2015 (8) TMI 1084 - AT - Income Tax

Addition on account of sale outside books at ₹ 20,91,360/- - Held that - Find force in the contention of assessee that exhibit-138 and 139 have to be read together and the entries in exhibit 138 has to be considered while considering the entries in exhibit-139. That being so, set off of 687898.99 mtrs has to be given in 909289.17 mtrs., resulting into shortage of 221390.18, at the most this has to be considered as sold outside the books. Further, a perusal of the comparative chart show that the average profit of 5 years comes to 14.90% therefore the adoption of 20% appears to be on the higher side. Thus we hold that shortage of 221390.18 at the most can be considered as sold outside the books. The AO is directed to recompute the profit on sale of this stock @ 14.90%. - Decided partly in favour of assessee. Addition u/s. 69C - Held that - While adjudicating ground No. 3 below as referred to the relevant portion of the statement recorded at the time of survey and we have mentioned the answer to question No. 34 wherein the Managing Director has specifically said that the cash sales have been utilized for making the labour payment and therefore the cash generated out of the sale of scrap can be accepted as utilized for making the payment of ₹ 9,77,200/- and therefore no separate addition is called for. We, accordingly direct the AO to delete the addition of ₹ 9,77,200/- which is treated as unexplained expenditure u/s. 69C - Decided in favour of assessee. Addition on account of sale of fents, bhangars and chindies - Held that - If the statement made by the Managing Director at the time of survey is considered in the light of the business activities of the assessee, it can be safely concluded that the assessee has been making sales outside the books in respect of the scrap generated during the course of its business activities. Therefore, the income offered by the assessee in its revised return of income can be accepted as having included in the cash sales generated out of the scrap. Therefore, in our considered opinion and understanding of the facts of the case in hand, the addition of ₹ 29,09,456/- is unjustified as the same is already offered in the revised return of income by the assessee. We, therefore, set aside the findings of the Ld. CIT(A) and direct the AO to delete the addition - Decided in favour of assessee. Disallowance of claim for deduction u/s. 80HHC - Held that - Since we have deleted the addition made u/s. 69C at ₹ 9,77,200/- and have also deleted the addition of ₹ 29,09,456/-, there is no question of any computation of deduction u/s. 80HHC of the Act, only the addition on account of alleged sale of stock have been modified by us. The AO is directed to decide this issue after giving appeal effect to our order and after giving a reasonable opportunity of being heard to the assessee.- Decided partly in favour of assessee for statistical purpose.

Issues Involved:
1. Addition on account of sale outside books at Rs. 20,91,360/-
2. Addition u/s 69C at Rs. 9,79,200/-
3. Addition on account of sale of fents, bhangars, and chindies of Rs. 29,09,456/-
4. Claim for deduction u/s 80HHC of the Act

Detailed Analysis:

1. Addition on account of sale outside books at Rs. 20,91,360/-:
The assessee, engaged in the business of processing and trading clothes, faced scrutiny after a survey operation revealed unaccounted cash sales and payments. A blue notebook (Annexure-A/10) suggested sales outside the books. The AO estimated the profit on 9,09,289.17 meters of unaccounted stock at Rs. 20,91,360/-, which the CIT(A) upheld. The assessee argued that the rough book was incomplete and the actual shortage was only 2,21,390.18 meters. The Tribunal found merit in the assessee's argument, directing the AO to recompute the profit at 14.90% instead of 20%, modifying the CIT(A)'s findings and partly allowing the assessee's ground.

2. Addition u/s 69C at Rs. 9,79,200/-:
Initially deferred, this issue was revisited after addressing the third ground. The Tribunal noted the Managing Director's statement that unaccounted cash sales funded labor payments. Accepting this, the Tribunal directed the AO to delete the Rs. 9,79,200/- addition as unexplained expenditure, allowing the assessee's grievance.

3. Addition on account of sale of fents, bhangars, and chindies of Rs. 29,09,456/-:
The AO added Rs. 29,09,456/- based on cash sales not recorded in the books, despite the assessee's claim that these sales were included in the revised income return. The CIT(A) suggested the actual unaccounted sales could be Rs. 80 lakhs but upheld the AO's addition. The Tribunal, considering the Managing Director's admission of unaccounted sales and their inclusion in the revised return, found the addition unjustified and directed its deletion, allowing the assessee's ground.

4. Claim for deduction u/s 80HHC of the Act:
The Tribunal addressed multiple aspects of the deduction claim:
- Drawback Credit: The Tribunal, referencing the Gujarat High Court's decision in Avani Exports and the Bombay High Court's support, directed the AO to allow the deduction, favoring the assessee.
- Computation of Deduction: Citing the Supreme Court's decision in Topman Exports, the Tribunal directed the AO to compute the deduction accordingly, allowing the assessee's grievance.
- Deduction on Additions: With the deletion of additions u/s 69C and for unaccounted sales, the Tribunal directed the AO to reassess the deduction after giving effect to their order and providing the assessee a fair hearing.

Conclusion:
The Tribunal partly allowed the appeal, modifying the AO's and CIT(A)'s findings on several grounds, directing recomputation and deletion of certain additions, and affirming the assessee's claims for deductions based on higher judicial precedents. The order was pronounced on 19th August 2015.

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