M/s Rajwadi Papad House,, JAMNAGAR v. The Income Tax Officer, Ward-2(2),, JAMNAGAR

ITA 927/RJT/2009 | 2004-2005
Pronouncement Date: 10-12-2010 | Result: Partly Allowed

Appeal Details

RSA Number 92724914 RSA 2009
Assessee PAN AACFR8261Q
Bench Rajkot
Appeal Number ITA 927/RJT/2009
Duration Of Justice 1 year(s) 4 month(s) 11 day(s)
Appellant M/s Rajwadi Papad House,, JAMNAGAR
Respondent The Income Tax Officer, Ward-2(2),, JAMNAGAR
Appeal Type Income Tax Appeal
Pronouncement Date 10-12-2010
Appeal Filed By Assessee
Order Result Partly Allowed
Bench Allotted DB
Tribunal Order Date 10-12-2010
Assessment Year 2004-2005
Appeal Filed On 29-07-2009
Judgment Text
IN THE INCOME TAX APPELLATE TRIBUNAL RAJKOT BENCH RAJKOT BEFORE SHRI A.L. GEHLOT (AM) AND SHRI D.T. GARASIA (JM) I.T.A. NO. 927/RJT/2009 (ASSESSMENT YEAR 2004-05) M/S RAJWADI PAPAD HOUSE VS THE ITO WD.2(2) RAJWADI CHAMBER JAMNAGAR CHANDI BAZAR JAMNAGAR PAN : AACFR8261Q (APPELLANT) (RESPONDENT) APPELLANT BY : SHRI DS VARIA RESPONDENT BY: SHRI AVINASH KUMAR O R D E R A.L. GEHLOT : THIS IS AN APPEAL FILED BY THE ASSESS EE AND IS DIRECTED AGAINST THE ORDER OF THE CIT(A) JAMNAGAR DATED 26-05-2009 FOR THE ASSESSMENT YEAR 2004- 05. THE FOLLOWING GROUNDS ARE RAISED IN THE APPEAL : 01. THE HON.COMMISSIONER OF INCOME TAX (APPEALS) JAMNAGAR AS WELL A THE LEARNED ASSESSING OFFICER WARD-2(2) JAMNAGAR HAVE ERRED IN LAW AS WELL AS ON FACTS BY M AKING ADDITION OF RS.4 78 205/- IN TOTAL INCOME ON VARIOU S ALLEGED GROUNDS. 02. THE HON.CIT(A) JAMNAGAR AS WELL AS THE LEARNED ASSESSING OFFICER HAVE ERRED IN LAW AS WELL AS ON F ACTS IN TREATING THE UNRECORDED SALES IN THE NAME OF M/S MI LAN ENTERPRISE JAMNAGAR BEING RS.3 00 000/-. AS THE UNDISCLOSED INCOME ON THIS ACCOUNT WAS REFLECTED AS UNDISCLOSED ASSETS IN THE FORM OF EXCESS STOCK FOUN D AT THE TIME OF SURVEY AND THE SAME HAS ALREADY BEEN DISCLO SED AS INCOME OF THE ASSESSEE AS EXCESS STOCK FOUND DURING SURVEY PROCEEDINGS THERE CANNOT BE A SEPARATE ADDITION ON THIS ACCOUNT TO AVOID DOUBLE ADDITION IN TOTAL INCOME. 03. THE HON.CIT(A) JAMNAGAR AS WELL AS THE LEARNED ASSESSING OFFICER HAVE ERRED IN LAW AS WELL AS ON FACTS IN MAKING ADDITION OF RS.54 527/- IN TOTAL INCOME ON A CCOUNT OF ITA NO.927/RJT/2009 2 ALLEGED UNRECORDED CASH WITHDRAWALS BY PARTNERS / T HEIR BROTHERS. 04. THE HON.CIT(A) JAMNAGAR AS WELL AS THE LEARNED ASSESSING OFFICER HAS ERRED IN LAW AS WELL AS ON FA CTS IN DISALLOWING EXPENSES OF RS.11 849/- BEING 20% OF TELEPHONE EXPENSES TOWARDS PERSONAL USE WITHOUT GIV ING ANY OPPORTUNITY OF BEING HEARD. 