2012 (12) TMI 654 - AT - Income Tax

Unaccounted sales and purchases Held that - AO has estimated the additional purchases at Rs. 9,40,000/ - without bringing any material on record. At the same time, there is no satisfactory explanation on behalf of the assessee regarding the discrepancies pointed out by the AO in the books of account of the assessee. Thus considering the entire facts the addition of Rs. 85,000/ - will meet the ends of justice - addition sustained by the CIT(A) is on higher side - assessee gets a further relief of Rs. 3,85,000/ - on this count - appeals of assessee allowed partly. Addition on account of additional gross profit Held that - GP rate shown at Rs. 3,25,400/ - on the total sales of Rs. 50,05,936/ - is slightly on higher side when compared to GP rate of the preceding year . However, the fact remains that the assessee did not produce the books of account thus, the sales affected/shown are not subject to verification - thus considering the entire facts the addition reduced to Rs. 15,000/ - particularly when the sales affected/shown are not subject to verification - assessee gets a further relief of Rs. 15,000/ - on this account -appeals of assessee allowed partly. Addition u/s 68 - unsecured loan as non-genuine Held that - As in earlier year, the department has not doubted the credit worthiness of Shri Harbans Singh father of the assessee, who is regularly assessed to tax & considering the contention of the assessee that these funds were used by Shri Harbans Singh for purchasing demand drafts directly from the bank in favour of the supplier of the assessee to meet financial emergency of the assessee there is no merit in the contention of the DR that amount of Rs. 50,000/ - and Rs. 65,000/ - withdrawn by Shri Harbans Singh do not figure in the bank account of the assessee. In view of the above, the addition of Rs. 1,15,000/ - made by the Assessing Officer and confirmed the CIT(A) deserves to be deleted - in favour of assessee. Disallowance of expenses in part incurred for business Held that - The expenses in question relate to petrol , salaries, telephone etc. which are necessary for smooth running of a business. However, as per law, the assessee was required to produce supporting evidence to claim these expenses which are absent thus disallowance of certain amount is required to be made - ad hoc disallowance of Rs. 75,000/ - made by the AO is definitely on higher side, thus to meet the ends of justice the disallowance reduced to Rs. 50,000/ - - partly in favour of assessee.

Issues Involved:
1. Sustaining the addition of Rs. 4,70,000 out of Rs. 9,40,000 on account of alleged bogus purchase.
2. Sustaining the addition of Rs. 30,000 out of Rs. 60,000 on account of gross profit.
3. Sustaining the addition of Rs. 1,15,000 by treating the unsecured loan as non-genuine.
4. Upholding the disallowance of Rs. 75,000 out of business expenses.

Detailed Analysis:

1. Sustaining the Addition of Rs. 4,70,000 out of Rs. 9,40,000 on Account of Alleged Bogus Purchase:
The assessee, a wholesale trader in medicines, filed a return of income at Rs. 88,583. The case was selected for scrutiny, and despite multiple notices, the assessee did not attend the hearings or produce the books of account. Consequently, the Assessing Officer completed the assessment under sections 143(3) and 144 of the Income Tax Act, 1961, estimating additional purchases at Rs. 9,40,000.

The CIT(A), upon appeal, called for a remand report from the Assessing Officer, who reiterated that the assessee failed to produce books of account but provided certified copies from the Sales Tax Department. The CIT(A) confirmed an addition of Rs. 4,70,000, citing the non-production of books of account and the possibility of unaccounted sales and purchases.

The Tribunal noted that while the assessee did not produce the books of account, the Assessing Officer's estimation lacked material evidence. Considering the entire facts, the Tribunal reduced the addition to Rs. 85,000, granting the assessee a further relief of Rs. 3,85,000.

2. Sustaining the Addition of Rs. 30,000 out of Rs. 60,000 on Account of Gross Profit:
The Assessing Officer added Rs. 60,000 to the gross profit, stating that the GP rate shown was slightly higher than the preceding year and the books of account were not produced for verification. The CIT(A) sustained Rs. 30,000 of this addition.

The Tribunal observed that although the GP rate was slightly higher, the non-production of books of account meant the sales figures were unverifiable. However, the Tribunal found the addition sustained by the CIT(A) excessive and reduced it to Rs. 15,000, providing the assessee with a further relief of Rs. 15,000.

3. Sustaining the Addition of Rs. 1,15,000 by Treating the Unsecured Loan as Non-genuine:
The Assessing Officer added Rs. 2,33,000 as unsecured loans from Shri Harbans Singh and Smt. Surjit Kaur, citing the assessee's failure to furnish confirmations. The CIT(A), after reviewing the remand report, allowed a relief of Rs. 1,18,000 and confirmed Rs. 1,15,000 as non-genuine.

The Tribunal emphasized that under section 68 of the Act, the burden lies on the assessee to prove the nature and source of the credit. The Tribunal found no dispute regarding the identity and creditworthiness of Shri Harbans Singh, the father of the assessee, who confirmed the loan and provided bank statements. Consequently, the Tribunal deleted the addition of Rs. 1,15,000.

4. Upholding the Disallowance of Rs. 75,000 out of Business Expenses:
The Assessing Officer disallowed Rs. 75,000 out of various business expenses for want of bills and vouchers. The CIT(A) confirmed this disallowance.

The Tribunal acknowledged that while the expenses were necessary for business operations, the assessee failed to produce supporting evidence. However, it found the ad hoc disallowance of Rs. 75,000 excessive and reduced it to Rs. 50,000, granting the assessee a relief of Rs. 25,000.

Conclusion:
The appeal was partly allowed, with significant reductions in the additions and disallowances made by the Assessing Officer and sustained by the CIT(A). The Tribunal provided detailed reasoning for each issue, ensuring a balanced and just outcome.

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