TaxTMI 
TaxTMI 
2020 (4) TMI 786
X X X X Extracts X X X X
X X X X Extracts X X X X
....s of section 145(3) for confirming the trading addition made by the AO of Rs. 1,00,000/- without pointing out any defects in the stock details, purchase, sales and/or any other defects except that quantitative figures of two items out of various items of goods traded and having mismatch. 2. That the learned A.O. had erred at law as well as on facts in making trading addition of Rs. 1,00,000/- and the CIT (A) further erred in confirming the trading addition of Rs. 1,00,000/- despite the trading results for the year were better over the preceding assessment year. 3. That the learned A.O. had erred at law as well as on facts in making disallowance of direct expenses of freight incurred on transportation of goods of Rs. 1,75,3....
X X X X Extracts X X X X
X X X X Extracts X X X X
....to produce the Stock Register as well as the basis of valuation of closing stock along with supporting evidence. On examination of the details furnished by the assessee, the AO noted that the assessee has claimed shortage of certain commodities without any reasonable explanation and further the assessee has also claimed storing charges without supporting evidence to prove the genuineness of the shortage claimed by the assessee. The AO accordingly made a lump sum addition of Rs. 1,00,000/- to the total business income of the assessee. The AO has also made a disallowance of direct expenses on account of freight charges @ 10% and thereby an addition of Rs. 1,75,300/- was made to the income of the assessee. The assessee challenged the action....
X X X X Extracts X X X X
X X X X Extracts X X X X
....ails and observed that the assessee has submitted two sets of details which are not matching. Thus the ld. A/R has submitted that the AO as well as the ld. CIT (A) proceeded on assumption of incorrect facts which are contrary to the record. Further he has contended that the result of the assessee's business for the year under consideration are better than preceding years and, therefore, even after rejection of books of account, no addition is called for. Thus the ld. A/R has submitted that the additions sustained by the ld. CIT (A) on account of lump sum trading addition as well as direct expenses of freight charges are unjustified and liable to be deleted. The ld. A/R relied upon the following decisions :- CIT vs. Gupta K.N. Co....
X X X X Extracts X X X X
X X X X Extracts X X X X
....ot in dispute as the AO himself has accepted that the GP for the year under consideration at 8.60% is better than the preceding years. Therefore, even if the books of account of the assessee are rejected by invoking the provisions of section 145(3) of the Act, it would not lead to an automatic addition to the income of the assessee. The AO has to estimate the income of the assessee on the basis of best judgment and in exercising his power under section 145(3) read with section 144 of the IT Act the AO is bound to estimate the income on some proper and reasonable basis. It is settled proposition of law that the past history of the assessee is a proper guidance for estimation of the income after rejection of books of account as held by the Ho....
X X X X Extracts X X X X
X X X X Extracts X X X X
....out doubting or finding any defect in the claim of the selling expenses. Therefore, clubbing the office administrative expenses, selling expenses and other expenses including depreciation on assets and thereby making disallowances is highly arbitrary and unjustified. He has referred to the various expenses and submitted that when all these expenses are incurred wholly and exclusively for the purpose of business of the assessee and no defect was found by the AO, then making an adhoc disallowance of 1/5th of the said amount is not justified. The ld. CIT (A) has restricted the addition to Rs. 75,000/- is also without any basis. Thus the ld. A/R has contended that an adhoc disallowance made by the AO without having any basis which was confirmed....
X X X X Extracts X X X X
X X X X Extracts X X X X
....e AO has not applied his mind on the issue and just made an adhoc disallowance. The ld. CIT (A) has also not examined the nature of expenses so that the disallowance can be made on account of personal use or element. Accordingly, in the facts and circumstances of the case, the adhoc disallowance made by the AO and sustained by the ld. CIT (A) is deleted. Ground No. 5 is regarding the addition made on account of Low Household expenses. 9. We have heard the ld. A/R as well as the ld. D/R and considered the relevant material on record. The assessee has shown the household expenses of Rs. 16,250/- per month. The AO found that having regarding to the joint family of the assessee and status as well as standing of the family of the assessee,....