2017 (11) TMI 1547 - AT - Income Tax

Addition u/s 68 - Held that - In all the creditors case, the reliance of the ld. CIT(A) was only on the PAN card or the ITR, was not sufficient to establish the creditworthiness of these people. Further, it is also noticed that the Assessing Officer was asked to submit the remand report and he has noted that the assessee has not filed copy of bank statement of the persons from whom the loans were taken by the assessee. However, the Assessing Officer has not asked the assessee to submit such documents in the remand proceedings. Considering the totality of the facts and circumstances of the case, we find it appropriate to restore the issue to the file of the Assessing Officer wherein the assessee shall be at liberty to file necessary documents to establish the creditworthiness of all the creditors and the Assessing Officer shall decide the issue afresh Disallowance U/s 80C - Held that - Assessee has paid life insurance premium of ₹ 50,000/- to Max New York Life Insurance Co. Ltd. on 18.09.2011. Copy of insurance premium receipt and policy owner data is at PB 23-24. These documents were also produced during assessment proceedings but AO incorrectly held that assessee has not filed any proof of payment and disallowed the deduction. Thus we are of the view that the ld. CIT(A) was justified in deleting the addition. Addition u/s 40A((2)(b)- Disallowance being 25% of the commission paid to three persons - Held that - It is noticed that all the three persons were regularly assessed to tax and necessary TDS was also deducted. It was paid to the persons, who were relatives of the assessee. It was not wholly and exclusively for the purpose of business. It was excessive payment in view of the provisions of Section 40A of the Act. Thus, there is no clear cut finding that on what basis this payment was held to be excessive or unreasonable. Therefore, we direct to delete the addition. Rejection of books of account - trading addition - Held that - We find that there was discrepancy in the reconciliation of TDS/TCS as per Income tax Return and as per Form 26AS. Further there was decline in the gross profit. The reason provided by the assessee are not convincing, therefore, we are of the view that the Assessing Officer has rightly rejected the books of account, which has been sustained by the ld. CIT(A). Assessing Officer and the ld. CIT(A) were quite reasonable in making and sustaining the gross profit rate @ 3.5% while it was 3.91% in the immediate preceding year and 4.99% in the year prior to the immediate preceding year. The Hon ble Rajasthan High Court has ruled that average of the past years G.P. is good criteria to estimate the G.P. rate. When the books of account do not reflect the true affairs of income of the assessee then estimate based in past years gross profit is justified. In assessee s case, it was even estimated less in comparison to immediate preceding year. The estimate @ 3.5% instead of 3.91% shall take care of fall in g.p. if any on account of increase in turnover and other factors as pleaded by the ld AR. Therefore we sustain the order of the ld. CIT(A). - Decided against assessee.

Issues Involved:
1. Deletion of addition under Section 68 of the Income Tax Act.
2. Deletion of disallowance under Section 80C of the Income Tax Act.
3. Confirmation of disallowance of commission paid.
4. Confirmation of rejection of books of account and trading addition.

Detailed Analysis:

1. Deletion of Addition under Section 68 of the Income Tax Act:
The primary issue in the revenue's appeal was the deletion of an addition of ?60,49,000 made by the Assessing Officer (A.O.) under Section 68. The assessee had raised a total of ?67,49,000 during the year, repaying ?7,00,000, leaving ?60,49,000 outstanding. The CIT(A) granted relief by considering additional evidence and remand reports, concluding that the assessee had discharged the onus of proving the identity, genuineness, and creditworthiness of the creditors. However, the Tribunal found that simply providing PAN cards and ITRs was insufficient to establish creditworthiness. The Tribunal restored the issue to the A.O. for fresh consideration, allowing the assessee to submit necessary documents to establish the creditworthiness of the creditors.

2. Deletion of Disallowance under Section 80C of the Income Tax Act:
The second issue involved the deletion of a disallowance of ?50,000 made by the A.O. under Section 80C. The CIT(A) allowed the deduction based on evidence of payment towards insurance premium. The Tribunal upheld the CIT(A)'s decision, noting that the assessee had provided sufficient proof of payment, thereby justifying the deletion of the disallowance.

3. Confirmation of Disallowance of Commission Paid:
In the assessee's cross-objection, the issue was the confirmation of a disallowance of ?3,47,600, representing 25% of the commission paid to three individuals. The CIT(A) upheld the A.O.'s decision, citing that the assessee had not fully discharged the onus of proving that the commission was paid for business purposes and was commensurate with the services rendered. The Tribunal, however, found that the disallowance lacked a clear basis for determining excessiveness or unreasonableness and directed the deletion of the addition.

4. Confirmation of Rejection of Books of Account and Trading Addition:
The final issue was the confirmation of the rejection of books of account and a trading addition of ?3,99,167. The CIT(A) upheld the A.O.'s decision to estimate the gross profit (G.P.) rate at 3.5% due to discrepancies in TDS/TCS reconciliation and a decline in G.P. The Tribunal agreed with the CIT(A), noting that the reasons provided by the assessee for the decline in G.P. were unconvincing. The Tribunal sustained the rejection of books and the trading addition, considering the estimate reasonable in light of past G.P. rates.

Conclusion:
The Tribunal partly allowed the revenue's appeal for statistical purposes and partly allowed the assessee's cross-objection, directing a fresh examination of the creditworthiness of creditors under Section 68 and deleting the disallowance of commission paid while sustaining the rejection of books of account and trading addition.

← Previous Next →