2023 (3) TMI 976 - AT - Income Tax

Rejection of books of accounts - NP Estimation - addition @ 1% of total sales and purchase turnover on account of net profit - As per AO business should be considered as non-genuine and existing only on paper for the purpose of providing entries - CIT-A deleted the addition - HELD THAT - The AO has wrongly rejected of books of account, when assessing officer in his remand report has accepted about first three creditors, as there is no transaction with these three creditors during this year. As no question about the genuineness is raised by the assessing officer about the purchases from these three creditors. CIT(A) held that the estimation of addition of Rs. 2.06 Crore is not justified. Before, us the revenue has failed to bring contrary fact or evidence that the assessee made any such transaction with the first three creditors, which is otherwise accepted by AO in his remand report. Further the books of accounts of the assessee was accepted by the assessing officer in preceding and subsequent years. When the assessing officer accepted books result prepared on similar accounting standard, without specifying the criteria prescribed under section 145(3) - AO without giving his finding that the assessee was really engaged or indulging in providing entry, or the transaction shown by the assessee are circular transaction, compared the assessee with entry provider company and estimated commissions income. AO not even examined the bank statement of the assessee. No finding about the expenses claimed, if any, was given. The assessing officer estimated income on the purchases as well as on sales, which is unjustified. No infirmity or illegality in the order passed by the ld. CIT(A) which we affirm. In the result, all the grounds of appeal which is in the form of narrative, is dismissed.

Issues Involved:
1. Deletion of addition made by the Assessing Officer (AO) on account of net profit.
2. Non-existence of sundry creditors.
3. Lack of quality-wise description in stock register and sales/purchase bills.
4. Absence of delivery acknowledgments in high-value transactions.
5. Basis of calculation and actual receipt of commission and brokerage payments.

Summary:

Issue 1: Deletion of Addition on Account of Net Profit
The Revenue contended that the CIT(A) erred in deleting the AO's addition of Rs. 2,06,53,050/- (1% of total sales and purchase turnover) on account of net profit. The AO had rejected the assessee's books of account under Section 145(3) and proceeded to make an assessment under Section 144, estimating a profit of 1% on the total turnover.

Issue 2: Non-Existence of Sundry Creditors
The AO noted that the assessee's sundry creditors, amounting to Rs. 25.74 crores, were not found at the provided addresses. The AO concluded that the assessee's business was not genuine and existed only on paper. However, the CIT(A) found that the transactions with the creditors were from earlier years and had been accepted in previous assessments under Section 143(3). The CIT(A) held that the Inspector's report was not genuine and that the rejection of books was not warranted.

Issue 3: Lack of Quality-Wise Description in Stock Register and Sales/Purchase Bills
The AO observed that the stock register and sales/purchase bills lacked quality-wise descriptions, which is crucial in the diamond business. The CIT(A) found that the assessee maintained quantitative details and that the absence of quality-wise descriptions did not justify the rejection of the books. The CIT(A) noted that the books were audited under Section 44AB, and no defects were pointed out by the auditors.

Issue 4: Absence of Delivery Acknowledgments in High-Value Transactions
The AO noted that the sales and purchase bills lacked delivery acknowledgments. The CIT(A) held that the absence of delivery acknowledgments did not suffice as a valid ground for rejecting the entire books of account. The CIT(A) emphasized that the books were accepted in previous and subsequent years, and the same accounting principles were consistently followed.

Issue 5: Basis of Calculation and Actual Receipt of Commission and Brokerage Payments
The AO questioned the basis of calculation and the actual receipt of commission and brokerage payments amounting to Rs. 12,88,781/-. The CIT(A) found that the assessee had provided all necessary evidence and details of commission payments, and no defects were established by the AO.

Conclusion:
The Tribunal upheld the CIT(A)'s order, finding no infirmity or illegality. The Tribunal noted that the AO had accepted the books of account in preceding and subsequent years and that the rejection in the current year was not justified. The appeal by the Revenue was dismissed.

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