ITA NO.1173 & 3148/AHD/2007 A.YS. 03-04 & 04-05 M/S. SILK MUSEUM NVS V. ITO WD-4 NVS PAGE 5 8. WE HAVE HEARD THE RIVAL CONTENTIONS AND GONE THR OUGH THE FACTS AND CIRCUMSTANCES OF THE CASE. WE HAVE ALSO PERUSED TH E CASE RECORDS INCLUDING THE PAPER BOOK FILED BY THE ASSESSEE ORDER OF CIT(A) A ND THE ASSESSMENT ORDER. THE BRIEF FACTS ARE THAT THE ASSESSEE-FIRM HAS DECLARED SALES AT RS.3 32 57 359/- IN THE PROFIT & LOSS A/C. DURING THE COURSE OF ASSESSMENT PROCEEDINGS THE ASSESSING OFFICER CROSS CHECKED THE FIGURES WITH THE FIGURES DECLARED WITH THE SALES TAX RETURNS AND GATHERED THAT THE DISCLOSED SALES OF RS .3 43 49 342/- IN ITS SALES TAX RETURN FILED WITH THE SALE TAX DEPARTMENT. THE ASS ESSING OFFICER REQUIRED THE ASSESSEE TO EXPLAIN THE DIFFERENCE. BUT THE ASSESSE E COULD NOT EXPLAIN AND THE AO MADE ADDITION OF RS.10 92 013/- ON ACCOUNT OF SUPPR ESSED SALES. THE ASSESSEE CARRIED THE MATTER IN APPEAL BEFORE CIT(A). THE CIT (A) ALSO DISMISSED THE ASSESSEES ISSUE BY STATING THE FACTS IN HIS APPELL ATE ORDER VIDE PARA-5.2 AS UNDER:- 5.2 I HAVE CONSIDERED THE CONTENTIONS OF THE APPEL LANT AS WELL AS THE OBSERVATION OF THE AO IN THE ASSESSMENT ORDER. I FI ND NO MERIT IN THE APPELLANTS CONTENTION THAT THERE WAS A DISCREPANCY IN THE SALES FIGURE REPORTED TO SALES-TAX DEPARTMENT DUE TO MISTAKE OF THE ACCOUNTANT OF THE APPELLANT. IN ANY CASE IT IS A SALES-TAX RETURN IN WHICH THE APPELLANT HAS REPORTED SALES FIGURES OF RS.3 43 372/- TO THE SALE -TAX DEPARTMENT AND AS AGAINST THAT THE APPELLANT REFLECTED SALES AT RS.3 32 57 359/- IN ITS PROFIT AND LOSS ACCOUNT REPORTED TO THE INCOME-TAX DEPARTMENT. IT SHOWS THAT THE APPELLANT HAS ADOPTED TWO DIFFERENT STANDARDS TO RE PORT FIGURES TO THE TWO DIFFERENT AUTHORITIES. IT IS ALSO OBSERVED THAT THE RE IS NO COMPLETE CHECK ON THE SALES ACCOUNTING OF THE APPELLANT AS FULL SALES ARE CASH SALES ON COUNTER. SECONDLY THE APPELLANT HAS NOT MAINTAINED QUANTITA TIVE RECORDS. LOOKING TO THESE FACTS THERE IS NO PLAUSIBLE REASON TO REJECT THE OBSERVATION OF THE AO THAT THE APPELLANT HAS SUPPRESSED HIS SALES BY RS.1 0 92 013/-. IT IS NOT A CASE WHERE GP ON SUPPRESSED SALES CAN BE ADOPTED BE CAUSE THE APPELLANT HAS ACCOUNTED FOR ITS TOTAL PURCHASES AS THE PURCHA SE FIGURE REPORTED TO SALES-TAX DEPARTMENT IS RS.3 07 20 405/- AS AGAINST PURCHASE OF RS.3 07 27 882/- REFLECTED IN PROFIT AND LOSS