2014 (10) TMI 500 - AT - Income Tax

Addition on account of low GP Application of GP @ 9.7% as against 12% - Held that - The AO has not rejected the books of account but assessee in course of survey had surrendered the amount of ₹ 4,50,000/- to cover up the discrepancy in stock and other items found at the time of survey - Therefore, the books of account were not reliable - The estimation made by ld. CIT(A) is quite reasonable considering the entirety of facts and circumstances particularly because in the case of M/s Niranjan Das & Sons, Saharanpur, the concern was dealing in retail trading of gents suiting and shirting, whereas the assessee dealt in wholesale as well as the retail trading of ladies suits - there was no basis to draw comparison with this firm. Similarly, M/s Bhagat Ram Godha Ram was dealing in retail as well as wholesale trading of branded gents suiting and shirting, whereas assessee dealt in wholesale as well as retail trading of ladies suits - the trading results of this firm were also not the guiding factor the order of the CIT(A) is upheld Decided against revenue. Various expenses disallowed Proper vouchers not furnished Held that - CIT(A) rightly was of the view that the AO had made addition of ₹ 1,00,000/- being disallowance of expenses debited under the head salary on the ground that no salary/attendance register was maintained - Further, salary paid to family members was on the higher side in comparison to other employees - assessee has furnished copy of account salary in the ledger of the appellant - AO has not brought any adverse material evidence on record to suggest that the salary paid to family members was excessive - On the other hand, the assessee has not maintained vouchers in respect of payment of salary - no separate salary register/attendance register/muster roll have been maintained by the assessee - assessee has not furnished nature of duties performed by the employees with reference to educational qualification - Keeping in view the fact that salary paid to staff has been allowed by the AO in the preceding years, therefore, it would be reasonable and justified if the addition is restricted to ₹ 50,000 - the disallowances made by the CIT(A) was on the reasonable expenditure after considering in detail the reasoning and explanation given by the assessee Decided against revenue. Difference in closing balance in respect of some creditors Held that - CIT(A) rightly was of the view that the assessee accounted for the discount at the time of making payments and also raised a debit note to the concerned party - Some of the parties account for the cash discounts on the date of issuing bills itself without mentioning the same on the purchase bills - the payment of bills outstanding at the end of the year were made by the appellant in the next year, the discount/rate difference was accounted for by the assessee assessee has furnished copies of account of the two parties as on 31.03.2010 wherein the amount of ₹ 5,450/- has been debited on 01.05.2009 in the account of Varundev Overseas P. Ltd. Surat against rate difference - Similarly in the case of Bemi Tex, Surat the amount of ₹ 5,435/-had been debited on 01.05.2009 against rate difference - then assessee has reconciled the difference in closing balance totaling to ₹ 10,875/- thus, the order of the CIT(A) is upheld Decided against revenue. Low house hold expenses withdrawal for personal expenses Held that - CIT(A) was rightly was of the view that the assessee s family consisted of self, son and daughter-in-law and total contribution made by the family members was at ₹ 3,43,000 - the quantum of contribution made by each family members is the outlook of the assessee and it is not a case of the AO to decide the same - though the assessee has not significantly contributed towards withdrawals for household expenses but at the same time the AO cannot lose sight of the fact that the other family members have also contributed to expenses which aggregate to ₹ 3,43,500/- which are held as adequate to meet the requirements of the appellant s family assessee had not significantly contributed towards withdrawals of household expenses as family members had substantially contributed towards the family requirements have not been controverted by Department - the order of the CIT(A) is upheld decided against revenue.

Summary

Issues Involved:
1. Deletion of addition on account of low Gross Profit.
2. Deletion of disallowances of various expenses.
3. Deletion of addition due to difference in closing balance with creditors.
4. Deletion of addition on account of low household withdrawals.
5. Application of GP rate by CIT(A) and partial addition sustained.

Detailed Analysis:

1. Deletion of addition on account of low Gross Profit:
The AO observed that the gross profit (GP) rate declared by the assessee was significantly lower compared to similar businesses. The AO applied a GP rate of 12% on the sales shown at Rs. 3,09,24,363/- as opposed to the 7.78% declared by the assessee, resulting in an addition of Rs. 13,04,080/-. However, considering a surrender of Rs. 4,50,000/- by the assessee during a survey, the addition was restricted to Rs. 8,54,080/-. The CIT(A) estimated the GP rate at 9.7%, resulting in a reduced addition of Rs. 1,42,820/-. The Tribunal upheld the CIT(A)'s estimation, noting that the AO had not rejected the books of account and the comparison with other businesses was not appropriate due to differences in trading activities.

2. Deletion of disallowances of various expenses:
The AO made several disallowances totaling Rs. 2,50,950/- on grounds of unverifiable and excessive expenses. The CIT(A) provided relief by deleting Rs. 50,000/- under direct expenses, reducing other expenses disallowance to Rs. 34,512/-, and restricting salary disallowance to Rs. 50,000/-. The Tribunal agreed with the CIT(A)'s detailed examination and reasoning, confirming the restricted disallowances.

3. Deletion of addition due to difference in closing balance with creditors:
The AO added Rs. 10,875/- due to discrepancies in closing balances with creditors Varundev Overseas (P) Ltd. and Bemi Tex. The CIT(A) deleted this addition after the assessee reconciled the differences, showing the amounts were debited in the next financial year against rate differences. The Tribunal upheld this deletion, finding no reason to differ from the CIT(A)'s findings.

4. Deletion of addition on account of low household withdrawals:
The AO deemed the household withdrawals of Rs. 38,500/- as low and estimated them at Rs. 1,20,000/-, making an addition of Rs. 81,500/-. The CIT(A) deleted this addition, noting that the total household contributions by family members amounted to Rs. 3,43,000/-, which was adequate. The Tribunal confirmed the CIT(A)'s decision, agreeing that the family contributions were sufficient.

5. Application of GP rate by CIT(A) and partial addition sustained:
The assessee contested the CIT(A)'s application of a 9.7% GP rate, arguing it should be 9.24% as declared. The Tribunal dismissed this ground, supporting the CIT(A)'s estimation as reasonable and justified. Additionally, the Tribunal dismissed the assessee's grounds regarding partial disallowances of expenses and salary, affirming the CIT(A)'s detailed reasoning and adjustments.

Conclusion:
The Tribunal upheld the CIT(A)'s decisions on all counts, finding the estimations and deletions reasonable and justified based on the facts and circumstances of the case. Both the Department's and the assessee's appeals were dismissed.