05. THE HON.CIT(A) JAMNAGAR AS WELL A THE LEARNED ASSESSING OFFICER HAVE ERRED IN LAW AS WELL AS ON FACTS IN DI SALLOWING GIFT EXPENSES OF RS.84 207/- WITHOUT PROPERLY APPRE CIATING THE FACTS OF THE CASE AND WITHOUT GIVING ANY OPPORT UNITY OF BEING HEARD. 06. THE HON.CIT(A) JAMNAGAR AS WELL AS THE LEARNED ASSESSING OFFICER HAVE ERRED IN LAW AS WELL AS ON FACTS IN TR EATING THE BUSINESS INCOME BEING RS.3 01 532/- REFLECTED IN TH E FORM OF EXCESS STOCK OF RAW-MATERIALS AND FINISHED GOODS FO UND AT THE BUSINESS PREMISES OF THE ASSESSEE AND ITS ASSOC IATE CONCERNS DURING THE COURSE OF SURVEY OPERATIONS AS COMING FROM THE CIRCULATING CAPITAL OF THE CONCERN. HENCE IT IS CLEARLY PEGGED AS INCOME UNDER THE HEAD INCOME FROM BUSINES S ATTRACTING THE PROVISIONS REGARDING DEDUCTIONS AND ALLOWANCES AVAILABLE UNDER CHAPTER IVD. HENCE BY N O STRETCH OF IMAGINATION IT CAN BE EXCLUDED FROM THE BUSINESS INCOME DISCLOSED BY THE ASSESSEE WHEN THE AMOUNT O FFERED WAS PROPERLY CREDITED TO THE TRADING ACCOUNT AND REMUNERATION TO PARTNERS WAS COMPUTED ON THE BOOK P ROFIT. THE INCOME CANNOT BE TREATED AS DEEMED INCOME U/S 6 9B OF THE INCOME TAX ACT 1961. INSTEAD OF TREATING IT A S BUSINESS INCOME THE LEARNED ASSESSING OFFICER HAS ERRONEOUS LY TREATED DEEMED INCOME U/S 69B OF THE I.T. ACT 1961 . 3. GROUND NO.1 IS GENERAL AND REQUIRES NO FINDING. 4. GROUNDS NO.2 3 & 6 ARE BASED ON COMMON FACTS. THEREFORE ALL THESE GROUNDS ARE DECIDED TOGETHER. THE BRIEF FACTS ARE THAT A SURVEY ACTION U/S 133A OF THE ACT WAS CARRIED ON AT THE BUSINESS PREMISES OF THE ASSESSEE ON 10-12- 2003. DURING THE COURSE OF SURVEY UNRECORDED SALES OF RS.3 LAKH IN THE NAME OF DUMMY CONCERN MILAN ENTERPRISES WAS NOTED AND THE S AME WAS ADMITTED BY ONE OF THE PARTNERS. UNACCOUNTED STOCK OF RS.3 01 532 WAS ALSO FOUND. THE ITA NO.927/RJT/2009 3 ASSESSEE OFFERED FOR TAX UNACCOUNTED STOCK OF RS.3 01 532. HOWEVER THE SUBMISSION OF THE ASSESSEE THAT THE AMOUNT OF RS.3 LAKHS ON ACCOUNT OF SALE MAY BE SET OFF AGAINST THE ADDITION MADE ON ACCOUNT OF EXCESS STOCK FOUND DURING THE COURSE OF SURVEY. THE ASSESSING OFFICER DID NOT ACCEPT THE ASSESSEES CONTENTION AND MADE THE ADDITION OF RS.3 LAKHS AS S AID INCOME ASSESSABLE UNDER SECTION 69B OF THE ACT. THE CIT(A) ALSO DID NOT AC CEPT THE ASSESSEES CONTENTION OBSERVING THAT THE ADDITION WAS MADE ON ACCOUNT OF EXCESS STOCK WHEREAS THE IMPUGNED ADDITION OF RS.3 LAKHS IS ON ACCOUNT OF UN RECORDED SALES OF DUMMY CONCERN. IT WAS ALSO FOUND DURING THE COURSE OF AS SESSMENT PROCEEDINGS THAT THE AMOUNT OF UNRECORDED SALES IS BEING POCKETED BY THE PARTNER. THE ASSESSEE DID NOT FURNISH ANY EVIDENCE TO SHOW THAT UNRECORDED SA LES OF RS.3 LAKHS HAS BEEN INVESTED IN THE STOCK OF THE FIRM FOUND AT RS.3 01 532 AT THE TIME OF SURVEY. THE CIT(A) HELD THAT THE TELESCOPING OF INCOME OF THE A SSESSEE ON ACCOUNT OF UNRECORDED SALE IN THE NAME OF M/S MILAN ENTERPRISE S AGAINST THE EXCESS STOCK OF RS. 3 01 532 CANNOT BE ALLOWED. 