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2016 (5) TMI 247 - AT - Income TaxAddition due to negative balance in the books of account - whether the assessee has introduced any unaccounted money for purchases? - Held that - In the case before us, the assessee appears to have purchased turmeric through Agricultural Market Committee. The turmeric being an agricultural produce, the assessee has to necessarily make payment in cash to the agriculturists. It is not the case of the Revenue that purchases and sales were not recorded in the books of account. As rightly submitted by the Ld.counsel for the assessee, the negative balance was withdrawal of funds from the bank and payments were made to agriculturists in cash in a later date. Therefore, rejection of books of account is not justified at all. In such circumstances, adopting peak credit is the only method to find out the cash balance. Therefore, the CIT(Appeals) has rightly restricted the negative balance to ₹ 1,29,716/-. Therefore, this Tribunal do not find any reason to interfere with the order of the lower authority and accordingly, the same is confirmed. Unexplained creditors and purchases - Held that - Admittedly, the assessee has not furnished all the addresses of the persons from whom the purchases were made. The assessee, however, clarified before the Assessing Officer that the purchases were made from Government regulated market committee. The fact that the turmeric was purchased through regulated markets is not in dispute. When the regulated market committee was monitoring the transactions and purchases of turmeric, this Tribunal is of the considered opinion that the Assessing Officer could have very well examined the actual purchases made by the assessee and the details of the agriculturists. Inspite of the fact that the assessee has disclosed the details of the purchases of turmeric and the fact that the Agricultural Committee is monitoring the transactions of the assessee, the Assessing Officer has not taken any steps to examine the genuineness of the transactions. In those circumstances, disallowing the claim of the assessee as non-genuine is not justified. Therefore, the CIT(Appeals) has rightly deleted the addition made by the Assessing Officer. Allowance of publicity expenses - Held that - It is not in dispute that the assessee is manufacturing and selling turmeric powder in the brand name of Aachi. Aachi group is marketing the turmeric powder manufactured by the assessee in their own brand name along with other products manufactured by them. The claim of the assessee is that advertisement made by the assessee to promote the brand name Aachi would directly benefit the assessee in increasing the turnover. This Tribunal is of the considered opinion that when the assessee is manufacturing turmeric powder and marketing the same in the brand name of Aachi through Aachi group, promoting the brand name Aachi in the market would increase the market share of the assessee. This would directly increase the turnover in the market. Consequently, the profit of the assessee would go up. Therefore, the expenditure incurred by the assessee is only for the business purpose. Merely because the Aachi group gets incidental benefit that cannot be a reason to disallow the claim of the assessee. Therefore, this Tribunal do not find any reason to interfere with the order of the lower authority and accordingly, the same is confirmed. Enhancement of turnover and estimating profit of the assessee - Held that - Some of the packing material consumed during the year was actually used for turmeric powder manufactured and packed and was lying in the closing stock. The volume of such closing stock as on 31.03.2009 was 1,15,345 Kgs. The opening stock as on 01.04.2008 was 6,856 Kgs. Therefore, the net closing stock of 1,08,489 Kgs should also be considered as the resultant of the packing material consumed during the year under consideration. Therefore, the Assessing Officer s calculation of 37,90,500 Kgs actually represents the finished product manufactured by the assessee during the financial year 2008-09. To arrive at the probable sales effected during the year, the net increase in the closing stock is to be reduced from the goods manufactured during the year. In view of the above, this Tribunal is of the considered opinion that in the absence of any material on record that the assessee has inflated the purchases or sales, the estimation of probable sales on the basis of the packing material consumed by the assessee is not justified. This Tribunal is of the considered opinion that the estimation of total sales without considering the actual purchases would inflate the sale, therefore, the CIT(Appeals) has rightly found that the total turnover was 19,75,167.60 Kgs as against 37,90,500 Kgs estimated by the Assessing Officer. Therefore, the CIT(Appeals) has rightly deleted the addition made by the Assessing Officer. This Tribunal do not find any reason to interfere with the order of the CIT(Appeals) and accordingly the same is confirmed. Addition of unaccounted purchases - Held that - As rightly submitted by the Ld. counsel for the assessee, the enhanced addition of purchase was deleted by the CIT(Appeals), which was confirmed by this Tribunal in the earlier part of this order. Once the enhanced purchase was deleted, the enhanced estimation on sales would also automatically get deleted. Therefore, this Tribunal is of the considered opinion that the CIT(Appeals) has rightly deleted the addition. Furthermore, when the Assessing Officer estimated the turnover, it is obligatory on his part to reduce the turnover declared by the assessee. On one hand the Assessing Officer estimated the turnover and on the other hand, the turnover declared by the assessee was not reduced. This inflated the turnover of the assessee arbitrarily. Therefore, the CIT(Appeals) has rightly found that the turnover declared by the assessee has to be reduced from the turnover estimated by the Assessing Officer. Revenue appeal dismissed.
