2016 (7) TMI 26 - AT - Income Tax

Estimation of net profits - rejection of books of account - Held that - Assessing Officer without pointing out any defect in sales and purchases, opening and closing stock rejected the books of account by just holding that assessee had not booked the expenditure whereas the learned CIT(A) has made a finding of fact that the expenditure was duly booked in the books of account and was reflected in the P&L accounts and payments thereof were made through bank account and in view of the above facts the rejection of books of account was not justified specially keeping in view the fact that Assessing Officer did not find any deficiency in the sales, purchases, opening stocks and closing stock of the assessee. The contention of the Assessing Officer that rent expenditure of 17,13,388/- was incurred out of unexplained sources is also not correct as learned CIT(A) in this respect has made a clear finding of fact and therefore, the basis which was taken by Assessing Officer for rejection of books of account is also not valid. The Assessing Officer without comparing earlier year results of the assessee applied 6% net profit rate without any basis and therefore, action of learned CIT(A) in deleting such addition is justified. Similarly, the assessee had declared the income on account of Duty drawback etc. separately in P&L account and therefore, the addition was not justified and learned CIT(A) has rightly deleted the same.- Decided in favour of assessee Addition on rent payment - addition u/s 69C - Held that - The appellants books of account are audited. It was stated that the books of accounts along with bank account, vouchers were produced with supporting evidence during the course of hearing to prove that these expenditure are duly recorded in the books. The payments were vouched for. The appellant has placed the complete detail of payments. We find that Assessing Officer made the addition without any basis and which learned CIT(A) had rightly deleted.- Decided in favour of assessee

Summary

Issues:
1. Addition of ?18,43,355 on turnover
2. Addition of ?6,88,437 on DEPB, discount, and Duty drawback
3. Addition of ?17,13,388 on license fees

Analysis:

Issue 1: Addition on Turnover
The Revenue appealed against the deletion of ?18,43,355 addition on the turnover declared by the assessee at ?3,07,22,588. The Revenue argued that the books of accounts were unreliable as total expenditures were not recorded, leading to the estimation of profits at 6% by the Assessing Officer. The Revenue contended that the CIT(A) erred in deleting the addition without considering the unreliability of the books of account. However, the assessee, engaged in carpet export, defended that the profits were audited and included the income from Duty drawback, discount, and DEPB. The CIT(A) found that the expenditures were duly recorded, leading to the deletion of the addition. The Tribunal upheld the CIT(A)'s decision, emphasizing that the rejection of books was unjustified as expenditures were properly recorded, and the addition based on estimated profits was not valid.

Issue 2: Addition on DEPB, Discount, and Duty Drawback
The Revenue challenged the deletion of the ?6,88,437 addition on DEPB, discount, and Duty drawback by the CIT(A). The Revenue argued that since these incomes were already included in the P&L account, no separate addition was warranted. The Tribunal agreed with the CIT(A)'s decision, stating that the addition was not justified as these incomes were already declared in the P&L account.

Issue 3: Addition on License Fees
Regarding the addition of ?17,13,388 on license fees, the Revenue contended that the expenditure was unexplained and not booked in the accounts. However, the CIT(A) found that the expenditure was properly recorded and supported by evidence, leading to the deletion of the addition. The Tribunal upheld the CIT(A)'s decision, stating that the Assessing Officer made the addition without a valid basis, and the CIT(A) rightly deleted it.

In conclusion, the Tribunal dismissed the Revenue's appeal, upholding the CIT(A)'s decision to delete the additions made by the Assessing Officer. The Tribunal found no infirmity in the CIT(A)'s order and ruled in favor of the assessee.