Brodweld Pvt.Ltd.,, Baroda v. The ACIT, Circle-1(1),, Baroda

ITA 3171/AHD/2007 | 2003-2004
Pronouncement Date: 05-02-2010 | Result: Partly Allowed

Appeal Details

RSA Number 317120514 RSA 2007
Assessee PAN AAACB7917N
Bench Ahmedabad
Appeal Number ITA 3171/AHD/2007
Duration Of Justice 2 year(s) 6 month(s) 11 day(s)
Appellant Brodweld Pvt.Ltd.,, Baroda
Respondent The ACIT, Circle-1(1),, Baroda
Appeal Type Income Tax Appeal
Pronouncement Date 05-02-2010
Appeal Filed By Assessee
Order Result Partly Allowed
Bench Allotted C
Tribunal Order Date 05-02-2010
Date Of Final Hearing 21-01-2010
Next Hearing Date 21-01-2010
Assessment Year 2003-2004
Appeal Filed On 24-07-2007
Judgment Text
- 1 - IN THE INCOME TAX APPELLATE TRIBUNAL AHMEDABAD BENCH C AHMEDABAD BEFORE S/SHRI T. K. SHARMA JM AND D.C.AGRAWAL AM ASSTT. CIT CIRCLE 1(1) BARODA. V/S . BRODWELD (P) LTD. PUSHKAR CHAMBERS 1 ST FLOOR DANDIA BAZAR BARODA. PAN NO.AAACB 7917 N (APPELLANT) .. (RESPONDENT) BRODWELD (P) LTD. PUSHKAR CHAMBERS 1 ST FLOOR DANDIA BAZAR BARODA. V/S . ASSTT. CIT CIRCLE 1(1) BARODA. PAN NO.AAACB 7917 N (APPELLANT) .. (RESPONDENT) BRODWELD (P) LTD. PUSHKAR CHAMBERS 1 ST FLOOR DANDIA BAZAR BARODA. V/S . ASSTT. CIT CIRCLE 1(1) BARODA. PAN NO.AAACB 7917 N (APPELLANT) .. (RESPONDENT) ITA NO.945/AHD/2007 ASST. YEAR :2002-03 ITA NO.1003/AHD/2007 ASST. YEAR :2002-03 ITA NO.3171/AHD/2007 ASST. YEAR :2003-04 2 ASSTT. CIT CIRCLE 1(1) BARODA. V/S . BRODWELD (P) LTD. PUSHKAR CHAMBERS 1 ST FLOOR DANDIA BAZAR BARODA. PAN NO.AAACB 7917 N (APPELLANT) .. (RESPONDENT) REVENUE BY :- SHRI M. C. PANDIT SR. DR ASSESSEE BY:- SHRI SANJAY R. SHAH AR O R D E R PER D.C.AGRAWAL ACCOUNTANT MEMBER . THESE ARE FOUR APPEALS TWO CROSS APPEALS FOR ASST . YEAR 2002-03 AND TWO CROSS APPEALS FOR ASST. YEAR 2003-04 INVOL VE SIMILAR ISSUES HENCE THEY ARE TAKEN UP TOGETHER FOR THE SAKE OF CO NVENIENCE. ITA NO.3171/AHD/2007 (ASSESSEES APPEAL) ASST. YEAR 2003-04 2. IN ASSESSEES APPEAL FOLLOWING ISSUE IS RAISED : - 1. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CAS E AND IN LAW THE LD. CIT(A) I ERRED IN CONFIRMING THE TOTAL SALARY PAI D TO BOTH LADY DIRECTORS AND IN CONFIRMING 50% SALARY PAID TO SHRI HASUBHAI CHOKSHI DIRECTOR AS NOT ALLOWABLE EXPENDITURE. ITA NO.3311/AHD/2007 (REVENUES APPEAL) FOR ASST. YEAR 2003-04 3. WHEREAS IN DEPARTMENTAL APPEAL FOLLOWING ISSUES ARE RAISED :- ITA NO.3311/AHD/2007 ASST. YEAR :2003-04 3 1. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE AND IN LAW THE LD. CIT(A) ERRED IN ALLOWING THE SALARY AND BONUS PAID TO THE DIRECTOR SHRI HASUBHAI CHOKSHI TO THE EXTENT OF 50% AS AGAI NST 100% DISALLOWED BY THE AO BY DISREGARDING THE EVIDENCE O N RECORD I.E. THE ATTENDANCE REGISTER MAINTAINED BY THE ASSESSEE FOR EMPLOYEES AS WELL AS DIRECTORS WHICH CLEARLY ESTABLISHED THAT T HE SAID DIRECTOR WAS NOT AT ALL ATTENDING TO THE BUSINESS OF THE ASS ESSEE COMPANY. 2. THE LD. CIT(A) IGNORED THE LEGAL POSITION THAT THE ONUS TO PROVE THAT THE EXPENDITURE WAS WHOLLY AND EXCLUSIVELY FOR THE PURPOSES OF THE BUSINESS WAS ON THE ASSESSEE AS SETTLED IN THE CASE OF SWADESHI COTTON MILLS CO. LTD. VS. CIT 63 ITR 57 60 (SC); L AXMIRATAN COTTON MILLS CO. LTD. VS. CIT 73 ITR 634 (SC); CIT VS. INDUSTRIAL DEVELOPMENT CORPORATION OF ORISSA LTD. 249 ITR 401 (ORI); CIT VS. UDAIPUR MINERAL DEVELOPMENT SYNDICATE (P) LTD. 269 ITR 263 (RAJ) AND CIT VS. PREMIER BREWERIES LTD. 279 ITR 51 (KER) AND THE ASSESSEE UTTERLY FAILED TO DISCHARGE THIS ONUS. 3. IN ANY CASE THE CIT(A) ERRED IN NOT TAKING NOT E OF THE PROVISIONS OF SECTION 40A(2) DULY ATTRACTED IN THIS CASE WHICH E NTITLED THE AO TO DISALLOW ANY EXPENDITURE WHICH WAS EXCESSIVE OR UNR EASONABLE HAVING REGARD TO THE MARKET VALUE OF THE SERVICES R ENDERED OR THE LEGITIMATES NEEDS OF THE BUSINESS OR THE BENEFIT DE RIVED FROM THE PAYMENT AND THAT WARRANTED DISALLOWANCE OF 100% OF THESE PAYMENTS IN VIEW OF THERE BEING NO EVIDENCE OF ANY SERVICES HAVING BEEN RENDERED BY THE SAID DIRECTOR. 4. THE CIT(A) FAILED TO APPRECIATE THE BINDING RATIO O F THE SUPREME COURT DECISION IN THE CASE OF NAND & SAMANT CO. (P) LTD. VS. CIT 78 ITR 268 (SC) TO THE EFFECT THAT IN SUCH CASES O F PAYMENT TO A DIRECTOR COVERED BY SECTION 40A(2) THE ASSESSEE HAD TO TENDER EVIDENCE RELATING TO THE DUTIES OF THE DIRECTOR SER VICES RENDERED BY HIM AND THE MANNER IN WHICH THE PROFITS EARNED BY T HE COMPANY WERE ENHANCED BY REASON OF SPECIAL APTITUDE OR QUAL IFICATION OR LEGITIMATE NEEDS OF THE BUSINESS OR THE BENEFIT DER IVED FROM THE PAYMENT AND IT WAS NOT FOR THE AO TO COLLECT EVIDEN CE TO SHOW THAT THE PAYMENT WAS EXCESSIVE OR UNREASONABLE. 4. THE FACTS OF THE CASE ARE THAT THE ASSESSEE COMP ANY IS DEALING IN WELDING RODS AND ACCESSORIES. ONLY ISSUE IN ASSESSE ES APPEAL RELATES TO DISALLOWANCE OF SALARY PAID TO BOTH THE LADY DIRECT ORS AND DISALLOWANCE OF 4 50% SALARY PAID TO SHRI HASUBHAI CHOKSHI DIRECTOR. THE ISSUE OF DISALLOWANCE OF SALARY PAID TO TWO LADY DIRECTORS A ND OTHER DIRECTOR NAMELY SHRI HASUBHAI CHOKSHI HAD COME UP BEFORE THE TRIBUNAL IN AYS 1996-97 TO 2001-02 IN ITA NOS.1509 TO 1514/AHD/200 4 AND CORRESPONDING CROSS APPEALS FILED BY THE DEPARTMENT FOR THESE YEARS. VIDE ITS ORDER DATED 5.12.2008 THE TRIBUNAL HAD CONFIRME D THE DISALLOWANCE OF SALARY PAID TO THE TWO LADY DIRECTORS WHEREAS 100% SALARY WAS ALLOWED TO THE DIRECTOR SHRI HASUBHAI CHOKSHI. 