2014 (4) TMI 711 - HC - Income Tax

Addition of wastage Held that - The Tribunal rightly held that the assessee had claimed wastage 8.84% and shown gross profit rate of 10.75% - the wastage that was claimed in the assessment year was more or less similar to that claimed in the preceding assessment year - this was not a case of inflating the expenses or claiming unreasonable expenses on account of wastage - once having rejected the books of account AO could not have made further additions by relying upon the same books the order of the Tribunal upheld Decided against Revenue. Addition on account of undervaluation of stock Held that - The Tribunal rightly held that merely because the assessee did not maintain certain details on the computer was no ground for rejecting the explanation given by the assessee thus the order of the Tribunal is upheld Decided against Revenue. Disallowance of job charges paid Held that - The Tribunal rightly held that merely because initially there was a discrepancy was no ground to make the addition once the assessee had explained the discrepancy in the books of account - the AO had not made proper investigation in the matter0 thus it could not be said that the assessee had inflated the job charges the order of the Tribunal is upheld Decided against Revenue. Addition of salary expenses Held that - Tribunal found that the profit ratio of the assessee was better as compared to the earlier years and it would be reasonable to make a lump sum addition to protect the interest of the revenue -The Tribunal set aside the additions and made a lump sum addition of Rs. 2 lakh the order of the Tribunal is upheld Decided against Revenue. Addition of unsecured loans u/s 68 of the Act Disallowance of interest expenses Held that - The Tribunal held that the assessee had been able to prove the identity of the creditor and the genuineness of the transaction in the matter - upon issuance of the summons to the creditor Mr. Prem Ratan Sharma he had responded to the same and filed reply before the AO - the AO did not ask the assessee to produce the creditor for examining him nor did he bring any evidence on record that the cash deposits in the bank account of the creditor came from the side of the assessee - the assessee had been able to prove the identity of the creditors genuineness of the transaction in the matter and creditworthiness of the creditor the Tribunal found no reason for making the addition treating the same as unexplained cash credit the order of the Tribunal is upheld Decided against Revneue.

Summary

Issues:
- Addition of unaccounted sales
- Under valuation of closing stock of finished goods
- Job charges
- Salary expenses
- Unsecured loan under section 68

Addition of Unaccounted Sales:
The appellant-revenue challenged the deletion of the addition of Rs. 18,44,422 on account of unaccounted sales. The Tribunal found that the assessee's claimed wastage in the assessment year under consideration was similar to the preceding year, but the gross profit rate was better. The Tribunal concluded that the expenses were not inflated and were supported by relevant bills and vouchers. It was held that the Assessing Officer's findings regarding wastage were unjustified.

Under Valuation of Closing Stock of Finished Goods:
Regarding the addition of Rs. 14,40,886 for under valuation of closing stock, the Assessing Officer observed discrepancies in the valuation. The Commissioner (Appeals) confirmed the additions due to the absence of item-wise inventory records maintained by the assessee on the computer. However, the Tribunal disagreed, stating that the absence of certain details on the computer was not sufficient grounds to reject the assessee's explanation.

Job Charges:
The disallowance of Rs. 5,55,270 on account of job charges paid to a sister concern was challenged. The Assessing Officer noted discrepancies in the ledger accounts, but the Tribunal found that the assessee explained the discrepancies and provided supporting documents. The Tribunal criticized the lack of proper investigation by the Assessing Officer and disagreed with the findings of inflated job charges.

Salary Expenses:
Regarding the addition of Rs. 1,50,000 on account of salary expenses, the Tribunal found discrepancies between the audit report and ledger account. The assessee explained that the mistakes were inadvertent and rectified. The Tribunal acknowledged the need for some reasonable addition due to the rejected books of account and made a lump sum addition of Rs. 2 lakh to protect the revenue's interest.

Unsecured Loan under Section 68:
The addition of Rs. 11 lakh for unsecured loans under section 68 and disallowance of interest expenses were disputed. The Tribunal found that the assessee proved the identity, genuineness, and creditworthiness of the creditors. The creditors responded to summons and confirmed the loans, with supporting documentation. The Tribunal concluded that there was no basis for treating the loans as unexplained cash credits and set aside the addition.

Conclusion:
The Tribunal's decisions were based on factual findings and evidence on record. The appellant failed to demonstrate any material contrary to dislodge the Tribunal's findings. As no substantial question of law arose, the appeal was dismissed.