2024 (4) TMI 587 - AT - Income Tax

Commission paid on bogus purchase and sales made by the assessee company - HELD THAT - We find that the assessee has been contending right from the assessment proceedings that it has disclosed and offered to tax gross profit on bogus sales which has been accounted for in its books of accounts and the commission payment to the broker is therefore duly covered by the quantum of gross profit already offered to tax. The factum thereof has not been disputed by the Revenue and at the same time, both the lower authorities have failed to give due effect to the same. On perusal of records, it is noted that the assessee has disclosed gross profit at the rate of 1.60% on bogus sales of knitted cloth and therefore, the commission for procuring the bogus purchase and sale amounting as so determined by the AO stand covered by the said gross profit and there cannot be any separate addition in this regard. Therefore, the addition sustained by the ld CIT(A) is hereby directed to be deleted and the ground of appeal is allowed. Unexplained investment u/s 69 - HELD THAT - Useful reference can be drawn to the decision of the Hon ble Supreme Court in case of Anantharam Veerasinghaiah Co 1980 (4) TMI 2 - SUPREME COURT where the Lordships have held that where an intangible addition is made to the book profits during an assessment proceeding, it is on the basis that the amount represented by that addition constitute the undisclosed income of the assessee. It was held that that income is as much a part of real income as that disclosed in the account books, has the same existence and could be available to the assessee as the books profits could be and may constitute a fund from which the assessee may draw subsequently for meeting expenditure or introducing amount in his books. It was held that the mere availability of such fund cannot in all cases imply that the assessee has not earned further secret profits. It is for the taxing authority in each case to determine whether the unexplained cash deficit and the cash credits can be reasonably attributable to a pre-existing fund of concealed profits or they are reasonably explained by reference to concealed income earned in that year. In the instant case, we find that the unaccounted receivables which were brought to tax as undisclosed income at the time of survey was available to the assessee to make subsequent purchases which again remain unaccounted for and now sought to be taxed by the authorities. Given that the said amount has already been brought to tax in the impugned assessment year, there cannot be any further addition on utilization of the said amount towards making the purchases. Therefore, the addition to the extent of Rs 57.85 lacs out of addition of Rs 58.57 lacs sustained by the CIT(A) is hereby directed to be deleted. In the result, the ground of appeal is partly allowed. Addition on account of difference in stock - assessed the value of dead stock @ 30% and relief of value of 70% was given - HELD THAT - We find that the ld CIT(A) has taken due cognizance of the assessee s contention regarding valuation of stock on average price and has held that the stock valuation was done on the basis of sale price and Gross profit @ 7.45% is to be reduced for arriving at the value as per books of accounts and assessee was held entitled for benefit. Further, regarding the second valuation report, we find that no such contention has been raised by the assessee before the lower authorities or is emerging from the assessment and appellate order. Even if we look at the valuation we find that it is unclear whether the same has been taken cognizance of by the survey team or for that matter, the AO during the assessment proceedings and in any case, it talks about valuation of stock as per average weighted price method for two quarters which has been duly addressed by the ld CIT(A) where he has held that the stock has to be valued at cost after reducing the gross profit rate. No justifiable basis to interfere with the order of the ld CIT(A) where he has sustained the addition and the same is hereby upheld and the ground of appeal taken by the assessee is dismissed.

Summary

Issues Involved:

1. Sustenance of addition on account of unexplained expenditure u/s 69 for commission paid on bogus purchases and sales.
2. Sustenance of addition on account of unexplained investment u/s 69.
3. Set-off of disclosed gross profit against unexplained expenditure.
4. Confirmation of various other additions.

Summary:

Issue 1: Sustenance of Addition on Account of Unexplained Expenditure u/s 69 for Commission Paid on Bogus Purchases and Sales

In ITA No. 307/Chd/2022 for AY 2013-14, the assessee challenged the addition of Rs. 3,32,371/- as commission paid on bogus purchases and sales. The AO determined the commission at 0.40%, but the Ld. CIT(A) reduced it to 0.25%. The Tribunal found that the gross profit disclosed by the assessee covered the commission and directed deletion of the addition.

Similar findings were made for AY 2015-16 (ITA No. 308/Chd/2022), AY 2016-17 (ITA No. 309/Chd/2022), AY 2017-18 (ITA No. 310/Chd/2022), AY 2018-19 (ITA No. 618/Chd/2022), and AY 2018-19 for another assessee (ITA No. 617/Chd/2022), where the Tribunal deleted the additions of Rs. 2,08,116/-, Rs. 4,67,441/-, Rs. 4,90,995/-, Rs. 1,83,016/-, and Rs. 78,726/- respectively, on similar grounds.

Issue 2: Sustenance of Addition on Account of Unexplained Investment u/s 69

In ITA No. 307/Chd/2022 for AY 2013-14, the assessee challenged the addition of Rs. 58,58,524/- on account of unexplained investment. The AO based the addition on seized documents, but the Ld. CIT(A) allowed partial relief, reducing the addition to Rs. 58,57,524/-. The Tribunal directed deletion of Rs. 57,85,000/- out of the sustained addition, considering it covered by the earlier surrender during the survey.

Issue 3: Set-off of Disclosed Gross Profit Against Unexplained Expenditure

For multiple assessment years, the Tribunal allowed the set-off of gross profit disclosed by the assessee against the unexplained expenditure. For instance, in AY 2015-16 (ITA No. 308/Chd/2022), the Tribunal allowed the set-off of Rs. 63,364/- and Rs. 10,309/- against the addition of Rs. 1,34,530/- towards unexplained expenditure.

Issue 4: Confirmation of Various Other Additions

In ITA No. 618/Chd/2022 for AY 2018-19, the assessee challenged various additions confirmed by the Ld. CIT(A). The Tribunal allowed set-off of unexplained expenditure against the GP rate addition but sustained the other additions.

In ITA No. 617/Chd/2022 for AY 2018-19, the Tribunal upheld the addition of Rs. 17,22,325/- on account of difference in stock but allowed set-off of unexplained expenditure against the GP rate addition.

Conclusion:

The appeals were partly allowed, with the Tribunal directing deletions or set-offs of additions where the disclosed gross profit covered the unexplained expenditure and sustaining other additions where justified. The orders were pronounced in the open Court on 27/03/2024.