M/s. Kumar Cellular, Sabarkantha v. The Income tax Officer,S.K.Ward-3,, Himatnagar

ITA 2346/AHD/2009 | 2006-2007
Pronouncement Date: 25-02-2011 | Result: Partly Allowed

Appeal Details

RSA Number 234620514 RSA 2009
Assessee PAN AAGFK8104K
Bench Ahmedabad
Appeal Number ITA 2346/AHD/2009
Duration Of Justice 1 year(s) 6 month(s) 20 day(s)
Appellant M/s. Kumar Cellular, Sabarkantha
Respondent The Income tax Officer,S.K.Ward-3,, Himatnagar
Appeal Type Income Tax Appeal
Pronouncement Date 25-02-2011
Appeal Filed By Assessee
Order Result Partly Allowed
Bench Allotted B
Tribunal Order Date 25-02-2011
Date Of Final Hearing 23-02-2011
Next Hearing Date 23-02-2011
Assessment Year 2006-2007
Appeal Filed On 04-08-2009
Judgment Text
IN THE INCOME TAX APPELLATE TRIBUNAL B BENCH AHMEDABAD (BEFORE S/SHRI BHAVNESH SAINI JM AND A. N. PAHUJA AM) ITA NO.2346/AHD/2009 A. Y.: 2006-07 M/S. KUMAR CELLULAR DURGA OIL MILL COMPOUND HIMATNAGAR SABARKANTHA VS THE INCOME TAX OFFICER SABARKANTA WARD-3 HIMATNAGAR PA NO. AAGFK 8104 K (APPELLANT) (RESPONDENT) ITA NO.2483/AHD/2009 A.Y.: 2006-07 THE INCOME TAX OFFICER SABARKANTA WARD-3 HIMATNAGAR VS M/S. KUMAR CELLULAR DURGA OIL MILL COMPOUND HIMATNAGAR SABARKANTHA PA NO. AAGFK 8104 K (APPELLANT) (RESPONDENT) ASSESSEE BY SHRI SUNIL H. TALATI AR DEPARTMENT BY SHRI R. K. DHANISTA SR. DR O R D E R PER BHAVNESH SAINI: BOTH THE CROSS APPEALS ARE DIRECTED AGAINST THE ORDER OF THE LEARNED CIT(A)-X AHMEDABA D DATED 27 TH MAY 2009 FOR ASSESSMENT YEAR 2006-07. ITA NO. 23246 AND 2483/AHD/2009 M/S. KUMAR CELLULAR 2 2. WE HAVE HEARD THE LEARNED REPRESENTATIVES OF BOT H THE PARTIES PERUSED THE FINDINGS OF THE AUTHORITIES BELOW AND C ONSIDERED THE MATERIAL AVAILABLE ON RECORD. BOTH THE APPEALS ARE DECIDED ISSUE WISE AS UNDER. ISSUE NO.1 3. THE REVENUE ON GROUND NO.1 OF THE APPEAL CHALLEN GED THE DELETION OF DISALLOWANCE OF INTEREST EXPENSES OF RS .2 78 852/-. THE AO FOUND THAT THE ASSESSEE WAS HAVING CASH IN HAND AMOUNTING TO RS.25 74 124/- AS ON 31-03-2006. THE AO FURTHER FOU ND THAT OPENING CASH BALANCE WAS TO THE TUNE OF RS.7 82 284/-. THE AO NOTED THAT DURING THE RELEVANT PERIOD THE ASSESSEE WAS HAVING SUFFICIENT CASH BALANCE AVAILABLE IN ITS BOOKS OF ACCOUNT AND ACCOR DINGLY HELD THAT THE ASSESSEE WAS HAVING SUFFICIENT CASH BALANCE TO REPAY ITS LOAN TO BANK AND THE DEPOSITORS. THE AO THEREFORE HELD TH AT THERE WAS NO JUSTIFICATION FOR INTEREST PAYMENT CLAIMED AT RE.2 78 852/- AND THE SAME WAS ACCORDINGLY DISALLOWED BEING INCURRED FOR NON-BUSINESS PURPOSE. THE ADDITION WAS CHALLENGED BEFORE THE LEA RNED CIT(A) AND IT WAS SUBMITTED THAT THERE WAS A REGULAR PRACTICE THAT FUNDS WERE BORROWED FROM THE BANKS AND INTEREST HAS BEEN PAID. IT IS NOT THE FIRST TIME THAT FUNDS WERE BORROWED. THE AO HAS NOT MADE OUT