5. FURTHER DURING THE COURSE OF SURVEY OPERATION SOME LOOSE PAPERS WERE FOUND INVENTORISED BY THE SURVEY TEAM AS ANNEXURE B-16. THE FILE PERTAINS TO NOTINGS OF SOME AMOUNTS WITHDRAWN BY PARTNERS ON LO OSE PAPER. THE CONTENTION OF THE ASSESSEE THAT THE AMOUNTS AMOUNTING TO RS.2 30 565 WITHDRAWN ON DIFFERENT DATES BY DIFFERENT PARTNERS OUT OF THE SA LES MADE TO MILAN ENTERPRISES FOR WHICH THE ADDITION OF RS.3 LAKHS HAS ALREADY BEEN O FFERED FOR TAX. ON EXAMINATION OF THE FACTS THE ASSESSING OFFICER NOT ICED THAT THE SALE PROCEEDS OF RS.3 LAKHS IN THE NAME OF MILAN ENTERPRISES FOR THE PERIOD STARTING FROM 28-10- 2003 AND ENDING ON 05-12-2003 DID NOT FALL WITHIN T HE PERIOD STARTING FROM 28-10- 2003 AND ENDING ON 05-12-2003. THE ASSESSING OFFIC ER THEREFORE MADE THE ADDITION OF RS.54 527 FOR UNRECORDED CASH WITHDRAWN BY THE PARTNERS / THEIR BROTHERS. 6. WE HAVE HEARD THE LEARNED REPRESENTATIVES OF THE PARTIES RECORD PERUSED. ISSUES IN THESE GROUNDS OF APPEAL TO BE EXAMINED AR E TWO. THE FIRST ONE IS ITA NO.927/RJT/2009 4 WHETHER EXCESS STOCK FOUND AT THE TIME OF SURVEY IS ASSESSABLE UNDER SECTION 69B OR AS BUSINESS INCOME. SECOND ONE IS BENEFIT O F TELESCOPING OF ADDITION MADE ON ACCOUNT OF ADDITION MADE ON ACCOUNT OF EXCE SS CLOSING STOCK FOUND AT THE TIME OF SURVEY. WE FIND THAT IN PRINCIPLE BOTH ISSUE ARE COVERED BY THE ORDER OF ITAT RAJKOT IN ASSESSEES OWN CASE FOR ASSESSME NT YEAR 2004-05 ITA NO.902/RJT/2009 AS WELL AS IN THE CASE OF M/S RAJWA DI FOOD PRODUCTS IN ITA NO.925/RJT/2009 (COMMON ORDER OF EVEN DATED). FOR THE PURPOSE OF READ REFERENCE THE FINDINGS OF ITAT ARE REPRODUCED BELOW : 16. WE HAVE HEARD LEARNED REPRESENTATIVES OF THE PA RTIES RECORD PERUSED AND GONE THROUGH THE DECISIONS CITED. IN T HESE GROUNDS ISSUES TO BE CONSIDERED ARE THAT WHETHER ADDITION O N ACCOUNT OF UNRECORDED SALE CAN BE SET OFF AGAINST THE ADDITION MADE ON ACCOUNT OF UNDISCLOSED STOCK AT THE TIME OF SURVEY. WHETHER SUCH ADDITION IS ASSESSABLE AS BUSINESS INCOME OR ASSESS ABLE US/ 69B OF THE ACT .AND WHETHER THE CIT (A) HAS RIGHTLY CO NFIRM THE ADDITION OF RS 40883/- ON ACCOUNT OF SOME PETTY CALCULATION IN PHYSICAL STOCK. THE ADMITTED FACTS OF THE CASE ARE THAT