2016 (3) TMI 637 - AT - Income Tax

Tribunal partially allows assessee's appeal against CIT(A) order for AY 2008-09

The Tribunal partly allowed the appeal of the assessee against the order passed by CIT(A)-I, Lucknow for the assessment year 2008-09. Most disallowances, ... Adoption of 5% gross profit rate - Held that:- It is noted by CIT(A) that the assessee has not furnished the details of sales and sundry debtors and the assessee has also not maintained any stock register from which the sales made by the assessee could be verified. He has also noted that in earlier two years, the gross profit rate declared by the assessee was 6.88% and 7.44% and against this factual background, adoption of 5%, gross profit rate in the present year is quite reasonable in the facts of the present case and hence, on this issue, we do not find any reason to interfere in the order of CIT(A). Disallowance of telephone expenses to the extent of only 5% - Held that:- It is not the case of the assessee that the assessee is maintaining separate telephone for use for personal purposes and therefore, in the facts of the present case, we do not find any infirmity in the order of CIT(A) on this issue also. Disallowance of travelling expenses - Held that:- assessee neither furnished any bill/ticket nor explained the purpose of the travels undertaken nor submitted the copies of his passport and those of his family members. This is settled position of law that when the assessee makes claim of deduction of an expenditure, he has to establish that the expenditure was in fact incurred and the same was for business purposes. When the assessee has not furnished the copy of passport of self and family members and has not explained the purpose of travel, it cannot be accepted that the expenses incurred are for business purpose. Hence, on this issue also, we find no infirmity in the order of learned CIT(A) in making disallowance Disallowance of depreciation - Held that:- Disallowance of depreciation on old assets i.e. computer and generator is not justified when the business was not closed in the present year and it was carried out by way of sale of pending stock. Hence, this disallowance is deleted but disallowance of depreciation on furniture is confirmed because this is the claim of the assessee that the addition of ₹ 64,46,016/- was made to furniture in the present year and the entire payment was made in cash. The objection of the Assessing Officer is quite strong that when the assessee is closing down the business then what is the purpose of making such huge investment. Hence, we confirm the disallowance of ₹ 1,57,633/- being depreciation on furniture in view of facts discussed above. Disallowance of legal and professional expenses - Held that:- CIT(A) correctly allowed part relief of ₹ 32,000/- being the amount paid to Arsan and Company, Chartered Accountants and the auditor of the assessee. Regarding the balance amount of ₹ 1.85 lac, it is noted by CIT(A) that it is not known as to whether the expenses have been incurred for business purpose and are of revenue nature. Considering the facts of the present case, we find no infirmity in the order of CIT(A) on this issue also. Disallowance u/s 40a(ia) - applicability of provision of section 194C - whether assessee liable to get his accounts audited u/s 44AB? - Held that:- As per explanation below sub section 7 of section 194C, an individual assessee who is liable to get his accounts audited u/s 44AB during the financial year immediately preceding the financial year in which such sum credited or paid to a contractor is liable to deduct TDS u/s 194C. Hence, the provision of section 194C was applicable to the assessee because a clear finding has been given by CIT(A) that in financial year 2006-07, the assessee was liable to get his accounts audited u/s 44AB. On this issue, we do not find any infirmity in the order of CIT(A). Addition on account of difference in capital account - Held that:- We find that the Assessing Officer has noted in Para 8 of his order that as per capital account of the assessee, submitted by assessee’s counsel Shri Swadhin Mishra, Chartered Accountant on 10/12/2010, the amount of net profit transferred to capital account is ₹ 10,39,279/- while as per profit & loss account, the net profit has been shown at ₹ 9,14,248/- resulting in difference of ₹ 1,25,030/-. Neither before the Assessing Officer nor before CIT(A), this difference could be reconciled by the assessee and the same was not explained by the assessee. Issues Involved:Assessee's appeal against order passed by CIT(A)-I, Lucknow for assessment year 2008-09. Grounds raised by assessee: Extra Profit Addition, Telephone Expenses, Traveling Expenses, Depreciation Disallowance, Legal & Professional Expenses Disallowance, Disallowance u/s 40a(ia), Difference in Capital A/c.Detailed Analysis:1. Extra Profit Addition:- CIT(A) confirmed addition of Rs. 9,30,587 based on discrepancies in sales, debtors, and lack of substantiation.- CIT(A) noted previous gross profit rates of 6.88% and 7.44%, justifying the 5% rate applied by AO.- Tribunal found no reason to interfere with CIT(A)'s decision due to lack of sales details and low substantiation.2. Telephone Expenses Disallowance:- Disallowance of Rs. 57,988 (5% of total) upheld, as no separate phone for personal use was maintained by the assessee.3. Traveling Expenses Disallowance:- CIT(A) disallowed Rs. 3,92,660 due to lack of supporting documents like bills or explanations for travels.- Tribunal upheld the decision, emphasizing the need for proper substantiation for business expenses.4. Depreciation Disallowance:- Disallowance of Rs. 1,67,608 on furniture upheld as unexplained cash payments for furniture addition during business closure.- Disallowance on old assets like computer and generator was deleted as business was ongoing.5. Legal & Professional Expenses Disallowance:- Disallowance of Rs. 1.85 lac out of Rs. 2.17 lac upheld due to lack of bill/voucher submission.- Partial relief of Rs. 32,000 allowed for payment to Chartered Accountants, but remaining disallowance justified by CIT(A).6. Disallowance u/s 40a(ia):- Disallowance of Rs. 2.56 lac upheld as the assessee was liable to deduct TDS under section 194C.7. Difference in Capital Account:- Addition of Rs. 1,25,030 due to unexplained difference between net profit transferred and shown in profit & loss account was upheld.- Assessee failed to reconcile the difference, leading to confirmation of the addition.Conclusion:- Tribunal partly allowed the appeal, upholding most disallowances based on lack of substantiation and explanations provided by the assessee. The decision was based on detailed analysis of each issue raised in the appeal.