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2016 (1) TMI 41 - AT - Income TaxDetermination of taxable income - Best Judgment Assessment u/s 144 - disallowance of depreciation and sundry creditors - Held that - CIT(A) has restored some of the issues to the AO for verification and allowance to the assessee, particularly with respect to set off of brought forward loss. In the grounds of appeal extracted (supra), the Revenue has pleaded that the ld.CIT(A) has upheld the depreciation of ₹ 1,49,07,251/- but in the computation of income no such deprecation as claimed by the assessee. The claim of depreciation is of ₹ 62,95,561/- only. It is also pertinent to note that the AO has made disallowance out of the sundry creditors. He made ad hoc disallowance at 20%. It is totally unheard. Whether sundry creditors are genuine or not genuine ? How they can be non-genuine to the extent of 20%. In other words, either total sundry creditors are genuine or all the sundry creditors genuine unless pointed out specifically. There cannot be any ad hoc disallowance out of these items. This appears to us that though the assessment was framed under section 144 of the Income Tax Act, according to the best judgment of the AO, but the AO failed to collect details by exercising his power in order to determine the fair income of the assessee. He ought to have looked into the earlier and subsequent years details available with the department before determining the income of the assessee. While he considering all these aspects, we set aside both the orders of the Revenue authorities and restore all the issues to the file of the AO for re-adjudication. The ld.AO shall issue notice to the assessee, and thereafter, determine taxable income of the assessee, if any. - Decided in favour of revenue for statistical purpose.
Issues Involved:
1. Addition made on account of sundry creditors for lack of proof. 2. Estimation of assessee income at 50% of gross profit and deletion of various additions made by AO on account of expenses. 3. Allowing depreciation which was earlier disallowed due to lack of evidence. 4. Upholding the order of the Assessing Officer. 5. Set off of brought forward losses for the assessment year 2005-06. Analysis: Issue 1: Addition on account of sundry creditors The Revenue appealed against the deletion of addition made on account of sundry creditors due to lack of proof. The CIT(A) observed that there was no compliance by the assessee in response to notices issued by the AO. The CIT(A) directed the AO to verify the claim of set off brought forward losses and allow the same as per law. The AO failed to collect necessary details to determine the fair income of the assessee. The Tribunal set aside the orders of the Revenue authorities and restored the issue to the file of the AO for re-adjudication. Issue 2: Estimation of assessee income The AO estimated the assessee's income at 50% of the gross profit and deleted various additions made on account of expenses due to lack of proof. The CIT(A) noted that the regular business activity of the appellant was not conducted in the relevant assessment year. The CIT(A) estimated the total income of the appellant at 50% of the gross receipts, reducing the total income assessed by the AO. The Tribunal partly allowed this ground of appeal, dismissing others related to estimated profit and unverifiable depreciation claims. Issue 3: Allowing depreciation The AO disallowed depreciation due to lack of evidence, but the CIT(A) allowed it after considering the details provided by the assessee. However, the Tribunal noted discrepancies in the claimed depreciation amount and directed the AO to re-adjudicate this issue along with others. Issue 4: Upholding the order of the Assessing Officer The Tribunal found inconsistencies between the CIT(A)'s findings and the computation of income filed by the assessee. The AO made ad hoc disallowances without sufficient basis, indicating a lack of detailed examination. The Tribunal set aside both the orders of the Revenue authorities and restored all issues to the AO for re-adjudication to determine the fair income of the assessee. Issue 5: Set off of brought forward losses The matter related to the set off of brought forward losses for the assessment year 2005-06, which the Tribunal directed the AO to handle under section 154 of the IT Act based on available records. The Tribunal allowed the Revenue's appeal for statistical purposes. In conclusion, the Tribunal emphasized the importance of thorough examination and collection of details by the AO to determine the fair income of the assessee, setting aside the previous orders and restoring all issues for re-adjudication.
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