SOM E ADDITIONS WERE MADE ON ACCOUNT OF STOCK DECLARED AT THE TIME OF SE ARCH. SOME PAPERS RELATED TO UNACCOUNTED SALES WERE ALSO FOUND . THE ASSESSEES CASE IS THAT ADDITION ON ACCOUNT OF UNAC COUNTED SALES CANNOT BE MADE SEPARATELY AS BY PROCESS OF TRANSACT IONS THE UNACCOUNTED INCOME ACCUMULATED IN STOCK AS NO UNACC OUNTED CASH OR ASSETS WAS FOUND AT THE TIME OF SURVEY. IN OTHE R WORDS THE ASSESSEES CLAIM IS THAT THE AMOUNT OF UNACCOUNTED SALE IS REQUIRED TO BE SET OFF AGAINST THE ADDITION MADE ON ACCOUNT OF STOCK DECLARED AT THE TIME OF SURVEY. IF WE CONSIDER THE FACTS OF THE CASE WE FIND THAT THE ASSESSEE WAS DOING SOME BUSINESS ACTIVITIE S OF WHICH TRANSACTIONS WERE NOT ACCOUNTED FOR IN BOOKS OF ACC OUNT. WHATEVER BE THE UNACCOUNTED INCOME ACCUMULATED STATED TO BE INVESTED IN THE FORM OF STOCK. WHEN ADDITION IS MADE ON ACCOUN T OF STOCK WHICH REPRESENT THE ACCUMULATED UNACCOUNTED INCOME IN PRINCIPLE WE ARE IN AGREEMENT WITH THE ASSESSEE THAT NO SEPAR ATE ADDITION IS WARRANTED IN RESPECT OF UNRECORDED SALES AND INVEST MENT MADE IN THAT SALE IF THE ADDITION ON ACCOUNT OF CLOSING STO CK IS MORE THAN THAT. IN THE CASE UNDER CONSIDERATION WE FIND THAT THE ADDITION ON ACCOUNT OF EXCESS STOCK WAS RS.8 64 845 AND ADDITIO N ON ACCOUNT OF UNRECORDED SALES WAS RS.3 71 725. THUS THIS AM OUNT OF RS.3 71 725 IS REQUIRED TO BE SET OFF AGAINST THE A DDITION MADE ON ACCOUNT OF EXCESS STOCK. WE THEREFORE DO NOT FIN D ANY ERROR IN THE ORDER OF THE CIT(A) IN ACCEPTING THIS CONTENTION OF THE ASSESSEE. HOWEVER WE FIND THAT THE CIT(A) WHILE ALLOWING THE SET OFF HAS ITA NO.927/RJT/2009 5 CONSIDERED RS.2 48 708 WHICH IS NOT CORRECT. THE SET OFF AMOUNT IS REQUIRED TO BE CONSIDERED AT RS.3 71 725 AS THE ASS ESSING OFFICER HIMSELF HAS MADE THIS SEPARATE ADDITION WHILE COMPU TING THE TOTAL INCOME AND NOT RS.2 48 708. THE CIT(A) WITHOUT APP RECIATING THE CONTENTION OF THE ASSESSEE THAT THIS RS.2 48 708 IS REQUIRED TO BE ADDED INSTEAD OF RS. 3 71 725 WHICH HAS NOT BEEN AC CEPTED BY THE AO. THEREFORE FOR THE PURPOSE OF TELESCOPING THE AMOUNT WHICH HAS BEEN ADDED BY THE ASSESSING OFFICER ADDED IN TO TAL INCOME OF THE ASSESSEE IS REQUIRED TO BE CONSIDERED WHICH IS RS.3 71 725. IN THE LIGHT OF ABOVE DISCUSSION WE DELETE THE ADDITIO N OF RS.1 22 292 SUSTAINED BY THE CIT(A). 