2005 (5) TMI 582 - AT - Income Tax

Summary

Issues Involved:
1. Deletion of addition made under section 69 of the Income-tax Act, 1961.
2. Confirmation of addition on account of Gross Profit.
3. Disallowance of travel expenses claimed as business expenditure.
4. Disallowance of staff welfare expenses.

Issue-wise Detailed Analysis:

1. Deletion of Addition under Section 69:
The primary issue in the Revenue's appeal was the deletion of an addition of Rs. 13,26,614 made by the Assessing Officer (AO) under section 69 of the Income-tax Act, 1961. The AO observed a discrepancy between the book stock and the stock statements submitted to the bank, inferring that the excess stock represented unexplained investment. The CIT(A) sided with the assessee, noting that the excess stock found during the survey was already declared as income, and further addition was unwarranted. The Tribunal, however, found that the CIT(A) misdirected himself and upheld the AO's addition to the extent of Rs. 26,21,865, subject to reduction for stock of sister concerns as at 30-6-2000. The Tribunal emphasized that the issue was factual and the burden of proof lay on the assessee to substantiate the claims of inflated stock statements submitted to the bank.

2. Confirmation of Addition on Account of Gross Profit:
The AO made an addition of Rs. 1,49,888 due to a sharp decline in the Gross Profit (GP) rate in the post-survey period. The CIT(A) upheld this addition. The Tribunal found that the AO's order was reasoned and the assessee failed to provide evidence to contradict the AO's findings. The Tribunal observed that the division of trading account into pre-and-post survey periods was valid and upheld the CIT(A)'s order, confirming the addition.

3. Disallowance of Travel Expenses:
The AO disallowed travel expenses of Rs. 12,250 due to lack of evidence, and the CIT(A) concurred. The assessee argued that it was impractical to obtain vouchers for certain expenses incurred during business travel. The Tribunal found merit in the assessee's contention, noting that the expenditure was nominal and likely incurred for business purposes. The Tribunal reversed the orders of the authorities below and allowed the travel expenses.

4. Disallowance of Staff Welfare Expenses:
The AO disallowed staff welfare expenses of Rs. 9,500 due to lack of evidence, and the CIT(A) upheld this disallowance. The assessee explained that the expenses were related to hospital treatment for an employee who had an accident while on business. The Tribunal found the explanation plausible and noted that the AO should have sought circumstantial evidence if in doubt. The Tribunal upheld the assessee's claim and deleted the addition.

Conclusion:
The Tribunal partly allowed both the Revenue's appeal and the assessee's cross-objection. The addition under section 69 was upheld subject to certain reductions, the GP addition was confirmed, while the disallowances for travel and staff welfare expenses were reversed.