2020 (6) TMI 408 - AT - Income Tax

Addition of difference in total sales made during the year and total cash deposits u/s 68 - assessee has failed to explain the source of cash deposits in the bank account - plea taken by the appellant that purchases in the individual capacity were also routed through the HUF and accepted by CIT(A) - HELD THAT - A.O. in the assessment order has also mentioned the same details of the purchases as per the Trading A/c of the assessee and again compared with the bank statement and ultimately on the difference with regard to purchases, applied the G.P. rate of 0.80% for making the addition. Thus, the crux of the matter had been that the A.O. accepted the sales and purchases disclosed by the assessee in the Trading A/c. A.O. has also accepted profit declared by the assessee. A.O. with regard to the unexplained purchases applied the G.P. rate for the purpose of making the addition, but, with regard to sales without comparing with the bank statement made the addition of the entire amount in question. Thus, there is a difference in the opinion of the A.O. with regard to the same matter in issue as regards sales and purchases. CIT(A) on examination of the record, accepted the explanation of assessee that purchases and sales made by assessee of other connected parties since routed through the bank account of the assessee, therefore, could not be treated as sales and purchases of the assessee. Even if there was some excess sales declared by the assessee, the entire sales could not have been treated as unaccounted income of the assessee. As against the undisclosed or unaccounted sales, only profit rate should have been applied to make the addition. We are fortified in our view by Judgment of Hon ble Gujarat High Court in the case of CIT vs., President Industries 1999 (4) TMI 8 - GUJARAT HIGH COURT and in the case of CIT vs., Bal Chand Ajit Kumar 2003 (4) TMI 76 - MADHYA PRADESH HIGH COURT . No material is produced before us to rebut the finding of fact recorded by the Ld. CIT(A) that the transaction in the individual capacity were also routed through assessee HUF and are recorded in the books of account and sales and purchases have not been disputed by the A.O. Therefore, no interference is called for in the matter. Addition on account of applying G.P. Rate - difference in the purchases as the assessee has failed to explain the source of cash deposits in his bank account during the assessment proceedings and no such proof was filed - HELD THAT - Since the purchases recorded in the books of account have not been disputed by the A.O, therefore, there is no question of making such addition against the assessee. The explanation of assessee that other purchases were also routed through the account of the assessee, have not been disputed by the Revenue. Therefore, no interference is called for in the matter. Accordingly, Ground No.2 of the appeal of the Revenue is dismissed. Ad-hoc disallowance of expenses - assessee has claimed shop expenses, labour charges, printing and stationary, and travelling expenses - assessee did not produce complete vouchers - HELD THAT - A.O. has not pointed out as to which of the vouchers of the expenditure have not been produced by the assessee. No details of the amount has also been mentioned. Therefore, disallowing 1/5th of the expenditure claimed of the assessee would amounts to adhoc addition which cannot be sustained in law.

Summary

Issues involved:
1. Addition of amount under section 68 due to difference in total sales and cash deposits.
2. Addition made on account of applying GP rate on alleged difference in purchases.
3. Ad-hoc disallowance of expenses without finding of concealment.

Analysis:
1. The first issue revolved around the addition made by the Assessing Officer (AO) under section 68 of the Income Tax Act due to a variance in total sales and cash deposits. The Commissioner of Income Tax Appeals (CIT(A)) deleted the addition after considering that purchases made on behalf of the individual were routed through the bank account of the Hindu Undivided Family (HUF). The CIT(A) applied a net profit rate to restrict the addition to a nominal amount, citing relevant case law to support the decision. The Income Tax Appellate Tribunal (ITAT) upheld the CIT(A)'s decision, emphasizing that the transactions were recorded and verified, and no unaccounted income was found. The ITAT dismissed the Revenue's appeal on this ground.

2. The second issue dealt with the addition made by the AO based on applying the Gross Profit (GP) rate to the alleged difference in purchases. The CIT(A) found that the purchases were made on behalf of a proprietary concern of the appellant and were recorded in the books of account. As there were no purchases outside the books, the CIT(A) deleted the addition. The ITAT concurred with the CIT(A)'s decision, stating that since the purchases were accounted for and not disputed, there was no basis for the addition. The ITAT dismissed the Revenue's appeal on this issue as well.

3. The third issue involved an ad-hoc disallowance of expenses by the AO without any finding of concealment. The AO disallowed a portion of the claimed expenses, leading to an addition. However, the CIT(A) held that such ad-hoc disallowances were not permissible under the law. Citing relevant case law, the CIT(A) deleted the addition. The ITAT agreed with the CIT(A)'s reasoning, emphasizing that the AO did not specify which vouchers were missing and the disallowance was arbitrary. The ITAT dismissed the Revenue's appeal on this ground too.

In conclusion, the ITAT upheld the CIT(A)'s decisions on all three issues, dismissing the Revenue's appeal in its entirety. The ITAT found no merit in the Revenue's contentions and ruled in favor of the assessee across all disputed matters.