ACCOU NT. IT THEREFORE FOLLOWS THAT THE APPELLANT HAS ACCOUNTED FOR ITS TOTAL PURCHASES AND THEREFORE THE CONTENTION OF THE APPELLANT CAN NOT BE ACCEPTED AND IT IS CRYSTAL CLEAT THAT IT IS A CASE OF SUPPRESSION OF SALES AND NOT SUPPRESSION OF GP. THE ADDITION OF RS.10 92 013/- MADE BY THE AO IS CONFIRMED. THE APPELLANTS GROUND NO.1 IS DISMISSED. AGGRIEVED THE ASSESSEE CAME IN SECOND APPEAL BEFOR E US. 7. WE HAVE GONE THROUGH THE ENTIRE SPECTRUM OF FACT S AND FOUND THAT THE SALES ARE SUPPRESSED TO THE EXTENT OF RS.10 92 013/- AS G ATHERED FROM THE ORDERS OF THE LOWER AUTHORITIES. THE LD. COUNSEL FOR THE ASSESSE E HOWEVER CONTESTED THAT THE ITA NO.1173 & 3148/AHD/2007 A.YS. 03-04 & 04-05 M/S. SILK MUSEUM NVS V. ITO WD-4 NVS PAGE 6 SALES TAX RETURNS WERE FILED BY THE ACCOUNTANT UNDE R HIS SIGNATURE AND THE ACCOUNTS OF THE ASSESSEE ARE AUDITED. HE STATED THAT THE AU DITED ACCOUNTS ARE MORE RELIABLE THEN THE SALES TAX RETURN FILED AND SIGNED BY THE A CCOUNTANT. WE COULD NOT AGREE WITH THE ARGUMENT OF THE LD. COUNSEL REASON BEING IN EARLIER YEAR THE SAME BOOK RESULTS WERE REJECTED AS AUDITED BY CHARTERED ACCOU NTANT. HOWEVER WE ALSO DO NOT ACCEPT THE ORDERS OF THE LOWER AUTHORITIES AS WELL AS THE ARGUMENT OF LD. SR-DR THAT THE ENTIRE SUPPRESSED SALES ARE INCOME OF THE ASSES SEE. IT IS NOT ALLEGED THAT THESE SUPPRESSED SALES ARE MADE OUT OF UNACCOUNTED PURCHA SES ACCORDINGLY WE ARE OF THE VIEW THAT ONLY GP RATE @ 25% ON SUPPRESSED SALE S CAN BE SUBJECT TO ADDITION. ACCORDINGLY WE DIRECT THE ASSESSING OFFICER TO APP LY GP @ 25% ON SUPPRESSED SALES OF RS.10 92 013/- AND RE-COMPUTE THE INCOME. ACCORDINGLY THIS ISSUE OF ASSESSEES APPEAL IS PARTLY ALLOWED. AS REGARDS TO INFLATION IN PURCHASES AMOUNTING TO RS.7 477/- THE LD. COUNSEL OF THE ASSESSEE HAS NOT ARGUED ON THE ISSUE DUE TO SMALLNESS OF AMOUNT AND ACCORDINGLY THE SAME IS DISMISSED AS NOT PRESSED. 8. THE NEXT ISSUE IN THIS APPEAL OF THE ASSESSEE IS AS REGARDS TO AD HOC ADDITION OF RS.2 LAKHS. FOR THIS THE ASSESSEE HAS RAISED T HE FOLLOWING GROUND NO.3 :- 3. THE LEARNED COMMISSIONER OF INCOME TAX (APPEALS ) HAS ERRED IN LAW AND ON FACTS IN CONFIRMING THE ADDITION OF RS.2 00 000/ - ON LUMP SUM BASIS. 