2017 (11) TMI 1236 - AT - Income Tax

Trading addition - gross profit rate determination - rejection of books of account - Held that - Undisputedly, the books of account have been rejected under section 145(3) and the assessee has not challenged such rejection of books of account. Regarding the estimation of gross profit rate, the assessee has not satisfactorily explained the reason for the fall in the gross profit rate from 7.3 per cent. last year to 6.04 per cent. this year except for the fact that the turnover has increased over the last year which has put pressure on the gross margins in the business. The Assessing Officer has compared the results with another liquor contractor who has declared a gross profit of 13.92 per cent. and has applied the same in the instant case without highlighting the comparability parameters. The learned Commissioner of Income-tax (Appeals) has accepted the assessee s contention regarding pressure on the gross margins in view of increase in the turnover and at the same time, looking at the past history, estimated the gross profit rate of seven per cent. In the peculiar facts and circumstances of the case where there is no satisfactory explanation to substantiate the fall in the gross profit rate, we find the approach of the learned Commissioner of Income- tax (Appeals) was reasonable where he has followed the past history of the assessee. In the result, the grounds taken by both the assessee and the Revenue are dismissed. Additions under section 68 - Held that - The cash deposits in the bank account has been examined by the jurisdictional Assessing Officer of Shri Mahendra Singh and the same has been accepted as evidenced by order passed under section 143(3) read with section 147 of the Act dated February 23, 2016 which is available on record. Apparently, the said order under section 143(3) read with section 147 has been passed subsequent to the order of the learned Commissioner of Income-tax (Appeals) but facts remain that the cash deposited has been found duly explained in his own assessment proceedings. In light of the same, there cannot be any basis to add the same amount in the hands of the assessee under section 68 of the Act. In the result, the Department s appeal to this extent is dismissed. Not allowing set off of trading additions against the addition of cash credit confirmed by him confirmed.

Summary

Issues Involved:
1. Gross Profit Rate Application
2. Addition of Unexplained Cash Credits under Section 68
3. Set-off of Trading Addition against Addition of Cash Credit

Detailed Analysis:

1. Gross Profit Rate Application:
Facts:
The assessee, engaged in liquor trading, declared a gross profit rate of 6.04% for the assessment year 2009-10, down from 7.29% in the preceding year. The Assessing Officer (AO) rejected the books of account under Section 145(3) due to non-production of books and applied a gross profit rate of 13.92%, resulting in a trading addition of ?23,49,473.

Assessee's Argument:
The assessee argued that the gross profit rate should not be altered as the purchases were from the Government and sales were petty retail transactions. The decline in gross profit rate was due to a significant increase in turnover.

Commissioner of Income-tax (Appeals) [CIT(A)] Findings:
The CIT(A) upheld the rejection of books but reduced the gross profit rate to 7%, leading to a trading addition of ?2,85,181.

Tribunal's Decision:
The Tribunal found the CIT(A)’s approach reasonable, considering the past history and the increase in turnover. Both the assessee's and Revenue's grounds on this issue were dismissed.

2. Addition of Unexplained Cash Credits under Section 68:
Legal Propositions:
The Tribunal outlined several legal propositions for Section 68, emphasizing the need to establish the identity, creditworthiness, and genuineness of transactions.

Detailed Examination of Cash Creditors:

- Ravi Kant (?1,00,000):
- Findings: Assessee failed to produce sufficient evidence regarding the creditor's identity, creditworthiness, and genuineness of the transaction.
- Decision: Addition confirmed.

- Anil Kumar (?33,48,500):
- Findings: Assessee provided sufficient documentation, including confirmation, bank statements, and source of funds from RIICO.
- Decision: Addition deleted.

- Bhishan Singh (?28,10,000):
- Findings: Cash deposits in the creditor's account before issuing the cheque were unexplained.
- Decision: Addition confirmed.

- Mangal Singh (?7,20,000):
- Findings: Despite producing the creditor, the source of cash deposits remained unexplained.
- Decision: Addition confirmed.

- Raju/Satpal Tanwar (?16,74,700):
- Findings: Inconsistent explanations and unexplained cash deposits in the creditor's account.
- Decision: Addition confirmed.

- Rakesh Chiwa/Bhukar (?5,00,000):
- Findings: Multiple name changes and failure to establish creditworthiness.
- Decision: Addition confirmed.

- Bhagirath Singh Shekhawat (?7,20,000):
- Findings: Adequate documentation provided, including audited books and regular tax assessments.
- Decision: Addition deleted.

- Vikram Singh (?2,30,000):
- Findings: Sufficient cash balance in the creditor's books before issuing the cheque.
- Decision: Addition deleted.

- Jagdish Singh (?2,00,000):
- Findings: Adequate documentation provided, including audited books and regular tax assessments.
- Decision: Addition deleted.

- Thawaria Singh (?1,00,000):
- Findings: Creditor's cash deposits were accepted in his own assessment proceedings.
- Decision: Addition deleted.

- Nisha Devi (?6,00,000):
- Findings: Creditor explained the source of funds and was regularly assessed to tax.
- Decision: Addition deleted.

- Vinita Devi (?34,65,000):
- Findings: Cash deposits in the creditor's account were accepted in her own assessment proceedings.
- Decision: Addition deleted.

- Mahendra Singh (?58,48,000):
- Findings: Creditor's cash deposits were explained and accepted in his own assessment proceedings.
- Decision: Addition deleted.

3. Set-off of Trading Addition against Addition of Cash Credit:
Assessee's Argument:
The assessee argued for setting off the trading addition against the addition of cash credits confirmed by the CIT(A).

Tribunal's Decision:
The Tribunal found no infirmity in the CIT(A)’s order and dismissed the assessee's ground.

Conclusion:
The Tribunal's decision resulted in partly allowing the appeals of both the assessee and the Revenue, with specific additions confirmed or deleted based on the detailed examination of each cash credit transaction. The gross profit rate was reasonably adjusted to 7%, and the set-off of trading addition against cash credits was denied.