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TMI Blog2020 (12) TMI 115X X X X Extracts X X X X X X X X Extracts X X X X ..... rcentage which will also take care of the lower net profit shown by the assessee. It is also required to be appreciated that for the impugned assessment year the assessee s turnover has clocked at more than ₹ 15 crores, which is the highest among all those years stipulated above. AO was not shown all the bills and vouchers of expenses incurred by the assessee. Therefore it is not the case of the assessee that all those expenditure incurred by the assessee are wholly and exclusively incurred by the assessee, as without production of them it would not be possible for the learned assessing officer test this expenditure on those criteria - it is also not the case of AO that assessee has not produced details before him. AO has completely verified the books of accounts, sales bills, purchase bills, bank statements et cetera during the course of the assessment proceedings and did not find any defect in them AO has made certain disallowance holding them to be excessive and unreasonable by applying the provisions of Section 40 A (2) of the act without finding that to what extent they are unreasonable or excessive having regard to the market price of such services. In any case, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... lenged on facts law pursuant to the principle of commercial expediency and business exigency. 6. Because the action for total disallowances of ₹ 14,54,692/- on under mentioned expenses are being challenged on facts law alongwith percentage of disallowances:- - Expenses of Diwali ₹ 64,141 /- (10% of 6,41,415/-) - Business promotion ₹ 76,058/- (10% of 7,60,576/-) - Conference charges ₹ 1,83,654/- (10% of 18,36,544/-) - Conveyance ₹ 1,03,578/- (10% of 10,35,775/-) - Entertainment ₹ 31,955/- (10% of 3,19,550/-) - Travelling ₹ 9,95,007/- (10% of 99,50,068/-) 7. Because the action for total disallowances of ₹ 50,275Jf- (₹ 2,55,953/-1/10th of expenses less 1/12th already disallowed by assessee amounting ₹ 2,05,678/-) relating to Car Scooter maintenance expenses, Car Depreciation, Car Insurance Telephone expenses. 3. Brief facts of the case shows that assessee is an individual who filed his return of income at ₹ 2,355,800 on 30 September 2012. The assessee revised his return on 22/8/2013 declaring a total income of ₹ 5,296,930. The reason for revision of the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ar to 33.25% for the year under consideration and not satisfied by the submission of the assessee he held that commission expenditure of ₹ 8,239,253 is held to be bogus and therefore he disallowed the same. He further examined the details of the interest expenditure of ₹ 3,409,650 unsecured loan rates from the family members. He noted that assessee has paid interest at the rate of 18% to these parties which are covered u/s 40A (2) (b) of the income tax act when the funds from the banks are available at much lower rate. He noted that assessee is also paying interest at the rate of 15% to 2 different parties. Accordingly he held that in the normal circumstances the funds are available from banks at the rate of 12% and therefore the interest paid to the above related parties is allowed to the extent of ₹ 12 percent which works out to ₹ 2,312,981 and therefore the excessive interest paid of ₹ 1,096,669 was disallowed. AO also asked about the details of payment made to person covered u/s 40A (2) (b) of the income tax act and found that assessee has paid salary to the relatives. Assessee submitted the details of the amount of salary paid to all these persons ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e the assessee is an individual and possibility of personal/non business element cannot be ruled out. He further noted that assessee has debited ₹ 25,59,539 on account of car and Scooter maintenance expenditure, car depreciation, car insurance and telephone expenditure. He disallowed 1/6 of the total expenditure of eight ₹ 426,590 out of that on account of personal expenditure. Assessee has already disallowed of ₹ 205,679 in the computation of the total income and therefore he made an act disallowance of ₹ 220,912 out of the same. Accordingly the total disallowance of expenditure of ₹ 1, 24,80,637 was made and the returned income of ₹ 5,296,930 was assessed at ₹ 1, 77,77,567 by passing an order u/s 143 (3) of the act on 30 March 2015. 5. Assessee being aggrieved with the order of the learned assessing officer preferred an appeal of the learned CIT A. The learned CIT-A restricted the disallowance of commission expenditure of ₹ 8,239,253 to ₹ 4,119,626. He further restricted the disallowance out of the installation charges of ₹ 1,101,502 to ₹ 275,375. With respect to the non-deduction of tax at source on various i ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... He further submitted that in none of these cases such disallowance has been made. He further stated that the disallowance made in the assessment for this year are merely for the reason of the fact that the assessee s net profit and the gross profit rate has gone down in the current year. He submitted a detailed chart wherein the details of the gross profit and the net profit has been provided since AY 2007 08 till A Y 2013 14. Such chart was produced by the assessee. On careful analysis of the facts it is noted that for assessment year 2012 13 the assessee has clocked the turnover of ₹ 156,343,839 and gross profit of ₹ 51,998,524 resulting into the gross profit rate of 33.26%. This gross profit compared to the previous year assessment year 2011 12 was found to be at 35.74%. Further the net profit for the year assessment year 2010 11 was found to be 1.77 percent whereas for the current year the net profit rate was only 1.45%. It is also the fact that the learned assessing officer has made the disallowances only because of the reason that in the current year the assessee has shown lesson net profit compared to earlier years. Therefore it is necessary to look int ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... would be proper and just if the net profit ratio of the assessee is assessed at certain percentage which will also take care of the lower net profit shown by the assessee. It is also required to be appreciated that for the impugned assessment year the assessee s turnover has clocked at more than ₹ 15 crores, which is the highest among all those years stipulated above. If the average of the net profit as computed for all these 8 years, such net profit percentage would be 1.83 percentage of the total turnover. Further it is also the fact that the learned assessing officer was not shown all the bills and vouchers of expenses incurred by the assessee. Therefore it is not the case of the assessee that all those expenditure incurred by the assessee are wholly and exclusively incurred by the assessee, as without production of them it would not be possible for the learned assessing officer test this expenditure on those criteria. Further, it is also not the case of the learned assessing officer that assessee has not produced details before him. The learned AO has completely verified the books of accounts, sales bills, purchase bills, bank statements et cetera during the course of th ..... X X X X Extracts X X X X X X X X Extracts X X X X
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