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2015 (1) TMI 1442 - AT - Income TaxNegative cash balance - assessee s main argument was that as per the cash book in blue colour bind there was introduction of cash in the name of Anwar Ali H. Lakhani which has covered up the discrepancy which was found in the original cash book - assessee had not shown the transfer of cash tallied with the books of the assessee firm - whether the cash book in blue colour which was later on placed before the AO can be considered as an evidence to determine the correct income of the Assessee? - HELD THAT - Cash book which was submitted by the assessee subsequently was required to be examined by the AO. The AO is free to confirm the veracity of that cash book so that the question of negative cash can be decided in an authenticated manner. The cash book stated to be in blue colour should not therefore be disregard in summarily manner merely on the ground that it was prepared after the inquiries were raised by the Department. We are not able to satisfy ourselves that there was a regular transfer of fund from the books of account of the partner to the accounts of the assessee-firm or in the books of R.H. Patel Co. and that there was no shortage of the cash balance in the books of the assessee-firm. Rather this is a factual aspect which can be ascertained at any point of time by examining the relevant books of accounts; hence for this limited purpose we hereby refer this issue back to the stage of the AO so that the assessee can demonstrate that there was genuine transfer of funds introduced by the partner and that there was no shortage of the cash as alleged by the Revenue Department. For this limited purpose the matter is restored back; hence this ground of the Revenue may be treated as allowed for statistical purpose only. Unexplained cash credits - stand taken by the assessee of having made sales to the said parties in the next year is nothing but an afterthought by the assessee to furnish his self servicing submission /details in the appellate proceedings - HELD THAT - AR has explained that there was some parties who came forward with advance with a guarantee from the assessee to supply the iron in the subsequent years; therefore the assessee has received the advance and duly credited in its books of account. In the subsequent year sales were executed and duly reflected in the books of account. Since the said amount has already been taxed by the assessee in the next year; therefore there was no justification on the part of the AO to disbelieve the action of the assessee. Impugned addition was made on a wrong premise especially when the assessee has demonstrated that the sales were executed in the subsequent year. - Decided against revenue Addition on account of low gross profit - as argued assessee s sales have increased by more than 65% which has also resulted into a better net profit on which the assessee had paid the tax - HELD THAT - Marginal decrease in the gross profit ratio was properly explained by the assessee; hence the AO was not justified in making the impugned addition. The admitted factual position is that the turnover had gone up from 5.39 crore of the last year to the turnover of the year under consideration at 8.91 crore. Further during the course of hearing we have inquired from learned DR about the assessment record specifically the position of the notices issued u/s.133(6) of IT Act to certain parties. Learned DR has placed before us a separate folder of the notices issued u/s.133(6) of IT Act and on perusal we have noted that there were few compliances made by those parties to whom the sales were executed by the assessee. Hence according to us the allegation of non verification of sales was not absolutely corrected. Earning of profit generated through unaccounted purchases and sales thereon detected by the sales tax department - HELD THAT - compilation an English translation of the sales tax assessment order is placed. According to which an investigation was carried out at the business premises in the presence of partners Sri Anwar Lakhani. Further it was noted that the Trader i.e. the Assessee was not able to explain cash in hand of Rs. 25, 282/- stock in trade of Rs. 6, 39, 239/- and suspense sales of Rs. 3, 35, 335/-. In that order it was also held that there was existence of unaccounted purchases which were not proved. After applying gross profit margin the unaccounted purchase amounting to Rs. 12, 87, 102/- was taxed. We are of the view that in a situation when an another authority has given a finding that there were unaccounted purchases then it is not fair to disregard those finding of the Sales Tax Department. Sales tax penalty - HELD THAT - a penalty was imposed by the Sales Tax Department; hence the expenditure being penal in nature is not admissible as per law. We are not convinced by the argument of learned AR; that it was compensatory in nature as it was paid as an advance payment of tax; because no such evidence was placed before us. TDS u/s 194C - Addition u/s 40(a)(i)(ia) - HELD THAT - Situation when there was no evidence of existence of any contract between the assessee and those transporters and the goods were transported to the assessee at the behest of the supplier then the assessee was not under an obligation to deduct the tax at source at the time of payment to truck drivers/owners. We therefore reverse the findings of the authorities below and direct to delete the addition. Addition on account of excess claim of salary and wages and kharajat expenses made - HELD THAT - Merely on the basis that the some of the amounts or names were not recorded in the salary register the impugned disallowance should not have been made. The AO was required to investigate the basis of the total salary paid as claimed in the profit and loss account. The assessee s explanation was that the salary register was maintained for office staff but in addition to that the salary was also paid to other staff such as accounting staff etc hence the total expenditure was claimed in the profit and loss account. This fact has not been contradicted by Revenue Department before us. Likewise in the case of payment of Wages etc we have seen that the AO as well as CIT(A) both have made the disallowance merely on an estimation without appreciating the explanation of the assessee. According to us such an estimation was uncalled for hence we hereby reverse the same.
