2016 (9) TMI 1327 - AT - Income Tax

Rejection of books of account - applying net profit rate @ 8% - Held that - Apart from facts the bills and vouchers cannot be admitted as there were neither filed during the course of assessment proceedings nor during the course of remand proceedings and there is no justification offered for the same. No respectability is attached to these vouchers filed at this stage particularly when payments are paid in cash in respect of these bills. Looking into these facts it is to be held that books of accounts are not reliable and therefore rejection of the same is upheld. Similarly estimating the net profit @ 8% is also as proper on the facts and the case.The first ground is therefore rejected. Addition u/s 68 towards unexplained cash credit - Held that - All the impugned transactions of cash credits are duly explained and identity genuineness and creditworthiness of each of them are proved in the form of bank account confirmations reply of cash creditors u/s 133(6) of the Act in some cases confirmation leters. We are therefore of the view that addition u/s 68 needs to be deleted. Disallowance u/s 41(1) - Held that - No addition is called for u/s 41(1) of the Act with regard to the sundry creditors. See CIT vs. Bhogilal Ramjibhai Atara 2014 (2) TMI 794 - GUJARAT HIGH COURT Disallowance of depreciation - Held that - As regards addition on account of plant and machinery assessee produced bills of 2, 90, 183/- for verification. For the remaining amount of addition towards factory building and plant and machinery assessee neither produced any evidence before the assessing authority nor ld. AR has been able to improve his case further than over the facts brought in before the assessing authority in remand report. We are therefore of the view that out of the disallowance of depreciation of 90, 730/- assessee should be allowed depreciation on 729/- towards factory building and depreciation on plant and machinery at 2, 90, 183/- as per applicable rates and on the basis of date of purchases of assets. We direct the Assessing Officer to calculate the depreciation accordingly.

Summary

Issues Involved:
1. Rejection of books of account and estimation of net profit at 8%.
2. Addition under Section 68 of the IT Act for unexplained cash credits.
3. Disallowance under Section 41(1) of the IT Act.
4. Disallowance of depreciation.

Issue-wise Detailed Analysis:

1. Rejection of Books of Account and Estimation of Net Profit at 8%:
The assessee's books of account were rejected, and the net profit was estimated at 8% by the Assessing Officer (AO) due to non-compliance during the assessment proceedings. The CIT(A) upheld this decision, citing sustained non-compliance and the lack of reliable entries in the books of account. Despite the assessee providing audited books and supporting documents during the remand proceedings, the CIT(A) found several entries unsupported by bills and vouchers. However, the Tribunal observed that no major defects were noted in the remand report, and the books of account were audited with no adverse observations by the auditors. Therefore, the Tribunal concluded that the AO was incorrect in rejecting the books and estimating the profit at 8%, and the addition of ?10,79,683/- was deleted.

2. Addition under Section 68 of the IT Act for Unexplained Cash Credits:
The CIT(A) sustained the addition of ?5,68,000/- under Section 68 for unexplained cash credits from five parties. The remand report by the AO provided specific findings for each cash credit, confirming the identity, genuineness, and creditworthiness of the transactions. The Tribunal found that all transactions were duly explained with supporting documents such as bank accounts, confirmation letters, and responses to Section 133(6) notices. Consequently, the Tribunal deleted the addition of ?5,68,000/-.

3. Disallowance under Section 41(1) of the IT Act:
The CIT(A) sustained the addition of ?87,500/- under Section 41(1) for sundry creditors Sureshchandra Hiralal Mali (?48,200/-) and Ranchodlal S. Parmar (?39,300/-). The AO's remand report confirmed the outstanding liabilities for these creditors. The Tribunal referred to the jurisdictional High Court's judgment in CIT vs. Bhogilal Ramjibhai Atara, which held that Section 41(1) applies only if there is remission or cessation of liability during the relevant previous year. Since there was no remission or cessation of liability in this case, the Tribunal deleted the addition of ?87,500/-.

4. Disallowance of Depreciation:
The AO disallowed depreciation of ?90,730/- due to the assessee's failure to produce purchase bills for additions to plant and machinery (?5,40,330/-) and factory building (?53,579/-). The CIT(A) upheld the disallowance but allowed partial relief based on invoices produced during remand proceedings. The Tribunal directed the AO to allow depreciation on verified amounts: ?729/- for factory building and ?2,90,183/- for plant and machinery, as per applicable rates and purchase dates. The remaining disallowance was upheld.

Conclusion:
The appeal was partly allowed for statistical purposes, with specific directions for recalculating depreciation and deleting certain additions. The Tribunal's decision emphasized the importance of proper documentation and compliance during assessment proceedings.