2017 (10) TMI 1261 - AT - Income Tax

Disallowance of carriage inward and delivery charge - addition as unverifiable element allegedly involved in the said expenses - Held that - No case was made out by AO to show that the expenses claimed by the assessee on carriage inward and delivery charges were excessive or unreasonable having regard to the nature of the assessee s business. At the time of hearing before us, the learned DR has not been able to raise any material contention to dispute the facts and figures furnished by the assessee in this regard. Keeping in view these facts and figures furnished by the assessee as well as having regard to the other aspects of the matter, we find ourselves in agreement with the Ld. CIT (A) that adhoc disallowance of 50% made by the AO out of carriage inward and delivery charges was not sustainable and upholding his impugned order deleting the same - Decided against revenue Addition on understatement of cement sale made in cash - Held that - As rightly observed by the Ld. CIT (A), it is a normal occurrence of business that sales in cash are made invariably at lower rate than credit sales due to cash discount offered. The allegation of the Assessing Officer regarding the understatement of cash sales by the assessee thus was not well founded and the same was not based on any concrete or cogent material. Keeping in view all these facts of the case, we find no infirmity in the impugned order of the Ld. CIT (A) deleting the addition made by the AO on account of the alleged understatement of cash sales by the assessee and upholding the same, we dismiss ground no 5 of the revenue s appeal. Addition on account of the alleged low gross profit shown by the assessee on the sale of TMT Bars - Held that - No basis whatsoever was given by the AO for applying the GP rate of 15% except stating that it is a common knowledge that TMT bars are not sold below 15% of GP. This addition thus was made by the AO arbitrarily on the basis of the conjectures and surmises and the Ld. CIT (A), in our opinion, is fully justified to delete the same.

Summary

Issues Involved:

1. Deletion of disallowance of ?29,57,000/- out of carriage inward and delivery charges.
2. Deletion of addition of ?39,31,175/- on account of understatement of cement sale made in cash.
3. Deletion of addition of ?17,57,796/- on account of low gross profit shown on the sale of TMT Bars.

Issue-wise Detailed Analysis:

1. Deletion of Disallowance of ?29,57,000/- out of Carriage Inward and Delivery Charges:

The assessee, engaged in the wholesale business of cement, iron rods, and building materials, declared carriage inward charges of ?46,18,747/- and delivery charges of ?12,95,256/-. The Assessing Officer (AO) disallowed ?29,57,000/- (50% of the total expenses) citing unverifiable cash payments and potential expense inflation. The CIT (A) deleted this disallowance, reasoning that the AO did not provide evidence of expense inflation or unaccounted cash recoveries from buyers. The CIT (A) noted the reasonableness of the expenses in the context of the business scale and the total material handled. The Tribunal upheld the CIT (A)'s decision, agreeing that the AO's disallowance was unsustainable without specific evidence of inflated expenses, and dismissed the revenue's appeal on this ground.

2. Deletion of Addition of ?39,31,175/- on Account of Understatement of Cement Sale Made in Cash:

The AO noted low gross and net profit margins from cement sales and alleged an understatement of cash sales by ?25 per bag for 157,247 bags, adding ?39,31,175/- to the income. The CIT (A) found the AO's conclusion unfounded, as no defects were pointed out in the books of accounts, and the cash sales were sometimes higher than credit sales. The CIT (A) observed that cash sales often occur at lower rates due to cash discounts and different cement types sold at varying prices. The Tribunal upheld the CIT (A)'s deletion of the addition, finding no concrete evidence of manipulated cash sales and noting the AO's reliance on assumptions rather than tangible proof.

3. Deletion of Addition of ?17,57,796/- on Account of Low Gross Profit Shown on the Sale of TMT Bars:

The AO made an addition of ?17,57,796/- (10% of the total sales of ?1.75 crores) for low gross profit (GP) on TMT Bars, asserting that TMT Bars typically yield a 15% GP. The CIT (A) deleted the addition, stating that the AO's claim lacked evidence and was based on conjecture. The Tribunal agreed, emphasizing that the AO did not identify any defects in the books of accounts or provide a basis for the 15% GP assumption. The Tribunal supported the CIT (A)'s decision, noting the arbitrary nature of the AO's addition and dismissing the revenue's appeal on this issue.

Conclusion:

The Tribunal dismissed the revenue's appeal, upholding the CIT (A)'s decisions on all three issues, emphasizing the lack of concrete evidence and the arbitrary nature of the AO's disallowances and additions. The judgment underscores the necessity for the AO to provide specific evidence and avoid assumptions when making disallowances or additions.