9. WE HAVE HEARD THE RIVAL CONTENTIONS AND GONE THR OUGH THE FACTS AND CIRCUMSTANCES OF THE CASE. THE BRIEF FACTS ARE THA T THE AO OBSERVED IN THE ASSESSMENT ORDER THAT THERE ARE DISCREPANCY IN ACCO UNT AND TO COVER-UP THOSE DISCREPANCY MAKING A LUMP SUM ADDITION OF RS.2 LAKH S BY OBSERVING AS UNDER:- A) THE APPELLANTS SALES ARE NOT FULLY SUPPORTED B Y FORMAL PROOFS IT COULD NOT PRODUCE SALES BILLS. B) THE APPELLANTS SALES DO NOT MATCH WITH THAT SHO WN IN SALES TAX RETURN. C) THE APPELLANTS PURCHASE DO NOT MATCH WITH THAT SHOWN IN SALES TAX RETURN. D) THE APPELLANTS VALUATION OF STOCK IS CONTRARY T O PROVISIONS OF SEC.145 AS VALUATION OF CLOSING STOCK IS NOT INCLUSIVE OF FREI GHT WHICH IS MANDATORY U/S.145. E) THE APPELLANT WAS NOT ABLE TO PRODUCE INVENTORY OF ITEMWISE CLOSING STOCK. ITA NO.1173 & 3148/AHD/2007 A.YS. 03-04 & 04-05 M/S. SILK MUSEUM NVS V. ITO WD-4 NVS PAGE 7 F) THE APPELLANT HAS NOT MAINTAINED QUANTITATIVE RE CORDS EVEN THOUGH ITS IS FEASIBLE AND POSSIBLE TO MAINTAIN SUCH RECORDS. THE CIT(A) CONFIRMED THE ACTION OF THE ASSESSING OF FICER. AGGRIEVED ASSESSEE CAME IN SECOND APPEAL BEFORE US. 10. THE LD. COUNSEL FOR THE ASSESSEE BEFORE US STAT ED THAT ASSESSING OFFICER CANNOT MAKE ADDITION MERELY ON BASE THE POSSIBILITY OF LEAKAGE IN THE ACCOUNTS AND THIS ADDITION IS PURELY VAGUE AND QUANTIFICATION OF RS.2 LAKH IS ALSO MADE BY THE ASSESSING OFFICER WITHOUT ANY BASIS. ACCORDINGLY HE STATED THAT THIS ADDITION HAS NO LEGS TO SAND. ON THE OTHER HAND LD. SR-DR SUPPORTE D THE ORDERS OF LOWER AUTHORITIES. 11. AFTER HEARING THE RIVAL CONTENTIONS WE FIND TH AT THE AO HAS MADE THIS ADDITION PURELY ON CONJUNCTURE & SURMISES AND WITHOUT ANY BA SIS. THE VERY BASIS OF THE LOWER AUTHORITIES THAT THERE ARE DIFFERENCE IN SALES BETW EEN THE SALES DECLARED TO THE SALES TAX DEPARTMENT AND SALES DECLARED IN THE PROFIT & L OSS ACCOUNT AND REJECTION OF BOOK RESULTS. EVEN THE REASON IS GIVEN IS THAT THE PURC HASES DO NOT MATCH. THIS ADDITION HAS ALREADY BEEN CONSIDERED SEPARATELY NO FURTHER ADDITION IS REQUIRED ON THIS COUNT AND THAT ALSO ON LUMP SUMS BASIS WITHOUT ANY EVIDEN CE. ACCORDINGLY THIS OF THE ASSESSEES APPEAL IS ALLOWED. 12. THE NEXT ISSUE IN THIS APPEAL OF THE ASSESSEE I S AS REGARDS TO DISALLOWANCE OF REMUNERATION PAID TO PARTNERS. FOR THE ASSESSEE HA S RAISED THE FOLLOWING GROUND NO.4 :- 4) THE LEARNED COMMISSIONER OF INCOME TAX (APPEALS ) HAS ERRED IN LAW AND ON FACTS BY NOT ALLOWING THE REMUNERATION PAYABLE T O THE PARTNERS AS PER PROVISIONS OF SECTION 40(B) OF THE ACT FROM THE TOT AL INCOME AS DETERMINED AFTER MAKING THE ABOVE MENTIONED ADDITIONS. 