5. WE HAVE HEARD THE PARTIES. FOR THE SAKE OF CONVE NIENCE WE REPRODUCE PARA 9 OF THE ORDER OF THE TRIBUNAL AS UN DER :- 9. WE HAVE CAREFULLY CONSIDERED THE RIVAL SUBMISSI ONS AND PERUSED THE MATERIAL ON RECORD. WE FIND THAT IN REPLY TO QU ESTION NO.13 SHRI ANJAN CHOKSHI STATED THAT - I WOULD LIKE TO SUBMIT THAT SMT. BHARTIBEN K. CHOK SHI AND SMT. DARSHANABEN A. CHOKSHI HAVE BEEN SHOWN AS DIRECTORS IN M/S BROA DWELD (P) LTD. ON THE PAPER. HOWEVER THEY HAVE NOT BEEN PARTICIPATING IN ANY ACTIVITIES OF THIS COMPANY SINCE THE YEAR THEY WERE MADE DIRECTORS. MY FATHER SHRI HASUBHAI CHOKSHI HAS BEEN VERY MUCH INVOLVED IN THE BUSINESS OPERATIONS OF THIS COMPANY SINCE MANY YEARS EVEN BEFORE THE FORMATION OF THIS COMPANY HE WAS ASSISTING AND GUIDING US IN PARTNERSHIP CONCERN M/S BROADWELD. DESPITE HIS OLD AGE HE STILL ATTENDS OFFICE AND SUPERVISES THE BUSINESS ACTIVITIES. BOTH THE LADY DIRECTORS HAVE ALSO ACCEPTED THAT THE Y ARE NOT RENDERING ANY SERVICES AND THEY ARE FULLY INVOLVED IN THEIR H OUSEHOLD AFFAIRS. NO COGENT MATERIAL OR EVIDENCE WAS BROUGHT TO OUR KNOW LEDGE WHICH MAY PROVE THAT BOTH THE LADY DIRECTORS HAVE ACTUALLY RE NDERED THE SERVICES FOR BROADWELD (P) LTD. FOR THE ASSESSEE. THE DIRECTORS AS WELL AS THE LADY DIRECTORS HAVE ALSO AGREED FOR THE SAME. IT IS A SE TTLED LAW THAT THE ONUS IS ON THE ASSESSEE TO PROVE THAT HE HAS INCURRED THE E XPENSES WHOLLY AND EXCLUSIVELY FOR THE PURPOSE OF BUSINESS ONCE HE CL AIMS THE DEDUCTION FOR THE SAME. ON THE BASIS OF THE FACTS BEFORE US WE AR E OF THE VIEW THAT THE ASSESSEE HAS NOT DISCHARGED HIS ONUS AND THEREFORE NO INTERFERENCE IS CALLED FOR IN THE ORDER OF THE CIT(A) SUSTAINING TH E DISALLOWANCE IN RESPECT OF SALARY PAID TO BOTH THE LADY DIRECTORS. 5 6. REGARDING SALARY PAID TO SHRI HASUBHAI CHOKSHI THE TRIBUNAL ALLOWED THE CLAIM IN FULL VIDE PARA 11 OF ITS ORDER DATED 5.12.2008 AS UNDER :- 11 WE HAVE HEARD THE RIVAL SUBMISSIONS AND CAREFUL LY CONSIDERED THE SAME PERUSED THE MATERIAL ON RECORD. WE HAVE ALSO GONE THROUGH THE STATEMENT OF SHRI ANJAN CHOKSHI RECORDED ON 09.09.2 002. WE FIND THAT SHRI ANJAN CHOKSHI NOWHERE