2023 (10) TMI 1019 - AT - Income Tax

Unexplained investments u/s 69B - assessee is dealing in liquor which is an excisable item and passes through various checks and scrutinies by the Excise Department - HELD THAT - Assessee has maintained stock register recording therein opening stocks, purchases, sales and closing stocks including item-wise identification of each brand. Similarly, the assessee has maintained the excise register also. Both these were produced before us and were test checked by us. We observe from the assessment order that the AO while taking a few items out of the total items calculated the suppression in the value of stock and calculated the understatement of closing stock at 50% of the suppressed stock value without any basis and without any reasoning. Addition made by the AO is purely based upon conjectures and surmises as the AO has failed to taken note of the evidences filed by the assessee before the AO in the form of purchase bills, stock register etc. and also the fact that the wastage and breakage sustained by the assessee in the ordinary course of business. Under these circumstances, we are inclined to set aside the order of Ld. CIT(A) and direct the AO to delete the addition. Thus, ground no. 1 raised by the assessee is allowed. Addition of publicity expenses - HELD THAT - AO has cited the only reason for disallowance that the assessee has failed to prove that these are only and exclusively for the purpose of business of the assessee whereas on the other hand the assessee is in the business of liquor trading and has received the reimbursement of publicity expenses from the suppliers of liquor after the same were incurred by the assessee. Therefore, to say that these expenses were not exclusively incurred for the purpose of business of the assessee would be contrary to the facts of the case. In our opinion, the AO has wrongly made the addition which has also been sustained by Ld. CIT(A). Assessee appeal allowed.

Summary

Issues Involved:
The issues involved in this judgment are the confirmation of additions made by the Assessing Officer (AO) on account of unexplained investments and publicity expenses, and the subsequent affirmations by the Learned Commissioner of Income-tax (Appeals) (Ld. CIT(A)).

Issue 1 - Unexplained Investments:
The first issue pertains to the addition of Rs. 14,66,622/- by the AO on account of unexplained investments under section 69B of the Act, which was confirmed by the Ld. CIT(A).

The assessee, engaged in liquor trading, filed the return of income for the Assessment Year 2015-16. The AO observed discrepancies in the accounting of sales but found no instance of non-recording of sales by the assessee. The AO estimated the suppressed value of stocks at Rs. 29,33,243/- and added 50% of this value, amounting to Rs. 14,66,622/-, to the income of the assessee. The Ld. CIT(A) affirmed this addition. However, the Appellate Tribunal found the addition to be arbitrary and lacking basis, as the AO did not consider the evidences provided by the assessee such as purchase bills and stock registers. The Tribunal directed the AO to delete the addition, ruling in favor of the assessee.

Issue 2 - Publicity Expenses:
The second issue concerns the addition of Rs. 11,00,120/- by the AO on account of publicity expenses, which was confirmed by the Ld. CIT(A).

The AO added the amount to the income of the assessee as the expenses were not proven to be incurred solely for the business purpose. However, the Tribunal noted that these expenses were part of recurring schemes by liquor manufacturers, where the assessee incurred publicity expenses reimbursed by suppliers. As the expenses were related to the liquor trading business and were reimbursed by suppliers, the Tribunal found the AO's addition unjustified. The Tribunal directed the AO to delete the addition, thereby allowing the appeal filed by the assessee.

In conclusion, the Appellate Tribunal ruled in favor of the assessee, directing the AO to delete both the additions related to unexplained investments and publicity expenses.

Kolkata, the 12th October, 2023.