2012 (11) TMI 552 - AT - Income Tax

Referring matter to Valuation officer - Following the judgement of Supreme court in case of Sargam Cinema V CIT, 2009 (10) TMI 569 - SUPREME COURT OF INDIA Held that - Asessing authority could not have referred the matter to the Departmental Valuation Officer (DVO) without the books of account being rejected. Even if the books were not produced at least the Assessing Officer should have referred to the valuation officer. Even after that it was not done at atleast at the time when the ld. CIT(A) had forwarded the report for his remand he should have made some comments but nothing was done though it was contended by the ld. DR for the revenue that there was no remand report available but the ld. CIT(A) has given clear finding that report was forwarded to the Assessing Officer and the Assessing Officer in his report has not rebutted the same - order of the ld. CIT(A)is confirmed. Disallowance of Expenses in full or part Held that - Expenses debited to profit and loss account in respect of telephone expenses, charity and donation, car expenses, rebate and discount, printing and stationery, labour welfare & cartage, accounting charges, traveling expenses, entertainment and salary confirmed the disallowance to 25% of the expenses for non production of vouchers order of CIT(A) is confirmed. Profit margin Held that - Although Fall in gross profit is only marginal but it has to be noted that the assessee has not made any compliance before the Assessing Officer and the Assessing Officer pointed out serious defects in the books. Therefore, considering overall circumstances of the case, trading addition should be made at Rs. 10,000/- Order of the ld. CIT(A) is set aside and direct the Assessing Officer to make addition on account of lower gross profit at Rs. 10.00 lakhs - In the result, appeal filed by the revenue is partly allowed

Summary

Issues involved:
1. Admission of additional evidence during appellate proceedings without compliance with Rule 46A.
2. Deletion of addition on account of valuation of building under construction.
3. Restriction of disallowance on expenses.
4. Deletion of addition on account of fall in Gross Profit Rate.

Issue 1: Admission of additional evidence during appellate proceedings without compliance with Rule 46A.
The Revenue contended that the CIT(A) erred in admitting additional evidence without following Rule 46A, as the circumstances explained by the assessee did not meet the conditions specified in the rule. The CIT(A) admitted a valuation report furnished during the appellate proceedings, which the Assessing Officer did not rebut. The Revenue argued that this violated Rule 46A. However, the assessee's counsel argued that since no defects were pointed out in the books of account, the decision was in line with the Supreme Court's ruling in Sargam Cinema v. CIT. The Tribunal found that the assessee had a sufficient cause for not filing the report due to disturbances in the city. The CIT(A) forwarded the report to the Assessing Officer for comments, but no rebuttal was provided. The Tribunal upheld the CIT(A)'s decision based on the lack of compliance by the Assessing Officer and the sufficient cause shown by the assessee.

Issue 2: Deletion of addition on account of valuation of building under construction.
The Assessing Officer estimated the cost of construction of a building at Rs. 30 lakhs due to lack of explanation from the assessee, resulting in an addition to the income. The CIT(A) deleted this addition based on submissions that the Assessing Officer did not provide reasons for the valuation and ignored relevant facts. The Tribunal noted that the valuation report was not filed during assessment due to law and order issues, and the Assessing Officer failed to rebut the report. The Tribunal upheld the CIT(A)'s decision to accept the valuation report, considering the lack of defects pointed out by the Assessing Officer and the specific circumstances presented by the assessee.

Issue 3: Restriction of disallowance on expenses.
The Assessing Officer disallowed a portion of claimed expenses due to non-production of supporting vouchers. The CIT(A) restricted the disallowance to 25% after considering details submitted before the Assessing Officer. The Tribunal confirmed this decision, noting that the disallowance was reasonable given the lack of compliance by the assessee and the partial submission of details.

Issue 4: Deletion of addition on account of fall in Gross Profit Rate.
The Assessing Officer made an addition based on a decline in Gross Profit Rate without adequate explanation from the assessee. The CIT(A) deleted the addition, citing a marginal fall in profit and no material defects in the trading account. The Tribunal, however, reinstated the addition at a reduced amount of Rs. 10 lakhs, considering the lack of compliance and serious defects pointed out by the Assessing Officer.

In conclusion, the Tribunal partly allowed the appeal filed by the Revenue, upholding some additions while deleting or reducing others based on compliance, reasoning provided, and specific circumstances presented during the proceedings.