2012 (1) TMI 268 - AT - Income Tax

Summary

Issues Involved:
1. Invocation of provisions u/s 145(3) and trading addition.
2. Deletion of addition u/s 40A(2)(b).
3. Reduction of disallowance u/s 40(a)(ia).

Summary:

1. Invocation of provisions u/s 145(3) and trading addition:
The assessee objected to the invocation of provisions u/s 145(3) and the subsequent trading addition of Rs. 42,55,030/- by applying a GP rate of 10%. The department objected to the reduction of the GP rate from 12% to 10% and the deletion of certain additions. The AO observed discrepancies in the maintenance of quantitative details and inventory, leading to the application of a 12% GP rate, resulting in a trading addition of Rs. 1,14,64,923/-. The CIT (A) found the GP rate applied by AO to be on the higher side and directed to apply a 10% GP rate. The Tribunal upheld the invocation of provisions u/s 145(3) but found the GP rate of 12% unjustified due to substantial sales increase and raw material cost rise. A lump sum GP addition of Rs. 5,00,000/- was deemed appropriate.

2. Deletion of addition u/s 40A(2)(b):
The AO disallowed commission payments to certain individuals u/s 40A(2)(b), questioning the justification of services rendered. The CIT (A) found the commission payments reasonable and supported by agreements and past practices. The Tribunal confirmed the CIT (A)'s findings, noting that the commission agents' services were substantiated and their income declarations were verified.

3. Reduction of disallowance u/s 40(a)(ia):
The AO disallowed Rs. 17,60,063/- paid to Clearing & Forwarding Agents for non-deduction of TDS. The CIT (A) found that Rs. 12,32,440/- were reimbursements, not subject to TDS, and upheld disallowance on Rs. 90,000/- only. The Tribunal agreed with the CIT (A), confirming the reduction of disallowance to Rs. 90,000/- and deleting the remaining disallowance as the payments were reimbursements.

Conclusion:
The appeal of the assessee was allowed in part, and the appeal of the department was dismissed. The order was pronounced in the open court on 09.01.2012.