2016 (12) TMI 613 - AT - Income Tax

Rejection of books of account - addition applying net profit rate at 9.75% subject to interest and depreciation and subject to income declared by the assessee - Held that - As in assessee s own case for assessment year 2005-06 and 2007-08 we modify the order of the ld. CIT(A) on this issue with the direction to the AO to apply the net profit rate of 9.75% subject to depreciation and interest. Apropos rejection of books of account it was submitted that Coordinate Bench has been taking consistent view that interest and depreciation is to be allowed for application for net profit rate. Therefore the rejection of books of account is upheld. The ground raised in respect of rejection of books of account is dismissed. Addition in respect of interest on FDR 13, 78, 700/- which comes to 2, 75, 740/-. Before the ld. CIT(A) the issue was raised who observed that the expenses are not fully verifiable but some disallowances were considered by him justified and the ld. CIT(A) thus disallowed the expenses to the extent of 1, 37, 870/- . Hence in view of the above facts and circumstances we concur with the finding of the ld. CIT(A) on this issue Addition u/s 69B - without making any reference to the Valuation Officer s valuation report - Held that - The AO has made this addition on the ground that the assessee was required to furnish the details of expenditure incurred for building construction during the year under consideration. The AO observed that the case of the assessee has been referred to the Valuation Cell in the preceding year. The Valuation Officer for the year under consideration has determined the value at 8, 44, 645/- as against 6, 00, 000/- declared by the assessee. We find that the order of the ld. CIT(A) is cryptic and non-speaking. Therefore the order of the ld. CIT(A) is set aside and the finding of the AO is upheld. - Decided in favour of revenue Addition on account of unexplained cash deposit into the bank - Held that - DR insisted that findings of the ld. CIT(A) may be modified to the extent of that the AO would be at liberty to verify claim of the assessee in relevant assessment year. We therefore modify the findings of the ld. CIT(A) to the extent that the AO would be at liberty to verify the claim of the assessee in the relevant assessment year. Addition on sales tax refund - AO treated the same as income from other sources - Held that - The contention of the assessee is that once books are rejected ad profit is estimated then no separate addition in respect of sales tax refund ought to have been made. In our considered view this issue needs reconsideration at the end of AO. Hence this issue is restored to AO s file for decision afresh.

Issues Involved:
1. Rejection of books of account.
2. Application of net profit rate.
3. Treatment of interest received on FDR & NSC.
4. Disallowance of sales and administrative expenses.
5. Trading addition in petrol pump account.
6. Addition u/s 69B.
7. Addition of unexplained cash deposits.
8. Sales tax refund treatment.

Detailed Analysis:

1. Rejection of Books of Account:
The assessee's books of account were rejected under section 145(3) of the I.T. Act by the AO. The CIT(A) upheld this rejection. The Tribunal concurred with the CIT(A), maintaining the rejection of the books of account.

2. Application of Net Profit Rate:
The AO estimated the net profit rate at 9.75% without allowing interest benefits. The CIT(A) modified this to include depreciation and interest. The Tribunal upheld the CIT(A)'s decision, directing the AO to apply a net profit rate of 9.75% subject to depreciation and interest, aligning with precedents from prior years.

3. Treatment of Interest on FDR & NSC:
The AO treated the gross interest received on FDR & NSC as income from other sources. The CIT(A) upheld this. The Tribunal restored the issue to the AO to verify if the FDRs were made for performance guarantees, which, if proven, would classify the interest as business income.

4. Disallowance of Sales and Administrative Expenses:
The AO disallowed 20% of the sales and administrative expenses due to unverifiable bills. The CIT(A) reduced this disallowance to 10%. The Tribunal upheld the CIT(A)'s decision, finding the 10% disallowance reasonable.

5. Trading Addition in Petrol Pump Account:
The AO made a trading addition by applying a gross profit rate of 1.67%. The CIT(A) deleted this addition. The Tribunal upheld the CIT(A)'s deletion, finding the CIT(A)'s estimation reasonable.

6. Addition u/s 69B:
The AO made an addition of ?2,44,645/- based on a Valuation Officer’s report. The CIT(A) deleted this addition. The Tribunal found the CIT(A)'s order cryptic and non-speaking, thus setting aside the CIT(A)'s order and upholding the AO's addition.

7. Addition of Unexplained Cash Deposits:
The AO added ?78,53,000/- as unexplained cash deposits based on AIR information. The CIT(A) deleted this addition, noting the transaction pertained to A.Y. 2010-11. The Tribunal modified the CIT(A)'s finding, allowing the AO to verify the claim in the relevant assessment year.

8. Sales Tax Refund Treatment:
The AO treated the sales tax refund as income from other sources. The CIT(A) directed to assess it under business income as remission of liability u/s 41(1). The Tribunal restored the issue to the AO for reconsideration, directing the AO to afford sufficient opportunity to the assessee.

Conclusion:
The Tribunal's decision resulted in partial relief for both the assessee and the Revenue, with several issues remanded back to the AO for further verification and appropriate action. The Tribunal emphasized consistency with prior decisions and the necessity for thorough verification in certain instances.

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