2019 (6) TMI 291 - AT - Income Tax

Addition on account of undisclosed cash - survey u/s 133A at Karol Bagh Branch by the Investigation Wing of the Department excess cash of 60, 00, 000/- was found - assessee explained that cash of Gurgaon Branch was transferred to Karol Bagh Branch because of the closure of the showroom at Gurgaon on account of holiday - the explanation was not accepted by the A.O. because no entries to that effect have been made in the books of account - CIT-A deleted the addition - HELD THAT - CIT(A) specifically noted that cash available as per the records seized by the Department shows availability of the cash in the books of account of assessee at 53, 48, 755/-. This fact has not been rebutted by the Revenue Department. Since assessee is keeping and maintaining several business entities at different places therefore entire cash available in the books of account of assessee of different entities should have been considered. The explanation of assessee could not be ignored that there was a transfer of cash from Gurgaon Branch to Karol Bagh Branch. Therefore entirety of the facts and the fact that seized records itself shows availability of the cash with the assessee in the books of account clearly shows that Ld. CIT(A) on proper appreciation of facts and material on record correctly deleted the addition - Decided against revenue Addition on account of under reporting of profit - CIT-A deleted the addition - HELD THAT - There was no reason to compare the profit of earlier year with the profit declared in assessment year under appeal. Low project by itself is no ground to make addition. In the absence of any material on record particularly that books of account have not been rejected by the A.O. and that the surrendered amount is treated as income from other sources by CIT(A) there was no justification for the A.O. to make this addition. CIT(A) on proper appreciation of facts rightly found that in assessment year under appeal the costs of the assessee have increased substantially as against the cost incurred in preceding assessment years. This fact has not been rebutted by the Revenue Authorities through any evidence or material on record. - Decided against revenue

Summary

Issues Involved:
1. Deletion of addition on account of undisclosed cash.
2. Deletion of addition on account of underreporting of profit.
3. Deletion of addition based on net profit rate of preceding assessment years.

Issue-wise Detailed Analysis:

1. Deletion of Addition on Account of Undisclosed Cash:
The Revenue challenged the order of the CIT(A) in restricting the addition to ?9,20,245/- made by the AO on account of undisclosed cash. During a survey at the business premises of the assessee, excess cash of ?60,00,000/- was found, which was not properly explained by the persons controlling the business. The AO noted discrepancies in the cash records and made an addition of ?60,00,000/- as unexplained cash. The assessee contended that the cash was recorded in the books of account and provided a certificate from a Chartered Accountant confirming the availability of cash. The CIT(A) found that the cash available as per the records seized by the Department was ?53,48,755/- and restricted the addition to ?9,20,244/-. The Tribunal upheld the CIT(A)'s decision, noting that the explanation of the assessee regarding the transfer of cash from Gurgaon to Karol Bagh was plausible and the seized records supported the cash availability in the books of account.

2. Deletion of Addition on Account of Underreporting of Profit:
The Revenue challenged the order of the CIT(A) in deleting the addition of ?2,40,49,700/- made by the AO on account of underreporting of profit. The AO noted that after excluding the surrendered amount of ?3,18,62,953/-, the net profit ratio for the assessment year under appeal was significantly lower than in the preceding years. The AO applied the net profit ratio of the previous year and made an addition of ?2,40,49,700/-. The assessee argued that the addition was made without any adverse material and that the books of account were audited with no discrepancies noted. The CIT(A) directed that the surrendered amount be considered as income from other sources and found that the increase in costs justified the lower profit margin. The Tribunal upheld the CIT(A)'s decision, noting that the AO did not reject the books of account and that the surrendered amount was correctly treated as income from other sources.

3. Deletion of Addition Based on Net Profit Rate of Preceding Assessment Years:
In the case of M/s. Diamond Hut India Pvt. Ltd., the Revenue challenged the deletion of addition of ?3,00,96,835/-. The AO applied the net profit rate of preceding assessment years and made the addition. The CIT(A) deleted the addition on the same reasoning as in the case of M/s. Diamount Jewels (P) Ltd. The Tribunal followed the order in the case of M/s. Diamount Jewels (P) Ltd. and dismissed the departmental appeal, finding no merit in the Revenue's arguments.

Conclusion:
Both appeals of the Revenue were dismissed, and the Tribunal upheld the orders of the CIT(A) in restricting and deleting the additions made by the AO on account of undisclosed cash and underreporting of profit. The Tribunal found that the explanations provided by the assessee were plausible and supported by the records, and that the AO's additions were not justified without specific defects in the books of account.