2019 (6) TMI 1423 - AT - Income Tax

Addition of unproved creditors u/s 68 - HELD THAT - AO has made this addition only for the reason that the assessee has failed to prove the genuineness of credits outstanding in the name of famers since credit sales by farmers is not an existing trade practice. Even though an opportunity was provided to the assessee during the appellate proceedings and remand proceedings to prove the credit balances yet the assessee could not produce any documents or confirmation from the creditors. Since some of the creditors have responded to the notices issued by the AO during the remand proceedings the ld.CIT(A) has granted relief to the extent of 7.12 lakhs meaning thereby the assessee could not prove the genuineness of the remaining creditors. CIT(A) was justified in partially sustaining the addition made by the AO on this issue. Addition made on account of low gross profit - AO noticed that the assessee has shown a gross profit margin of 0.24% only - HELD THAT - We notice that the ld. CIT(A) was very much reasonable in reducing the gross profit estimate to 1%. Before us no material was placed by the assessee which would compel us to interfere with the order passed by the ld. CIT(A) on this issue. Accordingly we confirm the order passed by the ld. CIT(A) on this issue. Validity of reopening of assessment - as per assessee AO has not supplied the reasons recorded for re-opening of the assessment and the AO has not mentioned in the assessment order that the approval from the competent authority was obtained - HELD THAT - Said legal issues are vague and nothing was brought on record to show that the reason for reopening was not proper and the AO did not obtain requisite approval. In the absence of any material to support the legal issues raised by the assessee we have no other option but to dismiss them. Disallowance u/s 40A(3) - CIT(A) deleted the addition - HELD THAT - CIT(A) has followed the Circular No.220 dated 31-05-1977 issued by the CBDT wherein the scope of than existing Rule-6DD(j) of the IT Rules was discussed. The case laws relied on by the Ld. CIT(A) in page-16 of his order also relate to Rule-6DD(j) than existing. It is pertinent to note that then existing Rule-6DD(j) provided relief in respect of payments made under exceptional circumstances. The said rule has been deleted long back and the same is no longer applicable to the assessment year under consideration. Accordingly we notice that the ld. CIT(A) has misdirected himself in placing reliance on the rule which was not applicable to the year under consideration. Hence the order passed by the led. CIT(A) on this issue gets vitiated for the above said reason. Accordingly we are of the view that this issue requires fresh examination at the end of the ld.CIT(A). Accordingly we set aside the order passed by the ld.CIT(A) in respect of addition made u/s 40A(3) and restore the same to his file for fresh examination. Appeal of the revenue is treated as allowed for statistical purposes.

Summary

Issues:
1. Partial confirmation of addition made u/s 68 of the IT Act, 1961
2. Partial confirmation of addition made towards gross profit
3. Reopening of assessment without supplying reasons and approval details
4. Disallowance made under section 40A(3) of the IT Act
5. Non-admittance of additional evidence

Analysis:
1. The first issue concerns the addition of unproved creditors. The AO added an amount to the total income of the assessee due to failure in proving the genuineness of credits outstanding in the name of farmers. The ld.CIT(A) granted partial relief based on responses from some farmers, reducing the total addition. The ITAT upheld the ld.CIT(A)'s decision, stating that the assessee failed to provide sufficient evidence, justifying the partial addition.

2. The second issue involves the addition made on account of low gross profit. The AO estimated the gross profit at 5% of sales due to a low declared profit margin by the assessee. The ld.CIT(A) reduced the estimate to 1%, granting partial relief. The ITAT supported the ld.CIT(A)'s decision, emphasizing the lack of comparable cases and the nature of the business, confirming the reduced addition.

3. Legal issues raised by the assessee regarding the reasons for reopening the assessment and approval details were dismissed by the ITAT due to lack of supporting evidence or material to substantiate the claims.

4. The revenue challenged the deletion of the disallowance made under section 40A(3) by the ld.CIT(A). The ITAT found that the ld.CIT(A) misdirected by relying on a rule that was no longer applicable, leading to the decision being set aside for fresh examination.

5. The ITAT dismissed the appeal filed by the assessee and treated the revenue's appeal as allowed for statistical purposes, emphasizing the need for a fresh examination of the issue related to section 40A(3) disallowance.

This detailed analysis of the judgment covers all the issues involved comprehensively, highlighting the key points and decisions made by the ITAT.