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of <h1>Tribunal directs AO to re-examine share application money addition, apply 3% net profit rate</h1> <h3>Neelkamal Cineplex Pvt. Ltd. Versus ITO, Ward-13 (2), New Delhi.</h3> Neelkamal Cineplex Pvt. Ltd. Versus ITO, Ward-13 (2), New Delhi. - TMI Issues Involved:1. Addition of Rs. 1,07,00,000/- on account of share application money.2. Addition of Rs. 77,08,967/- on account of difference in opening and closing stock.3. Rejection of books of account and estimation of net profit at 8%.Detailed Analysis:1. Addition of Rs. 1,07,00,000/- on Account of Share Application Money:The assessee had received share application money totaling Rs. 4,02,50,000/-, with Rs. 77 lakh received during the year and Rs. 3,25,00,000/- outstanding as on 01.04.2010. The AO requested the assessee to provide confirmations and supporting documents for the share application money. In the absence of such confirmations, the AO added Rs. 1,07,00,000/- to the assessee's total income. On appeal, the CIT(A) restricted this addition to Rs. 57 lakhs, specifically from Rama Ply Board India Private Limited, due to lack of confirmation from the party. The Tribunal found that there was a running account between the assessee and Rama Ply Board Industries Ltd. and restored the issue to the AO for fresh adjudication, directing the AO to give the assessee an opportunity to substantiate the nature of the transaction.2. Addition of Rs. 77,08,967/- on Account of Difference in Opening and Closing Stock:The AO observed a discrepancy between the opening stock as on 01.04.2010 (Rs. 12,15,76,258/-) and the closing stock as on 31.03.2010 (Rs. 11,38,67,290/-). The assessee explained that the difference was due to an expenditure incurred for completing a mall, which was added to the opening stock while filing the return of income. The AO rejected this explanation, leading to an addition of Rs. 77,08,967/-. The CIT(A) upheld the AO's decision, noting that the assessee did not provide sufficient evidence of the expenditure incurred. The Tribunal, considering the totality of facts, directed the AO to adopt a net profit rate of 3% on the turnover plus the difference in stocks, resulting in a recomputed addition.3. Rejection of Books of Account and Estimation of Net Profit at 8%:Due to discrepancies in the share application money and stock figures, the AO deemed the assessee's books of account unreliable and invoked Section 145 of the IT Act. The AO estimated the net income at 8% of the gross receipts (Rs. 1,39,70,000/-), leading to an additional income of Rs. 10,01,788/-. The CIT(A) upheld this estimation. The Tribunal, however, found that the profit rate of 8% was on the higher side and directed the AO to adopt a net profit rate of 3%, resulting in a revised net profit of Rs. 6,50,369/-, less the net profit already disclosed by the assessee.Conclusion:The Tribunal partly allowed the appeal for statistical purposes, directing the AO to:1. Re-examine the addition of Rs. 57 lakhs related to share application money from Rama Ply Board India Private Limited.2. Recompute the addition by adopting a net profit rate of 3% on the turnover plus the difference in stocks.3. Provide the assessee with an opportunity to substantiate the nature of the transactions and decide the issues as per facts and law.The decision was pronounced in the open court on 18.02.2020.
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