2015 (7) TMI 867 - AT - Income Tax

Unaccounted cash purchases - CIT(A) deleted the addition - Held that - Addition by Assessing Officer has been made on the basis of statement of partner of assessee recorded u/s.133A(1)(iii) of the IT Act, 1961. In statement recorded, no mention has been made about any sales out of unaccounted purchases. Assessing Officer did not make sufficient inquiry to come to the reasonable conclusion that unaccounted purchases of cotton was also sold before the date of survey. In view of above, it was found by CIT(A) that unaccounted purchases of cotton made by assessee as evidenced by the recordings in the loose sheets of paper was available on the date of survey by assessee. Same was included in the stock, which was found excess during course of survey. In view of above, separate addition of ₹ 11,46,000/- made by Assessing Officer was not justified. Same was rightly deleted by CIT(A). This factual finding of CIT(A) needs no interference from our side. - Decided against revenue. G.P addition - addition of ₹ 1,77,010/- representing the G.P., made to the total income of assessee as undisclosed income - CIT(A) deleted the addition - Held that - Addition has been made relating to unaccounted purchases made in cash prior to the date of survey. There is nothing on record to suggest that unaccounted sale of these goods purchased in this had been affected prior to the date of survey. Assessing Officer was not able to establish that sales of unaccounted purchases had been made prior to the date of survey. So, there was no question of making addition on account of Gross Profit on above unaccounted purchases. In view of above, addition of ₹ 1,77,010/ was rightly deleted by CIT(A). We uphold the same. - Decided against revenue. Addition u/s.40A(3)- CIT(A) granted relief to assessee - Held that - Assessee has made payments in cash to Gujarat State Electricity Board on several occasions in cash. Such payments are covered under the exemptions provided under Rule 6DD of IT Rules. In view of above, CIT(A) was justified in deleting the disallowance made u/s. 40A(3) of the Act amounting to ₹ 56,759/-. Same is upheld. ₹ 1,77,010/ was rightly deleted by CIT(A). We uphold the same. - Decided against revenue.

Summary

Issues:
1. Addition of undisclosed cash purchases and gross profit
2. Classification of payment to Gujarat Electricity Board
3. Disallowance under section 40A(3) of the IT Act

Analysis:

Issue 1: Addition of undisclosed cash purchases and gross profit
The Revenue appealed against the deletion of the addition of undisclosed cash purchases and gross profit by the Commissioner of Income Tax (Appeals) for the assessment year 2007-08. The Assessing Officer added the amount based on unaccounted cash purchases and unrecorded stock found during a survey. However, the CIT(A) found that the Assessing Officer did not provide evidence of these unaccounted purchases being sold before the survey date. The CIT(A) concluded that the unaccounted purchases were included in the excess stock found during the survey and hence, the additions were not justified. The ITAT upheld the CIT(A)'s decision, stating that the factual findings did not warrant interference.

Issue 2: Classification of payment to Gujarat Electricity Board
The second issue pertained to the classification of a cash payment made to the Gujarat Electricity Board under Rule 6DD of the IT Rules and section 40A(3) of the IT Act. The Assessing Officer disallowed a portion of the expenditure under section 40A(3) due to the cash payments made to the Electricity Board. However, the CIT(A) ruled in favor of the assessee, stating that the payments were covered under exemptions provided by Rule 6DD of the IT Rules. The ITAT upheld the CIT(A)'s decision to delete the disallowance under section 40A(3) amounting to Rs. 56,759.

Conclusion
The ITAT dismissed the Revenue's appeal, upholding the CIT(A)'s decisions on both issues. The judgment highlighted the importance of providing concrete evidence to support additions based on unaccounted transactions and the significance of adhering to the relevant rules and exemptions concerning cash payments.