ORDER
B. S. SALUJA, J. M. :
The assessee is in appeal against the order of CIT(A) XV, New Delhi dt. 18th Dec., 1989 on various grounds.
2. Ground Nos. 1 and 2 urged by the assessee relate to addition of Rs. 95,000 in the trading account.
2.1 The brief facts relating to this issue are that the assessee filed the return on 29th Nov., 1985 declaring income of Rs. 59,600. The assessee filed a revised return on 16th Dec., 1987 wherein the income was declared at Rs. 10,390 as the assessee had also claimed deduction under ss. 80HH and 80-I. The AO issued notices under s. 143(2) and 142(1). During the course of assessment proceedings he observed that the assessee company had carried out the activities of manufacture and sale of aerosoles valves and spray devices used in various types of perfumes and insecticides. He further observed that the assessee-company had also carried on with the job work relating to filling of spray devices and valve fittings on bottles and cans of different sizes. He further observed that during the year the assessee had declared sales of Rs. 50,15,728 and job work receipts at Rs. 42,90,845 the total whereof came to Rs. 93,06,573. He further noted that gross profit (g. p.) on the sales and job work receipts had been shown at 11.8% as against g. p. rate of 17.3% in the preceding year. He, therefore, asked the assessee to explain the fall in the g. p. rate. The assessee stated in reply that the fall in g. p. rate was due to increase in turnover and job work as compared to last year and that in order to boost up the sales up to the level shown in the year, the assessee had to lose the g. p. margin to some extent to exist in the market. The AO held that the reasons given were too general in nature and the assessee has not pointed out any specific instance in support of claim that the goods have been sold at lesser prices or that the raw-material consumed had cost more. With a view to check the manufacturing and trading results, the AO asked the assessee to file monthly purchases of raw-materials, monthly consumption thereof in respect of each item and monthly production coming out there from. The assessee, however, failed to furnish these specific details, as observed by the AO. The AO, therefore, held that the trading results were not found verifiable and acceptable and that the fall in g. p. rate of about 5.5% was quite abnormal. He further observed that it appeared that the assessee had also not maintained day-to-day consumption of raw-material and production records. He also observed that the assessee had shown a combined trading account for sales and job work. He, therefore, proceeded to apply the provisions of s. 145(1), proviso. He estimated the sales at Rs. 95 lakhs as against Rs. 93,06,573 and enhanced the g. p. rate by 3% and made an addition of Rs. 2,85,000 to the gross profits declared.
2.2 On appeal before the CIT(A) the learned counsel for the assessee filed written submissions on 8th Nov., 1989, wherein it was stated that the assessee had maintained full and complete records like cash book, ledger, manufacturing records etc. It was also stated that the assessees activities were subject to levy of excise duty for which prescribed register had been duly maintained. It was further stated that the AO had not pointed out any specific discrepancy in the accounts maintained by the assessee. The learned counsel also submitted that the reasons given by the AO were not sufficient for applying the provisions of s. 145(1), proviso. It was further stated that the said method of accounting had been consistently adopted by the assessee since inception and that mere non-filing of monthly production consumption and production figures would not be sufficient to reject the books of account and make the trading addition as was done by the AO. It was further stated that because of higher proportion of job receipts in the earlier assessment year the g. p. rate was higher in that year. It was also stated that the proportion of job receipts has declined from almost 95% to 50% in the year under consideration. It was also mentioned that the higher cost of raw-materials was responsible for the fall in g. p. rate. The learned counsel also filed certain figures to state that if the prices of raw-material had remained constant, the gross profits would have arisen by Rs. 4,39,375 which would mean an increase of g. p. rate by 5%. The CIT(A), after considering the submissions, observed that the declared trading results could not have been accepted by the AO as the assessee did not furnish the requisite details as desired by the AO. He further observed that the entire fall in the g. p. rate had not been properly explained by the assessee either before him or before the AO. He, therefore, held that there was justification for making a trading addition though the addition made by the AO was very high. The CIT(A), therefore, held that it would be sufficient to make a trading addition of Rs. 95,000 which would mean an increase of 1% in the g. p. rate as against the increase of 3% made by the AO.
2.3 The learned counsel for the assessee Shri H. G. Malik invited our attention to the written explanation filed before the CIT(A). A copy of the said explanation is placed at pages 1 to 7 of the paper book. He submitted that all the purchases and sales were vouched; that quantitative particulars were maintained; that the method of accounting was not found to be irregular; that the auditors had given the details; that the prices of raw materials had increased without corresponding increase in the sale price; that stock register was also maintained on day-to-day basis and that the excise records were also kept. He, therefore, submitted that the addition of Rs. 95,000 as sustained by the learned CIT(A) was merely a guess work and ought to be deleted.
