9911796707
TMI Blog2014 (5) TMI 82X X X X Extracts X X X X X X X X Extracts X X X X ..... llowance of Rs.1,25,054/-, out of the disallowance made by the Assessing Officer amounting to Rs.4,75,918/-. 4. The Ld. Commissioner of Income-Tax (Appeals) has erred in law and facts in confirming the addition of Rs.28,000/- on account of unexplained agricultural income. 5. The Ld. Commissioner of Income-Tax (Appeals) has erred in law and facts in confirming the following disallowances: a) Rs.1,533 out of general expenses. b) Rs.3,63,293 out of travelling and conveyance c) Rs.2,49,736 out of advertising, conference and sales promotion expenses. The ld. CIT(A) has erred in law and facts in confirming the disallowance of Rs.26,665 u/s 40(a)(ia). 6. the learned CIT(A) has erred in law and facts in confirming the disallowance of Rs. 26,665 u/s 40(a)(ia) of the Act." 2. Facts in brief:- The assessee is an individual who has filed his return of income on 31st October 2005, declaring total income of Rs.1,00,19,843. In the computation of income, the assessee had shown income from ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... dition to purchases made against sales, the following:- (a) Spares supplied against comprehensive maintenance contracts as part of the terms of such contracts (sample copy of contract & service reports enclosed); (b) Local parts and spares supplied as part of terms of quotation for supply of ventilator (copy of quotations enclosed). Commission received by the assessee takes care of the expenses incurred by the assessee for such local supplied. (c) Free replacement of spars during warranty period for damaged or defective spares. (d) Free samples or spares for producing order of spares. (e) There is no trading loss as alleged after considering supply of spares and part made as per CMC and other supplied as part of terms of contract as explained above. Also enclosed samples of sales invoices with related purchase bills for your record." Trading Account as on 31st March 2005 Purchases Rs. 71,65,232 Sales Rs.56,73,192 Other expenses Rs. 22,63,281 Gross loss Rs.3 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... A.Y. 04-05 (Rs.) A.Y. 05-06 (Rs.) Particulars A.Y. 04-05 (Rs.) A.Y. 05-06 (Rs.) Purchases 6152952 7165232 Sales 9646336 5742556 Direct expenses 1835765 2263282 Annual Maintenance 1689102 3504868 Gross profit 10613239 18178976 Commission Income 7266518 18360066 18601956 27607490 18601956 27607490 Thus, it was pointed out that the assessee has earned very high gross profit margin as compared to the earlier years. 6. The learned Commissioner (Appeals) remanded the matter to the Assessing Officer to verify the assessee's contention. The Assessing Officer submitted his remand report, extract of which has been given at Page-5 of the appellate order. The sum and substance of the Assessing Officer's submissions was that the assessee had shown higher gross profit margin only because of the commission income and increase in maintenance contract. Further, the assessee had shown expenses of annual maintenance contract which has been debited in the trading account of sale and purchase of goods, which does not give a true picture. After calling for the assessee's comments, the learned Commissioner (Appeals) again remanded the matter back to t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s amount and total gross loss for 2005-06 in trading activity will work out to Rs. 16,40,039/-. 7. Even without any verification of other purchases, item mentioned by the assessee for earning commission income & AMC etc. as they are claimed, still assessee has to satisfactorily explain above gross loss. 8. Hence, it is submitted that the addition made by the A.O. towards gross profit addition of trading results declared by the assessee may be considered keeping in view the above facts discussed. Further, report regarding purchases relating to earning of commission income, AMC is being verified by deputing the Inspector of this Circle and the same will be reported as soon as enquiries are completed." 7. The assessee, in response to the said remand report, filed his rejoinder submissions which have been dealt by the learned CIT(A) at Page-7 and 8. The break-ups of gross receipts and the break-up of aggregate purchases as well as the corresponding expenditure incurred against various income earned were as under A. Receipts Nature of receipts Amount (Rs.) Commission Income 1,83,60,066 Annual Maintenance Charges 35,04,86 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ther the figure of loss of Rs. 1,62,073 being not tenable is rejected. The appellant has challenged GP addition also on the ground that books of account have not been rejected. Since these demo machines are forming part purchases but not reflected anywhere as closing stock is always shown at Nil by appellant, the books of account are defective to this extent and hence appellant's plea that GP cannot be estimated as books of account are not rejected has no leg to stand. This plea is also rejected. Accordingly, GP at 5% is estimated at Rs. 2,83,659 and added in the income. Thus, in all addition to the extent of Rs. 19,08,116 (AMC material Rs. 447422 + material supplied under warranty Rs. 242523 + obsolete material Rs. 326585 + clearing charges Rs. 272293 + custom duty Rs. 173561 + gross loss Rs. 162073 + GP estimated Rs. 283659) is sustained against the addition made." 9. Thus, the addition to the extent of Rs. 19,08,116 was sustained. Before us, the learned counsel made a detail submissions with regard to the various objections and conclusions drawn by the learned Commissioner (Appeals). Besides this, he also submitted that once the books of account has been rej ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ng purchases against the aforesaid business income. Purchases against trading income Rs.35,63,380 Purchases against commission and AMC income Rs.36,01,851 Total:- Rs.36,01,851 Besides this, the assessee has also claimed custom duty and clearing charges of Rs. 4,45,854 and service charges of Rs.18,17,427. Thus, the total cost debited under the direct heads of expenditure were Rs.94,28,514. 12. In this case, the Assessing Officer proceeded to doubt the gross profit result on the trading of goods, whereas the learned Commissioner (Appeals) has not only rejected the trading result of trading in goods but also disallowed direct expenses relating to commission and AMC income also. Once the learned Commissioner (Appeals) has rejected the entire trading results and the books of account pertaining to all the three receipts, then the best course was to apply gross profit rate only and not to pick-up some of the direct cost and disallow the same on the ground that the same do not pertain to particular business receipts or activity but to different activity. Once the books of account has been rejected as a whole for the entire business, then the same books of account cannot be ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... .e. an amount of Rs.1,01,425/- under these three heads. Other disallowed amount are Rs.68,601/- under professional charges disallowed u/s 40(a)(ia), WC tax Rs.4,213 and profession tax Rs.2,240/-. Thus, an amount of Rs.1,25,054/- is sustained against the addition made of Rs.4,75,918/-. This ground is partly allowed." 15. After hearing both the parties, we are of the opinion that insofar as the disallowance of 1/5th portion of expenses under the heads "motorcar expenses", "interest on car loan" and "depreciation" is concerned, the said disallowance of 1/5th is restricted to 1/10th, as the element of personal nature of expenses has not been rebutted before us. With regard to the amount disallowed under the professional charges after invoking the provisions of section 40(a)(ia), WC tax and professional tax are concerned, the same are hereby confirmed, as the assessee could not justify this claim before us. This ground is thus, treated as partly allowed. 16. Ground no.4, relates to disallowance of Rs.28,000 on account of unexplained agricultural income. 17. The learned Counsel for the assessee submitted before us that he did not wish to press this ground. The learned Departmental Rep ..... X X X X Extracts X X X X X X X X Extracts X X X X
|
