2014 (5) TMI 40 - AT - Income Tax

Deletion on account of gross profit Held that - The AO has allowed a number of opportunities to the assessee to plead its case and lead evidences, which the assessee has not fully availed - the books of accounts of the assessee were rightly rejected by the Revenue - the expenses were clearly of allowable nature, and no reason has been advanced by the AO to disallow the same - the rate applied at 25% on the gross receipts of the assessee is unjustified and that ends of justice shall be met if flat rate of net profit at 8% is applied on the gross receipts received by the assessee, without any further deduction of any expenses or depreciation the AO is directed to adopt the figure as income from the transport business of the assessee Decided partly in favour of Revenue. Addition made u/s 68 of the Act Unaccounted cash credits Held that - The amounts if have been accounted for as income in the succeeding assessment year 2008-2009, the same could not be doubly taxed in the relevant assessment year 2007-2008 also thus, matter is remitted back to the AO and he is is directed to verify from record and the ledger account of the different parties, and in case, the assesee has accounted for the amounts in question as income in the succeeding assessment year 2008-2009, no addition under section 68 of the Act Decided in favour of Revenue. Disallowance of 1/3rd of cash expenses Held that - Application of a flat rate of net profit at the rate of 8% to the gross receipts of the transport business of the assessee - no separate addition to the extent of 1/3rd of the cash expenses could not be made thus, the disallowance is set aside Decided in favour of Assessee.

Summary

Issues Involved:
1. Addition of Rs. 33,47,155 on account of Gross Profit
2. Addition of Rs. 26,82,709 on account of cash credit u/s.68 of the Act
3. Admission of fresh evidences in violation of Rule 46A

Analysis:

Issue 1: Addition of Rs. 33,47,155 on account of Gross Profit
The Revenue appealed against the deletion of the addition of Rs. 33,47,155 made by the Assessing Officer (AO) on account of Gross Profit. The CIT(A) had deleted the trading addition, citing lack of a show cause notice to the assessee. The AO had applied a flat rate of 25% on the gross receipts without allowing any expenses or depreciation claimed by the assessee. The Income Tax Appellate Tribunal (ITAT) found that while the AO had provided opportunities to the assessee, the method of applying a 25% rate on gross receipts without considering legitimate expenses was not sustainable. The ITAT directed the AO to adopt a net profit rate of 8% on the gross receipts, resulting in an income of Rs. 10,71,000, instead of the earlier estimated Rs. 33,47,155. The ground no.1 of the Revenue was partly allowed.

Issue 2: Addition of Rs. 26,82,709 on account of cash credit u/s.68 of the Act
The Revenue challenged the deletion of the addition of Rs. 26,82,709 made on account of cash credit under section 68 of the Act. The ITAT noted that the amounts in question were shown as income in the succeeding assessment year 2008-2009. The ITAT directed the AO to verify if the assessee had accounted for the amounts in the succeeding year, and if so, no addition should be made for the relevant assessment year 2007-08 under section 68 of the Act.

Issue 3: Admission of fresh evidences in violation of Rule 46A
The Revenue contended that the CIT(A) erred in admitting fresh evidences without allowing the AO an opportunity to verify and comment on them. However, the ITAT found that since the issue related to the second ground of the Revenue's appeal was being sent back to the AO for verification, the ground regarding fresh evidences had no merit and was dismissed.

Conclusion:
The ITAT partly allowed the Revenue's appeal regarding Gross Profit addition, directed verification for the cash credit addition, and dismissed the issue of admitting fresh evidences. The ITAT also allowed the assessee's Cross-Objection related to the disallowance of cash expenses.