ANY CASE THAT FUNDS HAVE BEEN DIVERTED FOR NON-BUSINESS PURP OSES. CONSIDERING THE NATURE OF BUSINESS OF DEALING IN CE LLULAR PHONES AND ITS ACCESSORIES ETC. CASH IS TO BE KEPT FOR THE PUR POSE OF PAYMENT TO BE MADE FOR PURCHASES BECAUSE OF THE URGENT BUSINES S NEEDS. THE LEARNED CIT(A) CONSIDERING THE SUBMISSIONS OF THE A SSESSEE IN THE LIGHT OF THE FINDING OF THE AO NOTED THAT THE AO HA S NOT BROUGHT ON ITA NO. 23246 AND 2483/AHD/2009 M/S. KUMAR CELLULAR 3 RECORD ANY EVIDENCE TO SHOW THAT FUNDS BORROWED BY THE ASSESSEE WERE UTILIZED FOR NON-BUSINESS PURPOSES. THE AVAILA BILITY OF QUANTUM OF CASH IN HAND WOULD NOT LEAD TO THE CONCLUSION TH AT THE ASSESSEE WAS HOLDING THE SAME FOR NON-BUSINESS PURPOSES THE ADDITION IS MADE ON SURMISES AND CONJECTURES. THE LEARNED CIT(A ) ACCORDINGLY DELETED THE ADDITION. 4. ON CONSIDERATION OF THE RIVAL SUBMISSIONS WE D O NOT FIND IT TO BE A FIT CASE FOR INTERFERENCE. THE AO HAS NOT MADE OUT ANY CASE THAT THE ASSESSEE DIVERTED BORROWED FUNDS FOR NON-BUSINE SS PURPOSES. THE AO HAS ALSO NOT MADE OUT ANY CASE THAT THE BORR OWED FUNDS HAVE NOT BEEN USED FOR THE PURPOSE OF BUSINESS. THE AO MERELY NOTED THAT SINCE THE ASSESSEE WAS KEEPING HUGE CASH IN HAND THEREFORE THE ASSESSEE SHOULD NOT CLAIM INTEREST E XPENSES. THE ASSESSEE RIGHTLY EXPLAINED THAT THE ASSESSEE HAD BE EN BORROWING FUNDS IN THE PAST ALSO AND WAS KEEPING WITH HIM FOR BUSINESS PURPOSES. IT WOULD THEREFORE PROVE THAT THE AO MA DE THE ADDITION MERELY BECAUSE THE ASSESSEE KEPT HUGE CASH IN HAND WHICH BY ITSELF IS NO GROUND TO MAKE DISALLOWANCE OF INTEREST PAID ON BORROWED FUNDS. THE LEARNED CIT(A) ON PROPER APPRECIATION OF FACTS AND MATERIAL ON RECORD RIGHTLY DELETED THE ADDITION. TH IS GROUND OF APPEAL OF THE REVENUE IS DISMISSED. ISSUE NO.2 5. ON GROUND NO.2 OF THE APPEAL THE REVENUE CHALL ENGED THE DELETION OF DISALLOWANCE OF RS.90 000/- MADE U/S 40 A (2) (B) OF THE IT ACT. THE AO NOTED THAT THE ASSESSEE PAID SALARY TO 3 PERSONS ITA NO. 23246 AND 2483/AHD/2009 M/S. KUMAR CELLULAR 4 SPECIFIED U/S 40A (2) (B) OF THE IT ACT NAMELY DILI PKUMAR J. SHAH KIRANKUMAR J SHAH AND URVIBEN J. SHAH OF RS.30 000/ - EACH DURING THE RELEVANT PERIOD. HOWEVER THE SALARY PAID TO OT HERS RANGES BETWEEN RS.6 000/- TO RS.20 920/-. THE ASSESSEE WAS ASKED TO PRODUCE THE PARTIES FOR EXAMINATION. IT WAS SUBMITT ED THAT ALL THESE PERSONS ARE GRADUATES AND THAT THEY HAVE BEEN ASSIG NED DUTIES FOR ACCOUNTS FINANCE SALES AND CUSTOMER CARE IN THE B USINESS OF THE ASSESSEE. THE OTHER PERSONS ARE QUALIFIED UP TO X O R XII STANDARD. THE AO HOWEVER DISALLOWED THE ENTIRE SALARY OF RS. 90 000/- BECAUSE ALL THE PERSONS WERE NOT PRODUCED BEFORE THE AO FOR EXAMINATION. ADDITION WAS CHALLENGED BEFORE THE LEARNED CIT(A) A ND SAME SUBMISSIONS WERE REITERATED. IT