2013 (4) TMI 724 - AT - Income Tax

Rejection of book results - estimating income from iron and steel business and textile business by applying higher GP rate of 10% and 20% respectively - Held that - It is observed that while applying GP rate of 10% in respect of business of dealing in iron and steel, the reliance was placed by the A.O. on the comparative GP rates shown in the range of 5 to 10%. However, as admitted by the A.O. in the remand report forwarded to the ld. CIT(A), there were no specific comparable cases available on record to show such GP rates and the range of 5 to 10% was stated to be gathered by him from the information collected from the market. Having regard to all these facts of the case, we are of the view that it would be fair and reasonable to adopt a GP rate of 5% in respect of business of the assessee of trading in iron and steel products. We therefore modify the impugned order of the ld. CIT(A) on this issue and direct the A.O. to recompute the income of the assessee by applying GP rate of 15 & 5 % in respect of textile business and iron and steel business respectively. - Decided partly in favour of assessee. Disallowance of godown rent - Held that - As no evidence whatsoever has been filed by the assessee to show that any godown was actually used for the purpose of the business or any rent for godown was actually paid. We therefore find no justifiable reason to interfere with the impugned order of the ld. CIT(A) confirming the disallowance made by the A.O. on account of godown rent - Decided against assessee. Disallowance of telephone expenses, staff welfare expenses and motor car expenses including depreciation - Held that - Assessee has not raised any material contention on this issue except stating that the disallowance of 20% of the total expenses made by the A.O. and confirmed by the ld. CIT(A) is on the higher side and the same may be restricted at certain reasonable level. It is, however, observed that a similar disallowance of 20% was made by the A.O. out of conveyance, traveling and telephone expenses claimed by the assessee in the immediately preceding year i.e. 2006-07 for personal and unverifiable element involved therein and nothing has been brought on record before us to show that the same was challenged by the assessee. We therefore find no justifiable reason to hold that the similar disallowance of 20% made for the year under consideration is excessive or unreasonable and upholding the impugned order of the ld. CIT(A) confirming the said disallowance - Decided against assessee.

Summary

Issues Involved:
1. Rejection of book results and estimation of income by applying higher GP rates.
2. Disallowance of godown rent.
3. Disallowance of telephone expenses, staff welfare expenses, and motor car expenses including depreciation.
4. Levy of interest under sections 234A, 234B, and 234C of the Income Tax Act.

Detailed Analysis:

1. Rejection of Book Results and Estimation of Income by Applying Higher GP Rates:
The assessee, engaged in the business of dealing in iron and steel products and textile products, filed a return declaring a total income of Rs. 1,91,917/-. A survey under section 133-A of the Income Tax Act revealed that the assessee was a trader who did not maintain any stock. The Assessing Officer (A.O.) found the gross profit (GP) rate to be very low at about 1% on a turnover of Rs. 20.56 crores. Notices issued under section 133(6) to verify purchases and sales returned undelivered, and the confirmations provided by the assessee were found unreliable. Consequently, the A.O. rejected the books of account and estimated the income by applying GP rates of 10% for iron and steel and 20% for textile products.

The Commissioner of Income Tax (Appeals) [CIT(A)] upheld the A.O.'s decision, noting that the confirmations were unreliable and that the assessee failed to produce the relevant parties for cross-verification. The CIT(A) also confirmed the higher GP rates applied by the A.O.

Upon appeal, the Tribunal noted the specific and material defects pointed out by the A.O., including unreliable confirmations and the assessee's failure to explain discrepancies. The Tribunal upheld the rejection of the books of account but found the GP rates applied by the A.O. to be on the higher side. The Tribunal directed the A.O. to apply a GP rate of 15% for textile business and 5% for iron and steel business.

2. Disallowance of Godown Rent:
The assessee claimed Rs. 22,000/- as godown rent in the Profit & Loss (P&L) account. The A.O. disallowed this amount, noting that the assessee did not maintain any stock and failed to provide evidence of the godown's address or rent payment. The CIT(A) confirmed this disallowance due to the lack of evidence. The Tribunal also upheld the disallowance, finding no justification to interfere with the CIT(A)'s decision.

3. Disallowance of Telephone Expenses, Staff Welfare Expenses, and Motor Car Expenses Including Depreciation:
The assessee claimed various expenses, including motor car expenses, telephone expenses, and staff welfare expenses. The A.O. found these expenses were not fully supported by proper bills/vouchers and were incurred through self-made vouchers without a log book. Consequently, the A.O. disallowed 1/5th of the total expenses, amounting to Rs. 1,64,174/-, for personal and unverifiable elements. The CIT(A) confirmed this disallowance.

The Tribunal found no justifiable reason to hold the disallowance as excessive or unreasonable, noting that a similar disallowance in the preceding year was not challenged by the assessee. Therefore, the Tribunal upheld the CIT(A)'s decision.

4. Levy of Interest Under Sections 234A, 234B, and 234C of the Income Tax Act:
The issue of interest levy under sections 234A, 234B, and 234C was deemed consequential by the Tribunal, directing the A.O. to allow consequential relief to the assessee.

Conclusion:
The appeal filed by the assessee was partly allowed, with the Tribunal modifying the GP rates for estimating income and upholding the disallowances and interest levies as determined by the authorities below.