ITAT deletes 10% expenses addition for A.Y. 2008-09, citing Section 145(3) & precedents.

The ITAT allowed the appeal of the assessee, deleting the addition of 10% of telephone and conveyance expenses for A.Y. 2008-09. The ITAT held that once Section 145(3) was invoked and trading additions were made, no separate ad hoc disallowance of expenses was justified, citing a previous judicial pronouncement and a similar decision in the assessee's favor for the preceding year. The Judicial Member found merit in the arguments of the assessee's counsel, leading to the deletion of the disputed expenses and allowing the appeal.

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Issues:
Challenge against the addition of 10% of telephone and conveyance expenses for A.Y. 2008-09.

Analysis:
The appeal was filed by the assessee against the order dated 26/06/2014 by the learned CIT(A)-II, Jaipur for A.Y. 2008-09, challenging the addition of &8377; 77,707/- being 10% of telephone and conveyance expenses. The counsel for the assessee argued that since the books of account had been rejected and trading additions made, there was no justification for a separate ad hoc disallowance of telephone and car expenses. Reference was made to a similar issue in A.Y. 2007-08, where the ITAT had deleted a similar ad hoc disallowance in the assessee's favor. The ITAT held that once Section 145(3) was invoked and the profit was determined by applying a higher gross profit rate, no separate addition was warranted, citing a judicial pronouncement. Therefore, the ITAT deleted the disallowance in the previous year, and the same reasoning was applied to delete the addition in the current appeal.

The learned Sr.DR supported the order of the lower authorities, but upon hearing both parties and examining the record, the Judicial Member found merit in the arguments put forth by the counsel for the assessee. It was observed that when the books of account were rejected and trading additions were made, there was no justification for further ad hoc disallowance regarding telephone and conveyance expenditure. The Judicial Member noted that this view was supported by the ITAT in the assessee's own case for the preceding year. Consequently, the addition of 10% of telephone and conveyance expenses was deleted, and the assessee's appeal was allowed. The order was pronounced in the open court on 29/01/2015.

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