2016 (6) TMI 173 - AT - Income Tax

Addition made u/s.69 - unaccounted purchases and suppressed stock - Held that - We do not find any merit in the addition so made by the AO on account of unaccounted purchases and suppressed stock in so far as the AO has not been able to establish by means of any evidence that there were in fact unaccounted purchases or suppressed stock. We found that the AO has made addition merely on the presumption that since GP rate of 60% has been estimated by him, there must have been unaccounted purchases. We found that even during the remand proceedings, the AO has verified assessee s version and accepted the same with regard to no unaccounted purchases. The CIT(A) has given due reasoning for deleting the addition. The finding recorded by CIT(A) has not been controverted. Accordingly, we do not find any reason to interfere in the order of CIT(A) for deleting the addition made u/s.69 - Decided in favour of assessee Entitlement to exemption u/s.54G - Held that - For claiming exemption u/s.54G, the assessee is entitled to make investment within a period of one year before or three years after the transfer of capital asset. Both these are exclusive. Assessee can invest part of the amount within a period of one year before sale of original assets and the balance part may be invested within a period of 3 years after the sale/transfer of asset. Accordingly, we direct the AO to give benefit of Section 54G by verifying the investment so made by the assessee within a period of one year prior to sale of asset and also investment made within a period of 3 years after the sale of asset. With regard to adjustment made by the AO being profit on sale of land and building in Urban area which was directly credited by the assessee to the capital reserves in its books of account, we direct the AO to first calculate the exemption u/s.54G in terms of our above direction and for deciding this issue of book profit accordingly.

Issues Involved:
1. Gross Profit (GP) rate estimation.
2. Addition under Section 69 for unaccounted purchases and suppressed stock.
3. Deduction under Section 54G for long-term capital gains on transfer of assets.
4. Adjustment of profit on sale of land and building in urban areas under book profits.

Detailed Analysis:

1. Gross Profit (GP) Rate Estimation:
The primary issue was the estimation of the Gross Profit (GP) rate by the Assessing Officer (AO). The AO rejected the assessee's books of accounts under Section 145(3) of the Income Tax Act, citing discrepancies between stock statements provided to the bank and those in the audited financial statements. The AO estimated a GP rate of 60% as against the 23.42% declared by the assessee, resulting in an addition of ?15,24,83,871. The CIT(A) deleted this addition, noting that the GP rate estimation by the AO was not representative of the totality of the assessee's operations and that the AO had conceded in the remand report that the GP rate was not maintainable. The CIT(A) observed that the declared GP rates for AYs 2006-07, 2007-08, 2008-09, and 2009-10 were between 23% to 24%, and thus, a GP rate of 26% was suggested by the AO. However, the CIT(A) found that the GP rate should be 24.31%, consistent with the rates in other years. The Tribunal upheld the CIT(A)'s decision, finding no infirmity in the order.

2. Addition under Section 69 for Unaccounted Purchases and Suppressed Stock:
The AO made an addition under Section 69, presuming unaccounted purchases or suppressed stock based on the estimated GP rate. The CIT(A) deleted this addition, stating that the AO had not provided any evidence of unaccounted purchases or suppressed stock and had based the addition on mere conjectures and surmises. The Tribunal agreed with the CIT(A), noting that the AO had verified the assessee's version during remand proceedings and accepted that there were no unaccounted purchases. The Tribunal found no reason to interfere with the CIT(A)'s order deleting the addition under Section 69.

3. Deduction under Section 54G for Long-Term Capital Gains on Transfer of Assets:
The assessee appealed against the CIT(A)'s order curtailing the deduction claimed under Section 54G. The AO had restricted the deduction to ?15,26,23,584, interpreting that the assessee could claim the benefit for investments made either within one year before or three years after the transfer, but not both. The Tribunal held that the assessee could invest part of the amount within one year before the sale and the balance within three years after the sale. The Tribunal directed the AO to verify the investments made by the assessee within these periods and allow the deduction accordingly.

4. Adjustment of Profit on Sale of Land and Building in Urban Areas under Book Profits:
The AO had adjusted the profit on the sale of land and building in urban areas, which was directly credited to the capital reserves in the assessee's books of account. The Tribunal directed the AO to first calculate the exemption under Section 54G as per its directions and then decide the issue of book profit adjustment accordingly.

Conclusion:
The Tribunal dismissed the revenue's appeals for both assessment years 2008-09 and 2009-10, upholding the CIT(A)'s deletion of additions on account of GP rate and Section 69. The Tribunal allowed the assessee's appeal in part, directing the AO to verify and allow the deduction under Section 54G and adjust the book profits accordingly. The order was pronounced in the open court on 27/05/2016.

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