2022 (8) TMI 1216 - AT - Income Tax

Tribunal partially allows appeal on Gwar and Chana, upholds other findings and disallowances.

Late Shri Mohan Raj Chhajed (Through Legal heir Shantilal Chhajed) Versus Income Tax Officer, Ward-2, Pali Rajasthan

Late Shri Mohan Raj Chhajed (Through Legal heir Shantilal Chhajed) Versus Income Tax Officer, Ward-2, Pali Rajasthan - TMI Issues Involved:1. Rejection of Books of Accounts under Section 145(3).2. Validity of Assessment under Section 143(3) instead of Section 144.3. Application of Section 44AD for Estimating Profit.4. Additional Additions Post Estimating Gross Profit.5. Addition on Account of Shortage of Gwar Commodity.6. Addition on Account of Excess Stock of Chana.7. Addition on Account of Thok-Khata Transactions.8. Disallowance of Interest on Interest-Free Advances.Detailed Analysis:1. Rejection of Books of Accounts under Section 145(3):The assessee challenged the rejection of its books of accounts, arguing that no discrepancies were pinpointed by the Assessing Officer (AO). However, the AO observed defects in the quantitative tally of agricultural products and discrepancies in sales and purchases, including the absence of documentary evidence for purchases from agriculturists. The Tribunal upheld the AO's decision, noting that the defects were significant and partly accepted by the assessee. The Tribunal found no error in the CIT(A)'s decision to sustain the rejection of the books of accounts.2. Validity of Assessment under Section 143(3) instead of Section 144:The assessee contended that once Section 145(3) was invoked, the assessment should have been made under Section 144. The Tribunal clarified that Section 145(3) uses the term 'may' for making an assessment in the manner provided in Section 144, which involves making a best judgment assessment based on relevant material. The Tribunal concluded that the assessment under Section 143(3) was valid as it complied with the mandate of Section 144.3. Application of Section 44AD for Estimating Profit:The assessee argued that its turnover was below Rs.60 lakh and thus should be assessed under Section 44AD, restricting the profit estimation to 8%. The Tribunal noted that the assessee had not opted for presumptive taxation under Section 44AD in its return and had filed an audit report under Section 44AB. Consequently, the Tribunal upheld the AO's method of estimating profit based on the gross profit rate of the preceding year, rejecting the assessee's claim for the application of Section 44AD.4. Additional Additions Post Estimating Gross Profit:The assessee argued that no further additions should be made once gross profit was estimated. The Tribunal agreed, stating that separate additions for specific discrepancies in stock were not required after rejecting the books of accounts and estimating gross profit. The Tribunal set aside the additions for the shortage of Gwar and excess stock of Chana, allowing this ground of the appeal.5. Addition on Account of Shortage of Gwar Commodity:The AO made an addition for the shortage of Gwar valued at Rs.6,21,102/-. The Tribunal, following its decision on ground No. 4, set aside this addition, noting that separate additions were unnecessary after estimating gross profit.6. Addition on Account of Excess Stock of Chana:The AO added Rs.18,791/- for excess stock of Chana. The Tribunal, consistent with its ruling on ground No. 4, set aside this addition as well.7. Addition on Account of Thok-Khata Transactions:The AO added Rs.3,75,000/- for transactions made on a Thok-Khata basis without actual delivery or documentary evidence. The CIT(A) upheld this addition, noting that the transactions appeared to be a diversion of income to a sister concern. The Tribunal confirmed the CIT(A)'s decision, as the assessee failed to provide any supporting documentary evidence.8. Disallowance of Interest on Interest-Free Advances:The AO disallowed Rs.1,68,262/- out of the interest expenditure for interest-free advances to related parties. The CIT(A) upheld the disallowance, noting that the assessee could not prove that the advances were made from non-interest-bearing funds. The Tribunal found no error in the CIT(A)'s decision and upheld the disallowance.Conclusion:The appeal was partly allowed, with the Tribunal setting aside the additions for the shortage of Gwar and excess stock of Chana but upholding the other findings and disallowances made by the lower authorities. The order was pronounced on 27/07/2022.