WAS EXPLAINED THAT KIRANKUMAR J. SHAH AND MRS. URVIBEN J. SHAH HAVE GONE FOR ATTENDI NG THE MARRIAGE AND AT THE LAST MOMENT THE AO ASKED TO PRODUCE THEM . SHRI DILIPKUMAR J. SHAH ATTENDED THE PROCEEDINGS BEFORE THE AO WHOSE SIGNATURE IS ALSO APPEARING IN THE ORDER SHEET. FUR THER THE AO DID NOT ISSUE ANY OTHER SUMMONS TO THEM FOR NON-COMPLIANCE. THE OTHER PERSONS ARE HAVING LESS QUALIFICATION AS COMPARED T O THE AFORESAID PERSONS. THE LEARNED CIT(A) CONSIDERING THE ABOVE F ACTS NOTED THAT EVEN IN THE ABSENCE OF EXAMINATION OF THESE PERSONS THE AO COULD HAVE VERIFIED THE SERVICES PROVIDED BY THEM. THE LE ARNED CIT(A) ALSO NOTED THAT SIGNATURE OF DILIPKUMAR J. SHAH WAS IN T HE ORDER SHEET MAINTAINED BY THE AO. THE LEARNED CIT(A) ALSO NOTED THAT THE AO WITHOUT BRINGING SUFFICIENT FACTS MADE THE DISALLOW ANCE AND THAT FOR MAKING THE DISALLOWANCE UNDER THE ABOVE PROVISION T HE AO SHALL HAVE TO SHOW THAT PAYMENT MADE TO SUCH PERSONS WERE EXCE SSIVE OR UNREASONABLE HAVING REGARD TO THE FAIR MARKET VALUE OF THE GOODS ITA NO. 23246 AND 2483/AHD/2009 M/S. KUMAR CELLULAR 5 SERVICES OF FACILITIES FOR WHICH SUCH PAYMENTS WERE MADE FOR THE BUSINESS OF THE ASSESSEE. HOWEVER THE AO WITHOUT A NALYZING THESE DETAILS DISALLOWED THE ENTIRE PAYMENT. THE LEARNED CIT(A) ACCORDINGLY DELETED THE ADDITION. 6. ON CONSIDERATION OF THE RIVAL SUBMISSIONS WE DO NOT FIND IT TO BE A FIT CASE FOR INTERFERENCE. IT APPEARS THAT THE AO DISALLOWED THE ENTIRE SALARY PAYMENT ON THE REASONS THAT SUCH PERSONS COU LD NOT BE PRODUCED BEFORE HIM FOR EXAMINATION. THE ASSESSEE S PECIFICALLY PLEADED THAT DILIKUMAR J. SHAH APPEARED BEFORE THE AO AND HIS SIGNATURE IS MENTIONED IN THE ORDER SHEET. THIS FAC T IS CONFIRMED BY THE LEARNED CIT(A) IN HIS FINDINGS. THEREFORE DISA LLOWANCE IN THAT CASE IS HIGHLY IMPROPER. FURTHER THE TWO OTHER PER SONS WERE ATTENDING MARRIAGE AND AS SUCH THEY WERE UNABLE TO APPEAR BEFORE THE AO. THE HONBLE SUPREME COURT IN THE CASE OF UP PER INDIA PUBLISHING HOUSE PVT. LTD. 117 ITR 569 HELD THAT BEFORE SECTION 40A (2) IS APPLIED THE AO SHOULD HAVE PROVED EXPEN DITURE IS EXCESSIVE OR UNREASONABLE. THE ASSESSEE HAS EXPLAINED BEFORE THE AO THE CIRCUMSTANCES IN WHICH PAYMENTS HAVE BEE N MADE. THE AO HAS HOWEVER DISALLOWED THE ENTIRE AMOUNT WITHOU T POINTING OUT AS TO WHAT IS EXCESSIVE OR UNREASONABLE PAYMENT MAD E TO THEM. CONSIDERING THE FACTS AND CIRCUMSTANCES OF THE CASE AS EXPLAINED ABOVE WE DO NOT FIND IT TO BE A FIT CASE FOR INTER FERENCE. WE ACCORDINGLY DISMISS THIS GROUND OF APPEAL OF THE RE VENUE. ISSUE NO.3 ITA NO. 23246 AND 2483/AHD/2009 M/S. KUMAR CELLULAR 6 7. ON GROUND NO.3 OF THE APPEAL THE REVENUE CHALLE NGED THE ADDITION OF RS.11 70 926/- MADE ON ACCOUNT OF SUPPR ESSED SALES OF MOBILE PHONES. THE AO FROM THE TRADING