TMI Blog2017 (5) TMI 2X X X X Extracts X X X X X X X X Extracts X X X X ..... rities have rightly invoked the provisions Section 145(3) of the Act. As regards the sustenance of addition of ₹ 8,55,822/-, it is noted that the gross profit rate of the assessee for the last three years i.e. 2008-09-, 2009-10 and 2010-11 are at 0.98%, 1.14% and 0.74% respectively. Thus looking to the past history of the assessee and assessee being engaged in the trading of sugar on wholesale basis, the addition is sustained to the extent of ₹ 2.00 lacs only. Thus the assessee will get the partial relief of ₹ 6,55,822/-. Disallowance of expenses - Telephone expenses, depreciation on car and motorcycle, traveling expenses, vehicle expenses and labour expense - Held that:- Since the books of account of the assessee has been rejected, therefore, the estimated addition has been made,no separate adhoc disallowance out of the expenses debited in the profit and loss account under the heads telephone expenses, depreciation on car and motorcycle, traveling expenses and vehicle expenses and labour expenseis not justified. See S.A. Builders vs. CIT [2006 (12) TMI 82 - SUPREME COURT ] - Decided in favour of assessee. - ITA No. 974/JP/2016 - - - Dated:- 18-4-2017 - Shr ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ence of these defects, trading results declared by the assessee cannot be ascertained and true gross profit and closing stock cannot be deduced. In such a situation, the assessee was offered opportunity by the AO to show cause as to why provisions of Section 145(3) of the Act may not be invoked and gross profit @ 1.14% as declared in last year may not be applied on declared turnover of ₹ 21,59,60,250/-. The assessee submitted the reply before the AO who observed the reply of the assessee as routine reply and it had no force. The AO also noted that the assessee had neither produced the day to day stock register nor quantitative details of the commodities. In such a situation, the AO had invoked the provisions of Section 145(3) of the Act and applied the gross profit rate @ 1.14% on declared turnover of ₹ 21,59,60,250/-. The AO thus worked out the gross profit at ₹ 24,61,947/- instead of ₹ 16,06,125/- declared by the assessee. The AO thus added the difference amount of ₹ 8,55,822/- to the total income of the assessee. 2.2 Being aggrieved, the assessee carried the matter who has confirmed the action of the AO by observing as under:- 5.10. In the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... and the trading addition of ₹ 8,55,822/- made by the AO by estimating the gross profit rate at 1.14% as against 0.74% as declared by the assessee may be directed to be deleted. 2.4 On the other hand, the ld. DR relied on the orders of the lower authorities. 2.5 I have heard the rival contentions and perused the materials available on record. It is noted from the records that the assessee had not maintained the day to day stock register or quantitative details of commodities. It is also noted from the assessment order that the auditor in the audit report had commented that no internal vouchers had been maintained for cash expenses. It is also noted that the assessee had not furnished complete bills and vouchers regarding purchases claimed in trading account. The AO thus invoked the provisions of Section 145(3) of the Act and applied the gross profit rate of 1.14% on total turnover of ₹ 21,59,60,250/- declared by the assessee on which gross profit comes to ₹ 16,06,125/-. However, the assessee had declared the gross profit rate at 0.74% on which gross profit comes to ₹ 16,06,125/-. The AO thus added a difference of ₹ 8,55,822/- (Rs. 24,61,947 minus ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... g as under:- 5.11 Ground No.3: is with respect to disallowance out of office expenses, out of telephone expenses and out of motor car expenses. From the assessment order, it is observed that the AO has made such adhoc additions to cover up the element of personal uses of such assets and facilities. Regarding these addition, it is a common belief that in absence of proper records, the possibility of involvement of personal usage in such type of expenses cannot be ruled out. The Hon'ble Rajasthan High Court in the case of Shri Kanhailal Jangid (217 CTR 354) also approved the concept of adhoc addition on lump sum basis, if the relevant details are not found available to support of the expenses claimed by the assessee. In view of the same, I find the disallowance which is only 20% of these expenses as justified. Consequently, Ground 3 of appeal is dismissed. 3.2 During the course of hearing, the ld. AR of the assessee prayed for deletion of adhoc disallowance of ₹ 67,001/- confirmed by the ld. CIT(A). The ld. AR of the submitted that during the course of assessment proceedings, the books of account were submitted before the AO who had not pointed out any specific ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ious case laws including the decision of Hon'ble Supreme Court in the case of S.A. Builders vs. CIT , 288 ITR 1 and Empire Jute Co. Ltd. vs. CIT,124 1. Therefore, In view of above decisions and various others decisions of Hon'ble High Court, no separate adhoc disallowance out of the expenses debited in the profit and loss account under the heads telephone expenses, depreciation on car and motorcycle, traveling expenses and vehicle expenses is not justified.. Hence, looking to the present facts and circumstances of the case, I direct to delete the adhoc disallowance of ₹ 67,001/- confirmed by the ld. CIT(A). Thus Ground No. 2 of the assessee is allowed. 4.1 Apropos Ground No. 3, brief facts of the case are that the AO during the year under consideration had observed that the assessee had debited a sum of ₹ 1,57,324/- on account of labour expense in the profit and loss account. The AO required the assessee to submit the complete details/documents and vouchers in support of these expenses but the assessee could not furnish the complete bill, details/vouchers/ documents in support of these expenses claimed by him in the profit and loss account. The AO observed th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... for the work done by them and therefore, practically only self made vouchers for the cash payments made to labourers are maintained. Therefore, the allegations of the Ld. AO are baseless and do not lead to any conclusion. Further, it cannot be denied that the nature of work undertaken by appellant requires extensive use of labour, therefore, disbursement of a considerable amount as labour charges is consequential in such circumstances. Thus, based on above the appellant humbly submits that the labour expenses incurred by him are quite reasonable considering the nature of business and thus the entire expenses deserve to be allowed and is being prayed accordingly. 4.3 On the other hand, the ld. DR relied on the orders of the lower authorities. 4.4 I have heard the rival contentions and perused the materials available on record. It is noted from the assessment records that the assessee had debited a sum of ₹ 1,57,324/-on account of labour expenses in the profit and loss account for which the AO required the assessee to submit the complete bills, details / vouchers/documents in support of these expenses claimed by him. However, for want of complete details /bi ..... X X X X Extracts X X X X X X X X Extracts X X X X
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