2015 (11) TMI 537 - AT - Income Tax

Revision u/s 263 - Lower Gross and net profit shown by assessee - Held that - Past history of the assessee shows that in none of the years books of accounts were rejected in absence of stock register. In AY 2007-08, the gross profit ratio of assessee was 11.51 % and in the current year it is 12.09% respectively therefore there is increase in the gross profit rate further the letter dated 19.07.2010 of the assessee also showed number of transformers repaired by the assessee. The letter also clearly explains the fall in the net profit ratio is because of payment of higher interest. The Ld. CIT has presumed net profit ratio of 8% on sales as well as 20% on job working without giving any comparable cases or any other reason. Therefore we do not find any reason to confirm AO has not made requisite inquiry on this aspect. Hence, we are of the view that Ld. CIT was not justified in making addition on account of gross profit. We do not find any error in the order of assessing officer on this count. Verification of sundry creditors on unsecured loan - Held that - Assessee has furnished required details called for along with explanations in writing as well as all confirmations of the sundry creditors as well as lenders stating their name, address and PAN and also contra accounts along with the balance sheet and income tax returns of lenders. In case of TDS credit given to assessee AO has made inquiries from third parties. Further ld. CIT is under belief that sundry creditors and lenders remains unconfirmed which fact is not borne out from submission made by assessee and not controverted by revenue. Therefore order passed after such verification cannot be termed as erroneous. - Decided in favour of assessee.

Summary

Issues Involved:
1. Lower gross and net profit shown by the assessee.
2. Verification of sundry creditors.
3. Verification of unsecured loans.
4. Non-deduction of tax at source on interest.
5. Estimation of turnover based on TDS certificates.

Detailed Analysis:

1. Lower Gross and Net Profit Shown by Assessee:
The assessee argued that during the assessment proceedings, the Assessing Officer (AO) raised queries about the gross and net profit rates for the last three years, and the assessee provided a comparative chart showing these rates. The AO examined the books of accounts, bills, and vouchers and accepted the explanations provided for the decrease in net profit, which was attributed to higher interest payments. The Commissioner of Income Tax (CIT) alleged that the AO did not properly verify these details and arbitrarily applied a net profit rate of 8% on sales and 20% on job work receipts, resulting in an addition of Rs. 13,20,978/-. The Tribunal found that the AO had indeed made the necessary inquiries and verified the details, and thus, the CIT's addition was unjustified.

2. Verification of Sundry Creditors:
The CIT claimed that the AO did not properly verify sundry creditors amounting to Rs. 14,23,436/-. The assessee countered that during the assessment proceedings, the AO requested confirmations of sundry creditors, which were duly provided along with their ledger accounts, names, addresses, and Permanent Account Numbers (PAN). The Tribunal found that the AO had verified these details, and the CIT's assertion that the creditors remained unconfirmed was incorrect.

3. Verification of Unsecured Loans:
The CIT alleged that the AO did not properly verify unsecured loans totaling Rs. 1,05,65,133/-. The assessee provided confirmations of these loans, including names, addresses, PANs, Income Tax Returns, and balance sheets of the lenders. The AO had specifically inquired about these loans, and the assessee had complied with the requests. The Tribunal concluded that the AO had adequately verified the unsecured loans, and the CIT's claim was unfounded.

4. Non-Deduction of Tax at Source on Interest:
The CIT contended that the AO did not verify whether tax was deducted at source on interest payments of Rs. 4,69,432/-. The assessee submitted TDS returns, provisional receipts, and challans showing tax deductions. The Tribunal found that the AO had examined these details, and the CIT did not specify what additional inquiries were necessary. Therefore, the AO's order was not erroneous on this count.

5. Estimation of Turnover Based on TDS Certificates:
The CIT made an addition of Rs. 3,91,600/- by estimating the turnover based on TDS certificates. The assessee argued that the AO had written to all parties who deducted taxes at source, and no discrepancies were found. The Tribunal criticized the CIT's approach of estimating turnover based on TDS rates and found that the AO had conducted a detailed inquiry into the TDS certificates. Thus, the CIT's addition was unjustified.

Conclusion:
The Tribunal held that the AO had made the necessary inquiries and verifications during the assessment proceedings. The CIT's order under section 263 of the Income-tax Act was set aside, and the original assessment order was restored. The appeal of the assessee was allowed.