2012 (7) TMI 692 - AT - Income Tax

Payment of Cash to the Creditors out of unaccounted income - retraction of statement - held that - No claim was made during the course of survey or even 8-9 months from the end of survey that the payments have been made out of the cash balance available as per books of accounts. This claim was made first time during the course of assessment proceedings vide letter dated 6.12.2006. The Ld. CIT (A) opined that the explanation of the assessee was an after thought and lacked credibility. He has given a finding that the entries in the diary and the ledger accounts of the parties as per books of accounts filed by the Assessee do not match. The payment dates as per diary are completely different from the payment dates in the ledger accounts even in respect of the amounts claimed to have been paid out of cash in hand. - Addition sustained. Estimation of gross profit - rejection of books of accounts - held that - It is an undisputed fact that the assessee submitted to AO the detailed explanation with respect to fall in GP. However the same was not examined by the AO. Based on the details furnished by the assessee before CIT (A), CIT (A) was satisfied with the explanation of loss to the extent of Rs 10.9 lacs that contributed to the fall in GP. The assessee however did not provided satisfactory explanation for increase in direct expenses neither before CIT(A) nor before us. - Order of CIT(A) upheld.

Issues Involved:
1. Scaling down of addition from 12.39% to 9% and allowing relief.
2. Assessment of income at Rs. 90,00,378/-.
3. Set off of cash available as per books amounting to Rs. 28,44,815/-.
4. Addition of Rs. 14,01,186/- on account of excess stock.
5. Estimation of Gross Profit (GP) at 9%.
6. Charging of interest under section 234B.
7. Initiation of penalty under section 271(1)(c).

Issue-wise Detailed Analysis:

1. Scaling down of addition from 12.39% to 9% and allowing relief:
The Revenue contended that the CIT (A) erred in reducing the addition from 12.39% to 9%, allowing relief of Rs. 16,38,667/-. The CIT (A) had concluded that the disclosure made during the survey was not fully reflected in the return of income, and the explanation given by the assessee regarding cash payments was considered an afterthought.

2. Assessment of income at Rs. 90,00,378/-:
The assessee challenged the CIT (A)'s decision to assess the income at Rs. 90,00,378/-. The CIT (A) upheld the AO's decision to add Rs. 75,99,192/- found in a diary during the survey as unaccounted income, rejecting the assessee's claim that part of the payment was made out of cash available in the books.

3. Set off of cash available as per books amounting to Rs. 28,44,815/-:
The assessee argued that the CIT (A) erred in not allowing the set off of Rs. 28,44,815/- out of the disclosed income during the survey. The CIT (A) found the explanation regarding the cash payments to be lacking credibility and considered it an afterthought. The entries in the diary and the ledger accounts did not match, leading to the rejection of the assessee's claim.

4. Addition of Rs. 14,01,186/- on account of excess stock:
The assessee contended that the stock included goods worth Rs. 9,98,400/- received on approval basis, which should be excluded from the total income. The AO and CIT (A) rejected this claim, stating that no mention of it was made during the survey, and the explanation lacked authenticity. The matter was remanded back to the AO for further verification.

5. Estimation of Gross Profit (GP) at 9%:
The AO estimated the GP at 12.39% based on the previous year, rejecting the books of accounts. The CIT (A) reduced the GP estimation to 9%, considering the detailed explanation provided by the assessee for the fall in GP. The CIT (A) accepted the loss explanation to the extent of Rs. 10.9 lakhs but did not accept the increase in direct expenses. Both the assessee and the Revenue were aggrieved by this decision, but the tribunal upheld the CIT (A)'s conclusion.

6. Charging of interest under section 234B:
The CIT (A) confirmed the AO's action of charging interest under section 234B of the Act. This issue was not separately discussed in the tribunal's order.

7. Initiation of penalty under section 271(1)(c):
The CIT (A) upheld the initiation of penalty under section 271(1)(c) of the Act. This issue was also not separately discussed in the tribunal's order.

Conclusion:
The tribunal upheld the CIT (A)'s decision on most issues, including the assessment of income, set off of cash, and estimation of GP. The matter regarding the addition of excess stock was remanded back to the AO for further verification. The appeals by both the assessee and the Revenue were dismissed, except for the issue remanded for verification.

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