2015 (10) TMI 2488 - AT - Income Tax

G.P. rate determination - Held that - Looking on the facts on record, interest of justice will be served if the trading addition is restricted to Rs. One lac instead of ₹ 2 lacs retained by the ld CIT(A). This ground is partly allowed in favour of assessee. Disallowance U/s 40a(ia) on account of commission expenses claimed - Held that - As it has not been disputed that the entire amount of commission was paid during the year and there was no payable amount at the end of the year. In view thereof, the Hon ble Allahabad High Court judgment in case of Vector Shipping Services Pvt. Ltd. (2013 (7) TMI 622 - ALLAHABAD HIGH COURT ) is fully applicable. CIT(A) correctly deleted the addition - Decided in favour of assessee.

Summary

Issues:
1. Addition of Rs. 2,00,000 in trading results
2. Disallowance of Rs. 11,59,210 under Section 40a(ia) of the IT Act, 1961
3. Legality and excessiveness of additions/disallowances

Analysis:

Issue 1 - Addition in Trading Results:
The Assessing Officer made an addition of Rs. 5 lakhs to the declared trading results due to a lower Gross Profit (G.P.) rate compared to the preceding year. In the first appeal, the CIT(A) reduced the disallowance to Rs. 2 lakhs considering the decline in turnover from Rs. 20.94 crores to Rs. 12.94 crores. The CIT(A) justified the disallowance by citing the maintenance of stock register, cash payments without full verification, and a maintained GP rate of 20.27%. The ITAT reduced the addition to Rs. 1 lakh, finding that justice would be served by restricting the trading addition. The appeal was partly allowed on this ground.

Issue 2 - Disallowance under Section 40a(ia):
Regarding the disallowance under Section 40a(ia), the appellant relied on a similar case from a previous year where the disallowance was reduced by the ITAT. The appellant also cited a judgment of the Allahabad High Court emphasizing that disallowance under Section 40a(ia) applies only to amounts payable at the year-end without TDS deduction. As the entire commission amount was paid during the year with no pending amount, the ITAT allowed this ground of appeal, following the Allahabad High Court judgment. The appeal was allowed on this ground as well.

Issue 3 - Legality and Excessiveness of Additions/Disallowances:
The ITAT rejected the contention that factual findings from a previous year cannot be compared to the current assessment year. It upheld the CIT(A)'s lenient view on the trading addition issue. The ITAT also supported the appellant's argument regarding the disallowance under Section 40a(ia) and found merit in applying the Allahabad High Court judgment. Consequently, the appeal was partly allowed on both grounds, concluding that the additions/disallowances made by the authorities were excessive and not in accordance with the law.

In conclusion, the ITAT, Jaipur, partially allowed the appeal filed by the assessee against the order of the CIT(A) for the assessment year 2008-09, reducing the trading addition and allowing the disallowance under Section 40a(ia) based on legal precedents and factual considerations.