TMI Blog2018 (10) TMI 1447X X X X Extracts X X X X X X X X Extracts X X X X ..... CIAL MEMBER For The Appellant : Shri Sanjay Kumar Jain, Sr.DR For The Respondent : None ORDER PER O.P. KANT, AM: This appeal by the Revenue is directed against order dated 17/03/2015 passed by the Ld. Commissioner of Income-tax (Appeals)-1, Gurgaon [in short the Ld. CIT(A) ] for assessment year 2009-10, raising following grounds: 1. The Ld.CIT (A) has erred in cancelling the estimation of net profit @ 5% ignoring the findings of the Assessing Officer in rejecting the account books by invoking the provision of Appellant by Shri Sanjay Kumar Jain, Sr.DR Respondent by None section 145(3), where there were sound reasons for the said rejection. 2. The Ld.CIT (A) has erred in deleting the addition of ₹ 1,31,96,254/- made by the AO by invoking the provision of section 145(3) even though the assessee has not furnished the genuineness of incurring the expenses wholly and exclusively for the purpose of business. 3. The Ld.CIT (A) has erred in disregarding the merits of the present case in respect of business expenses, particularly when the assessee could not furnish the justification of claim and business contingency of incurring of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... aimed depreciation but failed to prove that these assets are used for business purposes during the year under consideration. V. The assessee has not maintained proper bills/vouchers for the expenses claimed and the hence the expenses are unverifiable. 3.1 In view of the defects pointed out by the Assessing Officer, he rejected books of accounts of the assessee invoking provision of section 145(3) of the Act and applied net profit rate of 5% on the receipt of ₹ 54,25,61,637/- and worked out business profit of ₹ 2,71,28,082/-. The Assessing Officer allowed depreciation of ₹ 1,11,90,166/- on the said business profit and computed net profit of ₹ 1,59,37,916/- for making addition. 3.2 The Assessing Officer also made other additions. The carried forward losses were allowed to be adjusted and total income was assessed at ₹ 1,40,47,851/-. 3.3 Aggrieved assessee filed appeal before the Ld. CIT(A) and filed detailed submission contesting the rejection on books of accounts and estimation of the net profit. The Ld. CIT(A) partly allowed the appeal of the assessee. Aggrieved with the finding on the issue of rejection of books of accounts and ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... unexplained increase during the year under consideration, because of which the A.O rejected the books of account:- i) Rent paid:-The appellant claimed an amount of ₹ 62,51,809/-, on account of rent during the year, which was much higher than ₹ 12,29,448/- claimed in the immediately preceding year. Since the AO was not satisfied with the details provided by the appellant in respect of its claim of rent, he held the same as unexplained. During the course of appellate proceedings, the appellant drew the attention of the undersigned towards various documents filed by it during the course of assessment proceedings (filed along with letter dated 5.12.2011) which were ignored by the AO, resulting in treatment of claim on account of rent as unexplained. These details include rent agreement in respect to each premises together with the purpose for hiring the same on rent. Proof of deduction of tax at source, wherever applicable, was also filed by the appellant. In addition, the appellant submitted that the rent claimed during the immediately succeeding year was much higher at ₹ 88,95,424/- which was accepted by the A.O. in her order u/s 143(3) of the Income Tax Act. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... I SUNDER KANU MORE MESS# SITE STAFF 10.9 98,105 MUMBAI SHANKAR P. KAMBLE MESS#SITE STAFF ~ - MUMBAI BINA S RAMCHANDANI OFFICE 8.8 660,165 MUMBAI SUNIL RAMCHANDANI OFFICE 8.8 660,165 MUMBAI JITENDRA SHENOY OFFICE ~ - NOIDA OM PRAKESH OFFICE 12.0 21,583 - - Total 6,251,809 Rent agreements in respect of all premises was submitted by the appellant during the course of assessment and appellate proceedings. On a perusal of the aforesaid details, it is crystal clear that the appellant paid rent in respect of various premises used for the purpose of business during the year ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... hat Director's remunerations was not properly supported by requisite evidences? The only issue which is relevant in case of Director's Remuneration is the allowability of such expenses, as per provisions of Section 40A(2)(b) of the Income Tax Act in terms of reasonableness of such payment. As