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Income Tax Appellate Tribunal, DELHI BENCH ‘SMC-3’, NEW DELHI
Before: SH. N. K. SAINI
This is an appeal filed by the assessee against the order dated 29/01/2016 passed by CIT(A)-12, New Delhi.
Following grounds have been raised in this appeal:-
“1. That the order of Learned Commissioner of Income Tax (Appeals) is bad in law as well as on the facts and in the circumstances of the case.
2. That the Learned Commissioner of Income Tax (Appeals) has erred in sustaining the action of the Assessing Officer for rejection of books of account.
That the Learned Commissioner of Income Tax (Appeals) has erred in sustaining the action of the Assessing Officer for estimation of gross profit by applying of G. P rate @
15% and consequently sustaining the addition to the tune of Rs.9,24,965/.
That the order of Learned Commissioner of Income Tax (Appeals) has erred in sustaining the addition of Rs.5,25,067/- on account difference in receipts shown in Profit & Loss Account as compared to receipts shown in Form 26AS ignoring the fact that the assessee has followed cash system of accounting.
That the order of Learned Commissioner of Income Tax (Appeals) erred in sustaining the ad hoc disallowance @ 10% out of car expenses and telephone expenses.
6. The above grounds of appeal are without prejudice to each other.”
3. Ground No. 1 & 6 are general in nature. So these grounds do not require any comment on my part. Ground No. 2 was not pressed, so it is dismissed as not pressed.
4. Vide Ground No. 3, grievance of the assessee relates to the sustenance of addition made by the A.O by estimating the gross profit by applying GP rate @ 15%.
5. The facts related to this issue in brief are that the assessee filed the return of income on 30/7/2007 declaring an income of Rs.78,935/- which was processed u/s 143(1) (a) of the Income-tax Act 1961(hereinafter referred to as the Act) on the returned income. Later on, the case was selected for scrutiny. During the course of assessment proceedings, the A.O observed that the assessee either inflated the purchases or bogus expenses to scale of profit margin in the books of accounts and that the letter issued u/s 133(6) of the Act to the parties had either being received back unserved or the parties had not furnished their confirmation. He, therefore, rejected the books of accounts by invoking the provisions of Section 145(3) of the Act and estimated the income by applying the GP rate of 15% at Rs.17,19,648/- which was added to the income of the assessee. Being aggrieved the assessee carried the matter to the Ld.CIT(A) and made the written submission dated 10/3/2014 which has been incorporated in Para 8 of the impugned order. For the cost of repetition the same is not reproduced herein. The Ld.CIT(A) after considering the submissions of the assessee sustained the addition of Rs.9,24,965/- by observing in Para 9.1 of the impugned order as under:-
“9.1. I have considered the Observations of the Assessing Officer and Submissions of the Appellant. Ground No. 2(a) to 2(b) (ii) and Ground No. 5 relate to rejection of books of account on flimsy grounds and determination of profit after applying G.P rate of 15%. Appellant is engaged in the business of transportation under the name & Style of M/s Suvidha Transport Corporation. Assessing Officer had examined the books of account of the assessee and certain defects were found such as in the vouchers, which were produced corrections were made with white fluid and in few cases name of brokers were not mentioned and complete challans were not produced. Assessing Officer had issued notice u/s 133(6) to lorry owners in 102 cases out of which reply was received in 17 cases and notice in 83 cases were received back unserved with remarks such as “Returned Back”. In one case, the remarks were ‘No
Transaction Made’ and in another case ‘Denied’. The name- wise details have been reproduced in Para 3 of page 2 of assessment order. Assessing Officer held that assessee had booked bogus expenditure as he failed to furnish any confirmation or produce any single person to support his claim. Assessing Officer also observed that assessee was not able to reconcile the difference in advances, he rejected the books of assessee u/s 145(3) and in view of the incomplete books, loss declared by the assessee was not verifiable from the records maintained and applied G.P rate of 15% and accordingly made an addition of Rs.17,19,648/-.”
Now, the assessee is in appeal.
