2017 (9) TMI 1857 - AT - Income Tax

Ad hoc disallowance of expenses - as pleaded by assessee that once the addition has been made by estimating the income then ad hoc disallowance out of various expenses claimed in the P L account should not have been made or sustained by the CIT(A) - HELD THAT - We do agree with the contention of the ld AR that where income has been estimated after rejecting the books of account then no further disallowance is required to be made out of various expenses claimed in the P L account. However, the facts of this case are completely different. CIT(A) has sustained the net profit of 25% of the gross commission earned @ 6% on the sales which were not reflected in the assessee s books of account and these sales were made for the other Adathiyas. CIT(A) sustained net profit @ 25% of gross commission. The revenue is not in appeal on relief granted by the ld. CIT(A). No reason but to agree with the order of the ld. CIT(A) for estimating net profit @ 25% of gross commission. Hence ground No. 4 of the appeal stands dismissed. Disallowances are out of the various expenses debited in the P L account against the declared turnover by the assessee in its books of account. These disallowances are made for lack of supporting vouchers and documentary evidences and where no details were submitted with regard to the cash discount. Since the ld. CIT(A) has estimated net profit @ 25% of the commission @ 6% on the sales of ₹ 92,02,368/-, therefore, in the interest of justice direct to estimate net profit as 1.5% of declared sales of ₹ 5.00 crores, thus part addition sustained. The declared turnover was of around ₹ 5.00 crores. Hence the estimated income on this turnover comes at ₹ 7.5 lacs. Instead of net income declared in the return of income, the income from declared turnover shall be at ₹ 7.5 lacs. Thus, the total income from the business of Adathiya is estimated at ₹ 8,88,035/- ( 7,50,000/- 1,38,035/-). Accordingly grounds No. 1 and 2 are partly allowed and ground No. 4 of the appeal is dismissed.

Summary

Issues involved:
1. Disallowance of ad hoc expenses
2. Disallowance of cash discount given to customers
3. Addition of undisclosed sources to income
4. Addition to business income
5. Addition to undisclosed sales

Analysis:

1. Disallowance of ad hoc expenses:
The Assessing Officer disallowed various expenses claimed by the assessee due to lack of supporting vouchers and documentary evidence. The ld. CIT(A) partly confirmed these disallowances, citing reasons for each category of expenses. The ITAT upheld the disallowances, stating that no further disallowance is required when income has already been estimated. The net profit was estimated at 25% of gross commission, leading to the dismissal of this ground of appeal.

2. Disallowance of cash discount given to customers:
The AO disallowed a cash discount claimed by the assessee on sales due to insufficient details and lack of evidence regarding parties receiving the discount. The ld. CIT(A) upheld this disallowance of INR 2 lakhs, considering the absence of supporting vouchers and confirmations. The ITAT agreed with the ld. CIT(A)'s decision, confirming the disallowance.

3. Addition of undisclosed sources to income:
An addition of INR 1,38,035 was made to the assessee's income based on business transactions through the appellant's bank account. The ld. CIT(A) sustained part of this addition after considering the gross commission earned and the net profit of 25%. The ITAT dismissed the appeal on this ground, upholding the ld. CIT(A)'s decision.

4. Addition to business income:
The AO made an addition of INR 5,06,142 as business income from transactions through the appellant's bank account. The ld. CIT(A) confirmed part of this addition, estimating the net profit at 25% of the gross commission earned. The ITAT partly allowed this ground of appeal, directing the estimation of net profit at 1.5% of declared sales, resulting in a total estimated income of INR 8,88,035.

5. Addition to undisclosed sales:
The AO added INR 5,660 to the assessee's income as undisclosed sales. The ld. CIT(A) confirmed this addition. However, the ITAT's judgment did not specifically address this issue in the detailed analysis provided.

In conclusion, the ITAT partly allowed the assessee's appeal, confirming some additions while directing adjustments in others. The judgment provided detailed reasoning for each issue raised in the appeal, ensuring a comprehensive analysis of the disputed matters.