2015 (6) TMI 1157 - AT - Income Tax

Addition of advances - Held that - As confirmed that cheques have been handed over to the appellant only as a measure of security for supply of scrap or for the purpose of obtaining the loan but all of them have denied having obtained any loan from the appellant. The statements given by those people remains uncontroverted. AO is justified in entertaining doubt that the appellant is engaged in the business of money lending and the cheques have been obtained only after the amounts were advanced since in the absence of any positive evidence in support of the appellant having lent money to the above persons we are not in a position to confirm the addition. Additions are deleted. Estimation of profits we heard the rival parties. Admittedly there is no incriminating material seized as a result of search and seizure operation indicating that the Books of Accounts maintained by the assessee are either defective or appellant had inflated the expenditure or suppressed the sales resulting in lower returned income. It is trite law that in the absence of any incriminating material suggesting that book results should be rejected the addition cannot be made on estimate basis in the assessment made u/s. 153A. Accordingly the addition is deleted. Hence this ground of appeal filed by the assessee is allowed.

Issues Involved:
1. Estimation of income without rejecting books of accounts.
2. Estimation of net profit margin.
3. Classification of commission income.
4. Addition towards difference in profit estimation.
5. Maintenance of books of accounts.
6. Addition of advances received towards sale of scrap.
7. Deduction under section 80U for physical disability.
8. Penalty proceedings under section 271(1)(c).
9. Use of loose sheets and dumb materials as evidence.
10. Telescoping of income and expenditure.
11. Unaccounted loans.
12. Search assessment and incriminating material.

Issue-wise Detailed Analysis:

1. Estimation of income without rejecting books of accounts:
The assessee argued that the Assessing Officer (AO) erred by estimating the income at 6% of gross receipts without rejecting the books of accounts. The tribunal noted that no incriminating material was seized to indicate that the books were defective or that the assessee had inflated expenditures or suppressed sales. Thus, the addition based on estimation without rejecting the books was deleted.

2. Estimation of net profit margin:
The assessee contended that the margins in the scrap business are typically between 2% to 3%, and the AO's estimation of 6% was unjustified. The tribunal considered the absence of any material suggesting inflated expenditures or suppressed sales and allowed the appeal, deleting the addition.

3. Classification of commission income:
The assessee claimed that the AO incorrectly considered commission income as sales transactions. The tribunal did not provide a specific ruling on this issue within the detailed analysis, focusing instead on the broader issue of income estimation.

4. Addition towards difference in profit estimation:
The AO added Rs. 76,600 towards the difference between the estimated profit and the net profit as per the return. Given the tribunal's decision to delete the income estimation, this addition was also implicitly addressed and deleted.

5. Maintenance of books of accounts:
The assessee maintained comprehensive books of accounts, including cash book, journal, ledger, and receipts. The tribunal acknowledged the maintenance of proper books and found no basis for rejecting them, leading to the deletion of the estimated additions.

6. Addition of advances received towards sale of scrap:
The AO added Rs. 21,50,000 to the income, considering it as advances received towards the sale of scrap. The tribunal examined the evidence and found that the cheques were security for scrap supply, not loans, and deleted the addition.

7. Deduction under section 80U for physical disability:
The assessee claimed a deduction under section 80U, supported by a certificate from a civil surgeon. However, the claim was withdrawn before the AO. The tribunal upheld the CIT(A)'s decision to reject the claim, dismissing this ground of appeal.

8. Penalty proceedings under section 271(1)(c):
The assessee argued against the initiation of penalty proceedings, stating no income was concealed or inaccurate particulars furnished. The tribunal's decision to delete the estimated additions implicitly addressed this issue, though specific mention of penalty proceedings was not detailed in the judgment.

9. Use of loose sheets and dumb materials as evidence:
The assessee contended that the additions were based on loose sheets and dumb materials with no evidential value. The tribunal agreed, noting that the seized documents (blank cheques and promissory notes) did not conclusively prove money lending activities, leading to the deletion of related additions.

10. Telescoping of income and expenditure:
The assessee argued for the application of the telescoping principle. However, the tribunal did not specifically address this principle in its detailed analysis, focusing instead on the lack of evidence for the contested additions.

11. Unaccounted loans:
The AO concluded that the assessee was engaged in money lending, adding Rs. 12,00,000 as unexplained investment. The tribunal found no positive evidence to support this and deleted the addition, noting that the statements from involved parties were uncontroverted and did not indicate actual loans.

12. Search assessment and incriminating material:
The tribunal emphasized that no incriminating material was found during the search to justify rejecting the book results or making additions based on estimates. Consequently, the additions made by the AO were deleted, and the appeal was partly allowed.

Conclusion:
The tribunal allowed the appeal partly, deleting the additions based on income estimation and alleged unaccounted loans due to lack of incriminating evidence. However, the claim under section 80U was dismissed as it was withdrawn before the AO. The decision emphasized the importance of positive evidence in making additions during search assessments.

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