2023 (9) TMI 1110 - AT - Income Tax

Addition as extra profit being 1% of the cash sales - assessee into the business of trading of Coal and Commission Agent of Uttar Pradesh Small Industries Corporation Ltd. (UPSIC) and Uttar Pradesh State Food and Essential Commodities Corporation Ltd. (UPSFECC). The assessee purchases coal from the said Government Agencies and sell them to various brick Kiln owners - HELD THAT - In the present case, the A.O. had not doubted the genuineness of the documents produced by the Assessee to substantiate the source of cash deposit in the bank account and made the addition as extra profit being 1% of the cash sales without rejecting the books of accounts of the Assessee. The pre condition for estimating business income where the assessee maintaining books of account is that, the books of the Assessee should be found to be unreliable or otherwise not realistic and not capable of demonstrating the income of the Assessee. Applying the ratio laid down in the case of Salochana Bhatia 2011 (5) TMI 838 - PUNJAB AND HARYANA HIGH COURT and also Sanjay Aggarwal 2021 (9) TMI 1515 - ITAT RAIPUR we are of the opinion that the addition made by the A.O. without rejecting the books of accounts of the Assessee is erroneous. Accordingly, we allow the Grounds of appeal of the Assessee.

Summary

Issues involved:
The judgment involves the addition of extra profit by the Assessing Officer based on 1% of cash sales, the rejection of the same by the Commissioner of Income Tax (Appeals), and the subsequent appeal filed by the assessee against the order.

Addition of extra profit:
The Assessing Officer added Rs. 4,90,000 as extra profit, representing 1% of the total cash sales, during the assessment proceedings. The assessee contended that there was no discrepancy in the books of account, and no doubts were raised regarding the sales. The assessee provided various documents to substantiate the source of cash deposits, including bank account details, cash receipts, cash book, stock register, sales invoice, purchase bills, ledger accounts, and VAT returns.

Arguments and submissions:
The counsel for the assessee argued that the addition of extra profit was unjustified as the Assessing Officer did not reject the books of accounts and made the addition without a valid basis. On the other hand, the Departmental Representative claimed that the assessee failed to provide proper confirmations from parties involved in cash sales, leading to the justification of the addition.

Judicial analysis and decision:
After considering the arguments from both parties and examining the available material, the tribunal found that the Assessing Officer's addition of extra profit lacked a rational basis. The tribunal cited previous judgments emphasizing the importance of rejecting books of accounts before making such estimations. It was noted that the Assessing Officer did not doubt the genuineness of the documents provided by the assessee. Therefore, the tribunal concluded that the addition of extra profit without rejecting the books of accounts was erroneous.

Conclusion:
The tribunal allowed the grounds of appeal raised by the assessee and decided to delete the addition made by the Assessing Officer, which was upheld by the Commissioner of Income Tax (Appeals). Subsequently, the appeal filed by the assessee was allowed, and the judgment was pronounced in open court on 18th September 2023.