2000 (1) TMI 137 - AT - Income Tax

Summary

Issues Involved:

1. Deletion of addition of Rs. 1,66,055 out of total addition of Rs. 2,28,844.
2. Deletion of addition of Rs. 21,156 made on account of difference in stock found during the survey operation.
3. Deletion of addition of Rs. 40,000 representing income of property owned by wives of partners.
4. Sustaining disallowance of Rs. 6,878 out of total disallowance of Rs. 22,000 under the head 'car expenses'.
5. Rejection of the gross rate declared by the appellant and application of gross rate at 12% by the CIT(A).

Detailed Analysis:

1. Deletion of Addition of Rs. 1,66,055:

The Revenue challenged the deletion of Rs. 1,66,055 out of the total addition of Rs. 2,28,844. The assessee had surrendered Rs. 2,50,000 during a survey, which was credited to the P&L account and debited to the purchase account. The AO contended that the net effect of the additional income offered was nullified by inflating purchases. The CIT(A) found the application of a 15.3% G.P. rate excessive and reduced it to 12%, allowing relief of Rs. 1,66,055. The Tribunal directed the AO to verify if the surrendered amount was reflected in the sales and closing stock, allowing the AO to make an addition if not reflected.

2. Deletion of Addition of Rs. 21,156:

The AO added Rs. 21,156 for excess stock found during the survey. The CIT(A) deleted this addition, reasoning that the suppression of income was covered by the estimated profits using the G.P. rate. The Tribunal upheld this deletion, agreeing that the separate addition was unnecessary if the G.P. rate covered it.

3. Deletion of Addition of Rs. 40,000:

The Revenue disputed the deletion of Rs. 40,000, representing income from property owned by the partners' wives and rented to the firm. The CIT(A) deleted the addition, stating that the ownership of the property was accepted in the hands of the wives, and the property could not be treated as that of the firm. The Tribunal agreed with the CIT(A), noting that the property ownership was already accepted and the addition was unwarranted.

4. Sustaining Disallowance of Rs. 6,878:

The AO disallowed Rs. 22,000 out of Rs. 27,514 claimed as car expenses, considering some expenses unrelated to business. The CIT(A) reduced the disallowance to Rs. 6,878, consistent with a previous year's appellate order. The Tribunal found no illegality in the CIT(A)'s order and upheld the reduced disallowance.

5. Rejection of Gross Rate Declared by the Appellant:

The assessee's declared G.P. rate of 7.99% was rejected by the AO, who applied a 15.3% rate based on comparable cases. The CIT(A) reduced this to 12%, considering the lower profit margin on white cement sales. The Tribunal found the CIT(A)'s reduction to 12% unjustified, given the AO's consideration of other discrepancies, and deemed a 14% G.P. rate fair and reasonable.

Conclusion:

The Tribunal partially allowed the Revenue's appeal, directing verification of the Rs. 2,50,000 entry and adjusting the G.P. rate to 14%. The deletion of Rs. 40,000 and the reduced car expense disallowance were upheld, while the appeal and cross-objections related to the G.P. rate were rejected.