2015 (9) TMI 1002 - AT - Income Tax

Addition on account of job charges income - fall in N.P. rate for job charges income - CIT(A) allowed part relief - Held that - The Assessing Officer has applied the average net profit rate of 76.23% being average of last two years. In this regard, it was the claim of the assessee before learned CIT(A) that the assessee has not maintained the books of account of job work separately and selling of parts separately. Regarding the reason for fall in net profit rate, it was explained before the Assessing Officer that the assessee has not segregated the travelling and other expenses incurred during providing maintenance services of diesel engine and parts selling business. It is also very important to consider the nature of business of the assessee which is selling and service of diesel engine. In servicing of diesel engine, in the initial years, income may be high because the break-down are less but as the engine grows old, break-down are more resulting into fall in profit of the service provider. Apart from pointing out fall in net profit rate, the Assessing Officer has not pointed out any specific defect in the books of the assessee. It is not the case of the Assessing Officer that the expenses are not supported by bill and vouchers. Considering these facts, we are of the considered opinion that no interference is called for in the order of learned CIT(A) on this issue - Decided against revenue. Addition made on account of disallowance of Commission - CIT(A) allowed part relief - Held that - A clear finding has been given by CIT(A) that the genuineness of the transaction is justified by the statement of the authorized persons who appeared on behalf of the commission agent. He has also noted that a statement on oath u/s 131 of the Act has been recorded by the Assessing Officer of the Accountant of the commission agent and he has confirmed the services rendered. The present director of the commission agent also appeared before the Assessing Officer but he could not throw any light on this aspect because he was not the director of the commission agent during the period when the transaction took place and the persons who were directors during the relevant period were not available, when te A.O. asked to appear. It is also noted by the Assessing Officer that the payment has been made under an agreement by way of account payee cheque after deducting TDS and the director of the commission agent company as well as accountant of that company have appeared before the Assessing Officer and the transaction was confirmed and no adverse material or adverse statement of these persons is the basis of the action of the A.O. Considering all these facts, we do not find any reason to interfere in the order of CIT(A) on this issue also. - Decided against revenue. Disallowances made under different heads of expenditure debited - CIT(A) allowed part relief - Held that - Disallowance under the heading travelling expenses was deleted by CIT(A) on the basis that nowhere in the order of the Assessing Officer, he has said that the expenses have either not been incurred for business purposes or are personal in nature or capital in nature and therefore, the same are allowable u/s 37 of the Act. We do not find any infirmity in the order of CIT(A) on this issue because there is no specific objection of the A.O. as has been noted by CIT (A) and this finding of CIT (A) could not be controverted by learned DR of the revenue. - Decided against revenue. Disallowance out of conveyance expenses was also deleted by CIT(A) by making the same observation. Similarly the disallowance under the head repairs and maintenance was also deleted by CIT(A) by making the same observation. For the same reasons, we do not find any infirmity in the order of CIT(A) on these issues also. Hence, we decline to interfere in the order of CIT (A) on these issues also.- Decided against revenue. Disallowance under the heading repairs and maintenance others expenses was deleted by CIT(A) by making same observation on page 10 of his order. So is the case regarding disallowance under the head office maintenance expenses. Similarly, the disallowance under the head sales promotion expenses was also deleted by CIT(A) by making same observation. For the same reasons, we do not find any infirmity in the order of CIT(A) on these issues also. Hence, we decline to interfere in the order of CIT (A) on these issues also.- Decided against revenue. Disallowance out of interest expenses made by the Assessing Officer by invoking the provision of ₹ 40A(2)(b) was deleted by CIT(A) on the basis that the interest rate paid by the assessee was 21% for 4 months and 15% for 8 months and it is noted by the Assessing Officer also that even the rate of interest allowable on partner s capital u/s 40b was 18% up to 01/06/2002, which clearly gives an indication that the rates paid by the assessee did not give any excessive benefit to the person covered u/s 40a(2)(b) of the Act. On this issue also, we do not find any infirmity in the order of CIT(A).- Decided against revenue.

Summary

Issues Involved:
1. Addition on account of job charges income.
2. Disallowance of commission paid to M/s Ram Shree Steels Pvt. Ltd.
3. Disallowance of various expenses under different heads.

Detailed Analysis:

1. Addition on Account of Job Charges Income:
The Revenue challenged the deletion of Rs. 11,35,126/- added by the Assessing Officer (AO) on account of job charges income. The AO noted a fall in the net profit (N.P.) rate for job charges income compared to previous years. The CIT(A) observed that the appellant did not maintain separate books for job work and selling of parts. The AO also did not find any specific defects in the books of accounts, nor did he reject the books. The CIT(A) concluded that the AO erred in making an ad-hoc estimate based on previous year comparables without rejecting the books of accounts. The Tribunal upheld the CIT(A)'s decision, noting that the AO's sole basis for addition was the reduced N.P. rate without identifying specific defects in the books. Therefore, the Tribunal rejected the Revenue's grounds on this issue.

2. Disallowance of Commission Paid to M/s Ram Shree Steels Pvt. Ltd.:
The Revenue contested the deletion of Rs. 11,50,186/- disallowed by the AO as commission paid to M/s Ram Shree Steels Pvt. Ltd. The CIT(A) found that the payment was made under an agreement, by account payee cheques, and after deducting TDS. The genuineness of the transaction was supported by statements under oath from the commission agent's authorized persons. The Tribunal noted that the AO did not provide adverse material or statements to counter the genuineness of the transaction. Given these facts, the Tribunal upheld the CIT(A)'s decision to delete the disallowance, finding no reason to interfere.

3. Disallowance of Various Expenses:
The Revenue also challenged the partial or full deletion of various expenses disallowed by the AO. The Tribunal examined the following:

- Legal Expenses: The CIT(A) sustained the disallowance of Rs. 2,200/- for document expenses of a new jeep, considering it a capital expenditure. The Tribunal agreed with this finding.

- Advertisement Expenses: The CIT(A) sustained the disallowance of Rs. 7,430/- due to lack of proper supporting bills and vouchers. The Tribunal found no reason to interfere.

- Miscellaneous Expenses: The CIT(A) partly sustained the disallowance of Rs. 7,920/- out of Rs. 24,123/-, noting that these expenses were not incurred for business purposes. The Tribunal upheld this finding.

- Telephone and Vehicle Running Expenses: The CIT(A) partly sustained disallowances of Rs. 7,500/- and Rs. 2,500/- respectively. The Tribunal, following the Gujarat High Court judgment in Sayaji Iron and Engg. Co. Ltd. vs CIT, held that no disallowance could be made in the hands of the company for personal use by directors/employees. Thus, these disallowances were deleted.

- Other Expenses: The Tribunal also examined disallowances under traveling, conveyance, repairs and maintenance, office maintenance, sales promotion, and interest expenses. The CIT(A) deleted these disallowances, noting the lack of specific objections by the AO regarding business purposes or personal/capital nature. The Tribunal found no infirmity in these deletions.

Conclusion:
- The appeal of the Revenue was dismissed.
- The Cross Objection of the assessee was partly allowed, specifically deleting the disallowances under telephone expenses and vehicle running and depreciation, while confirming the other disallowances sustained by CIT(A).