2014 (9) TMI 1124 - AT - Income Tax

Tribunal upholds CIT(A)'s decision, remands unexplained cash credits issue, stresses verification

The Tribunal upheld the CIT(A)'s decision to restrict the addition on account of lower gross profit, delete the disallowance of expenditure, and remand ... Addition on account of lower gross profit - rejection of books of account - adoption of correct rate - Held that:- In a case where the books of accounts are rejected and the turnover is to be estimated on the basis of best judgment assessment, the overall facts and circumstances of the case have to be considered e.g. the nature of business of the assessee and the volume of the business for the entire year etc. etc. A reasonable and fair view should be adopted in estimating the turnover. As observed above, the ld. CIT(A), while restricting the GP rate at the rate of 9%, has taken into consideration the overall facts and circumstances of the case and also the considerable increase in the turnover of the assessee as compared to previous years. We do not find any infirmity in the order of the ld. CIT(A) on this ground. Disallowance of expenditure - Held that:- Neither the disallowance made by the AO nor the action of the ld. CIT(A), in deleting the disallowance made by the AO in respect of expenditure, without verification of the bills, vouchers etc., was justified. So we set aside the order of the ld. CIT(A) on this issue and restore the matter to the file of the AO with a direction that AO will verify the correctness etc. of the expenditure claim and thereafter to decide the issue afresh in accordance with law. Unexplained cash credit under section 68 - CIT-A allowed the claim - Held that:- We are of the view that the action of the ld. CIT(A) in deleting the additions on account of unexplained cash credits without verifying the genuineness of the transactions and creditworthiness of the creditors etc. was not justified. So, in our view, the interest of justice will be well served, if, the issue is restored to the file of the AO with a direction to examine the same afresh and decide the same after giving necessary opportunity to the assessee to prove the genuineness and creditworthiness etc. of the creditors. Validity of best judgment assessment under section 144 - Held that:- AO had given ample opportunity to the assessee to produce the necessary details. When in a case, the assessee relies upon certain documents and records in the shape of books of accounts, bills, vouchers etc. and the AO requires the production of such documents for the purpose of verification of the genuineness and correctness of those documents, a duty is cast upon the assessee to produce the relevant documents. The excuse that it was difficult to produce the entire records before the AO, in our view, is not a valid excuse, when a statutory duty is cast upon the assessee to produce the necessary details as may be called upon by the Income Tax Authorities. Under such circumstances, in our view, the AO has rightly made the best judgment assessment under section 144 of the Act. Hence, we do not find any merit in the appeal of the assessee Issues Involved:1. Restriction of addition on account of lower gross profit.2. Deletion of disallowance of expenditure.3. Deletion of addition on account of unexplained cash credit.4. Validity of assessment order under section 144.5. Rejection of books of account under section 145(3).Issue-wise Detailed Analysis:1. Restriction of Addition on Account of Lower Gross Profit:The Revenue challenged the CIT(A)'s decision to restrict the addition on account of lower gross profit to Rs. 2,06,77,484, thereby granting relief of Rs. 1,36,74,101 to the assessee. The AO had estimated the gross profit at 9.78% of sales as against 7.43% declared by the assessee due to non-compliance with statutory notices and failure to produce books of accounts. The CIT(A), while upholding the best judgment assessment under section 144, reduced the gross profit rate to 9% considering the increase in turnover and historical gross profit rates. The Tribunal found no infirmity in the CIT(A)'s order, noting that a reasonable and fair view should be adopted in estimating turnover, and upheld the CIT(A)'s decision to adopt a 9% gross profit rate.2. Deletion of Disallowance of Expenditure:The AO disallowed Rs. 2,00,34,510 of expenditure claimed by the assessee due to the failure to produce books of accounts, bills, and vouchers for verification. The CIT(A) deleted the disallowance, finding the increase in expenditure reasonable when viewed against the increase in turnover. However, the Tribunal noted that neither the AO nor the CIT(A) verified the bills and vouchers. The Tribunal set aside the CIT(A)'s order and remanded the matter back to the AO for verification of the expenditure claims, directing the AO to provide the assessee with an opportunity to present necessary documents.3. Deletion of Addition on Account of Unexplained Cash Credit:The AO added Rs. 4,09,53,611 as unexplained cash credits under section 68, noting that the assessee failed to produce relevant records to verify the genuineness of the unsecured loans. The CIT(A) deleted the addition, stating there was no law requiring unsecured loans to be taken only from shareholders and noting that the assessee provided confirmations and PAN numbers of creditors. The Tribunal found the CIT(A) did not verify the genuineness and creditworthiness of the creditors and remanded the issue back to the AO for fresh examination, directing the AO to give the assessee an opportunity to prove the genuineness and creditworthiness of the creditors.4. Validity of Assessment Order under Section 144:The assessee contended that the assessment under section 144 was bad in law, arguing that the books of accounts were audited, crucial details were filed, and the AO was requested to randomly select items for verification due to the voluminous nature of records. The Tribunal upheld the AO's best judgment assessment under section 144, noting that the assessee failed to produce necessary details despite ample opportunities and that the excuse of difficulty in producing records was not valid.5. Rejection of Books of Account under Section 145(3):The assessee challenged the rejection of books of account under section 145(3) and the subsequent addition of Rs. 3,43,51,585 on account of gross profit, which the CIT(A) reduced to Rs. 2,06,77,484. The Tribunal upheld the rejection of books of account and the best judgment assessment, dismissing the assessee's appeal on this ground.Conclusion:The Tribunal partly allowed the Revenue's appeal for statistical purposes by remanding the issues of disallowance of expenditure and unexplained cash credits back to the AO for fresh examination. The assessee's appeal was dismissed, upholding the best judgment assessment and rejection of books of account. The Tribunal emphasized the importance of verifying the genuineness and correctness of claims and provided directions for proper opportunity to be given to the assessee.