Vildirect IncomeTaxcaselaws2020VIL1031ITATJAI nbsp 2020VIL1031ITATJAI Income Tax Appellate Tribunal JAIPUR ITA No 945JP2018 Date 21022020 SHRI PRAKASH CHAND OSTWAL Vs THE INCOME TAX OFFICER WARD 3 3 JAIPUR For the Assessee  Shri SC Jain CA For the Revenue  Smt Chanchal Meena JCIT BENCH Shri Vijay Pal Rao JM And Shri Vikram Singh Yadav AM JUDGMENT 13 13 PER VIJAY PAL RAO JM13 13 This appeal by the assessee is directed against the order dated 25th June 2018 of ld CIT A1 Jaipur for the assessment year 201213 The assessee has raised the following grounds of appeal 13 13  1 That the learned CIT A1 Jaipur had erred at law as well as on facts under his powers in invoking provisions of section 1453 for confirming the trading addition made by the AO of Rs 100000 without pointing out any defects in the stock details purchase sales andor any other defects except that quantitative figures of two items out of various items of goods traded and having mismatch13 13 2 That the learned AO had erred at law as well as on facts in making trading addition of Rs 100000 and the CIT A further erred in confirming the trading addition of Rs 100000 despite the trading results for the year were better over the preceding assessment year13 13 3 That the learned AO had erred at law as well as on facts in making disallowance of direct expenses of freight incurred on transportation of goods of Rs 175300 and the CIT A had further erred in confirming and restricting the disallowance to Rs 8765013 13 4 That the learned AO had erred at law as well as on facts in making disallowance of Rs 150000 out of Office Administrative Expenses and the learned CIT A1 Jaipur had further erred in confirming and restricting the disallowance to Rs 7500013 13 5 That the learned AO had erred at law as well as on facts in making additions to the household expenses of Rs 104500 and learned CIT A had erred further in confirming the addition of Rs 10450013 13 6 That the appellant craves for the leave to add alter or amend all or any of the grounds of appeal on or before the hearing13 13 Ground nos 1 to 3 are regarding rejection of books of account by the ld CIT A by invoking the provisions of section 1453 of the IT Act and confirming lump sum trading addition made by the AO as well as disallowance of direct expenses on account of freight charges13 13 2 The assessee is an individual and proprietor of Ms Shah Champalal Jawaharlal engaged in the business of trading in various agricultural produce as well as commission agents The assessee filed his return of income on 26th September 2012 declaring total income of Rs 623390 During the scrutiny assessment the AO asked the assessee to furnish the details of opening stock purchases sales and closing stock of goods both in terms of quantity and value The AO also asked the assessee to produce the Stock Register as well as the basis of valuation of closing stock along with supporting evidence On examination of the details furnished by the assessee the AO noted that the assessee has claimed shortage of certain commodities without any reasonable explanation and further the assessee has also claimed storing charges without supporting evidence to prove the genuineness of the shortage claimed by the assessee The AO accordingly made a lump sum addition of Rs 100000 to the total business income of the assessee The AO has also made a disallowance of direct expenses on account of freight charges  10 and thereby an addition of Rs 175300 was made to the income of the assessee13 13 The assessee challenged the action of the AO before the ld CIT A and contended that when the AO has not found any defect in the books of account of the assessee then the adhoc disallowances made by the AO are not justified The ld CIT A while exercising his perennial power being coterminous of the power of the AO rejected the books of account of the assessee by invoking the provisions of section 1453 of the IT Act on the ground that books of account of the assessee are not reflecting the true state of affairs and consequently confirmed the lump sum addition of Rs 100000 being trading addition as well as the disallowance of direct expenses restricted to 5 as against 10 disallowed by the AO13 13 3 Before us the ld AR of the assessee has submitted that the assessees books of account are duly audited in Form No 3 CD which was filed before the AO The AO has called for the details which were produced by the assessee and even the Audit Report clearly states the valuation of the stocks at cost or realization whichever is less Therefore there was no ambiguity about the method of valuation of the stocksinventories however the AO has given a finding which is contrary to the record that the assessee has valued his stocks at market price He has also referred to the details and documents produced before the AO and submitted that the assessee produced all the requisite details and stock register and quantitative as well as qualitative details of stocks The ld CIT A has misunderstood these details and observed that the assessee has submitted two sets of details which are not matching Thus the ld AR has submitted that the AO as well as the ld CIT A proceeded on assumption of incorrect facts which are contrary to the record13 13 Further he has contended that the result of the assessees business for the year under consideration are better than preceding years and therefore even after rejection of books of account no addition is called for Thus the ld AR has submitted that the additions sustained by the ld CIT A on account of lump sum trading addition as well as direct expenses of freight charges are unjustified and liable to be deleted The ld AR relied upon the following decisions 13 13 CIT vs Gupta KN Construction Co 371 ITR 325 Raj HC13 13 CIT vs Inani Marbles P Ltd 316 ITR 135 Raj HC13 13 4 On the other hand the ld DR has relied upon the orders of the authorities below and submitted that the AO as well as the ld CIT A has pointed out various infirmities and defects in the books of account maintained by the assessee13 13 Therefore the ld CIT A has rightly rejected the books of account of the assessee by invoking the provisions of section 1453 of the IT Act13 13 5 We have considered the rival submissions as well as the relevant material on record At the outset we note that the AO himself has noted the fact that the GP declared by the assessee for the year under consideration is 860 on total sales of Rs 282 crores in comparison to the GP of the last year at 853 on total sales of Rs 252 crores The AO has also observed that during the year under consideration the assessee has declared better GP in comparison to the preceding years We further note that even if the past history