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Sh. Naresh Kumar Arora 36, Ground Floor, Sree Nagar Colony Ashok Vihar Road, NR, Bharat Nagar, Delhi-52 Vs. ACIT, Circle-20(1) Pratyakash Kar Bhawan, Civicntre, New Delhi-110002
October, 16th 2014
                  DELHI BENCH : `E' : NEW DELHI


                          ITA No.3683/Del /2013
                         Assessment Year : 2008-09

     Sh. Naresh Kumar Arora    Vs.           ACIT, Circle-20(1)
     36, Ground Floor,                       Pratyakash Kar Bhawan,
     Sree Nagar Colony                       Civic Centre,
     Ashok Vihar Road,                       New Delhi-110002
     NR, Bharat Nagar,

      (Appellant)                                     (Respondent)

             Appellant by :    Shri Devesh Parekh, C.A.
             Respondent by:    Shri J.P. Chandrakar, Sr. D.R.



1.    The assessee is in appeal before us against the order of ld. CIT(A)-XXII,

dated 28.02.2013 passed for A.Y. 2008-09.

2.    In sub Ground a & b of Ground No.1, assessee has challenged adhoc

disallowance out of telephone expenses and vehicle running & maintenance


3.    The brief facts of the case are that the assessee is an individual and

running a proprietorship concern in the name and style of M/s Prakash Dye
                                                                        ITA No.3683/Del /2013
                                                                       Assessment Year : 2008-09

Chem. He has filed his return of income on 01.10.2008, declaring an income of

Rs.89,43,420/-. The case of the assessee was selected for scrutiny assessment

and notice u/s 143(2) of the I.T. Act was issued and served upon the assessee.

On an analysis of the record, ld. Assessing Officer found that the assessee has

not been maintaining proper log book exhibiting vehicle running and call

register exhibiting the telephone calls made for the purpose of business. He

accordingly, disallowed 20% of the total expenses claimed by the assessee under

these heads. The brief findings recorded by the Assessing Officer read as under:-

     "1. The assessee has also debited telephone expenses at Rs.3,96,415/- the
     details of these expenses were called for examined and noticed that the use
     of telephone/mobile for personal and non business purposes cannot be
     denied. After considering all the facts of the case 1/5th of the total expenses
     which comes to Rs.79,283/- is hereby disallowed and added back in the
     total income of the assessee.
                                                       (Addition of Rs.79,283/-)

     2. During the year, the assessee has also debited Rs.2,72,417/- on
     account of vehicle running & maintenance, Rs.6,42,564/- on account of
     depreciation, Rs.20956/- on account of car insurance. The assessee is not
     having any separate vehicle for personal use. The use of vehicle for
     personal and non-business purposes cannot be denied. After considering
     all the facts of the case 1/5th of the total vehicle expenses which comes to
     Rs.1,82,996/- is hereby disallowed and added back in the total income of
     the assessee.
                                                        (Addition of Rs.1,87,187/-)"

4.       Appeal to the CIT(A) did not bring any relief to the assessee.

5.       With the assistance of the ld. Representative, we have gone through the

record carefully. Ld. counsel for the assessee admitted the fact that log book as

well as call register are not being maintained by the assessee. Adhoc
                                                                     ITA No.3683/Del /2013
                                                                    Assessment Year : 2008-09

disallowance has to be made, but the disallowance made at the rate of 20% of

the total expenditure is on the higher side. He also pointed out that in A.Y. 2006-

07 assessment was made u/s 143(3) of the Act, but no disallowance was made.

6.    On due consideration of the facts and circumstances, we are of the view

that disallowance at the rate of 20% is on the higher side. We find that in A.Y.

2006-07, the net profit rate shown by the assessee is of 4.93%. The Assessing

Officer noticed the entertainment expenditure of Rs.4,39,484/- he made an

adhoc disallowance of Rs.40,000/- which is almost 10% of the total expenditure.

Similarly, the assessee has debited conveyance expenses of Rs.1,91,981/-. The

Assessing Officer made adhoc disallowance of Rs.20,000/- which is again 10%

of the total expenditure. These disallowances have been made on estimate basis.

In this year, the Assessing Officer has not given any specific justification as to

why the disallowance is to be made at the rate of 20%. Net profit of the assessee

in this year is better than A.Y. 2006-07, the net profit shown by the assessee is

5.62%. Similarly, G.P. of the assessee as noticed by the Assessing Officer at

Page 1 of the assessment order is better then immediately preceding year. For

the last year, G.P. was 7.71% this year it is 8.44% adhodc disallowance was not

made in the immediately preceding year. Apart from these factors, we also find

that the assessee has shown an income of more than of Rs.89.00 lakh. He is an

individual doing business of trading in Dye & Chemicals there could not be

strong reason for the assessee to inflate small expenditure of Rs.79,000/- and
                                                                   ITA No.3683/Del /2013
                                                                  Assessment Year : 2008-09

Rs.1,89,000/- on telephone and car. Ld. Assessing Officer ought to have looked

into the volume of income shown by the assessee and with that angle he ought to

have examined the accounts of the assessee. If there are very strong reason for

doubting the details of the assessee only then some reasonable disallowance

should have been made. Therefore, taking into consideration all these facts and

circumstances, we feel that ends of the justice would meet if we restrict the

disallowance out of telephone expenses, vehicle running and maintenance

expenses, depreciation and car insurance at 10% of the total expenditure. The

Assessing Officer is provided to re-compute the disallowance.

7.    The assessee has challenged addition of Rs.15,656/-. The brief facts of the

case are that assessee had made purchases, the supplier has issued a debit note

for non issue of Central Statutory Form, which is being issued to avail

concessional rate of CST against purchase from outside the State. Ld. counsel

for the assessee pointed out that if Form-C was issued to the assessee then CST

would be paid at 4% non issuance of Form-C forced to assessee to pay the sales

tax at the rate of 10%. The Assessing Officer has held that this additional

payment of tax is a penalty hence it is not allowable. On appeal, ld. CIT(A) has

confirmed disallowance.

8.    On due consideration of the facts and circumstances, we are of the view

that the ld. Assessing Officer has miserably failed to appreciate the true nature

of the amounts paid by the assessee there cannot be any distinction between the
                                                                     ITA No.3683/Del /2013
                                                                    Assessment Year : 2008-09

amount paid at lower rate of sales tax if Form-C was submitted by the assessee

vis-à-vis the payment paid at a higher rate on non submission of Form-C. It is

not a penalty or amount paid for infringement of any law. In other word, it is just

non availment of benefits under the scheme. Therefore, we allow this ground of

appeal and delete the disallowance.

9.    In the result, appeal of the assessee is partly allowed.

      The decision was pronounced in the open court on 14th October, 2014.

    Sd/-                                                     Sd/-
 (R.S. Syal)                                            (Rajpal Yadav)
Accountant Member                                        Judicial Member

Dated: 14th October, 2014.

Copy forwarded to
1.    Appellant
2.    Respondent
3.    CIT
4.    CIT(A)
5.    DR
                                                 Asst. Registrar, ITAT, New Delhi
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