16.1. AS REGARDS THE ISSUE WHETHER SUCH ADDITION IS ASSESSABLE U/S 69B OF THE ACT OR ASSESSABLE AS BUSINESS INCOME WE FIND THAT THE CIT(A) HAS RELIED UPON THE ORDER OF THE ITAT R AJAKOT BENCH IN THE CASE OF NAVNEET JEWELLERS ITA NO.32/RJT/06-07 D ATED 07-11- 2006 AND THE JUDGMENT OF HONBLE GUJARAT HIGH COURT IN THE CASE OF FAKIR MOHMED HAJI HASAN 247 ITR 290 (GUJ) WHEREAS T HE ASSESSEE RELIED UPON THE DECISION OF SPINWELL ENGIN EERS ITA NO.358/RJT/2007 DATED 28-03-2008 WHEREIN THE ITAT H AS CONSIDERED THE JUDGMENT OF HONBLE GUJARAT HIGH COU RT IN THE CASE OF FAKIR MOHMED HASAN (SUPRA) THE RELEVANT FINDING S OF ITAT IS REPRODUCED BELOW: 6. FROM THE ABOVE STATEMENT OF THE ASSESSEE SURVE Y PARTY FOUND THAT THE EXCESS STOCK OF RS.5 02 305/- BUT WE FIND THAT CIT(A) HAS DELETED TWO ITEMS OF DIAMOND ROLLS VALUED AT RS .1 59 345/- AND RS.1 21 545/- WHICH WAS NOT STOCK ITEMS BUT MACHINE RY INVENTORY OF THE STOCK. BOTH THESE ITEMS WERE APPEARING IN THE REGULAR BOOKS OF ACCOUNT UNDER THE HEAD FIXED ASSETS. THEREFORE IT WAS NOT HELD TO BE ACCOUNTED INCOME OF THE ASSESSEE FIRM. WE FIND THAT THE DEPARTMENT HAS NOT FILED ANY APPEAL. MOREOVER WE ALSO FIND THAT THE AO HAS NOT MADE ANY INQUIRY THAT THE ASSESSEE H AS EARNED THIS INCOME BEING EXCESS STOCK OUT OF UNDISCLOSED SOURCE . WE FIND THAT THE HONBLE GUJARAT HIGH COURT IN THE CASE OF FAKIR MOHMED HAJI HUSSEIN VS CIT 247 ITR 290 WHEREIN THE HONBLE GUJ ARAT HIGH COURT HA TAKEN VIEW ON THE GROUND THAT ASSESSEE WAS INDULGING IN SMUGGLING ACTIVITIES THEREFORE WHEN ASSESSEE IS NO T INDULGING IN ILLEGAL ACTIVITIES NO DEDUCTION CAN BE GRANTED UND ER SECTION 69 TO 69C BECAUSE THIS ALL INCOME DO NOT FALL UNDER ANY H EADS OF THE INCOME. IT IS FOUND THAT THE A.O. HAS RELIED ON TH E JUDGMENT GIVEN BY THE HONBLE GUJARAT HIGH COURT IN THE CASE OF FA KIR MOHMED HAJI HASAN VS. C.I.T. 247 ITR 290. ON APPRECIATION OF THE FACTS OF THE CASE OF FAKIR HAJI HASAN AND THAT OF THE APPELL ANT IT IS FOUND THAT THE FACTS OF TWO CASES ARE DIFFERENT SUBSTANTI ALLY. IN THE CASE OF ITA NO.927/RJT/2009 6 FAKIR MOHMED HAJI HASAN THE HONBLE APPELLATE TRIB UNAL HAS GIVEN A FINDING THAT IT WAS NOT THE ASSESSEES CASE THAT HE HAD DERIVED INCOME FROM ANY BUSINESS OF SMUGGLING AND T HEREFORE IT COULD BE SAID THAT CONFISCATION OF GOLD REPRESENTED A TRADING LOSS IN THE HANDS OF THE ASSESSEE. WHILE IT WAS FOUND IN T HE CASE OF FAKIR MOHMED HAJI HASAN THAT HE WAS NOT CONDUCTING ANY BU SINESS. IN APPELLANTS CASE IT IS FOUND THAT THE APPELLANT WA S CONDUCTING BUSINESS AND THE VALUE OF EXCESS STOCK ARRIVED AT A FTER PREPARING THE INVENTORY OF STOCK FOUND AT THE BUSINESS PREMIS ES OF THE ASSESSEE. THE RATIO OF FAKIR MOHMED HAJI HASAN DOE S NOT APPLY IN THE APPELLANTS CASE. WE RELY ON THE DECISION OF I .T.A.T. RAJKOT BENCH IN THE CASE OF A.C.I.T. S SHRI PRABHUDAS S PA REKH WHEREIN BENCH HAS HELD AS UNDER: SEARCH WAS CONDUCTED AND SOME UNACCOUNTED JEWELLER Y WAS FOUND. THE DEPARTMENT ACCEPTED THE STATEMENTS MADE BY THE ASSESSEE. AFTER CONSIDERING THE FACTS AND CIRCUMSTANCES DISCUSSED ABOVE IN VIEW OF LEGAL POSI TIONS WE ARE OF THE CONSIDERED OPINION THAT THE LEARNED C .I.T.