2021 (10) TMI 502 - AT - Income Tax

Assessee's appeal granted: net profit rate reduced, share capital addition deleted. Order pronounced 30.09.2021.

Vrindavan International Trade Private Limited Versus The Income Tax Officer, Ward – 26 (4), New Delhi

Vrindavan International Trade Private Limited Versus The Income Tax Officer, Ward – 26 (4), New Delhi - TMI Issues Involved:1. Addition of Rs. 18,39,223/- under Section 68 of the I.T. Act.2. Addition of Rs. 1,00,000/- under Section 68 of the I.T. Act on account of share capital.3. Rejection of books of account under Section 145(3) of the I.T. Act.Detailed Analysis:1. Addition of Rs. 18,39,223/- under Section 68 of the I.T. Act:The Assessee, a company engaged in trading clothes, declared a total income of Rs. 2,25,633/- for the A.Y. 2015-2016. During assessment, the A.O. noted purchases of Rs. 41,29,01,230/- from 12 parties. Notices issued under Section 133(6) to verify these purchases were returned undelivered, and the Ward Inspector could not locate these firms. The Assessee failed to produce the proprietors of these firms, leading the A.O. to reject the books of account under Section 145(3) on the grounds that the firms were bogus. The Assessee offered to declare 0.5% of the turnover as net profit, leading to an addition of Rs. 18,39,223/- under Section 68. The Ld. CIT(A) upheld this addition, noting that the Assessee admitted the purchases were bogus and agreed to the addition during assessment proceedings.The Tribunal found merit in the Assessee's argument that this was the first year of operation, and the books of account were duly audited. The Tribunal noted that the A.O. accepted lower net profit rates in subsequent years (0.045% in A.Y. 2016-17 and 0.029% in A.Y. 2017-18). Given the facts, the Tribunal deemed a net profit rate of 0.5% excessive and reduced it to 0.075%, partially allowing the Assessee's appeal on this issue.2. Addition of Rs. 1,00,000/- under Section 68 of the I.T. Act on account of share capital:The A.O. made an addition of Rs. 1,00,000/- under Section 68, treating the share capital as income from undisclosed sources. The Ld. CIT(A) upheld this addition, citing the Assessee's failure to provide details or evidence regarding the share capital.The Tribunal found that the share capital was invested by the Directors and that this was the first year of incorporation. Therefore, the addition should have been made in the hands of the Directors, not the Assessee-company. The Tribunal set aside the Ld. CIT(A)'s order on this issue and directed the A.O. to delete the addition, fully allowing the Assessee's appeal on this point.3. Rejection of books of account under Section 145(3) of the I.T. Act:The A.O. rejected the Assessee's books of account under Section 145(3) due to the inability to verify purchases from the 12 parties. The Ld. CIT(A) upheld this rejection, noting the Assessee's non-compliance and the bogus nature of the firms.The Tribunal acknowledged the Assessee's submission that the books of account were duly audited and that the sales were not doubted. Given the Assessee's production of books, purchase and sales details, stock register, and other relevant documents, the Tribunal found the A.O.'s rejection of the books to be excessive. The Tribunal's adjustment of the net profit rate to 0.075% implicitly addressed this issue, thereby partially allowing the Assessee's appeal.Conclusion:The Tribunal partly allowed the Assessee's appeal by reducing the net profit rate to 0.075% and deleting the addition of Rs. 1,00,000/- under Section 68 on account of share capital. The order was pronounced in the open Court on 30.09.2021.