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September 1, 2023

Without evidence of suppression, adding for a decline in gross profits is unsustainable

Without evidence of suppression, adding for a decline in gross profits is unsustainable

Fact and issue of the case

The present appeal filed by the assessee for the assessment year 2011­12 is directed against the order of Ld. CIT(A)-16, New Delhi dated 22.08.2019. The assessee has raised following grounds of appeal:-

Under the facts and circumstances of the case, the ld. First Appellate Authority as well as Ld. A.O. have grossly erred in making an addition of Rs 54,514/- as unexplained expenditure u/s 69C of the Income Tax Act, 1961.

Tax effect related to above mentioned ground of appeal is Rs 16,572/-

Under the facts and circumstances of the case, the ld. First Appellate Authority has grossly erred in rejecting the books of accounts of the assessee without appreciating the fact that the appellant has maintained complete & correct accounts of the business carried by the appellant and the same have been duly audited as per law.

Under the fact and circumstance of the case, the ld. First Appellate Authority were grossly erred in making addition of Rs. 54,10,504/- by applying GP ratio on gross receipts, which is unwarranted, against the facts & bad at law. Tax effect related to above mentioned ground of appeal is Rs 16,44,793/-

The ld. Assessing officer has grossly erred in disallowing a sum of Rs 3,60,000/- being accounting charges alleging that the same have been paid without deduction of tax, which is against the facts and bad at law. Tax effect related to above mentioned ground of appeal is Rs 1,09,440/-

The appellant prays for leave to add, amend, alter or withdraw any grounds of appeal. Total Tax Effect relating to all the above mentioned grounds of appeal is Rs17,70,805/-.”

At the time of hearing, Ld. Counsel for the assessee submitted that she does not wish to press Ground No.4, the same is hereby, dismissed as not pressed.

Ground No.5 raised by the assessee is general in nature, needs no separate adjudication hence, dismissed.

Ground Nos. 1 to 2 raised by the assessee are against the addition of INR 54,514/- made u/s 69C of the Income Tax Act, 1961 (“the Act”) as unexplained expenditure.

Ground No.3 raised by the assessee is related to addition made by applying gross profit ratio on gross receipts amounting to INR 54,514/-.

Observation of the court

We are unable to sustain the findings of Ld. CIT(A) for sustaining the addition partly on the basis of fall in gross profits without pointing out any specific discrepancy in accounts that resulted into suppression of true figure of gross profit. The findings should not be pure guess works, it should have certain foundation. In the case in hand, Lower authorities have failed to advert to the contentions of the assessee that difference between the figures reported in Form 26AS and actually recorded in the books of assessee was due to business model of assessee. The other party did not book expenditure in a particular year for that the assessee cannot be held responsible for them before. This fact ought to have been verified by the lower authorities before proceeding to reject books of accounts. Law is well-settled that the AO while resorting to estimation should consider all aspects surrounding the transactions. Merely because there is a fall in gross profit rate would not ipso facto be the reason for rejection of book results. Therefore, considering the material placed on record, the impugned order is hereby, set aside and the issue is restored to the file of AO for deciding it afresh. The AO is hereby, directed to verify the correctness of the claim of the assessee regarding mis­match of figure in Form 26AS arose because of booking of income by the assessee in the year under appeal and by recipient of services in next year. He would decide the issue in accordance with law. Thus, Ground Nos. 2 & 3 raised by the assessee are allowed for statistical purposes.

Now, coming to Ground No.1 which is related to addition of INR 54,514/-made on account of difference between Form 15CA and Tax Audit Report.

It is contended on behalf of the assessee that the difference arose because of the fact that the amount was paid post negotiation which resulted into decrease in payment. However, while filing Form No.15CA, the amount was written as 7,67,010/-. The amount was reflected prior to negotiation and final payment. It is contended that the addition has been made purely on the basis of surmises and by invoking the provision of section 69C of the Act. 13. On the other hand, Ld. Sr. DR opposed these submissions and supported the orders of the authorities below.

We have heard Ld. Authorized Representatives of the parties and perused the material available on record and gone through the orders of the authorities below. The contention of the assessee does not inspire any confidence. Before Assessing Authority, no explanation in difference of remuneration of Rs.54,514/- was furnished thus, the unreconciled difference was admitted by the assessee. It is contended by Ld. Sr. DR that at this stage, the assessee cannot be allowed to take a different stand. We find that the assessee has not brought any evidence supporting its contention that there were certain negotiations with other party for reduction in payment. In the absence of such evidence, we do not see any reason to interfere in the findings of lower authorities, the same is hereby affirmed. Thus, Ground No.1 raised by the assessee is rejected.

In the result, the appeal of the assessee is partly allowed for statistical purposes.

Order pronounced in the open Court on 19th July, 2023.


In the result, appeal of the assessee is allowed and ruled in favour of the assessee

Read the full order from here


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