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2020 (12) TMI 586 - AT - Income TaxAddition on account of diversion of income - Transactions in the name of the family members - HELD THAT - We fail to understand why the family members were doing business through the assessee when they could have done the commission business in their own name. The assessee is a simple dealer in grains and obviously does not have any big brand name of his own but simply purchasing and selling grains through mandi , the same could have been done by these three persons also. These transactions in the name of the family members of the appellant raise doubts on the genuineness of the transactions. We fail to understand how the AO has conceded the issue in respect of Smt. Shashi Rustagi and Smt. Kamlesh Rustagi. Transactions in the name of the family members appear to be sham transaction and is a clear case of the income of the assessee being diverted in the name of the family members. No hesitation in sustaining the addition - Decided in favour of revenue. Addition being the difference in the value of closing stock of Bajra commodity - assessee has valued closing stock at the average rate of ₹ 750 p. quintals AO adopted the rate of ₹ 936 p. quintal thereby disturbing the method of valuation consistently followed by the assessee from past many years - HELD THAT - AO should not have disturbed the method of valuation followed by the assessee consistently from past years. Merely because the assessee has not maintained stock register with quality wise details cannot justify the AO in discarding the method of valuation adopted by the assessee consistently. Looking into the nature of the business of the assessee non maintenance of quality wise details is not so fatal to justify the disturbance in the basis of valuation of closing stock. No merit in this addition and I accordingly direct the AO to delete the addition. Addition being 10% of the total expenses debited in the P L account - HELD THAT - As during the assessment proceedings the assessee did not produce complete record and even in the remand proceedings complete bills and vouchers were not produced. Looking to the nature of expenses, business of the assessee and the place of business, ad-hoc disallowances of 5% should meet the ends of justice, hence, direct the AO to restrict the disallowance to 5% of the expenditure claimed by the assessee. Estimation of gross profit - AO adopted the GP rate of the immediately preceding year at 1.66% and made the addition - HELD THAT - Merely because there is a slight drop in the GP rate would not justify the addition on this count. The fact of the matter is that the appellant is doing business in food grains, oil feed and other allied goods on commission basis and, therefore, it would be impossible for a business man in this line of trade to match the profitability with preceding years. Moreover in the immediately assessment year 2008-09 the gross turnover of the assessee was ₹ 86.50 lacs which has jumped to 3.21 crores during the year under consideration this also justifies the slight fall in the GP rate. Therefore, do not find any merit in this addition and accordingly direct the AO to delete the addition. Addition on account of alleged interest charged on interest free advances to the family members - HELD THAT - From the balance sheet as find that the capital account show the balance of ₹ 656350/- out of which the assessee has given interest free advances of ₹ 190400/-. It is true that the assessee has some unsecured loans on the liability side of his balance sheet, but find that no interest have been paid by the assessee on the unsecured loans taken by him and only bank interest of ₹ 16902/- has been debited to the P L account. No merit in this addition and accordingly direct the AO to delete the addition.
Issues:
1. Addition of income based on difference in parties' accounts. 2. Addition of income based on diversion of income to family members. 3. Valuation of closing stock. 4. Disallowance of expenses. 5. Estimation of gross profit. 6. Charging of interest on interest-free advances to family members. Issue 1: Addition of income based on difference in parties' accounts The appeal was filed against the order of the CIT(A) regarding the difference in parties' accounts. The Tribunal directed a reexamination with fresh evidence in the first round of litigation. During the remand proceedings, the representative of the assessee withdrew the ground related to the difference in accounts. Consequently, the AO could not verify the details. The Tribunal upheld the findings of the CIT(A) based on the concession made by the assessee before the AO. Issue 2: Addition of income based on diversion of income to family members The dispute involved the addition of income due to the alleged diversion of income to family members. The AO believed that the assessee was diverting profits to family members. Though documentary evidence was provided during the remand proceedings, the AO accepted transactions with some family members but questioned others. The Tribunal found the transactions with family members to be suspicious, leading to the sustained addition of income. Issue 3: Valuation of closing stock The AO disputed the valuation of closing stock by the assessee. The AO adopted a different rate, disrupting the consistent valuation method followed by the assessee. The Tribunal held that the AO should not have disturbed the valuation method without sufficient justification. It directed the AO to delete the addition related to the difference in the value of closing stock. Issue 4: Disallowance of expenses The dispute involved the disallowance of expenses due to lack of proper documentation. The AO and CIT(A) made varying disallowances, which were contested by the assessee. The Tribunal considered the nature of expenses, business operations, and location, and directed a reduced ad-hoc disallowance, finding 5% to be appropriate. Issue 5: Estimation of gross profit The AO estimated the gross profit based on the preceding year's rate. The Tribunal noted the growth in turnover and nature of business, concluding that a slight drop in the gross profit rate was reasonable. It directed the AO to delete the addition related to the estimated gross profit. Issue 6: Charging of interest on interest-free advances to family members The AO charged interest on interest-free advances to family members, leading to an addition. The Tribunal reviewed the balance sheet and found no merit in the addition, directing the AO to delete the charged interest amount. In conclusion, the appeal by the assessee was partly allowed, with various additions and disallowances being either sustained, reduced, or deleted based on the Tribunal's analysis of each issue.
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