2010 (4) TMI 760 - AT - Income Tax

Addition - Adoption of rate of 5 per cent as against the rate of 8 per cent to the gross receipts - Since during the remand proceedings the assessee had produced the books of account and the same were found to be as per the book results shown by the assessee find no merit in adoption of rate of 8 per cent to the book results for working out the income for the year - However as the assessee has failed to file evidence in respect of the material purchased and certain expenses and in the absence of the assessee filing the same on record even before the lower authorities or before us conformity with the order of CIT(A) in adopting net rate of 5 per cent to the gross receipts for working out the income of the assessee for the year under appeal. Introduction of capital - Source - Held that - no merit in the ground raised by the revenue where the Assessing Officer himself had made verification in respect of capital introduction made by the partners of the assessee firm and held the same to be properly explained - Decided in favour of assessee. Addition on account of creditors - genuineness of the sundry creditors - So far as genuineness of sundry creditors is concerned it is seen that these creditors have been reflected in the books of account maintained by the assessee - Besides the assessee has filed attested copies of affidavits of these creditors who confirmed that the amount mentioned by the assessee in its balance sheet in their names was on account of material supplied by them or services rendered by them which has been received by them from the assessee firm in the subsequent year - Decided in favour of assessee.

Summary

Issues Involved:
1. Application of profit rate by the CIT(A).
2. Deletion of additions in capital accounts of partners.
3. Allowance of interest on unproved additions in capital accounts.
4. Deletion of addition on account of creditors.

Detailed Analysis:

1. Application of Profit Rate:
The revenue's appeal contested the CIT(A)'s decision to apply a profit rate of 5% instead of the 8% applied by the Assessing Officer (AO). The AO had applied an 8% rate under section 44AD of the Income-tax Act due to the assessee's non-compliance with notices and the low net profit rates declared. However, during remand proceedings, the AO acknowledged that the assessee maintained proper books of account, though some vouchers were self-generated. The CIT(A) found no justification for the 8% rate, especially given the business's adverse impact due to the death of a partner. The CIT(A) settled on a 5% rate, considering some internal vouchers were not genuine. The Tribunal upheld the CIT(A)'s decision, dismissing the revenue's appeal and the assessee's cross-objection.

2. Deletion of Additions in Capital Accounts of Partners:
The AO had added Rs. 4,00,000 and Rs. 40,000 to the taxable income, citing unexplained capital introductions by partners Shri Ramji Dass Batra and Smt. Lalita Batra, respectively. During remand, the AO verified and accepted the explanations for these capital introductions. Consequently, the CIT(A) deleted the additions. The Tribunal found no merit in the revenue's appeal against this deletion, confirming the CIT(A)'s order.

3. Allowance of Interest on Unproved Additions in Capital Accounts:
This issue was consequential to the previous one. Since the Tribunal upheld the deletion of the additions in the partners' capital accounts, the revenue's appeal regarding the allowance of interest on these unproved additions was also dismissed.

4. Deletion of Addition on Account of Creditors:
The AO had added Rs. 8,06,487 to the income, citing unproved sundry creditors. During remand, the AO received affidavits from the creditors confirming the amounts owed by the assessee, which were subsequently paid. The AO opined that the creditors were genuine. The CIT(A) found no basis for the addition and noted that the income had already been estimated at a flat rate. The Tribunal upheld the CIT(A)'s decision, dismissing the revenue's appeal.

Conclusion:
The Tribunal dismissed both the revenue's appeal and the assessee's cross-objection, upholding the CIT(A)'s decisions on all issues. The CIT(A)'s application of a 5% profit rate, deletion of additions in capital accounts, allowance of interest, and deletion of addition on account of creditors were all affirmed.