2015 (12) TMI 555 - AT - Income Tax

Rejection of books of account - non-maintenance of stock register - G.P. addition - Held that - As far as the gross profit addition in respect of M/s. S.R. Presstress Industries, Mantri Industries and M/s. Mantri Pole Udyog are concerned, the assessee maintained proper books of account duly supported by the audit report in form 3 CD. The mistakes pointed out by the AO for rejecting the books of account are untenable inasmuch as assessee s taxable profits can be ascertained on the basis of documents and records furnished by the assessee. In view thereof, see no justification in rejecting the books of account and estimation of gross profit. Consequently books are upheld, addition in this behalf is deleted. Disallowance of miscellaneous expenses, it is observed that the expenditure is incurred wholly and exclusively for the purpose of business. Merely because some expenditure is claimed on the basis of self made vouchers cannot make the expenditure disallowable. - Decided in favour of assessee.

Summary

Issues:
1. Rejection of books of account under section 145(3)
2. Application of gross profit rate and trading additions
3. Disallowances of expenses claimed in profit and loss account

Analysis:

Issue 1: Rejection of books of account under section 145(3)
The appellant contested the rejection of books of account by the ld. CIT(A) for the assessment year 2008-09. The appellant maintained detailed records of opening stock, production, sales, and closing stock of raw material and finished goods. Despite providing voluminous compliance and audited accounts, the AO and ld. CIT(A) rejected the books of account. The appellant argued that the rejection was unjustified as all necessary details were maintained and presented. The tribunal found the rejection baseless and upheld the appellant's books of account, leading to the deletion of additions based on estimated gross profit rates.

Issue 2: Application of gross profit rate and trading additions
The appellant challenged the application of gross profit rates by the ld. CIT(A) resulting in trading additions of arbitrary amounts. The appellant demonstrated that the declared gross profit rates were different from those applied by the authorities. The tribunal acknowledged that proper books of account were maintained and supported by audit reports, making the estimation of gross profit unjustified. Consequently, the tribunal deleted the trading additions imposed by the authorities.

Issue 3: Disallowances of expenses claimed in profit and loss account
The appellant objected to the disallowances of expenses, including miscellaneous expenses, traveling expenses, and wages, made by the ld. CIT(A). The appellant argued that all expenses were incurred solely for business purposes and were supported by proper documentation. The tribunal noted that the expenses were legitimate business expenditures, and the disallowances were unwarranted. As a result, the tribunal allowed the appellant's appeal and deleted the addition of Rs. 35,917 related to the disallowed expenses.

In conclusion, the appellate tribunal ruled in favor of the appellant, overturning the decisions of the lower authorities regarding the rejection of books of account, application of gross profit rates, and disallowances of expenses. The tribunal found the appellant's contentions valid and ordered the deletion of the disputed amounts, ultimately allowing the appeal.