2013 (6) TMI 592 - AT - Income Tax

Low gross profit disclosed - un-explained income - CIT(A) deleted the addition - Held that - During the course of hearing assessee was required to explain the discrepancy pointed by AO on the basis of month-wise analysis of sales and purchases furnished before AO. The details of both the charts are in terms of pieces. It was pointed out that whereas in the first chart purchases were shown in the month of January 2007, February 2007 and sales in January 2007 but no such details were shown in the second chart contained. As assessee submitted that there may be typographical mistake however CIT(A) has observed that the difference had duly been reconciled in terms of pieces. Thus, it is not clear as to how the discrepancy pointed out by AO got reconciled. Thus matter be restored back to the file of AO for due verification of reconciliation statement - In favour of revenue for statistical purposes. Un-explained credit - CIT(A) deleted the addition - Held that - Before CIT(A), the assessee furnished various details after considering which CIT(A) deleted the addition but CIT(A) accepted the evidence in contravention to the requirements of Rule 46A particularly the details, inter alia, regarding repayment of loan through account payee cheque. Therefore, restore this matter to the file of AO for deciding the issue afresh, after taking consideration the evidence as were furnished before CIT(A). In favour of revenue for statistical purposes. Commission paid disallowed - CIT(A) deleted the addition - Held that - As far as commission paid to Shri Pramod Kumar is concerned the main reason for disallowance was that no reply was filed by the party in pursuance to the notice issued under section 133(6). Mere filing of details does not absolve the assessee of the onus cast on it to substantiate the claim for payment of commission. Thus restore the matter back to the file of AO and direct the assessee to produce Shri Pramod Kumar for proper verification of facts. In favour of revenue for statistical purposes. Addition made to the assessable income being 20% of commission paid to other eight persons - CIT(A) deleted the addition - Held that - Once the persons responded to notice under section 133(6), it cannot be accepted that they did not accept the contents of information sought under section 133(6) unless something is brought on record to contradict the same. As AO himself had allowed 80% of the commission payment AO could not question the adequacy of commission. It is the sole prerogative of business man as to how much commission is to be paid keeping in view the nature of services rendered by persons. Thus ad hoc disallowance was wholly uncalled for with no basis for making 20% of disallowance out of the commission paid. In favour of assessee.

Summary

Issues Involved:
1. Addition on account of low gross profit.
2. Addition of unexplained credit entries.
3. Disallowance of commission paid to Shri Pramod Kumar.
4. Disallowance of 20% of commission paid to other eight persons.

Issue-Wise Detailed Analysis:

1. Addition on account of low gross profit:
The assessing officer (AO) noticed discrepancies in the assessee's books of account, such as negative closing stock balances in May and July 2006, and inconsistencies in sales and purchases data. The AO rejected the books of account under section 145(3) of the Income Tax Act, 1961, and estimated a gross profit rate of 25%, resulting in an addition of Rs. 12,55,073/-. The CIT(A) deleted this addition, accepting the assessee's reconciliation of sales and purchases. However, the Tribunal found that the reconciliation was not clearly explained and restored the matter to the AO for verification.

2. Addition of unexplained credit entries:
The AO added Rs. 1,15,00,000/- under section 68 of the IT Act due to lack of information and confirmatory documents for unsecured loans from M/s. Sun City Projects and M/s. Mount View Group Housing Society. The CIT(A) deleted this addition, noting that confirmations, PAN, addresses, and evidence of repayment through banking channels were provided. The Tribunal restored this issue to the AO for fresh consideration, emphasizing the need to comply with Rule 46A of the Income Tax Rules, 1962.

3. Disallowance of commission paid to Shri Pramod Kumar:
The AO disallowed Rs. 80,000/- paid to Shri Pramod Kumar due to non-receipt of a reply to a notice under section 133(6). The CIT(A) deleted the disallowance based on the assessee's submission of Kumar's return of income, bank statement, and PAN. The Tribunal restored the matter to the AO, directing the assessee to produce Shri Pramod Kumar for verification.

4. Disallowance of 20% of commission paid to other eight persons:
The AO disallowed 20% of the commission (Rs. 2,41,056/-) paid to eight persons, citing inadequate explanation of services rendered and timing of payments. The CIT(A) deleted this disallowance, noting that the commission was paid for specific services related to the business and that TDS was deducted. The Tribunal upheld the CIT(A)'s decision, stating that the AO's reasons were not tenable and that the adequacy of commission is a business prerogative.

Conclusion:
The Tribunal allowed the departmental appeal partly for statistical purposes, restoring the issues of low gross profit addition and unexplained credit entries to the AO for verification and fresh consideration, respectively. The disallowance of commission paid to Shri Pramod Kumar was also restored to the AO for verification, while the disallowance of 20% commission paid to other persons was dismissed.