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2021 (7) TMI 797 - AT - Income TaxAddition on account of low G.P. declared by assessee - HELD THAT:- AO cannot question the rate of profit declared by assessee until and unless he detects some defects in the books of account. Once the books of account are found to be the representing true and correct affairs of business the Assessing Officer cannot tinker with the actual profit declared by the assessee. In the case in hand, AO has duly recorded in the assessment order that books of account along with bills and vouchers were produced for examination and the AO has examined the same as test check. Once the books of account and other supporting evidence were examined by AO and no defect was found by him then low profit outcome of the business activity cannot be a reason for addition. AO can very well conduct an enquiry to find out the reasons for low G.P. declared by assessee in comparison to the preceding year but low G.P declared by assessee cannot be a basis or ground for making the addition. Once the AO did not detect any mistake in the books of account the adoption of higher G.P. rate by Assessing Officer for the making addition is unjustified and not sustainable. Decided in favour of assessee. Adhoc disallowance of expenses by AO@ 25% - addition of expenses under the head of Shop Expenses, Travelling Expenses and Vehicle Running and Maintenance Expenses for want of voucher and verification - Addition restricted by CIT(A) of 12.5% - HELD THAT:- The reason for disallowance is cited by Assessing Officer as not fully vouched which remain unverifiable. The assessee has not produced any contrary material or record to contract this finding of the Assessing Officer that expenses are not fully vouched. However as in the case of Pr. CIT Vs. Rimjhim Ispat Ltd. [2016 (1) TMI 374 - ALLAHABAD HIGH COURT] the disallowance of 5% of the expenses for want of supporting vouchers was considered as reasonable, therefore, the disallowance confirmed by CIT(A) 12.5% is restricted to 5%. Disallowance of freight expenditure u/s 40A(3) - AO noted that the assessee has made payment in cash exceeding ₹ 20,000/- in a day on certain dates to a single party or person which is not allowable - HELD THAT:- Section 40A(3) contemplates certain expenditure incurred in cash are not deductible. Though, sub-section 3 of Section 40A as existed at the relevant point of time prescribes the limit not exceeding of ₹ 20,000/- meaning thereby if expenditure incurred in cash is less than ₹ 20,000/-or not exceeding ₹ 20,000/- then the provisions of Section 40A(3) are not applicable. However, in the case of the payment made by assessee to transport operators in respect of hiring or leasing goods carriages the same would fall in third proviso to Section 40A(3) and 40A(3A) of the I. T. Act. This proviso provides a higher limit of ₹ 35,000/- for payment in cash to the transport operators. As enhanced limit of ₹ 35,000/- is applicable for the payment to the transport operators and in other cases the limit of payment remains at ₹ 20,000/-. Therefore, there is no ambiguity in the provision of Section 40A(3) and third proviso as well as the explanatory note issue by CBDT. Accordingly, in view of the third proviso to Section 40A(3), the payment made in cash to the transport operators which is less than ₹ 35,000/- would not attract this proviso of section 40A(3) of the I. T. Act, 1961 and consequently no disallowance is called for. In the present case none of these payments are exceeding ₹ 35,000/-, therefore, the disallowance made by Assessing Officer is not sustainable and the same is deleted.
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