2012 (3) TMI 32 - AT - Income Tax

Survey - Difference on valuation of Inventory - Unrecorded Sales - Books of Account Rejected - CIT(A) scaling down the addition from Rs.937123/- to Rs.298812, Held That - CIT(A) has given the above findings after properly analyzing the facts of this case and has passed a well reasoned speaking order. Nothing substantial was argued by either party to deviate us from the view taken by the learned CIT(A). Allegation of bogus purchase - non production of documents - held that - it is an undisputed fact that the lift was installed and put to use with the approval of Chief Inspector of Lifts and Elevators through license dated 15.2.2006. For allowability of any expenditure in a particular year of assessment bill of purchase is an important piece of evidence which could not be produced by the assessee. - since the assessee s income has been arrived at by applying the net profit rate on sales, no separate addition was called for.

Issues Involved:
1. Scaling down the addition by CIT(A).
2. Deletion of the addition for unexplained purchase of the elevator.
3. Deletion of the addition for unexplained cash credit.
4. Rejection of books of accounts by AO.
5. Direction to adopt a higher total income by CIT(A).
6. Restriction of addition made by estimating profit on sale of shops.
7. Confirmation of disallowance for expenditure incurred on elevator installation.

Issue-wise Detailed Analysis:

1. Scaling Down the Addition by CIT(A):
The Revenue contended that the CIT(A) erred by reducing the addition from Rs.937,123/- to Rs.298,812/-. The CIT(A) observed that the assessee's method of accounting was inconsistent, leading to the rejection of books under section 145(3). The CIT(A) applied a net profit rate of 12% on total sales since the project began, resulting in an estimated regular profit of Rs.2,98,812/-. Adding the survey disclosure of Rs.25 lakh, the total income was computed at Rs.19,99,455/-. This approach was upheld by the Tribunal as it was based on a thorough analysis of the facts.

2. Deletion of the Addition for Unexplained Purchase of the Elevator:
The AO disallowed Rs.6,10,000/- for the purchase of an elevator due to a lack of substantiating evidence. The assessee provided various documents, including a proposal from Nikon Elevators and certificates from the Chief Inspector of Lifts. However, the Tribunal found that the evidence did not justify the expenditure in the relevant assessment year (2003-04). Therefore, the disallowance was upheld, but no separate addition was made since the income was determined by applying a net profit rate on sales.

3. Deletion of the Addition for Unexplained Cash Credit:
The AO added Rs.5,25,000/- as unexplained cash credits, questioning the identity and creditworthiness of the depositors. The assessee clarified that the deposits were from the wives of the partners, sourced from gifts by an NRI relative. The CIT(A) concluded that the assessee had discharged the onus under section 68 by providing confirmations and source explanations. The Tribunal upheld the CIT(A)'s decision, noting that any further doubts should be addressed in the depositors' cases, not the assessee's.

4. Rejection of Books of Accounts by AO:
The AO rejected the books of accounts under section 145(3) due to discrepancies found during a survey, including excess stock and unaccounted sales. The CIT(A) agreed with the rejection but recalculated the income based on a consistent method, applying a 12% net profit rate on total sales and adding the survey disclosure. The Tribunal upheld this approach, finding no merit in the arguments against it.

5. Direction to Adopt a Higher Total Income by CIT(A):
The CIT(A) directed the AO to adopt a total income of Rs.19,99,455/- instead of Rs.7,35,046/-. This was based on recalculating the net profit by applying a 12% rate on total sales and adding the survey disclosure. The Tribunal found this method reasonable and upheld the CIT(A)'s direction.

6. Restriction of Addition Made by Estimating Profit on Sale of Shops:
The AO estimated a profit of Rs.7,06,021/- on the sale of six flats and two shops. The CIT(A) found that the shops were not sold and the flats were sold at a lower price due to commercial expediency. The CIT(A) restricted the addition to Rs.3,04,899/- based on the difference in market prices but noted that no separate addition was needed as the sales were already included in the total sales figure. The Tribunal upheld this decision.

7. Confirmation of Disallowance for Expenditure Incurred on Elevator Installation:
The CIT(A) confirmed the disallowance of Rs.6,10,000/- for elevator installation but stated that no separate addition was needed since the income was determined by applying a net profit rate on sales. The Tribunal agreed, finding that the assessee failed to justify the expenditure in the relevant year.

Conclusion:
The Tribunal upheld the CIT(A)'s decisions on all issues, finding them to be based on a thorough analysis of the facts and consistent application of legal principles. Both the Revenue's and the assessee's appeals were dismissed.

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