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2018 (9) TMI 871 - AT - Income TaxRejection of books of accounts - G.P. estimation - onus as casted on the assessee to substantiate the claim - Held that - GP estimation of 15% as made by Ld. AO was slightly on the higher side and therefore we propose a net addition of 0.5% on sales turnover of 46.29 crores to take care of stock discrepancies stock-loss and high labor charges. At the same time the disallowance of commission expenses of 14.76 Lacs as estimated by Ld. AO in our opinion was fair in the circumstances and therefore the stand of Ld. CIT(A) in this regard stand reversed. Lastly the stand of Ld. CIT(A) in estimating the disallowance of 25% against foreign travelling expenses was just and fair under the circumstances and therefore the same do not require any interference on our part.
Issues Involved:
1. Deletion of addition on account of difference in Gross Profit (GP). 2. Deletion of addition on account of commission expenses. 3. Deletion of addition on account of foreign travel expenses. Issue-wise Detailed Analysis: 1. Deletion of Addition on Account of Difference in Gross Profit (GP): The revenue contested the deletion of ?2,06,97,863/- added by the Assessing Officer (AO) due to discrepancies in the books of accounts, particularly in labor charges, stock valuation, and loss incurred during jewelry manufacturing. The AO rejected the books under Section 145(3) of the IT Act, adopting a GP rate of 15% against the 10.53% declared by the assessee. The CIT(A) found that the AO did not provide a basis for the industry average loss rate of 3-4% and incorrectly calculated the gold loss. The CIT(A) also noted that the assessee consistently followed the Last In First Out (LIFO) method, which was accepted in previous years. Consequently, the CIT(A) deleted the addition, stating that the AO's rejection of the books was not justified. However, the Tribunal found the GP estimation of 15% slightly high and proposed a net addition of 0.5% on the sales turnover to address the discrepancies. 2. Deletion of Addition on Account of Commission Expenses: The AO disallowed ?14,76,000/- out of ?56,94,926/- claimed as commission expenses, noting that a significant portion was paid to family members without adequate justification. The CIT(A) found that the commission payments were duly offered as income by the recipients and that the AO had overstepped by questioning the expenses claimed by the recipients. The CIT(A) deleted the addition, but the Tribunal reversed this decision, agreeing with the AO's disallowance of ?14,76,000/-, finding it fair under the circumstances. 3. Deletion of Addition on Account of Foreign Travel Expenses: The AO disallowed ?5,55,991/- claimed as foreign travel expenses, questioning the business purpose of trips to London, Italy, and Bangkok. The CIT(A) acknowledged the business necessity of staying updated with international jewelry designs but also recognized the potential for personal expenses. Thus, the CIT(A) allowed 75% of the expenses and disallowed 25%. The Tribunal upheld this decision, finding the 25% disallowance just and fair. Conclusion: The Tribunal directed the AO to re-compute the income of the assessee in accordance with its findings, thereby partly allowing the appeal. The GP addition was adjusted to 0.5% of the sales turnover, the disallowance of commission expenses was upheld, and the partial disallowance of foreign travel expenses was maintained.
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