2015 (11) TMI 488 - AT - Income Tax

GP addition - addition was partly sustained by the learned CIT(A) by applying a GP rate of 10% as against 9.67% declared by the assessee and thereby confirming the part addition - Held that - CIT(A) has passed a well-reasoned order in this case. He has considered the history of the assessee for the relevant year and past two assessment years and has applied a GP rate of 10% as against the GP rate of 12% applied by the Assessing Officer. The assessee was able to declare higher sales at ₹ 3.12 crores during the relevant period as against ₹ 2.05 crores in the immediately preceding year with almost same rate of GP as compared to the last year. Learned CIT(A) has rightly allowed credit of ₹ 4.50 lakhs amount surrendered by the assessee during the course of survey and has sustained the balance addition of ₹ 1,03,270/-. There being no mistake in the order of learned CIT(A) on this issue, the same is confirmed - Decided against assessee. Addition on account of rent paid - Held that - Assessee has paid the rent of ₹ 60,000/- for the business premises for the whole year as against the rent amount of ₹ 30,000/- paid for the same premises in the immediately preceding year. In reply to a specific query from the Bench, learned counsel for the assessee submitted that the rent was revised after more than five years during the relevant period. The Revenue could not controvert the submissions of the assessee that the fair market rent of the business premises was still more than the amount paid by the assessee. In these facts of the case, we are of the view that there was no justification for sustaining the addition on account of rent paid and the addition made is deleted - Decided in favour of assessee. Disallowance of total customer welfare expenses - Held that - The expenses under this head has increased two-fold in comparison to the immediately preceding assessment year. The disallowance sustained by the CIT(A) could not be said to be excessive and accordingly is confirmed - Decided against assessee. Disallowance of car expenses and car depreciation at 15% of the total expenses and depreciation claimed by the assessee could not be said to be excessive Unexplained trade creditors - CIT(A) deleted the addition - Held that - Since the balances were on account of purchases made in the normal course of business by the assessee and payments were made through account payee cheques and the assessee was able to produce the bills and goods received notes before the Assessing Officer and the creditors have sent their confirmation letters to the Assessing Officer and that no defects in the confirmation of copies of accounts received from the aforesaid creditors have been pointed out by the Assessing Officer and that the creditors have confirmed the closing balance which could not be disputed by the Assessing Officer, we hold that the CIT(A) was justified in holding that there was no basis left for making the addition.- Decided in favour of assessee.

Issues Involved:
1. Application of Gross Profit (GP) Rate
2. Addition on Account of Rent Paid
3. Disallowance of Customer Welfare Expenses
4. Disallowance of Car Expenses and Car Depreciation
5. Disallowance of Traveling Expenses
6. Disallowance of Generator and Repair Expenses
7. Disallowance of Various Business Expenses
8. Reasonableness of Interest Rate Paid to Family Members
9. Deletion of Addition on Account of Low Gross Profit
10. Deletion of Disallowance of Various Expenses
11. Deletion of Addition on Account of Unexplained Trade Creditors
12. Deletion of Addition on Account of Low Household Expenses

Issue-wise Detailed Analysis:

1. Application of Gross Profit (GP) Rate:
The assessee contested the application of a 10% GP rate by the CIT(A) instead of the 9.67% declared. The Assessing Officer had initially applied a 12% GP rate. The CIT(A) considered the history of the assessee and past assessment years, concluding that a 10% GP rate was reasonable given the higher sales declared by the assessee. The Tribunal confirmed the CIT(A)'s decision, dismissing the assessee's grounds.

2. Addition on Account of Rent Paid:
The assessee argued against the addition of Rs. 15,000 for rent paid, asserting that the rent was increased from Rs. 30,000 to Rs. 60,000, which was still below market rates. The Tribunal found the rent increase justified and deleted the addition, allowing the assessee's ground.

3. Disallowance of Customer Welfare Expenses:
The CIT(A) confirmed a disallowance of Rs. 6,400 out of total customer welfare expenses of Rs. 42,536 due to a significant increase compared to the previous year. The Tribunal upheld this disallowance, finding it not excessive and dismissing the assessee's ground.

4. Disallowance of Car Expenses and Car Depreciation:
The CIT(A) disallowed 15% of car expenses and depreciation for personal use, amounting to Rs. 21,000. The Tribunal found this rate reasonable and dismissed the assessee's ground.

5. Disallowance of Traveling Expenses:
The CIT(A) confirmed a disallowance of Rs. 10,000 out of total traveling expenses of Rs. 1,62,519 due to lack of vouchers and details. The Tribunal upheld this decision, dismissing the assessee's ground.

6. Disallowance of Generator and Repair Expenses:
The CIT(A) sustained a disallowance of Rs. 10,000 out of total generator and repair expenses of Rs. 99,915. The Tribunal found no justification to interfere with this decision and dismissed the assessee's ground.

7. Disallowance of Various Business Expenses:
The CIT(A) sustained a disallowance of Rs. 31,482 out of total expenses of Rs. 2,09,886 for sales promotion, shop, packing, and office expenses. The Tribunal confirmed this decision, dismissing the assessee's ground.

8. Reasonableness of Interest Rate Paid to Family Members:
The CIT(A) allowed interest at 12% instead of 15% paid to family members, resulting in an addition of Rs. 1,14,315. The Tribunal found the 15% rate reasonable given the market conditions and deleted the addition, allowing the assessee's grounds.

9. Deletion of Addition on Account of Low Gross Profit:
The Revenue contested the CIT(A)'s application of a 10% GP rate instead of 12%. The Tribunal found the CIT(A)'s decision well-reasoned and upheld it, dismissing the Revenue's ground.

10. Deletion of Disallowance of Various Expenses:
The Revenue challenged the deletion of Rs. 1,51,116 out of Rs. 2,59,998 disallowed by the Assessing Officer. The Tribunal found the CIT(A)'s decision well-reasoned and upheld it, dismissing the Revenue's ground.

11. Deletion of Addition on Account of Unexplained Trade Creditors:
The Revenue contested the deletion of Rs. 10,72,891 for unexplained trade creditors. The Tribunal found the correct amount to be Rs. 6,24,082, with payments made through cheques and confirmed by creditors. The Tribunal upheld the CIT(A)'s decision, dismissing the Revenue's ground.

12. Deletion of Addition on Account of Low Household Expenses:
The Revenue challenged the deletion of Rs. 70,000 for low household expenses. The Tribunal found the CIT(A)'s decision justified, given the total family expenses of Rs. 2,70,000, and dismissed the Revenue's ground.

Conclusion:
The appeal of the assessee was partly allowed, and the appeal of the Revenue was dismissed. The decision was pronounced in open court on 12th October 2015.

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