2018 (4) TMI 9 - AT - Income Tax

Rejection of books of accounts - G.P. estimation by applying GP rate at 17.5% - Held that - Though there are disputes regarding the verifiability of the purchases made by the assessee even in the past years, however, when the issue of applying the GP rate has already been settled in the process of appeals and has attained the finality then the GP which has attained the finality or was accepted by the AO can be considered for the purpose of estimation of income of the assessee for the year under consideration. We direct the AO to compute the income of the assessee by taking the average GP of the past years of the assessee which is accepted and/or attained finality. Hence this issue is set aside for limited purpose of applying the average GP for computation of income of the assessee. Addition u/s 68 - Held that - When the assessee has failed to discharge its onus of proving the genuineness of the transaction and even failed to produce the confirmation and PAN of the loan creditor, the addition made by the authorities below is justified as the record produced by the assessee also goes against the claim of the assessee. - Decided against assessee.

Summary

Issues Involved:
1. Rejection of books of accounts under section 145(3) and confirmation of trading addition by applying GP rate at 17.5%.
2. Addition of ?9,40,000/- under section 68 of the IT Act.
3. Disallowance of expenses.

Issue-wise Detailed Analysis:

1. Rejection of Books of Accounts and GP Rate Application:
The assessee contested the rejection of its books of accounts under section 145(3) and the application of a 17.5% GP rate by the AO, arguing that the AO should have considered the past history of the assessee’s declared GP rate of 8.16%. The AO had used the GP rate of another entity, M/s. Rainbow Jewellers, without explaining its comparability to the assessee’s business. The Tribunal noted that the AO justified the use of a comparable GP rate due to unverifiable purchases. However, the Tribunal emphasized that the past history of the assessee’s declared GP, which has attained finality, should be used as guidance for estimating income after rejecting the books of accounts. The Tribunal directed the AO to compute the income of the assessee by taking the average GP of past years that was accepted or attained finality.

2. Addition under Section 68:
The AO added ?9,40,000/- as unexplained credit under section 68, noting that the assessee introduced this amount as an unsecured loan without providing supporting evidence. The CIT (A) confirmed this addition. The assessee argued that the loan was received through banking channels and relied on judicial precedents to assert that once the identity of the creditor and the transaction through banking channels are established, no further evidence is required. The Tribunal, however, found that the assessee failed to produce confirmation and PAN of the loan creditor, a related party, and noted suspicious cash deposits in the creditor’s bank account before issuing cheques. The Tribunal upheld the addition, citing the assessee’s failure to discharge its onus of proving the genuineness of the transaction and the creditor’s creditworthiness.

3. Disallowance of Expenses:
The assessee did not press this ground during the hearing, and the Tribunal dismissed it as not pressed.

Conclusion:
The appeal was partly allowed for statistical purposes, with the Tribunal directing the AO to apply the average GP rate of past years for income computation and upholding the addition under section 68. The disallowance of expenses was dismissed as not pressed. The order was pronounced in the open court on 08/03/2018.