2025 (1) TMI 654 - AT - Income Tax

Addition of bogus expenditure/ purchases - addition in the absence of entries in the stock register - Estimation of income - HELD THAT - AR submitted that the gross profit margin/element in the motor spirit I.e Diesel Petrol business range between 2% to 3% and both the revenue authorities has over looked the factual aspects of the purchase transactions substantiated with material evidences filed in compliance to the notices. AR highlighted the clauses of Tax Audit report in Form. no 3CD in particular clause 35(a) and 40. We considering the facts, circumstances, gross profit margin, and omission of entries by the assessee and to meet the ends of justice, restrict the addition @ 5% of the purchase transactions. Accordingly, we set-aside the order of the CIT(A) and direct the assessing officer to estimate the income@5% of disputed purchase value. Appeal filed by the assessee is partly allowed.

1. ISSUES PRESENTED and CONSIDERED

The core legal questions considered in this judgment include:

Whether the Assessing Officer (AO) was justified in disallowing the excess provision of Rs. 4,500/- in the current liabilities of the assessee's balance sheet.
Whether the addition of Rs. 8,85,326/- for alleged suppression of sales due to unrecorded stock entries was valid.
Whether the CIT(A) erred in sustaining the majority of the addition made by the AO despite the assessee's explanations and evidence provided.

2. ISSUE-WISE DETAILED ANALYSIS

Issue 1: Disallowance of Excess Provision in Current Liabilities

Relevant Legal Framework and Precedents: The AO's authority to scrutinize and disallow provisions in financial statements under section 143(3) of the Income Tax Act.
Court's Interpretation and Reasoning: The Tribunal did not focus heavily on this issue, as the primary contention revolved around the alleged suppression of sales.
Key Evidence and Findings: The AO identified an excess provision of Rs. 4,500/- in the current liabilities, which was disallowed.
Application of Law to Facts: The Tribunal implicitly accepted the AO's finding as there was no substantial argument or evidence presented by the assessee to contest this disallowance.
Treatment of Competing Arguments: The Tribunal did not specifically address competing arguments for this issue, indicating it was not a significant point of contention.
Conclusions: The disallowance of Rs. 4,500/- was not overturned by the Tribunal.

Issue 2: Addition for Suppression of Sales

Relevant Legal Framework and Precedents: The AO's authority to make additions for unrecorded sales under section 143(3) of the Income Tax Act.
Court's Interpretation and Reasoning: The Tribunal considered the explanations and evidence provided by the assessee, particularly focusing on the rectification of entries and the gross profit margin in the petroleum business.
Key Evidence and Findings: The AO identified unrecorded stock entries for 15,000 litres of petrol and diesel, leading to an addition of Rs. 8,85,326/-. The assessee provided invoices and stock records to substantiate its claims.
Application of Law to Facts: The Tribunal acknowledged the rectification of entries and the typical gross profit margin in the industry, leading to a partial relief for the assessee.
Treatment of Competing Arguments: The Tribunal balanced the AO's findings with the assessee's evidence, ultimately deciding to restrict the addition to 5% of the disputed purchase value.
Conclusions: The Tribunal set aside the CIT(A)'s order and directed the AO to estimate the income at 5% of the disputed purchase value, providing partial relief to the assessee.

3. SIGNIFICANT HOLDINGS

Preserve Verbatim Quotes of Crucial Legal Reasoning: "We considering the facts, circumstances, gross profit margin, and omission of entries by the assessee and to meet the ends of justice, restrict the addition @ 5% of the purchase transactions."
Core Principles Established: The Tribunal emphasized the importance of considering industry-specific profit margins and the rectification of accounting entries when assessing alleged suppression of sales.
Final Determinations on Each Issue: The Tribunal partly allowed the appeal, directing the AO to apply a 5% estimation on the disputed purchase value for the relevant assessment year.

The judgment reflects a balanced approach by the Tribunal, considering both the AO's findings and the assessee's explanations, ultimately providing a fair resolution by adjusting the addition based on industry norms and rectified records.

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