(A) IS PERFECTLY JUSTIFIED IN TREATING THE INCOME OF THE A SSESSEE FROM BUSINESS AND HE HAS CORRECTLY DIRECTED THE A.O. TO RE- COMPUTE THE DEDUCTION UNDER SEC. 80HHC TREATING THE DISCLOSED INCOME AS BUSINESS INCOME. THE SAME TRI BUNAL JUDGMENT WHICH THE DEPARTMENT HAS FILED. HONBLE G UJARAT HIGH-COURT HAS DISMISSED THE APPEAL. IN THE CASE OF THE ASSESSEE ASSESSEE HAS EARNED TH IS INCOME FROM BUSINESS ONLY. THEREFORE THIS JUDGMENT WILL NOT H ELP TO THE DEPARTMENT. WE THEREFORE REVERSE THE FINDING OF THE CIT(A) AND WE ALLOW THE APPEAL OF THE ASSESSEE. 16.2 AFTER CONSIDERING THE FACTS OF THE CASE WE FIN D THAT THE CASE OF THE ASSESSEE IS COVERED BY THE ORDER OF ITAT IN THE CASE OF SPINWELL ENGINEERS (SUPRA). THE ORDER OF ITAT IN TH E CASE OF NAVNEET JEWELLERS (SUPRA) AND THE JUDGMENT OF THE H ONBLE GUJARAT HIGH COURT RELIED UPON BY THE CIT(A) IS DISTINGUISH ABLE ON FACTS AS IN THOSE CASES THERE WERE NO EVIDENCE THAT THE ADDI TION MADE WAS ON ACCOUNT OF BUSINESS ACTIVITIES. WE RESPECTFULLY FOLLOW THE ABOVE ORDER OF ITAT IN THE CASE OF SPINWELL ENGINEERS (SU PRA). AND IN THE LIGHT OF THAT. WE HOLD THAT THE ADDITION MADE ON A CCOUNT OF EXCESS CLOSING STOCK IS ASSESSABLE AS BUSINESS INCOME. TH E ASSESSING OFFICER IS DIRECTED TO RECALCULATE THE TOTAL INCOME ACCORDINGLY. 6.1 SINCE ON IDENTICAL FACTS THE ISSUES HAVE BEEN D ECIDED BY THE ITAT IN ABOVE CASE WE THEREFORE FOLLOWING DISCUSSION AND FINDING IN ABOVE ORDER IN ITA NO.927/RJT/2009 7 PRINCIPLE WE FIND THAT EXCESS STOCK FOUND AT THE T IME OF SURVEY IS ASSESSABLE AS BUSINESS INCOME AND TELESCOPING BENEFIT IS ACCORDIN GLY ALLOWABLE. ON CONSIDERATION OF FACTS OF THE CASE UNDER CONSIDERAT ION WE FIND THAT THE AO MADE ADDITION OF RS.3 00 000 ON ACCOUNT OF SALE IN THE N AME OF MILAN ENTERPRISES AND RS.3 01 532 ON ACCOUNT OF EXCESS STOCK FOUND AT THE TIME OF SURVEY (WE REFER PAGE 20 OF ASSESSMENT ORDER). FURTHER WE FIND THA T THE TOTAL WITHDRAWAL OUT OF BOOKS BY PARTNERS AND RELATIVES AS NOTED BY THE ASS ESSING OFFICER ON PAGE 15 IS RS.2 30 565. HOWEVER THE AO HIMSELF ALLOWED TELES COPING BENEFIT OF RS.1 76 038 AGAINST ADDITION OF RS.3 LAKHS ADDITION MADE ON ACCOUNT OF UNACCOUNTED SALE AND ONLY ADDITION OF RS.54 527 (RS .2 30 565 RS.1 76 038) WAS MADE. THE TELESCOPING BENEFIT TO