2015 (1) TMI 1327 - AT - Income Tax

Addition being 10% of telephone and conveyance expenses - rejection of books of accounts - Held that - Find merit in the arguments of learned counsel for the assessee that when the books of account are rejected and trading additions are made, there is no justification in making further ad hoc disallowance qua telephone and conveyance expenditure. This view is supported the ITAT in assessee s own case for preceding year. In view thereof, the addition is deleted. - Decided in favour of assessee

Summary

Issues:
Challenge against the addition of 10% of telephone and conveyance expenses for A.Y. 2008-09.

Analysis:
The appeal was filed by the assessee against the order dated 26/06/2014 by the learned CIT(A)-II, Jaipur for A.Y. 2008-09, challenging the addition of &8377; 77,707/- being 10% of telephone and conveyance expenses. The counsel for the assessee argued that since the books of account had been rejected and trading additions made, there was no justification for a separate ad hoc disallowance of telephone and car expenses. Reference was made to a similar issue in A.Y. 2007-08, where the ITAT had deleted a similar ad hoc disallowance in the assessee's favor. The ITAT held that once Section 145(3) was invoked and the profit was determined by applying a higher gross profit rate, no separate addition was warranted, citing a judicial pronouncement. Therefore, the ITAT deleted the disallowance in the previous year, and the same reasoning was applied to delete the addition in the current appeal.

The learned Sr.DR supported the order of the lower authorities, but upon hearing both parties and examining the record, the Judicial Member found merit in the arguments put forth by the counsel for the assessee. It was observed that when the books of account were rejected and trading additions were made, there was no justification for further ad hoc disallowance regarding telephone and conveyance expenditure. The Judicial Member noted that this view was supported by the ITAT in the assessee's own case for the preceding year. Consequently, the addition of 10% of telephone and conveyance expenses was deleted, and the assessee's appeal was allowed. The order was pronounced in the open court on 29/01/2015.