STATED THAT SHRI HASUBHA I CHOKSHI HAS NOT RENDERED ANY SERVICES TO THE COMPANY OR HAS NOT ATT ENDED THE BUSINESS AFFAIRS OF THE COMPANY. IN OUR OPINION A DIRECTOR OF THE COMPANY CANNOT BE EXPECTED TO PUT HIS ATTENDANCE IN THE ATTENDANCE REGISTER. AN OFFICER AT A PARTICULAR LEVEL CANNOT BE EXPECTED TO DO SO. THE AO IS FULLY AWARE OF. EVEN THE CIT AND THE OTHER OFFICERS OF THE HIGHER R ANK WHO ARE EMPLOYEES OF THE GOVERNMENT OF INDIA ARE NOT SUPPOSED TO SIGN THE ATTENDANCE REGISTER. THEREFORE IN OUR OPINION THE AO HAS EXC EEDED HIS JURISDIFCTION BY EXPECTING THE DIRECTOR OF THE COMPANY THAT HE SH OULD SIGN THE ATTENDANCE REGISTER. THIS IN OUR OPINION IS DEROGAT ORY TO THE POSITION BEING HELD BY A DIRECTOR OF THE COMPANY. THE SERVIC ES RENDERED BY THE DIRECTOR CANNOT BE DENIED. ONCE THE DIRECTOR HAS RE NDERED THE SERVICES THE REMUNERATION PAID TO THE DIRECTOR IS ALLOWABLE AND THE AO CANNOT DIRECT THE AO HOW MUCH REMUNDERATION IS TO BE PAID BY THE ASSESSEE TO A DIRECTOR EXCEPT AND TO THE EXTENT THE CASE IS COVER ED U/S 40A(2) OF THE ACT. WHILE APPLYING THE PROVISIONS OF SECTION 40A(2) IN OUR OPINION THE ONUS IS ON THE AO TO PROVE THAT THE ASSESSEE HAS INCURRE D THE EXPENDITURE BY WAY OF REMUNERATION TO SHRI HASUBHAI CHOKSHI MORE T HAN THE FAIR MARKET VALUE OF THE SERVICES RENDERED BY HIM. NO IOTA OF E VIDENCE WHAT TO TALK OF COGENT MATERIAL OR EVIDENCE HAS BEEN BROUGHT ON REC ORD WHILE DISALLOWING THE REMUNERATION PAID TO SHRI HASUBHAI CHOKSHI TO PROVE THAT THE SALARY PAID TO SHRI HASUBHAI CHOKSHI IS MU CH MORE THAN THE FAIR MARKET VALUE OF THE SERVICES RENDERED BY HIM. EVEN NO SUCH MATERIAL WAS BROUGHT WHEN THE CIT(A) HAS APPLIED THE PROVISIONS OF SECTION 40A(2) AND RESTRICTED THE DISALLOWANCE TO 50% OF THE SALAR Y. IN OUR OPINION THE REVENUE CANNOT ENTER INTO SHOES OF A BUSINESSMAN AN D CANNOT DIRECT A BUSINESSMAN HOW MUCH SALARY HE MUST PAY TO THE DIRE CTOR. THE REASONABLENESS OF THE PAYMENT HAS TO BE JUDGED NOT ON ANY SUBJECTIVE STANDARD OF THE ASSESSING AUTHORITY BUT FROM THE VI EW OF COMMERCIAL EXPEDIENCY. WE THEREFORE SET ASIDE THE ORDER OF T HE CIT(A) AND DIRECT THE AO TO ALLOW THE REMUNERATION PAID TO SHRI HASUB HAI CHOKSHI IN EACH 6 OF THE ASSESSMENT YEARS. THUS THIS GROUND TAKEN BY THE ASSESSEE STANDS ALLOWED WHILE GROUND NO.1(I) TAKEN BY THE REVENUE S TANDS DISMISSED. 