ACCOUNT OF T HE ASSESSEE NOTED THAT IT HAS PURCHASED 4859 NOKIA CELLO PHONES FOR A SUM OF RS.2 12 14 732/- AND SOLD 4815 SETS FOR A SUM OF RS .2 16 00 811/-. THE AO FURTHER NOTED FROM THE TRADING ACCOUNT THAT TOTAL PURCHASE WERE TO THE TUNE OF RS.2 23 83 359/- AS AGAINST WHI CH THE ASSESSEE DISCLOSED ONLY PURCHASE OF NOKIA MOBILE IN RESPECT OF RS.2 12 14 732/-. SHOW CAUSE WAS ISSUED AS TO WHY A SUM OF RS.11 70 926/- SHALL NOT BE TREATED AS UNACCOUNTED SALES OF MOBILE PHONES. THE ASSESSEE SUBMITTED THE BIFURCATED TRADI NG ACCOUNT TO SHOW THAT NOT ONLY NOKIA PHONES BUT ALSO MOTOROLA A ND OTHER PHONES WERE PURCHASED FOR WHICH THE ADDITION HAS BEEN MADE BY THE AO; OTHERWISE THERE IS NO MISUNDERSTANDING OF FACTS. IT WAS FURTHER SUBMITTED MONTH WISE SUMMARY OF NOKIA PHONES AND OT HERS WOULD PROVE THAT THERE IS NO DIFFERENCE IN THE SALES. THE AO HOWEVER DID NOT ACCEPT THE SAME AND MADE THE ADDITION ACCORDING LY. SAME SUBMISSIONS WERE REITERATED AND COMPLETE DETAILS WE RE FILED BEFORE THE LEARNED CIT(A) TO SHOW THAT THE AO HAS NOT INC LUDED PURCHASES AND SALES OF MOTOROLA CELLO PHONES AS WELL AS OTHER PHONES. THEREFORE ADDITION IS UNJUSTIFIED. THE LEARNED CIT (A) ACCEPTED THE CONTENTIONS OF THE ASSESSEE AND NOTED THAT IF THE D ETAILS OF MOTOROLA PHONES AND OTHERS ARE CONSIDERED PROPERLY THERE WO ULD BE NO DIFFERENCE. ADDITION WAS ACCORDINGLY DELETED. 8. ON CONSIDERATION OF THE RIVAL SUBMISSIONS AND TH E DETAILS AVAILABLE ON RECORD WE DO NOT FIND ANY MERIT IN TH IS GROUND OF APPEAL ITA NO. 23246 AND 2483/AHD/2009 M/S. KUMAR CELLULAR 7 OF THE REVENUE. THE ASSESSEES COUNSEL FILED THE CO MPLETE DETAILS OF TRADING ACCOUNTS AS WELL AS BIFURCATED DETAILS TO S HOW THAT IF THE PURCHASE AND SALES OF MOTOROLA CELLO PHONES AND OTH ER PHONES ARE PROPERLY APPRECIATED BY THE AO THERE IS NO DIFFERE NCE. WE ACCEPT THE EXPLANATION OF THE ASSESSEE AND HOLD THAT THE AO WI THOUT CONSIDERING THE PURCHASES AND SALES OF MOTOROLA CELLO PHONES AN D OTHER PHONES MADE THE ADDITION MERELY CONSIDERING THE PURCHASES AND SALES OF NOKIA CELLO PHONES. THERE IS NO MERIT IN THIS GROUN D OF APPEAL OF THE REVENUE. THE SAME IS ACCORDINGLY DISMISSED. ISSUE NO.4 9. ON GROUND NO.4 OF THE APPEAL THE REVENUE CHALLE NGED THE ORDER OF THE LEARNED CIT(A) IN RESTRICTING THE ADDI TION TO RS.5 00 000/- INSTEAD OF CONFIRMING THE TOTAL ADDITION OF RS.17 5 8 567/- MADE ON ACCOUNT OF LOSS SHOWN BY THE ASSESSEE ON SALE OF SI M CARDS RECHARGE COUPONS ETC. THE ASSESSEE IN ITS APPEAL C HALLENGED THE REJECTION OF BOOKS OF ACCOUNTS AND CONFIRMING THE A DDITION OF RS.5 00 000/- ON GROUNDS NO. 1 AND 2 ON THE SAME IS SUE. IT IS STATED IN THE GROUNDS OF APPEAL THAT SALES AND PURCHASES A RE FULLY VERIFIABLE BOOKS OF ACCOUNTS ARE AUDITED AND NO DEFECTS HAVE B EEN POINTED OUT BY THE AUDITOR. THEREFORE REJECTION OF BOOK RESULT IS UNJUSTIFIED AND ADDITION OF RS.5 00 000/- SHOULD HAVE BEEN DELETED. BOTH THE GROUNDS ARE ACCORDINGLY CONSIDERED TOGETHER. 