2019 (3) TMI 2063 - AT - Income Tax

Addition made by enhancing the gross profit rate - CIT(A) deleted addition following preceding AY order - HELD THAT - Addition made by the AO has rightly been deleted by the Ld. CIT (A). The assessee has maintained regular books of account which are duly audited. The assessee has maintained complete stock records. AO has not pointed out any error or discrepancy in the books of account maintained by the assessee. AO has also accepted the opening stock, purchases, sales and closing stock. The cash sales have been duly recorded in the books of accounts. In absence of any statutory provision prohibiting sales in cash, no adverse inference can be drawn merely on the basis the sales have been made in cash. This is a case of search and nothing incriminating was found during the search so as to doubt that the sales recorded in the books of account were understated. AO has made the impugned addition merely on the basis of a doubt as has been rightly pointed out by the Ld. AR by referring to the assessment order. Further, in absence of rejection of the books of accounts, the ad hoc addition to the GP Rate cannot be sustained - we uphold the order of the Ld. CIT (A) deleting the addition - Decided against revenue. Addition on account of the payments to the farmers in respect of the purchase of food grains - addition made on the basis that the assessee had not furnished any details of farmers like their addresses, details of purchases made from them, any documentary evidences showing that purchases have been actually made, land holdings of the farmers and proof of cultivation done by the farmers - assessee had not furnished evidence regarding withdrawal of cash for making payments to the farmers - CIT(A) deleted addition - HELD THAT - It is not the case of the assessee that it is claiming any exemption on such income. In these circumstances, we are of the view there was no justification for the AO to draw any adverse inference merely because vouchers of purchases in cash were found during the search. These vouchers are part of the regular books of account and it is also not the case that such vouchers were unaccounted for. We have also gone through the various judgments relied upon by the Ld. DR. The facts of these judgments are different than the present case. In these cases, there were deposits in the bank for sales made in cash against purchases in credit and the assessee had failed to substantiate the credit purchases. It was on these facts that the additions were made under section 68of the Act. In the present case, the assessee has first withdrawn cash and then made the purchases from the cash so withdrawn and after making sales against paid purchases received the cash against such sales. So, first there is source of the money in the case of the assessee and hence, it cannot be said that the cash received against sale is unexplained credit. Thus we are in agreement with the findings of the Ld. CIT (A) and see no reason to interfere with the same and accordingly, ground no.3 is dismissed. Addition on the basis of the seized document - CIT (A) has restricted this addition on the basis of peak credit - HELD THAT - The seized document pertains to the period 1st April, 2007 to 27th November, 2007. The transactions recorded therein on these pages pertain to this period. This period will fall in assessment year 2008-09 and not in Assessment Year 2007-08 in which year the AO has made the addition. CIT DR during the course of the hearing has fairly admitted that this document does not pertain to the year under consideration. Taking into consideration this fact, the addition made by the AO is unsustainable and, accordingly, the AO is directed to delete the entire addition - Ground of assessee s appeal is allowed.

Summary

Issues Involved:
1. Deletion of addition by enhancing the gross profit rate.
2. Deletion of addition on account of cash payments to farmers.
3. Validity of proceedings initiated under Section 153C.
4. Addition based on seized documents and presumption under Section 132(4A) and Section 292C.

Detailed Analysis:

1. Deletion of Addition by Enhancing the Gross Profit Rate:
The Revenue challenged the deletion of an addition of Rs. 15,90,026/- made by the AO by enhancing the gross profit rate to 0.2%. The AO had made this addition on the grounds that the profit declared by the assessee was on the lower side, especially since the sales were made in cash and were not verifiable. However, the CIT (A) deleted the addition, noting that the AO had not pointed out any discrepancies in the books of accounts, which were duly audited and maintained. The CIT (A) emphasized that the AO had made an ad hoc addition without any empirical basis and without rejecting the books of accounts. The ITAT upheld the CIT (A)'s decision, agreeing that the addition was unsustainable without rejecting the books of accounts and that no adverse inference could be drawn merely because sales were made in cash.

2. Deletion of Addition on Account of Cash Payments to Farmers:
The AO had made an addition of Rs. 2,75,81,196/- on the basis that the assessee had not furnished details regarding the farmers from whom purchases were made, including their addresses and proof of cultivation. The CIT (A) deleted the addition, noting that the assessee had provided sufficient documentary evidence, such as VAT returns, bank statements, audited financial statements, and sales invoices, to substantiate the transactions. The ITAT upheld the CIT (A)'s decision, agreeing that the AO's observations were not warranted and that the payments made by the assessee were duly reflected in the books of accounts.

3. Validity of Proceedings Initiated Under Section 153C:
The assessee challenged the proceedings initiated under Section 153C, arguing that they were in violation of statutory conditions and procedures. The CIT (A) rejected this contention, and the ITAT did not specifically address this issue in the final judgment due to the resolution of the primary issues.

4. Addition Based on Seized Documents and Presumption Under Section 132(4A) and Section 292C:
For AY 2007-08, the AO made an addition of Rs. 1,42,03,005/- based on a seized document found during the search. The CIT (A) restricted the addition to Rs. 96,41,736/- by applying the peak credit theory. The ITAT, however, noted that the seized document pertained to a period outside the relevant assessment year (AY 2007-08) and directed the AO to delete the entire addition. The ITAT emphasized that the document did not pertain to the year under consideration and that no addition could be made based on it for AY 2007-08.

Conclusion:
The ITAT upheld the CIT (A)'s decisions to delete the additions made by the AO on account of gross profit rate enhancement and cash payments to farmers. The ITAT also directed the deletion of the entire addition based on the seized document for AY 2007-08, noting that it did not pertain to the relevant assessment year. The appeals of the Revenue were dismissed, and the sole appeal of the assessee was allowed.