2018 (3) TMI 1463 - AT - Income Tax

Disallowance of expenses as discounts allowed, forwarding expenses and quality difference - application of GP rate @ 2% on total turnover - assessee submitted as losses in the business - Held that - Where the assessee had not originally filed its return of loss, then the plea of assessee that it had incurred losses is not backed by any evidence whatsoever. The year under appeal is assessment year 2010-11 i.e. financial year 2009-10 and the assessee has not filed any evidence of the loss of the year at ₹ 15,32,732/- as mentioned in the statement of facts. Even the books of account evidencing the same were not available with the assessee. The assessee had admittedly computerized books of account in September, 2012 in which the loss has been worked out to ₹ 15,32,732/-. The auditor has signed the said accounts on 28.09.2012 i.e. much after the due date of signing and filing the audit report for the year ending 31.03.2010. Such book results shown by the assessee cannot be relied to compute the income in the hands of assessee. Accordingly, we uphold the order of CIT(A) in applying the GP rate to determine the income in the hands of assessee. The provisions of section 145 of the Act are squarely attracted. However, we direct the Assessing Officer to apply GP rate at 1% on the total turnover of ₹ 11.83 crores in order to determine the income in the hands of assessee. - Decided partly in favour of assessee

Summary

Issues:
Disallowed expenses - Discounts, forwarding expenses, quality difference

Analysis:
1. The appeal was filed against the order of CIT(A)-1, Aurangabad, related to the assessment year 2010-11 under section 144 r.w.s. 147 of the Income-tax Act, 1961.
2. The primary issue raised was the disallowance of expenses totaling &8377; 35,32,831/- by the Assessing Officer, which was later restricted to &8377; 23,66,735/- by the CIT(A).
3. The assessee, engaged in trading activities, had declared a loss of (-) &8377; 15,32,732/-. However, discrepancies were noted in the books of account and lack of evidence for expenses claimed.
4. The Assessing Officer disallowed expenses like discounts, forwarding expenses, and quality difference amounting to &8377; 35,32,831/- due to lack of supporting evidence.
5. The CIT(A) upheld the disallowance but restricted it to &8377; 23,66,735/-, applying a GP rate of 2% on the total turnover of &8377; 11.83 crores.
6. The assessee contended that losses were due to mismanagement, leading to business closure and financial constraints, but failed to provide substantial evidence for claimed losses.
7. The Tribunal upheld the CIT(A)'s decision, applying a GP rate of 1% on the total turnover to determine the income, as per the provisions of section 145 of the Act.
8. Consequently, the appeal was partly allowed, and the Assessing Officer was directed to apply the revised GP rate for income determination.

This detailed analysis encapsulates the legal judgment concerning the disallowance of expenses and the subsequent application of GP rates to ascertain the income, providing a comprehensive understanding of the case's intricacies and the judicial reasoning behind the final decision.