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Assessing Officer by applying G.P. rate of 1.67% as against the G.P. declared by the assessee at 0.93%he Assessing Officer rejected the book result by invoking the provisions of Section 145(3) of the Income Tax Act, 1961 (in short the Act) and then proceeded to estimate the income of the assessee by taking G.P. rate of 1.94% being average for the past three years. On appeal, the ld. CIT(A) restricted the G.P. at 1.67% being the G.P. declared by the assessee for the immediate preceding year. AR of the assessee has submitted that when the assessee has explained the reasons for decline in the G.P. for the year under consideration being the market conditions and unavoidable reasons then the addition made by the Assessing Officer and sustained by the ld. CIT(A) is not justified. Court noticed that The assessee did not produce books of account before the Assessing Officer for verification and submitted that the same were lost in transit.Hence, we find that the Assessing Officer was very reasonable and just in estimating the income on the basis of the average of the G.P. declared by the assessee for last three years. Ground No. 2 AO made disallowance of 10% of the expenses amounting to Rs. 2,21,361/- booked by the assessee in the P&L account other than the depreciation, bank charges, interest and insurance. We find that though the assessee could not produce the supporting evidence due to the reason that the books of account and record were lost and an FIR was filed with the police, however, when the claim of expenditure is not found to be excessive or unreasonable keeping in view of the turnover for the year under consideration as compared to the earlier years then the Assessing Officer without specifying the reasons of each and every head of expenditure is not supposed to make disallowance on ad hoc basisHence, to the extent of the expenditure on these accounts being audit fee, rent, salary and telephone expenses is deleted. The rest of the expenditure for which 10% was disallowed for want of supporting evidence is consequently upheld. Accordingly we modify the orders of the authorities below qua this issue. The Assessing Officer is directed to rework the disallowance of 10% on remaining items of expenditure.

Shanti Prime Publication Pvt. Ltd.

Section 37, 144, 145 of Income Tax Act, 1961—GP Estimation—In the instant case, appeal by the assessee is directed against the order of CIT wherein CIT confirmed the trading addition by applying the g.p. rate of 1.67% as against g.p. rate of 0.93% declared by the assessee.

And Ground No. 2 of the appeal is regarding the disallowance of 10% of the expenditure for want of supporting evidence.

Held that—The average of G.P. declared by the assessee in the past years which is accepted or attend the finality will be a reasonable and proper basis for estimation of income. Hence, we find that the Assessing Officer was very reasonable and just in estimating the income on the basis of the average of the G.P. declared by the assessee for last three years. The ld. CIT(A) has restricted the addition by applying the G.P. for the immediate preceding year and the revenue has not challenged the same, therefore, we do not find any reason to interfere with the impugned order of the CIT(A) qua this issue. The explanation of the assessee for declining of G.P. due to the market condition can be considered only when it is supported by the books of account. Therefore, once the books of account are rejected then this contention of the assessee cannot be accepted.

We find that the liability of the expenditure of which 10% was disallowed by the Assessing Officer pertains to audit fee, rent, salary expenses, freight and telephone expenses etc., therefore, the audit fee, rent, salary expenses are very much verifiable and can be compared with the earlier years being recurring in nature. These expenditures are also verifiable independently from the recipients. Hence, the expenditure for audit fee, rent, salary and telephone expenses which are verifiable from the record cannot be disallowed in the manner, the Assessing Officer has made an ad hoc disallowance. Hence, to the extent of the expenditure on these accounts being audit fee, rent, salary and telephone expenses is deleted. The rest of the expenditure for which 10% was disallowed for want of supporting evidence is consequently upheld. Accordingly we modify the orders of the authorities below qua this issue. The Assessing Officer is directed to rework the disallowance of 10% on remaining items of expenditure. - Decided partly in favor of assessee.[PREM CHAND JAIN VERSUS ITO, WARD 4 (2) , JAIPUR] [2018] [7] [ITCD Online] [80] [ITAT JAIPUR]