13. WE HAVE HEARD THE RIVAL CONTENTIONS AND GONE TH ROUGH THE FACTS AND CIRCUMSTANCES OF THE CASE. WE FIND THAT THE ASSESSI NG OFFICER HAS DISALLOWED THE REMUNERATION PAID TO THE PARTNERS WITHOUT ANY BASIS . THE CIT(A) ALSO CONFIRMED THE ACTION OF ASSESSING OFFICER BY GIVING FOLLOWING FIN DING IN PARA-8.2 OF HIS APPELLATE ORDER:- 8.2. I HAVE CONSIDERED THE CONTENTION OF THE APPEL LANT. THE DEDUCTION OF REMUNERATION PAYABLE PARTNERS IS DETERMINED FROM TH E BOOK PROFIT AS ENVISAGED IN SEC. 30(B)(V). HOWEVER IT IS ALSO A P RE-CONDITION THAT THE ITA NO.1173 & 3148/AHD/2007 A.YS. 03-04 & 04-05 M/S. SILK MUSEUM NVS V. ITO WD-4 NVS PAGE 8 REMUNERATION PAYABLE/PAID TO THE PARTNERS SHOULD BE ACTUALLY PAID BY WAY OF CORRESPONDING ACCOUNTING ENTRY TO CREDIT THE PARTNE RS CAPITAL ACCOUNT AND DEBIT THE PROFIT AND LOSS ACCOUNT. IN THE INSTANT C ASE THE APPELLANT HAS NOT FULFILLED THE CONDITIONS AND THEREFORE THE REMUNER ATION ALLOWABLE WILL REMAIN LIMITED TO THE AMOUNT PROVIDED IN THE ACCOUNT. THE APPELLANT CANNOT CLAIM HIGHER REMUNERATION THAN WHAT HAS BEEN PROVIDED IN THE ACCOUNTS. THEREFORE THE APPELLANTS GROUND NO.4 IS DISMISSED. AFTER GOING THROUGH THE ORDERS OF LOWER AUTHORITIES WE ARE OF THE VIEW THAT NONE OF THE AUTHORITIES BELOW HAVE DISCUSSED THE FACTS REGA RDING THE LIMIT OF REMUNERATION PAYABLE VIS--VIS THE BOOK PROFIT AS ENVISAGED IN S ECTION 40(B) (V) OF THE ACT. AS THE FACTS ARE NOT CLEAR WE HAVE NO ALTERNATIVE EXCEPT TO SET ASIDE THIS ISSUE TO THE FILE OF THE ASSESSING OFFICER. ASSESSING OFFICER IS DIRECT ED TO EXAMINE THIS ISSUE IN THE LIGHT OF REMUNERATION PAID OR PAYABLE TO THE ASSESSEE IN TERMS OF THE PARTNERSHIP DEED VIS--VIS BOOK PROFIT AS ENVISAGED IN SECTION 40(B) (V) OF THE ACT AND DECIDE THIS ISSUE. ACCORDINGLY THIS ISSUE OF THE ASSESSEES AP PEAL IS ALLOWED FOR STATISTICAL PURPOSES. 14. IN THE RESULT BOTH THE APPEALS OF ASSESSEE ARE PAR TLY ALLOWED AS INDICATED ABOVE. ORDER PRONOUNCED IN OPEN COURT ON 26/02/2010 SD/- SD/- (N.S.SAINI) (MAHAVIR SINGH) ACCOUNTANT MEMBER JUDICIAL MEMBER AHMEDABAD DATED : 26/02/2010 *DKP COPY OF THE ORDER FORWARDED TO : 1. THE APPELLANT. 2. THE RESPONDENT. 3. THE CIT(APPEALS)-VALSAD 4. THE CIT CONCERNS. 5. THE DR ITAT AHMEDABAD 6. GUARD FILE. BY ORDER /TRUE COPY/ DEPUTY / ASSTT.REGISTRAR ITAT AHMEDABAD