2013 (3) TMI 687 - AT - Income Tax

Adhoc disallowance of expenses deleted Rejection of books of accounts - N.P. addition - Held that - After rejection of the books of accounts the A.O. can look towards the past history of the assessee or of any comparable case. He cannot draw support from any and every decision without comparing the facts of that case with that of the assessee. He cannot tear out of context by cherry picking no such addition can be allowed to be made. The A.O. has adopted the N.P. rate but has ignored the N.P. Rate of the assessee disclosed in the immediately preceding year. The N.P. Rate of this year is better than the earlier year. Therefore no addition like one made by the A.O. is not justified. The ld. CIT(A) has also confirmed the same. On a wrong premise by following the reasons given by the A.O. and by not considering the contention of the assessee. In out considered opinion the first time imposition of Entry Tax of huge amount of 9, 69, 454/- as per assessee Paper Book page 18 which fact has not been denied or disputed by the revenue is a good ground and factor to justify small fall in the G.P. Rate. Thus delete the entire addition Interest received from F.D.Rs. and N.S.Cs. placed with Government while obtaining contract from Government is required to be assessed as income from business. Since this interest income is business income which has been considered in estimation of income by applying N.P. rate we therefore are of the considered view that no separate addition is warranted.

Summary

Issues:
1. Disallowance of expenditure claimed in businesses.
2. Dispute over gross profit rate and net profit rate calculations.
3. Treatment of interest income on FDRs as business receipts.

Analysis:
1. The appeal concerned the disallowance of expenditure claimed in businesses. The AO disallowed expenses due to improper vouchers and discrepancies. The CIT(A) reduced the disallowances, but the appellant contested further. The tribunal found the disallowances adhoc and vague, reducing them to specific amounts based on the lack of proper vouching. The total addition sustained was partially allowed, with specific amounts upheld for each business.

2. The dispute over gross profit rate and net profit rate calculations was addressed next. The appellant argued against the addition made by the AO based on a lower gross profit rate for the year. The tribunal analyzed the figures over the years and found a slight fall in the gross profit rate but an increase in the net profit rate. The AO's addition was deemed unjustified as it lacked a valid basis and ignored relevant factors. The tribunal ordered the deletion of the entire addition sustained by the CIT(A) based on the appellant's arguments and supporting decisions.

3. The treatment of interest income on FDRs as business receipts was the final issue. The AO treated the interest income as 'income from other sources,' which the CIT(A) upheld. The appellant relied on a decision from the same bench favoring treating such income as business receipts. The tribunal, following the rule of consistency, agreed with the appellant's position based on the earlier decision. The interest income was considered business income, and no separate addition was warranted, leading to the partial allowance of the appeal.

This comprehensive analysis highlights the key legal arguments, decisions, and outcomes of the judgment delivered by the Appellate Tribunal ITAT Jodhpur.