2013 (5) TMI 307 - AT - Income Tax

Enhancement of the gross profit rate - Whether CIT(A) erred by deleting the addition amount made by invoking provision of section 145(3) - Held that - CIT(A) observed that the basis adopted by the AO for consequent enhancement of the gross profit rate was itself faulty and can not be considered for assumption of computing correct income in accordance with the provision of Income tax Act - there was no basis for the AO to reject the book result by invoking the provision of section 145(3). DR has not been able to furnish any contrary material to that effect on perusal of the statements and the method of accounting adopted that the books of account reflecting the true and correct income is derived on the basis of purchases, sales and the valuation of closing stock do not require any further deliberation. The ground raised by the Revenue stands dismissed. Disallowance u/s 40(a)(ia) - Held that - Evidence in respect of the deduction of TDS was made known to the AO who observed that the TDS has been deposited now does not require disallowance u/s 40(a)(ia), in so far as 40(a)(ia) allows deposition of such tax before the due date of filing of the return when the assessee claimed that it had filed the return of income on time in accordance with the provision of section 139(1) of the Act. In favour of assessee Disallowance of of freight charges - identity not proved and verification from angle of violation of non deduction of tax at source - Held that - AO himself has agreed to the proposition that the said assumption of freight charges to trucks of more than Rs.20,000/- does not apply to the assessee s facts and in so far as the same has come into effect from 1st July, 2007 which the CIT(A) had also acknowledged but as a liberty that the assessee had admitted that there were errors in deduction of tax at source to protect the interest of the revenue confirmed 40% thereof which we are unable to satisfy ourselves either way as mentioned above. There cannot be proportionate disallowance either u/s 40(a) (ia) or 40A(3) which expenses disallowances have to be made on specific items of expenditure cannot be ruled out and the confusion in the minds of the authorities below therefore requires no further deliberation. The ground raised by the assessee is allowed. Confirmation u/s 40A(3) on payments made to M/s. Bharat Goods Transport and Joy Jharkhand Road Lines - Held that - AO having categorically given a finding that the number of trucks with their registration number and the individual freight paid to them under no circumstances were paid exceeding Rs.20,000/-, thus the provision of section 40A(3) has been considered by the CIT(A) holding a view that such payments in a single day was not to be applied as per the provision of the Income Tax Act itself renders this addition worthy for deletion. The ground raised by the assessee stands allowed. Addition in respect of low drawings - CIT(A) deleted the addition - Held that - Addition of Rs.36,000/- deleted against drawings already claimed at Rs.85,000/- does not justify the addition in so far as the AO has also not pointed out whether the addition of Rs.36,000/- would justify the income returned by the assessee to acclaim a status for low drawings. The CIT(A) has deleted the same as no material has been brought on record by the AO. In favour of assessee.

Issues Involved:
1. Deletion of addition of Rs. 23,13,067/- by invoking section 145(3) of the IT Act.
2. Disallowance of Rs. 4,57,970/- under section 40(a)(ia) of the IT Act.
3. Disallowance of Rs. 9,71,064/- under sections 40(a)(ia) and 40A(3) of the IT Act.
4. Disallowance of Rs. 91,292/- under section 40A(3) of the IT Act.
5. Addition of Rs. 36,000/- on account of low drawings.

Detailed Analysis:

1. Deletion of Addition of Rs. 23,13,067/-:
The assessee, a sole proprietor and wholesale trader of oils and vanaspati, was subjected to scrutiny assessment. The AO found a fall in the gross profit rate and invoked section 145(3) of the IT Act to enhance the gross margin based on the previous year's assessment. The CIT(A) rejected the AO's basis for invoking section 145(3), noting that the assessee maintained proper books of accounts and the AO's enhancement of the gross margin was faulty. The Tribunal upheld the CIT(A)'s decision, stating that the books of account reflected true and correct income, dismissing the Revenue's ground.

2. Disallowance of Rs. 4,57,970/- under Section 40(a)(ia):
The AO disallowed Rs. 4,57,970/- on the grounds that TDS was not deposited on time. The CIT(A) directed the AO to verify the deposition of TDS. The Tribunal found that the TDS was deposited on 26.09.2008, before the due date of filing the return, and hence, the disallowance under section 40(a)(ia) was not justified. The Tribunal dismissed the Revenue's ground and allowed the assessee's ground.

3. Disallowance of Rs. 9,71,064/- under Sections 40(a)(ia) and 40A(3):
The AO disallowed Rs. 9,71,064/- on account of freight charges, citing non-deduction of TDS and payments exceeding Rs. 20,000/-. The CIT(A) allowed part relief by restricting the disallowance to 40%. The Tribunal found that the authorities below made contrary findings and there cannot be a proportionate disallowance under sections 40(a)(ia) or 40A(3). The Tribunal allowed the assessee's ground and dismissed the Revenue's ground, stating that expenses disallowances must be made on specific items of expenditure.

4. Disallowance of Rs. 91,292/- under Section 40A(3):
The AO disallowed Rs. 91,292/- for payments made to M/s. Bharat Goods Transport and Joy Jharkhand Road Lines, citing payments exceeding Rs. 20,000/-. The CIT(A) confirmed the disallowance. The Tribunal found that the payments were actually journal entries and not cash payments exceeding Rs. 20,000/-. The Tribunal held that the provision of section 40A(3) was misapplied and deleted the addition, allowing the assessee's ground.

5. Addition of Rs. 36,000/- on Account of Low Drawings:
The AO added Rs. 36,000/- for low drawings. The CIT(A) deleted the addition, noting that the AO did not provide material justification for the addition. The Tribunal upheld the CIT(A)'s decision, dismissing the Revenue's ground.

Conclusion:
The Tribunal dismissed the Revenue's appeal and allowed the assessee's appeal, pronouncing the order on 05.04.2013.

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