2016 (2) TMI 561 - AT - Income Tax

N.P. rate determination - addition on account of unverifiable purchases - Held that - There is nothing on record to demonstrate as to what was the turn over and the net profit of the Assessee in immediately preceding and subsequent years which could demonstrate the trend of NP/GP earned by the Assessee in those years. We are further of the view that in the present case, it would not serve the purpose if the matter is remanded back to decide the issue for estimation of income afresh in view of the fact that the matter is almost five years old and would result into prolonging the litigation and delay in attaining finality to the issue and more so even in that case, the income will have to be estimated. Considering the totality of the facts, we are of the view that in the present case, the ends of justice shall be met if the income is estimated by applying the Net Profit Rate of 2.5% as against 2% considered by the CIT(A). We thus direct accordingly. - Decided in favour of revenue Addition under the head Indirect Expenses - Held that - CIT(A) while deleting the addition has noted that since he had directed the adoption of net profits @ 2% further adhoc disallowance would result into double disallowance. Before us, apart from other findings, the observation and finding of CIT(A) of double disallowance has also not been controverted by the Revenue. - Decided in favour of assessee Addition u/s.68 - Held that - CIT(A) correctly deleted the addition as the appellant had filed a confirmation from the parties wherein the parties confirmed their account with the appellant. Since the opposite party has confirmed to give the said sum to the appellant, the addition made by the AO in this regard is directed to be deleted correctly. - Decided in favour of assessee

Summary

Issues Involved:
1. Adoption of 2% Net Profit (NP) by CIT(A).
2. Deletion of addition of Rs. 1,79,482/- on account of disallowance of expenses.
3. Deletion of addition of Rs. 1,65,560/- under Section 68 of the Income Tax Act.
4. Admission of additional evidence by CIT(A) without giving an opportunity of being heard to the Assessing Officer (AO).

Issue-wise Detailed Analysis:

1. Adoption of 2% Net Profit (NP) by CIT(A):
The Revenue challenged the CIT(A)'s direction to adopt a 2% NP rate. The Assessee, engaged in trading kraft waste paper, had declared a total income of Rs. 7,65,840/- for A.Y. 2009-10. The AO determined the total income at Rs. 1,37,19,210/- due to unverifiable purchases. The CIT(A) reduced this by estimating the NP at 2%. The Tribunal found that the Assessee did not produce purchase bills and other documents before the AO or CIT(A). The AO accepted sales but considered 15% of purchases as non-genuine. The CIT(A) referenced similar cases and the nature of the business to justify a 2% NP rate. The Tribunal, aiming to avoid prolonged litigation, decided to apply a 2.5% NP rate, slightly higher than the CIT(A)'s 2%. Thus, this ground of the Revenue's appeal was allowed, and the Assessee's ground was dismissed.

2. Deletion of Addition of Rs. 1,79,482/- on Account of Disallowance of Expenses:
The AO disallowed Rs. 1,79,482/- of indirect expenses due to a lack of supporting evidence. The CIT(A) deleted this addition, noting that the AO had not rejected the Assessee's books and that an ad hoc disallowance without concrete findings was unjustified. The CIT(A) also pointed out that adopting a 2% NP rate would make further disallowance redundant. The Tribunal upheld the CIT(A)'s decision, agreeing that additional disallowance would result in double disallowance. Thus, this ground of the Revenue's appeal was dismissed.

3. Deletion of Addition of Rs. 1,65,560/- under Section 68 of the Income Tax Act:
The AO added Rs. 1,65,560/- as cash credit under Section 68, citing the absence of confirmations for advances against sales. The CIT(A) deleted this addition after the Assessee provided confirmations from the parties. The Tribunal found no reason to interfere, as the Revenue did not present any material to counter the CIT(A)'s findings. Thus, this ground of the Revenue's appeal was dismissed.

4. Admission of Additional Evidence by CIT(A) Without Opportunity to AO:
The Revenue contended that the CIT(A) admitted additional evidence without giving the AO an opportunity to be heard. However, the Tribunal did not separately address this issue in detail, as the primary focus was on the substantive grounds of appeal.

Conclusion:
The Tribunal partly allowed the Revenue's appeal by adjusting the NP rate to 2.5% and dismissed the Assessee's cross-objection. The deletions of additions for disallowed expenses and cash credits were upheld, ensuring a balanced resolution of the issues. The judgment emphasizes the importance of substantiating claims with proper documentation and the need for fair estimations in the absence of complete records.