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2015 (11) TMI 789 - AT - Income TaxRejection of books of account - trading addition - Held that - Firstly, it is noted that while rejecting the books of account of the assessee, the show cause was issued to the assessee on 28-12-2010. Thereafter, there is entry in the order sheet by the assessee on the same date and the assessment order has also been passed on the same date which shows that the matter has not been given considered thought by the AO. It is a clear case of lack of opportunity to the assessee to submit its submissions and relevant documents. Secondly, in terms of the observations of the AO as well as submissions of the assessee, it is noted that the AO wanted to examine the fall in gross profit rate i.e. quantity wise as well as quality wise and the corresponding margins in the sales effected during the year as well as corresponding purchases made during the year besides opening stock. The assessee has mentioned that it has maintained day to day books of account which are duly supported by bills and vouchers. Further monthwise quantitative details are also maintained. It is, therefore, important that the AO should examine both quantitative as well as qualitative details as maintained by the assessee in order to determine the reasons for fall in gross profit rate as compared to past years. Thirdly, the assessee has mentioned that the gross profit has increased in absolute terms from ₹ 18,26,910/- (A.Y. 2007-08) to ₹ 41,78,691/- (A.Y. 2008-09) but there is only marginal decline in gross profit rate i.e. 0.39% on account of increase in turnover. The assessee has further stated that he was interested in volume of the profit and not in rate of profit. To our mind, this justification on stand alone basis cannot stand the test of judiciary without any corroborative evidence. What is really required to be demonstrated by the assessee as a prudent businessman is that what are the key business circumstances in context of the prevailing market conditions which led to the fall in gross profit rate. In the light of above discussions and especially the fact that the assessee has been denied a reasonable opportunity of being heard, the mater is set aside to the file of the AO to determine afresh whether the assessee has declared correct gross profit or not. Disallowance of car & conveyance, shop expenses, mobile and telephone expenses,transportation expenses - these expenses pertain to 20% of total expenses which have been incurred by the assessee - Held that - From the perusal of the order of the AO, we do not find any specific finding which has been given while disallowing these expenses. It is thus an adhoc disallowance made by the AO which is not justified. Thus we delete the adhoc disallowance of expenses of 20% on the above heads and do not sustain the order of the ld. CIT(A) on these issues. Disallowance of salary and wages expenses it is claimed by the assessee that part of the wages expenses were shown under direct expenses which have already suffered disallowance by application of adhoc gross profit rate by the AO. The AO is directed to verify the same Addition on account of house hold expenses, the assessee has submitted detailed submission in respect of house hold withdrawal in his name as well as in the name of his wife. The AO is directed to verify the same and allow the same after due verification. Disallowance of penalty expenses, the assessee has submitted that the restoration charges have been debited to the account of the assessee and has not been claimed as expenditure in the profit and loss account. The AO is thus directed to verify the same and if the claim of the assessee is supported by the treatment done in the financial statement as claimed by the assessee, the same should be allowed. Addition u/s 68 - Held that - Considering assessee s submission that the confirmation from Shri Ratan Chand and Smt. Rashmi Jain during the course of assessment proceedings. Further the Income Tax Returns were also filed and both the creditors are assessed to tax. Both these persons have confirmed the loan transactions made with the assessee and the transactions are duly verifiable and the creditors have been duly identified. Thus in view of these facts, the addition made u/s 68 is deleted. Hence, the order of the ld. CIT(A) is not sustainable on this point and addition sustained by the ld. CIT(A) is deleted. - Decided in favour of assessee. Non deduction of TDS on commission expenses - The assessee has taken the legal plea that in the light of decision of the Jaipur Bench in the case of ACIT vs Girdhari Lal Bagroti 2015 (11) TMI 746 - ITAT JAIPUR no disallowance u/s 40(a)(ia) is to be made if the amount is not outstanding at the end of the year. Thus in the light of decision taken earlier we delete the addition. - Decided in favour of assessee.
Issues Involved:
1. Rejection of books of account under Section 145(3) of the Income Tax Act. 2. Trading addition by applying a higher gross profit rate. 3. Disallowance of various expenses including car & conveyance, wages, shop, mobile & telephone, transportation, household, penalty, and commission expenses. 4. Addition under Section 68 for unexplained cash credits. 5. Set off of trading addition against disallowed expenses. Issue-wise Detailed Analysis: 1. Rejection of Books of Account under Section 145(3): The assessee's books of account were rejected by the Assessing Officer (AO) under Section 145(3) due to several discrepancies, including a decrease in gross profit rate, non-maintenance of qualitative and quantitative records, and incorrect stock valuation. The AO applied a gross profit rate of 2.34%, based on the average of the last two years, against the declared rate of 1.90%. The CIT(A) upheld this rejection, noting that the AO's scrutiny under Section 143(2) was necessary to verify the correctness of the declared income. The assessee argued that the books were audited and supported by bills and vouchers, and that the lower gross profit rate was due to increased turnover. However, the Tribunal found that the AO did not provide sufficient opportunity for the assessee to present its case and set aside the matter for fresh examination by the AO. 2. Trading Addition by Applying Higher Gross Profit Rate: The AO made a trading addition of Rs. 9,76,312 by applying a gross profit rate of 2.34%. The assessee contended that the lower gross profit rate was due to increased turnover and that the gross profit in absolute terms had increased significantly. The Tribunal noted that the AO did not give due consideration to the assessee's explanations and directed a fresh examination of the reasons for the fall in gross profit rate, including both quantitative and qualitative details. 3. Disallowance of Various Expenses: - Car & Conveyance and Shop Expenses: The AO disallowed 20% of these expenses on an ad hoc basis, citing non-verifiability due to cash payments and self-made vouchers. The Tribunal found no specific findings by the AO to justify the disallowance and deleted the ad hoc disallowance. - Wages Expenses: The AO disallowed outstanding wages, arguing that the availability of cash should have led to immediate payment. The Tribunal directed the AO to verify the assessee's claim that these expenses were part of the trading account and had already suffered disallowance through the gross profit rate application. - Mobile & Telephone Expenses: The AO disallowed 20% for personal use, which the Tribunal found excessive and deleted the disallowance. - Transportation Expenses: The AO disallowed 20% due to self-made vouchers. The Tribunal directed the AO to verify the expenses as they were part of the trading account. - Household Expenses: The AO made an addition due to discrepancies in declared household withdrawals. The Tribunal directed the AO to verify the detailed submissions and allow the claim after due verification. - Penalty Expenses: The AO disallowed restoration charges paid to RIICO, which the assessee claimed were debited to the capital account and not the profit and loss account. The Tribunal directed the AO to verify this claim. - Commission Expenses: The AO disallowed commission payments under Section 40(a)(ia) for non-deduction of TDS. The Tribunal deleted the disallowance, citing a precedent that no disallowance is warranted if the amount is not outstanding at the end of the year. 4. Addition under Section 68 for Unexplained Cash Credits: The AO added Rs. 39,400 under Section 68 for loans from two individuals who did not appear despite summons. The assessee provided confirmations and income tax returns for these creditors. The Tribunal found that the assessee had discharged its burden of proof and deleted the addition. 5. Set Off of Trading Addition Against Disallowed Expenses: The assessee argued that the trading addition should be set off against disallowed expenses to avoid double addition. The Tribunal did not specifically address this issue but directed a fresh examination of the trading addition and various disallowances. Conclusion: The Tribunal allowed the appeal partly for statistical purposes, setting aside several issues for fresh examination by the AO and deleting certain ad hoc disallowances and additions. The order emphasized the need for a thorough and fair examination of the assessee's submissions and relevant documents.
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