2018 (1) TMI 394 - AT - Income Tax

Rejection of books of accounts - invocation of section 145 - estimation of G.P. - Held that - G.P. rate for the year under consideration was better than immediate preceding year. Further this was a new business started wherein the expenditure on account of rent and the stitching was comparably higher to the other established sister concern units. This fact has been compared with the rent and stitching expenses debited in the P&L account of the assessee and in the P&L account of sister concern in the name of Nakora Packaging Industries. Thus, the assessee is able to establish that the books results are comparable to the sister concern for the peculiar facts of this case for the year under consideration. Considering all these facts and legal position, the Bench find no merit in sustaining this disallowance, hence, the same is hereby deleted. Lump sum disallowance on account of various expenses debited in the P&L account - Held that - The appellant could not fully controvert the findings of the AO. However, the disallowance made by the AO appears to be on the higher side. Considering the volume and nature of business of the appellant, it would be fair and reasonable to restrict the disallowance to 50% of the amount disallowed by the AO. CIT(A) has reasonably restricted the disallowance at ₹ 28,866/-, therefore, the same is hereby upheld.

Summary

Issues Involved:
1. Invocation of Section 145(3) for rejecting books of accounts
2. Trading addition of ?10,95,619 by increasing GP rate
3. Disallowance of ?28,866 out of expenses
4. Proper show cause notice issuance
5. Charging of interest under Sections 234B, 234C, and 234D

Issue 1: Invocation of Section 145(3) for rejecting books of accounts:
The assessee appealed against the invocation of Section 145(3) for rejecting the books of accounts, arguing that audited accounts should be accepted for tax purposes. The ITAT upheld the AO's decision, noting discrepancies in maintaining stock details and unverified sales. The ITAT found the rejection justified due to lack of reconciliation of raw material consumption with finished products and incomplete production records.

Issue 2: Trading addition of ?10,95,619 by increasing GP rate:
The appeal contested the trading addition based on an arbitrary increase in GP rate from 5.26% to 8%. The ITAT considered the appellant's submissions but upheld the addition, citing progressive trading results without supporting evidence for past assessments. The ITAT found the AO justified in making the addition, sustaining the ?10,95,619 trading addition.

Issue 3: Disallowance of ?28,866 out of expenses:
The appeal challenged the lump sum disallowance of ?28,866 out of various expenses, arguing it lacked justification. The ITAT acknowledged the AO's disallowance but reduced it to ?28,866, considering the business volume and nature. The ITAT upheld the reduced disallowance as reasonable and fair.

Other Issues:
The appeal raised concerns about the issuance of show cause notices and charging of interest under Sections 234B, 234C, and 234D. However, these issues were not pressed during the hearing and were dismissed. The ITAT reviewed the arguments but did not find merit in sustaining the disallowance, ultimately deleting it. The ITAT also upheld the reduced disallowance of ?28,866 and partially allowed the appeal.

This comprehensive analysis of the judgment highlights the key issues raised, the arguments presented, and the ITAT's decisions on each matter, ensuring a detailed understanding of the legal judgment.