2010 (2) TMI 1173 - AT - Income Tax

Summary

Issues Involved:
1. Addition of unexplained investment in purchase of goods.
2. Addition on account of fall in Gross Profit.
3. Disallowance u/s 40A(3) of the I.T. Act, 1961.
4. Addition on account of unexplained cash credit.
5. Addition on account of unexplained purchases.
6. Addition on account of work-in-progress.
7. Disallowance of interest on money advanced to sister concerns.

Summary:

1. Addition of unexplained investment in purchase of goods:
The Assessing Officer (AO) added Rs. 12,76,39,490/- as unexplained investment based on the Excise Department's findings of illicit removal of 58,01,795 meters of cloth. The CIT(Appeals) reduced this to Rs. 1,97,66,427/-, considering only the month of July-2002 for unexplained investment and the rest as recirculation. The Tribunal upheld the CIT(Appeals) decision, noting that the assessee was a job-worker and not involved in purchasing grey fabrics on its own account.

2. Addition on account of fall in Gross Profit:
The AO noted a fall in Gross Profit rate and made an addition of Rs. 81,77,779/-. The CIT(Appeals) reduced this to Rs. 14,11,700/-. The Tribunal sustained the addition of Rs. 14,11,700/- as the Gross Profit was rightly estimated at 25% by the CIT(Appeals).

3. Disallowance u/s 40A(3) of the I.T. Act, 1961:
The AO disallowed Rs. 1,05,400/- being 20% of Rs. 5,27,000/- paid in cash. The Tribunal held that since the books of account were not accepted and Gross Profit was estimated, no separate addition u/s 40A(3) could be made.

4. Addition on account of unexplained cash credit:
The AO treated Rs. 15 lacs received as share application money as unexplained cash credit. The CIT(Appeals) deleted the addition, relying on the Delhi High Court decision in Stellar Investment Ltd. The Tribunal upheld the deletion, noting that the assessee had filed necessary evidence, including share application forms, PAN, and balance sheets.

5. Addition on account of unexplained purchases:
The AO added Rs. 5,11,600/- for unexplained purchases from M/s. N.R. Chemicals, Mumbai. The CIT(Appeals) deleted the addition, noting that purchases were supported by proper bills and payments were made by account payee cheques. The Tribunal upheld the deletion.

6. Addition on account of work-in-progress:
The AO did not separately add work-in-progress as it was telescoped against the total addition for undisclosed investment and profit. The CIT(Appeals) deleted the addition, and the Tribunal upheld this decision.

7. Disallowance of interest on money advanced to sister concerns:
The AO disallowed Rs. 5,08,942/- on account of interest on money advanced to sister concerns. The CIT(Appeals) found that the assessee had sufficient interest-free funds and deleted the disallowance. The Tribunal upheld this deletion.

Conclusion:
The appeal of the assessee was partly allowed, and the appeal of the Revenue was dismissed. The Tribunal sustained the addition of Rs. 27,20,857/- for unexplained investment and upheld the deletion of other additions and disallowances made by the AO.