7. THE FACTS AND CIRCUMSTANCES REMAINING THE SAME FOLLOWING THE ABOVE ORDER WE ALLOW THE CLAIM OF SALARY TO SHRI H ASUBHAI CHOKSHI IN FULL WHEREAS WE CONFIRM THE DISALLOWANCE PAYMENT OF SALARY TO THE TWO LADY DIRECTORS. AS A RESULT APPEAL FILED BY THE AS SESSEE IS PARTLY ALLOWED; AND SINCE IN THE REVENUES APPEAL ONLY ISSUE IS INV OLVED ABOUT THE PAYMENT OF SALARY AND IT IS DECIDED AS ABOVE THE R EVENUES APPEAL IS ACCORDINGLY DISMISSED. ITA NO.1003/AHD/2007 (ASSESSEES APPEAL) ASST. YEAR 2002-03 : 8. IN ASSESSEES APPEAL FOLLOWING GROUNDS ARE RAISE D :- 1. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CAS E AND IN LAW THE LD. CIT(A) I ERRED IN UPHOLDING REJECTION OF BOOKS OF ACCOUNTS U/S 145(3) OF THE ACT. 2. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE A ND IN LAW THE LD. CIT(A)-I ERRED IN CONFIRMING THE TOTAL SALARY PAID TO BOTH LADY DIRECTORS AMOUNTING TO AND IN CONFIRMING 50% S ALARY PAID TO SHRI HASUBHAI CHOKSHI DIRECTOR AS NOT ALLOWABLE EXPENDITURE. 3. ON THE FACTS AND IN THE CIRCUMSTANCES OF T HE CASE AND IN LAW THE LD. CIT(A)-I ERRED IN HOLDING THAT THE NET PROFIT OF THE APPELLANT SHOULD BE INCREASED BY 1% OF THE TOTAL TURNOVER DUR ING THE YEAR. ITA NOS.945/AHD/2007 (REVENUES APPEAL) ASST. YEAR 2002-03 : 9. WHEREAS IN REVENUES APPEAL THE GROUNDS RAISED A RE SIMILAR AS IN ASST. YEAR 2003-04 SO FAR AS DISALLOWANCE OF SALARY OF DIRECTORS IS CONCERNED. IN ADDITION TO THAT FOLLOWING TWO ISSUES ARE FURTHER RAISED AS UNDER :- 7 2(A) ON THE FACTS AND IN THE CIRCUMSTANCES OF THE C ASE AND IN LAW THE LD. CIT(A) ERRED IN DELETING TO THE EXTENT OF R S.3 15 190/- THE ADDITION OF RS.4 40 190/- MADE ON THE BASIS OF ENTRIES IN A BLACK DIARY IMPOUNDED IN THE COURSE OF SURVEY WH ICH SHRI ANJAN CHOKSHI THE DIRECTOR ADMITTED IN HIS STATEM ENT U/S 133A(III) AS REPRESENTING SECRET UNACCOUNTED COMMI SSION PAID FOR OBTAINING BUSINESS ORDERS AND THUS CONSTIT UTED UNDISCLOSED INCOME BY VIRTUE OF SECTION 69C OF THE ACT WHICH WAS NOT ALLOWABLE AS DEDUCTION BY VIRTUE OF T HE PROVISO TO THIS SECTION. . 2(B) THE CIT(A) ERRED IN FOLLOWING IN THIS REGA RD THE ORDER OF HIS PREDECESSOR FOR THE ASSESSMENT YEARS 1996-97 TO 200 1-02 WHICH HAS BEEN CONTESTED BY THE DEPARTMENT WITHOUT AT ALL CONSIDERING THE EVIDENCE ON RECORD AND THE REASONS GIVEN BY THE AO FOR QUANTIFICATION OF THIS ADDITION. 3. ON THE FACTS AND IN THE CIRCUMSTANCES OF TH E CASE AND IN LAW THE CIT(A) ERRED IN REDUCING THE ADDITION OF RS.45 84 622/- MADE BY APPLYING THE NET PROFIT RATE OF 18.6% ON TH E TURNOVER TO MERE 1% OF THE TURNOVER AS REDUCED BY S ECRET COMMISSION SOLELY ON THE BASIS OF THE ORDER OF HIS PREDECESSOR WHICH HAS BEEN CONTESTED BY THE DEPART MENT WITHOUT AT ALL CONSIDERING THE EVIDENCE ON RECORD I N THE FORM OF RELEVANT ENTRIES IN THE SAID BLACK DIARY DULY DI SCUSSED AND REASONABLY INTERPRETED BY THE AO IN SUPPORT OF THIS ADDITION. 