2021 (6) TMI 943 - AT - Income Tax

Tribunal modifies assessment orders for A.Y 2013-14 & 2014-15, upholding expenses & commission payments.

The appeals for A.Y 2013-14 and A.Y 2014-15 were partly allowed. Ad hoc disallowances were deleted, and necessary disallowances were sustained as per the ... Rejection of books of accounts - trading addition - AR submitted that the absence of stock register or low yield cannot be a ground for invoking of section 145(3) - HELD THAT:- As decided in own case [2019 (10) TMI 924 - ITAT JAIPUR] low production of oil from the oil seeds in comparison to the earlier years. We find variation in the yield ratio is very meager and in some of the cases it is less than 1%. Once the difference is very negligible which can be due to various factors and reasons including the quality of seed, oil contents in the seeds due to climate condition for a particular season which affects the quality of crop itself. Ignoring all these factors as explained by the assessee in the reply to the show cause notice of the A.O., the addition made by the A.O. and sustained by the ld. CIT(A) is not justified. CIT(A) has also not given any basis for sustaining the addition and therefore, such an ad hoc addition without specifying the basis is not permissible, accordingly, the addition sustained by the ld. CIT(A) is deleted. Disallowance of Telephone Expenses, Travelling Expenses, Building Repair & Maintenance Expenses and Office Expenses - HELD THAT:- As relying on own case except 10% of building repair and maintenance expenses, all other disallowances made by the A.O. and sustained by the ld. CIT(A) are hereby deleted and the ground is thus partly allowed. Disallowance being @ 15%, out of the commission paid and claimed by the assessee - HELD THAT:- We find that under identical set of facts and circumstances of the case, the disallowances were made in the earlier A.Y 2012-13 and the same have been partly confirmed by the ld CIT(A) and the assessee has not filed any appeal against the said decision before the Tribunal and the matter has thus attained finality. Therefore, following the earlier decision of his predecessor CIT(A), where the ld CIT(A) for the impugned assessment year has restricted the disallowance to 15%, we don’t see any infirmity in the said decision and findings of the ld CIT(A) and are not inclined to interfere in the said findings and the ground of appeal so taken by the assessee is thus dismissed. Issues Involved:1. Jurisdiction and validity of the assessment order.2. Application of Section 145(3) and trading addition.3. Disallowance of various expenses.4. Additional ground regarding disallowance of commission payments.Detailed Analysis:1. Jurisdiction and Validity of the Assessment Order:- Ground Not Pressed: The assessee did not press this ground during the hearing. Consequently, it was dismissed as not pressed.2. Application of Section 145(3) and Trading Addition:- Facts of the Case: The assessee, a partnership firm engaged in manufacturing and trading of edible oil, filed its return declaring an income of Rs. 57,06,490/-. The assessment was completed at Rs. 92,10,090/- with an addition of Rs. 9,44,277/- due to low yield of oil from seeds.- Assessee's Argument: The absence of a stock register or low yield cannot be grounds for invoking Section 145(3). The assessee maintained all necessary books of account and produced them before the Assessing Officer (AO). The results declared were better than the previous year.- Revenue's Argument: The AO rightly rejected the books of accounts due to the absence of a stock register and low yield. The CIT(A) already restricted the additions to Rs. 1,50,000/- from Rs. 7,94,277/-.- Tribunal's Findings: The Tribunal found that the variation in yield ratio was negligible and similar to the previous year. The CIT(A) had no basis for sustaining an ad hoc addition of Rs. 1,50,000/-. Therefore, the addition sustained by the CIT(A) was deleted.3. Disallowance of Various Expenses:- Facts of the Case: The AO disallowed 10% of total expenses claimed under various heads such as Telephone, Travelling, Building Repair & Maintenance, and Office Expenses, totaling Rs. 1,02,656/-.- Assessee's Argument: The disallowances were made on an ad hoc basis without specific instances of non-business purposes. The expenses were necessary for business purposes and were not excessive considering the turnover.- Revenue's Argument: Similar disallowances were made in the preceding year and partly confirmed by the Tribunal.- Tribunal's Findings: Following the decision of the Coordinate Bench for the preceding year, except for 10% of Building Repair & Maintenance expenses, all other disallowances were deleted.4. Additional Ground Regarding Disallowance of Commission Payments:- Facts of the Case: The AO disallowed Rs. 24,00,000/- paid as commission to related persons under Section 40A(2)(b). The CIT(A) restricted the disallowance to Rs. 3,60,000/-.- Assessee's Argument: The commission payments were necessary and incurred solely for business purposes. The payees declared the income and paid taxes, resulting in no loss to revenue.- Revenue's Argument: Similar disallowances were made in the preceding year and partly confirmed by the CIT(A), which the assessee did not appeal against.- Tribunal's Findings: Following the earlier decision of the CIT(A) for the preceding year, the Tribunal found no infirmity in the CIT(A)'s decision to restrict the disallowance to 15%. Therefore, the ground of appeal was dismissed.Appeal for A.Y 2014-15:- Facts and Circumstances: Both parties agreed that the facts and circumstances were identical to A.Y 2013-14.- Tribunal's Findings: The findings and directions from A.Y 2013-14 were applied mutatis mutandis, and the appeal was partly allowed.Conclusion:The appeals for both A.Y 2013-14 and A.Y 2014-15 were partly allowed, with specific deletions of ad hoc disallowances and sustaining of necessary disallowances as per the findings of the Tribunal.