2022 (11) TMI 1440 - AT - Income Tax

Application of enhanced GP rate - correctness of the application of the GP rate of 3.25% by the AO - HELD THAT - Generally the result of the subsequent year cannot be applied in the preceding (current) year. Interestingly, whereas Rellan Motors declared GP of 3.92% in that year, the assessee declared (revised) GP rate of around 4%. Secondly a perusal of the orders does not show that the assessee was ever confronted with the material used against him. Hence no reliance can be placed on so called comparable case. Before the CIT(A), we find that the assessee has furnished detailed reason at pages 4 onwards pointing out several facts making the said case of Rellan Motors as completely distinguishable. On the other hand the trading results as declared in AY 2010-11 were accepted. The Hon ble Rajasthan HC in the case of CIT v/s Gotan Lime Khaniz Udyog 2001 (7) TMI 19 - RAJASTHAN HIGH COURT has held that where the accounts are rejected, it is not always necessary for the AO to make addition over and above the declared income, if considering the books of accounts, past history and material collected by the AO, no interference is warranted. Thus, we don t find any justification on the application of enhanced GP rate of 3.25% which is completely without furnishing any justified grounds hence, the GP rate as declared by the assessee at 1.68% is hereby accepted. Therefore, the authorities below were completely unjustified in applying higher GP rate of 3.25%. Suppression of sale - We find nothing on the record to justify the case of suppression of sale i.e., though amount was received but was not recorded. Moreover, to effect the sale to such an extent, corresponding purchases of the vehicles are also required by the assessee, however, neither the claimed purchases have been discussed nor it is alleged so. At the best it was a case of mere suspicion which was not substantiated with the help of strong evidences, wherein the revenue has completely failed. Thus, the enhancement of the sale (due to suppression) and application of GP rate of 3.25% is not approved and the resultant addition to the extent of Rs. 2,26,41,521/- is hereby deleted. However, in the peculiar facts of the case and the reasoning adopted by the authorities below, we uphold the rejection of the accounts and taking an overall view of the entire matter it is felt justified that an ad hoc addition of Rs. 2,00,000/- shall cover up the possible leakage of the income, if any. This ground No. 1 of the appeal is therefore partly allowed. Estimation of sales - Estimating and considering advance from customers as SALES applying GROSS PROFIT % thereon - HELD THAT - Before us, the ld.AR vehemently contended the contradictory approach by the AO in different years even though the facts circumstances are the same and the method manner of the receipts of the sale proceeds and accounting thereof, are same being consistently followed by the assessee. He also strongly contended that is was not a case of deferred sale and further contended that because of the different approach adapted by the AO in the years under consideration, it has resulted into distorted picture of the income of not only of the given year but also of the other years and also resulted into multiple additions because suitable credit of the sale already booked has not been given. We are in agreement with these contentions however, the ld. CIT(A) rejected the contentions mechanically. It is noticed that similar allegation of deferment of sale was made by the AO in AY 2010-11 also though no quantification was made however, in our order dated 09-11-2022 in ITA no.396/JP/15,we have rejected such contention and the approach. Similarly, the allegation of suppression of sale and enhancement made of 4.14% and application of GP rate of 3.25% have also been rejected by us deleting the resultant addition for the reasoning given in ground of appeal no.1. Since the facts of the case are identical in this year also hence, our findings and the decision therein shall equally apply here also. Accordingly, the impugned addition of Rs. 62,98,437/- is hereby deleted. This ground No. 2 of the appeal is therefore allowed. TDS u/s 194A - Disallowance of Interest u/s 40(a)(ia) - interest expenses for repayment of loan -AO observed that the assessee has not deducted TDS on the payments made to the said parties - HELD THAT - Though various contentions have been raised to convince that it was not a case of making disallowance u/s 40(a)(ia) r/w S.194A however we shall confine ourselves to only one argument that where the payee had already paid the taxes, no further disallowance can be made. It is noticed that all the payees are public limited companies or corporations being M/s Maruti Udhyog Ltd. is the Public Limited Companies. Moreover, M/s Sundaram Finance, AU Finance and Mahindra Mahindra Finance are Non-Banking Finance Corporation, which are renowned companies of their field. They must have already filled the return of income and paid tax due thereon considering the subjected amount paid to them of Rs. 6,96,201/- in their respective declared income. Therefore, no disallowance should have been made in view of the binding decision of the Hon ble Supreme Court in the case of Hindustan Coca Cola Beverage (P) Ltd. 2007 (8) TMI 12 - SUPREME COURT which, has very categorically held and rather prohibited the department to make recovery of the taxes again. Now, the second proviso to S.40(a)(ia) has taken care of a situation where payee has already paid taxes, no disallowance should be made. We are satisfied that the authorities below were not justified in making the impugned disallowance hence the same is directed to be deleted.

