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2014 (1) TMI 1396 - AT - Income TaxAddition on account of low G.P. rate - Held that:- The gross profit rate for the year under consideration comes to around 11.82% after reducing the value of excess stock found during search The last year gross profit rate was 12.5% - The AO has made the addition without any basis and material on record to support suppression of sales or inflation of expenses - The fall in the gross profit was primarily due to increase in the cost of production and decrease in the sale prices of certain articles due to fierce market competition - In the year under consideration, 8% deduction of M/s Bata India Ltd. has been taken as direct expenses as in the previous year the same has been taken as indirect expenses Decided against Revenue. Unexplained stock found at the time of survey and unexplained investment in the plant and machinery and factory building Held that:- The excess stock was credited to the stock and debited in the profit and loss account which has nullified effect, passed a journal entry debiting the manufacturing account with the goods declared under survey of Rs.29,00,000/- and credited P&L account in schedule of 'other income' - The assessee has shown this income separately - The income declared on account of unexplained investment in plant and machinery and office building has been also included as unexplained investment in the total income of the assessee - The assessee has shown increase in the closing stock by Rs.29 lacs and has also shown Rs.29 lacs as other income and it has debited the profit and loss account by Rs.29 lacs - The effect of all three entries is that on two occasions, the amount has been credited in the profit and loss account and it has been debited only once. In the case of unexplained investment in the plant and machinery in the factory building - The income surrendered is included in the profit and loss account and the action of AO has led to double addition Decided against Revenue. Unexplained purchases/investment Held that:- The copies of the purchase invoices of raw material and packaging material was produced before the AO and even before the CIT(A) - The AO has failed to establish that purchases shown till 19.02.2001 were having any discrepancy or included any bogus entries - The AO has wrongly recorded that assessee has failed to furnish the evidences with regard to the additional quantum of purchases reflected in the new trading account as on 19.02.2001 CIT(A) was justified in deleting the addition Decided against Revenue. Addition on account of bogus expenses Held that:- The A.O. has disallowed such expenses only on the ground that necessary documentary evidences in support of such expenses could not be produced - These expenses have been reflected in the audited accounts after due scrutiny and examination - Regarding generator running expenses and repairs and maintenance The payments made were debited to the party's a/c instead of the expense account which were rectified in the accounts subsequently after discovering such accounting errors - The copies of such accounts along with other supporting evidences were made available during the assessment proceeding. As regards the payment on account of ESIC Employer's contribution, the same is supported by challans for payments and being a payment to Govt. cannot be treated as bogus. In respect of payment in regard to 8% STD cost (BATA) - The debit notes pertaining to such expenses for the period from 01- 11-2000 to 19-02-2001 were received late - The same were accounted for after receipt of such debit notes - This explanation was advanced before the A.O. also along with necessary evidences as revealed in the assessment records - The A.O. has not recorded any specific reason for making disallowance of such expenses - The assessee has submitted details of the expenses before the AO. The AO has not made any enquiry to check the genuineness of these expenses - The AO disallowed only on the ground that necessary document evidences in support of such expenses could not be produced Decided against Revenue. Bad debt written off Held that:- The debits were quite old and were taken as an income in the earlier years - As per the law, once a debt is written off in the books then there was no requirement to establish that bad has become bad beyond reasonable doubt - After the amendment to section 36(1)(vii) of the Act w.e.f 01.04.1999 all that is necessary is to write off the debts in the books of account Decided against revenue and allowed in favour of assessee. Addition on account of discrepancies in several parties' accounts Held that:- During the course of assessment proceedings, the appellant furnished the necessary explanations against each such party by producing the respective ledger account and confirmation of accounts in most of the cases - In the case of M/s Bata India Ltd., the appellant had shown opening Dr. balance of Rs.38,54,645.60 against which M/s Bata India Ltd. Has indicated an opening Cr. Balance of Rs.14,05,214.33 in favour of the appellant - The appellant had shown excess debit balance of Rs.24,49,431/- and to that extent the appellant had already credited income in the F.Y. 1999-2000 and so even if there is a difference, it cannot be treated as income of the Asstt. Year under consideration The party was allowed a credit period of 3 months - the assessee has discounted the bills and has met its working capital requirements This is how the account cannot match. In respect of some parties, although the appellant produced the copies of accounts of the above parties and confirmation of account in such cases before the A.O., all the transaction details as per the claim of the appellant could not be furnished during assessment proceedings but produced before the CIT(A) - The CIT(A) copuld not consider them as it would amount to accepting additional evidences within the meaning of Rule-46A - Partly allowed in favour of assessee.
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