2015 (7) TMI 990 - AT - Income Tax

Appeal dismissed, Commissioner's income additions deleted. Tribunal criticizes Assessing Officer's lack of evidence and baseless assumptions.

DCIT, Central Circle 2, Surat Versus Shri Moolchand Maganlal Jain, Surat

The appeal of the revenue was dismissed by the Tribunal. The Commissioner of Income Tax (Appeals) decisions to delete various additions to the assessee's ... Addition on share of income from HUFs - CIT(A) deleted the addition - Held that:- Section 171 of the Income Tax Act provides assessment after partition of a Hindu undivided family. In the present case, the ld. Assessing Officer did not adhere to any proceedings. He simply observed that assessee failed to prove that HUFs were existing prior to 31st March, 1978. The Commissioner of Income Tax (Appeals) on other hand has observed that assessee has produced the copy of intimation u/s. 143(1) as old as for Assessment Year 1986-87. According to the assessee, he has filed the details of income tax return filed by the HUF and the intimation sent by the department, the assessee has been treating the existence of HUF in the past. In our opinion, the action of the Assessing Officer is only of denial of any fact. He himself did not bring any evidence on the record which could demonstrate the stand of the assessee as false. Therefore, after looking to the finding of Commissioner of Income Tax (Appeals) as well as the written submissions of the assessee reproduced by Commissioner of Income Tax (Appeals) we do not see any reason to interfere in this ground of appeal. - Decided in favour of assessee. Disallowance of 50% of labour charges - CIT(A) deleted the addition - Held that:- Assessing Officer, except, making a reference of payment of labour charges to family members did not collect any specific evidence falsifying the stand of the assessee. All the family members have recognized these labour charges as their income. They are also assessed to tax. The treatment of payment of 50% charges as bogus at the end of Ld. Assessing Officer is based upon his assumption only without making reference to any concrete material. On the other hand, ld. first appellate authority has appreciated the controversy in right perspective and recorded a finding of fact. Before us, except reiteration of the assessment order nothing has been brought to our notice by the department. - Decided in favour of assessee. Clubbing the income of the two daughters in law with the income of the assessee - CIT(A) deleted the addition - Held that:- The ld. Assessing Officer failed to bring any evidence on the record demonstrating the fact that assessee has transferred any income generating asset to the daughters in law. He simply harboured a belief that assessee has distributed his profit to his daughters in law. The Assessing Officer failed to collect any evidence for substantiating his belief. Ld. Commissioner of Income Tax (Appeals) has rightly held that unless it is proved that income earning asset were transferred by the assessee to the daughters in law, their income cannot be clubbed in the hands of the assessee.- Decided in favour of assessee. Rejection of books of accounts - G.P. addition - assessee has shown low GP, transport charges incurred by the assessee are being taken as a part of sales and vatav and kasar expenses are taken in profit and loss account - CIT(A) deleted the addition - Held that:- As far as the first reason is concerned, this is the first year of assessee’s business in this line. So, there is no comparative result available for the assessee. The result can be compared with any other similarly situated assessee. But ld. Assessing Officer has not made reference to any such similarly situated assessee in the impugned order. He also observed that profit margin in grey manufacturing activity remains between 5 to 15%. What is the basis of this reference not discernable. The Assessing Officer ought to have referred the cases of similarly situated assessee but he failed. The next reason assigned by him is of transport charges. In the understanding of the Assessing Officer, these charges are to be borne by the purchaser and not by the assessee as a seller. This is a factual question. The Assessing Officer has neither called for confirmation from a single purchaser of the assessee, nor identify, whether that purchaser has borne the expenses or not? This is such an issue which is dependent upon a person how to carry his business. We failed to understand the approach of Assessing Officer, without collecting any evidence, how he can assume that this expenditure ought not to have been incurred by the assessee. The third reason is also similar which is taken by the Assessing Officer on the basis of his experience of dealing with the assessees engaged in grey cloth marketing in Surat. In particular, he has not referred any detail or specific circumstances. Thus, the Assessing Officer could not bring any specific material which can point out a particular defect in the books of accounts of the assessee. He failed to make reference about specific defect in the accounts, which prohibits him to deduce the income from the accounts.- Decided in favour of assessee. Issues Involved:1. Deletion of addition of Rs. 3,23,646/- by the Commissioner of Income Tax (Appeals).2. Deletion of addition of Rs. 16,13,022/- by the Commissioner of Income Tax (Appeals) due to disallowance of 50% of labor charges.3. Deletion of addition of Rs. 4,65,960/- by the Commissioner of Income Tax (Appeals) due to clubbing of income of daughters-in-law.4. Deletion of addition of Rs. 26,30,205/- by the Commissioner of Income Tax (Appeals) due to rejection of book results and estimation of GP.Issue-wise Detailed Analysis:1. Deletion of Addition of Rs. 3,23,646/-:The revenue contended that the Commissioner of Income Tax (Appeals) erred in deleting the addition of Rs. 3,23,646/-. The assessee, engaged in manufacturing and trading of grey cloth, had shown income from six HUFs. The Assessing Officer (AO) treated these HUFs as ceased and added the income to the assessee's total income, treating them as AOP. The Commissioner of Income Tax (Appeals) deleted the addition, noting that the HUFs had been filing returns for several years without objection and treating them as AOP would result in double taxation. The Tribunal upheld this decision, noting that the AO did not follow the procedure under Section 171 of the Income Tax Act and did not provide concrete evidence to refute the existence of the HUFs.2. Deletion of Addition of Rs. 16,13,022/-:The revenue argued that the Commissioner of Income Tax (Appeals) erred in deleting the addition of Rs. 16,13,022/- due to disallowance of 50% of labor charges. The AO disallowed 50% of the labor charges paid to family members, suspecting profit siphoning. The Commissioner of Income Tax (Appeals) deleted the disallowance, noting that the assessee provided all relevant evidence, and the family members were separately assessed and had independent business activities. The Tribunal upheld this decision, stating that the AO's disallowance was based on assumptions without concrete evidence and that the family members recognized the labor charges as their income.3. Deletion of Addition of Rs. 4,65,960/-:The revenue contended that the Commissioner of Income Tax (Appeals) erred in deleting the addition of Rs. 4,65,960/- due to clubbing of income of daughters-in-law. The AO clubbed the income of the assessee's daughters-in-law under Section 64(1) of the Income Tax Act, suspecting tax evasion. The Commissioner of Income Tax (Appeals) deleted the addition, noting that there was no evidence of the assessee transferring income-generating assets to the daughters-in-law. The Tribunal upheld this decision, stating that the AO failed to provide evidence of asset transfer, and the Commissioner of Income Tax (Appeals) rightly held that the income could not be clubbed without such proof.4. Deletion of Addition of Rs. 26,30,205/-:The revenue argued that the Commissioner of Income Tax (Appeals) erred in deleting the addition of Rs. 26,30,205/- due to rejection of book results and estimation of GP. The AO rejected the book results, citing low GP, transport charges, and vatav kasar expenses. The Commissioner of Income Tax (Appeals) deleted the addition, noting that the AO did not provide specific comparable cases or evidence of defects in the books of accounts. The Tribunal upheld this decision, stating that the AO failed to identify specific defects or provide evidence to reject the book results, and the Commissioner of Income Tax (Appeals) rightly deleted the addition.General Grounds:Grounds 5 and 6 were general and did not specify any particular grievance, thus no specific findings were required, and these grounds were rejected.Conclusion:The appeal of the revenue was dismissed, and the order pronounced in the open court on 24-07-2015.