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2013 (12) TMI 712 - AT - Income TaxDisallowance u/s 40A(3) Held that - The cash payment as per the seized documents were made by the Assessee outside the books of accounts - The onus is on the Assessee to prove the source of these expenses - The provisions of Sec. 40A(3) will not be applicable The sources of these expenses were not explained by the assessee - The AO verified and came to the conclusion that the actual cash payment made by the Assessee is lower than the amount disallowed by the CIT(A) - Partly allowed in favour of assessee. Withdrawal from bank account Held that - The Assessee has assisted the transporters to open these bank accounts as the transporters are located at faraway places so that the payment can be made to these transporters through cheque and the transporters or his truck driver may withdraw the amount as and when it is needed - The AO has nowhere held that the transport charges paid by the Assessee are bogus - The AO presumed that these bank accounts belonged to the Assessee - The amount withdrawn by a person from his bank account cannot be regarded to be his income - Under Sec. 4 of the Income Tax Act the income tax is chargeable only on the real income - The amount withdrawn from the bank account represents only the current asset of the Assessee Decided in favour of assessee. Undisclosed cash payment Held that - The Assessee has disclosed only a sum of Rs.6,31,00,000/- during the year as undisclosed income of the Assessee - The Assessee had made cash payment during the year amounting to Rs. 8,50,39,441 - Until and unless the income is earned by the Assessee, the Assessee cannot make the payment - Income is earned by the Assessee prior to making of the cash payment - The Assessee has not utilized the income for making the cash payments - The income declared by the Assessee in the subsequent year cannot cover the cash payments made by the Assessee during the year - Therefore, out of the cash payments of Rs. 8,50,39,441/-, we allow telescoping only to the extent of Rs. 6,31,00,000/- - Partly allowed in favour of assessee. Unaccounted sales Held that - The Assessee was a conduit for carrying on the business of Shri Anil H. Lad in respect of iron ore illegally extracted - Once the revenue has found the statement of the Assessee to be correct that the Assessee was engaged in unaccounted sales to accommodate the illegal mining carried out by one (Shri Anil H. Lad), there cannot be any falsity in the statement of the Assessee that the Assessee was earning Commission on this unaccounted sales from 2-4% - The estimation of the profit cannot be at the whims of the A.O that he may apply any rate of profit. The estimation of the profit must be based on the material evidence found during the course of search or as may be gathered by the A.O to support that the estimate made by the A.O is not arbitrary and is bonafide - Part of the statement cannot be accepted as true and the other part of the statement as false - No cogent material or evidence was brought to our knowledge that the assessee has earned the profit @ more than 4% - Partly allowed in favour of assessee. Suppressed profit Held that - From the print out of the Balance sheet found and seized, it is apparent that this Balance sheet is subject to Audit and was not signed by any of the responsible persons - The Balance Sheet does not have any conclusive evidence on the basis of which the income can be determined - The Assessee is maintaining the regular books of accounts. The accounts are duly audited by the Auditor and the Auditor has duly certified the Profit & Loss A/c and Balance sheet which were furnished along with the returns. The Audited Profit & Loss and Balance Sheet depicts the correct and fair Profit & Loss Account. The unaudited rough print out of the Balance sheet cannot substitute the audited Profit & Loss and Balance sheet The issue was set aside for fresh adjudication. Unaccounted investment Held that - The CIT(A) has rightly confirmed the addition because the investment in the plot of land made on 16.12.2006 was not accounted for during the impugned assessment year Decided against assessee. Bogus purchases Held that - The assessee was engaged in the trading of the iron ore - During the course of carrying out the trading in iron ore the assessee has accommodated Shri Anil H. Lad and M/s VSL and Sons for selling iron ore procured by them through illegal mining carried out in their mining - The purchases made by the assessee from these firms which were without bills were shown by the assessee in his books of accounts as if the assessee has made purchases from various parties - The sales made by the assessee were duly accepted by the revenue - At the most, where the Assessee had saved any tax in procuring the bogus bills, the Assessee could have made more profit but the purchases made by the Assessee cannot be disallowed - The gross profits as per the books of assessee were 16.35% and 6.06% for the assessment year 2007-08 and 2008-09 respectively - Once the purchases are disallowed the gross profit will increase to 50.9% and 90.7% for the assessment year 2007-08 and 2008-09 respectively - No material or evidence whatsoever showing the comparative instance was produced before us to justify such a high gross profit - No addition on account of bogus iron ore purchases can be made as without procuring the iron ore by incurring the cost in our opinion the assessee cannot sell the iron ore - The revenue could have added the profit on such purchases @ 4% as the assessee categorically stated that he was carrying out the sales on behalf of Shri Anil H. Lad on commission basis and the evidences found during the course of search and survey also prove that the assessee is being used as conduit to siphon off iron ore which was illegally mined by M/s VSL & Sons firm of Shri Anil Lad - The assessing officer had disallowed the expenses incurred by the assessee for the purchases u/s 37(1)of the Income Tax Act - The purchase cost in the case of a trader in our opinion is allowed as deduction u/s 28 itself as u/s 28 is only the profit and gains of any business or profession which are chargeable to Inc. The consideration received by the assessee on the sales cannot be regarded to be the profit and gains of the profession. Section 28(1) does not make total revenue receipt to be chargeable to Income Tax Act Decided in favour of assessee. Undisclosed stock Held that - The assessee only declared the stock of Rs. 41,00,000/- during the impugned assessment year and as claimed by the assessee and accepted by the A.O Rs. 6,00,00,000/- in the assessment year 2006-07 - Undisclosed stock of Rs.10.75 crores was found and accepted by the assessee lying at Krishnapatnam, Nellore district The telescoping is not allowed under any accounting principles for sum of Rs. 6 crores against the income of Rs. 6,41,00,000 - The order of the CIT(A) sustaining the addition to Rs. 4,75,00,000/- is confirmed Decided against assessee.