10. GROUND NO.2 IN ASSESSEES APPEAL RELATES TO DIS ALLOWANCE OF SALARY TO TWO LADY DIRECTORS AND SHRI HASUBHAI CHOKSHI TO THE EXTENT OF 50%. FOLLOWING THE ORDER OF THE TRIBUNAL IN THE CASE OF ASSESSEE FOR ASST. YEARS 1996-97 TO 2001-02 WE HAVE STATED IN PARA 7 ABOVE THAT SALARY PAID TO SHRI HASUBHAI CHOKSHI SHOULD BE ALLOWED IN FULL WHE REAS DISALLOWANCE OF SALARY TO THE TWO LADY DIRECTORS IS CONFIRMED. SO T HIS GROUND OF ASSESSEES APPEAL IS DISPOSED OF ACCORDINGLY. 8 11. ISSUE NOS.1 & 3 RELATES TO REJECTION OF BOOKS O F ACCOUNT AND INCREASING NET PROFIT BY 1% OF THE TOTAL TURNOVER. 12. THE DEPARTMENT HAD CARRIED OUT A SURVEY UNDER S ECTION 133A AT THE BUSINESS PREMISES OF THE ASSESSEE. DURING THE COURS E OF SURVEY A BLACK DIARY B1 WAS FOUND WHICH WAS IMPOUNDED. THERE WERE CERTAIN ENTRIES REFLECTING VARIOUS PAYMENTS. ON ASKED TO EXPLAIN TH E AO WAS INFORMED THAT THIS PAYMENT WAS RELATED TO SOME SECRET PAYMEN TS FOR OBTAINING BUSINESS ORDER FROM DIFFERENT CUSTOMERS AND THEY WE RE PAID OUT OF UNDISCLOSED INCOME. THE ASSESSEE WAS ASKED TO GIVE FULL DETAILS OF THESE SECRET PAYMENTS WHICH WAS ACCORDINGLY EXPLAINED BY THE ASSESSEE. THE AO TREATED THE PAYMENT OF COMMISSION OUTSIDE THE BO OKS AND MADE THE ADDITION OF RS.66 190/-. ON THE BASIS OF OTHER ENTR IES IN THE DOCUMENTS FOUND IN THE SEARCH AO MADE THE ADDITIONS OF RS.1 L ACS AND RS.2 60 000/- . THEY WERE TREATED AS SECRET COMMISSION PAID AS PE R PAGES 13 15 TO 17 OF THE SEIZED DIARY. THE AO ADDED THIS SUM IN ONE A SST. YEAR BUT THE CIT(A) BIFURCATED THIS AMOUNT IN DIFFERENT YEARS AN D THERE AFTER HE UPHELD AN ADDITION OF RS.1 25 000/- IN ASST. YEAR 2002-03. HE ALSO BIFURCATED THIS ADDITION IN ALL THE YEARS BEFORE HIM. THE MATT ER CAME UP BEFORE THE TRIBUNAL IN AYS 1996-97 TO 2001-02. THE TRIBUNAL HE LD THAT SECRET COMMISSION ON THE BASIS OF DIARY FOUND DURING THE S EARCH COULD BE TAXED ONLY IN ASST. YEAR 1998-99 AND 2000-01 AND NO ADDIT ION PRIOR TO OR SUBSEQUENT TO THAT YEAR WAS UPHELD ON THE GROUND A S THE TRIBUNAL OBSERVED THE AO IN OUR OPINION CAN MAKE THE ADDITION ON THE BASIS OF THIS PAPER ONLY DURING ASST. YEAR 1998-99 AND 2000- 01 NOT IN THE OTHER ASSESSMENT YEARS. IT WAS SUBMITTED BY LD. AR THAT SINCE PAYMENT OF COMMISSION HAS BEEN CONSIDERED IN THE TWO ASST. YEA RS QUESTION OF TAXING IN OTHER YEARS SHOULD NOT ARISE. 