TaxTMI 
TaxTMI 
2014 (5) TMI 82
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....rred in law and in facts in confirming the disallowance of Rs.1,25,054/-, out of the disallowance made by the Assessing Officer amounting to Rs.4,75,918/-. 4. The Ld. Commissioner of Income-Tax (Appeals) has erred in law and facts in confirming the addition of Rs.28,000/- on account of unexplained agricultural income. 5. The Ld. Commissioner of Income-Tax (Appeals) has erred in law and facts in confirming the following disallowances: a) Rs.1,533 out of general expenses. b) Rs.3,63,293 out of travelling and conveyance c) Rs.2,49,736 out of advertising, conference and sales promotion expenses. The ld. CIT(A) has erred in law and facts in confirming the disallowance of Rs.26,665 u/s 40(a)(ia). 6. the learned CIT(A) has erred in law and facts in confirming the disallowance of Rs. 26,665 u/s 40(a)(ia) of the Act." 2. Facts in brief:- The assessee is an individual who has filed his return of income on 31st October 2005, declaring total income of Rs.1,00,19,843. I....
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....er:- "Goods traded in Rs.71,65,232.26 includes, in addition to purchases made against sales, the following:- (a) Spares supplied against comprehensive maintenance contracts as part of the terms of such contracts (sample copy of contract & service reports enclosed); (b) Local parts and spares supplied as part of terms of quotation for supply of ventilator (copy of quotations enclosed). Commission received by the assessee takes care of the expenses incurred by the assessee for such local supplied. (c) Free replacement of spars during warranty period for damaged or defective spares. (d) Free samples or spares for producing order of spares. (e) There is no trading loss as alleged after considering supply of spares and part made as per CMC and other supplied as part of terms of contract as explained above. Also enclosed samples of sales invoices with related purchase bills for your record." Trading Account as on 31st March 2005 Purch....
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.... The assessee also submitted overall gross profit considering all the activities of the assessee as compared to the earlier years in the following manner:- Particulars A.Y. 04-05 (Rs.) A.Y. 05-06 (Rs.) Particulars A.Y. 04-05 (Rs.) A.Y. 05-06 (Rs.) Purchases 6152952 7165232 Sales 9646336 5742556 Direct expenses 1835765 2263282 Annual Maintenance 1689102 3504868 Gross profit 10613239 18178976 Commission Income 7266518 18360066 18601956 27607490 18601956 27607490 Thus, it was pointed out that the assessee has earned very high gross profit margin as compared to the earlier years. 6. The learned Commissioner (Appeals) remanded the matter to the Assessing Officer to verify the assessee's contention. The Assessing Officer submitted his remand report, extract of which has been given at Page-5 of the appellate order. The sum and substance of the Assessing Officer's submissions was that the assessee had shown higher gross profit margin only because of the commission income and increase in maintenance contract. Further, the assessee had shown expenses of annual maintenanc....
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....l supplied free of cost Rs.880962 iii. Purchases used in demo Rs.279022 Total Rs.1486569 6. Since the above claim of the assessee cannot be verified, If these purchases are not excluded while recasting the trading account for current year loss will go up by this amount and total gross loss for 2005-06 in trading activity will work out to Rs. 16,40,039/-. 7. Even without any verification of other purchases, item mentioned by the assessee for earning commission income & AMC etc. as they are claimed, still assessee has to satisfactorily explain above gross loss. 8. Hence, it is submitted that the addition made by the A.O. towards gross profit addition of trading results declared by the assessee may be considered keeping in view the above facts discussed. Further, report regarding purchases relating to earning of commission income, AMC is being verified by deputing the Inspector of this Circle and the same will be reported as soon as enquiries are completed." 7. The assessee, in response to the said remand report, filed his rejoinder submissions which have been dealt by the learne....
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.... Demo machines Rs. 279022 Proportionate Service charges Rs. 1111901 Gross Loss Rs. (162073) Rs. 5835265 Rs. 5835265 It is seen that still there is gross loss in the trading. Thus total addition of Rs. 10,16,550 disallowed under the head purchases and Rs. 4,45,854 disallowed as clearing charges and custom duty paid are added in the income. Further the figure of loss of Rs. 1,62,073 being not tenable is rejected. The appellant has challenged GP addition also on the ground that books of account have not been rejected. Since these demo machines are forming part purchases but not reflected anywhere as closing stock is always shown at Nil by appellant, the books of account are defective to this extent and hence appellant's plea that GP cannot be estimated as books of account are not rejected has no leg to stand. This plea is also rejected. Accordingly, GP at 5% is estimated at Rs. 2,83,659 and added in the income. Thus, in all addition to the extent of Rs. 19,08,116 (AMC material Rs. 447422 + material supplied under....
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....e sales of Rs. 56,73,193. She further proceeded to disallow certain purchases aggregating to Rs. 10,16,553 and also custom duty and clearing charges of Rs. 4,45,854 based on remand report of the Assessing Officer. From the records, it is seen that the assessee has shown business receipts from the following sources. Trading sales Rs. 56,73,192 Commission income Rs. 1,83,60,066 Income from AMC Rs. 35,04,868 Total:- Rs. 2,75,38,126 As against this, the assessee had shown following purchases against the aforesaid business income. Purchases against trading income Rs.35,63,380 Purchases against commission and AMC income Rs.36,01,851 Total:- Rs.36,01,851 Besides this, the assessee has also claimed custom duty and clearing charges of Rs. 4,45,854 and service charges of Rs.18,17,427. Thus, the total cost debited under the direct heads of expenditure were Rs.94,28,514. 12. In this case, the Assessing Officer proceeded to doubt the gross profit result on the trading of goods, whereas the learned Commissioner (Appeals) has not only rejected the trading result of trading in goods but also disallowed direct expenses....
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....ence to support the same and moreover personal use of car and motor car expenses are not denied and hence 1/5th motor car expenses have been disallowed. The appellant has stated that though for motor car expenses 1/5th of expenses has been disallowed interest on car loan and depreciation had been disallowed in toto. In view of this, 1/5th motor car expenses under the head interest on car of Rs.32,303/- i.e. Rs.6,460/- and motor car depreciation of Rs.2,79,494/- i.e. Rs.55,898/- are sustained along with 1/5th motor car expenses at Rs. 39,067/-, i.e. an amount of Rs.1,01,425/- under these three heads. Other disallowed amount are Rs.68,601/- under professional charges disallowed u/s 40(a)(ia), WC tax Rs.4,213 and profession tax Rs.2,240/-. Thus, an amount of Rs.1,25,054/- is sustained against the addition made of Rs.4,75,918/-. This ground is partly allowed." 15. After hearing both the parties, we are of the opinion that insofar as the disallowance of 1/5th portion of expenses under the heads "motorcar expenses", "interest on car loan" and "depreciation" is concerned, the said disallowance of 1/5th is restricted to 1/10th, as the element of personal nature of expenses has not been ....