2012 (5) TMI 847 - AT - Income Tax

ITAT partially allows appeal, reduces disallowed expenses under IT Act, emphasizes need for proper documentation

The ITAT partially allowed the appeal, confirming the disallowance of expenses under section 145(3) of the IT Act but reducing the amount disallowed from ... - Issues involved: Disallowance of expenses u/s 145(3) of the IT Act and confirmation of addition by CIT(A).The appellant, a partnership firm, filed its return of income for assessment year 2006-07, declaring total income along with audit report and audited accounts. The case was selected for scrutiny, and notices were duly served on the assessee. Despite multiple opportunities, the assessee did not provide necessary details and documents to substantiate its claims of expenses, leading to the disallowance of &8377; 27,49,273 by the Assessing Officer. The AO rejected the books of accounts u/s 145(3) due to lack of piece-wise and quantity-wise details of production, resulting in the disallowance. The CIT(A) upheld the AO's decision, noting the appellant's consistent non-compliance and failure to substantiate claims, leading to the dismissal of the appeal.Before the ITAT, the assessee argued that even with defects in the records, the correct net profit rate was 3.27%, citing various cases where net profit was estimated at lower rates. The ITAT considered the lack of proper records and non-cooperation of the assessee, affirming the disallowance but reducing it to 10% of the expenses, amounting to &8377; 13,74,636, as opposed to the initial disallowance of &8377; 27,49,273.In conclusion, the ITAT partially allowed the appeal, confirming the disallowance of expenses but reducing the amount disallowed.