2017 (6) TMI 1154 - AT - Income Tax

Addition u/s 40A - Held that - As per the terms of the contract, the amount has to be paid on the same day and given that there was no evening branch of any bank at Bayana, the assessee was left with no option but to make payment in cash and hence the case of the assessee is covered under Rule 6DD(g) of the Income Tax Rules. On perusal of the said rules, it is provided therein that where the payment is made in a village or town which on the date of such payment is not served by any bank to any person who ordinarily resides or is carrying on any business profession or auction in any such village or town, it shall be considered as an exceptional circumstance for making the cash payment. CIT(A) has given a finding that both the buyer and seller are functioning in an area where ample banking facilities are available. The said finding has not been controverted by the assessee. Further, the Rules provides that on the date of payment, the place where the payment is made is not served by any bank. The Rules however have not provided for a situation as in the instant case where even though the place is served by the bank but at the relevant point in time (evening) when the payment is made, whether the place is served by the bank or not. In absence of the same, we are unable to accede to the contention of the ld. AR in respect of payment amounting to ₹ 2,13,314/- covered under Rule 6DD (g) of the Income Tax Rules. Accordingly, the assessee deserves relief to the extent of only ₹ 79,392/-. Addition on profit earned on unaccounted sales - Held that - Assessing Officer has worked out the unaccounted sale based on the impounded papers which clearly show the quantity of the material, rate, date & name of the party. Therefore, the contention of the ld. AR that these were rough estimates cannot be accepted and we accordingly confirmed the unaccounted sales as worked out by the Assessing Officer at ₹ 13,37,586/-. Regarding estimation of GP rate on the unaccounted sales, the ld. CIT(A) has applied the GP rate which is otherwise offered by the assessee herself in respect of accounted sales recorded in the books of accounts for the year under consideration. Where the GP rate of the same year is available, there is no justification for applying the average GP rate for last 3 years as done by the Assessing Officer. We accordingly, confirmed the action of the ld. CIT(A) in confirming the profit earned on unaccounted sales amounting to ₹ 4,14,652/-.

Summary

Issues Involved:
1. Sustaining the addition of ?2,92,706/- under Section 40A(3) of the Income Tax Act, 1961.
2. Addition of ?4,14,652/- by applying a Gross Profit (G.P.) rate of 31% on alleged unaccounted sales of ?13,37,586/-.
3. Sustaining the addition of ?1,25,105/- on account of unexplained investment in unaccounted purchases.
4. Sustaining the addition of ?61,873/- on account of excess stock.

Issue-wise Detailed Analysis:

1. Sustaining the Addition of ?2,92,706/- Under Section 40A(3):
The assessee challenged the addition of ?2,92,706/- made by the Assessing Officer (AO) under Section 40A(3) for making cash payments exceeding ?20,000/-. The assessee argued that the payments were made under exceptional circumstances as per Rule 6DD(g) & (j) of the Income Tax Rules, 1962. The AO disallowed these payments, but the CIT(A) sustained the addition. The Tribunal noted that one payment of ?79,392/- made on a public holiday (Christmas) was covered under Rule 6DD(j) and thus deserved relief. However, for the remaining payments totaling ?2,13,314/-, the Tribunal found no evidence to support the claim that these payments were made in a village or town not served by a bank, as required by Rule 6DD(g). Consequently, the Tribunal allowed relief for ?79,392/- but upheld the addition for the remaining amount of ?2,13,314/-.

2. Addition of ?4,14,652/- by Applying G.P. Rate of 31% on Alleged Unaccounted Sales:
The AO made an addition of ?3,34,397/- by applying a G.P. rate of 25% on alleged unaccounted sales based on loose papers found during a survey. The CIT(A) enhanced this addition to ?4,14,652/- by applying a G.P. rate of 31%, which was the rate declared by the assessee for the year under consideration. The assessee argued that the loose papers contained only rough estimates and not actual transactions. The Tribunal confirmed the unaccounted sales as worked out by the AO at ?13,37,586/- and upheld the CIT(A)'s application of the G.P. rate of 31%, dismissing the assessee's grounds on this issue.

3. Sustaining the Addition of ?1,25,105/- on Account of Unexplained Investment in Unaccounted Purchases:
The AO alleged unaccounted purchases of ?1,25,105/- based on loose papers. The assessee contended that these were rough calculations and that the addition would result in double counting since unaccounted sales had already been added. The CIT(A) allowed telescoping of this addition with the addition made on account of unaccounted sales, resulting in no separate addition. The Tribunal found the CIT(A)'s decision appropriate and dismissed the grounds as infructuous.

4. Sustaining the Addition of ?61,873/- on Account of Excess Stock:
During a survey, the stock was valued at ?8,65,436/- against ?8,03,563/- in the books, leading to an addition of ?61,873/-. The assessee argued that the difference was due to incorrect valuation of red and pink stone blocks. The CIT(A) sustained the addition but allowed telescoping with the addition for unaccounted sales. The Tribunal agreed with the CIT(A) and dismissed the grounds as infructuous.

Conclusion:
The Tribunal partly allowed the appeal, granting relief for ?79,392/- under Section 40A(3) but upheld the remaining additions. The grounds related to unexplained investment in unaccounted purchases and excess stock were dismissed as infructuous due to telescoping. The decision was pronounced in the open court on 08/02/2017.