Issues Involved:
1. Deletion of addition on account of negative cash balance. 2. Deletion of addition on account of unexplained cash credits. 3. Deletion of addition on account of low gross profit. 4. Confirmation of addition on account of unaccounted purchases and sales detected by the Sales Tax Department. 5. Confirmation of sales tax penalty. 6. Confirmation of addition under Section 40(a)(i)(ia) for non-deduction of TDS on transportation expenses. 7. Confirmation of addition on account of excess claim of salary and wages. Issue-wise Detailed Analysis: 1. Deletion of Addition on Account of Negative Cash Balance: The Revenue challenged the deletion of Rs. 1,95,50,000/- added by the AO for a negative cash balance. The AO found a debit balance of Rs. 1,93,61,599/- in the cash book and proposed an addition, which was later increased to Rs. 1,95,50,000/- due to an unexplained introduction of cash by a partner. The CIT(A) deleted this addition, explaining that the negative balance was covered by cash introduced from the partner's current account and the cash book of M/s R.H. Patel & Co. The Tribunal held that the AO should have examined the second cash book and the transactions between the partner's account and the firm's books. The issue was remanded back to the AO for verification, thus allowing the Revenue's ground for statistical purposes. 2. Deletion of Addition on Account of Unexplained Cash Credits: The AO added Rs. 13,29,575/- as unexplained cash credits, arguing that the assessee introduced its own money as advances from customers. The CIT(A) found that these advances were for future sales, which were executed and taxed in the subsequent year, thus avoiding double taxation. The Tribunal upheld this view, noting that the advances were genuine and the sales were recorded in the subsequent year's accounts, dismissing the Revenue's ground. 3. Deletion of Addition on Account of Low Gross Profit: The AO added Rs. 12,74,550/- due to a fall in the gross profit ratio from 8.44% to 7.01%. The CIT(A) noted that the turnover had increased significantly, justifying the slight fall in the profit margin. The Tribunal agreed, stating that the increase in turnover and the corresponding slight decrease in gross profit were reasonable, and the AO's addition was unwarranted, thus dismissing the Revenue's ground. 4. Confirmation of Addition on Account of Unaccounted Purchases and Sales Detected by the Sales Tax Department: The AO added Rs. 1,11,922/- as profit from unaccounted purchases and sales detected during a Sales Tax survey. The CIT(A) confirmed this addition, noting that the Sales Tax Department's findings of unaccounted stock and sales were valid. The Tribunal upheld this view, agreeing that the Sales Tax Department's findings should not be disregarded, thus dismissing the assessee's ground in the Cross Objection. 5. Confirmation of Sales Tax Penalty: The AO disallowed Rs. 98,239/- as a penal expenditure for sales tax penalty. The CIT(A) confirmed this disallowance, stating that the penalty was penal in nature and not admissible as a deduction. The Tribunal upheld this view, rejecting the assessee's argument that the payment was compensatory, thus dismissing the assessee's ground in the Cross Objection. 6. Confirmation of Addition under Section 40(a)(i)(ia) for Non-Deduction of TDS on Transportation Expenses: The AO disallowed Rs. 7,32,181/- for non-deduction of TDS on transportation expenses. The CIT(A) upheld this disallowance. The Tribunal, however, reversed this decision, noting that there was no contractual obligation between the assessee and the transporters, and the payments were made to independent truck owners. The Tribunal directed the deletion of this addition, thus allowing the assessee's ground in the Cross Objection. 7. Confirmation of Addition on Account of Excess Claim of Salary and Wages: The AO disallowed Rs. 1,77,400/- for excess salary claims and 50% of wages due to lack of proper verification. The CIT(A) reduced the disallowance to 20%. The Tribunal reversed the disallowance, stating that the AO and CIT(A) made the disallowance without proper investigation and merely on estimation. The Tribunal allowed the assessee's ground in the Cross Objection. Conclusion: The Tribunal partly allowed the Revenue's appeal for statistical purposes and partly allowed the assessee's Cross Objection, confirming some additions and deletions while remanding certain issues back to the AO for verification.
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