2023 (8) TMI 1171 - AT - Income Tax

Tribunal upholds re-assessment, adds unrecorded profits, restricts expenses disallowance, and partially allows appeals.

The Tribunal dismissed the challenge to the initiation of re-assessment proceedings and upheld the addition of unrecorded profits from transactions in the ... Initiation of re-assessment proceedings - Profit on unrecorded trading transactions - Burden of proof to substantiate booking of profit in subsequent year - Deletion of addition where assessing officer has misconstrued contract dates as separate transactions - Computation of income where delivery was not taken due to exchange suspension - Reasonable restriction of disallowance of business expenses to reflect personal element and unverified itemsInitiation of re-assessment proceedings - Ground challenging initiation of reassessment proceedings not pressed by assessee and dismissed. - HELD THAT: - The assessee did not press the ground contesting the initiation of reassessment proceedings for the years in question. The Tribunal records that the ground was not pursued by the authorised representative and accordingly treated it as not pressed. [Paras 2, 10]Ground dismissed as not pressed.Profit on unrecorded trading transactions - Burden of proof to substantiate booking of profit in subsequent year - Addition of profit from unrecorded Paddy (Rs. 3,47,760) upheld where assessee failed to substantiate that profit was recorded in subsequent year. - HELD THAT: - Sauda Summary Report from the broker disclosed buy and sell Paddy transactions on specified dates which were not recorded in the assessee's books for the year under consideration. The assessee asserted that profit was recorded in the subsequent year but failed to produce any corroborative material before the AO, DRP or the Tribunal to demonstrate such booking. Given the admitted occurrence of the transactions and absence of evidence of recording in either year, the Tribunal held that the assessing officer was justified in making the addition. [Paras 3, 4, 5]Addition sustained; ground dismissed.Deletion of addition where assessing officer has misconstrued contract dates as separate transactions - Addition computed by AO for unrecorded Gold transactions (Rs. 1,35,840) deleted because AO wrongly treated contract/bill dates as separate transactions. - HELD THAT: - The Tribunal examined contract notes, contract-cum-bills and the broker ledger which showed a single set of buy-and-sell GOLDM transactions with specific trade and actual transaction dates. The AO had treated the contract-cum-bill dates as distinct additional transactions leading to an erroneous computation of profit. On reviewing documentary material, the Tribunal found there was only one transaction and that the additional profit computed by the AO arose from inadvertent double counting. Accordingly the addition was directed to be deleted. [Paras 6, 7]Addition deleted.Reasonable restriction of disallowance of business expenses to reflect personal element and unverified items - Disallowance of expenses at 80% reduced to 20% for AY 2013-14 as allowance for necessary business expenses was justified. - HELD THAT: - The assessee carried on business through the broker but also incurred routine business expenses such as accountant salary, driver salary, car expenses, travelling and depreciation which were necessary to carry on the business. The AO disallowed 80% of the claimed expenses on the premise that business was transacted only through the broker. Considering the nature of the day-to-day expenses and the need to recognise a personal element and unverified items, the Tribunal considered it just to restrict the disallowance to 20% rather than 80%, thereby allowing the balance as deductible business expenditure. [Paras 8, 9]Disallowance reduced; deduction allowed subject to 20% disallowance.Computation of income where delivery was not taken due to exchange suspension - Profit on unrecorded trading transactions - Addition of profit on Paddy transaction for AY 2014-15 (Rs. 1,72,844) deleted because sale was not effected and delivery not received due to NSEL suspension. - HELD THAT: - The broker's account statement recorded the sauda (trade) date and reflected that, owing to suspension/postponement of settlement by NSEL, delivery was not taken though payment for purchase had been made; an amount remained due from NSEL. The AO computed profit by presuming a corresponding sale despite absence of delivery or a realised sale. The Tribunal held that when goods were not received and settlement was suspended by NSEL, it was not appropriate to presume a sale and compute profit therefrom; on that basis the addition was deleted. [Paras 11, 12]Addition deleted.Reasonable restriction of disallowance of business expenses to reflect personal element and unverified items - Disallowance of expenses for AY 2014-15 reduced to 20% following consistency with preceding year. - HELD THAT: - Facts and nature of claimed expenses for AY 2014-15 were identical to the preceding year. Applying the same reasoning, the Tribunal concluded that disallowance should be restricted to 20% to reflect personal element and unverified items, instead of the 80% disallowance made by the AO. [Paras 13]Disallowance reduced to 20%.Final Conclusion: Both appeals are partly allowed: reassessment challenge dismissed as not pressed; addition relating to unrecorded Paddy profit for 2013-14 upheld for want of substantiation but the similar addition for 2014-15 deleted where delivery and settlement were not effected; addition in respect of Gold transactions deleted due to AO's misconstruction; disallowance of business expenses in both years reduced from 80% to 20%. Issues involved:The judgment involves issues related to re-assessment proceedings, addition of unrecorded profits from transactions, disallowance of expenses, and computation of profits from transactions not offered for taxation.Re-assessment proceedings:The first ground challenging the initiation of re-assessment proceedings was not pressed by the assessee's representative and was dismissed by the Tribunal.Addition of unrecorded profits from transactions:The Tribunal upheld the addition of Rs. 3,47,760/- made by the Assessing Officer (AO) in the Paddy Basmati account as the transactions were not properly recorded in the books of account for the relevant assessment year, and the assessee failed to substantiate the claim that the profit was recorded in the subsequent year.Computation of profits from transactions not offered for taxation:The Tribunal directed the deletion of the addition of Rs. 1,35,840/- made by the AO as there was confusion in considering separate dates of transactions as distinct transactions, and the unrecorded profit was not adequately verified.Disallowance of expenses:The Tribunal allowed relief to the assessee by restricting the disallowance of expenses to 20% towards personal elements and unverified expenses, as the assessee was engaged in business activities and required to incur necessary day-to-day expenses.Separate Judgment:The judgment was delivered by Shri R.S. Syal, Vice President, and Shri S.S. Viswanethra Ravi, Judicial Member of the Appellate Tribunal ITAT Pune. The appeals were partly allowed, and the order was pronounced in the Open Court on 12th July, 2023.