of the assessee is considered the GP declared by the assessee for the year under consideration is better than the average of the past history For ready reference we reproduce the details of the turnover GP for the assessment years 201112 to 1213 as under 13 13 13 13 13 13 AY 13 13 13 Turnover 13 13 13 Gr Profit 13 13 13 GP Rate13 13 13 13 13 201011 13 13 13 39174792 13 13 13 3209360 13 13 13 81913 13 13 13 13 201112 13 13 13 25282530 13 13 13 2151272 13 13 13 85313 13 13 13 13 201213 13 13 13 28240034 13 13 13 2429614 13 13 13 86013 13 13 13 13 13 These facts are not in dispute as the AO himself has accepted that the GP for the year under consideration at 860 is better than the preceding years Therefore even if the books of account of the assessee are rejected by invoking the provisions of section 1453 of the Act it would not lead to an automatic addition to the income of the assessee The AO has to estimate the income of the assessee on the basis of best judgment and in exercising his power under section 1453 read with section 144 of the IT Act the AO is bound to estimate the income on some proper and reasonable basis It is settled proposition of law that the past history of the assessee is a proper guidance for estimation of the income after rejection of books of account as held by the Honble Jurisdictional High Court in a number of judgments including the decisions relied upon by the assessee in cases of CIT vs Gupta KN Construction Co supra as well as CIT vs Ms Inani Marbles Pvt Ltd supra13 13 Undisputedly the GP rate declared by the assessee for the year under consideration is better than the past history and therefore after rejection of books of account no trading addition is called for Hence the trading addition made by the AO which is adhoc and the lump sum addition of Rs 100000 as well as disallowance of direct expenses which is part of the trading account are not sustainable in law and liable to be deleted Hence the lump sum addition of Rs 100000 made by the AO as well as direct expenses on account of freight charges disallowed by the AO and confirmed by the ld CIT A are deleted13 13 Ground No 4 is regarding disallowance of Office administrative expenses13 13 6 The AO has made disallowance of Rs 150000 out of the office administrative expenses which were restricted by the ld CIT A to 50 at Rs 75000 The ld AR of the assessee has submitted that the AO has taken up the various expenses including selling expenses as well as office administrative expenses and then made the disallowance of Rs 150000 The ld AR has pointed out that though the AO has made the disallowance on account of office administrative expenses however while taking the amount of the expenses he has also included selling expenses without doubting or finding any defect in the claim of the selling expenses Therefore clubbing the office administrative expenses selling expenses and other expenses including depreciation on assets and thereby making disallowances is highly arbitrary and unjustified He has referred to the various expenses and submitted that when all these expenses are incurred wholly and exclusively for the purpose of business of the assessee and no defect was found by the AO then making an adhoc disallowance of 15th of the said amount is not justified The ld CIT A has restricted the addition to Rs 75000 is also without any basis Thus the ld AR has contended that an adhoc disallowance made by the AO without having any basis which was confirmed by the ld CIT A may be deleted13 13 7 On the other hand the ld DR has relied upon the orders of the authorities below and submitted that the AO has pointed out the defects in the claim of the assessee and considered the details of these expenses incurred13 13 8 We have considered the rival submissions as well as the relevant material on record The AO has referred to the various expenses claimed by the assessee on account of telephone expenses depreciation on car scooter mobile and other expenses total amounting to Rs 747206 The AO observed that the assessee has not maintained any Call Register Log Book of Vehicles etc and therefore the personal element in respect of these expenses cannot be ruled out Thus it appears that the AO has made the disallowance of about 20 of the expenses on the ground of personal element We find that except the car maintenance and telephone expenses no other items of expenses could be attributed to personal use or element Therefore these small expenses of Rs 29848 and Rs 13542 are only in respect of telephone and carscootermobile expenses The rest of the expenses are only in respect of the Office and Administrative expenses as well as selling expenses and hence there cannot be any element of personal use in respect of those expenses Hence taking the entire claim of expenses which includes salary wages and other office expenses on rent printing insurance computer as well as selling and marketing expenses the AO has not applied his mind on the issue and just made an adhoc disallowance The ld CIT A has also not examined the nature of expenses so that the disallowance can be made on account of personal use or element Accordingly in the facts and circumstances of the case the adhoc disallowance made by the AO and sustained by the ld CIT A is deleted13 13 Ground No 5 is regarding the addition made on account of Low Household expenses13 13 9 We have heard the ld AR as well as the ld DR and considered the relevant material on record The assessee has shown the household expenses of Rs 16250 per month The AO found that having regarding to the joint family of the assessee and status as well as standing of the family of the assessee the household expenses of Rs 16250 is very low and accordingly the AO has estimated the reasonable household expenses at Rs 25000 per month which has resulted an addition of Rs 104500 We find that the estimation of the AO of reasonable household expenses of the family of the assessee at Rs 25000 per month is very reasonable and proper and does not require any interference Even otherwise if the status and standing of the assessee and his family is taken into account the household expense of Rs 25000 per month is even at the lower side Accordingly we do not find any error or illegality in the orders of the authorities below qua this issue13 13 10 In the result appeal of the assessee is partly allowed13 13 Order pronounced in the open court on 2102202013 nbsp DISCLAIMER Though all efforts have been made to reproduce the order accurately and correctly however the access usage and circulation is subject to the condition that VATinfoline Multimedia is not responsibleliable for any loss or damage caused to anyone due to any mistakeerroromissions