2011 (6) TMI 1004 - AT - Income Tax

Summary

Issues involved: Appeal against the order of the ld. CIT(A)-I, Jaipur dated 01-12-2010 for the assessment years 2007-08.

Issue 1: Rejection of Books of Accounts

The assessee appealed against the rejection of books of accounts under Section 145(3) of the I.T. Act. The AO found discrepancies in purchases made from certain parties suspected of issuing bogus bills. Despite being asked to produce these parties, the assessee failed to do so. The AO rejected the books of accounts based on the information collected and the failure to verify the purchases. The ld. CIT(A) upheld this rejection citing precedents and consistency in such cases. The ITAT Jaipur Bench and the Hon'ble Apex Court have also supported the rejection of books of accounts in similar situations. Therefore, the rejection of books of accounts was deemed justified.

Issue 2: Trading Addition

The assessee contested the trading addition made by the AO, while the revenue challenged the reduction of the trading addition. The AO, after rejecting the books of accounts, calculated the trading addition based on unverifiable purchases. The ld. CIT(A) directed the application of a specific gross profit rate on declared sales due to a decrease in turnover. The parties presented differing arguments regarding the gross profit rate and the treatment of non-verifiable purchases. The Tribunal considered the facts of the case, the previous year's gross profit rate, and the decrease in turnover to determine a fair gross profit rate of 12.8%. The trading addition was adjusted accordingly.

Issue 3: Disallowance of Expenses

The assessee challenged the disallowance of various expenses including freight & cartage, telephone, and traveling expenses. The disallowance of freight & cartage was deleted following a precedent set in the previous year. However, the disallowance of telephone expenses was upheld due to potential personal use. The disallowance of traveling expenses was based on the lack of specific details and evidence provided by the assessee. The ld. CIT(A) confirmed the disallowance of traveling expenses. The Tribunal found the disallowance of 10% excessive and reduced it to a reasonable amount of Rs. 50,000.

In conclusion, the appeal of the revenue was dismissed, and the appeal of the assessee was partly allowed based on the considerations and adjustments made regarding the rejection of books of accounts, trading addition, and disallowance of expenses.