2024 (5) TMI 232 - HC - Income Tax

Gross profit determination - addition of undisclosed profit in the hands of the assessee while framing the assessment u/s 143(3) - credibility of books of accounts of the assessee - substantial question of law or fact - Addition u/s 40-A(3) as the assessee had made cash payments of expenses exceeding Rs. 20,000/- under different heads - disallowance relating to unverified consignment sales expenses - Tribunal has dismissed the appeal filed by the revenue - HELD THAT - There no finding was recorded by the AO to doubt the credibility or correctness or completeness of the books of accounts of the assessee. Yet, since the books of accounts of the assessee came to be rejected the Assessing Officer further proceeded to disturb the gross profit rate for the assessment year in question. Relying on gross profit rate achieved by the assessee in the previous three years, addition of about Rs. 3 crores was made. We find no error on part of the Tribunal in recording either of the above findings. Once the CIT (Appeals) looked into the vouchers of cash expenses and recorded a clear finding that those were duly vouched except for two expenditures, in absence of any material shown to establish that that finding was perverse, there survives no room to interfere with the confirmation of such finding by the Tribunal (the last fact finding authority). As to the issue of ad hoc disallowance of expenditure of consignment sale the Tribunal has rightly concluded the same to be an academic issue. Seen in that light, in absence of any other objection found in the books of accounts of the assessee as may have been pressed before the Tribunal, there survives no room to reject the books of accounts of the assessee. Consequently, there is no intrinsic evidence to enhance the gross profit rate. Once the books of accounts of an assessee are found accepted the Assessing Officer may have remained within the confines of his powers ad not disturbed the gross profit rate as that would remain in the nature of the result of the book entries and not an original entry by itself. Settled principle in this regard being that the assessing officer may never step into the shoes of the assessee to infer more profit than may have been derived by the assessee and further his jurisdiction being confined to examine the correctness and completeness of the books of account, it never became open to the Assessing Officer to reject the gross profit rate disclosed by the assessee. It is also shown, the finding on acceptance of books of accounts of the assessee recorded to by the CIT (Appeals) was not even specifically challenged. Tribunal has not erred in confirming the order of the CIT (Appeals) - Decided against revenue.

Summary

Issues Involved:
The appeal under Section 260-A of the Income Tax Act, 1961 against the order of the Income Tax Appellate Tribunal, Varanasi Bench, Varanasi for the assessment year 2014-15 raises questions regarding the determination of gross profit, disallowance of expenses under Section 40-A(3) of the Act, and deletion of an addition on account of unverified consignment sales expenses.

Determination of Gross Profit:
The Assessing Officer had applied the average gross profit rate of the last three assessment years to determine the gross profit of the assessee, resulting in an addition of undisclosed profit. The Tribunal found no merit in the appeal, stating that the Assessing Officer's findings were based on material and evidence on record. The books of accounts were rejected due to cash payments exceeding Rs. 20,000 and unverified consignment sale expenses, leading to a disturbance in the gross profit rate for the assessment year. However, since no other objections were found in the books of accounts, there was no basis to enhance the gross profit rate. The Tribunal upheld the order of the CIT (Appeals), emphasizing that the Assessing Officer cannot reject the gross profit rate disclosed by the assessee without sufficient cause.

Disallowance of Expenses under Section 40-A(3):
The Assessing Officer disallowed expenses exceeding Rs. 20,000 made in cash under different heads, citing non-compliance with Section 40-A(3) of the Act. The Tribunal, after examining the vouchers of cash expenditures, found that except for two items, all other cash expenses were duly vouched. Consequently, the addition made by the Assessing Officer was deleted as the vouchers were found to be verified. The Tribunal's decision was based on a thorough review of the evidence and was not challenged as being incorrect or unreasonable.

Deletion of Addition on Account of Unverified Consignment Sales Expenses:
The Tribunal considered the issue of unverified consignment sales expenses to be academic in nature as no addition was made in the final computation of the assessee's income. The Tribunal observed that the assessment order had attained finality, and no rectification proceedings were initiated by the Assessing Officer. As a result, the Tribunal concluded that the issue of ad hoc disallowance of expenditure on consignment sale did not warrant further action. The Tribunal's decision was found to be sound, and there was no error in confirming the order of the CIT (Appeals).

In conclusion, the High Court dismissed the appeal as lacking merit, affirming the decisions of the Tribunal and the CIT (Appeals) based on the evidence and material on record.