2018 (1) TMI 1527 - AT - Income Tax

Addition u/s 40A(3) - cash payments made against purchases from M/s. IFB Agro Industrial Ltd. - HELD THAT - Issue squarely covered in favour of the assessee by the decision of this Tribunal rendered in assessee s own case for A.Y. 2008-09 2016 (9) TMI 1537 - ITAT KOLKATA held that the assessee has commercial expediency under Rule 6(2) of the West Bengal Rules referred to above to make payments to the credit of M/s. IFB Agro Industries Ltd., Durgapur who is deemed to be an agent of the State Government as such in terms of Rule 6DD(b) and Rule 6DD(k) of the Income Tax Rules, they are exempted and the disallowance made under section 40A(3) of the Act cannot be sustained. We, therefore, answer this issue in favour of the assessee and that the order of the authorities below cannot be sustained Addition u/s 69B - difference closing stock of 60UP and 80UP of country liquor - assessee contended that stock record for both these items is regularly maintained by the assessee for excise purpose and the same duly checked by the concerned excise authorities is more reliable to ascertain the exact discrepancy - HELD THAT - As urged that since the said record maintained for excise purpose could not be produced by the assessee either before the A.O. or before the Ld. CIT(A), the matter may be sent back to the Assessing Officer for giving the assessee an opportunity to produce the same for verification. Since the learned DR has not raised any objection in this regard, we set aside the impugned order of the Ld. CIT(A) on this issue and restore the matters to the file of the A.O. for deciding the same afresh after giving the assessee an opportunity to produce the relevant stock record maintained for excise purpose. Bogus purchases - undisclosed investment of the assessee under section 69B - GP estimation - HELD THAT - Addition on account of unexplained investment in stock as made by the A.O. under section 69B thus is based on presumption and the same cannot be sustained. In our opinion, the only presumption that can be reasonably drawn in the absence of anything brought on record to show that the quantity purchased by the assessee outside the books of accounts was lying in the closing stock is that the said quantity was sold by the assessee outside the books of accounts and the addition that can justifiably made on this issue is only to the extent of gross profit on such unaccounted sales. We, therefore, modify the impugned order of the Ld. CIT(A) on this issue and direct the A.O. to recompute the addition to be made on this issue by applying GP rate of 8% on the undisclosed sales made by the assessee out of unaccounted purchases. Ground no 8 of the assessee s appeal is thus partly allowed.

Summary

Issues Involved:
1. Disallowance under Section 40A(3) of the Income Tax Act.
2. Additions under Section 69B of the Income Tax Act due to discrepancies in closing stock.
3. Additions under Section 69B of the Income Tax Act for unaccounted purchases.

Detailed Analysis:

1. Disallowance under Section 40A(3) of the Income Tax Act:

The assessee, a partnership firm engaged in trading country spirit, appealed against disallowances made by the Assessing Officer (A.O.) and confirmed by the Commissioner of Income Tax (Appeals) [CIT(A)] under Section 40A(3) of the Income Tax Act. The disallowance amounted to ?76,02,027/- for A.Y. 2010-11 and ?47,57,240/- for A.Y. 2011-12. These disallowances were due to cash payments exceeding ?20,000/- made to M/s. IFB Agro Industries Ltd.

The Tribunal observed that the issue was covered in favor of the assessee by an earlier decision for A.Y. 2008-09, where it was concluded that payments made to M/s. IFB Agro Industries Ltd. were effectively payments to the State Government, thus not violating Section 40A(3). The Tribunal noted that the payments were made to the credit of a government-appointed wholesale licensee, and therefore, the provisions of Section 40A(3) were not applicable. Consequently, the Tribunal allowed the appeals for both assessment years on this ground.

2. Additions under Section 69B of the Income Tax Act due to discrepancies in closing stock:

For A.Y. 2010-11, the A.O. noted discrepancies in the stock records maintained by the assessee for 60UP and 80UP categories of country spirit. Specifically, there were discrepancies of 3093.80 Ltrs. for 60UP and 5606.2 Ltrs. for 80UP, leading to additions of ?1,55,742/- and ?82,804/- respectively, under Section 69B.

The Tribunal, acknowledging the discrepancies, accepted the assessee's request to produce stock records maintained for excise purposes, which were more reliable. The Tribunal set aside the CIT(A)'s order and remanded the matter to the A.O. for fresh verification of the stock records. The A.O. was directed to recompute the additions based on the verified discrepancies.

3. Additions under Section 69B of the Income Tax Act for unaccounted purchases:

For A.Y. 2011-12, the A.O. made an addition of ?14,00,229/- under Section 69B for unaccounted purchases from M/s. IFB Agro Industries Ltd. The assessee's books showed purchases of ?51,84,704/-, whereas the supplier's records indicated sales of ?57,72,398/-, leading to a discrepancy of ?5,87,694/-. Additionally, there was a discrepancy of ?8,12,535/- for purchases from another branch of the supplier.

The Tribunal noted that while the purchases were unaccounted, there was no evidence that the stock was lying with the assessee at the end of the financial year. The Tribunal held that the addition under Section 69B was based on presumption. Instead, it directed the A.O. to compute the addition based on the gross profit rate of 8% on the unaccounted sales, modifying the CIT(A)'s order.

Conclusion:

In summary, the Tribunal allowed the appeals for A.Y. 2010-11 and partly allowed the appeals for A.Y. 2011-12. The disallowances under Section 40A(3) were deleted, and the additions under Section 69B were remanded for fresh verification or modified to reflect gross profit on unaccounted sales. The Tribunal's decisions were based on the principles of commercial expediency, reliability of excise records, and the necessity of concrete evidence for additions under Section 69B.