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TMI Blog2021 (7) TMI 797X X X X Extracts X X X X X X X X Extracts X X X X ..... G.P. rate by Assessing Officer for the making addition is unjustified and not sustainable. Decided in favour of assessee. Adhoc disallowance of expenses by AO@ 25% - addition of expenses under the head of Shop Expenses, Travelling Expenses and Vehicle Running and Maintenance Expenses for want of voucher and verification - Addition restricted by CIT(A) of 12.5% - HELD THAT:- The reason for disallowance is cited by Assessing Officer as not fully vouched which remain unverifiable. The assessee has not produced any contrary material or record to contract this finding of the Assessing Officer that expenses are not fully vouched. However as in the case of Pr. CIT Vs. Rimjhim Ispat Ltd. [ 2016 (1) TMI 374 - ALLAHABAD HIGH COURT] the disallowance of 5% of the expenses for want of supporting vouchers was considered as reasonable, therefore, the disallowance confirmed by CIT(A) 12.5% is restricted to 5%. Disallowance of freight expenditure u/s 40A(3) - AO noted that the assessee has made payment in cash exceeding ₹ 20,000/- in a day on certain dates to a single party or person which is not allowable - HELD THAT:- Section 40A(3) contemplates certain expenditure incurred in c ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... hout considering the audit report. 3. That the learned Commissioner of Income-tax (Appeals ) has erred in law and on facts in failing to appreciate that second proviso to section 40A(3) and 40A(3A) is applicable in the case of the appellant and in confirming the arbitrary addition of ₹ 3,31,500 .without considering the audit report. 4. That the appellant craves permission for amending the aforesaid grounds of appeal and / or for raising fresh grounds of appeal. 3. Ground no. 1 is regarding an addition on account of low G.P. declared by assessee. The assessee is an individual and proprietor of Dilip Yarn Traders. The assessee deals in purchase sale of cotton yarn on wholesale basis. The assessee filed his return of income for the year under consideration on 25.09.2013 declaring total income of ₹ 5,22,510/-. During the scrutiny assessment, the Assessing Officer noted that the assessee has disclosed gross profit at ₹ 11,10,369/- which comes to 0.65% on total sale of 17.07 crores and net profit @ 0.36%. The Assessing Officer also considered the G.P. declared by assessee for the preceding two years i.e. A.Ys. 2011-12 2012-13 @ 0.68% and 0.69% respec ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ssing Officer can very well conduct an enquiry to find out the reasons for low G.P. declared by assessee in comparison to the preceding year but low G.P declared by assessee cannot be a basis or ground for making the addition. Once the Assessing Officer did not detect any mistake in the books of account the adoption of higher G.P. rate by Assessing Officer for the making addition is unjustified and not sustainable. The Delhi Benches Tribunal in the case of ACIT Vs. M/s. Ess EII Cables Co. (supra) has concluded finding in para no. 7.4 as under.:- 7.4 The counsel for the assessee has submitted that the gross loss is also on account of the opening stock of 88,692 kgs. of copper valued at ₹ 445 per kg. The purchase quantity of 1552.210 MT is less than the sale quantity of 1640.90 MT which could only have come out of the opening stock. Hence the finding of the Assessing Officer that the monthly rates of sale and purchase shows a surplus of ₹ 5,25,35,185/- at the end of the year inspite of the fall in the rate of copper, ignores the value of opening stock of ₹ 3,94,67,940/- (88,692 x 445). We find that this contention is correct, as a working of gross profit must n ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... defect in the books of account as well as not held that the claim of the assessee is excessive. In support of his contention, he has relied upon the decision of Co-ordinate Bench of this Tribunal dated 19.12.2018 in the case of Sanjeev Seth Vs. ACIT in I.T.A. No.184/Alld/2018 as well as decision dated 26.04.2019 in the case of M/s.Premier Car Sales Ltd. Vs. ACIT in I.T. A. No. 449 450/Lkw/2018. Hence, the Ld. AR has submitted that the adhoc disallowance made by Assessing Officer and confirmed by CIT(A) to the extent of 12.5% of the total expenses is not justified in the same has been deleted. 