2015 (1) TMI 606 - AT - Income Tax

Disallowance of unaccounted business expenditure on repairs and renovation of factory shed - CIT(A) confirmed the action of the Assessing Officer and further held that the expenditure is also not allowable in view of the Proviso to Section 69C of the Act - Held that - AR of the assessee has not made any submission as to why even in view of the above Proviso to Section 69C the expenditure incurred from deemed income whose source has not been explained should still be allowed as deduction to the assessee. In absence of the same, we do not find any good reason to interfere with the order of the CIT(A) which is confirmed and the ground of appeal of the assessee is dismissed. - Decided against assessee. Addition of income - Held that - Addition of ₹ 39,882/- made only on the basis of statement recorded u/s 133A is unsustainable in law; accordingly, we delete the addition of ₹ 39,882/- and allow this ground of appeal of the assessee. - Decided in favour of assessee. Addition on account of low gross profit which includes disallowance of deliberate loss of ₹ 31,35,469/- incurred on sale of gray cloth in the post-survey period - CIT(A) deleted the addition - Held that - he Revenue could not point out any specific error in the order of the CIT(A). The Revenue could not point out the amount of loss incurred on sales made to sister concerns and that to other parties. Further, no material was brought on record by the Revenue to show that on the date of sale made to sister concerns the assessee had made sales to other parties at a price more than that charged from sister concerns. In absence of the same, we do not find any good reason to interfere with the order of the CIT(A) which is confirmed and thus, these grounds of appeal of the Revenue are dismissed. - Decided against revenue. Disallowance made out of the excess claim of expenditure under the head Brokerage to its sister concerns - CIT(A) deleted the disallowance - Held that - Assessing Officer made disallowance out of brokerage expenses of ₹ 2,60,385/- u/s 40A(2)(b) of the Act as he observed that the brokerage paid to sister concerns was at the rate of 5.25% of the job receipt; whereas the brokerage paid to other persons was at the rate of 4%. The CIT(A) has deleted the addition merely by observing that the expenditure was incurred wholly and exclusively for promoting the business activities of the assessee. The CIT(A) has given no reason or brought out any distinguishing fact for which the assessee had paid higher brokerage of 1.25% to the sister concern. Thus, we find that the order of the CIT(A) is an unreasoned and cryptic order which is not sustainable in law. We, therefore, set aside the order of the CIT(A) and restore the matter back to his file for adjudication afresh by passing a well reasoned and speaking order, after allowing a reasonable opportunity of hearing to the assessee. Decided in favour of revenue for statistical purposes. Penalty u/s 271(1)(c) - claim of deduction on account of repairs and renovation of factory shed - Held that - Mere making of claim, which is not sustainable in law, by itself, will not amount to furnishing of inaccurate particulars regarding the income of the assessee. We, therefore, delete the levy of penalty. - Decided in favour of assessee.

Summary

Issues Involved:
1. Disallowance of unaccounted business expenditure on repairs and renovation of factory shed.
2. Addition of income amounting to Rs. 39,882/-.
3. Addition of Rs. 35,72,885/- on account of low gross profit.
4. Disallowance of Rs. 2,60,385/- under the head 'Brokerage' to its sister concern.
5. Levy of penalty u/s 271(1)(c) for Rs. 5,23,210/-.

Detailed Analysis:

1. Disallowance of Unaccounted Business Expenditure on Repairs and Renovation of Factory Shed:
The assessee appealed against the disallowance of Rs. 13,83,807/- incurred towards construction and repair/renovation of a factory shed, which was not recorded in the books of account. The Assessing Officer (AO) disallowed this expenditure under Section 69C of the Income Tax Act, treating it as capital expenditure. The Commissioner of Income Tax (Appeals) [CIT(A)] upheld the AO's decision, citing the proviso to Section 69C, which prohibits deductions for unexplained expenditure. The Tribunal confirmed the CIT(A)'s order, emphasizing that the expenditure was deemed income under Section 69C and not allowable as a deduction under any head of income.

2. Addition of Income Amounting to Rs. 39,882/-:
The AO added Rs. 39,882/- to the total income due to a discrepancy between the income disclosed during survey proceedings and the amount reported in the return. The CIT(A) upheld this addition. However, the Tribunal found that no material evidence supported the addition except for the statement recorded during the survey, which lacks evidentiary value as per the Supreme Court's decision in CIT Vs. S. Khader Khan Son. Consequently, the Tribunal deleted the addition of Rs. 39,882/-.

3. Addition of Rs. 35,72,885/- on Account of Low Gross Profit:
The AO observed a significant drop in the gross profit ratio post-survey and added Rs. 35,72,885/- by estimating the gross profit at 17.18%. The CIT(A) deleted this addition, noting that the AO failed to establish that the sales were made at a lower rate than the prevailing market rate and did not verify the transactions despite having the necessary details. The Tribunal upheld the CIT(A)'s decision, finding no specific errors or material evidence from the Revenue to justify the addition.

4. Disallowance of Rs. 2,60,385/- Under the Head 'Brokerage' to its Sister Concern:
The AO disallowed Rs. 2,60,385/- paid as brokerage to the sister concern at a higher rate than the market rate. The CIT(A) deleted this disallowance, stating that the expenditure was incurred for promoting business activities. The Tribunal found the CIT(A)'s order unreasoned and cryptic, lacking any distinguishing facts for the higher brokerage rate. The matter was remanded back to the CIT(A) for a fresh adjudication with a well-reasoned order.

5. Levy of Penalty u/s 271(1)(c) for Rs. 5,23,210/-:
The AO levied a penalty for Rs. 5,23,210/- on the disallowed expenditure of Rs. 13,83,807/- and the addition of Rs. 39,882/-. The CIT(A) confirmed the penalty. The Tribunal deleted the penalty on Rs. 39,882/- due to the deletion of the addition. For the Rs. 13,83,807/-, the Tribunal noted that the expenditure's genuineness was not disputed, and the disallowance was based on computation provisions. Citing the Supreme Court's decision in CIT v. Reliance Petroproducts P. Ltd., the Tribunal held that a mere disallowance of a claim does not attract penalty and deleted the penalty.

Conclusion:
- The assessee's appeal on the disallowance of Rs. 13,83,807/- was dismissed.
- The addition of Rs. 39,882/- was deleted.
- The addition of Rs. 35,72,885/- on account of low gross profit was dismissed.
- The disallowance of Rs. 2,60,385/- was remanded for fresh adjudication.
- The penalty of Rs. 5,23,210/- was deleted.

(Order pronounced on 31.10.2014)