2017 (3) TMI 1300 - AT - Income Tax

G.P. addition - no rejection of books of accounts - Held that - There is no finding by any of the authority below about any specific defects in the books of account, and yet an addition has been made to the profit disclosed by the assessee. The business situations can never be so static as to permit a uniform gross profit rate over the years. The gross profit rate being too low cannot be reason enough to reject the books of account, and make gross profit addition. Cannot, therefore, uphold the action of the authorities below in adding the value of debit notes of ₹ 4,19,175/- only on the ground that such an addition will result in reasonable gross profit. There is no reason to doubt genuineness and bonafides of these debit notes. - Decided in favour of assessee

Issues involved:
1. Challenge to correctness of order dated 4th March 2013 by CIT(A) for assessment year 2009-10 regarding addition made on account of Low Gross Profit.
2. Addition of account of low Gross Profit amounting to ?4,19,175.
3. Addition on account of personal use of electricity by partner of firm.
4. Disallowance of general expenses due to incomplete bill and vouchers.

Issue 1: Challenge to correctness of order dated 4th March 2013 by CIT(A) for assessment year 2009-10 regarding addition made on account of Low Gross Profit.

The assessee challenged the correctness of the order dated 4th March 2013 by the CIT(A) for the assessment year 2009-10 regarding the addition made on account of Low Gross Profit. The Assessing Officer observed a substantial fall in the gross profit rate from the preceding year. The explanation provided by the assessee was rejected, and an addition of ?4,19,175 was made to the income of the assessee. The CIT(A) upheld this addition stating that the fall in Gross Profit was not adequately explained by the assessee. However, the ITAT Ahmedabad, in its judgment, noted that there were no specific defects in the books of account to justify the addition. The tribunal found that business situations are dynamic, and a uniform gross profit rate over the years is not always feasible. Therefore, the tribunal deleted the addition of ?4,19,175 as there was no reason to doubt the genuineness of the debit notes.

Issue 2: Addition of account of low Gross Profit amounting to ?4,19,175.

The assessee contested the addition of ?4,19,175 on account of low Gross Profit. The Assessing Officer made this addition based on the fall in the gross profit rate compared to the preceding year. The CIT(A) upheld this addition, stating that the fall in Gross Profit was not adequately explained by the assessee. However, the ITAT Ahmedabad, in its judgment, found that there were no specific defects in the books of account to justify the addition. The tribunal emphasized that a low gross profit rate alone is not sufficient reason to reject the books of account and make such an addition. As there was no evidence to question the genuineness of the debit notes, the tribunal decided to delete the addition of ?4,19,175.

Issue 3: Addition on account of personal use of electricity by partner of firm.

The assessee raised a grievance regarding the addition of ?43,640 on account of personal use of electricity by a partner of the firm. The CIT(A) confirmed this addition without establishing that the partner was actually conducting business from the firm's premises. The ITAT Ahmedabad noted that the learned counsel did not provide substantial arguments against this addition, and therefore, the tribunal saw no reason to interfere with the CIT(A)'s decision. Consequently, the addition on account of personal use of electricity by the partner was upheld.

Issue 4: Disallowance of general expenses due to incomplete bill and vouchers.

The assessee contested the disallowance of ?11,489 on account of general expenses due to incomplete bill and vouchers. The CIT(A) confirmed this disallowance without pointing out any specific defects in the vouchers. The ITAT Ahmedabad, in its judgment, mentioned that the learned counsel did not provide significant arguments against this disallowance. Therefore, the tribunal upheld the CIT(A)'s decision regarding the disallowance of general expenses due to incomplete bill and vouchers.

In conclusion, the ITAT Ahmedabad partly allowed the appeal by deleting the addition made on account of low Gross Profit but confirmed the additions related to personal use of electricity by a partner of the firm and the disallowance of general expenses. The judgment emphasized the importance of providing adequate explanations and evidence in tax assessments to avoid such additions and disallowances.

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