RS.54 527 WAS NOT ALLOWED AS AMOUNT NOT COVERED BY PERIOD OF UNACCOUNTED SALE FOR WHICH THE ADDITION OF RS.3 LAKHS WAS MADE. CONSIDERING THESE FACTS WE ALSO FOUND THAT A DDITION OF RS.54 527 IS SEPARATELY SUSTAINABLE WE THEREFORE CONFIRM THIS ADDITION OF RS.54 527. HOWEVER WE FIND THAT THE BALANCE AMOUNT OF RS.1 23 962 (RS.3 00 000 RS.1 76 038) IS REQUIRED TO SET OFF AGAINST AMOUNT OF EXCESS STOCK OF RS.3 01 532 OFFERED FOR TAX BY THE ASSESSEE. WE THEREFORE FO UND THAT THE ADDITION TO THE EXTEND OF RS.1 23 962 NOT WARRANTED. THIS ASPECT O F THE MATTER CAN BE EXPLAINED AS UNDER:. ADDITION ON ACCOUNT OF EXCESS STOCK 3 01 532 ADDITION ON ACCOUNT OF SALE 3 00 000 ADDITION WARRANTED ON ACCOUNT OF AMOUNT WITHDRAWN BY PARTNERS OUT OF BOOKS (ALREADY ALLOWED BY THE AO) 1 76 038 ----------------------- 7 77 570 LESS:TELESCOPE BENEFIT OF UNACCOUNTED SALE 3 00 00 0 ----------------------- ADDITION SUSTAINABLE ON ACCOUNT OF EXCESS STOCK AND UNACCOUNTED SALE 4 77 570 ----------------------- IN OTHER WORDS : ADDITION ON ACCOUNT OF STOCK 3 01 532 ADDITION ON ACCOUNT OF SALE 3 00 000 ITA NO.927/RJT/2009 8 ---------------------- 6 01 532 LESS : SET OFF AS PER ABOVE DISCUSSION 1 23 9062 ----------------------- ADDITION SUSTAINABLE ON ACCOUNT OF EXCESS STOCK AND UNACCOUNTED SALE 4 77 570 ----------------------- SEPARATE ADDITION CONFIRMED AS DISCUSSED ABOVE RS.5 4 527. THE ASSESSING OFFICER IS DIRECTED ACCORDINGLY. 7. GROUND NO.4 IS IN RESPECT OF 20% DISALLOWANCE OU T OF TELEPHONE EXPENSES TOWARDS PERSONAL USE OF TELEPHONES. THE ASSESSING OFFICER DISALLOWED 20% EXPENSES OUT OF TOTAL BILL OF RS.55 924 ON ACCOUNT OF PERSONAL USE OF THE TELEPHONES. THE DISALLOWANCES MADE BY THE ASSESSIN G OFFICER HAS BEEN CONFIRMED BY THE CIT(A). 8. AFTER HEARING LEARNED REPRESENTATIVES OF THE PAR TIES WE FIND THAT THE PERSONAL USE OF THE TELEPHONE CANNOT BE RULED OUT. NOW THE QUESTION REMAINED TO BE THE ESTIMATION OF AMOUNT OF DISALLOWANCE. TH E ASSESSING OFFICER AND CIT(A) WAS OF THE VIEW THAT 20% OF TELEPHONE EXPENS ES WERE REASONABLE. THERE IS NO MATERIAL CONTRARY TO THE FINDING OF THE REVEN UE AUTHORITIES. WE THEREFORE CONFIRM THE ORDER OF THE CIT(A) ON THE ISSUE. 9. GROUND NO.5 IS IN RESPECT OF DISALLOWANCE OF GIF T EXPENSES OF RS.84 207. THIS ISSUE HAS BEEN DISCUSSED IN ASSESSEES OWN CAS E FOR ASSESSMENT YEAR 2004-05 IN ITA NO.925/RJT/2009 & ITA NO.902/RJT/2009 ORDER OF EVEN DATED . THE RELEVANT PARAS 8 & 9 ARE REPRODUCED AS UNDER: 8. WITH REGARD TO GROUND NO.3 THE BRIEF FACTS ARE THAT THE ASSESSING OFFICER DISALLOWED RS.2 11 699 OUT OF GIF