ORDER
B. M. MEHTA, A. M.
Both the parties in appeal being aggrieved with the order passed by the CIT(A) on various grounds. The assessed has further filed a cross-objection which is partly in support of the order passed by the CIT(A) vis-a-vis the relief allowed and partly in respect of the relief not allowed. The subsequent discussion disposes of the appeals as also the cross-objection.
2. The assessed in this case is a registered firm dealing in the purchase and sale of sarees. In the course of the assessment proceedings the ITO noted that a sum of Rs. 31,652 has been paid as commission to Shri Subodh Kumar, son of one of the partners, namely, Shri Chander Sain Jain., who had 50 per cent share in the firm. The claim was rejected on the ground that in the previous year no such amount had been paid to anybody and further the said Shri Subodh Kumar had been paid a salary of Rs. 1,000 per month in the preceding assessment year for the same work. The ITO further noted that Shri Subodh Kumar was a partner in a firm at Delhi looking after its business affairs and it was difficult for him to look after the affairs of the present firm as well. It was further observed in the assessment order that the 'excess amount' had been allowed to Shri Subodh Kumar merely because he was the son of the partner.
3. On further appeal before the CIT(A) the assesseds counsel advanced detailed arguments and these can be summarised as under :
(1) That Shri Chander Sain Jain, the father of Shri Subodh Kumar, was around 67 years and not able to exert much;
(2) Shri Subodh Kumar was the wholetime employee of the assessed-firm only for the purposes of dealing with the sales at the shop and since the father had grown old it was decided that Shri Subodh Kumar would make purchases of sarees from places outside Dehradun and also travel extensively for the said purpose;
(3) That in the immediately preceding assessment year the tour expenses of Shri Subodh Kumar were to the extent of Rs. 6,750 whereas in the year under appeal the expenditure was to the tune of Rs. 27,807 on business tours;
(4) that although Shri Subodh Kumar was a partner in a firm at Delhi, the business of the said firm was supervised by his brother and Shri Subodh Kumar resided mostly at Dehradun with his family, looking after the business of the assessed-firm; and
(5) That because of Shri Subodh Kumars 'energetic approach and initiative' the sales had increased from Rs. 22.68 lakhs in the preceding assessment year to Rs. 31.65 lakhs in the assessment, year under consideration.
4. On the basis of the aforesaid submission it was urged that the claim being valid be allowed.
5. The aforesaid submissions found favor with the CIT(A), who related them to the material available on record and these primarily being the bills and vouchers pertaining to the traveling expenses of Shri Subodh Kumar. A reference was also made to the statement of Shri Subodh Kumar recorded on 2nd Jan., 1987 wherein he had admitted that he was involved in the purchase of sarees for the assessed-firm. The statement was also referred to by the CIT(A) for the finding that the amount of commission had been left with the assessed-firm to be withdrawn on convenient dates ad Shri Subodh Kumar wanted to construct house for himself. In the final analysis the CIT(A) held that Shri Subodh Kumar had been actively involved in the assesseds business and there had been enormous expansion vis-a-vis the sales. He accordingly deleted the addition.
6. We have heard both the parties at some length in respect of the specific ground raised in the Revenues appeal and have also perused the material on record to which our attention was invited. The Learned Departmental Representative supported the order passed by the ITO whereas the learned counsel supported the action of the CIT(A) in deleting the addition. In our opinion, the decision taken by the CIT(A) to allow relief to the assessed is justified on the facts and circumstances of the case and in the absence of any material in rebuttal being brought on record to enable a contrary view to be taken. The various findings of fact recorded by the CIT(A) have not been challenged. The first ground in the Revenues appeal stands rejected.
7. The second ground in the appeal pertains to the disallowance of a sum of Rs. 39,000 out of the total payment of salary amounting to Rs. 94,275. In comparison to this, the claim made in the preceding assessment year was Rs. 60,118. The ITO found the assesseds claim to be on the higher side compared to the salary bills of two other firm. Before the CIT(A) it was contended that the facts of the two firms were not made available to the assessed. It was further stated that the assessed has shop on two floors and it had to employ various persons for attending to the customers on both the floors. A reference was also made to the substantial increase in sales which necessitated the employment of more persons as compared with the preceding assessment year. The assessed also furnished before the CIT(A) complete details under the head 'salary paid' and also referred to the statements on oath recorded in respect of certain employees and wherein they had categorically admitted that they had received the amount mentioned in books of account. It was further pointed out that the salary paid was commensurate with the amount paid in the preceding assessment year.
8. The CIT(A) accepted the aforesaid arguments with specific reference to the factor that the sales had increased by nearly Rs. 9 lakhs and the assessed had to employ more persons to take care of the sales. He also recorded a finding to the fact that the amount claimed was neither unreasonable nor excessive especially when various employees had confirmed having received the quantum of salary stated in the books of accounts. He, in the ultimate analysis, deleted the addition.
