2019 (1) TMI 1528 - AT - Income Tax

Addition on account of suppressed debtors - no independent verifiable evidences - Held that - It is seen that the assessee is not able to reconcile with corroborative evidences i. e. copy of ledger accounts etc. , to prove that the figures in the audited financials are corroborated by ledger accounts in bank accounts with independent verifiable evidences. Therefore, in view of these circumstances, we do not find any infirmity in the order of CIT(A), accordingly same is upheld. - Decided against assessee. Addition on account of suppressed yarn - Held that - The books of accounts of the assessee are audited u/s. 44AB of the Act and no adverse comments has been made by auditor in his report. Moreover, the AO has also not pointed out any defects in the maintenance of books of accounts of the assessee nor has pointed out any irregularities in the books of accounts, further, the books of accounts duly reflected purchase and sales and month wise quantity details purchases of raw-material, nor the books of accounts have been rejected by the AO. It is also seen that the bank statement was submitted by the assessee showing estimated stock only. The stock was not pledged before the bank but hypothecated to avail the large margin of Drawing Power. The AO has not made any independent enquiry to establish his case that he was also in a position of any such evidence of negate that the purchase and sales made by the AO were not correct. Hon ble Gujarat High Court in the case of CIT vs. Arrow Exim Pvt. Ltd. 2010 (1) TMI 769 - GUJARAT HIGH COURT wherein it was held that where there was discrepancy between stock as per books of accounts and that shown in the statement given to bank allegedly to obtain higher credit facilities, Tribunal had accepted explanation given by assessee and in that context had stated that when books of accounts or accounting system had been found to be genuine supported by vouchers, etc. , addition was not justified. - Decided in favour of assessee.

Summary

Issues:
1. Addition of Rs. 1,37,571 on account of suppressed debtors.
2. Addition of Rs. 24,58,719 on account of suppressed yarn.
3. Rejection of alternative contention regarding estimated profit on sale of suppressed production.

Issue 1:
The appeal challenged the addition of Rs. 1,37,571 on account of suppressed debtors. The Assessing Officer (AO) proposed this addition due to discrepancies between the debtors shown in the audited balance sheet and those submitted to the bank. The Commissioner of Income Tax (Appeals) upheld the addition as the assessee failed to reconcile the figures with corroborative evidence. The Appellate Tribunal upheld the decision, stating that the onus was on the assessee to prove the correctness of the audited financial figures with verifiable evidence, which the assessee failed to do. The appeal on this issue was dismissed.

Issue 2:
Regarding the addition of Rs. 24,58,719 on account of suppressed yarn, the AO calculated the difference in yarn consumption and cloth sales figures submitted to the bank and during assessment. The CIT(A) upheld the addition but acknowledged the possibility of double addition due to overlapping amounts. The Appellate Tribunal considered the explanations provided by the assessee, including the estimation of stock statements for bank credit purposes and the absence of defects in audited accounts. Citing relevant case law, the Tribunal found the addition unjustified and deleted the amount. Consequently, the appeal on this issue was allowed.

Issue 3:
The alternative contention regarding estimated suppression of production/sales became infructuous as the Tribunal allowed the appeal on the second issue. Therefore, the third ground was dismissed accordingly.

In conclusion, the Appellate Tribunal upheld the addition on suppressed debtors but deleted the addition on suppressed yarn consumption. The alternative contention regarding suppressed production/sales was dismissed as it became irrelevant. The appeal was partly allowed in favor of the assessee.