2012 (5) TMI 762 - AT - Income Tax

Summary

Issues Involved:
1. Addition on account of non-verification of creditors.
2. Application of net profit rate and assessment u/s 144.
3. Addition of interest on fixed deposits and other receipts.
4. Treatment of firm as AOP and disallowance of interest and salary to partners.
5. Verification of agricultural income.

Summary:

Issue 1: Addition on account of non-verification of creditors
- For the assessment year 2001-02, the ITAT remanded the issue of non-verification of creditors amounting to Rs. 30,00,000 and Rs. 4,92,322 back to the AO for fresh verification. The AO found it challenging to verify due to the time lapse and incomplete addresses. The ITAT observed that since the trading results were accepted, no addition u/s 68 could be made. The addition of Rs. 4,92,322 and Rs. 30,00,000 was directed to be deleted.

Issue 2: Application of net profit rate and assessment u/s 144
- For the assessment year 2005-06, the AO applied a net profit rate of 10% on gross receipts due to non-compliance by the assessee. The ITAT found the rate excessive and reduced it to 7%, considering past trends and lack of comparable cases.
- For the assessment year 2007-08, the AO applied a net profit rate of 10.5% on gross receipts. The ITAT, following its decision for 2005-06, directed a net profit rate of 7%.

Issue 3: Addition of interest on fixed deposits and other receipts
- For 2005-06, the AO assessed interest on fixed deposits of Rs. 14,07,003 as income from other sources, which was upheld by the ITAT.
- For 2007-08, the AO assessed interest on fixed deposits of Rs. 4,53,458 and other receipts of Rs. 6,69,340 as income from other sources. The ITAT upheld the treatment of interest but directed the deletion of the addition of other receipts as they were fully reflected in the books.

Issue 4: Treatment of firm as AOP and disallowance of interest and salary to partners
- For 2005-06 and 2007-08, the AO treated the firm as an AOP and disallowed interest and salary to partners under section 184(5) due to the assessment being made u/s 144. The ITAT upheld this treatment.

Issue 5: Verification of agricultural income
- For 2005-06, the AO added Rs. 18,00,704 as unexplained agricultural income. The ITAT held that the AO cannot make such an addition in the hands of the firm, following precedents, and upheld the CIT(A)'s deletion of the addition.

Conclusion:
- The appeals of the assessee in ITA No. 493(Asr)/2010 are allowed.
- The appeals of the assessee in ITA No. 494(Asr)/2010 and 495(Asr)/2010 are partly allowed.
- The appeals of the Revenue in ITA No. 381(Asr)/2010 are dismissed.
- The appeals of the Revenue in ITA No. 382(Asr)/2010 are partly allowed.