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2013 (9) TMI 230 - AT - Income TaxMethod of accounting - business of cold storage - Gross rent receipt or returned gross receipt - mercantile system of accounting - Held that - Significantly, the provision of section 145(1) presupposes that there can be more than one method of accounting the income from which may be properly deducible. These provisions would make no sense if always there is one method of accounting the income from which alone may be properly deducible. In the case of on-going business, the profit or loss made by the businessman from that business, as aptly described in the case of Sunil Siddharthbhai v. CIT 1985 (9) TMI 7 - SUPREME Court remains in the Womb of future . The measurement of periodic income is, to that extent, a matter of estimation on the basis of certain acceptable principle of accounting. For this reason, on the same facts and circumstances, the computation of business income may differ depending upon the method of accounting employed - assessee after having made entries in the books of account consistent with the method of accounting followed by him cannot be permitted to seek assessment of his income for income-tax purposes on a different basis on the ground that another basis may also be permissible under the method of accounting followed by the assessee or has been upheld in certain judgments of a High Court or Supreme Court. To this extent, the entries made in his books of account are as much binding as the method of accounting itself. It is only when the entries made in the books of account are erroneous or contrary to the correct legal position, the same are not conclusive or decisive of the matter, as held by the Hon ble Supreme Court in the case of Kedarnath Jute Mfg. Co. Ltd. v. CIT 1971 (8) TMI 10 - SUPREME Court and several other judgments. This position is also in built in the provisions of section 145(1) itself that where the method of accounting is followed is such that income cannot be properly deduced there from, the Assessing Officer may compute income upon such basis and in such manner as the Assessing Officer may determine. It cannot be said that the A.O. was not satisfied about the correctness of completeness of the accounts of the assessee. Because the assessee has disclosed gross receipt Rs.93,32,817/- whereas according to the A.O. gross receipt was Rs.87,61,916/-. The finding of the A.O. is contrary to the provision of Section 145 of the Act. Even otherwise also if the A.O. found that the method of accounting followed by the assessee accounting the hire chargers at the time of delivery of potatoes to farmers, he is empowered to correct the method of accounting in accordance with Section 145 of the Act. Cash or mercantile and accordingly consequential effects are required to be given in the year under consideration as well as in subsequent years. A.O. has completely failed in this regard. Therefore, making addition merely on the basis of the proposed method by the A.O. and followed by the assessee is not sustainable. - without considering the aspect whether assessee has followed correct method of accounting in accordance with Section 145 of the Act or not but certainly the addition proposed by the A.O. is not sustainable in law and fact. - Decided against the revenue. Increase in expenses - A.O. During the assessment proceedings the A.O. noticed that during the year there is tremendous increase made in expenses in comparison to gross receipt mainly on loading and unloading, diesel and fuel, labour and paltai, machine repair and maintenance, electric repair and maintenance and generator repair. - Held that - CIT(A) after detailed examination of each of the expenses some of the expenses has been disallowed to the extent of 10% and some of them are taken up to 10% as per the above table. The revenue has failed to point out any contrary material to the finding of the CIT(A) - decided against the revenue. Estimation of expenses on sale of potato - The CIT(A) noticed that A.O. has only brought out one evidence which supports his case that the assessee was selling potatoes by observing that draft received by the assessee on sale of potatoes are in the name of the assessee s company and same was deposited in its Bank account. - CIT(A) deleted the additions - Held that - .O. has failed to put on record complete facts after necessary examination of relevant parties and their books of account that in fact assessee has sold the potatoes. In absence of such enquiry the practice of assessee selling the farmers potatoes to secure their cold storage hire charges is a decision of businessman in accordance with commercial expediency for the purpose of business. - Decided against Revenue. Cash Credit - Additions u/s 68 - genuineness of purchase and sale of shares - held that - The transactions carried out by the assessee have been explained through material on record and the assessee entered into the transactions of purchase and sale of shares genuinely. Sale consideration is received through broker who is also existing assessee with the Revenue Department. Therefore, there is no reason to treat the aforesaid transaction as non-genuine for the purpose of making addition. Since the source of the receipt of the amount in question is explained and the transaction entered into by the assessee with the broker clearly suggests a case of short-term capital gains, therefore, the ld. CIT(A) rightly directed the AO to compute the income as per return of income and for capital gains. - Decided in favor of assessee.
