2012 (9) TMI 832 - AT - Income Tax

Trading addition - rejection of books of account - authenticity of labour charges - partial payment in cheque, partial by cash - non-confirmation by laborers - CIT(A) while making trading addition observed that no addition can be made u/s 69C and only possibility is to reject the books of accounts and estimate the income - Held that - It is not in dispute that the A.O. neither rejected the books of accounts u/s 145 nor applied the percentage of profit on the gross receipt. CIT(A) without giving any opportunity of being heard to the assessee has rejected the books of account. In the absence of any finding recorded by the CIT(A) that he is not satisfied about the correctness or completeness of the accounts of the assessee or that the method of accounting has not been regularly followed by the assessee, CIT(A) was not justified in rejecting the books of accounts and in estimating the profit. This being so, and keeping in view that the outstanding payment made by the assessee during April, 2006 to October, 2006 was not disbelieved by the A.O., addition sustained by CIT(A) is not sustainable in law and accordingly the same is deleted. Addition u/s 68 - unsecured loans - non-confirmation - Held that - It is observed that assessee at this stage has filed the same along with the PAN with a request to admit the same as an additional evidence. Matter remitted back to decide the same afresh - Decided partly in favor of assessee

Summary

Issues:
1. Trading addition of Rs. 19,02,980
2. Addition of Rs. 1,61,000 made under section 68 of the Income Tax Act

Issue 1: Trading Addition of Rs. 19,02,980

The appellant, engaged in the business of supplying OFC accessories & tools and labor for sub-contracts, filed a return declaring income at Rs. 10,12,644 for the assessment year 2006-07. The assessment completed by the Assessing Officer included disallowance of unsecured loan and labor charges, resulting in an income of Rs. 73,72,979. On appeal, the CIT(A) partly allowed the appeal. The primary contention was against the trading addition of Rs. 19,02,980. The AO added Rs. 60,48,000 under section 68 of the Act due to outstanding labor charges, partly paid by cash exceeding Rs. 20,000 in a single day. The CIT(A) rejected the books of accounts and estimated income at 8% of the turnover, resulting in the upheld addition of Rs. 19,02,980. The appellant argued against the rejection of books and application of the profit rate, seeking deletion of the addition. The Tribunal found the rejection of books unjustified by the CIT(A) without proper grounds, leading to the deletion of the sustained addition, as the outstanding payment made by the appellant was not disbelieved by the AO. Therefore, the addition of Rs. 19,02,980 was deemed unsustainable and deleted.

Issue 2: Addition of Rs. 1,61,000 under Section 68 of the Act

The AO added Rs. 2,04,000 under section 68 of the Act for the unproved loan confirmations of Shri Mahesh Kumar and Archana Enterprises. On appeal, the CIT(A) deleted the addition related to Archana Enterprises but confirmed Rs. 1,61,000 due to the absence of a confirmation letter from Mahesh Kumar. During the hearing, the appellant presented a confirmation letter from Mahesh Kumar along with his PAN as additional evidence, requesting the issue to be reconsidered by the AO. The Tribunal admitted the additional evidence and remanded the matter to the AO for fresh consideration, emphasizing the need for a fair opportunity for the appellant to be heard. Consequently, the appeal was partly allowed for statistical purposes.

In conclusion, the Tribunal ruled in favor of the appellant by deleting the unsustainable trading addition of Rs. 19,02,980 and remanding the issue of the addition of Rs. 1,61,000 under section 68 of the Act back to the Assessing Officer for further examination based on the additional evidence provided by the appellant.