2019 (4) TMI 1815 - AT - Income Tax

Tribunal rules on account rejection, emphasizes record-keeping and profit estimation

The Tribunal upheld the rejection of the books of account but deleted the trading addition, noting the better net profit rate declared by the assessee ... Rejection of books of accounts - trading addition - GP Estimation - HELD THAT:- We are of the view that the books of accounts have been rightly rejected by the Assessing officer as the assessee failed to produce the books of accounts for verification and in absence thereof, it is difficult for the Assessing officer to determine whether the trading results so declared by the assessee are true and correct. Regarding estimation of profits, we find that the assessee has declared better net profit rate as compared to earlier years and therefore, even where the books of accounts are rejected, given better results declared by the assessee as compared to average of last five years, the trading addition so made is directed to be deleted. In the result, ground no.1 of the Revenue’s appeal is allowed and the ground no. 2 is dismissed. Addition on account of excess agriculture income shown by the assessee - HELD THAT:- A.O. estimated the cost on sale proceeds to be less is also not clear since as per the A.O's own working, the rate estimated was ₹ 10,000/- per bigha in the earlier year but he increased it to ₹ 11,500/- per bigha in this year without any basis, whereas as per the assessee's working it comes to ₹ 7074/- per bigha. When the assessee's cost on hired land is much less than the estimation resorted by the A.O., then in order to establish how the cost of agricultural proceeds on self owned land could be double, the Assessing officer should have brought some scientific or practical findings on record, which he failed to do. By resorting to this entire hypothetical averaging, he has aimed to reduce the agricultural receipts by an amount of ₹ 1, 76,330/ -, which constitutes around 7% of the total agricultural receipts shown by the assessee. Whole working of the A.O. is found to be neither backed by any enquiries, nor any basis which is sustainable. The addition by way of reduction in the claim of agricultural income without holding any expenses as false is held to be unjustified and directed to be deleted Addition u/s 68 on account of unexplained cash deposits - HELD THAT:- CIT-A has given a specific finding that cash deposit receipts are matching from the bank book & ledger accounts, we find that the source of cash deposit in his bank accounts has been reasonably explained to be out of assessee’s transportation business and agriculture produce. Therefore, we affirm the order of the ld CIT(A) to the extent where he has directed the deletion of addition of 68 of the Act. In the result, the ground of revenue’s appeal is dismissed Bank account not disclosed at the time of filing of the return of income - HELD THAT:- Such bank account maintained with the Axis Bank was not reported by the assessee at the time of filing of return of incomeand the fact that the assessee is engaged in the transportation business and in absence of any contrary findings by the lower authorities regarding any other source of income, such cash deposits are treated as undeclared receipts from the assessee’s transportation business and net profit on such undeclared business receipts is directed to be applied. Given that the assessee has declared net profit of 2.39% which has been accepted by us while adjudicating earlier grounds, the same net profit is directed to be applied on such business receipts Issues Involved:1. Rejection of books of account under Section 145(3)2. Deletion of trading addition of Rs. 8,48,795/-3. Deletion of addition of Rs. 1,76,330/- on account of excess agriculture income4. Deletion of addition of Rs. 94,53,800/- made under Section 68 on account of unexplained cash deposits5. Sustainment of addition of Rs. 13,55,000/- on account of cash deposit in Axis Bank, Kota6. Charging of interest under Sections 234B, 234C, and 234DIssue-wise Detailed Analysis:1. Rejection of Books of Account under Section 145(3):The Assessing Officer (AO) rejected the books of account of the assessee, citing the lack of supporting vouchers and details for transportation payments and other expenses. The AO estimated a net profit rate of 5% resulting in a trading addition of Rs. 8,48,795/-. The CIT(A) found the AO's reasons unjustifiable, noting the AO did not highlight differences in record-keeping from previous years or provide comparable cases to justify the 5% net profit rate. The Tribunal upheld the rejection of the books but deleted the trading addition, noting the assessee declared a better net profit rate compared to previous years.2. Deletion of Trading Addition of Rs. 8,48,795/-:The CIT(A) deleted the trading addition, stating the AO did not doubt the nature of receipts but was only dissatisfied with the profit element. The AO did not conduct independent inquiries to ascertain the net profit and failed to consider the assessee's past profit rates. The Tribunal agreed with the CIT(A), noting the assessee declared a better net profit rate than the average of the past five years.3. Deletion of Addition of Rs. 1,76,330/- on Account of Excess Agriculture Income:The AO restricted the agricultural income to Rs. 23,59,670/- against Rs. 25,36,000/- shown by the assessee, making an addition of Rs. 1,76,330/-. The CIT(A) found the AO's approach unjustified, noting the AO did not question the genuineness of the agricultural income or conduct further inquiries. The Tribunal agreed with the CIT(A), stating the AO's reduction in agricultural income was not backed by any sustainable basis.4. Deletion of Addition of Rs. 94,53,800/- Made under Section 68 on Account of Unexplained Cash Deposits:The AO added Rs. 1,08,08,800/- under Section 68, citing unexplained cash deposits in various bank accounts. The CIT(A) deleted Rs. 94,53,800/- of the addition, noting the AO accepted the cash freight income and agricultural income, and failed to conduct independent inquiries on the bank accounts. The Tribunal upheld the CIT(A)'s decision, noting the source of cash deposits was reasonably explained through transportation business and agricultural produce.5. Sustainment of Addition of Rs. 13,55,000/- on Account of Cash Deposit in Axis Bank, Kota:The CIT(A) sustained the addition of Rs. 13,55,000/- due to the assessee's failure to explain the source of this amount deposited in Axis Bank, Kota. The Tribunal directed that the cash deposits be treated as undeclared receipts from the transportation business and applied a net profit rate of 2.39% on these receipts, resulting in a partial allowance of the assessee's cross-objection.6. Charging of Interest under Sections 234B, 234C, and 234D:The assessee contested the charging of interest under Sections 234B, 234C, and 234D, denying liability for such interest. However, the Tribunal did not provide specific findings on this issue in the judgment.Conclusion:The Tribunal partly allowed both the Revenue's appeal and the assessee's cross-objection, upholding the deletion of certain additions while sustaining others with modifications. The judgment emphasized the importance of consistent record-keeping and reasonable estimation of profits based on past history.