Issues Involved:
1. Deletion of addition of Rs.5,70,090/- by the CIT(A). 2. Restriction of disallowances to Rs.1,70,764/- by the CIT(A). 3. Deletion of addition of Rs.12,74,589/- on account of undisclosed profit from trading of potatoes. 4. Deletion of unexplained cash credits of Rs.16,10,690/-. 5. Disallowance of short-term capital loss of Rs.25,93,455/-. 6. Addition of Rs.5,33,120/- as assessee's own money from sale proceeds of shares. 7. Addition of Rs.10,662/- @ 2% on Rs.5,33,120/- as unexplained expenditure. Detailed Analysis: 1. Deletion of Addition of Rs.5,70,090/-: The issue revolves around whether the assessee should follow the mercantile system of accounting or the cash system for declaring gross receipts. The CIT(A) deleted the addition, noting that the assessee consistently followed the cash system for declaring gross receipts/hire charges. This method was upheld by the ITAT in earlier years, and the CIT(A) concluded that the system of accounting followed by the assessee was correct. The Tribunal confirmed this view, emphasizing that the method of accounting regularly employed by the assessee should be accepted unless it does not disclose the true income. 2. Restriction of Disallowances to Rs.1,70,764/-: The AO disallowed Rs.9,50,000/- out of various expenses due to a significant increase in expenses compared to gross receipts. The CIT(A) restricted the disallowance to Rs.1,70,764/- after examining the books of accounts and noting that some expenses were supported by self-made vouchers. The Tribunal upheld the CIT(A)'s decision, noting that the CIT(A) had conducted a detailed examination and the revenue failed to provide contrary evidence. 3. Deletion of Addition of Rs.12,74,589/-: The AO added Rs.12,74,589/- as undisclosed profit from trading potatoes, but the CIT(A) deleted this addition, stating that the AO failed to provide evidence that the assessee was engaged in trading potatoes. The CIT(A) referenced a similar case (Ravi Ice & Cold Storage) where it was accepted that the cold storage business practice involved selling potatoes on behalf of farmers to ensure payment of rent. The Tribunal agreed, noting the absence of evidence from the AO and the consistent practice of the assessee. 4. Deletion of Unexplained Cash Credits of Rs.16,10,690/-: The AO added Rs.16,10,690/- as unexplained cash credits, but the CIT(A) deleted this addition, noting that these advances from farmers were adjusted against rent in subsequent years. The Tribunal upheld this decision, emphasizing that the AO failed to provide necessary evidence to support the addition. 5. Disallowance of Short-Term Capital Loss of Rs.25,93,455/-: The AO disallowed the short-term capital loss claimed by the assessee on the sale of shares, citing a lack of evidence and non-response to notices. The CIT(A) upheld this disallowance, but the Tribunal reversed it, referencing similar cases where the transactions were accepted as genuine. The Tribunal noted that the assessee provided substantial evidence, including contract notes and bills, and that similar cases had been decided in favor of the assessee. 6. Addition of Rs.5,33,120/- as Assessee's Own Money from Sale Proceeds of Shares: The AO treated Rs.5,33,120/- as the assessee's own money from the sale proceeds of shares, but the CIT(A) did not make a separate addition, presuming it was covered under inflated expenses. The Tribunal found this approach incorrect, noting that the assessee provided evidence of genuine transactions. 7. Addition of Rs.10,662/- @ 2% on Rs.5,33,120/- as Unexplained Expenditure: The AO added Rs.10,662/- as unexplained expenditure, but the CIT(A) directed a separate addition, reducing the disallowance of expenses. The Tribunal found the CIT(A)'s approach unsustainable and deleted the addition, noting the lack of evidence for unexplained expenditure. Conclusion: The Tribunal confirmed the CIT(A)'s deletion of additions related to the method of accounting, disallowance of expenses, and unexplained cash credits. It reversed the CIT(A)'s disallowance of short-term capital loss and addition of sale proceeds and unexplained expenditure, emphasizing the need for substantial evidence and consistent business practices. The appeal of the Revenue was dismissed, and the Cross Objection of the assessee was allowed.
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