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2020 (12) TMI 865 - AT - Income TaxDisallowance made in respect of estimated gross profit - HELD THAT - CIT(Appeal) on this issue has taken gross profit percentage at 5.57% and since the assessee had already offered gross profit percentage at 4.23%, the Ld. CIT(Appeal) decided to add gross profit percentage of 1.34% i.e. (5.57% -4.23%). Thus, the addition to the tune of ₹ 25,56,706/- i.e. 1.34% of ₹ 19,07,99,008/- was confirmed and the assessee was given relief to the tune of ₹ 22,70,509/-. The findings given by the Ld. CIT(Appeal) does not call for any further interference and is hereby upheld. Addition invoking the provision of Section 40A(2)(b) - salary paid to the three sons of the assessee for the services rendered by them during the course of business activities - HELD THAT - Salary and bonus paid p.a. to each of the son of ₹ 1,68,000/- i.e. ₹ 14,000/- per month including bonus. Considering these facts, it was asked to the Ld. DR whether this amount of ₹ 14,000/- paid as salary per month to each sons for doing business work of the assessee, whether it was unreasonable. DR submitted that the salary paid for the work done was reasonable. That it is also not the case of the Department neither in the order of AO nor in the order of the CIT(Appeal) that the assessee s sons were not at all involved in the business of the assessee or that there was no work done by them in respect of the business of the assessee. That both, the AO and the Ld. CIT(Appeal) has estimated the adhoc disallowance without specifying reasons for such disallowance without making specific examination of facts and therefore, is unsustainable in the eyes of law. Considering the totality of facts and circumstances, we set aside the order of the Ld. CIT(Appeal) and direct the Assessing Officer to delete the addition on this ground from the hands of the assessee. Adhoc disallowances on telephone expenses on vehicle expenses and on depreciation - 10% adhoc disallowance was made by the Revenue Authorities - HELD THAT - We would have appreciated the disallowance if the Revenue could have brought forward some specific evidences of such personal usage by the assessee. This fact is not there in the entire exercise neither in the order of the Assessing Officer nor in the order of the Ld. CIT(Appeal). Sans this, nature of disallowance is adhoc only which is not permissible within the purview of taxing statutes and also considering the submissions of the Ld. DR as regards the smallness of the amount involved and as such it will have a negligible or no impact on revenue collection, in view of these facts, we set aside the order of the Ld. CIT(Appeal) and direct the Assessing Officer to delete the addition on these heads from the hands of the assessee. Ground No.3 raised in appeal by the assessee is allowed.
Issues:
1. Disallowance of estimated gross profit 2. Addition under Section 40A(2)(b) for salary paid to sons 3. Ad-hoc disallowance on telephone, vehicle expenses, and depreciation Issue 1: Disallowance of Estimated Gross Profit: The Assessing Officer noted a decrease in gross profit ratio from the previous year and sought explanations from the assessee. Despite detailed submissions, the AO adopted an average gross profit of 4 years, resulting in an addition of ?48,27,215. The CIT(A) reduced this addition to ?25,56,706 based on a different approach. The CIT(A) considered practical aspects and upheld the addition partially. The Tribunal found the CIT(A)'s decision reasonable and upheld it, dismissing the appeal on this ground. Issue 2: Addition under Section 40A(2)(b) for Salary Paid to Sons: The AO disallowed 64% of the salary paid to the assessee's sons, adding ?3,22,560 to the total income. The CIT(A) reduced this disallowance to 25% and confirmed an addition of ?1,26,000. The Tribunal found the disallowance arbitrary as there was no evidence to suggest the sons were not involved in the business. Therefore, the Tribunal directed the AO to delete the addition on this ground, allowing the appeal. Issue 3: Ad-hoc Disallowance on Telephone, Vehicle Expenses, and Depreciation: The Revenue Authorities made ad-hoc disallowances of 10% on telephone expenses, vehicle expenses, and depreciation due to lack of proper documentation. The Tribunal noted the absence of specific evidence supporting personal usage and found the ad-hoc disallowance unsustainable. Considering the small impact on revenue and lack of concrete evidence, the Tribunal directed the AO to delete these additions. Consequently, the appeal was allowed on this ground. In conclusion, the Tribunal partially allowed the assessee's appeal, upholding the disallowance of estimated gross profit partially, deleting the addition for salary paid to sons, and removing the ad-hoc disallowances on various expenses due to lack of concrete evidence.
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