2021 (10) TMI 661 - AT - Income Tax

Addition u/s. 68 - loan received by the appellant from Sunil Kumar Prashan Kumar HUF interest thereon - HELD THAT - We have no hesitation to hold that the assessee has sufficiently discharged the onus which lay upon it in terms of Section 68 of the Act. In this view of the matter, we set aside the order of the CIT(A) on this point and direct the Assessing Officer to delete the addition on this score. Ad-hoc disallowance out of vehicle, travelling and telephone expenses partly sustained by the CIT(A) - HELD THAT - As the assessee could not, in any manner, controvert the view taken by the CIT(A). The action of the CIT(A) being reasonable on the facts of the case and in the absence of any serious rebuttal thereof, we decline to interfere. GP estimation - adopting GP rate of 9.30% in place of GP rate of 7.03% arising from the book results - assessee contends that it is mainly in the business of imports and any fluctuation in the foreign exchange rate could naturally have cascading effect on the Gross Profit where the contract for sale has already been entered - HELD THAT - As Gross Profit in the subsequent assessment years have fallen down further from 7.03% to 5.39% in sync with increase in turnover. The book results in the subsequent year have been accepted by the Revenue. Thus, when seen on broader parameters, the book results of the assessee should be believed and should not be discarded. The benefit of doubt, if any, needs to go to the assessee - more so where such mathematical ratios cannot be explained to the hilt. The assessee, to our mind, has explained the fall in GP in a broader reckoning with reasonable particularity. The action of the Revenue Authorities thus deserves to be set aside and the plea of the assessee for restoration of book results deserves to be accepted - Decided in favour of assessee.

Summary

Issues:
1. Addition of loan under Section 68 of the Income Tax Act.
2. Disallowance of vehicle, travelling, and telephone expenses.
3. Addition of income based on Gross Profit rate.

Issue 1: Addition of loan under Section 68 of the Income Tax Act:
The appellant challenged the addition of a loan received from a specific party under Section 68 of the Act. The Assessing Officer made the addition as the party's identity was not satisfactorily explained. However, the appellant argued that all relevant details were provided, and the loan was received and repaid through banking channels. The Tribunal found the transactions to be genuine and in the ordinary course of business. Citing legal precedents, the Tribunal held that the appellant had discharged the onus under Section 68, directing the deletion of the addition.

Issue 2: Disallowance of vehicle, travelling, and telephone expenses:
The appellant contested the ad-hoc disallowance partially upheld by the CIT(A). The Tribunal noted the lack of rebuttal from the appellant and upheld the CIT(A)'s decision, deeming it reasonable given the circumstances. Consequently, this ground of appeal was dismissed.

Issue 3: Addition of income based on Gross Profit rate:
The Assessing Officer added income by adopting a higher Gross Profit rate compared to the one disclosed by the appellant. The appellant explained the decrease in Gross Profit ratio due to various factors, such as foreign exchange fluctuations and increased turnover with lower margins. The Tribunal found the explanations reasonable, especially considering the accepted Gross Profit rates in subsequent years. It concluded that the Revenue's action was unjustified and restored the appellant's book results. Therefore, this ground of appeal was allowed.

In conclusion, the Tribunal partially allowed the appeal, directing the deletion of the loan addition under Section 68, upholding the disallowance of expenses, and accepting the appellant's explanations for the Gross Profit rate, thereby setting aside the Revenue's actions in this regard.