2012 (8) TMI 361 - AT - Income Tax

Rejection of the claim for acceptance of book result - addition on account of unexplained transactions - AO estimated GP @ 19.06% of the total turnover - Held that - AO did not proceed to make addition by enhancing GP but proceeded to disallow the expenses and made addition in respect of unexplained transactions. Assessing Officer estimated the GP and took a view that an addition of Rs.16,25,424/- was required to be made. However, he did not make such addition in view of other disallowances made in the same order. Since, books of account, bills and vouchers etc., could not be produced because it is claimed that these are destroyed in flood, no disallowance can be made on the basis of non-existent books - Since the AO had determined GP rate at 19.06% of the total turnover and he took a view that an addition of Rs.16,25,424 - was required to be made. As per Section 144 AO should have determined total income at Rs.6,10,460/- Rs.16,25,424/-. Thus, total income assessed u/s. 144 should be at Rs.22,35,884 - Since the AO has rejected the book results and estimated the GP, therefore, it would subserve the interest of justice if the addition is restricted to the extent of profit estimated by the AO - direct AO to restrict the addition to the extent of Rs.16,25,424 and delete all other disallowances - we hereby direct the AO to verify whether excess receipt has been offered to tax in next year, if so, the relief in accordance with law may be granted in favour of assessee - partly in favour of assessee.

Issues Involved:
1. Rejection of claim for acceptance of book result under section 145.
2. Addition of Rs.16,42,541 on account of bogus purchases.
3. Estimation of closing stock of Rs.1,44,200.
4. Addition of unexplained purchases of Rs.5,76,788.
5. Addition of undisclosed contract receipt of Rs.4,02,019.
6. Disallowance of testing fees of Rs.1,43,535.
7. Addition of accrued interest of Rs.4,500.
8. Consideration of additional evidence put up in remand report.

Analysis:
1. The appellant challenged the rejection of the claim for acceptance of book result under section 145. The Assessing Officer (AO) rejected the books of account and estimated Gross Profit (GP) at 19.06% of total turnover, proposing an addition of Rs.16,25,424. However, no addition was made due to other disallowances. The Tribunal directed the AO to restrict the addition to Rs.16,25,424 and delete other disallowances, as the books were claimed to be destroyed in a flood, preventing the production of evidence.

2. The issue of the addition of Rs.16,42,541 on account of bogus purchases was raised. The appellant argued that the purchases were verified by auditors and detailed month-wise journal entries existed. The Tribunal noted that without the availability of books and bills due to the flood, no disallowance could be justified. The high purchase to contract receipts ratio was considered in the GP addition, and the Tribunal directed to delete this addition.

3. Concerning the estimation of closing stock and unexplained purchases, the Tribunal found that these were interconnected with the GP addition. The absence of purchases in some months could be due to delayed accounting, which could not be verified due to the lack of records. The Tribunal directed to delete these additions as they were covered by the GP estimation.

4. The Tribunal addressed the disallowance of testing fees, where the appellant claimed it was a reimbursement to the main contractor and no tax deduction was required. The Tribunal found the CIT(A) misinterpreted the facts and directed the AO to delete this addition, as it was a reimbursement and not subject to tax deduction.

5. The issue of the undisclosed contract receipt of Rs.4,02,019 was discussed. The appellant explained the difference in receipts due to a genuine mistake, requesting consideration in the next assessment year. The Tribunal directed the AO to verify and grant relief if the excess receipt was offered for taxation in the subsequent year.

6. The Tribunal rejected the violation of the principle of natural justice, noting that the appellant was given sufficient opportunities during the proceedings. The appeal was partly allowed, with directions given to the AO for specific adjustments and deletions based on the issues discussed.

This detailed analysis covers the key issues raised in the judgment, addressing the grounds of appeal and the Tribunal's decisions on each issue.

← Previous Next →