2012 (8) TMI 1073 - AT - Income Tax

Rejecting assessee s claim of bad debt - Held that - AO and stated that if the claim of bad debt is not allowed, it is a trade debt as loss of advance paid by the assessee during the course of business. A.R. could not specify as to what item, assessee proposed to purchase from the said party to whom advance was made. Further, there is no invoice or any correspondence to substantiate the contention of the assessee. In view of above, we do not find any merit in the contention of ld A.R. Hence, we uphold the order of ld CIT(A) and reject the ground Nos.1 & 2 taken by the assessee. Addition of interest received from Rajvaibhav Enterprises Pvt Ltd., based on AIR information - Held that - Addition merely on the basis of AIR information and without bringing any evidence on record that the assessee has actually received the said interest of ₹ 2,66,916. It is not the case of the department that the said party was put to cross examination or the ledger account of the assessee in the books of account of the said party were given to the assessee and assessee was confronted thereon. We agree with ld A.R. that merely on the basis of AIR information and without bringing any evidence on record, it cannot be held that interest income has been received by the assessee from Rajvaibhav Enterprises (P) Ltd. Therefore, the said addition is not justified. Addition on account of low G.P. on estimate basis - Held that - We observe that AO made this addition merely on the ground that gross profit of G.P. in the assessment year under consideration is low as compared to earlier assessment year gross profit. We observe that no defects have been pointed out in the books of account. No purchase or sales shown by the assessee have been disputed by the authorities below. It is a fact that merely G.P. has fallen in the assessment year under consideration, the addition is not justified.

Summary

Issues: Disputed bad debt claim, Addition of interest received, Addition based on low gross profit.

Analysis:

Issue 1: Disputed Bad Debt Claim
The appellant disputed the addition made by the Assessing Officer (AO) of Rs. 1,59,000 by rejecting the claim of bad debt. The appellant claimed the bad debt of Rs. 1,59,000 as an advance payment made for the purchase of goods from a party that disappeared from the market. The AO disallowed the claim citing non-fulfillment of conditions under section 36(1)(vii) r.w.s 36(2). The Commissioner of Income Tax (Appeals) [CIT(A)] also upheld the AO's decision. The appellant failed to provide substantial evidence during the hearing to support the claim, leading the Tribunal to reject the appeal and uphold the CIT(A)'s order.

Issue 2: Addition of Interest Received
The appellant disputed the addition of Rs. 2,66,916 made by the AO as interest received from a specific enterprise based on information from the Annual Information Return (AIR). The AO added this amount to the appellant's income despite the appellant's denial of receiving any interest payment or claiming any TDS. The Tribunal observed that the AO solely relied on AIR information without concrete evidence of the interest received by the appellant. As there was no proof provided that the interest income was actually received, the Tribunal allowed the appeal and deleted the addition of Rs. 2,66,916.

Issue 3: Addition Based on Low Gross Profit
The appellant contested the addition of Rs. 75,000 made by the AO on the basis of low Gross Profit (G.P.) on an estimate basis. The AO's decision was solely due to the lower G.P. in the assessment year compared to the previous year, without pointing out any defects in the appellant's books of account. Since there were no discrepancies found in the purchase or sales records, and the only basis for the addition was the decrease in G.P., the Tribunal deemed the addition unjustified. Consequently, the Tribunal allowed the appeal and deleted the addition of Rs. 75,000.

In conclusion, the Tribunal partially allowed the appeal filed by the appellant, overturning the additions made by the AO in relation to the disputed bad debt claim, interest received, and low gross profit.