2015 (12) TMI 46 - AT - Income Tax

Addition on account of Gross Profit - CIT(A) confirmed part addition - Held that - As find that assessee had not maintained complete books of account and vouchers. The Assessing Officer had pointed out various discrepancies in the books of account and calculation of opening and closing stocks. The argument of learned AR the mere absence of stock register cannot lead to rejection of books of accounts is though correct but here is a case where not only stock register was not maintained but there were various discrepancies in the valuation of opening and closing stock and moreover the Assessing Officer has clearly held that Gross Profit declared by assessee in the present year was lower as compared to earlier years. Moreover, the Assessing Officer has also compared Gross Profit ratio of two parties for the same year, who were also engaged in the similar type of activities. Therefore, we do not find merit in the arguments of learned AR regarding further relief. As regards Ground No. 1 taken by assessee that no show cause notice was issued in terms of provisions of Section 144(1), we find that assessment was not completed u/s 144 and therefore, no notice was required to be issued u/s 144. The learned CIT(A) has very reasonably dealt with issue and has allowed appropriate relief to the assessee and therefore, we do not intend to interfere with his findings - Decided against assessee and revenue Disallowance of expenses - as per assessee where the profits are estimated, the revenue authorities cannot further make addition on account of disallowance of expense - Held that - We find that such a scenario of not making any further additions arises only in those cases where the net profits are estimated whereas here is a case where addition has been made to the Gross Profits, therefore, the Revenue Authorities were justified in making various other additions on account of disallowance of expense - Decided in favour of assessee. Disallowance on account of foreign exchange expenditure - CIT(A) restricting the disallowance of foreign traveling expenses to the extent of 10% - Held that - In Asst. Year 2005-06 in the case of assessee itself, had reduced the disallowance of foreign traveling expenses in the case of employees of assessee to 10% whereas in the case of expenses incurred by partners, the Tribunal had confirmed the disallowance to the extent of 10% as upheld by learned CIT(A). Respectfully following the above Tribunal Order in the case of assessee itself, we restrict the disallowances out of foreign tour expenses to 10%. - Decided partly in favour of assessee. Disallowance of Keyman Insurance Premium - Held that - As for the statement made by the employees of the insurance companies, nothing turns on these statements. What constitutes a keyman insurance policy under section 10(10D) is not dependent on what is it treated even by the insurer; as long as the assessee is allowed to take life insurance policy on its keymen, as have been undisputedly taken in this case, the same satisfies the requirement of Section 10(10D). In view of these detailed discussions, as also bearing in mind entirety of the case, we uphold the grievance of the assessee and delete the impugned disallowance - Decided in favour of assessee. Disallowance of salary, labour welfare expenses - Held that - We find that the disallowance made by Assessing Officer and confirmed by learned CIT(A) is reasonable keeping in view that books of account were rejected and the bills/ vouchers were self made and payments were made in cash on the basis of self made vouchers. The disallowance represents about 10% of the total amount of unverifiable expenses which is reasonable - Decided against assessee.

Issues Involved:
1. Addition to Gross Profit
2. Disallowance of Foreign Traveling Expenses
3. Disallowance of Keyman Insurance Policy
4. Disallowance of Salary and Labour Welfare Expenses
5. Disallowance under Section 80IB

Detailed Analysis:

1. Addition to Gross Profit:
The assessee challenged the addition of Rs. 7,50,000/- out of Rs. 25,40,000/- made by the AO due to improper and incomplete maintenance of accounts. The CIT(A) upheld the rejection of the books of accounts but reduced the addition. The CIT(A) noted discrepancies in the valuation of stock and unsupported wage payments, justifying the rejection of books but found the AO's addition excessive. The CIT(A) sustained an addition of Rs. 7,50,000/- instead of Rs. 25,40,000/-. The Tribunal upheld the CIT(A)'s decision, finding it reasonable given the discrepancies noted.

2. Disallowance of Foreign Traveling Expenses:
The AO disallowed 40% of foreign traveling expenses due to lack of supporting evidence and potential personal use. The CIT(A) reduced the disallowance to 25%, noting that some expenses were unverifiable but rejecting the AO's 15% disallowance of ticket/visa expenses. The Tribunal further reduced the disallowance to 10%, referencing its earlier decision in the assessee's case for AY 2005-06, where a similar disallowance was restricted to 10%.

3. Disallowance of Keyman Insurance Policy:
The AO disallowed Rs. 17,00,000/- claimed for Keyman Insurance Policy premiums. The CIT(A) upheld this disallowance, referencing his earlier order in a similar case. The Tribunal, however, allowed the claim, citing a recent decision where such premiums were deemed allowable business expenditure. The Tribunal emphasized that the policy met the statutory definition of a Keyman Insurance Policy under Section 10(10D) and should be allowed.

4. Disallowance of Salary and Labour Welfare Expenses:
The AO disallowed Rs. 1,50,000/- out of salary and labour welfare expenses due to payments being made in cash and supported by self-made vouchers. The CIT(A) upheld this disallowance, noting that the expenses were not entirely verifiable. The Tribunal agreed with the CIT(A), finding the 10% disallowance reasonable given the unverifiable nature of the expenses.

5. Disallowance under Section 80IB:
The AO disallowed the deduction under Section 80IB, excluding export incentives, duty drawback, and interest from eligible business profits. The CIT(A) upheld this disallowance, referencing the Supreme Court's decision in Liberty India vs. CIT, which held that such incentives are not derived from eligible business profits for Section 80IB purposes. The Tribunal noted that the assessee did not press this ground, and it was dismissed accordingly.

Conclusion:
The Tribunal's judgment resulted in partial relief for the assessee by reducing the disallowance on foreign traveling expenses and allowing the claim for Keyman Insurance Policy premiums while upholding the CIT(A)'s decisions on the other issues. The Tribunal's decisions were based on a detailed examination of the facts and relevant legal precedents.

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