2016 (5) TMI 1477 - AT - Income Tax

Addition on account of undisclosed investment and on account of gross profit earned on estimated profits - Held that - CIT(A) is not justified in sustaining the addition of ₹ 1,32,000/- by applying G.P. rate on the alleged sales. Under the Income Tax Act, addition on account of Net profit rate can be made for the purpose of assessment and not on the basis of G.P. Rate. As such, the addition of ₹ 1,32,000/- confirmed by the CIT(A) is deleted. It is also pertinent to mention here that where N.P. rate is applied, no separate addition can be made on account of purchases made outside the books of account. Therefore, the addition of ₹ 1,00,000/- sustained by the CIT(A) on account of undisclosed investment for making undisclosed sales is deleted. - Decided in favour of assessee.

Summary

Issues:
1. Challenge against the order of CIT(A) for the assessment year 2004-05.
2. Validity of notice served under section 148.
3. Addition of undisclosed investment and gross profit.
4. Appeal for deletion of impugned additions.
5. Charging of interest under sections 234B and 234C.

Issue 1: Challenge against CIT(A) Order
The appellant filed an appeal against the CIT(A)'s order for the assessment year 2004-05, raising multiple grounds challenging the legality and factual basis of the decisions made.

Issue 2: Validity of Notice under Section 148
The appellant contended that no notice under section 148 was served, arguing for the reassessment to be quashed as void abinito. However, this ground was dismissed as not pressed by the appellant's counsel.

Issue 3: Addition of Undisclosed Investment and Gross Profit
The dispute revolved around the addition of ?1,00,000 on account of undisclosed investment and ?1,32,000 on account of gross profit earned on estimated sales. The AO initiated proceedings based on information from a survey operation on another entity, leading to additions in the appellant's income.

Issue 4: Appeal for Deletion of Impugned Additions
The appellant appealed for the deletion of the additions made by the CIT(A) on the grounds that the application of gross profit rate for additions was not justified under the Income Tax Act. The appellant argued that no separate addition should be made on account of purchases outside the books of account.

Issue 5: Charging of Interest under Sections 234B and 234C
The appellant also contested the charging of interest under sections 234B and 234C, claiming that it was wrongly imposed.

In a detailed analysis, the Tribunal found that the CIT(A) was not justified in sustaining the addition of ?1,32,000 based on gross profit rate, as additions should be made on the net profit rate for assessment purposes. Consequently, the Tribunal deleted this addition. Additionally, where net profit rate is applied, no separate addition can be made for purchases outside the books of account. Therefore, the Tribunal also deleted the ?1,00,000 addition sustained by the CIT(A) on account of undisclosed investment for undisclosed sales. As a result, the appeal of the assessee was allowed, and the impugned additions were deleted.