2019 (7) TMI 746 - AT - Income Tax

Addition of unexplained sundry creditor and loan - shown under the head current liabilities and provisions - addition based on preponderance of probability - loan taken from a credit institution - HELD THAT - As the said sum of ₹ 1,70,73,828/- was a mere outstanding amount against purchase and hence, provisions of section 69 of the Act do not come into play, inasmuch as the purchase recorded in the accounts were not disputed. The amounts outstanding were shown in the balance sheet as 'Current Liabilities' as on 31-03-2009. When the ledger account of the Loading Unloading Expenses on Purchase and Truck Freight on Purchase were produced which showed that the entire series of transactions were genuine since without these expenses the purchases could not have materialized and the subsequent sales could not have taken place. However, the Ld. Assessing Officer did not make any enquiry in respect of the information provided to him and accordingly, his finding in this respect is totally without any basis. - Impugned addition made under the head Current Liabilities by the Ld. AO has been rightly deleted by ld CIT(A). In the instant case, AO could not bring on record any conclusive evidence, except hazarding the observation that the assessee was unable to provide the statement of the secured loan transactions to bring in the charge of undisclosed investment. Assessee has named the credit institutions where from he received such loans to stand testimony to their irrefutable and impeccable character. Conclusion reached by AO was based on subjective perceptions of surmise and conjecture and the findings rendered therein and were not in consonance with the facts and CIT(A) acted aptly by considering appropriate factors absolutely germane to the issue in applying the settled parameter by deleting the impugned addition. That being so, we decline to interfere the order passed by the learned CIT(A), hence, his order on this issue is hereby upheld and the grounds of appeal raised by the Revenue is dismissed. Addition based on estimating the net profit @ 1% - HELD THAT - Respectfully following the judgment of the Coordinate Bench in the assessee s own case for AY 2008-09, we direct the Id. AO to determine the net profit of the assessee from M/s S.M .Enterprises at 0.80% and rework the taxable net profit accordingly.

Summary

Issues Involved:
1. Addition made on the issue of unexplained sundry creditor.
2. Addition made on the issue of unexplained loan.
3. Estimation of net profit at 1% by the AO.

Detailed Analysis:

1. Addition made on the issue of unexplained sundry creditor:
The Assessing Officer (AO) added ?1,70,73,828/- to the total income of the assessee, treating it as undisclosed investment. The AO based this addition on the principle of "preponderance of probability," stating that the assessee failed to furnish details of the sundry creditor during the assessment proceedings. The AO concluded that the entire amount represented the assessee's own investment in the business disguised as sundry creditors.

The CIT(A) deleted this addition, observing that non-submission of details alone could not transform the current liabilities into the assessee's own investment. The CIT(A) emphasized that the AO should have taken more affirmative action to substantiate his claim. The Tribunal upheld the CIT(A)'s decision, noting that the liabilities were trading liabilities related to the business activities in coal and that the AO did not apply his mind to the explanation provided by the assessee.

2. Addition made on the issue of unexplained loan:
The AO added ?11,00,772/- as income of the assessee, treating it as undisclosed investment due to the failure of the assessee to furnish evidence supporting the loan from Himmatsingha Auto Finance. The AO concluded that the amount was the assessee's undisclosed investment based on the principle of "preponderance of probability."

The CIT(A) deleted this addition as well, noting that the AO did not make any enquiry to verify the genuineness of the loan. The Tribunal upheld the CIT(A)'s decision, emphasizing that the loan was received from a credit institution and that the AO had the responsibility to verify the transactions. The Tribunal noted that the AO's conclusion was based on subjective perceptions and not on any conclusive evidence.

3. Estimation of net profit at 1% by the AO:
The AO estimated the net profit at 1% of the total turnover, resulting in an addition of ?8,41,663/- to the income of the assessee. The CIT(A) upheld this estimation.

The Tribunal, however, referred to a similar case in the assessee's group where the net profit was estimated at 0.80%. Following this precedent, the Tribunal directed the AO to determine the net profit of the assessee at 0.80% and rework the taxable net profit accordingly.

Conclusion:
The Tribunal dismissed the Revenue's appeal and partly allowed the cross-objection filed by the assessee. The Tribunal upheld the CIT(A)'s deletion of additions made on account of unexplained sundry creditors and unexplained loan, and directed the AO to estimate the net profit at 0.80% instead of 1%. The judgment emphasized the importance of thorough verification and enquiry by the AO before making additions based on the principle of "preponderance of probability."