10. THE AO EXAMINED ALL THE DETAILS FILED BY THE AS SESSEE WITH REGARD TO SALES OF RECHARGE COUPONS. E-TOP SIM CAR DS AND SAGEM ETC. NOTED THAT THE ASSESSEE HAS CLAIMED LOSS OF RS .17 58 567/-. THE ITA NO. 23246 AND 2483/AHD/2009 M/S. KUMAR CELLULAR 8 EXPLANATION OF THE ASSESSEE WAS CALLED FOR. THE REP LY OF THE ASSESSEE WAS CONSIDERED WHICH WAS FOUND UNSATISFACTORY IN TH E SENSE THAT DAY IT HAD NOT MAINTAINED COMPLETE QUANTITATIVE DETAILS OF SIM CARDS PURCHASED AND SOLD DURING THE RELEVANT PERIOD. HE THEREFORE HELD THAT THE ASSESSEE HAS SUPPRESSED THE SALES OF RECHA RGE COUPONS AND SIM CARDS ETC. AND DISALLOWED THE CLAIM OF LOSS . THE ASSESSEE FILED SUBMISSIONS BEFORE THE LEARNED CIT(A) WHICH I S INCORPORATED IN PARA 8.4 OF THE APPELLATE ORDER. THE LEARNED CIT(A) CONSIDERING THE FINDINGS OF THE AO IN THE LIGHT OF THE SUBMISSIONS OF THE ASSESSEE CONFIRMED REJECTION OF THE BOOKS OF ACCOUNTS. HOWEV ER HE HAS FOUND THAT ADDITION IS ON EXCESSIVE SIDE. THUS THE ADDIT ION WAS ACCORDINGLY RESTRICTED TO RS.5 00 000/-. HIS FINDINGS IN PARA 8 .5 8.6 AND 8.7 OF THE APPELLATE ORDER ARE REPRODUCED AS UNDER: 8.5 I HAVE CONSIDERED THE FACTS OF THE CASE AND SUBMISSIONS OF THE LD. A. R. CAREFULLY. THERE IS NO DISPUTE ABOUT THE FACT THAT THE APPELLANT HAS NOT MAINTAINE D COMPLETE RECORDS OF PURCHASES AND SALES OF RECHARGE COUPONS E-TOP SIM CARDS AND SAGEM FOR THE RELEVAN T PERIOD. IN THIS REGARD THE COMMENTS OF THE AUDITOR S OF THE APPELLANT MADE IN COLUMN NO.28 OF THE AUDIT REPORT FIELD ALONG WITH THE RETURN ARE RELEVANT WHEREIN THE AUDI TORS HAVE STATED THAT RELEVANT RECORDS ARE NOT MAINTAIN ED BY THE ASSESSEE AS REGARDED QUANTITY DETAILS OF GOODS AND REQUISITE INFORMATION COULD NOT BE FURNISHED. THES E OBSERVATIONS HAVE BEEN REFERRED TO BY THE AO ON PAG E -9 OF THE ASSESSMENT ORDER. THE LD. A.R. DURING THE APPELLATE PROCEEDINGS HAS NOT CONTRADICTED THESE OBSERVATIONS AND THE FINDINGS OF THE A. O. THAT THE APPELLANT HAS NOT MAINTAINED COMPLETE RECORDS FOR S ALE AND PURCHASE OF E-TOP RECHARGE COUPONS ETC. THE APPELLANT HAS NOT PRODUCED THE INVENTORY OF CLOSING AS WELL AS OPENING STOCK FOR THE RELEVANT PERIOD. BESI DE ITA NO. 23246 AND 2483/AHD/2009 M/S. KUMAR CELLULAR 9 THERE IS A FALL IN GROSS PROFIT OF THE APPELLANT DU RING THE RELEVANT PERIOD AS COMPARED TO IMMEDIATELY PRECEDIN G YEAR. THE APPELLANT HAS DISCLOSED G.P. AT 1.16% AS AGAINST 1.95% IN THE IMMEDIATELY PRECEDING YEAR. TH ESE SHORTCOMINGS IN THE ACCOUNTS OF THE APPELLANT PROVI DE SUFFICIENT GROUNDS FOR THE REJECTION OF ITS BOOKS O F ACCOUNTS BY INVOKING THE PROVISIONS OF SEC. 145(3) OF THE ACT. 