T EXPENSES ON THE GROUND THAT THE ASSESSEE HAS CLAIMED THIS AMOUN T BY SIMPLY PASSING A JOURNAL ENTRY. THE DISALLOWANCE MADE BY THE ASSESSING OFFICER HAS BEEN CONFIRMED BY CIT(A) BY OBSERVING T HAT THIS WAS NOT A REGULAR BUSINESS LIABILITY WHICH CAN BE ASCERTAIN ED. THE LD.AR SUBMITTED THAT THE ASSESSEE IS FOLLOWING MERCANTILE SYSTEM OF ITA NO.927/RJT/2009 9 ACCOUNTING. ACCORDING TO THE MERCANTILE SYSTEM OF ACCOUNTING ANY LIABILITY IF ASCERTAINABLE AT THE END OF THE FINAN CIAL YEAR HAS TO BE PROVIDED IRRESPECTIVE OF PAYMENT THEREOF IN THE SUB SEQUENT YEAR. THE LD.AR FURTHER SUBMITTED THAT LIABILITY OF SALES PROMOTION SCHEME IN THE FORM OF GIFT SCHEME IS TO BOOST THE SALES CA N BE ASCERTAINED IMMEDIATELY ON COMPLETION OF THE PERIOD OF THE SCHE ME AND COUPONS ARE ISSUED TO THE DEALERS ON ACHIEVING THE TARGETED SALES. THE LD.AR FURTHER SUBMITTED THAT LIABILITY IS IN RE AL NATURE AND CANNOT BE TERMED AS CONTINGENT SIMPLY ON THE GROUND THAT T HE DEALER OUTFLOW WAS ARRANGED IN SUBSEQUENT YEAR. THE ASSES SEE IS FOLLOWING THIS PRACTICE OF MAKING PROVISION OF GIFT SCHEME ON THE BASIS OF COUPONS ISSUES TO THE DEALERS CONSISTENTLY SINCE MANY EARLIER YEARS AS ALSO IN THE SUBSEQUENT YEARS. THE LD.AR FURTHER SUBMITTED THAT THE ASSESSEE FURNISHED ALL THE DOCUM ENTS OF GIFT SCHEME AND STATEMENT OF DISTRIBUTION OF PRIZE ETC. THE LD.DR RELIED UPON THE ORDER OF REVENUE AUTHORITIES. 9. WE HAVE HEARD THE LEARNED REPRESENTATIVES OF BOT H THE PARTIES RECORD PERUSED. WE FIND FORCE IN THE SUBM ISSIONS OF THE LEARNED AR THAT THE PROVISION OF GIFT TO BOOST SALE S IS PERTAINING TO THE YEAR UNDER CONSIDERATION ON THE BASIS OF SALES. IT IS A LIABILITY AND IT CANNOT BE SAID AS A CONTINGENT LIABILITY SIM PLY ON THE GROUND THAT THE ASSESSEE HAS MADE THE PROVISION OF GIFT EX PENSES BY PASSING A JOURNAL ENTRY. THE ASSESSEE IS FOLLOWING THIS SYSTEM CONSISTENTLY. WE THEREFORE FIND THAT ANY REVENUE EXPENDITURE INCURRED FOR THE PURPOSE OF BUSINESS IS ALLOWABLE E XPENDITURE. WE ALLOW THE CLAIM OF THE ASSESSEE AND ADDITION OF RS. 2 11 699 IS DELETED. GROUND NO.3 IS ALLOWED. IN THE LIGHT OF THE DETAILED DISCUSSION MADE IN THE SAID ORDER THE ADDITION OF RS.84 207 IS ALLOWED. 10. IN RESULT APPEAL OF ASSESSEE IS PARTLY ALLOWED . ORDER PRONOUNCED IN THE OPEN COURT ON 10-12-2010 SD/- SD/- (D.T. GARASIA) (A.L. GEHLOT) JUDICIAL MEMBER ACCOUNTANT MEMBER RAJKOT DT : 10 TH DECEMBER 2010 PK/- ITA NO.927/RJT/2009 10 COPY TO: 1. THE APPELLANT 2. THE RESPONDENT 3. THE CIT(A) JAMNAGAR 4. THE CIT JAMNAGAR 5. THE DR (TRUE COPY) BY ORDER ASSTT.REGISTRAR ITAT RAJKOT