2016 (7) TMI 906 - AT - Income Tax

Appellate Tribunal Upholds Assessee's Wins; Revenue's Challenges Rejected

ITO, Ward-6 (4), Surat Versus M/s. Shree Saraswati Medical Agencies

The Appellate Tribunal upheld the CIT(A)'s decisions in favor of the assessee on all issues raised by the Revenue. The Tribunal found the Revenue's ... Addition made on account of low GP - sole objection of the AO was that the assessee has not been maintaining stock register and also order placement registers - Held that:- According to the ld.CIT(A), the assessee has been maintaining stock register on-line. Its accounts are subject to inspection under direct control of drug authorities, which could not be conducted without maintenance of proper stock records. As far as fall in GP is concerned, the ld.CIT(A) was satisfied with the explanation given by the assessee. After taking into consideration all these facts and circumstances, do not find any reason to interfere in the order of the ld.CIT(A) on this issue. Addition u/s 40A(2)(b) - Held that:- Section 40A(2)(b) contemplates that if persons by virtue of their relationship or position with the management persuade the assessee to pay a higher amount of remuneration in lieu of services, then such higher amount of remuneration could be disallowed. In other words, if those services could be availed from the open market at a lower rate, then, excess payment is to be disallowed. In the present case, the assessee has paid commission to four persons. The objection of the AO is that they are simple graduates and they could not earn this much of income. But I failed to understand the reasoning of the AO, because, he has not given any basis for doubting the capability of all four persons. AO has not referred any material as to how services rendered by them could be availed at a lower rate from the market. The ld.CIT(A) has rightly deleted the addition Addition on loss due to flood - CIT(A) deleted the addition - Held that:- FAA did not concur with this conclusion of the AO on the ground that, if this type of plea is being accepted, then, there could not be any loss to any concern. The acceptance of the insurance company could not be a guiding factory for gauging the loss of any assessee. After taking into consideration the finding of the CIT(A), do not find any reason to interfere in it. Disallowance of misc. expenses - CIT(A) deleted such disallowance on the ground that misc. expenses claimed by the assessee are only 0.16% of the turnover - Held that:- CIT(A) was satisfied that the assessee has not debited any personal expenditure or other expenditure, which are not linked with the business in the misc. expenses. After considering the smallness of the expenditure and the reason assigned by the ld.CIT(A) no reason to interfere with the order of the ld.CIT(A) on this issue Disallowance of Keyman Insurance premium - Held that:- The assessee is entitled for deduction of the premium paid on the KIP for the partner. The ld.CIT(A)has rightly deleted the impugned addition Revenue appeal dismissed. Issues Involved:1. Deletion of addition made on account of low GP2. Deletion of commission payment3. Deletion of loss due to flood4. Deletion of disallowance out of various expenses5. Deletion of Keyman Insurance premiumAnalysis:Issue 1: Deletion of addition made on account of low GPThe Revenue contested the deletion of an addition due to a fall in Gross Profit (GP) shown by the assessee. The AO rejected the books of accounts due to non-maintenance of stock registers, leading to an addition of Rs. 12,06,924. However, the CIT(A) found the AO's reasoning flawed as the appellant had maintained stock records online and was under strict regulatory control. The Tribunal upheld the CIT(A)'s decision, emphasizing that the absence of physical stock registers did not warrant rejecting the books of accounts.Issue 2: Deletion of commission paymentThe Revenue challenged the deletion of a commission payment of Rs. 9,99,500 to certain individuals under section 40A(2) of the Income Tax Act. The AO disallowed the claim, alleging excessive payments. However, the Tribunal found no basis for doubting the recipients' capabilities or market rates for their services. The CIT(A)'s decision to delete the disallowance was upheld, as the AO failed to provide evidence supporting the disallowance.Issue 3: Deletion of loss due to floodThe Revenue disputed the deletion of a loss amounting to Rs. 10,86,016 due to flood damage. The AO rejected the claim, equating the loss with the insurance claim received. However, the CIT(A) disagreed, stating that acceptance by the insurance company did not negate the actual loss suffered. The Tribunal upheld the CIT(A)'s decision, emphasizing that the insurance claim did not represent the full extent of the loss.Issue 4: Deletion of disallowance of various expensesThe Revenue contested the deletion of a disallowance of Rs. 35,687 from miscellaneous expenses. The AO had disallowed 20% of the expenses, but the CIT(A) found them to be business-related. The Tribunal upheld the CIT(A)'s decision, noting the negligible percentage of expenses compared to turnover and the absence of personal or non-business expenses.Issue 5: Deletion of Keyman Insurance premiumThe Revenue challenged the deletion of a Keyman Insurance premium of Rs. 2,66,744. The AO disallowed the claim, but the CIT(A) allowed it based on a precedent. The Tribunal upheld the CIT(A)'s decision, citing a Gujarat High Court ruling that deemed such premiums deductible under Section 37. The Tribunal dismissed the Revenue's appeal, affirming the CIT(A)'s decisions on all issues.This detailed analysis covers the key legal aspects and decisions of the judgment delivered by the Appellate Tribunal ITAT Ahmedabad.