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2016 (12) TMI 558 - AT - Income TaxGP addition - rejection of books - estimation of income - Held that - The Assessee has also admitted that the purchases made of milk in the month of March have been recorded in the month of April and this practice has been followed regularly. The milk has been purchased in cash and in most of the cases no invoices were available therefore the affairs of the assessee are not open for verification. Under these circumstances the AO has rightly invoked the provision of section 145(3) of the Act which is upheld. As regards the estimation of income, it is noted from the records that the assessee has declared the total turnover of ₹ 5.93 crores which was estimated by the AO at ₹ 6.5 crores and reduced by ld. CIT(A) to ₹ 6.25 crores. The estimation made by AO is solely for the reason that certain sales against free coupons issued is not recorded for which it is explained that the free coupons were issued as a marketing strategy and free distribution of the material could not be forming part of the sales and the corresponding receipts from the dealers as security deposits is separately kept under the head Security Deposits . Therefore there is no occasion for recording the same under the head Sales . Under these circumstances the turnover declared by the assessee should not be disturbed more particularly when the assessee s record are subject to examination by Central Excise and VAT authorities who have not doubted the turnover declared in the year under appeal. Determination of GP rate - the turnover of the assessee has been on increasing trend and it is an established principal of marketing that the turnover would be increased by lowering the profit margins. In this case certain deficiencies were pointed out by the AO including the recording of purchases of the month of March in April for which it was explained that same process is applied every year and if the effect of the purchases recorded in the month of April for the purchases made in month of March of preceding assessment year vis- -vis the purchases of the month of March of the year under appeal recorded in subsequent assessment year is considered the resultant figure is worked out at ₹ 2,32,659/- by which at the most the profit is deflated. Thus GP of preceding assessment year is to be applied on the declared turnover of ₹ 5,93,59,027/- (5,93,59,027x 14.70% 87,25,776) which has resulted into the GP of ₹ 87,25,776/- as against the GP declared at ₹ 81,77,000/- shown by the assessee and accordingly an addition of ₹ 5,48,776/- ( ₹ 87,25,776 minus ₹ 81,77,000) is hereby confirmed to cover up all the possible leakage of the revenue Addition on forfeited security deposit which has not been shown as income - Held that - During the course of hearing assessee referred to the computation of total income of the assessee s paper book wherein depreciation chart is showing a sum of ₹ 14,18,501/- as sales and was reduced from the written down value of plant & machinery. It is contended that the assessee has claimed depreciation on such deep freezers and the amount of security forfeited has been reduced from the written down value and the depreciation was claimed on such reduced value. Therefore, there is no occasion to declare such receipts separately in the Profit & Loss Account. After verification of these facts from the assessee s paper book page 99, it is found that as against the total amount of ₹ 14,20,581/-(as per AO s order page 11) assessee has reduced the value of plant & machinery by ₹ 14,18,501/- therefore the same is hereby directed to be deleted and the balance amount of ₹ 2,080/- is hereby upheld. - Decided partly in favour of assessee Non deduction of tds on interest paid - addition u/s 40(a)(ia) - Held that - It is noted from the record that the tax was not deducted on the payment of interest however the assessee has submitted the certificate in Form 26A duly signed by a chartered accountant stating that the due tax on such interest has been paid by the recipient. The Finance Act, 2012 has made an amendment in section 40(a)(ia) through which a proviso was inserted w.e.f. 01.04.2013 wherein it has been cleared that the recipient has paid the tax and assessee is not deemed to be in default under the first proviso to sub section 1 of section 2001 then for the purpose of section 40(a)(ia) it shall be deemed that the assessee has deducted and paid tax on such sum subject to furnishing on the certificate by the chartered accountant. Thus no deduction could be made u/s 40(a)(ia) if the assessee is not declared as assessee in default u/s 201(1) for which the necessary certificate is claimed to have been furnished before the lower authorities. Therefore direct the AO to verify this fact and if the claim of the assessee is found correct, no disallowance be made on this account. Hence Ground of the assessee is set aside to the file of the AO for making necessary verification and this ground of the assessee is allowed for statistical purposes.
Issues Involved:
1. Application of Section 145(3) of the Income Tax Act, 1961. 2. Addition on account of trading addition. 3. Addition on account of security deposit accepted against deep freezers. 4. Disallowance under Section 40(a)(ia) of the Income Tax Act, 1961. Issue-Wise Detailed Analysis: 1. Application of Section 145(3) of the Income Tax Act, 1961: The assessee, engaged in manufacturing and trading ice cream, declared a turnover of ?5.93 crores with a Gross Profit (GP) rate of 13.77%. The Assessing Officer (AO) detected defects in the books of accounts, including cash purchases of milk without bills, non-maintenance of a day-to-day stock register, and recording March purchases in April. Consequently, the AO invoked Section 145(3), estimating the turnover at ?6.5 crores and applying a GP rate of 16%, resulting in a trading addition of ?22.23 lakhs. The CIT(A) upheld the application of Section 145(3) but adjusted the turnover to ?6.25 crores and the GP rate to 15%, confirming a trading addition of ?11.98 lakhs. The Tribunal upheld the invocation of Section 145(3) due to the non-verifiability of milk consumption and production of ice cream, but it did not disturb the declared turnover of ?5.93 crores. The Tribunal applied the preceding year's GP rate of 14.70%, resulting in a GP of ?87.25 lakhs and an addition of ?5.48 lakhs. 2. Addition on Account of Trading Addition: The AO's estimation of turnover at ?6.5 crores and application of a 16% GP rate was reduced by the CIT(A) to a turnover of ?6.25 crores and a 15% GP rate, resulting in a trading addition of ?11.98 lakhs. The Tribunal, considering the consistent practice of recording March purchases in April and the increasing trend in turnover, applied the preceding year's GP rate of 14.70% on the declared turnover of ?5.93 crores. This resulted in a GP of ?87.25 lakhs and an addition of ?5.48 lakhs, covering possible revenue leakage. 3. Addition on Account of Security Deposit Accepted Against Deep Freezers: The AO added ?14,20,581/- as forfeited security deposits not shown as income. The CIT(A) confirmed this, stating the forfeited amount was received in the normal course of business and not reduced from the Written Down Value (WDV) of plant and machinery. The Tribunal found that ?14,18,501/- was reduced from the WDV of plant and machinery, as evidenced in the depreciation chart and audit report. Therefore, the addition of ?14,18,501/- was deleted, and only ?2,080/- was upheld. 4. Disallowance Under Section 40(a)(ia) of the Income Tax Act, 1961: The AO disallowed ?2,74,132/- paid as interest to Religare Finance Ltd. without TDS deduction, despite the assessee submitting Form 26A certifying tax payment by the recipient. The CIT(A) upheld the disallowance, stating the proviso to Section 40(a)(ia) was applicable from AY 2013-14. The Tribunal, referencing the Delhi High Court's decision in CIT Vs. Ansal Landmark Township Pvt. Ltd. and the ITAT Agra Bench in Rajeev Kumar Agarwal Vs. Addl. CIT, held the proviso as retrospective and curative from 01.04.2005. The AO was directed to verify the certificate and, if correct, not to disallow the amount. Conclusion: The appeal was partly allowed, with adjustments to the trading addition and deletion of the security deposit addition, while the disallowance under Section 40(a)(ia) was remanded for verification. The Tribunal emphasized the need for a fair assessment based on verified records and consistent practices.
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