2009 (11) TMI 1034 - AT - Income Tax

Summary

Issues Involved:
1. Addition of Rs. 36,73,526/- to the income.
2. Estimation of sales leading to additional income.
3. Addition of Rs. 80,000/- on account of rent payment.
4. Addition of Rs. 39,611/- under Section 43B.

Issue-wise Detailed Analysis:

1. Addition of Rs. 36,73,526/- to the income:
The assessee contested the addition of Rs. 36,73,526/- made by the AO, which was upheld by the CIT (A). This included the main addition of Rs. 35,53,915/- based on estimated sales, Rs. 80,000/- on account of rent payment, and Rs. 39,611/- under Section 43B. The Tribunal noted that the CIT (A) confirmed the addition without adequately addressing the principles of regular assessment under Sections 144 and 145 of the Income Tax Act. The Tribunal decided to re-examine the issue under the provisions of normal assessment, emphasizing a fair and reasonable estimation of income after rejecting the books of account.

2. Estimation of sales leading to additional income:
The AO rejected the books of account due to discrepancies found during a survey and search, including unrecorded purchases and sales. The AO estimated the total sales at Rs. 1,10,00,000/- based on the sales for December 2000, which were significantly higher than other months. The AO applied a gross profit rate of 59%, resulting in an addition of Rs. 35,53,915/-. The Tribunal found that the AO's estimation of sales was reasonable but the resultant net profit rate of 32.36% was excessively high for the nature of the assessee's business. The Tribunal applied a net profit rate of 5% on the estimated turnover of Rs. 1,10,00,000/-, resulting in a net profit of Rs. 5,50,000/-. Consequently, the Tribunal sustained an addition of Rs. 5,43,950/- and deleted the balance addition of Rs. 30,09,965/-.

3. Addition of Rs. 80,000/- on account of rent payment:
The assessee did not press this ground of appeal, and hence, it was dismissed as not pressed.

4. Addition of Rs. 39,611/- under Section 43B:
The Tribunal directed that if the payment of PF and ESI was made within the grace period, the same should be allowed. The matter was remitted back to the AO to decide the issue in accordance with the judgment of the Hon'ble Bombay High Court in the case of CIT Vs. Pamwi Tissues Ltd., 215 CTR (Bom.) 150.

Conclusion:
The Tribunal partly allowed the appeal. The addition of Rs. 35,53,915/- was reduced to Rs. 5,43,950/-, and the balance addition of Rs. 30,09,965/- was deleted. The addition of Rs. 80,000/- on account of rent payment was dismissed as not pressed, and the addition of Rs. 39,611/- under Section 43B was remitted back to the AO for re-examination.