2017 (9) TMI 1348 - AT - Income Tax

Referring the matter to the special auditor - Rejection of books of accounts - Held that - No specific finding which has been recorded by the Assessing Officer in the assessment order recording his satisfaction as to rejection of the books of accounts and the result so declared by the assessee. It is true that the matter was referred for special audit u/s 142(2A) but that by itself will not result in an implied finding of the AO about his non-satisfaction about the books of accounts and rejection thereof. The defects so pointed out by the special auditor have been incorporated in the recasted books of accounts effectively means taking into consideration the results already declared by the assessee in respect of its declared transactions and the results as per unrecorded transactions relating to purchase and sales and other income, presenting an overall position regarding the business results in relation to activities carried out by the assessee. Therefore, we are of the considered view that merely because the matter was referred for special audit and the AO has made certain additions based on the observations of the special auditor, it cannot be held that the AO has rejected the books of account of the assessee. There has to be a specific finding given by the AO in terms of satisfaction of any or all of the conditions as specified under section 145(3) before he rejects the books of accounts of the assessee. Further, the AO has to specify the reasons as to why he feels that the results declared by the assessee as per the books of accounts are not acceptable. All the AO has done is that he has accepted the book results in respect of recorded transactions and in addition, the unrecorded transactions relating to sales/income, unrecorded purchase and other expenditure have also been brought to tax. In any case, there cannot be a presumption regarding rejection of books of accounts in absence of specific exercise of powers under section 145(3) of the Act. Can rejection of books of accounts be at the instance of the assessee? - Held that - It is for the assessee to declare its results and offer its books of accounts for verification and then, it is for AO to determine whether the book results so declared are correct or not or the books of accounts have to be rejected as not depicting correct state of affairs of the assessee. In our considered view, there is nothing in the said provisions when empower the assessee to request the AO to reject his books of accounts. Further, each year is separate year and the principle of res-judicata doesn t apply in the income tax proceedings. And we agree with the view of the AO that the contention of assessee for rejection of books on the basis of the past decisions of the Coordinate Bench also not seems correct because the judgment of the Coordinate Bench is not applicable on this assessment as AO has not rejected the books of the assessee and has made the additions on the basis of regular books of account of assessee as well as taking into consideration documents impounded during the course of survey and the report of the special auditor thereon. In light of above we are of the view that the books of accounts have not been rejected in the instant case. The findings of the ld CIT(A) to this extent is set-aside and the findings of the AO are confirmed. Estimation of net profit vis-a-vis specific disallowances/additions - Held that - In view of lack of explanation on the part of the assessee regarding the source of expenditure as per specific provisions of section 69B and 69C and violation of provisions of section 40(a)(ia) on account of non-deduction of TDS and section 40A(3) of the Act on account of payment in cash beyond the prescribed threshold, the additions so made by the AO are hereby confirmed. Regarding other expenses namely excessive/ bogus expenses, unrecorded marble and granite purchases, unrecorded purchases/labour and transportation charges of lime, unexplained expenses, unexplained expenses being repair & maintenance of plant and machinery, unexplained transportation expenses, the assessee has again failed to offer any explanation in spite of specific show-cause by the AO and the additions have rightly been made by the AO which are hereby confirmed. - Decided in favour of revenue Suppressed production and unrecorded sales/receipts/income - addition on account of suppressed production of ballast from Dabora and sales thereof - Held that - Taking the value of sale at ₹ 367.5 per metric ton, the suppressed sale figure comes to ₹ 36,01,132/-. The same is considered as undisclosed turnover of assessee and used for computing the income of assessee. Addition on account of unrecorded sales of grit - unrecorded loading receipts from Railways - Held that - Taking into consideration the suppressed sales on account of undisclosed production of ₹ 36,01,132/- as decided above, has given a benefit of telescoping to the assessee and has brought to tax the undisclosed sale figure at at ₹ 36,01,132/- being higher of the two. We donot see any infirmity in the same and the said finding of the ld CIT(A) is hereby confirmed. Ground no. 3 to this limited extent is dismissed. Undisclosed receipt of lease rent - Held that - As per ld. CIT(A), as the assessee has already shown lease rent in the profit & loss account, there is no need for making any separate addition and the A.O. was directed to delete the addition. We donot see any infirmity in the order of ld CIT(A) and the same is hereby confirmed and the ground of appeal is dismissed. Undisclosed interest income on loan - Held that - As there was a typographic error in the agreement instead of 3, a figure of 30 was wrongly typed. The amount of loan is clearly mentioned in figure and words and the same stood at ₹ 30,000/- only. Therefore the A.O. is directed to delete addition of ₹ 72,000/-. This ground of appeal is therefore allowed. Addition on account of loss in Marble & Granite trading - Held that - As we have held above, books of accounts have not been rejected in the instant case, therefore there is no basis to estimate net profit. We have pursued the material available on record. The findings of the AO remain uncontroverted before us and the same are hereby confirmed. Addition on account of peak of negative cash balance - Held that - The assessee is allowed the benefit of telescoping on account of additions sustained above which is higher than the addition of ₹ 8,67,670/-. In the result, ground of appeal no 10 is dismissed. Unexplained differences in opening balances of debtors and creditors on protective basis - Held that - As per the ld CIT(A), the AO has not gone into merits of the case and as the difference did not relate to the year under consideration, the A.O. was directed to delete the addition. We donot find any infirmity in the order of the ld CIT(A) and the same is confirmed. The ground of appeal no 1 is dismissed. Addition on account of different in dates of entries of cash in Bank Statements vis-a-vis cash book - Held that - Regarding entry of ₹ 2,45,000/-, agree with the submission of assessee that this entry was wrongly entered on 02.03.2009 in place of actual date of 03.03.2009, however, it did not make any difference as assessee had sufficient cash balance of ₹ 3,72,111/- on 02.03.2003 and even if entry of ₹ 2,45,000/- was corrected the cash balance did not go in negative. However, the assessee failed in explain the entries of ₹ 1,71,000/-. Therefore, addition of ₹ 1,71,000/- is confirmed

