IN THE INCOME TAX APPELLATE TRIBUNAL
DELHI BENCH : `E' : NEW DELHI
BEFORE SHRI R.S. SYAL, ACCOUNTANT MEMBER
AND
SHRI RAJPAL YADAV, JUDICIAL MEMBER
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,
Delhi-52
(Appellant) (Respondent)
Appellant by : Shri Devesh Parekh, C.A.
Respondent by: Shri J.P. Chandrakar, Sr. D.R.
ORDER
PER SHRI RAJPAL YADAV, JM:
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
expenses.
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
2
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
3
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
4
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
5
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.
Aks/-
Copy forwarded to
1. Appellant
2. Respondent
3. CIT
4. CIT(A)
5. DR
Asst. Registrar, ITAT, New Delhi
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