2015 (7) TMI 207 - AT - Income Tax

Addition in the Trading Account - books of accounts not rejected - Held that - In the present case, it is an admitted fact that the AO worked out the figures of sales by adding the Gross Profit in the figure of the sales shown by the assessee. However, he had not rejected the books of accounts and also accepted all other components of the Trading Account i.e. the opening & closing stock and the purchases & Gross Profit. He only doubted the sales figure which was worked out by him by adding the Gross Profit separately in the sales disclosed by the assessee. It is an admitted fact that the sales value always includes the profit which cannot be added again for working out the figure of the sale. In our opinion the AO was not justified while adding the Gross Profit again in the sales already disclosed by the assessee and in making the impugned addition. In the present case, it is also noticed that the AO neither rejected the books of accounts by invoking the provisions of section 145(3) of the Act nor pointed out any inflated purchase or suppressed sales. He also did not doubt the method of accounting consistently followed by the assessee, therefore, the impugned addition made by the AO and sustained by the ld. CIT(A) was not justified. Accordingly, the same is deleted. - Decided in favour of assessee. Disallowance on account of TDS deducted from the supplies made - Held that - In the present case, it appears that the assessee could not furnish the relevant details before the authorities below regarding the inclusion of the receipts amounting to ₹ 77,78,724/- in the total sales of ₹ 2,29,42,663/-. It also appears that the certificate issued by the East Central Railway, Hajipur relating to wrong deduction of the TDS was not considered by the AO as well as by the ld. CIT(A). We, therefore, deem it appropriate to remand this issue back to the file of the AO to be adjudicated afresh in accordance with law. We also direct the AO to verify as to whether the total receipts of ₹ 77,78,724/- from the Railway had been included by the assessee in the gross sales and the TDS was wrongly deducted, if the aforesaid facts as claimed by the assessee were found to be correct then no addition is called for. Accordingly, this issue is set aside to the file of the AO. - Decided in favour of assessee for statistical purposes. Disallowance out of interest paid to the partners - Held that - In the present case, it appears that the assessee had not adjusted the amount of loss in the capital account of the partners, only on that basis, the AO considered that there was debit balance in the partners capital account. In the present case, it is also noticed that the assessee was having opening balance in the partners capital account at ₹ 22,08,021/- and even if loss amounting to ₹ 12,26,144/- was to be adjusted, there was no debit balance in the partners capital account. In the instant case, the assessee claimed that no interest was paid to anyone except to the bank from whom loan was raised for the business purposes. However, it appears that the said fact was not examined by the AO or by the ld. CIT(A). We, therefore, in the absence of clear facts on record, deem it appropriate to set aside this issue also fact to the file of the AO to be adjudicated afresh in accordance with law, after providing due and reasonable opportunity of being heard to the assessee. - Decided in favour of assessee for statistical purposes.

Summary

Issues Involved:
1. Confirmation of Trading addition of Rs. 13,57,633/-.
2. Disallowance of Rs. 81,468/- on account of TDS deducted from supplies.
3. Disallowance of Rs. 65,540/- out of interest paid to partners.

Issue-wise Detailed Analysis:

1. Confirmation of Trading Addition of Rs. 13,57,633/-:
The assessee filed an e-return declaring a loss of Rs. 12,19,664/-, which was later selected for scrutiny. The AO noticed a discrepancy in the sales figures, calculating the sales as Rs. 2,43,00,296/- against the assessee's declared Rs. 2,29,42,663/-, resulting in an addition of Rs. 13,57,633/-. The assessee argued that the Gross Profit (G.P.) was already included in the sales, and the AO's addition was unjustified. The CIT(A) upheld the AO's decision, noting the lack of explanation for the sales discrepancy. However, the Tribunal found that the AO's method of adding G.P. separately was incorrect, as sales inherently include profit. The Tribunal concluded that the AO did not reject the books of accounts or point out any suppressed sales or inflated purchases, thus the addition was unjustified and deleted it.

2. Disallowance of Rs. 81,468/- on Account of TDS Deducted from Supplies:
The AO disallowed the TDS credit of Rs. 81,468/- deducted by East Central Railway, arguing that the assessee did not offer the corresponding income of Rs. 77,78,724/-. The assessee contended that the receipts were included in the total sales and the TDS was wrongly deducted. The CIT(A) upheld the AO's disallowance due to the lack of reconciliation showing the inclusion of the Rs. 77,78,724/- in the total sales. The Tribunal found that the certificate from East Central Railway regarding the wrong TDS deduction was not considered by the AO or CIT(A). Therefore, the Tribunal remanded the issue back to the AO for fresh adjudication, directing verification of the inclusion of the Rs. 77,78,724/- in the total sales and the correctness of the TDS claim.

3. Disallowance of Rs. 65,540/- Out of Interest Paid to Partners:
The AO disallowed Rs. 65,540/- as interest on debit balances in partners' capital accounts, applying a 15% rate. The assessee argued that there was no overdrawn amount and the capital accounts had credit balances. The CIT(A) upheld the disallowance, noting that the assessee did not apportion the loss to the partners' capital accounts, which would have shown a debit balance. The Tribunal found that the assessee had not adjusted the loss in the capital accounts, but even if adjusted, there would be no debit balance. The Tribunal also noted that the assessee claimed no interest was paid to anyone except the bank. Due to the lack of clear facts, the Tribunal remanded the issue back to the AO for fresh adjudication, directing a thorough examination of the interest payments and capital account adjustments.

Conclusion:
The Tribunal deleted the trading addition of Rs. 13,57,633/-, remanded the issue of Rs. 81,468/- TDS disallowance for fresh adjudication, and also remanded the issue of Rs. 65,540/- interest disallowance for further examination. The appeal was partly allowed for statistical purposes.