Tribunal allows appeal, rejects addition based on surmises. Assessee's appeal upheld.

The Tribunal allowed the appeal of the assessee, quashing the addition of Rs. 15,54,20,000/- and rejecting the books of accounts under section 145(3). The Tribunal found that the additions were based on surmises and conjectures without cogent evidence, and the assessee was not given a fair opportunity for cross-examination. The Tribunal upheld the CIT(A)'s decision on the disallowance of expenses and the addition of Rs. 1,00,000/-. The appeal was allowed in favor of the assessee.

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Issues Involved:
1. Rejection of books of accounts under section 145(3) of the Income Tax Act.
2. Introduction of own cash by showing bogus sales (Addition made under section 68 read with section 115BBE of the Income Tax Act).
3. Applying GP rate of 11.87%.
4. Disallowance of expenses (1/4th and 1/5th) as debited in P&L A/c.
5. Addition of Rs. 1,00,000/- on account of alleged amount paid to an individual.

Detailed Analysis:

Issue 1: Rejection of Books of Accounts under Section 145(3) of the Income Tax Act

The assessee argued that the survey operation conducted by the AO alleged bogus sales to M/s Vasudev Sales Corporation. The AO claimed that the cash deposited in the bank account of M/s Vasudev Sales Corporation belonged to the assessee, and the total transaction during the impugned year was Rs. 15,54,20,800/-. The AO rejected the books of accounts under section 145(3) alleging fabricated truck freight receipts and non-availability of stock during the survey.

The CIT(A) upheld the AO's decision, concluding that the sales transactions were not substantiated by independent evidence and were found to be bogus. The CIT(A) also noted that the appellant failed to produce credible documents like a stock register to rebut the AO's suspicion.

The assessee contended that the books of accounts were rejected merely on doubts without pointing out specific defects. The assessee's books were duly audited, and complete stock tally was maintained. The rejection was based on the statement of Rajesh Dhawan, which was not corroborated with documentary evidence, and the assessee was not given a chance for cross-examination.

The Tribunal found that there were no discrepancies in the stock of the assessee, and the entire gross sales amount was declared in the turnover. The rejection of books was without finding any lacuna, and the addition based on the statement of Rajesh Dhawan was uncalled for as the assessee was not allowed cross-examination. The Tribunal allowed the grounds taken by the assessee.

Issue 2: Introduction of Own Cash by Showing Bogus Sales (Addition under Section 68 read with Section 115BBE)

The assessee argued that the provisions of section 68 were not applicable as the amount pertained to sales made to M/s Vasudev Sales Corporation and was received through banking channels. The AO doubted the cash deposited in the bank account of M/s Vasudev Sales Corporation and linked it to the assessee, treating it as unexplained cash credit.

The Tribunal found that the assessee's books of accounts were duly audited, and the sales were recorded in the regular books. The AO did not doubt the opening stock and purchases. The addition was made based on the statement of Rajesh Dhawan, recorded at the back of the assessee without cross-examination. The Tribunal held that the addition was based on surmises and conjectures without cogent evidence.

The Tribunal quashed the addition of Rs. 15,54,20,000/- as the entire sales were disclosed, and the payment was received through banking channels. The Tribunal relied on judicial precedents that statements recorded at the back of the assessee without cross-examination cannot be used for making additions.

Issue 3: Applying GP Rate of 11.87%

The AO applied a GP rate of 11.87% but did not make a separate addition as it was covered under the addition of Rs. 15,54,20,000/-. The Tribunal noted that there was continuity in the GP ratio in the preceding and succeeding years, and the assessee disclosed the entire sales. The Tribunal found no basis for the AO's calculation and allowed the assessee's grounds.

Issue 4: Disallowance of Expenses (1/4th and 1/5th) as Debited in P&L A/c

The CIT(A) allowed the ground related to the ad hoc addition of Rs. 11,21,118/- made by the AO for disallowance of various expenses. The CIT(A) found that the AO disallowed the expenses without pointing out any defect or independent enquiries. The Tribunal upheld the CIT(A)'s decision, allowing the assessee's ground.

Issue 5: Addition of Rs. 1,00,000/- on Account of Alleged Amount Paid

The AO made an addition of Rs. 1,00,000/- being unexplained expenditure incurred by the assessee for payment to Rajesh Dhawan. The CIT(A) found no merit in the addition as it was not based on any enquiry or confrontation to the appellant. The Tribunal upheld the CIT(A)'s decision, dismissing the ground for statistical purposes.

Conclusion:

The Tribunal allowed the appeal of the assessee, quashing the addition of Rs. 15,54,20,000/- and rejecting the books of accounts under section 145(3). The Tribunal found that the additions were based on surmises and conjectures without cogent evidence, and the assessee was not given a fair opportunity for cross-examination. The Tribunal upheld the CIT(A)'s decision on the disallowance of expenses and the addition of Rs. 1,00,000/-. The appeal was allowed in favor of the assessee.

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