2010 (3) TMI 1113 - AT - Income Tax

Summary

Issues Involved:
1. Rejection of books of account and Gross Profit (GP) addition.
2. Deletion of expenditure Rs. 17,45,404/-.
3. Depreciation on intangible assets.
4. Disallowance u/s 14A.

Summary:

1. Rejection of Books of Account and GP Addition:
The Assessing Officer (AO) rejected the books of account u/s 145(3) due to incomplete production of books, bills, and vouchers, and estimated the GP based on previous years. The CIT (A) upheld the rejection but deleted the GP addition, reasoning that the increase in turnover justified the lower GP rate. The Tribunal found no substantial reason for rejecting the books of account, noting that the assessee had provided sufficient details and maintained proper records. The Tribunal allowed the assessee's ground, stating that the rejection was not justified and confirmed the deletion of the GP addition by the CIT (A).

2. Deletion of Expenditure Rs. 17,45,404/-:
The AO disallowed the expenditure due to a significant increase compared to the previous year. The CIT (A) deleted the addition, noting that the increase in expenses was commensurate with the fivefold increase in turnover. The Tribunal upheld the CIT (A)'s decision, finding the AO's disallowance unreasonable.

3. Depreciation on Intangible Assets:
The assessee claimed depreciation on intangible assets acquired through a slump sale. The AO disallowed the claim, stating that the nature of the intangible assets was not verifiable. The CIT (A) upheld the disallowance, noting that the agreement did not specify any intangible assets. The Tribunal remanded the issue back to the AO for re-examination, directing a fresh assessment of the facts and the legitimacy of the depreciation claim.

4. Disallowance u/s 14A:
The AO disallowed Rs. 1,05,610/- applying Rule 8D for expenses incurred in earning exempt dividend income. The CIT (A) upheld the disallowance. The Tribunal modified the disallowance, restricting it to 5% of the dividend income, considering it a reasonable estimation of administrative expenses.

Conclusion:
The assessee's appeal was partly allowed, and the Revenue's appeal was dismissed. The Tribunal directed the AO to re-examine the depreciation claim on intangible assets and restricted the disallowance u/s 14A to 5% of the dividend income.