8.6 HONBLE ALLAHABAD HIGH COURT IN THE CAE OF AWADHESH PRATAP SINGH ABDUL RAHEMAN AND BROTHERS VS CIT 210 ITR 406 HAS HELD THAT: IT IS DIFFICULT TO CATALOGUE THE VARIOUS TYPES OF DEFECTS IN THE ACCOUNT BOOKS OF AN ASSESSEE WHICH MAY RENDER REJECTION OF ACCOUNT BOOKS ON THE GROUND THAT THE ACCOUNTS ARE NOT COMPLETE OR CORRECT FROM WHICH THE CORRECT PROFIT CANNOT BE DEDUCED. WHETHER THE PRESENCE OR THE ABSENCE OF A STOCK REGISTER IS MATERIAL OR NOT WOULD DEPEND UPON THE TYPE OF THE BUSINESS. IT IS TRUE THAT THE ABSEN CE OF A STOCK REGISTER OR CASH MEMOS IN A GIVEN SITUATION MAY NOT PER SE LEAD TO AN INFERENCE THAT THE ACCOUNTS ARE FALSE OR INCOMPLETE. HOWEVER WHERE THE ABSENCE OF A STOCK REGISTER CASH MEMOS ETC. IS COUPLED WITH OTHER FACTORS SUCH AS THAT VOUCHERS IN SUPPORT OF THE EXPENSES AND PURCHASES MADE ARE NOT FORTHCOMING AND THE PROFITS ARE LOW I T MAY GIVE RISE TO A LEGITIMATE INFERENCE THAT ALL IS NOT WELL WITH THE BOOKS AND THE SAME CANNOT BE RELIED UPON TO ASSESS THE INCOME PROFITS OR GAINS OF AN ASSESSEE. IN THE INSTANT CASE THE ACCOUNT BOOKS WERE REJECTE D BECAUSE ADMITTEDLY NO STOCK REGISTER WAS MAINTAINED NOR WERE THE SALES FOUND VERIFIABLE IN T HE ABSENCE OF THE CASH MEMOS. THE VOUCHERS OF EXPENSES WERE ALSO NOT FORTHCOMING AND THE INCOME RETURNED WAS RIDICULOUSLY LOW AS COMPARED TO THE ITA NO. 23246 AND 2483/AHD/2009 M/S. KUMAR CELLULAR 10 EXORBITANT TURNOVER AND THE EXTENT OF THE BUSINESS CARRIED ON BY THE ASSESSEE. TAKING ALL THESE ASPECTS AND THE MATERIAL INTO CONSIDERATION THE TRIBUNAL HAD FOUND AS A FACT THAT THE CLAIM OF THE ASSESSEE FOR ACCEPTANCE OF THE ACCOUNT BOOKS WAS NOT SUSTAINABLE. THIS WAS A FINDING OF FACT AND NO QUESTION OF LAW AROSE FROM IT. 8.7 IT MAY BE MENTIONED THAT THOUGH THE A. O. HAS NOT REJECTED SPECIFICALLY THE BOOKS OF ACCOUNTS OF THE APPELLANT WHILE DISALLOWING THE LOSS CLAIMED UNDER THIS HEAD YET THE UNDERSIGNED HAS THE POWER WITHIN THE MEANING OF SEC. 145 TO CORRECT THE ERROR IN THE WAY MOST SUITABLE IN THE CIRCUMSTANCES OF THE CASE. IN THIS REGARD RELIANCE IS PLACED ON THE DECISION OF HONBLE SUPRE ME COURT IN THE CASE OF CIT VS. MC MILLAN & CO. 33 ITR 182AND THE DECISION OF HONBLE MYSORE HIGH COURT IN THE CASE OF MIZAR KRISHNA ANNAPPA PAI & CO. VS CIT 69 I TR 830 (MYS.). IN VIEW OF THE DISCUSSIONS IN THE ABOVE PARAGRAPHS THE APPELLANTS ACCOUNT WITH REGARD TO RECHARGE COUPONS SIM CARDS ETC. ARE HEREBY REJECTE D. THOUGH THE APPELLANT HAS DISCLOSED COMMISSION UNDER THIS ACCOUNT AT RS.22 48 089/- YET IT CANNOT BE HE LD THAT IT REFLECTS HIS CORRECT EARNINGS UNDER THIS HEAD. THER EFORE HIS PROFITS UNDER THIS HEAD ARE REQUIRED TO BE ESTI MATED. THE DISALLOWANCE OF ENTIRE LOSS BY THE A. O. I.E. A T RS.17 58 567/- ON HIGHER SIDE. THEREFORE KEEPING I N VIEW THE ENTIRETY OF FACTS THE DISALLOWANCE IS RESTRICTE D TO RS.5 00 000/-. THIS GROUND OF APPEAL IS THEREFORE A LLOWED PARTLY. 