2018 (5) TMI 1824 - AT - Income Tax

Addition on account of income booked in the Profit & Loss Account in excess of cash available - Held that - Once the assessee has surrendered an income of ₹ 20,00,000/- due to the incriminating material found during the survey then the application of the same income if less than the amount surrendered by the assessee would not lead to the situation that assessee had surrendered less amount than it ought to have surrendered. AO has made an addition on the ground that the assessee has spent only ₹ 9,21,903/- and, therefore, the balance amount is liable to be taxed as surplus cash. CIT (A) has deleted this addition by considering the fact that there is no basis of such addition made by the AO. We do concur with the finding of the CIT (A) that the surplus cash, if any, is computed by the AO to the extent of the surrendered amount cannot be considered as an additional income liable to tax. Addition on account of understatement of scrap sale - scrap sale as found in the loose papers - Held that - Date of scrap sale as found in the loose papers is also a relevant factor to ascertain the said transaction belongs to the lot of the scrap sale and rate prevailing during the said period. Therefore, the rate of a particular item of scrap sale as found in the loose papers and the rate as recorded in the bills and books of accounts can be verified and then only to the extent of the same rate and same item of scrap sale will be considered for making the addition on account of under billing. Hence, in view of the facts and circumstances of the case, we set aside this issue to the record of the AO for proper verification of the facts and identify the particular item of scrap sale found recorded in the loose papers impounded during the course of survey and then apply the same rate in respect of the scrap sale of the same item which is shown by the assessee sold at the rate as mentioned in the corresponding bill. Trading addition - AO rejected the books of account u /s 145(3)- assessee surrendered an income which was included by the AO while computing the GP rate to be applied for the year under consideration - Held that - There is no quarrel on the point that after rejection of books of account, the only course of action left with the AO is to estimate the income of the assessee by applying a proper and reasonable basis. The GP rate of earlier year is no doubt a reasonable and proper basis for estimation of income. However, the AO instead of applying the undisputed and noncontroversial GP rate of the earlier year, has considered only the GP rate which was computed after including the surrendered income of the assessee of the preceding year. Therefore, we find that the basis applied by the AO is not proper and appropriate and, therefore, we do not find any error or illegality in the order of ld. CIT (A) in deleting the said addition. Addition made on account of freight receipts - AO on the analyses of loose papers found that the assessee has received unaccounted cash @ 22.25% which is the difference between the billed amount and actual freight mutually determined with the transporters - Held that - when the assessee has admitted the over-inflated claim of freight charges as found in the loose papers for the months of April to August in respect of the payment made to one transporter, namely, Haryana Rajasthan Roadlines, the said rate of inflated expenses on account of freight charges can be applied in respect of the freight charges claimed by the assessee paid to Haryana Rajasthan Roadlines. Therefore, to the extent of freight paid to the said transporter, the inflated rate as applied by the assessee is justified but not in respect of the other transporter when there is no material or other record to show such an arrangement between the assessee and other transporter. Accordingly, we set aside this issue to the record of the AO to verify the other freight charges and only to the extent of freight charges to Haryana Rajasthan Roadlines this difference rate can be applied. Disallowance of interest under section 36(1)(iii) - Held that - Disallowance made by the AO on account of interest expenses due to loan given to M/s. International Engineering & Manufacturing Services Pvt. Ltd., a sister concern of the assessee, without charging interest was considered by this Tribunal in assessee s own case for the assessment year 2003-04. The revenue has not disputed the fact that there is no fresh loan given by the assessee during the year under consideration to the sister concern. Therefore, when the disallowance made by the AO on this account was already decided in favour of the assessee by the ld. CIT (A) and thereafter by this Tribunal, then following the earlier order of the Tribunal, we do not find any error or illegality in the impugned order of the ld. CIT (A) qua this issue. Disallowance on account of travelling expenses - expenses incurred are personal in nature - Held that - AO has not disputed that the expenditure was incurred on the travelling of the Director and, therefore, in the absence of any fact or material to show that the visits undertaken by the Director of the assessee was personal and not for the purpose of business of the assessee, such an adhoc disallowance of ₹ 50,000/- is not justified.

Summary

Issues Involved:
1. Addition on account of income booked in excess of cash available.
2. Addition on account of understatement of scrap sale.
3. Trading addition under section 145 of the IT Act.
4. Addition on account of freight receipts.
5. Disallowance of interest under section 36(1)(iii).
6. Disallowance of Director's traveling expenses.
7. Condonation of delay in filing Cross Objection.

Issue-wise Detailed Analysis:

1. Addition on account of income booked in excess of cash available:
The AO made an addition of ?10,78,097/- citing that the assessee had excess cash. The CIT (A) deleted this addition, reasoning that considering the surrendered amount and comparing it with the cash availability would lead to double taxation of the same income. The Tribunal concurred with the CIT (A), stating that the surplus cash computed by the AO could not be considered additional income liable to tax.

2. Addition on account of understatement of scrap sale:
The AO noted discrepancies in scrap sale records, leading to an addition of ?37,61,845/-. The CIT (A) deleted this addition, stating that the assessee had already declared income from the scrap sale appearing in the loose papers found during the survey. The Tribunal set aside this issue to the AO for proper verification, emphasizing that the rate of a particular scrap item found in the loose papers should be applied to the same item in the books, not extrapolated to all items.

3. Trading addition under section 145 of the IT Act:
The AO rejected the books of account and applied a GP rate of 6%, resulting in an addition of ?5,67,936/-. The CIT (A) deleted this addition, noting that the assessee had declared a better GP than the previous year. The Tribunal upheld the CIT (A)'s decision, stating that the AO's basis for applying the GP rate, which included surrendered income, was not proper.

4. Addition on account of freight receipts:
The AO made an addition of ?5,85,323/- based on an analysis of loose papers, which indicated unaccounted cash receipts. The CIT (A) restricted this to ?1,37,902/-. The Tribunal set aside this issue to the AO for verification, stating that the inflated rate could be applied only to the freight charges paid to Haryana Rajasthan Roadlines, not to other transporters without evidence.

5. Disallowance of interest under section 36(1)(iii):
The AO disallowed ?2,53,590/- for interest-free loans to a sister concern. The CIT (A) deleted this disallowance, noting no fresh loans were given during the year. The Tribunal upheld this, referencing its earlier order favoring the assessee for a similar issue in a previous assessment year.

6. Disallowance of Director's traveling expenses:
The AO made an adhoc disallowance of ?50,000/- for traveling expenses, suspecting personal use. The CIT (A) restricted this to ?15,000/-. The Tribunal found no justification for the AO's adhoc disallowance, as the expenses were incurred for business purposes, and upheld the CIT (A)'s decision.

7. Condonation of delay in filing Cross Objection:
The Tribunal dismissed the assessee's cross objection due to an inordinate delay of 846 days, noting the application for condonation was neither signed by the assessee nor supported by an affidavit. The Tribunal also rejected the assessee's plea to raise objections under Rule 27 of the ITAT Rules, as the objections did not directly affect the revenue's appeal.

Conclusion:
The Tribunal partly allowed the revenue's appeal for statistical purposes and dismissed the assessee's cross objection. The order was pronounced in the open court on 29/05/2018.