KARUPPIAH MEENACHI,THIRUNELVELI vs. ITO, THIRUNEVELI

The assessee is an individual engaged in the business of BPCL dealership and running a petrol/diesel outlet. The assessee filed a return of income for AY 2017-18 on 20.10.2017 declaring total income of Rs.6,54,280/-. The case was selected for scrutiny and the statutory notices were duly served on the assessee. The A.O called on the assessee to furnish details pertaining to the claim of expenses. Since the assessee could not substantiate the expenses properly, the AO treated 10% of the total expenses at Rs.49,48,022/- to make an addition of Rs. 4,94,802/-. The AO also treated the difference between the credits in the bank account and the income returned by the assessee to make an addition of Rs.3,08,028/-. Aggrieved, the assessee filed further appeal before the CIT(A). The CIT(A) get partial relief to the assessee by deleting the addition made to the tune of Rs. 3,08,028/- and sustain the disallowance made an adhoc at 10%. The assessee is in appeal before the Tribunal against the order of the CIT(A).

The Ld. Authorized Representative (AR) of the assessee submitted that the profit margin of the assessee is consistently in the range of 0.2% to 1.66% and the GP of the assessee is in the range of 1.92% to 2.40% . The Ld. AR accordingly submitted that the disallowance of expenses on adhoc basis at 10% will result in higher margins which are not actually earned by the assessee. The Ld. AR also submitted that considering the nature of business the assessee is engaged in where volume of transactions is very high the A.O. is not correct in making the adhoc addition for the reason that the assessee has not be able to fully substantiate a small portion of the expenses..

The Ld. Departmental Representative (DR), on the other hand, relied on the orders of the lower authorities.

We have considered the rival submissions and perused the material available on record. The assessee is engaged in the business of BPCL dealership and running a petrol/diesel outlet. The A.O. made an ad hoc disallowance of 10% of the total expenses of Rs.49,48,022/- on the ground that the assessee could not properly substantiate a portion of the expenses. The CIT(A) sustained the said disallowance. The contention of the Ld. AR is that the assessee's business is characterized by high volume of transactions and that the assessee has consistently disclosed a profit margin ranging from 0.20% to 1.66% and GP ranging from 1.92% to 2.40%. It is, therefore, submitted that an ad hoc disallowance of 10% would result in an abnormal increase in the profit margin, which is not commensurate with the nature of business carried on by the assessee. We find merit in the said contention. Considering the nature of the business, the volume of transactions and the fact that the disallowance has been made only on an ad hoc basis for want of complete substantiation of a portion of the expenses, we are of the view that the disallowance sustained by the CIT(A) at 10% is on the higher side. In our view, restricting the disallowance to 5% would be reasonable to meet the ends of justice. Accordingly, we direct the A.O to restrict the disallowance to 5% and recomputed the income of the assessee. It is ordered accordingly.

Before parting we wish to clarify that the decision rendered in the present case is purely based on the facts and circumstances peculiar to the assessee's case and therefore shall not be treated as precedence in any other case.

In the result, the appeal of the assessee is partly allowed.