2019 (9) TMI 1489 - AT - Income Tax

Trading addition - lumsum/ adhoc addition on account of labour expenses on estimation basis - Non rejection of books of accounts - HELD THAT - ITAT Jaipur Bench in the case of Goodwill Impex Ltd vs DCIT 2019 (3) TMI 1456 - ITAT JAIPUR had categorically held that where the assessee company had declared better trading results as compared to previous year and such result provides a reasonable basis to hold that there should not be any addition in the hands of the assessee company. AO had not detected any defect in the books of the assessee and AO has not invoked the provisions of section 145(3) of the Act for rejecting the books of account of the assessee but made the lumsum/ adhoc addition on account of labour expenses on estimation basis without finding any defects in the books of account and vouchers of the assessee. Hence once the assessee company had declared better trading results as compared to previous year, such results provide a reasonable basis to hold that there should not be any addition in the hands of the assessee company. Thus in the light of the above discussions and keeping in view the entirety of the facts and circumstances of the case, the addition so made by AO and restricted by ld. CIT(A) are deleted. Thus the solitary ground of the assessee is allowed.

Summary

Issues:
Challenge to addition of lumpsum disallowance without considering book results.

Analysis:
1. The appeal was filed against the order of CIT(A) sustaining the addition of ?6,00,000 for a lumpsum disallowance made by ACIT, Circle - 5, Jaipur of ?10,00,000 without considering the book results of the assessee.
2. The assessee, a partnership firm with income from civil construction works, filed a return declaring income of ?1,30,047,410 for the assessment year 2015-16. The AO, after scrutiny, made an addition of ?10.00 lacs, which was partly allowed by CIT(A) by restricting it to ?6.00 lacs.
3. The main ground raised by the assessee was the challenge to the addition made by the AO without considering the GP and NP of the firm, which showed better results compared to previous years.
4. The assessee argued that the AO did not find any defects in the books and vouchers, yet made a lumpsum addition for labour expenses without proper basis, contrary to legal principles.
5. The ITAT analyzed the case and noted that the assessee had shown better results in GP and NP rates over the years, paying taxes on better profits, indicating no revenue leakage. The decision in the case of Goodwill Impex Ltd vs DCIT was cited, emphasizing that where a company shows improved trading results, no additional additions should be made.
6. The ITAT concluded that since the assessee demonstrated better trading results compared to previous years, the addition made by the AO and restricted by CIT(A) was unjustified. Therefore, the ITAT allowed the appeal, deleting the addition made by the AO.
7. The appeal was allowed with no order as to cost, with the judgment pronounced on 26/09/2019.