Additions deleted by CIT(A) and upheld by ITAT

1 CIT(A) deleted the addition amounting to: Rs. 5,46,672/- made by the AO on account of the difference in the balance in the accounts of parties and in the accounts of the assessee, as the assessee failed to furnish sustainable document, evidence/reconciliation statements in the course of assessment proceedings as well as during the remand proceedings.; Rs. 3,49,350/- out of Rs. 4,01,993/- made by the AO on account of disallowance of expenses under various heads as assessee failed to produce documentary evidence of expenses claimed by him the P & L account without appreciating the facts and reasoning discussed in detail by the AO in assessment order; and to Rs.45,48,417/- made by the AO in estimating the GP by rejecting the books of account, as it is evident from the assessment order as well as in the remand report that the assessee failed to produce the bills in respect of the expenses debited to the P & L account and trading account and reconcile the differences found in the balances of parties accounts and assessee's accounts.

2 On appeal the ITAT held as under:

"we observe that above amounts in question at serial Nos. 3,4 & 5 was rightly deleted by holding that the difference in the amount of sundry debtors does not represent income, rather it is an expenditure and account of these parties have been reconciled with the explanation. We are also in agreement with the conclusion of the ld. CIT(A) with regard to the excess credit balance of Rs. 2 lakhs in respect of M/s Aditya Industries which was also rectified by the assessee by debiting M/s Aditya Industries and crediting M/s Sharma Sales thus difference of Rs. 2 lakhs was also found to be duly explained with regard to difference of Rs. 49510/- the AO did not make any adverse comment on the explanation of the assessee. Hence the same was also rightly deleted. We are unable to see any valid reason to interfere with the impugned order on this issue. Hence we uphold the same. Accordingly, Ground No. 1 of the Revenue being devoid of merits is dismissed.

8. Apropos Ground No. 2 supported the action of the AO and submitted that the ld. CIT(A) has erred in deleting the part addition of Rs. 3,49,350/- made by the AO on account of disallowance of expenses under various heads as assessee failed to produce documentary evidence in this regard. The ld. AR strongly supported the first appellate order.

...the ld. CIT(A) was quite correct and justified in deleting the disallowance of expenditure in respect of salaries, bonus, depreciation because necessary evidence to support these expenses was filed before the AO. The ld. CIT(A) was also quite justified in restricting the disallowance of 20% of Rs. 2,63,215/- for which the assessee could not produce bills/vouchers. We are unable to see any infirmity or perversity or any other valid reason to interfere with the first appellate order and thus we uphold the same on this issue

...AO rejected the books of account merely because the assessee could not produce some cost vouchers whereas no defect or adverse remark was pointed out by the auditor in the books of accounts. Thus, the ld. CIT(A) rightly demolished the action of the AO rejecting the books of accounts. We further observe that in this situation, action of the AO in estimating the G.P. rate by wrongly rejecting the books of accounts was not sustainable. Hence the ld. CIT(A) rightly deleted the same. "

Case Reference- BEFORE SHRI S.V. MEHROTRA, ACCOUNTANT MEMBER SHRI CHANDRA MOHAN GARG, JUDICIAL MEMBER The Income-tax Officer, Ward – 2, Rewari Vs. Shri Banwari Lal Sharma

IN THE INCOME TAX APPELLATE TRIBUNA DELHI BENCH: 'A': NEW DELHI