2015 (1) TMI 396 - HC - Income Tax

Disallowance of various expenses - increase in expenses despite decrease in turnover compared to previous year - Audited books of accounts - Held that - While taking into account the increase in expenditure with regard to the aforesaid items, the concerned AO, CIT(A) as well as the Tribunal seems to have lost sight of the fact that there was reduction in certain expenses also, viz. Commission and brokerage charges, power and fuel expenses and payment to the employees. Further, it is an admitted position that the details of the accounts provided by the assessee were duly audited. Thus, merely because the assessee could not produce the accounts of the immediately preceding year, which was destroyed in 1998 flood, it cannot be said that the assessee offered no explanation or no evidence in support of his case. On the contrary, the assessee has given the fullest details available with him in respect of profit and loss account for the year under consideration. We are, therefore, of the opinion that the AO was not justified in making the addition of ₹ 5,33,633/- and the CIT(A) as well as the Tribunal erred in confirming the same. - Decided in favour of the assesse.

Summary

Issues:
Challenge to ITAT order - Disallowance of expenses based on turnover comparison.

Analysis:
1. The appellant-assessee filed the return of income for the relevant year, declaring a loss. The Assessing Officer (AO) made additions/disallowances during assessment. The appellant approached the CIT(A), who dismissed the appeal. Subsequently, the Tribunal also dismissed the appeal, leading to the present challenge.

2. The main question raised was whether the Tribunal was correct in confirming the disallowance of a specific amount based on turnover comparison. The appellant argued that the books were audited and no defects were found under Section 145 of the Income Tax Act. Additionally, the appellant contended that even if Section 145 applied, a higher gross profit rate from the preceding year should have been considered. The AO did not provide comparable cases for assessing a higher gross profit rate.

3. The respondent-Revenue supported the lower authorities' orders, stating that there were concurrent findings against the appellant, rendering the appeal meritless.

4. The High Court analyzed the details provided by the appellant, including audited accounts and specific expenses like Octroi and Power & Fuel charges. The appellant highlighted that certain expenses had increased, but there were reductions in other expenses like Commission and Brokerage charges. The Court noted that audited accounts were provided, and the appellant explained the circumstances leading to the unavailability of the immediately preceding year's accounts due to a flood in 1998.

5. The Court disagreed with the lower authorities' findings, emphasizing that the AO, CIT(A), and Tribunal overlooked the reduction in certain expenses and the audited nature of the accounts. The Court concluded that the disallowance of the specific amount was unjustified. Therefore, the appeal was allowed, quashing the Tribunal's order and ruling in favor of the appellant against the Revenue.

6. In conclusion, the High Court set aside the Tribunal's decision, stating that the disallowance based on turnover comparison was not justified. The Court emphasized the importance of considering all relevant factors and the audited nature of the accounts in such assessments.