2015 (5) TMI 435 - HC - Income Tax

Disallowance of transport expenses - Held that - Considering the totality of the expenditure which was about ₹ 7,21,16,088/-, the cash expenditure of ₹ 36,84,500/-, could not be said to be of such magnitude as to have led to the startling result of rejecting the entire books of account. Furthermore, the AO does not indicate any reason why he accepted 1.75% of the entire transaction as permissible cash transportation expenditure. We, therefore, agree with the findings of the ITAT and held that the expense claimed for transportation could not have been a valid ground for rejecting the books of account. GP Addition - rejection of books and the imposition of 12% GP rate - ITAT deleted addition - Held that - Reason for rejection of the books of account was not sound given that the assessee was maintaining the consistent accounting method which had been accepted during all previous years. So far as the irregularities with respect to bardana was concerned ITAT held that the assessee during the course of hearing drew our attention towards the balance sheet and the accounts and shown us the opening stock, purchases and sale of bardana. In view of these findings which are entirely based on fact, this Court is of the opinion that unless the Revenue points out something fundamentally wrong or unreasonable in the ITAT s approach, the question urged by it with regard to addition on this score, is inadmissible. In view of the above conclusion, the further finding of the ITAT that the imposing of GP rate of 12% - later reduced to 11.6% was entirely unwarranted. Notional interest accruing from other sources - ITAT deleted the addition - Held that - This Court agrees with the findings of the ITAT that the entire basis of this addition was hypothetical and not based upon any material evidence except the cheques found in the premises during the search. The assessee s explanation was that these amounts had been returned. So far as the addition on account of interest which ought to have accrued is concerned, both the CIT(A) and ITAT were in unanimity in holding that such additions could not have been made. ITAT based its decision on the judgment of Commissioner of Income Tax v. Shoorji Vallabhdas and Co. (1962 (3) TMI 6 - SUPREME Court ). Having regard to these facts, this Court is of the opinion that there was no real income in the facts and circumstances of this case. In view of the concurrent findings, the Court will not interfere in this aspect. - Decided in favour of assessee.

Summary

Issues:
1. Disallowance of expenses in profit & loss account - transport expenses claimed.
2. Deletion of findings on rejection of books and imposition of 12% GP rate.
3. Direction to cancel addition on account of notional income.

Analysis:

Issue 1: Disallowance of expenses in profit & loss account - transport expenses claimed
The Revenue appealed against the ITAT's order related to the dismissal of its appeal for AY 2003-04. The AO rejected the books of account due to various reasons, including absence of stock register, irregularities in disclosing transactions, and cash transactions without supporting evidence. The CIT(A) upheld the rejection but reduced the GP rate from 12% to 11.6%. The ITAT found the AO's reasons for rejection unsound, especially regarding the irregularities with "bardana." The ITAT's findings were fact-based, and the Court agreed that the Revenue failed to point out any fundamental error in the ITAT's approach. The Court upheld the ITAT's decision regarding the transportation expenses claimed, stating that the cash expenditure was not significant enough to warrant rejection of the entire books of account.

Issue 2: Deletion of findings on rejection of books and imposition of 12% GP rate
The ITAT found that the AO's objections to the books of account were not valid. The AO's rejection was based on weak grounds, and the ITAT noted that similar objections were not raised in previous years. The ITAT held that the AO's reasons for disbelieving the books were not substantial. The CIT(A) upheld the rejection based on excess stock found during the search, but the ITAT disagreed, stating that excess stock alone cannot be the sole criteria for rejection. The ITAT allowed the appeal raised by the assessee and deleted the GP addition made by the AO for all three assessment years. The Court found no reason to interfere with the ITAT's findings on the rejection of books of account.

Issue 3: Direction to cancel addition on account of notional income
The ITAT and CIT(A) unanimously held that the addition on account of notional interest could not be justified. The ITAT based its decision on a Supreme Court judgment, emphasizing the absence of "real income" in the case. The Court agreed with the concurrent findings and declined to interfere in this aspect. The Court dismissed the appeal, concluding that no substantial question of law arose based on the issues presented.

In summary, the Court upheld the ITAT's findings on various issues, including the rejection of books of account, disallowance of transportation expenses, and cancellation of addition on account of notional income. The appeal was ultimately dismissed, with no substantial question of law identified for consideration.