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2016 (4) TMI 353 - AT - Income TaxAddition on account of reduction in gross profit of 6% - sale made to sister concern - Held that - No infirmity in the order of ld CIT(A) in confirming the addition to the extent of ₹ 3,01,352/- on sale made to sister concern as the assessee could not explain the fall in gross profit on distress sale made by assessee to its sister concern. The plea of safeguarding itself from the clutches of slow down and of wastages is not supported by evidence. Merely disclosure of sales figures and sales tax return does not prove or disprove the gross profit declared by the assessee. The rates charged by the assessee on sale of goods to sister concern at no profit no loss but the sale them at cost is stated the commercial expediency of the assessee. However no commercial expediency was demonstrated before the lower authorizes. Further assessee has debited the whole of the unaccounted purchases to the profit and loss account of ₹ 3,80,50,000/- and claimed it as deduction and AO has allowed it for the reasons best known to him. This fact is apparent from the details of purchases furnished by assessee at paper book page no 13. Therefore the main reason for lower gross profit is also the reasons of the debit of unaccounted purchases by the assessee to the profit and loss account. In the result we confirm the order of ld CIT (A) in confirming the addition of ₹ 3,01,352/- on account of lower gross profit in post survey period on sale made to sister concern - Decided against assessee. Disallowance of depreciation - Unaccounted investment in construction of building - Held that - During the course of survey the assessee has disclosed ₹ 5 crores out of which the addition to the building was stated to be of ₹ 70 lacs. The moment the disclosure of ₹ 5 crores is accepted then the investment in the building is also required to be accepted. The principle is that the statement of any person should be accepted or rejected in toto. In this statement the assessee has offered income of ₹ 5 crore which has been taxed by the AO. Further the application of this income has not been accepted. Because of the reason that provision of section 69B does not contain identical provision as contained in section 69C of the act. For the purposes of allowance of depreciation AO has not stated that any conditions mentioned in section 32 of the Act has not been met with. Neither AO has put any question to the assessee about the ownership of the assets, user of those assets and consequent allowance of deprecation thereon. In absence of this disallowance of depreciation cannot be made. According to us the ld CIT (A) and AO both erred in applying the provisions of section 69C on the issue of unaccounted investment in construction of building. The addition made is not on account of unexplained expenditure but it is an addition of amount of investment which is not fully disclosed in the books of account. The relevant addition has not been made u/s 69C but u/s 69B of the Act. In view of this the disallowance of depreciation of ₹ 350000 cannot be upheld. In the result we reverse the finding of the ld CIT(A) in disallowing the depreciation - Decided in favour of assessee. Disallowance of repairs and renovation expenditure - Held that - Assessee has offered income of ₹ 5 crore by crediting this sum as other income and showed in schedule 12 of the profit and loss account. Simultaneously the assessee has debited ₹ 40 lacs in the profit and loss account under the head repair and maintenance expenditure at schedule 16. According to this assessee has agreed the income to credit of profit and loss account and simultaneously debited the expenditure to the profit and loss account and thus nullifying the amount of disclosure made by the assessee. Obviously the disclosure made by the assessee is on account of repairs of show room amounting to ₹ 40 lacs. That means the assessee has incurred an expenditure however it did not offer any explanation about the source of such expenditure then same is required to be added under the provision of section 69C of the act. As the amount is covered by provision of section 69C obviously proviso mentioned therein is applicable which prohibits the allowance of any expenditure as deduction under any head of income which has been taxed u/s 69C of the Act. In view of this we confirm the action of the lower authorities in confirming the disallowance of ₹ 40 lacs as unexplained expenditure. - Decided against assessee.
Issues Involved:
1. Confirmation of addition on account of reduction in Gross Profit (GP). 2. Disallowance of depreciation on voluntarily admitted income for building additions. 3. Disallowance of repairs and renovation expenses voluntarily admitted. 4. Non-allowance of depreciation on repairs and renovation expenses deemed capital in nature. Issue-wise Detailed Analysis: 1. Confirmation of Addition on Account of Reduction in Gross Profit: The assessee contested the addition of ?3,01,352/- by the CIT(A) due to a reduction in the GP rate from 30.29% to 24.29% post-survey. The survey revealed unaccounted stock, unexplained cash, repairs expenditure, and building expenses, leading to a ?5 crore income surrender. The AO noted a 6% fall in the GP ratio and attributed it to book entries rather than actual sales, resulting in a ?12,05,150/- addition. The CIT(A) restricted this addition to ?3,01,352/- for sales to the sister concern, considering a 6% GP shortfall. The Tribunal upheld the CIT(A)'s decision, finding no infirmity and dismissing the ground. 2. Disallowance of Depreciation on Voluntarily Admitted Income for Building Additions: The assessee challenged the disallowance of ?3,50,000/- depreciation on ?70 lakhs added to the building account during the survey. The AO applied Section 69C, disallowing the depreciation, which the CIT(A) confirmed, referencing the Gujarat High Court's decision in Fakir Mohmed Haji Hasan vs. CIT. The Tribunal disagreed, noting the addition should be under Section 69B, not 69C, as it pertained to unaccounted investment, not unexplained expenditure. The Tribunal allowed the depreciation claim, reversing the CIT(A)'s decision. 3. Disallowance of Repairs and Renovation Expenses Voluntarily Admitted: The assessee disputed the disallowance of ?40 lakhs for repairs and renovation expenses, claimed as income during the survey. The AO and CIT(A) disallowed the expenditure under Section 69C, supported by the Gujarat High Court's decision. The Tribunal upheld this disallowance, noting the assessee credited the income but debited the expenditure, nullifying the disclosure. As the expenditure source was unexplained, Section 69C's proviso applied, prohibiting the deduction. The Tribunal confirmed the lower authorities' decision, dismissing the ground. 4. Non-allowance of Depreciation on Repairs and Renovation Expenses Deemed Capital in Nature: This issue was intertwined with the third issue. The Tribunal's analysis and decision on the disallowance of ?40 lakhs under Section 69C inherently addressed the non-allowance of depreciation on these expenses, as they were deemed capital in nature. The Tribunal upheld the disallowance, confirming the lower authorities' stance. Conclusion: The Tribunal partly allowed the appeal, reversing the disallowance of depreciation on building additions but upholding the disallowance of repairs and renovation expenses and the addition due to reduced GP. The order was pronounced on 05/04/2016.
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