2014 (1) TMI 1319 - AT - Income Tax

Appeal partially allowed by ITAT for reassessment of income based on revised expense disallowance.

The ITAT Delhi allowed the appeal partially, directing the Assessing Officer to rework the income of the assessee based on revised disallowance of ... Addition made on total sales – Held that:- The Assessing Officer proposed to apply the GP rate of the immediately preceding year - whether the GP rate of immediately preceding year is 13.05% or 12.97%, it is a matter of computation from the details available on record before the Assessing Officer – So far as disallowance of 5% is concerned, Assessing Officer himself has proposed to disallow the expenses claimed in the profit & loss account - Once a GP rate is applied, all the items of trading account, viz., sales, purchases, closing stock as well as the expenses which are debited to trading account, are deemed to have been considered while working out the GP rate – thus, it cannot be again considered for the purpose of estimated disallowance - the Assessing Officer is directed to disallow 5% of the expenses excluding the purchases and other expenses which are considered while working out the gross profit rate – Decided partly in favour of Assessee. Issues:1. Appeal against CIT(A) order for AY 2002-03.2. Justification of order without giving a second chance for hearing.3. Upholding additions contrary to overheads and gross profit.4. Disallowance of expenses and enhancement of gross profit.5. Delay in filing appeal.Issue 1: Appeal against CIT(A) order for AY 2002-03The appeal was filed against the order of the learned CIT(A)-I, New Delhi for the Assessment Year (AY) 2002-03. The original assessment was completed under Section 144 due to non-compliance of the assessee company. On appeal, the ITAT set aside the matter to the file of the Assessing Officer with directions for the assessee to cooperate. However, despite specific directions, the assessee did not appear, leading to the assessment being completed by rejecting the books of account and applying gross profit rate while making disallowances.Issue 2: Justification of order without giving a second chance for hearingOne of the grounds raised was the lack of a second chance for the appellant to be heard due to unavoidable circumstances. However, during the hearing, this ground was not pressed by the counsel for the assessee and was rejected accordingly.Issue 3: Upholding additions contrary to overheads and gross profitThe appellant contested the additions of Rs. 57,38,780 and Rs. 13,71,751, representing 5% of total sales and enhancement of gross profit, respectively. The argument was that the disallowance of expenses and the enhancement of gross profit penalized the company on the same subject matter. The ITAT directed the Assessing Officer to rework the disallowance of expenses excluding items already considered in the gross profit rate calculation.Issue 4: Disallowance of expenses and enhancement of gross profitThe Assessing Officer disallowed expenses and enhanced the gross profit based on the GP rate of the immediately preceding year. The appellant argued that the actual expenses after considering the GP rate should only result in a disallowance of Rs. 6,29,818 instead of the original Rs. 57,38,780. The ITAT directed the AO to rework the disallowance based on excluding items already considered in the GP rate calculation.Issue 5: Delay in filing appealThe appellant prayed for the condemnation of the delay in filing the appeal and requested an opportunity to be heard. The ITAT partially allowed the appeal by directing the Assessing Officer to rework the income of the assessee based on the revised disallowance of expenses. The decision was pronounced on 2nd August 2013.This detailed analysis of the judgment covers all the issues involved, providing a comprehensive understanding of the legal proceedings and the decisions made by the ITAT Delhi.