2019 (2) TMI 1400 - AT - Income Tax

N.P. rate determination - HELD THAT - N.P ratio is higher in the A.Y. 2014-15 in comparison to A.Y. 2012-13 & 2013-14. As found that the Assessing Officer has not found that purchase and sales recorded in the books are inflated or bogus. Further the Books of accounts are audited u/s 44AB of the income tax act. Without pointing out any defects in the books of accounts the learned A.O s conclusion to possible leakage of revenue is hypothetical and not tenable. It is very clear that there is increase N.P. rate during the year under consideration as compared to the earlier two years. Under these facts and circumstances of the case, there is no justification for making any trading addition. Accordingly entire trading addition so made by the Assessing Officer is directed to be deleted. Disallowance of foreign travelling of expenditure - HELD THAT - As found that actual foreign travelling was at ₹ 115,000/- incurred by B.P. Singh on tour to Jeddah on behalf of the assessee. Rest of the expenses ₹ 3,72,881/- were payment to one of the staff Mr. Puneetsingh for inland travelling which inadvertently displayed as a foreign travelling in the income tax return. All expenses were paid to him by cheques as per his submission of bank statement for online payment to IRCTC and Airlines and Hotels. Since the assessee was having export sales to Jeddah and Bahrain, travelling to this country was for the purpose of business. No merit for disallowance foreign travelling expenditure, having been incurred by the assessee for the purpose of this business. Assessing Officer is directed to delete the same. Addition on account of deemed rental income - HELD THAT - The property purchased by the assessee is situated at Kamla Crystal and not in Kamla Enclave and the same was used for residential purposes by the assessee since its purchase. The house at 6-A-42, C.S. Azad Nagar was occupied for the business of R.K. Textiles for grading and finishing job. The house which is not having any actual rental income but self occupied by assessee should be determined as per the municipal ratable value. Accordingly, the matter is restored to file of the Assessing Officer to find out the municipal ratable value of the house for computing income u/s 22.

Summary

Issues:
1. Trading additions made by Assessing Officer
2. Disallowance of foreign travelling expenditure
3. Addition of deemed rental income

Trading Additions:
The appeal was filed against the CIT(A)'s order confirming trading additions made by the Assessing Officer. The Assessing Officer had rejected the books of accounts and made a trading addition of &8377; 6,58,398. The CIT(A) upheld an addition of &8377; 1,20,270 and deleted &8377; 5,38,128. The appellant contended that the GP ratio decline was due to increased sales, which is a normal business phenomenon. The comparison of Gross Profit and Net Profit for the last three assessment years was presented. The Tribunal found no defects in the books of accounts and concluded that the possible revenue leakage was hypothetical. Consequently, the entire trading addition by the Assessing Officer was directed to be deleted.

Disallowance of Foreign Travelling Expenditure:
The next issue pertained to the disallowance of foreign travelling expenditure amounting to &8377; 4,87,881. The Assessing Officer disallowed this amount, but upon review, it was revealed that the actual foreign travelling expense was &8377; 115,000, with the rest being payments to staff for inland travelling mistakenly recorded as foreign expenditure. As the travelling was for business purposes related to export sales, the Tribunal found no merit in disallowing the foreign travelling expenditure. The Assessing Officer was directed to delete the disallowance.

Addition of Deemed Rental Income:
The final grievance was regarding the confirmation of an addition of &8377; 75,000 as deemed rental income. The Assessing Officer determined this based on the purchase of a house at Kamla Enclave, Bhilwara, where no rental income was declared. However, it was found that the property was used for residential purposes by the assessee and not for rental income. The Tribunal directed the matter to be sent back to the Assessing Officer to determine the municipal ratable value of the house for computing income under Section 22 of the Income Tax Act. Consequently, the appeal of the assessee was allowed in part.

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