2016 (8) TMI 992 - AT - Income Tax

G.P. determination - rejection of books of accounts - Held that - As in the given circumstances, where the assessee has shown better GP rate and no major defect has been pointed in the books of account, ld. Assessing Officer erred in rejecting books of account and therefore, no addition is sustainable by applying estimated GP rate @ 20%. We find no reason to interfere with the finding with regard to the issue of deleting the addition on account of GP rate. However, with regard to the addition of ₹ 1,54,937/- on account of 20% disallowance on unverifiable purchases of ₹ 7,74,687/- we find that all these purchases are relating to perishable items namely, milk, fruits, vegetables, curd etc. and cooking gas which are to be sought after by the assessee from different suppliers and there is practical difficulty of gathering supporting documents and, therefore, in the given circumstances when the assessee has shown better GP rate and financial statements are audited u/s 44AB of the Act and the disallowance made by lower authorities is fairly on an estimate basis, we find no reason for such disallowance and, therefore, we delete the same. Addition made u/s 69 for unexplained investment - Held that - As the assessee s financial statements have been accepted by the Revenue for Asst. Year 2007- 08 and addition made during the year under appeal emanates out of the opening balance of the capital account only and there is no evidence of any unrecorded investment in the case of assessee and, therefore, no addition was called for u/s 69 Credit for TDS - reopening of assessment - Held that - From going through the above provisions, we observe that when the assessee receives notice u/s 148 and is required to file return of income then as per the provisions of section 148 such return is treated at par as if same were required to be furnished u/s 139. Further when we move to the Rule 41 sub-rule(2) provides that the claim of TDS shall be accompanied by return in the form prescribed u/s 139 of the Act. Moving further when we go through the Rule 37BA(4) we find that credit for tax deducted at source and paid to the account of Central Government shall be granted on the basis of information relating to deduction of tax furnished by the deductor to the income-tax authority and the information provided in the return of income. Now when we link up the provisions of section 148 of the Act with Rule 41(2) and Rule 37BA(4) of IT Rules, we find that assessee filed return of income in the prescribed form in compliance with notice u/s 148 of the Act and provided all necessary information relating to TDS to the assessing authority and thereby satisfying all the conditions which are required for claiming refund. We are, therefore, of the view that in the given facts of the case when assessee s revenue has not been questioned and all necessary information in the form of return of income and TDS certificate were before the ld. Assessing Officer then the TDS credit ought to have been allowed.

Summary

Issues Involved:
1. Addition on account of estimation of gross profit.
2. Acceptance of opening capital balance.
3. Credit for TDS.

Issue-wise Detailed Analysis:

1. Addition on Account of Estimation of Gross Profit:

The assessee challenged the partial confirmation of the addition on account of the estimation of gross profit by the CIT(A). The CIT(A) had confirmed an addition of ?1,54,937 out of the total addition of ?7,09,229 made by the AO. The AO had rejected the assessee's books of accounts under section 145(3) due to unverifiable purchases and estimated the gross profit at 20% instead of the declared 15.82%. The CIT(A) observed that the assessee's gross profit rate was consistent with the average of the last three years and found no comparable case to justify the AO's estimation. However, the CIT(A) sustained a 20% disallowance on unverifiable purchases of ?7,74,687. The Tribunal found that the assessee's financial statements were audited, and the purchases related to perishable items for which proper bills were not practical. Therefore, the Tribunal deleted the disallowance of ?1,54,937 and allowed the assessee's appeal on this ground while dismissing the Revenue's appeal.

2. Acceptance of Opening Capital Balance:

The Revenue contended that the CIT(A) erred in accepting the explanation of the opening capital balance of ?60,85,758 without regular books of accounts for the preceding year. The AO had treated ?49,66,695 as unexplained investment under section 69 of the Act. The CIT(A) deleted the addition, stating that section 69 applies to investments not recorded in the books of accounts during the year, whereas the opening capital balance was carried forward from the previous year and recorded in the books. The Tribunal upheld the CIT(A)'s decision, noting that the assessee's audited financial statements for the previous years were accepted by the Revenue, and there was no evidence of unrecorded investments. Thus, the addition of ?49,66,695 was rightly deleted.

3. Credit for TDS:

The Revenue argued that the CIT(A) erred in directing to allow credit for TDS of ?3,96,191, ignoring Rule 37BA(4) and the fact that the assessee had not filed a valid return of income. The AO had denied the TDS credit as the return was not filed under section 139. The CIT(A) allowed the credit, noting that the return filed in response to notice under section 148 should be treated as a return under section 139. The Tribunal agreed, stating that the assessee had provided all necessary information and TDS certificates, satisfying the conditions for claiming the refund. Therefore, the Tribunal upheld the CIT(A)'s decision to allow the TDS credit.

Conclusion:

The Tribunal allowed the assessee's appeal regarding the addition on account of estimation of gross profit and dismissed the Revenue's appeal. The Tribunal also dismissed the Revenue's appeal on the issues of acceptance of opening capital balance and credit for TDS, upholding the CIT(A)'s decisions on these matters. The remaining grounds of the Revenue's appeal were general in nature and required no adjudication.