2018 (1) TMI 593 - AT - Income Tax

Estimating the income after rejecting the books of account - enhancement of the G.P. - Held that - CIT(A) accepted the turnover declared by the assessee by holding that the Assessing Officer has failed to bring on record any adverse material to justify the quantification of undisclosed turnover. However, he reduced the G.P. estimation from 8.5% to 8% on the declared turnover. The facts on record shows that this estimate of G.P. @ 8% was not based on any specific defects noted by the Assessing Officer or by the ld. CIT(A) in the expenses claimed in the P&L account. Once CIT(A) has accepted the declared turnover of the assessee in absence of any specific defects and without specifying any defects in the books of account in estimating the G.P. @ 8% is also not justified. Keeping in view the various decisions relying upon by the ld AR, the Bench is of the view that the assessee was maintaining books of account, which were duly vouched. No specific defect has been pointed out by any of the authorities below. In absence of any contrary material on record to the declared gross profit on the declared turnover, the enhancement of the G.P. is unjustified. Therefore, the addition sustained by the ld. CIT(A) is deleted. Addition U/s 68 - Held that - After considering the relevant documents submitted by the assessee, the Bench is of the view that the assessee was able to discharge the onus as casted upon by Section 68 of the Act for establishing the identity, creditworthiness and genuineness of transactions. It is also a fact that the assessee has received the amount by cheque from Shri Suresh Chand. Shri Suresh Chand has also explained the source of source from where the amount was received by him in his bank account on the maturity of FDR maintained with Dholpur Urban Cooperative Bank Ltd. against which he got banker s cheque which was deposited in his account and the same was source of ₹ 10 lacs given by him to assessee. Considering all these facts and circumstances, the addition to the extent of ₹ 10.00 lacs is deleted. No pleadings were made for the balance addition U/s 68 of the Act of ₹ 27,500/-, therefore, addition to that extent is confirmed.

Issues Involved:

1. Rejection of books of account and estimation of income.
2. Confirmation of trading additions by applying a Gross Profit (G.P.) rate.
3. Rejection of audited books of account.
4. Validity of best judgment assessment without proper show cause notice.
5. Addition of unsecured loan under Section 68 of the Income Tax Act.
6. Charging of interest under Sections 234B and 234C.

Issue-wise Detailed Analysis:

1. Rejection of Books of Account and Estimation of Income:

The assessee challenged the rejection of books of account and subsequent estimation of income. The books were duly audited by a qualified Chartered Accountant (C.A.) and included bills, vouchers, and DSO register, which were examined by the Assessing Officer (AO). The CIT(A) accepted the declared turnover due to lack of adverse material but estimated the G.P. at 8%. The Tribunal found that no specific defects were noted in the expenses claimed in the Profit & Loss (P&L) account. Citing various case laws, it was held that in the absence of specific defects, the rejection of books and estimation of G.P. was unjustified. The addition sustained by the CIT(A) was deleted.

2. Confirmation of Trading Additions by Applying a G.P. Rate:

The CIT(A) had reduced the G.P. rate from 8.5% to 8% on the declared turnover but sustained an addition of ?7,34,784/-. The Tribunal noted that this estimation was not based on any specific defects in the books of account or expenses claimed. It was held that without any contrary material on record, the enhancement of the G.P. was unjustified, and the addition was deleted.

3. Rejection of Audited Books of Account:

The assessee argued that the rejection of audited books was without valid reasons. The Tribunal observed that the books were maintained as per Section 44AB and audited by a qualified C.A. Since no specific defects were pointed out, the rejection was deemed unjustified. The Tribunal relied on multiple case laws, emphasizing that regularly maintained and audited accounts should be accepted unless proven incorrect or unreliable by the Revenue.

4. Validity of Best Judgment Assessment Without Proper Show Cause Notice:

The assessee contended that the best judgment assessment was made without issuing a proper show cause notice. However, this issue was not separately addressed in the Tribunal’s order, implying that the primary focus was on the validity of the rejection of books and estimation of income.

5. Addition of Unsecured Loan Under Section 68:

The assessee had taken a loan of ?10,00,000/- from Shri Suresh Chand, supported by an affidavit and bank statements. The CIT(A) sustained the addition, but the Tribunal found that the assessee had discharged the onus of proving the identity, creditworthiness, and genuineness of the transaction. The source of the loan was explained through the maturity of an FDR. The Tribunal deleted the addition of ?10,00,000/- but confirmed the addition of ?27,500/- as no pleadings were made for this amount.

6. Charging of Interest Under Sections 234B and 234C:

The assessee contested the interest charged under Sections 234B and 234C. The Tribunal held that the charging of interest is consequential and mandatory, thus dismissing this ground of appeal.

Conclusion:

The appeal was partly allowed, with the Tribunal deleting the addition related to the G.P. rate and the unsecured loan of ?10,00,000/-, while confirming the addition of ?27,500/- and the interest charged under Sections 234B and 234C. The order was pronounced in the open court on 09/01/2018.

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