2015 (3) TMI 59 - AT - Income Tax

GP addition - CIT(A) deleted the addition - Held that - CIT(A) has correctly concluded that AO was not justified to reject the books of accounts to estimate the profits of the assessee at the rate higher than that given in the books of account of the assessee. The GP rate as explained by the assessee was higher in the year under consideration compared to the immediately preceding year and hence any addition on this basis was uncalled for. As regards confirmations, the assessee was given inadequate time to file these. If the AO wanted to get the accounts of some of the parties confirmed, he could have given some more time to the assessee to file confirmed copies of accounts which could have changed his mind regarding his action to reject the books of account. Therefore, Ld. CIT(A) held that AO was erred in rejecting the books of account of the assessee and estimating profits of the assessee. Hence, he deleted the addition made by the AO. In view of the above, we find that Ld. CIT(A) has rightly deleted the addition ₹ 22,85,157/- which does not need any interference on our part, hence, the same is upheld. - Decided in favour of assessee.

Summary

Issues Involved:
1. Justification of deletion of addition made by the Assessing Officer by rejecting books of accounts and applying a higher GP rate.
2. Justification of deletion of addition made by the Assessing Officer by accepting debtors as genuine despite being proved non-genuine.
3. Acceptance of assessee's stand regarding genuineness of transactions when the party could not be located at the given address.

Issue 1:
The case involved an appeal by the Revenue against the order of the Ld. Commissioner of Income Tax (Appeals) regarding the addition of Rs. 22,85,157 made by the Assessing Officer by rejecting the books of accounts and applying a higher GP than shown by the assessee. The Ld. CIT(A) deleted the addition after detailed discussions. The Assessing Officer rejected the books of accounts as unreliable due to observing debtors as bogus and fictitious, leading to the addition. The Ld. CIT(A) clarified various aspects, including the confirmation of accounts by parties and transactions reflected in the bank account of the assessee. The GP rate calculation discrepancy and the treatment of business transactions were thoroughly analyzed. The Ld. CIT(A) concluded that the rejection of books of accounts and estimation of profits at a higher rate were unwarranted, leading to the deletion of the addition.

Issue 2:
Another issue in the case was the justification of deleting the addition made by the Assessing Officer by accepting debtors as genuine, despite being proven non-genuine during assessment proceedings. The Ld. CIT(A) examined the evidence submitted by the assessee, including confirmations and bank transactions. The Remand Report highlighted the confirmation of accounts by multiple parties and the reflection of transactions in the bank account. The Ld. CIT(A) scrutinized the GP rates of different business aspects and found the AO's argument regarding a fall in GP rate to lack logic. The assessee's explanation regarding the higher GP rate during the current year compared to the previous year was accepted. The Ld. CIT(A) concluded that the rejection of books and estimation of profits at a higher rate were unjustified, leading to the deletion of the addition.

Issue 3:
The third issue revolved around the acceptance of the assessee's stand regarding the genuineness of transactions, even when the party could not be located at the given address. The Ld. CIT(A) considered the submissions made by the assessee, especially regarding the transactions with specific parties and the reflection of these transactions in the bank account. The AO's Remand Report acknowledged confirmations by multiple parties and the reflection of transactions in the bank account. The Ld. CIT(A) analyzed the GP rates and business transactions to support the assessee's explanation. Ultimately, the Ld. CIT(A) held that the rejection of books and estimation of profits at a higher rate were erroneous, leading to the deletion of the addition.

This detailed analysis of the judgment showcases the thorough examination of each issue involved and the reasoning behind the decisions made by the authorities.