8. On the other hand, the Ld. DR has submitted that the Assessing Officer has given the reason for disallowance of expenses in para no.4 of the impugned order and noted that the certain expenses under the head of Shop Expenses, Travelling Expenses and Vehicle Running and Maintenance Expenses are not vouched and remained unverifiable. Therefore, the Assessing Officer is justified in making disallowance of 25% of those expenses amounting to ₹ 41,785/- which were reduced to 12.5% by the CIT(A). The Ld. DR has relied upon the decision of jurisdiction High Court in the case of Pr. CIT V ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... aforesaid, in favour of the appellant, i.e., the Department and against the assessee and set aside that part of the order of the Tribunal on this aspect and restore the order of the Ist Appellate Authority. In our opinion, the disallowance of 5% in the facts of the case is justified. 9. Insofar as the second question is concerned, nothing has been brought on record by the Department to indicate as to what was the direction given by the authority for the assessment year 2001-02. We are of the view that the expenses made by the assessee on telephone and conveyance running expenses, etc have to be dealt with in the same fashion as have been dealt in the earlier assessment years. The Tribunal has relied upon a decision of the Gujarat High Court holding that the remuneration given to the Directors which includes any expenditure incurred in providing benefit free of charge under the Companies Act cannot be disallowed. As such disallowance for maintenance of vehicle or conveyance and telephone is not justifiable. The said decision is squarely applicable in the present case. 10. The appeal is partly allowed. Question no. A is answered in favour of the Department and question n ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ion 40A(3) and 40A(3A) of the I. T. Act is not applicable in the case of assessee but the said limit is applicable only in the case of transport operators. He has also referred and relied upon the explanatory not issued by CBDT vide Circular No.5/2010 dated 03.06.2010. The Ld. DR has referred to para no. 19.2 of the said circular and submitted that the limit of ₹ 20,000 is applicable in the case of the assessee as provided in second para 19.3 of the said circular. 14. I have considered the rival submissions as well as relevant material on record. Section 40A(3) contemplates certain expenditure incurred in cash are not deductible. Though, sub-section 3 of Section 40A as existed at the relevant point of time prescribes the limit not exceeding of ₹ 20,000/- meaning thereby if expenditure incurred in cash is less than ₹ 20,000/-or not exceeding ₹ 20,000/- then the provisions of Section 40A(3) are not applicable. However, in the case of the payment made by assessee to transport operators in respect of hiring or leasing goods carriages the same would fall in third proviso to Section 40A(3) and 40A(3A) of the I. T. Act. This proviso provides a higher limit of &# ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the explanatory not issued CBDT vide Circular No.5/2010 it is noted that the para no. 19.2 and 19.3 are relevant for this section which read as under.:- Enhancement of limit for disallowance of expenditure made in the case of transporters 19.1 Under the existing provisions of the Income-tax Act, where an assessee incurs any expenditure, in respect of which payment in excess of Rs,20,000 is made otherwise than by an account payee cheque or account payee bank draft, such expenditure is not allowed as a deduction, 19.2 Given the special circumstances of transport operators for incurring expenditure on long haul journeys, the Act has been amended to raise the limit of payment to such transport operators otherwise than by an account payee cheque or account payee bank draft to ₹ 35,000 from the existing limit of ₹ 20,000. For this purpose a new proviso has been inserted after the proviso in sub-section (3 A) of section 40A of the Income-tax Act. 19.3 The existing limit for other categories of payments will remain at ₹ 20,000 subject to the exceptions declared in rule 6DD of the Income-tax Rules. 16. As per para no. 19.2 of the circular, it is ..... X X X X Extracts X X X X X X X X Extracts X X X X
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