2011 (6) TMI 846 - AT - Income Tax

Summary

Issues involved: The issues involved in the judgment are rejection of book result, addition in valuation of closing stock of polished diamonds, addition of estimate of GP rate, disallowance of foreign travel expenses, and confirmation of disallowance of telephone expenses.

Rejection of book result: The appellant challenged the rejection of book result by the Commissioner of Income Tax(Appeals) on the grounds of not maintaining qualitative details with regard to diamonds. The Assessing Officer (AO) had made additions to the income based on the rejection of the books of accounts and the GP rate disclosed by the assessee. The ITAT referred to a similar case and held that qualitative details of each piece of diamond are not necessary for income computation. The ITAT deleted the addition to the trading result but sustained the addition to the closing stock valuation.

Addition in valuation of closing stock: The AO worked out the valuation of the closing stock of polished diamonds based on certain calculations as detailed in the assessment order. The assessee failed to provide details of the valuation of the closing stock, leading to the AO's determination of the value. The ITAT upheld the AO's valuation of the closing stock and directed that it would be considered as the opening stock of the next year.

Disallowed foreign travel expenses: The appellant contested the disallowance of foreign travel expenses amounting to &8377; 32,000, arguing that the expenses were fully vouched and verifiable. The ITAT found no justification for the 10% ad hoc disallowance and deleted the disallowance.

Disallowed telephone expenses: The AO disallowed 10% of the telephone expenses totaling &8377; 44,000, which the appellant challenged. The ITAT upheld the disallowance, considering the nature of the export business and the possibility of personal use of the telephone.

In conclusion, the ITAT partly allowed the appellant's appeal, deleting the disallowance of foreign travel expenses but confirming the disallowance of 10% of telephone expenses.