2017 (5) TMI 360 - AT - Income Tax

Addition on account of lower profit rate - Held that - Assessing Officer adopted a method, which is not in accordance with the accounting standard. Further, none of the items in the closing stock was found to be valued at the lower rate than the opening stock rate and the ld. CIT(A) has recorded that most of the items were valued at higher rate. The assessee has provided closing stock value/rate of each item, which is higher than the opening stock value/rate of corresponding item. Further, if DEPB sales amounting to ₹ 25,90,518/- and foreign exchange gains of ₹ 10,21,906/- is added to the gross profit then the ratio comes to 21.08% for the year under consideration. The Assessing Officer s allegation that the assessee has undervalued the closing stock by ₹ 64,93,830/- is not factually established. The Assessing Officer applied average basis only on the closing stock to enhance its value but he has not adopted the same for the opening stock. Thus, it is not correct and consistent in valuing in opening and closing stock. The assessee has adopted the same method of inventory since last 15 years. The net sales for the year under appeal are higher than the preceding year. - Decided against revenue Addition u/s 68 - Held that - It is undisputed fact that these credits were received during F.Y. 1997-98 and 1998-99. The Assessing Officer has made addition by invoking the provisions of Section 68 of the Act in the year under consideration. These amounts were opening balance at the first day of F.Y. under consideration, hence provision of Section 68 of the Act are not attracted. At the most, addition could have been made by invoking the provisions of Section 41(1) of the Act. The assessee itself has written back these loans amounts and paid taxes for the assessment year 2013-14. Considering all these facts, we do not find any infirmity in the order of the ld. CIT(A) - Decided against revenue Addition on account of differenence between gross turnover as per sales tax return and gross turnover as per balance sheet - CIT-A deleted addition - Held that - D.R. was not able to controvert the finding recorded by the ld. CIT(A) with regard to clerical mistake while preparing the VAT-10 return of 4th quarter and the mistake was apparent from the record. The turnover declared in the P&L account was correct. Therefore, we concur with the finding of the ld. CIT(A) on this issue and the same is hereby uphold. - Decided against revenue Addition on account of lower profit rate - Held that - We find that the provisions of Section 145(3) of the Act were invoked without any basis. It was based only on assumptions and presumptions. Assessee has not undervalued the closing stock nor any specific defect was found in claim of expenses debited to the P&L account. Considering all these facts and circumstances of the case, we do not find any infirmity in the order of the ld. CIT(A), therefore, we sustain the order of the ld. CIT(A).- Decided against revenue

Summary

Issues Involved:
1. Deletion of addition made on account of lower profit rate.
2. Deletion of addition made under Section 68 of the IT Act on account of bogus unsecured loans.
3. Deletion of addition made on account of the difference between gross turnover as per sales tax return and gross turnover as per balance sheet.

Detailed Analysis:

1. Deletion of Addition on Account of Lower Profit Rate:
The revenue challenged the deletion of an addition of ?1,50,17,636/- made on account of a lower profit rate. The Assessing Officer (AO) had recalculated the gross profit without rejecting the books of account under Section 145(3) of the Income Tax Act. The assessee argued that the decline in the gross profit rate from 24.83% to 18.54% was due to increased raw material costs and competitive pricing. The AO did not find any defects in the audited books of account. The CIT(A) deleted the addition, stating that the AO had not justified recalculating the gross profit without rejecting the books of account. The Tribunal upheld the CIT(A)'s order, noting that the AO's method was inconsistent and not factually established.

2. Deletion of Addition under Section 68 on Account of Bogus Unsecured Loans:
The AO added ?38,75,000/- under Section 68, claiming the loans were bogus as the assessee failed to prove the identity, genuineness, and creditworthiness of the lenders. The loans were received in FY 1997-98 and 1998-99 and were written back in AY 2013-14, with taxes paid. The CIT(A) admitted additional evidence under Rule 46A, showing that the loans were genuine and through banking channels. The Tribunal agreed with the CIT(A), stating that the addition under Section 68 was unjustified as the loans were old and already taxed in AY 2013-14.

3. Deletion of Addition on Account of Difference in Gross Turnover:
The AO made an addition of ?3,47,186/- due to a discrepancy between the gross turnover as per the sales tax return and the balance sheet. The CIT(A) found that the AO had taken an incorrect figure for the fourth quarter's turnover, leading to the discrepancy. The Tribunal upheld the CIT(A)'s decision, noting that the mistake was clerical and the turnover declared in the profit and loss account was correct.

Conclusion:
The Tribunal dismissed the revenue's appeals, upholding the CIT(A)'s orders on all issues. The additions made by the AO were found to be unjustified, based on incorrect assumptions, and without proper verification of facts. The Tribunal emphasized the importance of following proper accounting standards and procedures in making assessments.