2023 (7) TMI 1087 - AT - Income Tax

Tribunal partially allows appeal, remands accounting issues, upholds unexplained expenditure addition, dismisses accounting charges disallowance.

Total Integrated Design (India) Pvt. Ltd. Versus ITO, Ward-25 (3), New Delhi.

The Tribunal partly allowed the appeal, remanding issues concerning the rejection of books of accounts and the addition based on the GP ratio back to the ... Estimation of gross profit - Unexplained expenditure u/s 69C - addition made by applying gross profit ratio on gross receipts - authorities below have not accepted books results and have estimated the profit - AO proceeded to make addition on the basis of peak on the other hand - CIT(A) reduced the addition by taking into account double addition made by the AO of the same item - HELD THAT:- We are unable to sustain the findings of Ld.CIT(A) for sustaining the addition partly on the basis of fall in gross profits without pointing out any specific discrepancy in accounts that resulted into suppression of true figure of gross profit. The findings should not be pure guess works, it should have certain foundation. In the case in hand, Lower authorities have failed to advert to the contentions of the assessee that difference between the figures reported in Form 26AS and actually recorded in the books of assessee was due to business model of assessee. The other party did not book expenditure in a particular year for that the assessee cannot be held responsible for them before. This fact ought to have been verified by the lower authorities before proceeding to reject books of accounts. Law is well-settled that the AO while resorting to estimation should consider all aspects surrounding the transactions. Merely because there is a fall in gross profit rate would not ipso facto be the reason for rejection of book results. Therefore, considering the material placed on record, the impugned order is hereby, set aside and the issue is restored to the file of AO for deciding it afresh. The AO is hereby, directed to verify the correctness of the claim of the assessee regarding mismatch of figure in Form 26AS arose because of booking of income by the assessee in the year under appeal and by recipient of services in next year. He would decide the issue in accordance with law. Thus, Ground Nos. 2 & 3 raised by the assessee are allowed for statistical purposes. Addition made on account of difference between Form 15CA and Tax Audit Report - contended on behalf of the assessee that the difference arose because of the fact that the amount was paid post negotiation which resulted into decrease in payment - HELD THAT:- Before Assessing Authority, no explanation in difference of remuneration was furnished thus, the unreconciled difference was admitted by the assessee. We find that the assessee has not brought any evidence supporting its contention that there were certain negotiations with other party for reduction in payment. In the absence of such evidence, we do not see any reason to interfere in the findings of lower authorities, the same is hereby affirmed. Thus, Ground raised by the assessee is rejected. Issues Involved:1. Addition of INR 54,514 as unexplained expenditure under Section 69C of the Income Tax Act, 1961.2. Rejection of the assessee's books of accounts.3. Addition of INR 54,10,504 by applying the Gross Profit (GP) ratio on gross receipts.4. Disallowance of INR 3,60,000 for accounting charges due to non-deduction of tax.Summary:Issue 1: Addition of INR 54,514 as unexplained expenditure under Section 69CThe assessee contended that the difference of INR 54,514 arose due to post-negotiation reductions in payments initially reported in Form 15CA. The Tribunal found no evidence supporting this claim and upheld the addition as unexplained expenditure under Section 69C, affirming the lower authorities' findings. Thus, Ground No.1 raised by the assessee was rejected.Issue 2: Rejection of the assessee's books of accountsThe Tribunal noted that the lower authorities had rejected the books of accounts based on discrepancies and a fall in the GP ratio. However, it was observed that no specific defects in the books were pointed out. The Tribunal emphasized that mere fall in GP ratio is not sufficient for rejecting books without concrete evidence of discrepancies. Therefore, the matter was remanded back to the Assessing Officer (AO) to verify the correctness of the assessee's claim regarding the mismatch of figures in Form 26AS and decide the issue afresh in accordance with the law. Thus, Ground Nos. 2 & 3 raised by the assessee were allowed for statistical purposes.Issue 3: Addition of INR 54,10,504 by applying the GP ratioThe Tribunal found that the lower authorities had sustained the addition based on a fall in the GP ratio without pointing out any specific discrepancies in the accounts. The Tribunal held that such findings should not be based on pure guesswork and must have a foundation. The AO was directed to verify the correctness of the assessee's claim regarding the mismatch of figures in Form 26AS and decide the issue afresh. Thus, Ground Nos. 2 & 3 raised by the assessee were allowed for statistical purposes.Issue 4: Disallowance of INR 3,60,000 for accounting chargesThe assessee did not press Ground No.4 during the hearing. Consequently, this ground was dismissed as not pressed.Conclusion:The appeal was partly allowed for statistical purposes, with the Tribunal remanding the issues related to the rejection of books of accounts and the addition based on the GP ratio back to the AO for fresh consideration. The addition of INR 54,514 as unexplained expenditure under Section 69C was upheld, and the disallowance of INR 3,60,000 for accounting charges was dismissed as not pressed.