2021 (10) TMI 161 - AT - Income Tax

Suppressed sales - Addition on the basis statement of search - HELD THAT - As assessee has admitted that there is suppression of expenditure due to business exigencies, which included unaccounted purchase of raw materials. Hence there is suppression of both purchases and sales. Accordingly, the Ld. CIT(A) has taken the view that, in the facts and circumstances of the case, the gross profit only should have been assessed instead of assessing entire suppressed sales - there is no error in the decision so reached by Ld. CIT(A). When there is suppression of both purchases and sales, then what could be assessed is the profit element embedded therein. Before us, both the parties could not show as to how the decision so reached by Ld. CIT(A) was not correct, in the facts and circumstances of the case. Hence, we are of the view that the CIT(A) was justified in directing the AO to restrict the addition to the gross profit amount in respect of suppressed sales. Accordingly, we confirm his order passed on this issue. Addition of sundry creditors balance for want of details - A.R. has submitted that the sundry creditors balance represents trade creditors and all the creditors have running account - HELD THAT - The fact remains that the assessing officer has made the impugned addition only for the reason that the assessee has not furnished relevant details called for by him - in the interest of natural justice, we are of the view that the assessee should be provided with one more opportunity to furnish explanations and details on this issue. Accordingly, we set the order passed by Ld. CIT(A) on this issue in all the three years and under consideration and restore the same to the file of AO for examining the same afresh. After providing adequate opportunity of being heard, the AO may take appropriate decision in accordance with law. Disallowance of prior period expenses - AO made this disallowance for want of details and also for the reason that this expense did not relate to AY 2010-11 - CIT(A) confirmed the same on identical reasoning - HELD THAT - Before us also, no detail was furnished. Accordingly, we confirm the order passed by Ld. CIT(A) on this issue.

Summary

Issues:
1. Validity of re-opening of assessment in assessment years 2010-11 & 2011-12.
2. Addition sustained by Ld. CIT(A) in respect of suppressed turnover in all three years.
3. Addition of sundry creditors in all three years.
4. Addition of prior period expenditure in Assessment year 2010-11.

Validity of Reopening of Assessment:
The case involved a challenge to the validity of reopening assessments for the years 2010-11 and 2011-12. The Assessing Officer (AO) relied on a statement from a person connected to the company, indicating unaccounted sales. The argument against reopening was that the person was not involved with the company during the relevant years. The Tribunal upheld the reopening, stating that the person's statement, not retracted and related to the company's operations, provided valid grounds for reopening.

Suppressed Turnover Addition:
The AO added 10% of declared turnover as income due to suppressed sales based on a statement indicating unaccounted sales. The Tribunal determined that the addition should be limited to the gross profit margin on suppressed sales, considering the admission of suppressed expenditure as well. Both parties were dissatisfied, but the Tribunal affirmed the CIT(A)'s decision to restrict the addition to the gross profit amount.

Sundry Creditors Addition:
The AO added the balance of sundry creditors to the total income due to lack of details provided by the assessee. The Tribunal acknowledged the running account nature of trade creditors but ordered a fresh examination by the AO after providing the assessee with an opportunity to furnish necessary details and explanations.

Prior Period Expenditure Disallowance:
The AO disallowed prior period expenses for lack of details and relevance to the assessment year. The CIT(A) upheld the disallowance, which was confirmed by the Tribunal due to the absence of additional details provided during the proceedings.

In conclusion, the Tribunal partially allowed the assessee's appeals and dismissed the revenue's appeals. The decision emphasized the importance of providing comprehensive details and explanations during assessments to ensure fair and accurate tax determinations.