Summary

Issues Involved:
1. Addition of Rs. 2,26,41,521/- by estimating gross profit.
2. Addition of Rs. 62,98,437/- by considering advance from customers as sales.
3. Disallowance of Rs. 6,96,201/- u/s 40(a)(ia) for non-deduction of TDS on finance charges.

Issue-wise Detailed Analysis:

1. Addition of Rs. 2,26,41,521/- by estimating gross profit:
The AO alleged that the assessee engaged in delayed invoicing and under-invoicing of sales, leading to suppressed sales. The AO enhanced the declared sales from Rs. 1,14,86,38,878/- to Rs. 1,19,83,41,281/- and applied a GP rate of 3.25%, resulting in an addition of Rs. 2,26,41,520/-. The CIT(A) confirmed the AO's action, rejecting the assessee's contention to apply its own GP rate from earlier years due to discrepancies in the books. The Tribunal, however, found that the past history of the assessee showed better results and that the AO's comparison with a later year's GP rate of a different entity was unjustified. The Tribunal noted that the AO failed to provide cogent material to justify the enhanced GP rate and found the assessee's declared GP rate of 1.68% reasonable. Consequently, the Tribunal deleted the addition of Rs. 2,26,41,521/- but upheld the rejection of the books of accounts, allowing an ad hoc addition of Rs. 2,00,000/- to cover any possible income leakage.

2. Addition of Rs. 62,98,437/- by considering advance from customers as sales:
The AO estimated that 60.97% of the advances from customers represented sales made during the year, leading to an addition of Rs. 97,50,000/-. The CIT(A) reduced the addition to Rs. 62,98,437/- by applying the GP rate of 3.25% to the estimated sales of Rs. 18,57,60,104/-. The Tribunal found that the AO's approach was inconsistent across different years and that the allegation of deferred sales was not substantiated with concrete evidence. The Tribunal observed that similar allegations in the previous year were rejected and that the assessee consistently followed the same accounting method. The Tribunal deleted the addition of Rs. 62,98,437/-, agreeing with the assessee's contention that the AO's approach led to multiple and double additions.

3. Disallowance of Rs. 6,96,201/- u/s 40(a)(ia) for non-deduction of TDS on finance charges:
The AO disallowed Rs. 6,96,201/- for non-deduction of TDS on interest payments to various finance companies. The CIT(A) confirmed the disallowance, rejecting the assessee's claim that TDS was not applicable to payments to NBFCs and that no further disallowance should be made after estimating income. The Tribunal, however, noted that the payees were reputed companies likely to have already paid taxes on the interest received. Citing the Supreme Court's decision in Hindustan Coca Cola Beverage (P) Ltd. v/s CIT and other judicial precedents, the Tribunal held that no disallowance should be made if the payee has already paid taxes. Therefore, the Tribunal deleted the disallowance of Rs. 6,96,201/-.

Conclusion:
The Tribunal partly allowed the appeal, deleting the major additions made by the AO and CIT(A) while upholding a minor ad hoc addition to cover any possible income leakage.