1995 (5) TMI 80 - AT - Income Tax

Summary

Issues:
1. Trading addition in rough emeralds account.
2. Addition in case of ready goods.
3. Disallowance of telephone expenses.

Trading Addition in Rough Emeralds Account:
The appeal involved an assessment year of 1986-87 where the assessee, a firm dealing in precious stones, contested a trading addition of Rs. 1,00,154 in the rough emeralds account. The Assessing Officer (AO) raised concerns over the absence of quality-wise details of rough emeralds, leading to adverse inferences. The AO estimated sales at Rs. 39,00,000 and the gross profit rate at 9%, resulting in the addition. However, the Appellate Tribunal found the Department's contentions unconvincing. They emphasized that without a quantitative discrepancy, the absence of quality-wise details should not cast doubt on the declared sales. The Tribunal also dismissed the non-production of parties as insufficient grounds for adverse inferences, especially when addresses provided matched with other authorities. Ultimately, the Tribunal directed the deletion of the trading addition.

Addition in Case of Ready Goods:
Another addition of Rs. 66,748 was made in the case of ready goods by the AO based on low yield and gross profit. The Tribunal highlighted that low gross profit alone cannot warrant an addition. Regarding low yield, the AO failed to provide a substantial basis for the addition, lacking discussion on the assessee's explanation. The Tribunal stressed that both low gross profit and yield, without proper reasoning, are insufficient grounds for additions. Consequently, the Tribunal directed the deletion of the sustained amount, disagreeing with the CIT(A)'s decision to adopt a higher G.P. rate.

Disallowance of Telephone Expenses:
The last ground of disallowance pertained to Rs. 2,671 from telephone expenses. The AO disallowed Rs. 7,000 for personal and residential phone use, which the CIT(A) reduced to expenses related to the residential phone only. The assessee argued that the expenses were for overseas business calls made from the residential phone due to the lack of facilities at the business place. The Tribunal acknowledged the common practice of making overseas calls from residences due to time zone differences, supporting the assessee's claim. Consequently, the Tribunal upheld the assessee's contention, directing the allowance of Rs. 2,671 as a deduction. As a result, the appeal was allowed in favor of the assessee.