2017 (8) TMI 270 - AT - Income Tax

GP rate addition - Held that - The basis of the addition is the average of the G.P. rate taken by the ld. AO from the submission of the ld. AR which was apparently not verified by him from the records and from the copies of the audited balances sheet which were duly accepted by the department in the earlier years, furnished by the appellant. It is seem that the G.P. rate for the earlier two years i.e A.Y. 2006-07 and 2007-08 was 1.51 % and 3.30% respectively and the average of the two comes to 2.40% as against re G.P. rate in the year under consideration at 4.1% with increased turnover by more than double. Thus, it is clear that the addition was made by the Id. AO on the basis of wrong figure inadvertently provided by the Id. AR during the assessment proceeding. In fact the G.P. rate is much better in the year consideration as compared to earlier years and hence no addition is called for. Therefore, the addition made by the ld. AO is directed to be deleted. - Decided in favour of assessee. Addition of renovation expenses - Held that - Keeping in view the fact that the turnover has doubled during the year and the appellant has opened one more outlet for which a copy of the lease deed was also filed, I am of the considered opinion that some expenses must have been incurred for the renovation and upkeep of the business purpose, hence it will be appropriate to allow the expenses incurred by cheque and the disallowance of the balance amount is confirmed resulting into partial relief to the appellant. Addition on account of unsecured loans - occurrence of fire - Held that - Once the tax auditor has audited the books of accounts of assessee much before the fire accident and has mentioned the figure of unsecured loan of ₹ 43,88,880/- from Rakesh Gupta, the contention of the assessee that the assessee received only ₹ 5 lacs from Rakesh Gupta cannot be accepted on the pretext that the reconciliation of the difference could not be made due to dislocation and overlapping of records in the fire accident. The assessee has also placed debtors and creditors list but the same are not found certified by any auditor. Moreover, the PAN mentioned at the confirmation filed before the CIT(A) was found wrong and the assessee at any stage has failed to produce Shri Rakesh Gupta to verify the true state of affairs. The assessee has placed tax audit report in the paper book before us, but on perusal of this audit report, we find that relevant annexures to the items mentioned under Sl. No. 24(a) of the audit report, i.e., Particulars of each loan or deposit in an amount exceeding the limit specified in section 269SS taken or accepted during the previous year , have not been filed in the paper book, to verify the alleged reconciliation given by assessee. - Decided against assessee.

Summary

Issues Involved:
1. Deletion of addition on account of Gross Profit rate.
2. Deletion of addition out of renovation expenses.
3. Deletion of addition on account of unsecured loans.
4. Deletion of addition of claimed payable amounts added to income.

Issue-wise Detailed Analysis:

1. Deletion of Addition on Account of Gross Profit Rate:
The Revenue challenged the deletion of ?36.19 lacs added by the Assessing Officer (AO) due to a discrepancy in the Gross Profit (GP) rate. The AO had applied a GP rate of 6.5% after rejecting the books of account, contrasting with the 4.1% declared by the assessee. The AO's calculation was based on the previous years' GP rates, which were 9.31% for AY 2005-06 and 3.3% for AY 2006-07, resulting in an average GP of 6.3%. The assessee argued that the GP rate for FY 2005-06 was incorrectly stated as 9.13% instead of the actual 1.51%. The CIT(A) found that the average GP rate for the previous two years was 2.40%, and the GP rate for the current year was 4.1%, which was higher. Therefore, the addition by the AO was based on incorrect figures, and the CIT(A) deleted the addition. The Tribunal upheld the CIT(A)'s decision, noting no material on record to discard the findings.

2. Deletion of Addition out of Renovation Expenses:
The AO disallowed ?5,07,202/- claimed as renovation expenses, treating it as capital expenditure. The assessee contended that these were revenue expenses incurred for the repair and maintenance of business premises. The CIT(A) allowed ?4,07,202/- paid through banking channels but disallowed ?1,00,000/- paid in cash due to lack of vouchers. The Tribunal upheld the CIT(A)'s decision, noting that the turnover had doubled, and similar expenses were allowed in the previous year.

3. Deletion of Addition on Account of Unsecured Loans:
The AO added ?43,88,880/- as unexplained cash credit under Section 68 of the Act, as the assessee failed to provide details or confirmation from Rakesh Gupta. The assessee later submitted that only ?5,00,000/- was taken from Rakesh Gupta, and the remaining credits were wrongly entered due to dislocation of records caused by a fire. The CIT(A) accepted the reconciliation and deleted the addition. However, the Tribunal found that the tax audit report, prepared before the fire, showed ?43,88,880/- as an unsecured loan from Rakesh Gupta. The Tribunal noted discrepancies in the PAN and the failure to produce Rakesh Gupta for verification. Thus, the Tribunal allowed the Revenue's appeal, reinstating the addition.

4. Deletion of Addition of Claimed Payable Amounts Added to Income:
The AO added ?54.54 lacs as unconfirmed credit balances, as notices sent to creditors were returned unserved, and the assessee failed to provide confirmations. The CIT(A) deleted the addition after considering additional evidence and remand reports. The Tribunal noted that the major part of the amount had been accepted by the AO, and the Revenue did not press this ground. Therefore, the Tribunal dismissed this ground of appeal.

Conclusion:
The Tribunal upheld the CIT(A)'s decisions on the deletion of additions related to the GP rate and renovation expenses but reinstated the addition related to unsecured loans due to discrepancies and lack of verification. The appeal of the Revenue was partly allowed.