2013 (4) TMI 724 - AT - Income Tax

Tribunal adjusts income rates for textile and steel businesses, upholds disallowances, grants relief under Income Tax Act

Mrs. Sonali A. Shah Versus Asstt. Commissioner of Income Tax–14 (3), Mumbai

Mrs. Sonali A. Shah Versus Asstt. Commissioner of Income Tax–14 (3), Mumbai - TMI Issues Involved:1. Rejection of book results and estimation of income by applying higher GP rates.2. Disallowance of godown rent.3. Disallowance of telephone expenses, staff welfare expenses, and motor car expenses including depreciation.4. Levy of interest under sections 234A, 234B, and 234C of the Income Tax Act.Detailed Analysis:1. Rejection of Book Results and Estimation of Income by Applying Higher GP Rates:The assessee, engaged in the business of dealing in iron and steel products and textile products, filed a return declaring a total income of Rs. 1,91,917/-. A survey under section 133-A of the Income Tax Act revealed that the assessee was a trader who did not maintain any stock. The Assessing Officer (A.O.) found the gross profit (GP) rate to be very low at about 1% on a turnover of Rs. 20.56 crores. Notices issued under section 133(6) to verify purchases and sales returned undelivered, and the confirmations provided by the assessee were found unreliable. Consequently, the A.O. rejected the books of account and estimated the income by applying GP rates of 10% for iron and steel and 20% for textile products.The Commissioner of Income Tax (Appeals) [CIT(A)] upheld the A.O.'s decision, noting that the confirmations were unreliable and that the assessee failed to produce the relevant parties for cross-verification. The CIT(A) also confirmed the higher GP rates applied by the A.O.Upon appeal, the Tribunal noted the specific and material defects pointed out by the A.O., including unreliable confirmations and the assessee's failure to explain discrepancies. The Tribunal upheld the rejection of the books of account but found the GP rates applied by the A.O. to be on the higher side. The Tribunal directed the A.O. to apply a GP rate of 15% for textile business and 5% for iron and steel business.2. Disallowance of Godown Rent:The assessee claimed Rs. 22,000/- as godown rent in the Profit & Loss (P&L) account. The A.O. disallowed this amount, noting that the assessee did not maintain any stock and failed to provide evidence of the godown's address or rent payment. The CIT(A) confirmed this disallowance due to the lack of evidence. The Tribunal also upheld the disallowance, finding no justification to interfere with the CIT(A)'s decision.3. Disallowance of Telephone Expenses, Staff Welfare Expenses, and Motor Car Expenses Including Depreciation:The assessee claimed various expenses, including motor car expenses, telephone expenses, and staff welfare expenses. The A.O. found these expenses were not fully supported by proper bills/vouchers and were incurred through self-made vouchers without a log book. Consequently, the A.O. disallowed 1/5th of the total expenses, amounting to Rs. 1,64,174/-, for personal and unverifiable elements. The CIT(A) confirmed this disallowance.The Tribunal found no justifiable reason to hold the disallowance as excessive or unreasonable, noting that a similar disallowance in the preceding year was not challenged by the assessee. Therefore, the Tribunal upheld the CIT(A)'s decision.4. Levy of Interest Under Sections 234A, 234B, and 234C of the Income Tax Act:The issue of interest levy under sections 234A, 234B, and 234C was deemed consequential by the Tribunal, directing the A.O. to allow consequential relief to the assessee.Conclusion:The appeal filed by the assessee was partly allowed, with the Tribunal modifying the GP rates for estimating income and upholding the disallowances and interest levies as determined by the authorities below.