2021 (5) TMI 716 - AT - Income Tax

Rejection of books of accounts - GP estimation - AO has rejected the gross profit declared by the assessee during the year @ 5.97% and the difference between the average GP rate and GP declared by the assessee of 4.21% has been taken as additional GP and added the same on the total income of the assessee - CIT (A) deleted the addition holding that the AO was not justified in rejecting the books of accounts - HELD THAT - We have gone through the record and unable to accept with the contention of the AO that the cash has to be necessarily kept at the office premises only disregarding the explanation of the assessee that the amounts have been kept with the Manager owing to the safety of the cash at work premises - we are unable to accept the reason of the Assessing Officer that the assessee failed to give any evidences to prove that the cash was kept at the house of the employee of the company at House No. 1131/29 Jwala Pur Haridwar. This is case of action u/s 132 by the revenue wherein the cash kept at the residence of the employee could well be examined at the premises or questioned u/s 132(4). The revenue has not questioned the shortage of cash during the search proceedings. Even so shortage of cash cannot be a reason to reject the books of accounts and recomputed gross profit based on the performance of the company for the last three years. The action of the Assessing Officer cannot be supported and we decline to interfere with the order of the ld. CIT (A). Delay in ESI/PF Contribution - CIT (A) deleted the addition made by the AO on account of delay in ESI/PF Contribution owing to payment of the same by the assessee before the due date of filing of the return of income u/s 139(1) - HELD THAT - Since the decision of the ld. CIT (A) is in consonance with the judgment of Hon ble Apex Court in the case of CIT Vs ALOM Extrusions Ltd. 2009 (11) TMI 27 - SUPREME COURT we decline to interfere with the order of the ld. CIT (A). Addition/Seized material - Before the ld. CIT (A) the assessee explained this page as outward records of empty reels on which wires and cables have been rolled. No financial value. No impact on revenue. - HELD THAT - CIT (A) held that this is an outward Gate Pass has not been mentioned on it and it has no relevance with the surrender made by the assessee. There is no contrary material to prove the decision of the ld. CIT (A) was incorrect. In the absence of any material to support the addition made the action of the ld. CIT (A) is hereby confirmed. Sundry Creditors /Non-confirmation of accounts - AO has made addition as the assessee could not submit the confirmations at the time of assessment - CIT-A deleted - HELD THAT - The entire details have been submitted before the First Appellate Authority. The opening balances have been accepted by the AO and the closing balances have been added to the total income. The AO has not taken any step to look into the purchases made in the earlier years thus impliedly accepting the purchases as genuine. All the relevant details and evidences have been produced before the ld. CIT (A) thus discharging the onus of proving genuineness of the transactions. We find that other than non-receipt of confirmations the AO has not conducted any enquiry. The ld. CIT (A) has given relief after going through the documents filed to prove the transactions by going through the evidences filed in relation to each party. Since no contrary evidences were gathered by the revenue and the case being an assessment conducted in consequence to a search inspite of which there is conspicuous absence of any material to make the addition we decline to interfere with the order of the ld. CIT (A). Gross Profit of AC Boxes - AO concluded that the work done by M/s. Electromech Industries was not of that concern but was only of the assessee company and thus he estimated that there was manufacturing for average 300 days and 500 pieces per day on which he estimated profit of Rs. 13/- piece and made the impugned addition - The dispute is whether M/s Electromech Industries belongs to the assessee or not ? HELD THAT - The simplest way would be to obtain the sales tax registration and other statutory requirements filed by the entity before various authorities which the revenue filed to do. From the record we find that M/s Electormech Industries has shown income returned varying from Rs. 29.17 lacs to Rs. 44.25 lacs. The entity has also has a factory at Haridwar and hence any income determined out of the impounded or seized material pertaining to M/s Electormech Industries cannot be added in the hands of the assessee company. The addition made by the AO is hereby directed to be deleted. Excess Stock found in search - HELD THAT - The assessee submitted that there was no quantitative difference in items of Inventory of stock found and the difference was only because of valuation of stock which was taken during the year whereas the stock was required to be valued at the end of the assessment year as per cost or market value whichever is less. In the interest of justice we hereby direct that the assessee shall produce all the relevant documents to substantiate the purchase of the stock in quantitative terms as per the books before the revenue authorities. The AO shall value the stock taking into consideration the opening balance as per the balance sheet and the purchase invoices (at cost price) till the date of search and take an appropriate decision as per the provisions of the Act.

Summary

Issues Involved:
1. Rejection of books of accounts/Estimation of Gross Profit (GP)
2. Delay in ESI/PF Contribution
3. Addition based on Seized Material
4. Sundry Creditors/Non-confirmation of accounts
5. Gross Profit of AC Boxes
6. Excess Stock

Detailed Analysis:

Rejection of Books of Accounts/Estimation of GP:
The Assessing Officer (AO) rejected the books of accounts of the assessee and estimated the Gross Profit (GP) by taking an average GP rate of 10.18% from the previous three years, which resulted in an addition of Rs. 1,56,57,460/-. The AO cited a shortage of cash found during the search as the reason for rejecting the books. However, the CIT(A) deleted the addition, holding that the AO was not justified in rejecting the books of accounts. The Tribunal upheld the CIT(A)'s decision, stating that the shortage of cash cannot be a reason to reject the books and recompute GP based on the performance of the last three years.

Delay in ESI/PF Contribution:
The AO made additions for delays in ESI/PF contributions. However, the CIT(A) deleted these additions as the payments were made before the due date of filing the return of income under Section 139(1). The Tribunal upheld the CIT(A)'s decision, aligning with the Supreme Court judgment in CIT Vs ALOM Extrusions Ltd. 319 ITR 306.

Addition based on Seized Material:
The AO added Rs. 2,72,210/- based on discrepancies in seized material. The CIT(A) deleted this addition, noting that the seized material related to outward records of empty reels, which had no financial value or revenue impact. The Tribunal confirmed the CIT(A)'s decision due to the absence of contrary material.

Sundry Creditors/Non-confirmation of accounts:
The AO added Rs. 83,18,322/- due to non-confirmation from three sundry creditors. The assessee provided detailed evidence before the CIT(A), including ledger accounts and purchase bills, proving the genuineness of transactions. The CIT(A) gave relief after reviewing these documents. The Tribunal upheld the CIT(A)'s decision, noting that the AO did not conduct any further inquiry and there was no contrary evidence.

Gross Profit of AC Boxes:
The AO estimated an addition of Rs. 19,50,000/- based on the manufacturing and sale of AC boxes, considering it an undisclosed business activity. The assessee contended that the documents related to M/s. Electromech Industries, which was allowed to use a portion of its premises. The Tribunal found that M/s. Electromech Industries had its own factory and income, and thus, any income from the impounded documents could not be added to the assessee’s income. The Tribunal directed the deletion of the addition.

Excess Stock:
The AO found an excess stock of Rs. 16,43,947/- during the search, which the assessee could not explain. The CIT(A) confirmed the addition due to the lack of inventory records. The Tribunal directed the assessee to produce relevant documents to substantiate the stock in quantitative terms before the revenue authorities. The AO was instructed to value the stock considering the opening balance and purchase invoices.

Conclusion:
The Tribunal dismissed the revenue's appeal and allowed the assessee's cross-objection for statistical purposes, directing further verification of the excess stock issue. The order was pronounced in the open court on 07/04/2021.