2012 (7) TMI 625 - AT - Income Tax

Addition on account of unexplained cash credit - CIT(A) deleted the addition - Held that - The assessee has discharged the onus cast upon him by proving the identity of the creditor, the capacity of the creditor and the genuineness of the transaction. Nothing has been brought on record by the Revenue to controvert the submissions made by assessee - no need to interfere with the order of CIT (A) - against revenue. Addition on account of loss of goods - CIT(A) deleted the addition - Held that - Goods were destroyed in floods for which the assessee lodged claim with the insurance company and the claim was settled for Rs.16,70,100 - The claim of loss has also been certified by the Assistant Commissioner, Food & Drug Department, thus the view of the CIT (A) that the loss of goods is nothing but deduction made by insurance company as per the policy conditions and therefore the same has to be considered as allowable deduction - against revenue Addition on account of low G.P - CIT(A) deleted the addition - Held that - The business of assessee is governed by the regulation of Food and Drug Control Act and all records of purchase and sales are subject to verification by those authorities. No discrepancies have been noticed by them. The reasons for fall in GP have not been controverted by the Revenue nor have they brought on record any contrary facts. Though there has been fall in GP but there is increase in the rate of net profits. The Revenue has not pointed out any defects in the books of accounts of the assessee and has accepted its book results - no need to interfere with the order of CIT (A) - against revenue.

Issues:
1. Unexplained cash credit addition
2. Loss of goods addition
3. Low gross profit addition

Unexplained Cash Credit Addition:
The Revenue appealed against the CIT (A)'s order deleting the addition of Rs.7,50,000 made by the Assessing Officer on account of unexplained cash credit. The Assessing Officer had added the amount under section 68 as unexplained credits based on doubts regarding the creditworthiness of the loan creditors. However, the CIT (A) held that the cash credits were explained in terms of their nature and source, leading to the deletion of the additions. The Revenue contended that the source of cash deposited in the creditors' bank accounts was unexplained and that the assessee failed to prove the genuineness of the cash credits. The assessee, on the other hand, provided explanations regarding the source of loans from the creditors, including details of repayment through cheques and interest payments. The Tribunal upheld the CIT (A)'s order, noting that the assessee had proven the identity, capacity, and genuineness of the transactions, and dismissed the Revenue's appeal.

Loss of Goods Addition:
The second ground of appeal related to the addition of Rs.1,28,075 on account of loss of goods. The Assessing Officer disallowed the claimed loss, considering it to be excess due to discrepancies between the claimed loss and the settlement amount by the insurance company. The CIT (A) allowed the deduction, stating that when the quantity, quality, and rate of the destroyed goods were not in question, the loss was admissible. The Revenue argued that the settlement amount by the insurance company indicated that the claimed loss was incorrect. However, the assessee provided certificates from the Food and Drug Administration Department verifying the goods destroyed by floods, which were also certified by the Insurance Company's appointed Surveyor. The Tribunal agreed with the CIT (A) that the loss was a deduction made by the insurance company as per policy conditions, upholding the deletion of the addition.

Low Gross Profit Addition:
The third ground of appeal concerned the addition on account of low gross profit. The Assessing Officer added Rs.3,30,433 as low gross profit based on a reduction in GP percentage from the preceding year. The CIT (A) deleted the addition, noting that the net profit of the assessee had increased, and there were no discrepancies in the books of accounts. The Revenue contended that the fall in GP indicated suppression of sales. However, the assessee explained the reasons for the fall in GP, including changes in credit policies and selling goods at lower rates post-floods. The Tribunal upheld the CIT (A)'s order, emphasizing that the business was regulated by the Food and Drug Control Act, with no sales suppression observed. As there was an increase in net profits and no defects in the books of accounts, the Tribunal dismissed the Revenue's appeal.

In conclusion, the Tribunal dismissed the Revenue's appeal against the CIT (A)'s order, upholding the deletion of additions related to unexplained cash credits, loss of goods, and low gross profit.

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