2017 (12) TMI 994 - AT - Income Tax

Rejection of books of accounts u/s.145(3) - G.P. rate determination - Held that - AO has not brought any material on record suggesting that the assessee was involved in selling liquor and not recording the same. Since, the purchase and sales are to be notified to State Excise Department as well, the AO has not brought any material suggesting that the State Excise Department has adversely reported about the sale and purchase. Under these undisputed facts, we are of the view that the Assessing Officer was not justified in rejecting the books of accounts. Further, even it is assumed that the books of accounts were not giving true picture of profit. The AO u/s 144 of the Act is under statutory duty to find out the profit declared by comparing with the similarly situated persons, if such information is not available in that event the Assessing Officer is required to deduce profit on the basis of average of last five years GP which is not done in this case. Hence, the action of the Assessing Officer rejecting the books of accounts is not justified. We therefore, direct the Assessing Officer to adopt gross profit @ 17.40% as declared by the assessee, as in this year there is an increase in sales. Ground no. 1 and 2 of the assessee s appeal are allowed. Addition u/s 69A - Held that - AO made addition on the basis that no confirmation by Shri O.P. Gupta. It is seem that the assessee has filed a copy of Power of Attorney given by Shri O.P. Gupta in favour of the assessee. The assessee has also filed bank s statements reflecting the debit entry about the money re-paid to Shri O.P. Gupta. It is also noticed that the Assessing Officer has not issued any summon to Shri O.P. Gupta for the purpose of verification the correctness of claim of assessee. In the absence of proper enquiry by the Assessing Officer, in our view, the addition is unjustified. Therefore, after considering the totality of the fact we deem it appropriate to set aside this issue to the file of the Assessing Officer for the purpose of verification afresh. Therefore, these grounds are allowed for statistical purpose. Addition invoking the provisions of section 69A - amount taken by the assessee from his wife - Held that - It is demonstrated by the assessee that this transaction is duly reflected in the books of accounts. The assessee has also filed income tax return of Smt. Sunita Devi. Therefore, we are of the view that authorities below were not justified in making the addition. The AO is directed to delete the addition. Thus, Ground no. 6 is allowed. Addition u/s. 68 as unexplained credits - Held that - We find that the assessee has not furnished any supporting evidences. Therefore, these grounds of the assessee s appeal are dismissed. disallowance @ 10% of expenses incurred on conveyance, business promotion and staff welfare on the ground of personal use - Held that - As seen that the assessing Officer has made disallowance on the basis of surmises. Since, the disallowance is made on the basis of conjecture and surmises without basing the disallowance on material evidence. Therefore, we direct the AO to delete the addition.

Issues Involved:
1. Rejection of books of accounts under Section 145(3) of the Income Tax Act, 1961.
2. Application of Gross Profit (GP) rate of 20% by the Assessing Officer (AO) against the declared GP rate of 17.40%.
3. Addition of ?24,00,000/- under Section 69A of the Income Tax Act as unexplained money.
4. Addition of ?5,00,000/- under Section 69A of the Income Tax Act regarding money given by Shri Vijay Kumar Meena.
5. Addition of ?3,00,000/- under Section 69A of the Income Tax Act regarding money taken from the assessee's wife, Smt. Sunita Devi.
6. Addition of ?2,40,000/- under Section 68 of the Income Tax Act as unexplained credits.
7. Disallowance of 10% of expenses on conveyance, business promotion, and staff welfare for personal use.
8. Judicial consensus on profit estimation and separate additions.

Detailed Analysis:

1. Rejection of Books of Accounts under Section 145(3):
The AO rejected the books of accounts on the grounds that the assessee did not issue separate bills for each sale, maintained only consolidated daily sales entries, and did not maintain a stock register. The AO observed discrepancies in sales figures between the e-return and audited books, leading to an estimation of profits. The Tribunal found that the AO did not make sufficient inquiries with the Excise Department or provide evidence of unrecorded sales. The Tribunal concluded that the AO was not justified in rejecting the books of accounts and directed the AO to adopt the declared GP rate of 17.40%.

2. Application of GP Rate of 20%:
The AO applied a GP rate of 20% based on past years' results and the government's policy of fixing the retailer's margin at 20%. The Tribunal noted that the AO did not bring any material evidence to justify the increased turnover and found the rejection of books unjustified. The Tribunal directed the AO to adopt the GP rate of 17.40% as declared by the assessee due to an increase in sales.

3. Addition of ?24,00,000/- under Section 69A:
The AO added ?24,00,000/- as unexplained money, rejecting the assessee's explanation that it belonged to Shri O.P. Gupta. The Tribunal found that the AO did not issue summons to Shri O.P. Gupta for verification and noted that the amount was reflected in the books of accounts. The Tribunal set aside this issue for fresh verification by the AO.

4. Addition of ?5,00,000/- under Section 69A:
The AO added ?5,00,000/- as unexplained money, rejecting the assessee's claim that it was given by Shri Vijay Kumar Meena. The Tribunal observed that the amount was recorded in the books of accounts and directed the AO to verify the transaction afresh.

5. Addition of ?3,00,000/- under Section 69A:
The AO added ?3,00,000/- as unexplained money taken from Smt. Sunita Devi. The Tribunal noted that the amount was recorded in the books of accounts and that the assessee had filed her income tax return. The Tribunal directed the AO to delete the addition.

6. Addition of ?2,40,000/- under Section 68:
The AO added ?2,40,000/- as unexplained credits, stating that the assessee did not furnish supporting evidence. The Tribunal upheld the addition due to a lack of evidence from the assessee.

7. Disallowance of 10% of Expenses:
The AO disallowed 10% of expenses on conveyance, business promotion, and staff welfare for personal use. The Tribunal found the disallowance to be based on conjecture and surmises without material evidence and directed the AO to delete the addition.

8. Judicial Consensus on Profit Estimation:
The Tribunal noted that when profit is estimated by applying a particular GP rate and books are rejected under Section 145(3), no separate addition can be made towards unexplained credit and disallowance of specific expenses.

Conclusion:
The appeal was partly allowed for statistical purposes, with directions for fresh verification and deletion of certain additions. The Tribunal emphasized the need for proper inquiry and evidence to justify the AO's actions.

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