Tribunal Partly Allows Appeal: Condoned Delay, Adjusted Expenses, Upheld Assessment Validity and Interest Charge.

GANESH CHAWALA Versus INCOME TAX OFFICER

GANESH CHAWALA Versus INCOME TAX OFFICER - TMI Issues Involved:
1. Condonation of delay in filing the appeal.
2. Validity of the assessment order under Section 143(3).
3. Application of Section 145(3) and subsequent trading addition.
4. Disallowance of interest and brokerage expenses.
5. Disallowance of telephone, vehicle expenses, and depreciation.
6. Charging of interest under Section 234B.

Issue-wise Detailed Analysis:

1. Condonation of Delay in Filing the Appeal:
The appeal was delayed by approximately 43 months. The assessee argued that the delay was due to the counsel's advice, who believed the tax amount involved was not substantial, and further litigation costs would outweigh the tax amount. The delay was also attributed to the lack of awareness about the prosecution initiated under Section 276C(1) until 26th April 2007. The Tribunal found sufficient cause for the delay, citing the Supreme Court's liberal approach in condoning delays to ensure justice, as seen in the cases of *Collector, Land Acquisition vs. Mst. Katiji & Ors.* and *N. Balakrishnan vs. M. Krishnamurthy*. The delay was thus condoned.

2. Validity of the Assessment Order under Section 143(3):
The assessee did not argue this ground. The Tribunal found no jurisdictional error in the assessment order under Section 143(3) and dismissed this ground.

3. Application of Section 145(3) and Subsequent Trading Addition:
The assessee's books were rejected under Section 145(3) due to unposted invoices and discrepancies in stock and cash. The AO estimated a higher turnover and applied a GP rate of 34%, resulting in a trading addition of Rs. 1,35,826. The Tribunal noted that the assessee had declared better GP rates in the current year compared to previous years and found no comparable case to disturb the declared GP. Citing the jurisdictional High Court's decision in *CIT vs. Gotan Lime Khanij Udhyog*, the Tribunal concluded that no trading addition was necessary even if the books were rejected. The addition was deleted.

4. Disallowance of Interest and Brokerage Expenses:
The AO disallowed interest of Rs. 2,55,682, claiming it was not for business purposes. The assessee argued that the properties were purchased with interest-free funds, and the loans were used for business purposes. The Tribunal accepted this explanation, noting no disallowance in previous years and no evidence of loans being used for personal properties. The disallowance was reversed, citing decisions in *CIT vs. Hotel Savera* and *Munjal Sales Corporation vs. CIT & Anr.*, and emphasizing that income tax is on real, not notional, income.

5. Disallowance of Telephone, Vehicle Expenses, and Depreciation:
The AO disallowed 20% of these expenses for personal use, which the CIT(A) confirmed. The Tribunal agreed that personal use could not be ruled out but found the disallowance excessive. It directed the AO to restrict the disallowance to 10%, granting partial relief to the assessee.

6. Charging of Interest under Section 234B:
The Tribunal noted that charging interest under Section 234B is mandatory and consequential, thus upholding this charge.

Conclusion:
The appeal was partly allowed, with the Tribunal condoning the delay, deleting the trading addition and disallowance of interest, and reducing the disallowance on telephone, vehicle expenses, and depreciation. The assessment order's validity and the interest charge under Section 234B were upheld.