2014 (1) TMI 905 - AT - Income Tax

Restriction of addition - Disallowance made for vehicle, office and sales promotional expenses Held that - The disallowance out of office expenses reasonably accepted by the appellant himself i.e. 20% - in business promotion account, a bill of silver purchases from M/s. C.B. Brothers, Surat, shows 3.667 kg silver which does not indicate any description of silver coins - the assessee has purchased silver only on 07.11.2007 in the name of Tirupati Traders - It is true that the appellant had paid this amount through account payee cheque which does prove that this expense is incurred wholly and exclusively for business purposes - The evidence showed the purchase of silver not idols or coins the order of the CIT(A) under the head business promotion to the tune of Rs.69,875 Decided partly in favour of Assessee. Deletion of addition made by estimating the GP @2.42% - Attempt made to lower the taxable income by inflating the expenses Held that - The AO rejected the books of account on the ground of lesser G.P. compare to his sister concern and discrepancy in office expenses and business promotion expenses - there was no defects found in the books of account and the appellant had maintained proper books of account including the bills and vouchers which were produced before the A.O. for verification - both the concerns deal with different cement companies having different agreements and terms and conditions - The rejection of book result by the A.O. is not based on solid grounds. G.P. has increased comparative preceding year - The ld. CIT(A) thoroughly had examined the issue of G.P. which support the claim of the assessee Decided against

Summary

Issues involved:
1. Disallowance of expenses related to vehicle, office, and sales promotional expenses.
2. Addition made by estimating the Gross Profit (G.P.) rate.

Issue 1: Disallowance of expenses related to vehicle, office, and sales promotional expenses:
The appeal concerns the restriction of additions made by the Assessing Officer (A.O.) on account of disallowance from vehicle, office, and sales promotional expenses. The A.O. disallowed a portion of these expenses due to personal elements being included in business expenses. The appellant agreed to disallow 20% of these expenses but the A.O. was not satisfied and disallowed a higher percentage. The Commissioner of Income Tax (CIT) partly allowed the appeal, considering the personal expenses related to vehicle and office to be lower than initially estimated. The CIT accepted 20% disallowance by the appellant for office and petrol expenses, and identified additional personal expenses to be disallowed. However, the CIT fully allowed the sales promotion expenses as they were deemed to be incurred for business purposes. The Revenue challenged this decision, arguing that the business promotion expenses were not wholly for business purposes. The Tribunal reversed the CIT's decision on business promotion expenses, as the evidence showed the purchase of silver only, not silver coins or idols, leading to a partial allowance of the Revenue's appeal on this ground.

Issue 2: Addition made by estimating the Gross Profit (G.P.) rate:
The second ground of appeal revolves around the deletion of an addition made by the A.O. based on estimating the Gross Profit (G.P.) rate at 2.42%. The A.O. compared the G.P. rate with another concern and found discrepancies, leading to the addition in the appellant's income. The CIT(A) examined the books of account and found them to be proper, rejecting the comparison theory used by the A.O. The Revenue contested this decision, emphasizing the comparison of the appellant's business with a sister concern. The appellant argued that the rejection of book results was not justified, as the books were maintained properly and no defects were identified. The Tribunal upheld the CIT(A)'s decision, noting that the rejection of book results lacked solid grounds, and the comparison with the sister concern was not entirely valid. Therefore, the Tribunal dismissed the Revenue's appeal on this ground.

In conclusion, the Tribunal partly allowed the Revenue's appeal concerning the disallowance of business promotion expenses while dismissing the appeal regarding the addition made by estimating the Gross Profit rate. The judgment highlights the importance of proper documentation and justification for expenses in business assessments, emphasizing the need for clear evidence to support claims and decisions made by tax authorities.