2014 (3) TMI 965 - AT - Income Tax

Addition on account of inflated purchases - Held that - CIT(A) has accepted the part of the assessee s explanation in this regard with reference to the copies of the bills purchase of kanta slips address of the supplier alongwith TAN/PAN etc. The Ld. CIT(A) has rejected the books of accounts. Thereafter L.d CIT(A) has rejected the AO s addition of 15% of the purchases. He deleted the addition of Rs. 45, 48, 005/- on this account. In stead he proceeded to make an estimate of the net profit of the assessee. In light of the above in our considered opinion the issue has not been properly adjudicated by the authorities below - Thus matter is remitted to the files of the AO to consider the issue afresh. Addition on account of unconfirmed sundry creditors - Held that - CIT(A) has accepted that all confirmations were filed. He accepted that the non-compliance could be due to the facts that some of the creditors were village based illiterate persons who may not have been familiar with income tax proceedings. Further the time available between the issue of enquiry letters and completion of assessment was extremely short. Ld. CIT(A) has rejected the AO s contention that the socalled confirmation copies of accounts filed by the assessee cannot be fully relied upon. Unless the same were confirmed by the suppliers to the AO. In our considered opinion this issue also needs to be remitted to the file of the AO as it is noted that the parties have not confirmed the balance to the AO nor they were produced for examination. Addition on difference between the purchases as the profit loss account and as per the ledger account - Held that - CIT(A) presumption that rectification application has been moved and furthermore AO appears to have accepted the explanation given in the submissions made during the appeal proceedings is not backed by cogent basis. Furthermore Ld. CIT(A) has noted that once the books of accounts have been rejected they cannot be relied for further disallowance in the same head of expense. We note that we have already remitted the issue of addition on account of inflated purchases and the estimation of income to the file of the AO. Hence we remit this issue to the file of the AO. - Appeals filed by the Assessee and Revenue stand allowed for statistical purposes.

Summary

Issues:
1. Enhancement of NP rate without opportunity to show cause.
2. Addition of unexplained sundry creditors.
3. Addition of inflated purchases.
4. Difference between purchases in profit loss account and ledger account.

Enhancement of NP rate without opportunity to show cause:
The Assessee appealed against the CIT(A)'s decision to enhance the NP rate without providing an opportunity to present their case. The CIT(A) held that the AO's estimation without rejecting the books of accounts was not permissible. However, the CIT(A) had plenary powers to address such errors. The CIT(A) concluded that the books of accounts should be rejected, and determined the net profit at 4% of the turnover, resulting in an addition of Rs. 7,01,755.

Addition of unexplained sundry creditors:
The AO added Rs. 45,92,272 towards unexplained sundry creditors due to lack of confirmations. The CIT(A) considered the short time between issuing enquiry letters and finalizing the assessment, accepted confirmations produced by the Assessee, and deleted the addition, noting that the burden of proving the genuineness of the creditors had been discharged.

Addition of inflated purchases:
The AO disallowed 15% of total purchases as inflated purchases, leading to an addition of Rs. 45,48,005. The CIT(A) rejected this ad hoc disallowance, determining the net profit at 4% of the turnover, resulting in an addition of Rs. 7,01,755. The Tribunal found that the issue had not been properly adjudicated and remitted it to the AO for fresh consideration.

Difference between purchases in profit loss account and ledger account:
The AO added Rs. 5,88,775 due to a difference in purchases shown in the profit loss account and ledger account. The CIT(A) noted a rectification application and that the AO seemed to have accepted explanations during the appeal proceedings. However, the Tribunal remitted this issue to the AO along with other issues for proper consideration.

The Tribunal allowed both the Assessee and Revenue's appeals for statistical purposes, remitting all issues to the AO for fresh consideration after providing the Assessee with a proper opportunity to be heard.