2.4 The learned Departmental Representative Shri S. C. Gupta relied on the orders of the tax authorities and submitted that the assessee had not furnished any proof for sales at low prices and that he had failed to produce the basic date as required by the AO. He further submitted that the job work account and the trading account were not separate and had been mixed up by the assessee. He further submitted that the assessee had not maintained day-to-day production records and he did not produce any vouchers. He, therefore, argued that the addition as sustained by the learned CIT(A) ought to be upheld. He also relied on the following decisions :
(1) Badri Shah Sohan Lal vs. CIT (1936) 4 ITR 387 (Lah)
(2) Punjab Trading Co. Ltd. vs. CIT (1964) 53 ITR 335 (Punj)
(3) Chhabildas Tribhuvandas Shah & Ors. vs. CIT (1966) 59 ITR 733 (SC)
(4) Steels Worth Ltd. vs. CIT (1968) 69 ITR 366 (Assam); and
(5) Kishin Chand Challaram vs. CIT (1978) 114 ITR 671 (Bom)
3. We have carefully considered the rival submissions and have also perused the relevant record to which our attention was invited during the course of hearing. We have also seen the case law relied upon by the learned Departmental Representative. It is observed that the assessee has maintained full and complete records like cash book, ledger, manufacturing records. In this connection we have also perused From No. 3-CD attached to auditors report under s. 44AB of the IT Act, as furnished by the learned counsel. In addition, the assessee is subject to levy of excise duty for which he has maintained the prescribed registers. It is also observed that the AO had not pointed out any specific discrepancy in the accounts maintained by the assessee. The CIT(A) has also sustained the addition of Rs. 95,000 by making general comments for non-furnishing of certain information as desired by the AO and has not pointed out any specific defects in the books of account of the assessee. We feel that the case law relied upon by the learned Departmental Representative is distinguishable on facts and that on the facts and in the circumstances of the present case, when the books of account of the assessee are also supported by the Excise records, the addition of Rs. 95,000 as sustained by the CIT(A) is not correct. We, therefore, delete the said addition.
4. Ground No. 3 relating to addition of Rs. 2,000 out of staff welfare and miscellaneous expenses has not been pressed by the learned counsel. This ground is, therefore, rejected.
5. Ground No. 4 urged by the assessee relates to disallowance of Rs. 15,000 as sustained by the CIT(A) under the head advertisement and publicity.
5.1 The AO had disallowed Rs. 15,000 out of Rs. 60,057 shown by the assessee under the head advertisement and publicity. The AO observed that the assessee had not filed any details relating to the said expenses.
5.2 On appeal, the CIT(A) observed that he had seen the details of the said expenses and he found that there were many items of expenses claimed in respect of gifts purchased like Rs. 10,000, Rs. 6,412, Rs. 6,179, etc., and that no details in respect of the said gift items had been given. He, therefore, upheld the disallowance of Rs. 15,000.
5.3 The learned counsel submitted before us that the amount of Rs. 15,000 as pointed out by the learned CIT(A) related to 50 pieces of gift packs which were distributed on the occasion of Diwali. Similarly the amount of Rs. 6,412 and Rs. 6,179, as pointed out by the learned CIT(A), related to table calendars and diary costing between Rs. 15 to Rs. 20. The said items were given to the customers and were in the course of business of the assessee. In this connection he invited our attention to pages 9, 9-A, 9-C and 9-D of the paper book, where bills in respect of the said items are placed. In view of the foregoing, he urged that the disallowance of Rs. 15,000 ought to be deleted.
5.4 The learned Departmental Representative referred to page 6 of the order of the learned CIT(A) and submitted that the disallowance was on estimate basis.
5.5 We have carefully considered the submissions made by both the parties on this issue and have also perused the relevant record to which our attention was invited during the course of hearing. It is observed from the details filed by the learned counsel at pages 9 to 9-D that the bills related to calendars and diary costing between Rs. 15 to Rs. 35. The learned counsel has also stated that the gifts were distributed on the occasion of Diwali which is customary. In the circumstances we feel that no disallowance is called for under this head. Accordingly the addition of Rs. 15,000 made on this account is deleted.
6. Ground No. 5 urged by the assessee relates to disallowance of Rs. 5,592 relatable to expenditure for which liability arose in the accounting year.
6.1 The AO made an addition of Rs. 5,592 on account of expenses of earlier years which were claimed in this year. He had done so on the basis of audit report.
6.2 On appeal the learned counsel for the assessee stated that the bills in respect of the said expenses were received in the year under consideration and, therefore, the claim could have been made only in this year. The CIT(A) held that the explanation of the learned counsel was not sufficient to delete the addition. He, therefore, upheld the action of the AO.
6.3 The learned counsel invited our attention to the details of the expenses of the previous year 1984-85 debited to the profit and loss account of the relevant previous year which are placed at page 10 of the paper book. The said expenses relate to electricity bills, telex charges, typewriter rent and telephone charges, the total being Rs. 5,592.66. The various bills in respect of the said expenses are placed at pages 10-A to 10-K. He submitted that all the bills have been raised in the previous year relevant to the asst. yr. 1986-87, which is under consideration. He, therefore, submitted that the said expenses ought to be allowed.
6.4 The learned Departmental Representative relied on the orders of the tax authorities.
6.5 We have carefully considered the rival submissions and have also perused the relevant bills which are at pages 10-A to 10-K of the paper book. It is clear from the said bills that they have been raised in the year under consideration and that the assessee had to make the payments during this year. On the facts and in the circumstances of the case we feel that these expenses are allowable in this year. Accordingly we delete the addition of Rs. 5,592.
7. In the result, the appeal is allowed in part.
