2017 (2) TMI 600 - AT - Income Tax

Appeal partly allowed: additions deleted, stock shortage sustained, cash payments exceeding Rs. 20,000 remanded

Shri Harish Chand Versus The A.C.I.T., Circle, Bharatpur

Shri Harish Chand Versus The A.C.I.T., Circle, Bharatpur - TMI Issues Involved:1. Sustaining an addition by applying G.P. rate on alleged unaccounted sales.2. Sustaining an addition on account of unexplained investment in unaccounted purchases.3. Making an addition on account of Gross Profit in stock alleged as found short.4. Sustaining an addition u/s 40A(3) for making cash payments exceeding Rs. 20,000.5. Sustaining lump sum disallowances on estimate basis out of various expenses.6. Not allowing the benefit of telescoping and set off one income from the other.Detailed Analysis:1. Sustaining an Addition by Applying G.P. Rate on Alleged Unaccounted Sales:The assessee contested the addition of Rs. 78,005 by applying a G.P. rate of 33.71% on alleged unaccounted sales of Rs. 2,31,400. The loose papers found during the survey were claimed to be rough calculations, not actual sales. Affidavits were submitted to support this claim. The Ld. AO, in a remand report, accepted that the figures on the papers did not represent actual sales except for Rs. 2,31,400. The Ld. CIT(A) applied a G.P. rate of 33.71% instead of 26% and sustained the addition. The Tribunal deleted the addition, noting that the goods worth Rs. 2,31,400 were rejected by the buyer, resulting in no actual sales.2. Sustaining an Addition on Account of Unexplained Investment in Unaccounted Purchases:The Ld. AO disputed the valuation of purchases, estimating it at Rs. 65,77,943 instead of Rs. 58,10,975, resulting in an alleged unaccounted purchase of Rs. 7,66,968. The Ld. CIT(A), after considering the remand report, sustained an addition of Rs. 33,908, acknowledging that the difference was due to estimated rates. The Tribunal deleted the addition, noting that the valuation was based on estimation without a proper basis.3. Making an Addition on Account of Gross Profit in Stock Alleged as Found Short:The Ld. AO found a stock shortage of Rs. 7,77,010 during the survey and applied a G.P. rate of 26%, which the Ld. CIT(A) enhanced to 33.71%, resulting in an addition of Rs. 2,61,930. The assessee claimed that the stock was not properly verified. The Tribunal upheld the addition, noting that the assessee failed to provide sufficient evidence to prove the stock valuation and the shortage was rightly treated as sales outside the books.4. Sustaining an Addition u/s 40A(3) for Making Cash Payments Exceeding Rs. 20,000:The assessee made cash payments totaling Rs. 6,10,375, claiming exceptions under Rule 6DD. The Ld. CIT(A) sustained an addition of Rs. 1,23,500 for payments to two parties, as their statements could not be recorded. The Tribunal set aside the matter to the Ld. AO to examine the affidavits and decide afresh.5. Sustaining Lump Sum Disallowances on Estimate Basis Out of Various Expenses:The Ld. AO made a lump sum disallowance of Rs. 1,31,563, which the Ld. CIT(A) reduced to Rs. 75,000. The Tribunal deleted the addition, noting that there was no basis for the disallowance and no evidence that the expenses were either bogus or not incurred for business purposes.6. Not Allowing the Benefit of Telescoping and Set Off One Income from the Other:The assessee requested telescoping of additions on account of unaccounted sales, purchases, and stock shortage. The Tribunal noted that since the additions for unaccounted sales and purchases were deleted, only the addition for stock shortage was sustained, making telescoping inapplicable.Conclusion:The Tribunal partly allowed the appeal for statistical purposes, deleting the additions for unaccounted sales, unexplained purchases, and lump sum disallowances, while sustaining the addition for stock shortage and setting aside the matter of cash payments for fresh examination.