The Ld. Counsel for the assessee reiterated the submissions made before the authorities below and further submitted that no specific defect was pointed out in the books of accounts maintained in regular course of business, therefore the addition sustained was not justified, alternatively it was stated that the GP rate applied by the A.O and sustained by the Ld.CIT (A) was on higher side. It was further submitted that in the preceding year, the assessee declared GP rate of 7.46% in the identical facts. Therefore, at the most GP rate at 7.46% may be applied.
In his rival submission, the Ld. DR strongly supported the impugned order and reiterated the observations made by the authorities below.
I have considered the submissions of both the parties and perused the material available on the record in the present case, it is noticed that the A.O applied estimated GP rate of 15% without any basis and even no similar case was cited wherein the same rate of GP was achieved. The A.O had also not discussed the past history of the assessee. In my opinion, the past history of the assessee is best guide in such type of cases. In the present case, the assessee declared GP rate at 7.46% in the preceding year which was accepted by the Department and nothing is brought on record that there is any material changed in the facts of the case relating to this year vis-a-vis the preceding year. I, therefore, keeping in view, the facts of the present case as discussed herein above, set aside the impugned order on this issue and direct the A.O to work out the income of the assessee by applying the GP rate of 7.46% which was accepted by the Department in the preceding year.
The next issue vide Ground No. 4 relates to the sustenance of addition of Rs.5,25,067/- on account of difference and receipts shown in the profit and loss account as compared to the receipt shown in Form No. 26AS.
As regards to this issue, the Ld. Counsel for the assessee submitted that the aforesaid difference was reconciled by the assessee but neither the A.O nor the Ld.CIT(A) had appreciated the same in right perspective. In his rival submissions, the Ld. Dr supported the orders of the authorities below.
After considering the submission of both the parties, I deem it appropriate to set aside this issue back to the file of the A.O to decide the same afresh after considering the reconciliation statement furnished by the assessee copies of which are placed at Page No. 41 & 42 of the assessee’s paper book. The A.O is also directed to allow due and reasonable opportunity of being heard to the assessee.
The next issue vide Ground No. 5 relates to the sustenance of the addition, out of the disallowance made by the A.O out of car expenses and telephone expenses. The facts related to this issue in brief are that the A.O noticed that the assessee debited Rs.96,650/- and Rs.1,09,812/- on account of car expense and telephone expenses respectively. The A.O observed that the assessee had not maintained log book to record the day to day running of car for the business. Therefore, the usage of vehicles by the assessee and staff members for their personal use could not be ruled out. He also observed that the assessee had not produced telephone call register for examination and there was no documentary evidence produced to prove the exclusive use of telephones for business purposes. Therefore, the personal use of telephone was also not ruled out. The A.O disallowed 20% of the aforesaid expenses on account of personal use. Being aggrieved, the assessee carried the matter to the Ld.CIT (A) who restricted the disallowance to 1/10th of the aforesaid expenses. Now, the assessee is in appeal.
The Ld. Counsel for the assessee submitted that the vehicles and telephone were used for the business purposes only. Therefore, the disallowance made by the A.O and sustained by the Ld.CIT (A) was not justified.
In his rival submission, the Ld. Dr supported the order of the A.O and reiterated the observations made therein.
I have considered the submissions of both the parties and perused the material available on the record. In the present case, it is an admitted fact that the assessee had not maintained any log book to substantiate the exclusive use of the vehicles for business purposes. It is also noted from the observations of the Ld.CIT(A) in Para 11 of the impugned order that the assessee had not provided any detail or evidence in support of his claim that mobile phones were given to staff & proprietor for the use in the business. Therefore, the personal use of the car and telephone by the assessee and his staff cannot be ruled out. In my opinion, the disallowance sustained by the Ld.CIT (A) to the extent of 1/10th of total expenses is fair and reasonable. Therefore, no interference is called for in the observations of the Ld.CIT (A) on this issue. 16. In the result, the appeal of the assessee is partly allowed.
(Order Pronounced in the Court on 10/11/2016)