2018 (1) TMI 392 - AT - Income Tax

ITA rules in favor of appellant, reduces trading addition, expenses disallowance, dismisses certain grounds

The ITAT upheld the rejection of books of accounts under Sec.145(3) due to discrepancies in stock details and unverified sales. However, it ruled in favor ... Rejection of books of accounts - invocation of section 145 - estimation of G.P. - Held that:- Past history of the assessee is the best guide to accept/reject the book result of the assessee. The Assessing Officer had not brought on record any positive evidence to enhance the gross profit for making additions. The G.P. is better than earlier year. The assessee is purchasing raw material in kilograms and the output is in pieces. Thus, there is no possible way to make coordination between input and output. In such a situation, the gross profit is the proper way to arrive at comparative book results. Therefore, considering all the facts and circumstances, the Bench finds that the ld. CIT(A) was not justified in confirming the addition, therefore, the same is deleted. Assessee’s appeal is allowed. Lump sum disallowance made on account of various expenses debited in the P&L account - Held that:- After hearing both the sides on this issue, the Bench is of the view that sustaining the addition of ₹ 50,000/- is on higher side, therefore, in the interest of justice, equity and fairness, the disallowance of ₹ 25,000/- shall be reasonable. Hence addition up to 25,000/- is sustained and balance is deleted. - Decided partly in favour of assessee Issues Involved:1. Invalid invokation of Sec.145(3)2. Invalid trading addition of Rs. 341,396 by increasing GP rate from 7.24% to 8% arbitrarily3. Invalid disallowance of Rs. 50,000 out of expenses arbitrarily4. Not issuing proper and valid show cause notice before making addition/disallowance5. Charging interest u/s 234B Rs. 56,985, interest u/s 234C Rs. 6,679, and interest u/s 234D Rs. 6Analysis:Issue 1 - Invalid Invokation of Sec.145(3):The appellant challenged the rejection of books of accounts under Sec.145(3). The appellant argued that audited accounts should be accepted for tax purposes, and books maintained in the regular course of business are presumed to be correct. However, the CIT(A) confirmed the rejection. The ITAT upheld the CIT(A)'s decision, stating that the AO was justified in rejecting the books under Sec.145(3) due to discrepancies in maintaining stock details and unverified sales.Issue 2 - Invalid Trading Addition:The appellant contested the trading addition of Rs. 341,396 due to an increase in GP rate from 7.24% to 8%. The ITAT analyzed the appellant's submissions and upheld the appeal. The ITAT noted that the appellant's trading results were better than previous years and that the AO did not provide positive evidence to justify the increase. The ITAT ruled in favor of the appellant, deleting the addition.Issue 3 - Invalid Disallowance of Expenses:Regarding the disallowance of Rs. 50,000 from expenses, the ITAT found the amount to be on the higher side. It reduced the disallowance to Rs. 25,000, considering the volume and nature of the appellant's business. The ITAT sustained the addition of Rs. 25,000 and deleted the balance, aligning with the principles of justice, equity, and fairness.Additional Issues:The ITAT dismissed grounds related to the appellant's appeal not pressed during the hearing. It also addressed issues concerning the show cause notice and the charging of interest under various sections. The ITAT provided a comprehensive analysis for each issue, ensuring a fair and just decision based on the facts and circumstances presented during the proceedings.