9 13. GROUND NO.1 IN ASSESSEES APPEAL RELATED TO REJ ECTION OF BOOKS OF ACCOUNT AND LD. CIT(A) HAS CONFIRMED THIS REJECTION ON THE GROUND THAT THE FACT OF PAYMENT OF SECRET COMMISSION WAS NOT FO UND IN THE BOOKS. IN OUR VIEW NO FAULT CAN BE FOUND WITH THIS FINDING. O NCE CERTAIN RECEIPTS FROM BUSINESS AND PAYMENT OF SECRET COMMISSION OUTS IDE THE BOOKS IS FOUND DURING THE COURSE OF SURVEY AND IS ALSO SO AD MITTED BY THE DIRECTORS QUESTION OF PLACING RELYING ON THE BOOKS FOR THE PU RPOSE OF COMPUTATION OF INCOME DOES NOT ARISE. WE UPHOLD THE FINDING OF THE AUTHORITIES BELOW AND REJECT THIS GROUND OF ASSESSEE. 14. REGARDING ESTIMATION OF NET PROFIT BEING 1% ABO VE THE DECLARED NET PROFIT WE FIND THAT THE TREND OF G.P. AND N.P. AS P ER AUDIT REPORTS ARE GIVEN BY THE AO AS UNDER : ASST. YEAR SALE GROSS PROFITS NET PROFITS RS.(LACS) RS.(LACS) RS.(LACS) % 1996-97 437.15 27.15 06.21 6.30 1.44 1997-98 445.31 37.85 08.50 8.33 1.84 1998-99 475.28 49.77 10.47 14.27 2.46 1999-00 528.73 51.48 09.74 17.62 3.19 2000-01 438.75 53.95 12.29 14.76 3.20 2001-02 254.62 42.89 16.85 0.87 0.33 2002-03 264.79 44.78 16.91 2.96 1.18 AO ALSO COMPARED GP AS PER BOOKS OF ACCOUNT AND GP WORKED OUT ON THE BASIS OF DIARY FOUND DURING THE COURSE OF SURVEY. H E WORKED OUT A COMPARATIVE TABLE AS UNDER :- 10 ASST. YEAR GP AS PER BOOKS (%) GP AS PER DIARY(%) 1996-97 06.21 06.84 1997-98 08.50 08.20 1998-99 10.47 10.59 1999-00 09.74 09.23 2000-01 12.29 12.98 2001-02 16.85 16.21 HE ACCORDINGLY MADE THE ADDITIONS IN ASST. YEARS 19 96-97 TO 2001-02 WHICH WAS SUBJECT MATTER BEFORE THE TRIBUNAL IN THE SE ASST. YEARS. THE AO PRESUMED THAT SINCE THE STATE OF AFFAIRS CONTINU ED IN ASST. YEAR 2002- 03 ALSO THERE WOULD BE ADDITIONAL PROFITS PART OF W HICH IS PAID AS SECRET COMMISSION THEREFORE HE APPLIED GP RATE OF 18.6% ON A TURN OVER OF RS.2 64 79 044/- WHICH GAVE RISE TO GP OF RS.49 25 102/- WHEREAS ASSESSEE HAD DECLARED A SUM OF RS.3 40 480/-. HE AC CORDINGLY MADE ADDITION OF RS.45 85 642/- ON ACCOUNT OF SUPPRESSIO N OF PROFITS. 15. LD. CIT(A) RESTRICTED THE ADDITION TO 1% OF THE TOTAL TURNOVER OVER AND ABOVE WHAT THE ASSESSEE HAS DECLARED SUBJECT TO TELESCOPING OF RS.1 25 000/- ADDED EARLIER ON ACCOUNT OF SECRET CO MMISSION. 