2010 (9) TMI 1215 - AT - Income Tax

Summary

Issues involved: Appeal filed by Revenue against CIT(A) order deleting addition of Rs. 18,09,416 and allowing deduction of salary paid to partner u/s 184(5) while ignoring non-compliance of notices u/s 143(2) and 142(1) and completion of assessment u/s 144.

Issue 1 - Addition of Rs. 18,09,416:
The case involved a survey where documents were impounded, and notices under section 142(1) were issued but not complied with. The AO completed assessment u/s 144 applying a net profit rate of 8%, which the assessee objected to citing cost increases in diesel, Bitumen, and Cement. The CIT(A) reduced the addition to Rs. 1,00,000, stating that the AO did not justify rejecting books of accounts already in possession. The AO's assessment at 8% net profit was deemed unjustified, and the CIT(A) directed an addition of Rs. 1,00,000 for inadmissible expenditure.

Issue 2 - Deduction of Salary to Partner:
The AO disallowed interest and salary paid by the firm to its partners u/s 184(5) but the CIT(A) directed to allow the same. The AR contended that all information was submitted, books of accounts were produced, and expenses details were provided. The fall in G.P. was explained due to cost increases in diesel, Bitumen, and Cement. The AO's assessment under section 144 was challenged as unjustified, and reliance was placed on the CIT(A) decision.

Judgment:
The ITAT upheld the CIT(A)'s decision. The gross receipts and income declared were considered, along with the fact that the assessee maintained regular books of accounts. Section 44AD was found not directly applicable as the turnover exceeded Rs. 40 lacs. The addition of Rs. 1,00,000 was sustained, and the provisions of section 144 were deemed inapplicable. The disallowance of interest and salary to partners was deleted. The appeal filed by Revenue was dismissed.