11. THE LEARNED DR RELIED UPON THE ORDER OF THE AO AND SUBMITTED THAT THERE WAS NO DISPUTE TO THE FACT THAT THE ASSE SSEE HAS NOT MAINTAINED COMPLETE RECORDS OF PURCHASES AND SALES OF RECHARGE COUPONS E-TOP SIM CARDS AND SAGEM FOR THE RELEVAN T PERIOD. EVEN THE AUDITOR HAS MENTIONED THAT RELEVANT RECORDS ARE NOT MAINTAINED BY THE ASSESSEE AS REGARDS QUANTITY DETAILS OF GOODS A ND FURTHER NO ITA NO. 23246 AND 2483/AHD/2009 M/S. KUMAR CELLULAR 11 REQUISITE DETAILS HAVE BEEN FURNISHED. THE LEARNED DR SUBMITTED THAT THE FINDINGS OF THE AO HAVE NOT BEEN CONTRADICTED B Y THE ASSESSEE. THEREFORE FACTS ARE ADMITTED THAT COMPLETE RECORDS ARE NOT MAINTAINED. THEREFORE REJECTION BOOK RESULT IS JUS TIFIED. THE LEARNED DR SUBMITTED THAT IN THE ASSESSMENT YEAR UNDER APPE AL THE ASSESSEE HAS SHOWN GP RATE OF 1.61%. HOWEVER IN THE PRECEDING ASSESSMENT YEAR IT WAS 1.95%. THEREFORE THE LEARNE D CIT(A) SHOULD NOT HAVE DELETED THE ADDITION. 12. ON THE OTHER HAND THE LEARNED COUNSEL FOR THE ASSESSEE REITERATED THE SUBMISSIONS MADE BEFORE THE AUTHORIT IES BELOW AND SUBMITTED THAT THE ASSESSEE WAS DEALING IN LARGE QU ANTITY OF ITEMS AND IT IS DIFFICULT TO MAINTAIN RECORDS OF EACH AND EVERY ITEM. HE SUBMITTED THAT COMPLETE DETAILS OF SALES AND PURCHA SES ARE FILED. BOOKS OF ACCOUNTS ARE AUDITED. HE HAS SUBMITTED THA T IN THE SUBSEQUENT ASSESSMENT YEAR 2007-08 THE GP RATE IS SHOWN AT 1.21% AND THE SAME HAS BEEN ACCEPTED IN REGULAR ASS ESSMENT PROCEEDINGS U/S 143(3) OF THE IT ACT DATED 29-12-20 09. COPY OF THE ASSESSMENT ORDER IS PRODUCED ON RECORD. HE HAS FURT HER SUBMITTED THAT IN THE PRECEDING ASSESSMENT YEAR 2005-06 THE ASSESSEE HAS SHOWN GP RATE OF 1.95% WHICH HAVE NOT BEEN DISPUTED IN THE ASSESSMENT ORDER U/S 143 (3) OF THE IT ACT (PB-14). HE HAS THEREFORE SUBMITTED THAT FACTS ARE SAME THE THERE IS ENHANCEMENT IN THE SALES AS COMPARED TO EARLIER YEARS. THEREFORE THE ADDITION IS CLEARLY UNJUSTIFIED. ITA NO. 23246 AND 2483/AHD/2009 M/S. KUMAR CELLULAR 12 13. WE HAVE CONSIDERED THE RIVAL SUBMISSION AND THE MATERIAL AVAILABLE ON RECORD. IT IS NOT IN DISPUTE THAT THE ASSESSEE HAS NOT MAINTAINED COMPLETE RECORDS OF PURCHASES AND SALES OF RECHARGE COUPONS E-TOP SIM CARDS AND SAGEM FOR THE RELEVAN T PERIOD. EVEN THE AUDITOR IN THE AUDIT REPORT STATED THAT RELEVAN T RECORDS ARE NOT MAINTAINED BY THE ASSESSEE AS REGARDS QUANTITY DETA ILS OF GOODS AND FURTHER NO REQUISITE INFORMATION COULD BE FURNISHED . THE FINDINGS OF THE AO WERE NOT CONTRADICTED BEFORE THE LEARNED CIT(A). THE ASSESSEE HAS ALSO NOT PRODUCED INVENTORY OF THE CLOSING STOC K AS WELL AS OPENING STOCK FOR THE RELEVANT PERIOD. ADMITTEDLY THERE IS A FALL IN THE GP RATE. THE