RATTAN TRADING CO Vs. INSPECTING ASSISTANT COMMISSIONER OF INCOME TAX ASSESSMENT
LAWS(IT)-1989-1-13
INCOME TAX APPELLATE TRIBUNAL
Decided on January 25,1989

Appellant
VERSUS
Respondents

JUDGEMENT

P.J. Goradia, Accountant Member - (1.)THIS appeal is directed against the order dated January 31, 1986, passed by the Commissioner of Income-tax Delhi-X, New Delhi (Shri A.N. Gupta), and the ground raised is against legality of the order under Section 263 of the Income-tax Act, 1961.
(2.)In this case while completing the assessment, the Assessing Officer made the following observations :
" Books of account were produced which have been examined on test check basis. Sales and purchases have been found fully vouched and so are the expenses debited to the profit and loss account. As in the past, the firm derives income from sale of pencils, ball pens and refills of 'Geeflo' mark manufactured by Lions Pencils (P.) Ltd., Bombay. Stock inventory has been filed. On total sales of Rs. 88,66,011 gross profit has been shown at Rs. 9,48,460 giving gross profit rate of 10.69 per cent, as against corresponding figures of Rs. 64,82,283, Rs. 6,39,971 and 9.87% respectively in the immediately preceding assessment year.

According to the original agreement with the principal -- Lion Pencils (P.) Ltd., Bombay, filed during the course of assessment proceedings for the assessment year 1981-82, the expenses on advertisement and publicity were reimbursable to the assessee by the principal. Now during the account year relevant to the assessment year 1983-84, the clause of reimbursable of said (sic) has been withdrawn by the principal, vide copy of their letter dated July 4, 1980, filed by the assessee. The assessee has charged expenses of Rs. 70,122.60 to the profit and loss account on account of advertisement and publicity which have been found to be properly vouched. In view of the assessee's contention that by incurring the above expenses the sales have increased and gross profit has also been increased over the last year by about 1 per cent., the expenses on advertisement will be allowed. Necessary details of expenses have been placed on records."

On September 11, 1985, the Commissioner of Income-tax issued a show-cause notice on the following basis stated in the notice :

"On a scrutiny of your assessment record for the assessment year 1983-84, it has been found that, during the accounting period relevant to the assessment year 1983-84, you have sold 57 1/2 cases of the so called damaged goods for a consideration of Rs. 67,620 at the rate of Rs. 1,176 per case whereas the cost of these goods was Rs. 2,13,037 at the rate of Rs. 3,705 per case and the market value of these goods was Rs. 2,56,593 at the rate of Rs. 4,462.50 per case and you have thus suppressed your income by an amount of Rs. 1,88,973.

Since you had not filed evidence for your claim of goods being damaged, your claim of goods being damaged had not been examined by the Income-tax Officer properly at the time of assessment."

(3.)THE assessee submitted that :
(i) THE assessee had produced all the books of account, vouchers, etc., and the same were verified.

(ii) In the assessment, details were submitted as were asked for from time to time.

(iii) Stock inventory was duly verified by the Assessing Officer and the point of damaged/defective goods was duly examined during the proceedings.

(iv) THE ball point refills become defective for various reasons and dry up and sometimes get damaged in transit.

(v) Doubt regarding defective and damaged refills was also raised during assessment proceedings for the assessment year 1984-85 and certain addition was made by the Assessing Officer but the same was deleted by the Commissioner of Income-tax (Appeals), vide appellate order dated April 11, 1985. A copy of the order was enclosed.

(vi) THE defective goods during the year were sold to recover maximum price and the same were reflected in the sales.



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