2013 (6) TMI 154 - AT - Income Tax

Disallowance under section 40A(3) - whether any addition u/s 40A(3) can be made by making disallowance over and the above ad hoc addition made and/or when gross profit rate is applied after rejecting books results - Held that - When estimated profit is considered after rejecting the assessee s books of account by invoking the provision of section 145(3) no separate addition can be made even under section 68 even though the assessee has failed to discharge the onus of proof in explaining the amount shown in the books of account as market outstanding . As in the case of CIT v. P. Pravin and Co. 2004 (11) TMI 47 - GUJARAT High Court held that once the addition has been made by increasing the gross profit rate then there is no further scope of making separate addition under different heads. A similar view has also been taken by in the case of CIT v. Banwari Lal Banshidhar 1997 (5) TMI 37 - ALLAHABAD High Court wherein it was held that when income of the assessee was computed by applying the gross profit rate, there was no need to look into the provision of section 40A(3) of the Act. Thus CIT (A) has rightly deleted separate addition made by AO of ₹ 21,59,700 under section 40A(3)

Summary

Issues:
1. Addition under section 40A(3) disallowed by Commissioner
2. Trading addition confirmed by Commissioner
3. Disallowance of miscellaneous expenses confirmed by Commissioner
4. Cross-objection withdrawal by assessee
5. Department's appeal against deletion of addition under section 40A(3)

Analysis:
1. The Department appealed against the deletion of an addition under section 40A(3) by the Commissioner. The Assessing Officer had made a total addition of Rs. 3,19,477 in income from newspaper business, including a trading addition of Rs. 21,59,700 under section 40A(3) due to cash payments made by the assessee. The Commissioner upheld the rejection of books of account under section 145(3) but reduced the total addition to Rs. 1 lakh, stating that no separate addition under section 40A(3) can be made when income is estimated after rejecting books of account. The Department argued for the disallowance citing a Gujarat High Court decision, but the Tribunal held that when profit is estimated under section 145(3), no further addition is warranted under section 40A(3) based on legal precedents.

2. The assessee had raised a cross-objection against the additions and disallowances in the assessment order. However, during the hearing, the authorized representative withdrew the grounds of the cross-objection. Consequently, the Tribunal dismissed the cross-objection.

3. The Commissioner had confirmed the disallowance of miscellaneous expenses amounting to Rs. 17,076 made by the Assessing Officer. The assessee challenged this decision in the cross-objection, but since the cross-objection was withdrawn, the Tribunal did not address this issue separately.

4. The Tribunal noted that the authorized representative for the assessee withdrew the grounds of the cross-objection during the hearing. As a result, the Tribunal dismissed the cross-objection filed by the assessee.

5. The Department's appeal against the deletion of the addition under section 40A(3) was rejected by the Tribunal. The Tribunal held that when profit is estimated under section 145(3), no separate addition under section 40A(3) is warranted, as established by legal precedents. Therefore, both the appeal of the Department and the cross-objection of the assessee were dismissed by the Tribunal in its order dated January 23, 2013.