2017 (4) TMI 1099 - AT - Income Tax

Tribunal upholds deletion of addition under Income Tax Act, dismisses appeal, directs deletion of trading addition, upholds disallowance.

Assistant Commissioner of Income Tax Versus M/s Nirmal Glasstech Industries and Vice-Versa

The Tribunal dismissed the revenue's appeal challenging the deletion of an addition under Section 68 of the Income Tax Act, as the CIT(A) found the ... Addition u/s 68 - CIT-A deleted addition - Held that:- We find merit into the contentions of the assessee that the partner can bring fresh capital by raising funds from third party directly to the account of the firm. Therefore, we do not see any reason to interfere into the order of the ld. CIT(A) and the same is hereby confirmed. The ground raised in the revenue’s appeal is dismissed. Disallowance of claim of deduction U/s 8-IB - Held that:- In view of the provisions of Section 80IB(3) and 80IB(14)(c) which defines the initial assessment year and also as the audit report itself certifies that the operation of the undertaking commenced from Nov, 2001 and thus the initial assessment year being assessment year 2002-03, the disallowance made by the Assessing Officer is correct and upheld. The ground of appeal is dismissed Trading addition - Held that:- The Assessing Officer has not rejected the books of account. The assessee has been maintaining details. Ld. AR has relied upon the decision of the Hon’ble Rajasthan High Court in the case of CIT Vs. Maharaja Shree Umed Mills Ltd. [1991 (5) TMI 46 - RAJASTHAN High Court] and Ramjivan Jagannath Vs. ACIT (2006 (10) TMI 145 - RAJASTHAN HIGH COURT) wherein it has been held that the gross profit rate cannot be looked into when the Assessing Officer has not rejected the books of account of the assessee and without making this as a base, it could not be said that the expenditure has been inflated. In the present case, admittedly, the Assessing Officer has not rejected the books of account. He has not given the basis for making ad hoc disallowance, therefore, we direct the Assessing Officer to delete the disallowance. This ground of the assessee’s C.O. is allowed. Issues Involved:1. Deletion of addition under Section 68 of the Income Tax Act.2. Disallowance of deduction claimed under Section 80IB of the Income Tax Act.3. Confirmation of lump sum trading addition.Issue-wise Detailed Analysis:1. Deletion of Addition under Section 68 of the Income Tax Act:The revenue's appeal contested the deletion of an addition of Rs. 99,48,209/- under Section 68 of the Income Tax Act. The Assessing Officer (AO) had added this amount to the assessee's income, citing it as unaccounted money. The AO's decision was based on the fact that the amount was credited to the partner's capital account and was received from M/s Gems Exports Ltd., Hong Kong, a family concern of the partner’s aunt. The AO questioned the authenticity of the documents provided, including a confirmation letter and a Foreign Inward Remittance Certificate (FIRC).The CIT(A) deleted the addition after admitting additional evidence, including the balance sheet of M/s Gems Exports Ltd. and the outward remittance advice from HSBC bank. The CIT(A) found that the financial assistance was genuine and supported by sufficient documentation, including bank certificates and confirmations. The Tribunal upheld the CIT(A)’s decision, stating that the revenue did not provide any contrary material to rebut the findings. The Tribunal agreed that the partner could bring fresh capital by raising funds from a third party directly to the firm's account, thus dismissing the revenue's appeal.2. Disallowance of Deduction Claimed under Section 80IB of the Income Tax Act:The assessee's cross-objection challenged the disallowance of a deduction of Rs. 7,23,299/- under Section 80IB. The AO disallowed the deduction, stating that the initial assessment year was 2002-03, and the deduction period of ten consecutive years had ended in 2011-12. The assessee argued that the deduction should be allowed from the year profits were first earned, which was 2003-04, thus extending the period to 2012-13.The CIT(A) upheld the AO’s decision, stating that the initial assessment year was indeed 2002-03, as certified in the audit report, and thus the deduction period ended in 2011-12. The Tribunal concurred with the CIT(A), noting that the assessee did not provide any evidence to contradict the finding that the initial assessment year was 2002-03. Consequently, the Tribunal dismissed the assessee's ground for this issue.3. Confirmation of Lump Sum Trading Addition:The assessee also contested the confirmation of a lump sum trading addition of Rs. 2,00,000/-. The AO had made this addition without rejecting the books of account, which were duly audited and maintained. The assessee argued that the trading results were supported by bills and vouchers, and no specific defects were pointed out by the AO.The CIT(A) confirmed the addition, but the Tribunal found merit in the assessee’s contention. Citing precedents, the Tribunal noted that the gross profit rate alone could not justify an ad hoc addition without rejecting the books of account. Since the AO did not reject the books or provide a basis for the ad hoc disallowance, the Tribunal directed the AO to delete the disallowance, allowing this ground of the assessee’s cross-objection.Conclusion:The Tribunal dismissed the revenue's appeal regarding the deletion of the addition under Section 68 and partly allowed the assessee’s cross-objection by directing the deletion of the lump sum trading addition while upholding the disallowance of the deduction under Section 80IB. The order was pronounced in the open court on 21/04/2017.