2017 (12) TMI 1004 - AT - Income Tax

Rejection of books of accounts - addition of G.P. - Held that - This is a fact that the assessee was not maintaining quality wise details of the commodities traded, therefore, it shall not be possible to verify the correctness of the valuation of the closing stock. Therefore, the Bench is of the view that the books of account were rightly rejected by invoking the provisions of Section 145(3) of the Act. Further the Assessing Officer made the addition of ₹ 4.00 lacs and the ld. CIT(A) restricted it to ₹ 3.00 lacs. After considering both the sides and various other aspects of the case including the increase in the sales turnover from 10.85 crores to 13.90 crores, the estimated addition of G.P. at ₹ 3.00 lacs is in higher side, therefore, the addition on this count restricted at ₹ 2.00 lacs. Disallowances out of shops expenses, telephone expenses, low household withdrawals and interest not charged respectively - Held that - Since, the addition on account of gross profit has been sustained, therefore, no specific additions out of various expenses debited in the P&L account can be sustained. In view of the factual and legal position, the same are directed to be deleted.

Summary

Issues Involved:
1. Addition of lump-sum trading amount
2. Rejection of books of account under Section 145(3)
3. Disallowance of shop expenses
4. Disallowance of telephone expenses
5. Addition of household withdrawals
6. Addition of interest not charged

Issue 1 - Addition of Lump-Sum Trading Amount:
The Assessing Officer (AO) made a lump-sum trading addition of ?4,00,000 without a proper basis, which was later restricted to ?3,00,000 by the ld. CIT (Appeals). The appellant argued that the increase in sales turnover justified a lower addition. The ITAT partially allowed the grounds, restricting the Gross Profit addition to ?3,00,000 and deleting the balance amount of ?1,00,000.

Issue 2 - Rejection of Books of Account under Section 145(3):
The AO invoked Section 145(3) due to the lack of quality-wise details of commodities traded and incorrect valuation of closing stock. The ld. CIT (Appeals) upheld this decision, stating that the appellant failed to provide specific details. The ITAT agreed that the rejection of books under Section 145(3) was justified.

Issue 3 - Disallowance of Shop Expenses, Telephone Expenses, Household Withdrawals, and Interest:
The ld. CIT (Appeals) confirmed various disallowances including shop expenses, telephone expenses, household withdrawals, and interest not charged. The ITAT upheld the disallowances related to shop and telephone expenses but disagreed with the disallowance of household withdrawals and interest, directing their deletion based on factual and legal grounds.

In conclusion, the ITAT partially allowed the appeal, emphasizing the need for specific evidence and justification for expenses and additions. The judgment highlighted the importance of maintaining detailed records and providing substantial reasoning for income tax assessments.