2014 (2) TMI 1232 - AT - Income Tax

Addition to rebate to the retailers - CIT(A) deleted the addition - Held that - We concur with the findings of the ld. CIT(A) that the A.O. has failed to record any finding in the assessment order that the case of the assessee is akin to the provisions of section 145(3) of the Act. The arguments made by the ld. counsel for the assessee before the ld. CIT(A) are that the assessee furnished audited accounts/tax audit report alongwith books of account and bills/vouchers for purchase/sales of liquor and relating to expenses were produced for verifications. The details and basis of valuation of closing stock were placed on record during the course of assessment proceedings. The state excise and taxation department keeps strict control and supervision over the liquor trade carried out by the assessee. The purchases of liquor can be made by the assessee against the permits issued by the state excise department and similarly the sales of the liquor by the assessee to the retailers having 1-2 licenses can only be made against the permits issued by the State Excise Department. The AO failed to rebut the contention of the assessee that the net rebate of 16586467/- is a part of the trading results and also the gross profit. The AO has tried to make out a case that the above stated amount of 16586467/- is the income of the assessee as per his own version by twisting the contentions of the assessee in written reply filed during the course of assessment proceedings by recording the finding that a fact that emerges is that whether the rebate received by the assessee is ultimately passed in toto to the retailers as per the assessee s won version as stated above or not because the word in toto has been introduced by the AO but the counsel of the assessee did not use this word in the written reply. The details of rebate received from the sellers from whom the liquor was purchased and paid to the purchasers L-2 License holders to whom the liquor was sold alongwith the supporting evidence was filed before the AO during the course of assessment proceedings and no defect was pointed out by the AO either during the course of the assessment proceeding or in the assessment order. No opportunity was allowed by the AO to the assessee before making the addition of 48, 16, 438/-. The contentions of the AR of the assessee are factually correct and the AO has failed to point out any discrepancy in the books of account to justify his action of estimating the income of the assessee at 16586467/- as against the income of 11770029/- declared in the profit and loss account. - Decided against revenue

Summary

Issues:
- Whether the CIT(A) was right in not appreciating the finding of the AO regarding the rebate passed on to retailers.
- Whether the net rebate remaining with the assessee should be treated as additional income.
- Whether the addition made by the Assessing Officer was justified.

Analysis:
1. The appeal pertains to the assessment year 2009-10, where the Revenue challenged the CIT(A)'s order regarding the rebate passed on to retailers by the assessee. The Revenue contended that the assessee failed to pass on the entire rebate amount to the retailers, retaining a balance with them. The AO made an addition to the income of the assessee based on this discrepancy.

2. The assessee explained that the rebate received was passed on to the retailers, but a net rebate amount remained with them. The AO treated this net rebate as additional income of the assessee, leading to the disputed addition. The assessee provided detailed accounts and explanations to support their position.

3. The CIT(A) accepted the assessee's explanation and deleted the addition made by the AO. The Revenue, represented by the Ld. DR, relied on the AO's order, while the counsel for the assessee supported the CIT(A)'s decision. The ITAT considered the arguments and facts of the case.

4. The ITAT concurred with the CIT(A) that the AO failed to establish any resemblance to section 145(3) of the Act in the assessment order. The ITAT noted that the AO did not rebut the assessee's contentions regarding the net rebate being part of the trading results and gross profit.

5. Referring to relevant High Court judgments, the ITAT emphasized that profits cannot be estimated without rejecting the books of account and pointing out specific defects. As the AO failed to identify any discrepancies in the assessee's accounts, the ITAT upheld the CIT(A)'s decision to delete the addition.

6. Consequently, the ITAT found no fault in the CIT(A)'s order and dismissed the Revenue's appeal. The ITAT's decision was based on the lack of defects in the assessee's accounts and the failure of the AO to justify estimating the income. The appeal was dismissed, affirming the CIT(A)'s order.

This detailed analysis highlights the key issues, arguments presented, and the reasoning behind the ITAT's decision to uphold the CIT(A)'s order in favor of the assessee.