2016 (5) TMI 28 - AT - Income Tax

Additions towards sundry creditors - Held that - During the course of hearing the assessee has filed a paper book wherein submitted the ledger account copies of the respective creditors along with confirmation letters issued by the parties. On perusal of the confirmation letters issued by the assessee we find that in the case of two parties where there was a difference in closing balances the assessee has explained the difference in closing balance and submitted that the difference in balances in sundry creditors is not closing balance and it is opening balance difference. Therefore AO cannot make additions towards opening balance difference during the year under consideration. We find force in the arguments of the assessee for the reason that on perusal of such confirmation letters and also reconciliation furnished by the assessee we noticed that the creditors have been explained before the Assessing Officer and also explained the reasons why the difference is appeared in the creditors balance. The CIT(A) after considering the submissions made by the assessee rightly deleted the additions. We do not see any error or infirmity in the order passed by the CIT(A). Hence we inclined to uphold the CIT(A) order - Decided against revenue. Additions towards suppressed turnover and related gross profit - Held that - AO stated that the average sales price is less than the purchase price for the above period. We do not see any merits in the findings of the AO for the reason that additions cannot be made based on the average selling price of a particular period and apply it to the remaining period by stating that there was a difference in selling price for the particular period. Unless A.O. analyse the total financial results of the period including opening stock purchases sales and closing stock no additions can be made on the basis of a part period by taking the average selling price. In the present case on hand the AO has not pointed out any defects in the quantity of product sold by the assessee. The AO is mainly harping upon the selling price of the particular period by stating that the sale price of the product sold is less than the purchase price. In the present case on hand the assessee is in the business of trading in steel and iron. The iron and steel prices are prone to ups and downs depending upon the demand in the market. The sale price of the product sometimes may be less than the purchase price when the market trend is going down. Therefore based on the selling price the AO cannot estimate the sales turnover for the part period by taking into account the remaining period sales. The CIT(A) after considering the explanations furnished by the assessee rightly deleted the additions - Decided against revenue. Adhoc disallowance on 30% of expenditure - Held that - CIT(A) restricted the additions to 1 lakh by holding that though this expenditure are supported by self made vouchers the relevance of such expenditure cannot be ruled out in the business of the assesee. The fact remains same even before us. The revenue has not brought on record any evidence to show that the findings of the facts recorded by the CIT(A) is incorrect. Therefore we do not see any reasons to interfere with the order passed by the CIT(A).

Summary

Issues Involved:

1. Additions towards sundry creditors.
2. Additions towards suppressed turnover and related gross profit.
3. Adhoc disallowance on 30% of expenditure.

Detailed Analysis:

1. Additions towards Sundry Creditors:

The Assessing Officer (AO) added ?1,02,50,870/- to the income of the assessee due to the lack of confirmation letters for sundry creditors. The assessee provided confirmation letters for some creditors, but discrepancies remained for others. Upon appeal, the CIT(A) found that the assessee had indeed submitted confirmation letters and reconciled differences in balances. The CIT(A) ruled that additions could not be made solely based on the absence of confirmation letters. The Tribunal upheld the CIT(A)'s decision, noting that the assessee had adequately explained the differences and provided necessary documentation.

2. Additions towards Suppressed Turnover and Related Gross Profit:

The AO added ?36,45,403/- for suppressed turnover and ?65,982/- for related gross profit, based on an analysis that the sales prices in certain months were lower than purchase prices. The assessee argued that lower sales prices were due to selling obsolete and non-moving stock. The CIT(A) agreed with the assessee, stating that the AO's method of comparing average sales prices to purchase prices was flawed. The Tribunal supported the CIT(A), emphasizing that the AO did not consider the overall financial results and that market fluctuations could justify lower sales prices.

3. Adhoc Disallowance on 30% of Expenditure:

The AO disallowed 30% of the expenditure, amounting to ?7,99,216/-, due to insufficient supporting documentation, particularly self-made vouchers. The assessee contended that many expenses, especially minor ones, were inherently supported by self-made vouchers. The CIT(A) reduced the disallowance to ?1 lakh, recognizing the relevance of these expenses in the business. The Tribunal upheld this decision, noting that the revenue failed to provide evidence contradicting the CIT(A)'s findings.

Conclusion:

The Tribunal dismissed the revenue's appeal, affirming the CIT(A)'s decisions on all issues. The Tribunal found no errors or infirmities in the CIT(A)'s order and supported the rationale that the assessee had provided sufficient explanations and documentation for the disputed items. The judgment emphasized the importance of considering the overall financial context and the practicalities of business operations in tax assessments.