- (1.) By way of this appeal, the assessee has challenged the judgment and order of the Tribunal whereby the Tribunal has dismissed the appeal of the assessee and partly allowed the appeal of the department.
(2.) The brief facts of the case are that return of income was filed by the assessee firm on 27 th October, 1997 declaring taxable income of Rs.25,020/- for the A.Y.1997-98. The case was selected for scrutiny u/s 143(3) and notice u/s 143(2) was issued to the assessee. In response, Shri N.K. Baid, AR attended alongwith Shri Satya Narain Jain, Accountant from time to time and furnished all the required particulars of income of the assessee firm and the case was discussed with them. The assessee is doing business of precious and sem-precious stones by way of local sales and exports. During this year the assessee had shown gross profit of Rs.24,27,605/- on the consolidated turnover (consisting of export turnover of Rs.8,43,273/- and local turnover of Rs.48,02,320/-) of Rs.56,45,693/- giving GP of 43%. Besides such trading the assessee firm had also sold three consignments of imported rough as in the same form and prepared three different trading account in respect of such turnover lot wise. In the first lot gross profit of Rs.6,70,385/- was shown on the sales of Rs.48,62,892/- giving GP of 13.75%. In the second lot, the gross profit of Rs.62,219/- was shown on the turnover of Rs.5,28,000/- giving GP rate of 11.78% and the third lot gross profit of Rs.12,451/- was shown on the sales of Rs.3,50,000/- giving GP rate of 3.5%. On perusal of the P&L account it is seen that on the GP of 31,72,660/- net profit shown was Rs.57,162/-(However, after claiming depreciation as per I.T. Rules) and adding back the personal expenses, the net profit was worked out at Rs.25,020/-. Apparently this was very dismal performance keeping in view the magnitude of the business activities carried out by the assessee and also the capital employed by the partners in the firm. Accordingly the trading and P&L account were examined critically which revealed following peculiar facts: (1) As per balance sheet of the firm, the assessee had net capital balance of Rs 1,65,36,885/- in the name of its two partners (after adjusting debit balance of Rs.11,53,443/- shown in the name of Shri Devender Kumar Badar). As against such capital balances, they had shown closing stocks of Rs. 1,90,48,407/-. The trade creditors were more by 10 lacs approximately as compared to trade debtors. Thus on face of the facts, there appeared no need for the assessee firm for obtaining unsecured loans of Rs 5,30,89,641/-. (2) The assessee had shown opening stocks of Rs 1,55,85,330/- and closing stocks of Rs 1,90,48,407/-. Against such huge stocks, the assessee could show total turnover (including export turnover of Rs 8,43,273/-) at Rs 56,45,593/-. Apparently the turnover as shown was rather negligible. In normal course and as per business parlance, normally turnover should be 4-5 times of such stocks, and only then the assessee could rotate its capital funds for the benefit of the firm. The lot wise turnover of rough stones not taken into account as these were sold in the same form after a short intrval. 6) In the P&L account the gross profit shown for Rs 31,72,660/- wherein the following expenses/allowances were claimed:- Interest Rs 14,06,660/- Dalali Rs 5,03,450/- Postage Rs 2,03,248/- write off Rs 2,39,878/- Salary Rs 1,74,506/- Depreciation Rs 1,49,029/-
(3.) This Court while admitting the matter on 31.01.2006 framed the following substantial questions of law: "1. Whether on the facts and in the circumstances of the case the ld. Income Tax Appellate Tribunal was right in law in sustaining trading addition of Rs.1,41,000/- when the trading results are much better in comparison to the past, and in comparison to other traders and having been accepted all along even by the ld. Income Tax Appellate Tribunal in past several years? 2. Whether on the facts and in the circumstances of the case the ld. Income Tax Appellate Tribunal was right in law in setting aside the issue on disallowance of interest at Rs.9,37,773/- when it was satisfied that loans raised were for business purposes, particularly when on parity of reasons the brokerage paid on the same funds were held allowable as business outgoing, the findings are perverse? 3. Whether on the facts and in the circumstances of the case the ld. Income Tax Appellate Tribunal was right in law in sustaining double disallowance out of depreciation on same cars at Rs.17,500/- +31,196/- totaling Rs.48,696/-?";