2016 (12) TMI 747 - AT - Income Tax

Addition under section 69C - unexplained expenditure - Held that - Assessing Officer has given ample opportunity to the assessee to explain this issue but no evidence was filed before Assessing Officer at assessment stage. The assessee also failed to explain the relevance of the additional evidence because in the certificate of Secretary, Agriculture Market Produce Committee, Solan, it is nowhere clarified as to how the contents of the same were relevant to the matter in issue. It merely explains the identification of firms names instead of writing full name. Since assessee failed to explain as to how the additional evidence was relevant to the matter in issue, we are of the view ld. CIT (Appeals) correctly refused to admit the same at appellate stage. However, considering the totality of the above findings, it is clear that addition is wholly unjustified in the matter. We, therefore, set aside the orders of authorities below and delete the addition of ₹ 8,11,490/-. This ground of appeal of the assessee to that extent is allowed. Addition under section 69C - Held that - In the light of provisions of Section 292C, it is clear that assessee has made purchases of construction material which belong to the business of the assessee and in the absence of any plausible explanation, the authorities below were justified in making the addition under section 69C of the Act. No infirmity have been pointed out in the orders of authorities below. We, therefore, do not find any merit in this ground of appeal of the assessee. Addition on account of estimation of net profit - Held that - Hon ble Punjab and Haryana High Court in the case of CIT vs. K.S. Bhatia 2002 (9) TMI 8 - PUNJAB AND HARYANA High Court held that, Mere fact that the profits were low compared to the earlier years was not a circumstance or material which could justify an estimate in the circumstances of the case . As noted above, since the assessee has already surrendered additional income of ₹ 25 lacs in assessment year under appeal and no other reasons have been given by the Assessing Officer for estimating higher profit rate. Therefore, mere low NP rate shown in assessment year under appeal by itself is no ground to make addition of this nature against the assessee. We, therefore, do not justify the orders of authorities below in making and upholding this addition. We, accordingly, set aside the orders of authorities below and delete the addition

Summary

Issues Involved:
1. Addition under Section 69C of the Income Tax Act for unexplained expenditure.
2. Admission of additional evidence under Rule 46A of the Income Tax Rules.
3. Estimation of net profit and rejection of Profit and Loss Account.

Issue-wise Detailed Analysis:

1. Addition under Section 69C of the Income Tax Act for unexplained expenditure:

Assessment Year 2006-07:
The assessee challenged the addition of ?8,11,490/- under Section 69C as unexplained expenditure. During a search operation, documents were seized indicating payments. The assessee denied ownership of these documents, suggesting they related to a fruit/vegetable commission agent. The Assessing Officer (AO) treated the expenses as unexplained expenditure due to a lack of explanation from the assessee. The CIT (Appeals) upheld this addition, rejecting additional evidence. The Tribunal found the AO's order contradictory, as the AO initially considered the amounts as unaccounted income but concluded it as unexplained expenditure. The Tribunal deemed the addition unjustified and deleted it.

Assessment Year 2007-08:
The addition of ?7,65,695/- under Section 69C was challenged based on the same seized documents as the previous year. Following the reasoning for the 2006-07 assessment, the Tribunal deleted the addition.

Assessment Year 2009-10:
The assessee contested the addition of ?3,26,390/- under Section 69C. The AO noted a document indicating purchases and payments, which the assessee denied. The AO treated it as unexplained expenditure due to the absence of an explanation. The Tribunal, following the reasoning for previous years, dismissed the appeal.

2. Admission of additional evidence under Rule 46A of the Income Tax Rules:

Assessment Year 2006-07:
The assessee submitted additional evidence, a certificate from the Agriculture Produce Market Committee, Solan, which was rejected by the CIT (Appeals) for not meeting Rule 46A conditions. The Tribunal agreed with the CIT (Appeals) on rejecting the additional evidence, as the assessee failed to prove its relevance and the conditions under Rule 46A.

Assessment Year 2007-08:
The additional evidence, the same certificate from the Agriculture Produce Market Committee, Solan, was again rejected. The Tribunal upheld the rejection of additional evidence.

Assessment Year 2009-10:
The assessee submitted an affidavit from Shri Joginder Behal, claiming ownership of the seized document. The CIT (Appeals) rejected this additional evidence for lack of authenticity. The Tribunal upheld the rejection, finding the affidavit self-serving and an afterthought.

3. Estimation of net profit and rejection of Profit and Loss Account:

Assessment Year 2009-10:
The AO noted a lower net profit rate compared to earlier years and re-casted the profit, adding ?18,77,319/-. The CIT (Appeals) confirmed this addition. The Tribunal found the addition unjustified, noting that the AO did not reject the books of account or find specific defects. The Tribunal cited a precedent that low profits compared to earlier years do not justify an estimate. The Tribunal deleted the addition, finding no other reasons provided by the AO for estimating a higher profit rate.

Conclusion:
The appeals were partly allowed, with the Tribunal deleting certain additions under Section 69C and upholding the rejection of additional evidence under Rule 46A. The Tribunal also found the estimation of net profit and rejection of the Profit and Loss Account for the 2009-10 assessment year unjustified.