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of <h1>ITAT upholds CIT(A) decision on low GP addition, reduces disallowance</h1> The ITAT upheld the CIT(A)'s decision to delete the addition made on account of low GP and the reduction in disallowance of telephone and vehicle ... Addition on account of low GP - CIT(A) deleted the addition - Held that:- It is undisputed fact that the AO has simply made comparison of GP ratio of the assessee with another firm and drawn adverse inference - has not brought any evidence on records to indicate that the assessee has suppressed any production or made any sales outside the books of accounts. The observation of the AO is that there is minimum suppression of production of 50,000 kg. of yarn is based on presumption and not on the basis of any cogent evidence or supporting documents - the nature of business of two firms are different and cannot be compared as assessee manufactures grey cloth which is used for dress material whereas the grey cloth manufactured by other firm used for comparison is used for sarees - against revenue. Disallowance of telephone & vehicle expenses - Held that:- CIT(A) considered the disallowance of 20% to be on higher side and therefore restricted the disallowance to 10% - no interference is called for in the order of the CIT(A) - against revenue. Issues:1. Addition made on account of low GP2. Rejection of books of accounts by AO3. Disallowance of telephone and vehicle expensesAnalysis:Issue 1: Addition made on account of low GPThe Revenue appealed against the CIT(A)'s order deleting the addition of Rs.21,01,696 on account of low Gross Profit (GP) for the A.Y. 2005-2006. The AO observed a fall in GP compared to the previous year and industry standards, leading to the rejection of the books under Section 145(3). The AO estimated GP based on comparisons with another firm. However, the CIT(A) found no material defects in the books of accounts and noted fluctuating GP in the assessee's history, accepted by the department previously. The ITAT upheld the CIT(A)'s decision, emphasizing the lack of factual analysis by the AO and absence of evidence of production suppression or sales outside the books.Issue 2: Rejection of books of accounts by AOThe AO rejected the books of accounts under Section 145(3) based on comparisons with another firm and presumed suppression of production by the assessee. However, the ITAT found the rejection unjustified as the AO failed to provide concrete evidence or defects in the books. The nature of business between the assessee and the compared firm differed, impacting the validity of the comparison. The ITAT upheld the CIT(A)'s decision to delete the addition, noting the lack of factual basis for the AO's actions.Issue 3: Disallowance of telephone and vehicle expensesThe AO disallowed Rs.90,179 as personal expenses from telephone and vehicle expenses, considering 1/5th of the total. The CIT(A) reduced the disallowance to 10%, deeming 20% excessive. The ITAT found the CIT(A)'s decision fair and upheld it, dismissing the Revenue's appeal on this ground.In conclusion, the ITAT upheld the CIT(A)'s decision to delete the addition made on account of low GP and the reduction in disallowance of telephone and vehicle expenses, emphasizing the lack of factual basis and justification for the AO's actions in rejecting the books of accounts.
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