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2015 (6) TMI 562 - AT - Income TaxAddition on account of gross profit - books of account rejected u/s 145 on the basis that the closing stock shown by the assessee in balance sheet and the closing stock figure submitted to bank is different and closing stock shown to bank is much higher - held by CIT(A) that the gross profit rate of 8.5% should be worked out on the basis of actual turnover reported by the assessee and credit should be allowed to the assessee of ₹ 1,38,99,075/- being GP declared by the assessee and he worked out net addition of ₹ 9,21,620/-, which was confirmed by him - Held that - Considering the judgment of CIT vs. N. Swamy 1998 (9) TMI 27 - MADRAS High Court we find no reason to interfere in the order of CIT(A) on this aspect that only book turnover should be adopted and the same cannot be estimated merely on the basis of stock statement submitted to bank. On second aspect also, we do not find any infirmity in the order of CIT(A) regarding reduction of gross profit reported by the assessee at ₹ 1,38,99,075/- from gross profit to be worked out after rejecting the books of account of the assessee. In the present year, the gross profit shown by the assessee is higher by 1.80% as compared to the preceding year. Even if books are rejected, adopting gross profit rate of 8.5% is excessive considering the facts particularly the gross profit of preceding year and hence, we feel that in the interest of justice, if gross profit rate of 8% is applied, it will serve the interest of justice. We direct the Assessing Officer accordingly. The Assessing Officer should adopt the gross profit rate of 8% on the declared turnover of ₹ 17,43,61,117/- and from the gross profit so worked out, he should reduce the gross profit already reported by the assessee and addition should be made only for the balance amount. - Decided partly in favour of assesee. Addition u/s 68 - CIT(A) deleted addition - Held that - A clear finding has been given by him that the assessee has discharged his onus by submitting confirmation letter, PAN, Bank statement and letter from police department. In this manner, we find that the assessee has established all the three ingredients of 68 of the Act i.e. identity and creditworthiness of the creditor and genuineness of the transaction. These findings of CIT(A) could not be controverted by Learned D.R. of the Revenue and therefore, on this issue, we do not find any reason to interfere in the order of CIT(A). - Decided in favour of assessee. Depreciation of machinery - deletion of disallowance of depreciation to the extent of ₹ 6,77,724/- by CIT(A) - Held that - We find that a clear finding has been given by CIT(A) that this depreciation is claimed in respect of generator, transformer and fixed assets and plant of the assessee could not have been run and achieved the turnover of ₹ 1,743.61 lacs without using this plant & machinery and therefore, depreciation is to be allowed. These findings of CIT(A) could not be controverted by Learned D.R. of the Revenue and therefore, on this aspect, we do not find any infirmity in the order of CIT(A). - Decided in favour of assessee. Regarding the remaining part of disallowance of depreciation of ₹ 10,28,500/-, we find that the same was confirmed by CIT(A) on the basis that the Learned A.R. of the assessee of the assessee has himself agreed that the purchased plant & machinery has been returned back to the concerned supplier and therefore, it is clear that the plant & machinery has not been used for business and therefore, depreciation is not allowable. - Decided against assessee. Unexplained investment in purchase of plant and machinery - Held that - We find that this addition was made by the Assessing Officer on the basis that as per accounts statement submitted by M/s New Era Dairy Engineers India Private Limited, an amount of ₹ 46,000/- was paid by the assessee to Shri Mahesh Chandra on various dates in May & June 2008 but the assessee has denied making any payment to Shri Mahesh Chandra. These findings of Assessing Officer could not be controverted by Learned A.R. of the assessee and therefore, on this aspect, we do not find any reason to interfere in the order of CIT(A). - Decided against assessee.
Issues Involved:
1. Jurisdiction of the Assessing Officer under section 143(3). 2. Rejection of books of account and addition of extra profit. 3. Unexplained investment in plant and machinery. 4. Disallowance of depreciation on plant and machinery. 5. Deletion of addition under section 68 of the Income Tax Act. Issue-wise Detailed Analysis: 1. Jurisdiction of the Assessing Officer under section 143(3): The assessee contended that the Assessing Officer (AO) lacked jurisdiction to make an assessment under section 143(3) due to the absence of a basis for selecting the case for scrutiny assessment. However, no specific argument was advanced by the assessee's representative, and no defect was pointed out in the assessment framed by the AO. Therefore, the tribunal found no merit in the assessee's grounds and rejected them. 2. Rejection of Books of Account and Addition of Extra Profit: The AO rejected the books of account under section 145 of the Act due to discrepancies between the closing stock shown in the balance sheet and the stock statement submitted to the bank. The AO applied a gross profit rate of 8.5% and made an addition of Rs. 2,08,67,745/-. The CIT(A) reduced this addition to Rs. 9,21,620/- by applying the gross profit rate to the actual turnover reported by the assessee and allowing credit for the gross profit already declared. The tribunal held that the estimation of turnover based on the stock statement submitted to the bank was not justified. However, the tribunal found the gross profit rate of 8.5% excessive and directed the AO to apply a gross profit rate of 8%, resulting in a partial allowance of the assessee's appeal. 3. Unexplained Investment in Plant and Machinery: The AO made an addition of Rs. 46,000/- based on an account statement from a third party, which the assessee denied. The CIT(A) and the tribunal upheld this addition as the assessee could not controvert the findings of the AO. 4. Disallowance of Depreciation on Plant and Machinery: The AO disallowed depreciation of Rs. 6,77,724/- on old generator, transformer, and other assets, which the CIT(A) deleted, stating that the plant and machinery were essential for the assessee's business operations. The tribunal upheld this deletion as the findings were not controverted by the Revenue. However, the CIT(A) confirmed the disallowance of Rs. 10,28,500/- on machinery that was returned to the supplier, as it was not used for business purposes. The tribunal agreed, noting that ownership and use are both required for depreciation, and upheld the CIT(A)'s decision. 5. Deletion of Addition under Section 68: The AO added Rs. 7,00,000/- under section 68, questioning the creditworthiness of the share applicant. The CIT(A) deleted this addition, noting that the assessee had provided sufficient evidence, including a confirmation letter, PAN, bank statements, and a letter from the Police Department. The tribunal upheld this deletion, agreeing that the assessee had discharged its onus of proving the identity, creditworthiness, and genuineness of the transaction. Conclusion: The tribunal dismissed the Revenue's appeal and partly allowed the assessee's appeal, directing the AO to apply a gross profit rate of 8% and upholding the deletions and disallowances made by the CIT(A) where justified.
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