2016 (5) TMI 1506 - AT - Income Tax

Non disclosure of discount on purchases from 25% to 40% - free distribution of books - AO held that assessee was not declaring true profits and therefore on the basis of discount allowed by suppliers he calculated the margin of assessee and made additions accordingly - HELD THAT - In the present case in the case of Revenue s appeals the Revenue is aggrieved with the deletion made by learned CIT(A) on account of deduction for free distribution of books. However we find that learned CIT(A) had allowed relief on account of free distribution of books after getting remand report from Assessing Officer and in earlier years we had already dismissed the appeals filed by Revenue on similar grounds and therefore the appeals filed by Revenue in the present years are also dismissed. Calculation of taxable income - In the absence of any quantitative details it is presumed that out of goods valuing at 99609039/- the assessee has sold 75.60% of goods on which he got discount and 24.40% of goods on which he did not get any discount. Apeals filed by assessee are partly allowed.

Summary

Issues Involved:
1. Reopening of assessment under section 148.
2. Rejection of books of account and estimation of income.
3. Calculation of gross profit and undisclosed income.
4. Deduction for free distribution of books.

Issue-wise Detailed Analysis:

1. Reopening of Assessment under Section 148:
The assessment was reopened based on AIR information indicating cash deposits in the assessee's bank account, which were admitted by the assessee as unaccounted sales. The Tribunal upheld the reopening, stating that the Assessing Officer (AO) had valid reasons to believe that income had escaped assessment.

2. Rejection of Books of Account and Estimation of Income:
The AO observed discrepancies in the gross profit margins and unexplained cash deposits, leading to the conclusion that the sales figures were unreliable. Although the AO did not explicitly reject the books of accounts, he recalculated the income based on the cost of goods sold using the figures provided by the assessee. The Tribunal found that the AO's approach was justified as the sales figures were not reliable, and thus, the contention that income was estimated without rejecting the books of accounts did not hold ground.

3. Calculation of Gross Profit and Undisclosed Income:
The Tribunal agreed with the method used by the CIT(A) for calculating the suppression in gross profit but disagreed with applying the highest gross profit ratio. Instead, it applied a more reasonable gross profit ratio based on the gross discount received by the assessee. The Tribunal provided detailed calculations for each assessment year, adjusting the gross profit ratios and recalculating the undisclosed income accordingly. For instance, in AY 2008-09, the Tribunal calculated the gross profit ratio at 25.17%, resulting in no undisclosed gross profit as the declared gross profit was higher than the calculated figure. Similar detailed calculations were provided for AY 2009-10, 2010-11, 2011-12, and 2012-13, adjusting the undisclosed gross profit amounts.

4. Deduction for Free Distribution of Books:
The CIT(A) allowed deductions for free distribution of books after verifying the details and obtaining a remand report from the AO. The Tribunal upheld this decision, noting that the CIT(A) had rightly allowed the relief as the AO did not raise any objections on merits during the remand proceedings. Consequently, the Tribunal dismissed the Revenue's appeals on this ground.

Conclusion:
The Tribunal partly allowed the assessee's appeals by adjusting the calculations of undisclosed gross profit and dismissed the Revenue's appeals regarding the deduction for free distribution of books. The order emphasized the importance of accurate and fair calculation methods and upheld the principles of natural justice by considering the remand report and detailed factual analysis. The final pronouncement was made in the open court on 27th May 2016.