Summary

Issues Involved:
1. Rejection of books of accounts.
2. Estimation of net profit vis-a-vis specific disallowances/additions.
3. Suppressed production and unrecorded sales/receipts/income.
4. Additions under specific heads such as unexplained expenditure, excessive/bogus expenses, and non-deduction of TDS.
5. Deletion of additions related to unexplained differences in opening balances, lease rent, interest income, and loss in Marble & Granite trading.

Detailed Analysis:

1. Rejection of Books of Accounts:
The primary issue was whether the books of accounts of the assessee were rejected. The CIT(A) held that the AO had, in substance, rejected the books of accounts and should have estimated the income by applying a net profit rate. However, the AO's remand report stated that the regular books were not rejected; additions were made based on impounded documents and irregularities. The tribunal noted that there was no specific finding by the AO about the rejection of books under Section 145(3). The tribunal concluded that the books were not rejected and that the AO had accepted the recorded transactions while adding unrecorded transactions to the income.

2. Estimation of Net Profit vis-a-vis Specific Disallowances/Additions:
The CIT(A) estimated the net profit at 10% on undisclosed sales and 9% on disclosed sales, resulting in an addition of ?5,03,251/-. The CIT(A) deleted specific additions made by the AO, stating that once books were rejected, no separate disallowances were justified. The tribunal held that since the books were not rejected, the estimation of net profit was not warranted, and specific disallowances/additions made by the AO were upheld.

3. Suppressed Production and Unrecorded Sales/Receipts/Income:
The AO made additions for suppressed production and unrecorded sales. The CIT(A) partially allowed the appeal, estimating suppressed production at 80% and calculating the difference, resulting in an undisclosed turnover of ?36,01,132/-. The tribunal upheld the CIT(A)'s findings, confirming the addition for suppressed production and unrecorded sales.

4. Additions Under Specific Heads:
- Unexplained Expenditure (Section 69C): The AO made additions for unexplained expenditure, differences in ledgers, and transportation charges. The tribunal confirmed these additions as the assessee failed to offer any explanation.
- Non-Deduction of TDS (Section 40(a)(ia)): The AO added ?27,15,203/- for non-deduction of TDS on labor and transportation expenses. The CIT(A) deleted this addition, but the tribunal reinstated it, stating that specific disallowances were justified.
- Violation of Provisions of Section 40A(3): The AO added ?36,45,562/- for cash payments violating Section 40A(3). The CIT(A) deleted this addition, but the tribunal upheld it, confirming the AO's findings.

5. Deletion of Additions:
- Differences in Opening Balances: The AO made a protective addition of ?1,07,656/- for unexplained differences in opening balances. The CIT(A) deleted this addition, and the tribunal upheld the CIT(A)'s decision.
- Lease Rent: The AO added ?93,000/- for undisclosed lease rent. The CIT(A) deleted this addition, and the tribunal confirmed the CIT(A)'s decision.
- Interest Income: The AO added ?72,000/- for undisclosed interest income. The CIT(A) deleted this addition, and the tribunal upheld the CIT(A)'s decision.
- Loss in Marble & Granite Trading: The AO added ?1,43,799/- for loss in Marble & Granite trading. The CIT(A) deleted this addition, but the tribunal reinstated it, confirming the AO's findings.

Conclusion:
The tribunal partially allowed the Revenue's appeal, confirming the AO's specific disallowances and additions while rejecting the CIT(A)'s estimation of net profit. The tribunal upheld the CIT(A)'s deletion of additions related to differences in opening balances, lease rent, and interest income but reinstated the addition for loss in Marble & Granite trading.