2018 (8) TMI 275 - AT - Income Tax

Addition of suppressed sale and payments to partners - submission of ld A.R. is that if there is difference in sale between the assessee s return of income and the figure shown in the VAT return, then the only net profit should be added and not the entire suppressed sale figure - Held that - From the audited accounts filed before us, it is observed that the gross profit as per the audited accounts of the assessee of the year under consideration was ₹ 2.54%. We, therefore, direct the Assessing Officer to restrict the addition on account of suppressed sale to 2.54% of the said sales. Thus, this ground of appeal of the assessee is partly allowed. Disallowance of interest and salary to partners by applying section 144 read with Sec. 185 & 184 - most of the documents/information/records have been submitted during assessment proceedings - Held that - We find that the Assessing Officer has just made general statement that the assessee has not complied with the terms of the notice u/s.142(1) of the Act. The above remark of the Assessing Officer is not only vague but also contrary to his quoted recording also. Thus, in our considered view, the Assessing Officer was not correct in holding that the assessment was made u/s.144 of the Act and consequently in disallowing deduction for partner s interest and remuneration. We, therefore, delete the said disallowance and allow this ground of appeal of the assessee. Rejections of books of accounts u/s 145 - customers from whom advances have been received did not confirm the balances at year-end, rather he could have added those advances only instead of rejecting the books of accounts - Held that - From the perusal of net profit shown and accepted by the department in the preceding five assessment years, we find that the highest net profit shown was 0.25%. It is an established position of law that after rejection of book results of the assessee, the Assessing Officer cannot make a wild guess but has to estimate the income of the assessee on the basis of past accepted results. We find that in assessment year 2007-08, the assessee had shown the highest net profit at 0.25%. Therefore, we modify the order of the CIT(A) and direct the Assessing Officer to compute the income of the assessee for the year under consideration by applying net profit rate of 0.25% and partly allow the ground of appeal of the assessee Disallowance of ESI contribution and EPF contribution - amounts are deposited before due date of filing the return of income - Held that - Respectfully following the decision of Hon ble Supreme Court in the case of Rajasthan Beverage Corporation Ltd. 2017 (7) TMI 1087 - SUPREME COURT OF INDIA , we delete the addition of ₹ 6976/- being employee s contribution to ESI and ₹ 47,278/- being employee s contribution to EFP deposited before filing of the return of income u/s.139(1) of the Act and allow this ground of appeal of the assessee.

Issues Involved:
1. Validity of order under Section 144 of the Income Tax Act without a valid notice under Section 143(2).
2. Confirmation of additions for suppressed sales and payments to partners.
3. Disallowance of interest and salary to partners.
4. Rejection of books of accounts under Section 145.
5. Estimation of income at 0.5% on turnover.
6. Disallowance of ESI and EPF contributions.

Issue-wise Detailed Analysis:

1. Validity of Order under Section 144 without Notice under Section 143(2):
The appellant contended that the CIT(A) erred in confirming the order under Section 144 of the IT Act made without issuing a valid notice under Section 143(2). The appellant argued that the accounts were audited, and most information/documents requested under Section 142(1) were complied with. However, no arguments were advanced by the appellant's representative during the hearing. Consequently, this ground of appeal was dismissed for want of prosecution.

2. Confirmation of Additions for Suppressed Sales and Payments to Partners:
The Assessing Officer observed discrepancies between the sales figures shown in the profit and loss account and the VAT return, leading to an addition of ?73,09,872 as suppressed sales. The CIT(A) upheld this addition, noting that the appellant failed to provide evidence supporting the revised VAT return figures. The Tribunal found merit in the appellant's argument that only the net profit element should be added, not the entire suppressed sales figure. It directed the Assessing Officer to restrict the addition to 2.54% of the suppressed sales, based on the appellant's gross profit rate.

3. Disallowance of Interest and Salary to Partners:
The Assessing Officer disallowed interest and salary to partners amounting to ?4,38,350, citing non-compliance with Section 142(1) notices, leading to an assessment under Section 144. The CIT(A) confirmed this disallowance. However, the Tribunal found that the assessee had complied with the notice requirements, as recorded in the assessment order. It held that the Assessing Officer's general statement of non-compliance was vague and contrary to the recorded evidence. Consequently, the Tribunal deleted the disallowance and allowed this ground of appeal.

4. Rejection of Books of Accounts under Section 145:
The Assessing Officer rejected the books of accounts under Section 145 due to discrepancies in customer advances and non-receipt of confirmations from customers. The CIT(A) upheld this rejection, noting differences between audited accounts and revised audited accounts and the inability to verify the genuineness of creditors. The Tribunal found the rejection justified but considered the net profit rate applied by the Assessing Officer to be excessive.

5. Estimation of Income at 0.5% on Turnover:
The Assessing Officer estimated the net profit at 1% of the turnover, which the CIT(A) reduced to 0.5%, considering the appellant's past net profit rates. The Tribunal noted that the highest net profit rate in preceding years was 0.25%. It directed the Assessing Officer to apply a net profit rate of 0.25% to the turnover, modifying the CIT(A)'s order.

6. Disallowance of ESI and EPF Contributions:
The Assessing Officer disallowed ?6,976 and ?47,278 for ESI and EPF contributions, respectively, for not being deposited within the due date under the relevant Acts. The CIT(A) confirmed this disallowance. However, the Tribunal found that the contributions were deposited before the due date for filing the return of income under Section 139(1). Citing the Supreme Court's decision in the case of Rajasthan Beverage Corporation Ltd., the Tribunal deleted the disallowance and allowed this ground of appeal.

Conclusion:
The Tribunal partly allowed the appeals, providing relief on several grounds, including the restriction of additions for suppressed sales, deletion of disallowance for partners' interest and salary, and adjustment of the net profit estimation rate. The disallowance of ESI and EPF contributions was also deleted, following the Supreme Court's precedent.

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