Issues Involved:
1. Addition of ?1,29,716 due to negative balance in the books of account. 2. Unexplained creditors and purchases amounting to ?68,11,102. 3. Publicity expenses of ?33,15,000. 4. Enhancement of turnover and estimation of profit. 5. Addition of unaccounted purchases. Issue-wise Detailed Analysis: 1. Addition of ?1,29,716 due to negative balance in the books of account: The Assessing Officer (AO) added ?1,29,716 due to a negative balance in the books, indicating unaccounted purchases. The CIT(A) deleted this addition by adopting the peak method, which the Tribunal upheld. The Tribunal noted that the negative balance resulted from the withdrawal of funds from the bank and subsequent cash payments to agriculturists. It was determined that the rejection of the books was not justified since the purchases and sales were recorded correctly. Thus, the Tribunal confirmed the CIT(A)'s decision to restrict the negative balance to ?1,29,716. 2. Unexplained creditors and purchases amounting to ?68,11,102: The AO added ?68,11,102 due to unconfirmed creditors and non-genuine purchases. The CIT(A) deleted this addition, noting that the purchases were made through Government-regulated markets, and the transactions were monitored by the Agricultural Market Committee. The Tribunal agreed, stating that the AO should have verified the purchases through the Committee. Since the purchases were monitored and recorded, the Tribunal confirmed the deletion of the addition. 3. Publicity expenses of ?33,15,000: The AO disallowed ?33,15,000 in publicity expenses, arguing that the assessee, who supplied turmeric powder to Aachi group, did not need to incur such expenses. The CIT(A) allowed the expenses, reasoning that promoting the Aachi brand indirectly benefited the assessee by increasing its turnover. The Tribunal upheld this view, stating that the expenses were for business purposes and that incidental benefits to Aachi group did not justify disallowing the claim. 4. Enhancement of turnover and estimation of profit: The AO enhanced the turnover based on packing material consumed, estimating sales at 37,90,500 Kgs and gross profit at 18%. The CIT(A) found arithmetical errors in the AO's calculations and noted that the actual sales were 19,75,167.60 Kgs. The Tribunal agreed, stating that the AO's estimation was not justified as it did not consider the actual purchases and the difference between primary and secondary packing materials. The Tribunal confirmed the CIT(A)'s decision to delete the addition. 5. Addition of unaccounted purchases: The AO added ?14,91,94,080 as unaccounted purchases based on enhanced turnover. The CIT(A) deleted this addition, noting that once the enhanced purchase was deleted, the enhanced sales would also be deleted. The Tribunal upheld this, stating that the AO should have reduced the turnover declared by the assessee from the estimated turnover. The Tribunal confirmed the CIT(A)'s decision to delete the addition. Conclusion: The Tribunal dismissed the Revenue's appeal, upholding the CIT(A)'s decisions on all issues. The Tribunal found no reason to interfere with the lower authority's orders, confirming the deletions and adjustments made by the CIT(A).
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