2018 (7) TMI 2310 - AT - Income Tax

Estimation of income - gross profit on alleged purchases made through entry - HELD THAT - The transactions are duly recorded in the stock register and every purchase can be identified with the corresponding sales. It seems that the addition has been made on the basis of statement tendered by Shri S. K. Bajaj and that statement was retracted on 21/11/2008. The cross examination was never provided to the assessee and the whole addition is based upon estimation only thus considering the factual matrix and interest of Revenue we deem it appropriate to adopt the gross profit @ 0.7 minus already GP declared by the assessee and against 1% estimated by the Ld. AO. Thus this ground of the assessee is partly allowed. Addition u/s 69C - commission paid on purchase of silver bills - commission was estimated by the Ld. Assessing Officer @0.5% which may be reduced to 0.2% - HELD THAT - As it will meet the end of justice if the commission is estimated at the rate of 0.3% in place of 0.5% made by the Ld. AO and 0.2% requested by the Ld. counsel for the assessee. AO is directed accordingly. This ground of the assessee is partly allowed. Disallowance being 1/6th of car and telephone expenses and further disallowance at the rate of 15% of entertainment expenses for personal use - HELD THAT - Vehicles of the assessee company are used as per terms and conditions of the service and since the assessee is a private limited company it is assessable as a distinct assessable entity as per the definition of person under section 2(31) of the Act. The Hon ble High Court in Dinesh Mills Ltd 2001 (12) TMI 65 - GUJARAT HIGH COURT clearly held that it could not be stated that when the vehicles were used by the directors even if they were personally used by the directors the vehicles were personally used by the company because a limited company by its very nature cannot have any personal use . The limited company is an inanimate person and there cannot be anything personal about such an entity. The view was supported by the provision of section 40(c) and section 40A(5) of the Act. Once the expenditure in question was in terms as provided in sections 309 and 198 of the Companies Act there could not be any non-business purpose insofar as the assessee-company was concerned. While coming to the aforesaid conclusion Hon ble High Court followed the decision from L.G. Ramamurthi 1976 (10) TMI 18 - MADRAS HIGH COURT No contrary decisions or facts were brought to our notice by the Revenue. Thus grounds of the assessee are allowed

Summary

Issues Involved:
1. Validity of the order passed under section 143(3) read with section 153A of the Income Tax Act, 1961.
2. Addition of Rs. 4,91,607/- on account of gross profit on alleged purchases.
3. Addition of Rs. 5,15,312/- under section 69C of the Income Tax Act on account of alleged commission paid.
4. Disallowance of Rs. 1,92,114/- being 1/6th of car and telephone expenses and 15% of entertainment expenses for personal use.
5. Levy of interest under section 234B of the Income Tax Act.

Detailed Analysis:

1. Validity of the Order Passed under Section 143(3) read with Section 153A:
The assessee's first ground pertained to challenging the order passed by the Assessing Officer under section 143(3) read with section 153A of the Income Tax Act, 1961. During the hearing, the counsel for the assessee did not press this ground, and the Revenue had no objection to it. Consequently, this ground was dismissed as not pressed.

2. Addition of Rs. 4,91,607/- on Account of Gross Profit on Alleged Purchases:
The assessee contested the addition of Rs. 4,91,607/- made by estimating the gross profit at 1% of the purchases amounting to Rs. 10,30,624/-. The assessee argued that the addition was based on a statement from the supplier, which was later retracted, and no opportunity was given to cross-examine the supplier. The Tribunal noted that the transactions were recorded in the books, payments were made through banking channels, and VAT was paid. The Tribunal deemed it appropriate to adopt a gross profit rate of 0.7% instead of 1%, thus partly allowing this ground. This conclusion also applied to the appeals for Assessment Years 2007-08 and 2008-09.

3. Addition of Rs. 5,15,312/- under Section 69C on Account of Alleged Commission Paid:
The assessee challenged the addition of Rs. 5,15,312/- made under section 69C on account of alleged commission paid on purchase of silver bills. The commission was estimated at 0.5% by the Assessing Officer, which the assessee argued was excessive and should be reduced to 0.2%. The Tribunal considered the rival submissions and noted that the purchases were made at prevailing market rates through banking channels. The Tribunal found the commission estimation of 0.5% excessive and deemed it appropriate to reduce it to 0.3%, thus partly allowing this ground. This conclusion also applied to the appeals for Assessment Years 2007-08 and 2008-09.

4. Disallowance of Rs. 1,92,114/- Being 1/6th of Car and Telephone Expenses and 15% of Entertainment Expenses for Personal Use:
The assessee contested the disallowance of Rs. 1,92,114/- for car and telephone expenses and 15% of entertainment expenses for personal use. The Tribunal referred to decisions from the Hon'ble Gujarat High Court in Sayaji Iron & Engg. Co. vs. CIT and Dinesh Mills Ltd. vs. CIT, which held that in the case of a company, no disallowance could be made on the basis of personal use. The Tribunal concluded that the vehicles were used as per the terms of service, and since the assessee is a private limited company, it cannot have personal use. The Tribunal allowed these grounds, and this conclusion also applied to the appeals for Assessment Years 2007-08 and 2008-09.

5. Levy of Interest under Section 234B:
The last ground pertained to the levy of interest under section 234B of the Income Tax Act. This ground was not argued by the counsel for the assessee and was deemed consequential in nature.

Conclusion:
The appeals of the assessee were partly allowed. The order was pronounced in the open court in the presence of representatives from both sides at the conclusion of the hearing on 17/07/2018.