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2014 (11) TMI 723 - AT - Income TaxAddition of unaccounted consignment sales Income included in P&L account or not Held that - The assessee has been consistently following a particular method of accounting - Its accounts are audited u/s 44AB of the I.T. Act - Auditors have been consistently certifying that the assessee has been regularly following the method of accounting and that the annual profits can be properly deduced from such method of accounting employed by the assesse - assessee was regularly employing the system of accounting as per the Accounting Standard - The AO was not justified and rejecting the books of account by holding that the correctness and completeness of the account was not satisfied - The addition for consignment sales not included in the turnover of the assessee is against the guidelines issued by the Institute of the Chartered Accountants of India - The goods received on consignment basis belongs to consigner and assessee was entitled for commission Decided against revenue.
Issues Involved:
1. Deletion of addition on account of unaccounted consignment sales. 2. Deletion of addition on account of unaccounted commission received by the assessee. Detailed Analysis of Judgment: Issue 1: Deletion of Addition on Account of Unaccounted Consignment Sales The primary issue revolves around the deletion of an addition of Rs. 1,23,31,637/- made by the Assessing Officer (AO) on account of unaccounted consignment sales. The AO rejected the assessee's books of accounts under Section 145(3) of the Income Tax Act, which allows the AO to make an assessment in the manner provided in Section 144 if not satisfied about the correctness or completeness of the accounts. The AO's rejection was based on the belief that the assessee had not included consignment sales in its turnover. The CIT(A) deleted the addition, stating that the AO did not provide any finding on the correctness or completeness of the books of accounts. The CIT(A) noted that the rejection of books was invalid as the AO did not dispute the method of accounting followed by the assessee or the compliance with accounting standards. The CIT(A) emphasized that consignment sales should not be included in the turnover of the assessee, aligning with guidelines issued by the Institute of Chartered Accountants of India. The CIT(A) also pointed out that the AO failed to consider corresponding figures of consignment purchases and did not provide the assessee an opportunity to explain why consignment sales should not be included in the turnover. The CIT(A) highlighted that the sales figures of the assessee were accepted by the Sales-tax authorities, and the AO's estimation of sales was based on mere presumption without any rejection of accounts. The CIT(A) referred to various judicial precedents, including the Supreme Court's decisions in Dhakeswari Cotton Mills Ltd. vs. CIT and CIT vs. K.Y. Pilliah & Sons, which established that any addition must be based on proper material and not mere suspicion. The Tribunal upheld the CIT(A)'s decision, agreeing that the AO was not justified in rejecting the books of accounts and making the addition. The Tribunal noted that the assessee had been consistently following a particular method of accounting, and its accounts were audited under Section 44AB of the Income Tax Act. The Tribunal found no merits in the revenue's appeal and dismissed this ground. Issue 2: Deletion of Addition on Account of Unaccounted Commission Received by the Assessee The second issue pertains to the deletion of an addition of Rs. 20,39,828/- made by the AO on account of unaccounted commission received by the assessee. Since the earlier issue regarding the deletion of the addition on unaccounted consignment sales was confirmed, this ground for unaccounted commission on the consignment sales became infructuous. The Tribunal, therefore, dismissed this ground as well. Conclusion In conclusion, the Tribunal dismissed the appeal of the Revenue, upholding the CIT(A)'s decision to delete the additions made by the AO on account of unaccounted consignment sales and unaccounted commission received by the assessee. The Tribunal found that the AO's rejection of the books of accounts was not justified, and the additions were based on mere presumption without proper material evidence. The order was pronounced in the open court on 06/08/2014.
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