Issues Involved:
1. Disallowance under Section 40A(3) of the Income Tax Act. 2. Addition of amounts withdrawn from bank accounts as undisclosed income. 3. Enhancement of income by the Commissioner of Income-tax (Appeals) (CIT(A)). 4. Addition on account of unaccounted cash sales and profit estimation. 5. Addition of unexplained investments in plots. 6. Addition on protective and substantive basis for bogus purchases. 7. Addition on account of suppressed undisclosed income. 8. Telescoping of additions. 9. Interest liability. Detailed Analysis: 1. Disallowance under Section 40A(3): - A.Y. 2004-05: The Assessing Officer (AO) disallowed 20% of Rs. 62,15,790/- as cash payments exceeding Rs. 20,000/- were made outside the books. CIT(A) enhanced the disallowance to Rs. 98,82,976/-. Tribunal reduced the addition to Rs. 62,15,790/-. - A.Y. 2005-06: AO disallowed 20% of Rs. 8,48,843/- (Rs. 1,69,768/-). CIT(A) enhanced it to Rs. 81,05,775/-. Tribunal reduced the addition to Rs. 8,91,043/-. - A.Y. 2006-07: AO disallowed 20% of Rs. 55,87,000/- (Rs. 11,17,400/-). CIT(A) enhanced it to Rs. 2,68,97,758/- and after telescoping, sustained Rs. 1,21,48,858/-. Tribunal sustained Rs. 27,97,758/- after allowing telescoping for Rs. 2,41,00,000/-. - A.Y. 2007-08: AO disallowed Rs. 1,85,63,104/-. CIT(A) enhanced it to Rs. 9,28,15,521/-. Tribunal reduced the addition to Rs. 8,94,0874/-. - A.Y. 2008-09: AO disallowed Rs. 1,58,19,464/-. CIT(A) enhanced it to Rs. 7,90,97,320/-. Tribunal allowed telescoping for the stock declared, thus no addition sustained. 2. Addition of amounts withdrawn from bank accounts as undisclosed income: - A.Y. 2005-06: AO added Rs. 2,88,25,000/- as undisclosed income from 25 bank accounts. Tribunal deleted the addition. - A.Y. 2006-07: AO added Rs. 1,47,48,900/- as undisclosed income. Tribunal deleted the addition. - A.Y. 2007-08: AO added Rs. 4,96,39,000/- as undisclosed income. Tribunal deleted the addition. 3. Enhancement of income by CIT(A): - A.Y. 2007-08: CIT(A) enhanced unaccounted turnover to Rs. 29,25,88,981/- and estimated profit @ 10%, sustaining Rs. 2,92,00,000/-. Tribunal reduced the addition to Rs. 8,94,0874/-. - A.Y. 2008-09: CIT(A) enhanced unaccounted sales to Rs. 43,00,000/- and estimated profit @ 10%, sustaining Rs. 4,30,000/-. Tribunal reduced the addition to Rs. 1,56,365/-. 4. Addition on account of unaccounted cash sales and profit estimation: - A.Y. 2007-08: AO estimated profit @ 9.09% on unaccounted sales of Rs. 22,35,21,842/- and added Rs. 2,03,18,135/-. Tribunal reduced the addition to Rs. 8,94,0874/-. - A.Y. 2008-09: AO estimated profit @ 9.09% on unaccounted sales of Rs. 39,09,130/- and added Rs. 3,90,870/-. Tribunal reduced the addition to Rs. 1,56,365/-. 5. Addition of unexplained investments in plots: - A.Y. 2007-08: AO added Rs. 1,43,000/- for unaccounted investment in plots. Tribunal confirmed the addition. 6. Addition on protective and substantive basis for bogus purchases: - A.Y. 2007-08: AO made protective additions for purchases from Galaxy Impex, Vivera Minerals, and Nandi Enterprises. Tribunal deleted the additions. - A.Y. 2008-09: AO made protective additions for purchases from various parties. Tribunal deleted the additions. 7. Addition on account of suppressed undisclosed income: - A.Y. 2007-08: AO added Rs. 86,97,774/- for suppressed profit based on a seized balance sheet. Tribunal deleted the addition. 8. Telescoping of additions: - A.Y. 2006-07: Tribunal allowed telescoping of Rs. 2,41,00,000/- against the addition for unexplained expenditure. - A.Y. 2007-08: Tribunal allowed telescoping of Rs. 8,94,0874/- against cash payments made outside the books. - A.Y. 2008-09: Tribunal allowed telescoping of Rs. 6,41,00,000/- against cash payments made outside the books. 9. Interest liability: - General: The appellant denied liability to pay interest, arguing it was levied erroneously. Conclusion: The Tribunal provided relief to the appellant by reducing or deleting several additions made by the AO and CIT(A), particularly those related to disallowances under Section 40A(3), additions of amounts withdrawn from bank accounts, and bogus purchases. The Tribunal also allowed telescoping of certain additions, effectively reducing the appellant's tax liability. The appeals for A.Y. 2003-04 were dismissed, while those for A.Y. 2004-05 to 2008-09 were partly allowed.
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