2005 (9) TMI 219 - AT - Income Tax

Summary

Issues:
1. Disallowance of agency commission.
2. Disallowance of vehicle expenses and depreciation.
3. Disallowance of staff welfare expenses.
4. Addition on account of recalculation of deduction under s. 80-IA.
5. Deletion of addition on account of GP.

Analysis:

1. The first issue pertains to the disallowance of agency commission. The AO made an addition of Rs. 1,40,755, which the assessee did not contest. Therefore, the disallowance was upheld.

2. The next issue involves the disallowance of vehicle expenses and depreciation due to personal use by directors and their family members. The CIT(A) confirmed the disallowance, but the Tribunal reversed this decision based on a precedent from the jurisdictional High Court, stating that in the case of a private limited company, there cannot be personal use by directors in respect of vehicles.

3. The dispute regarding the disallowance of staff welfare expenses amounting to Rs. 27,707 was resolved in favor of the assessee. The AO had disallowed 5% of the expenses, but the Tribunal directed the AO to delete the disallowance, following a previous decision in the assessee's own case.

4. The issue of the addition on account of recalculation of deduction under s. 80-IA was addressed. The AO disallowed Rs. 15,423 as it included income not related to industrial activities. The Tribunal remitted this issue back to the AO with directions to exclude certain income components from the deduction calculation.

5. Lastly, the dispute over the deletion of addition on account of GP was discussed. The AO had made an addition of Rs. 24,70,133 due to a decrease in the GP rate. However, the CIT(A) deleted the disallowance, emphasizing that the AO did not provide specific defects in the books of account to justify the rejection of book results. The Tribunal upheld the CIT(A)'s decision, stating that fluctuation in GP alone is not sufficient grounds for disallowance.

In conclusion, the Tribunal partially allowed the appeal of the assessee and dismissed the appeal of the Revenue, along with rejecting the cross-objection filed by the assessee in support of the CIT(A)'s order.