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2013 (7) TMI 473 - AT - Income TaxAddition made u/s. 69A - Held that - It is a fact that blank signed cheques were found at the business premises of the assessee and same were inventoried by the survey team. After considering the submissions of both the parties, blank cheques cannot be considered as money/ bullion/jewellery other available articles and provisions of Section 69A are not applicable. Secondly, endorsing view of the FAA that once Books of Accounts are rejected and income is estimated u/s.144 no addition can be made u/s. 69A of the Act. Ground No.1 is decided against the AO. Estimated rate of Gross Profit - 20% or 8% - Held that - While adopting the GP rate of 20% AO had not considered the direct expenses incurred by the assessee and in our opinion without considering such a vital factor GP rate cannot be determined.FAA has after considering all the relevant facts estimated the rate of gross profit at 8%, thus his order does not need any interference. Upholding the order of the FAA Ground decided against the AO. Disallowance of selling and administrative expenses - 40% on the basis that Books of Accounts of the assessee were not produced for verification - Held that - Even Books of Accounts are not reliable, the expenditure claimed have to be allowed, if same is incurred for running the business. FAA has given a finding of fact that expenses claimed by the appellant were bank charges,auditor s remuneration, service charges, godown rent, brokerage to bank, salary and wages.In our opinion, if the amounts incurred on the said items are verifiable, no disallowance can be made. As this aspect needs further verification remit back the matter to the file of the AO - partly allowed in favour of the AO. Rejection of Books of Accounts - assessment order passed u/s. 144 - FAA had upheld the order of rejecting the Books of Accounts - Held that - It is the duty of the assessee to produce Books of Accounts during the assessment proceedings before the AO for determining the right tax liability. In the case under consideration, neither before the survey team nor before the AO required Books of Accounts were produced. In these circumstances, upholding the order of the FAA, decide Ground against the assessee. Estimation of Closing Stock - Held that - During assessment or appellate proceedings before the AO/FAA, he had not explained the deficiency of stock not found during the survey operations. In these circumstances, departmental authorities were right in holding that there were un recorded sales during the assessment year under consideration. AR has submitted that only GP could be added and not the entire sales. Argument of the assessee that only GP should be added is a clear admission that assessee was indulging in selling goods out of the books. Therefore, upholding the order of the FAA, decide Ground against the assessee. As far as the alternative submission of the assessee to consider the GP only for making addition, we are of the opinion that whole of sale proceeds cannot be treated as income of assessee. AO is therefore directed to re- calculate the profit @ 8% for determining the exact addition under the head Un- recorded Sales as held by the FAA during the year under consideration.
Issues Involved:
1. Addition made under Section 69A of the Income Tax Act. 2. Estimation of Gross Profit rate. 3. Disallowance of selling and administrative expenses. 4. Rejection of Books of Accounts and passing of assessment order under Section 144. Detailed Analysis: 1. Addition under Section 69A: The AO added Rs. 15.5 lakhs under Section 69A due to blank signed cheques found during a survey, which were not reflected in the assessee's books of accounts. The CIT(A) deleted this addition, reasoning that blank cheques could not be considered as money, bullion, or other valuable articles under Section 69A, especially since the books of accounts were rejected and income estimated under Section 144. The Tribunal upheld the CIT(A)'s decision, agreeing that blank cheques do not fall under the purview of Section 69A and that no addition can be made under this section once a best judgment assessment is passed. 2. Estimation of Gross Profit Rate: The AO estimated the Gross Profit (GP) rate at 20% based on weighted averages of purchase and sale rates, while the assessee declared a GP rate of 5.5%. The CIT(A) found both estimates unreasonable and settled on an 8% GP rate, considering direct expenses not accounted for by the AO. The Tribunal upheld the CIT(A)'s decision, noting that the AO had not considered direct expenses like Customs Duty and Freight, making the 20% estimate unreliable. The Tribunal found the 8% GP rate reasonable given the circumstances. 3. Disallowance of Selling and Administrative Expenses: The AO disallowed 40% of selling and administrative expenses due to the non-production of books of accounts during the survey and inconsistencies in stock records. The CIT(A) reduced this disallowance to 10%, noting that many expenses were verifiable and incurred for business purposes. The Tribunal remitted the matter back to the AO for further verification, directing that only expenses incurred wholly and exclusively for business should be allowed after giving the assessee a reasonable opportunity to be heard. 4. Rejection of Books of Accounts and Assessment under Section 144: The AO rejected the books of accounts due to inconsistencies and the absence of a stock register, leading to a best judgment assessment under Section 144. The CIT(A) upheld this rejection, citing multiple discrepancies and the non-maintenance of regular books of accounts. The Tribunal agreed with the CIT(A), noting that the assessee admitted to not maintaining a stock register and failed to produce books of accounts during the survey and assessment proceedings. The Tribunal found the rejection of books and the best judgment assessment justified. Separate Judgment for M/s. P. Kishanchand Textile P. Ltd: Similar issues were raised for the sister concern, M/s. P. Kishanchand Textile P. Ltd. The AO's estimation of a 15% GP rate was reduced to 7% by the CIT(A), and the Tribunal upheld this reduction. The Tribunal also remitted the issue of disallowance of selling and administrative expenses back to the AO for fresh adjudication, following the same reasoning as in the case of Unicorn Textiles Pvt. Ltd. The Tribunal upheld the rejection of books of accounts and best judgment assessment under Section 144, directing the AO to calculate GP at 7% on unrecorded sales. Conclusion: The appeals by the AO and cross-objections by the assessee were partly allowed. The Tribunal upheld the CIT(A)'s decisions on most grounds but remitted the issue of selling and administrative expenses back to the AO for further verification. The Tribunal emphasized the importance of maintaining proper books of accounts and the necessity of considering all relevant expenses when estimating gross profit.
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