2017 (12) TMI 1352 - AT - Income Tax

Trading addition - applying the higher gross profit rate - Held that - Referring to the variation in the gross Assessment years 2009-2010 2010-2011 profit rate as declared by the assessee, we are of the view that the gross profit rate of 7.32% of the last year as applied by the Assessing Officer is excessive and unreasonable and it would be fair and reasonable in the facts and circumstances of the case to apply the average gross profit rate of the relevant five years as worked out by the assessee at 4.42% in the submissions made before the ld. CIT(Appeals). We accordingly modify the impugned order of the ld. CIT(Appeals) on this issue and direct the Assessing Officer to re-compute the trading addition to be made to the total income of the assessee by applying the gross profit rate of 4.42% instead of 7.32%. The appeal of the Revenue for A.Y. 2009-10 is thus partly allowed. Addition of cash deposits found to be made in the undisclosed Bank account with ING Vysya Bank - Held that - Matter is restored to the file of the Assessing Officer for deciding the same afresh after verifying the claim of the assessee on the basis of material found during the course of search. The appeal of the assessee for A.Y. 2009-10 is accordingly treated as allowed.

Summary

Issues Involved:
1. Deletion of trading addition made by the Assessing Officer by applying a higher gross profit rate.
2. Addition on account of cash deposits found in the undisclosed bank account of the assessee.

Issue-wise Detailed Analysis:

1. Deletion of Trading Addition:
The Revenue's appeal for A.Y. 2009-10 involved the deletion by the Commissioner of Income Tax (Appeals) of a trading addition of ?42,85,878 made by the Assessing Officer by applying a higher gross profit rate. The assessee, engaged in trading hosiery and cotton fabrics and manufacturing ladies' garments, filed a return declaring an income of ?3,33,429. During a survey under section 133A, no books of account were found, leading the Assessing Officer to complete the assessment under section 144 by estimating the income using a gross profit rate of 7.32% from the previous year, resulting in the trading addition.

The CIT(Appeals) deleted the addition, stating that the Assessing Officer did not reject the books of account and had no positive material to substantiate the estimation. The CIT(Appeals) emphasized that the decline in gross profit alone was not justification for estimating gross profit and noted that the tax audit report showed no specific defects. The Tribunal, however, held that the Assessing Officer was justified in completing the assessment under section 144 due to the non-production of books by the assessee. The Tribunal found the gross profit rate of 7.32% excessive and directed the Assessing Officer to apply an average gross profit rate of 4.42% instead, partly allowing the Revenue's appeal.

2. Addition on Account of Cash Deposits:
The assessee's appeal for A.Y. 2009-10 involved an addition of ?14,25,000 made by the Assessing Officer due to cash deposits in an undisclosed bank account with ING Vysya Bank. The assessee claimed these deposits were related to providing accommodation entries on a commission basis, but failed to provide details of the transactions or parties involved. The CIT(Appeals) upheld the addition, rejecting the assessee's claim and the applicability of the peak credit theory, stating that the bank account transactions did not support such an assessment.

The Tribunal noted that subsequent search findings indicated the assessee was involved in providing accommodation entries, which should be considered when deciding the issue. The Tribunal acknowledged the assessee's claim that the same income had been declared in returns filed in response to section 153A notices, potentially leading to double addition. The Tribunal remanded the matter to the Assessing Officer for verification of the assessee's claim based on the search findings, treating the assessee's appeal as allowed for statistical purposes.

3. Similar Issue for A.Y. 2010-11:
The assessee's appeal for A.Y. 2010-11 involved a similar issue regarding cash deposits in the undisclosed bank account. Following the decision for A.Y. 2009-10, the Tribunal set aside the CIT(Appeals) order and remanded the matter to the Assessing Officer for fresh adjudication based on the search findings, treating the appeal as allowed for statistical purposes.

Conclusion:
The Tribunal partly allowed the Revenue's appeal for A.Y. 2009-10 by directing the application of a revised gross profit rate. The assessee's appeals for A.Y. 2009-10 and 2010-11 were allowed for statistical purposes, with directions for the Assessing Officer to verify claims based on search findings. The order was pronounced on December 22, 2017.