regards the reasonableness of the expenditure, I hold, on the basis of available evidence, together with the nature of services rendered by her, that the amount of ₹ 3.5 Lakhs per month was reasonable. As per Companies Act, this is the amount of Director's Remuneration, a company having similar effective capital is authorized to pay without seeking the approval of the Central Government. Hence the excess amount of ₹ 27,41,662/- is hereby disallowed as per provisions of Section 40A(2)(b) of the Income Tax Act. Furthermore, I hold that since the appellant had filed requisite evidence substantiating the claim of ₹ 51,91,661/- on account of Director s Remuneration, the A.O. could not have rejected books of account on the basis. iii) As regards increase in administrative and other expenses from ₹ 2.47 crores in the immediately preceding year to ₹ ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... uncement on the issue of rejection of books of accounts. The relevant finding of the Ld. CIT(A) is reproduced as under: 4.6 On the basis of the reading of provisions of Secion 145(3) of the Income Tax Act, it is obvious that the A.O may reject the books of account and make an assessment u/s 144 of the Income Tax Act on satisfaction of following conditions:- i) Where the A.O is not satisfied about the correctness and completeness of accounts;or ii) Where the method of accounting providing in 145(1) has not been regularly followed;or iii) Accounting standards as notified under 145(2) have not been followed. 4.7 In the present case the A.O rejected the books of account without specifying as to whether any of the above three conditions was satisfied. Furthermore, instead of passing order u/s 144 of the Income Tax Act, the A.O, even after rejecting the books of account, passed the order u/s 143(3) which is fallacious. If the A.O wanted to reject the books of account he should have given certain specific instances which could have proved that the accounts of the appellant are incorrect/incomplete. Besides, since the appellant company has been regularly foll ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... be a ground to reject book results. The same is the view of Hon'ble Jharkhand High Court which, in the case of CIT vs. Anand Kumar Modi (2014) 44 taxmann.com 21 (Jharkhand) held that addition made after rejecting books maintained by assessee should be deleted when all quantitative details were available in books of account and account and accounts were regularly maintained. 4.11 The judgment of Hon'ble Madras High Court in the case of GVDI vs. DCIT (2014) 43 taxmann.com 246 is extremely pertinent to the facts of the case. In this case, it was held that when assessee explained reasons for fall in G.P and revenue did not verify same by substantial materials, impugned order of the A.O was to be setaside. 4.12 The judgement by the Hon'ble Jurisdictional High Court in the case of CIT Faridabad vs. Smt. Sulochana Bhatia (2012) 20 taxmann.com 298 (P H) needs to be mentioned here. In this case, the A.O, taking a view that assessee had not maintained books of account properly, rejected the same and made certain additions on account of suppression of receipts. On appeal Commissioner(Appeals) as well as the Hon'ble Tribunal deleted the said addition. On reve ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... that the Ld. CIT(A) has examined the rent paid of ₹ 62,51,809/- during the year under consideration. The Ld. CIT(A) has noted that during the assessment proceeding the assessee filed all the document in respect of rent agreement of the premises and proof of tax deducted at source, wherever applicable was also filed. The Ld. CIT(A) has reproduced the entire detail of the rent paid in the impugned order. In view of the necessary evidence filed in support of the claim of the rent paid, the Ld. CIT(A) is justified in holding that books of accounts cannot be rejected on the basis of increase in expense on account of rent. Similarly, the Ld. CIT(A) has examined the claim of expenses of ₹ 51,91,667/- on directors remuneration, administrative expenses of ₹ 3.6 crores, purchase of fixed assets amounting to ₹ 4,72,80,249/- alongwith the invoices and other evidences maintained by the assessee and already produced before the Assessing Officer. The Ld. CIT(A) has also pointed out that the Assessing Officer has not given any specific expense in respect of which proper bill/voucher had not been maintained by the assessee. In the instant case the Assessing Officer has rej ..... X X X X Extracts X X X X X X X X Extracts X X X X
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