LEARNED CIT(A) THEREFORE ON PROPER A PPRECIATION OF THE FACTS AND MATERIAL ON RECORD RIGHTLY REJECTED THE B OOK RESULT WITHIN THE MEANING OF SECTION 145 OF THE IT ACT. THE LEARNED C IT(A) HOWEVER WAS NOT JUSTIFIED IN RESTRICTING THE DISALLOWANCE O F THE LOSS TO RS.5 00 000/- WHICH IN OUR OPINION IS STILL ON EXC ESSIVE SIDE. THE LEARNED CIT(A) SHALL HAVE TO CONSIDER THE ENTIRE FA CTS AND CIRCUMSTANCES OF THE CASE AND HISTORY OF THE ASSESS EE BEFORE RESTRICTING THE ADDITION ON MERIT. IT IS SETTLED LA W ONCE REJECTION OF BOOKS OF ACCOUNT DOES NOT MEAN ADDITION IS TO BE MA DE. WE RELY UPON THE DECISION OF THE HONBLE RAJASTHAN HIGH COU RT IN THE CASE OF GOTAN LIME KHANIJ UDHYOG 256 ITR 243 HELD THAT MERE REJECTION OF BOOKS OF ACCOUNT DOES NOT MEAN ADDITION HAS TO BE N ECESSARILY MADE. THE HISTORY OF THE ASSESSEE SHALL HAVE TO BE CONSID ERED IN ENTIRETY. THE LEARNED COUNSEL FOR THE ASSESSEE HAS BEEN ABLE TO POINT OUT THAT THE GP RATE OF 1.95% WAS ACCEPTED IN THE P RECEDING ASSESSMENT YEAR 2005-06 IN THE SCRUTINY ASSESSMENT U/S 143(3) OF THE IT ACT. THE SALES OF THE ASSESSEE HAVE CONSIDER ABLY INCREASED IN ITA NO. 23246 AND 2483/AHD/2009 M/S. KUMAR CELLULAR 13 THE ASSESSMENT YEAR UNDER APPEAL AND PROFITS HAVE A LSO BEEN INCREASED. IN THE SUBSEQUENT ASSESSMENT YEAR 2007-0 8 THE GP RATE OF 1.21% HAS BEEN ACCEPTED IN THE PROCEEDINGS U/S 1 43(3) OF THE IT ACT. CONSIDERING THE FACTS OF THE CASE WE ARE OF T HE VIEW THAT EVEN IF BOOK RESULTS HAVE BEEN REJECTED THE LEARNED CIT(A) SHOULD NOT HAVE RESTRICTED THE ADDITION TO RS.5 00 000/-. IF THE AD DITION OF RS.5 00 000/- IS MADE ACCORDING TO THE LEARNED CIT( A) THE GP RATE WOULD ENHANCE TO 2.45% WHICH IN OUR OPINION WOULD BE EXCESSIVE UNREASONABLE AND EXORBITANT. CONSIDERING THE FACTS AND CIRCUMSTANCES NOTED ABOVE WE ARE OF THE VIEW THAT THE LEARNED CIT(A) WAS JUSTIFIED IN REDUCING THE ADDITION. HOWE VER HE WAS NOT JUSTIFIED IN REDUCING THE ADDITION TO RS.5 00 000/- . THE ADDITION OF RS.5 00 000/- IS FURTHER MODIFIED AND REDUCED TO RS .2 00 000/- IN ALL. IN THE RESULT THE AO IS DIRECTED TO MAINTAIN ADDIT ION OF RS.2 00 000/- ON THE SAME. RESULTANTLY THE DEPARTMENTAL APPEAL F AILS AND IS DISMISSED. HOWEVER THE APPEAL OF THE ASSESSEE IS P ARTLY ALLOWED. 14. ON OTHER POINT IS ARGUED OR PRESSED. 15. IN THE RESULT THE DEPARTMENTAL APPEAL IS DISMI SSED AND THE APPEAL OF THE ASSESSEE IS PARTLY ALLOWED. ORDER PRONOUNCED ON 25-02-2011 SD/- SD/- (A. N. PAHUJA) ACCOUNTANT MEMBER (BHAVNESH SAINI) JUDICIAL MEMBER DATE : 25-02-2011 LAKSHMIKANT/- ITA NO. 23246 AND 2483/AHD/2009 M/S. KUMAR CELLULAR 14 COPY OF THE ORDER FORWARDED TO: 1. THE APPELLANT 2. THE RESPONDENT 3. THE CIT CONCERNED 4. THE CIT(A) CONCERNED 5. THE DR ITAT AHMEDABAD 6. GUARD FILE BY ORDER D Y. REGISTRAR ITAT AHMEDABAD