16. LD. AR FOR THE ASSESSEE SUBMITTED THAT ISSUE OF ESTIMATION OF PROFIT ON ACCOUNT OF SECRET COMMISSION HAD ALSO COME UP BE FORE THE TRIBUNAL IN ASST. YEAR 1996-97 TO 2001-02. HOWEVER IN THESE YE ARS THE TRIBUNAL HAD CONSIDERED THE ADDITIONS ON THE BASIS OF FIGURES FO UND IN THE DIARY. IF THE ADDITION CONFIRMED BY THE TRIBUNAL IN ASST. YEAR 19 98-99 AND 2000-01 ARE TAKEN INTO CONSIDERATION WHERE AN ADDITION OF R S.62 LACS IN ASST. YEAR 1998-99 AND RS.91 38 000/- IN ASST. YEAR 2000- 01 ARE CONFIRMED THEN GP RATE FOR THESE TWO YEARS WOULD INCREASE FRO M 10.47% 23.51% (ON 11 A TURNOVER OF RS.4 75 28 000 LACS AND GP OF RS.4 9.77 LACS + RS.62 LACS TOTALING TO RS.111.77 LACS). IN ASST. YEAR 2000-01 DECLARED SALE WAS RS.438.75 LACS AND GP WAS 53.95 LACS. IF ADDITION O F RS.98.38 LACS IS CONSIDERED THEN TOTAL GP WOULD BE RS.145.33 LACS (5 5.95 + 91.38). THIS WILL GIVE A GP RATE OF 33.12%. WHEREAS IN ASST. YEA R 2002-03 ASSESSEE HAS DECLARED A GP OF 16.91%. THERE IS A CLEAR FALL IN GP THIS YEAR AS COMPARED TO WHAT ASSESSEE HAS ACTUALLY EARNED IN TH E PRECEDING YEARS. CONSIDERING THE TOTALITY OF THE FACTS AND CIRCUMSTA NCES OF THE CASE AND PAST HISTORY OF THE ASSESSEE WE HOLD THAT CONFIRMI NG AN ADDITION EQUIVALENT TO 1% OF THE TOTAL TURNOVER BY THE LD. C IT(A) IS VERY REASONABLE. HOWEVER NO FURTHER DISCOUNT ON AMOUNT OF RS.1 25 000/- WILL BE GIVEN AS NO SUCH ADDITION IS SUSTAINED ON ACCOUN T OF SECRET COMMISSION. THUS WE CONFIRM THE ORDER OF THE LD. CI T(A) IN ESTIMATING THE NET PROFIT SUBJECT TO THE MODIFICATION AS ABOVE . AS A RESULT RELATED GROUND OF THE ASSESSEE IS DISMISSED. APPEAL OF THE ASSESSEE IS ACCORDINGLY PARTLY ALLOWED. 17. IN REVENUES APPEAL GROUND NO.2 RELATES TO PA YMENT OF SECRET COMMISSION. AS HELD BY THE TRIBUNAL THAT SUCH COULD BE TAXED IN ASST. YEAR 2000-01 AND 1998-99 AS PER ENTRIES MADE IN THE DIARY AND NO ADDITION ON ACCOUNT OF SECRET COMMISSION SHOULD BE MADE IN ANY OTHER YEARS. FOLLOWING THE SAME WE DISMISS THIS GROUND OF THE REVENUE. 18. THE THIRD GROUND IS REGARDING ESTIMATION OF NET PROFIT. WE HAVE HELD IN ASSESSEES APPEAL THAT ESTIMATE MADE BY THE LD. CIT(A) IS REASONABLE SUBJECT TO THE MODIFICATION AS MADE THER EIN. AS A RESULT THIS GROUND OF REVENUE IS PARTLY ALLOWED. 12 19. IN THE RESULT APPEAL FILED BY THE REVENUE IS P ARTLY ALLOWED. SD/- SD/- (T.K. SHARMA) (D.C.AGRAWAL) JUDICIAL MEMBER ACCOUNTANT MEMBER AHMEDABAD DATED : 5/02/2010 MAHATA/- COPY OF THE ORDER FORWARDED TO :- 1. THE APPELLANT. 2. THE RESPONDENT. 3. THE CIT(APPEALS)- 4. THE CIT CONCERNS. 5. THE DR ITAT AHMEDABAD 6. GUARD FILE. BY ORDER DEPUTY / ASSTT.REGISTRAR ITAT AHMEDABAD ORDER PRONOUNCED IN OPEN COURT ON 5/02/2010