2024 (8) TMI 173 - AT - Income Tax

Addition made on account of increase in GP - CIT(A) deleted addition admitting additional evidences - HELD THAT - AO has commented upon the merits of the issues on which additions were made, however, no comments were provided on the admissibility of the additional evidence. Considering the above and on the fact that the additions were made on the basis of the documents which were submitted under rule 46A. The appellant had been a regular taxpayer and complying all the statutory requirements. The appellant has submitted that it was prevented by sufficient cause to submit the documents during the assessment proceedings and since these documents pertains to the root cause of allegations of the Ld. AO, these documents should be accepted. The term 'sufficient cause' needs to be construed liberally to ensure natural justice to the assessee considering the partial non-compliance observed in this case as bona fide. Addition of unexplained creditors - As per DR the assessee had not provided the list with PAN number of the sundry creditors who were having balances more than five lakh. The liabilities shown in shape of sundry creditors are not genuine - CIT(A) deleted addition - HELD THAT - The assessee has provided the list of creditors during the assessment proceedings but the AO had made no effort to verify the genuineness of these creditors. A remand report was called out by the Ld CIT(A) but the AO had not disclosed the mistake in the details of creditors submitted by the assessee. The AO had the opportunity to verify the PAN numbers when the remand report was called out by the CIT(A) but without verifying the details the reply was submitted by the AO. CIT(A) has rightly deleted the addition made by AO. Addition for increase in GP - DR has submitted that the assessee has not produced the proper books of accounts along with stock register and assessee has not proved the genuineness of the fall in Gross profit rate in spite of the fact that quantum of sales has increased for the year under consideration - CIT(A) deleted addition - HELD THAT - From the perusal of order of the CIT(A) it is evident that books of accounts were rejected by AO without any cogent reason. The assessee has not changed the accounting policy and explained the factors which led to fall in profit margins. The books of account cannot be rejected merely on the ground of the low profits. The assessee has maintained the books of accounts as per mercantile system. Books and accountant were audited as per Act which was filed by the assessee - The AO had rejected the books of accounts without any cogent reasons when the assessee has explained the factors which led to a fall in profit margins. Addition on account of credit card and commission and credit card risk insurance - DR has submitted that assessee has not produced the evidence of expenditure incurred on credit card commission and credit risk insurance premium - CIT(A) deleted addition - HELD THAT -Perusal of the order of Ld CIT(A) reveals that the assessee has duly explained the nature as well the business exigency for both the expenses. The AO has mentioned the only reason for disallowing the expenses that the assessee had not incurred such expenses in the immediately preceding year. On this sole reason the expenses cannot be disallowed. The revenue cannot decide the reasonable expenditure for the business purposes. SEE SA Builders Ltd vs Commissioner of Income Tax 2006 (12) TMI 82 - SUPREME COURT as held that no businessman can be compelled to maximize its profit. The income tax authorities must put themselves in the shoes of the assessee and see how a prudent businessman would act. The authorities must not look at the matter from their own view point but that of a prudent businessman Revenue appeal dismissed.

Issues Involved:
1. Deletion of addition on account of increase in Gross Profit (GP).
2. Deletion of addition on account of unexplained creditors.
3. Deletion of disallowance of credit card commission and credit risk insurance expenses.
4. Admissibility and consideration of additional evidence under Rule 46A of the Income Tax Rules.

Issue-wise Detailed Analysis:

1. Deletion of Addition on Account of Increase in Gross Profit (GP):
The revenue contended that the CIT(A) erred in deleting the addition of Rs. 17,84,29,863/- made on account of increase in GP, arguing that despite a substantial increase in sales from Rs. 1103 crore to Rs. 1621 crore, the assessee did not show a corresponding increase in GP. The AO had rejected the books of accounts, alleging that the profit had declined despite increased sales. The assessee argued that the AO rejected the books without any corroborative material and that the mere decline in profit does not justify such rejection. The CIT(A) found that the books of accounts were maintained as per the mercantile system and were audited. The CIT(A) concluded that the rejection of books by the AO was without cogent reasons and that the books could not be rejected merely because of low profits. The CIT(A) also noted that the assessee had explained the factors leading to the fall in profit margins.

2. Deletion of Addition on Account of Unexplained Creditors:
The revenue argued that the CIT(A) was incorrect in deleting the addition of Rs. 5,00,00,000/- made on account of unexplained creditors, asserting that the assessee did not provide complete details during the assessment proceedings. The AO had made no effort to verify the genuineness of the creditors despite the assessee providing a list of creditors. The CIT(A) observed that the AO had the opportunity to verify the PAN numbers of the creditors during the remand proceedings but failed to do so. The CIT(A) concluded that the AO's addition was not justified and rightly deleted it.

3. Deletion of Disallowance of Credit Card Commission and Credit Risk Insurance Expenses:
The revenue contended that the CIT(A) erred in deleting the disallowance of Rs. 1,59,17,692/- on account of credit card commission and credit risk insurance expenses, arguing that no bills were submitted by the assessee. The CIT(A) found that the assessee had duly explained the nature and business exigency of these expenses and that the AO's sole reason for disallowance was that such expenses were not incurred in the preceding year. The CIT(A) noted that the revenue cannot decide the reasonable expenditure for business purposes and referenced the Supreme Court judgment in SA Builders Ltd vs Commissioner of Income Tax, which stated that the revenue cannot assume the role of deciding reasonable expenditure from a businessman's perspective.

4. Admissibility and Consideration of Additional Evidence under Rule 46A of the Income Tax Rules:
The CIT(A) admitted additional evidence under Rule 46A, noting that the AO had issued multiple notices under section 142(1) and that the assessee had responded on several occasions. The CIT(A) observed that the assessee was unable to submit certain documents during the assessment proceedings due to circumstances beyond its control. The CIT(A) concluded that the term 'sufficient cause' needs to be construed liberally to ensure natural justice, and the additional evidence was allowed and considered.

Conclusion:
The Tribunal upheld the CIT(A)'s decision to delete the additions made by the AO, finding no reason to interfere with the CIT(A)'s findings. The appeal of the revenue was dismissed. The judgment emphasized the importance of natural justice and the need for the revenue authorities to act reasonably and justifiably in their assessments.

Order Pronounced:
The appeal of the revenue is dismissed. Order pronounced in the open court on 31.07.2024.

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