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2016 (2) TMI 163 - AT - Income TaxNP rate determination - Held that - NP rate which should be considered for examination is NP rate before depreciation, interest and remuneration to partners. Nothing has been brought to your notice for deviating from the said settled position. Further, during the year under consideration, the NP rate before depreciation, interest and remuneration to partners is disclosed by the assessee at 9.02% which is on a progressive scale hence there is no basis to disturb the same. Secondly the expenses have been disallowed on an adhoc basis. In absence of any specific finding of the AO whereby specific expenses/transactions have been held to be not incurred for the purposes of the businesses, we are unable to accede to the position adopted by the AO. Hence we do not see any infirmity in order of ld. CIT(A) which is confirmed. - Decided against revenue
Issues:
1. Disallowance of expenses on account of purchase of grit, rodi, bajri 2. Disallowance of labour and wages expenses 3. Disallowance of petrol & diesel, vehicle repairing, and depreciation expenses 4. Disallowance of telephone expenses Analysis: Issue 1: Disallowance of expenses on account of purchase of grit, rodi, bajri The appeal by the Revenue challenged the deletion of an addition of Rs. 9,69,670 for expenses on the purchase of materials. The Assessing Officer (AO) had rejected the books of account under section 145(3) and disallowed 10% of the expenditure on materials. The CIT(A) deleted this addition based on the assessee's progressive net profit rate before depreciation, interest, and remuneration to partners. The ITAT upheld the CIT(A)'s decision, emphasizing that the net profit rate should be considered before these deductions. The AO's ad hoc disallowance lacked specific findings on expenses not being for business purposes, leading to the dismissal of the Revenue's appeal. Issue 2: Disallowance of labour and wages expenses The Revenue contested the deletion of Rs. 6,87,519 disallowed for labour charges. The CIT(A) reversed this disallowance, citing the assessee's higher net profit rate before deductions compared to previous years. The ITAT supported this reasoning, emphasizing the importance of considering the net profit rate before depreciation, interest, and remuneration to partners. The lack of specific findings by the AO on disallowed expenses led to the dismissal of the Revenue's appeal. Issue 3: Disallowance of petrol & diesel, vehicle repairing, and depreciation expenses The Revenue challenged the deletion of Rs. 20,39,933 disallowed for petrol, diesel, vehicle repairs, and depreciation. The CIT(A) based the deletion on the assessee's net profit rate before deductions being higher than in previous years. The ITAT upheld this decision, emphasizing the need to consider the net profit rate before certain deductions. The absence of specific findings by the AO on disallowed expenses resulted in the dismissal of the Revenue's appeal. Issue 4: Disallowance of telephone expenses The Revenue disputed the deletion of Rs. 4760 disallowed for telephone expenses. The CIT(A) reversed this disallowance, aligning with the assessee's higher net profit rate before deductions compared to earlier years. The ITAT supported this stance, emphasizing the significance of the net profit rate before certain deductions. The absence of specific AO findings on disallowed expenses led to the dismissal of the Revenue's appeal. In conclusion, the ITAT Jaipur upheld the CIT(A)'s decision to delete the disallowances of various expenses, emphasizing the importance of considering the net profit rate before certain deductions and the lack of specific findings by the AO on disallowed expenses. The Revenue's appeal was dismissed, affirming the CIT(A)'s order.
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