1995 (9) TMI 107 - AT - Income Tax

Summary

Issues:
1. Addition of Rs. 95,000 in the trading account
2. Disallowance of Rs. 2,000 out of staff welfare and miscellaneous expenses
3. Disallowance of Rs. 15,000 under the head advertisement and publicity
4. Addition of Rs. 5,592 on account of expenses of earlier years

Analysis:

Issue 1: Addition of Rs. 95,000 in the trading account
The AO added Rs. 2,85,000 to the gross profits declared by estimating sales at Rs. 95 lakhs and enhancing the gross profit rate by 3%. The CIT(A) sustained a trading addition of Rs. 95,000, increasing the gross profit rate by 1%. The assessee argued that the addition was unjustified as full records were maintained, and the fall in the gross profit rate was due to higher raw material costs. The ITAT noted that the books of account were supported by excise records and deleted the addition as the CIT(A) did not point out any specific defects in the accounts maintained by the assessee.

Issue 2: Disallowance of Rs. 2,000 out of staff welfare and miscellaneous expenses
The AO disallowed Rs. 2,000 out of staff welfare and miscellaneous expenses. The CIT(A) upheld the disallowance as no details were provided regarding the expenses. However, the ITAT, upon reviewing the bills and explanations provided, found that the expenses were legitimate business expenses and deleted the disallowance.

Issue 3: Disallowance of Rs. 15,000 under the head advertisement and publicity
The AO disallowed Rs. 15,000 out of the claimed advertisement and publicity expenses. The CIT(A) upheld the disallowance due to lack of details on specific expenses. The ITAT, after examining the bills related to gifts and other items, concluded that the disallowance was unwarranted as the expenses were incurred in the course of business, and hence, deleted the addition.

Issue 4: Addition of Rs. 5,592 on account of expenses of earlier years
The AO added Rs. 5,592 for expenses of earlier years claimed in the current year based on the audit report. The CIT(A) upheld the addition, stating the explanation provided was insufficient. The ITAT, after reviewing the bills and confirming that they were raised in the current year, allowed the expenses in the current year and deleted the addition.

In conclusion, the ITAT allowed the appeal in part, deleting the additions made by the AO and CIT(A) in various expense categories due to lack of specific defects or discrepancies in the accounts maintained by the assessee.