9. After hearing both the parties and perusing the material on record, we find no good ground to interfere with the decision taken by the CIT(A) on the facts of the case and these having not been challenged before us. The second ground of appeal also stands rejected.
10. We now take up for consideration the common ground raised before us by both the parties in respect of the trading addition made by the ITO. The assessed had disclosed a G. P. rate of 14.51% on sales of Rs. 31,65,170. The ITO taking note of the fact that the valuation of closing stock based on estimate and average price and further no piecewise valuation of stock had been done proceeded to reject the book results. He estimated the turnover at Rs. 33 lakhs and applying a G. P. rate of 16% made an addition of Rs. 68,725. For applying the aforesaid rate the ITO derived supported from the G. P. disclosed by two other firms. The ITO further observed that the assessed was dealing in sarees where the profit margin was higher.
11. On further appeal the CIT(A) the assessed referred to the past history of the case contending in the process that no addition had been made although in some of the assessment years the G. P. rate disclosed was lower. It was further stated that the facts pertaining to the two firms on which the ITO had placed reliance were not confronted to the assessed. It was accordingly urged that the addition be deleted.
12. The CIT(A) considered the aforesaid submissions and held that the cases of the two firms referred to by the ITO were not comparable case and only the past records of the assessed were to be the relevant factor to decide the reasonableness of the G. P. disclosed. He, however, took note of the two 'defects' pointed out by the ITO vis-a-vis the valuation of the closing stock as also the quantitative tally. In the final analysis, he estimated the sales at Rs. 32 lakhs and applied a G. P. rate of 15% resulting in a relief of Rs. 48,000 to the assessed.
13. The learned Department Representative vehemently supported the order of the ITO and took us through the various observations recorded by the ITO in making the impugned addition. The 'defects' were highlighted with the further submission that the order of the ITO be restored.
14. The learned counsel for the assessed, on the other hand, urged that the results disclosed be accepted due to the following reasons :
(i) There was an increase in the G. P. rate as compared to the immediately preceding assessment year and the earlier rate having accepted by the ITO;
(ii) No addition had been made to the trading results either in the preceding assessment years beginning 1982-83 to 1987-88 and for the subsequent assessment years beginning 1989-90 and ending with asst. yr. 1992-93;
(iii) That the so-called 'defects' pointed out by the ITO and the method adopted by the assessed in maintaining its accounts was not new and these existed in the preceding and succeeding assessment years as well; and
(iv) That the ITO while processing the assessment of M/s. Bhawana Textiles of Dehradun for the asst. yr. 1988-89 had approved the G. P. rate of 14.51% shown by the present assessed.
15. On the basis of the aforesaid submission the learned counsel argued that there was no basis to sustain any addition any addition whatsoever in the assesseds case. Reliance was placed on the following reported decision of the Tribunal :
(i) Ladakchand Jivraj & Sons vs. ITO (1989) 35 TTJ (Ahd) 512;
(ii) Keshrichand & Pushraj vs. ITO (1989) 35 TTJ (Ctk) 569 ; and
(iii) ITO vs. Oswal Emporium (1989) 35 TTJ (Del) 225 : (1989) 30 ITD 241 (Del)
In reply, the learned Departmental Representative stated that the observation in the case of another assessed could not tantamount to the approval of the G. P. rate disclosed by the assessed and especially when in the assesseds own assessment the ITO had made and addition.
16. We have examined the rival submissions and have also perused the material on record to which our attention was invited. The decisions cited at the bar have also been duly considered. On the facts of the case, we are of the view that no addition whatsoever is required to be sustained. The past history of the case shows that the trading results had been accepted all along in the past as also in the subsequent assessment years sometimes in 143(1) assessment and yet again in 143(3) assessments. For the asst. yrs. 1983-84 to 1984-85 the ITO accepted lower G. P. rates in assessments framed under S. 143(3). Then again the alleged defects pointed out by the ITO referred to the valuation of the closing stock and if that was so then the right course of action would have been to make an addition in the closing stock and allow benefit of the same in the subsequent assessment year as opening stock rather than reject the trading results. The statement made by the learned counsel to the affect that a similar system of maintaining accounts had been followed all along in the past has not been challenged by the Revenue before us. It is also not disputed that in the year under appeal the sales had gone up as compared to the preceding assessment year and the G. P. rate shown is also higher. In other words the assessed has been showing the G. P. rate which it has earned and this is likely to vary from year to year and cannot be a static figure. As rightly observed by the CIT(A) the 'comparable cases' are in fact not comparable and this factual finding have not been challenged before us on the part of the Revenue. In the final analysis, we accept the trading results of the assessed and delete the addition sustained by the CIT(A).
17. As a result of the discussion in the preceding paras the appeals of the Revenue as also the assessed stand disposed of. The cross-objection becomes infructuous in view of the disposal of the aforesaid grounds and does not call for any separate adjudication on our part.
18. In the result, the Revenues appeal and the cross-objection stand dismissed whereas the assesseds appeal is allowed.