2019 (4) TMI 697 - AT - Income Tax

Addition on account of Reconciliation of Difference in cash balance - HELD THAT - Ld.CIT(A) while deciding the issue has noted that after considering the audited Balance-Sheet opening balance and closing balance AO had not doubted the closing balance cash as on 31.03.2011. Before us assessee has pointed out that over all cash balance has remained the same. The submission of the assessee has not been controverted by Revenue. Further no fallacy in the findings of Ld.CIT(A) has been pointed by Revenue - ground of Revenue is dismissed. Addition on account of seized material found - HELD THAT - Ld.CIT(A) has given a finding that assessee has received Rs. 25 lakh by way of bank transfer of B.N. Chaudhary on 16.07.2011 which was returned in two installments through banks. He therefore held that addition made by the AO on account of cash paid to Mr. Palai was not called for in the case of assessee. Before us Revenue has not pointed out any fallacy in the findings of Ld.CIT(A) - ground of Revenue is dismissed. Addition difference in cash available and recorded in books of accounts - HELD THAT - Ld.CIT(A) while granting relief has noted that it was not the case of excess cash found or there was unexplained cash found recorded in the cash books. He further held that in case of shortage of cash no addition was justified as assessee has withdrawn the money and might have spent the same without claiming any expenditure. He accordingly deleted the addition. Before us Revenue has not pointed out any fallacy in the findings of Ld.CIT(A) - ground of Revenue is dismissed. Addition alleged shortage of physical stock of goods - HELD THAT - The issue in the present ground is with respect to addition on account of alleged shortage of physical stock of goods. AO made addition by working out the G.P. at 22% being the G.P. rate upto the date of survey. Ld.CIT(A) has noted that for working out cost of the spare parts AO had adopted the GP rate of 22% as found at the time of survey on the basis of GP period upto the date of survey. Ld.CIT(A) observed that in case of shortage of stock the gross profit ratio on the stock sold outside the books has to be taxed. He worked out the unrecorded profits at Rs. 1, 47, 964/- and upheld the addition to that extent. Before us Revenue has not pointed out any fallacy in the findings of Ld.CIT(A) - ground of Revenue is dismissed. Addition on account of Deemed Dividend u/s 2(22)(e) - HELD THAT - Ld.CIT(A) after relying on the decision of Hon ble Bombay High Court in the case of Universal Medicare 2010 (3) TMI 323 - BOMBAY HIGH COURT has held that the payment cannot be taxed in the hands of assessee and assessee did not held any beneficial shares in the lending company. Before us Revenue has not pointed any contrary decision in its support nor has pointed any fallacy in the findings of Ld.CIT(A) - ground of Revenue is dismissed. Addition on account of Unproved Creditors - HELD THAT - Ld.CIT(A) after considering the submissions has given a finding that during the year there were transactions with the aforesaid parties. AO had not doubted the purchases made and consultancy given and the payments made were also not disputed and that AO had accepted all other transactions but held closing balance as unproved. He has further given a finding that Revenue has not proved that the parties were not in existence or material or services were not supplied. He therefore deleted the addition. Before us Revenue has not pointed out any fallacy in the findings of Ld.CIT(A) - ground of Revenue is dismissed.

Summary

Issues Involved:
1. Deletion of addition on account of reconciliation of difference in cash balance.
2. Deletion of addition on account of seized material found and unaccounted transaction.
3. Deletion of addition on account of difference in cash available and recorded in books of accounts.
4. Restricting the addition on account of shortage of physical stock.
5. Deletion of addition on account of deemed dividend under Section 2(22)(e) of the Income Tax Act.
6. Deletion of addition on account of unproved sundry creditors.

Issue-wise Detailed Analysis:

1. Deletion of Addition on Account of Reconciliation of Difference in Cash Balance:
The Assessing Officer (AO) added Rs. 67,903 to the total income of the assessee due to discrepancies in the cash balance between the cash book for the assessment years 2011-12 and 2012-13. The Commissioner of Income Tax (Appeals) [CIT(A)] deleted the addition, noting that the AO had not doubted the closing balance of cash as on 31.03.2011, and the lesser opening cash balance as on 01.04.2011 did not justify any addition. The Tribunal upheld the CIT(A)’s decision, finding no reason to interfere as the Revenue did not provide any contrary evidence.

2. Deletion of Addition on Account of Seized Material Found and Unaccounted Transaction:
The AO made an addition of Rs. 25 lakh based on seized documents during a search, which the assessee failed to explain. The CIT(A) deleted the addition, noting that the transactions were reflected in the bank statements and the cash was withdrawn from the account of B.N. Chaudhary. The Tribunal upheld the CIT(A)’s decision, as the Revenue did not disprove the contention of the assessee or point out any fallacy in the CIT(A)’s findings.

3. Deletion of Addition on Account of Difference in Cash Available and Recorded in Books of Accounts:
The AO added Rs. 3,05,060 due to discrepancies between the physical cash found and the cash recorded in the books. The CIT(A) deleted the addition, stating that no unexplained cash was found and the shortage of cash did not justify any addition. The Tribunal upheld the CIT(A)’s decision, noting that the Revenue did not provide any contrary evidence.

4. Restricting the Addition on Account of Shortage of Physical Stock:
The AO made an addition of Rs. 6,71,338 due to a shortage of physical stock, calculated using a gross profit (GP) rate of 22%. The CIT(A) partially upheld the addition, restricting it to Rs. 1,47,964, noting that only the gross profit margin on the stock sold outside the books should be taxed. The Tribunal upheld the CIT(A)’s decision, finding no reason to interfere as the Revenue did not point out any fallacy in the CIT(A)’s findings.

5. Deletion of Addition on Account of Deemed Dividend Under Section 2(22)(e) of the Income Tax Act:
The AO added Rs. 1,06,00,000 as deemed dividend under Section 2(22)(e) of the Act, noting that the assessee received a loan from an associate company. The CIT(A) deleted the addition, relying on various High Court decisions, and noting that the assessee did not hold beneficial shares in the lending company. The Tribunal upheld the CIT(A)’s decision, as the Revenue did not provide any contrary evidence.

6. Deletion of Addition on Account of Unproved Sundry Creditors:
The AO added Rs. 2,45,388 due to the assessee’s failure to furnish confirmations from certain creditors. The CIT(A) deleted the addition, noting that the transactions with the creditors were not disputed and the AO had accepted all other transactions but held the closing balance as unproved. The Tribunal upheld the CIT(A)’s decision, finding no reason to interfere as the Revenue did not provide any contrary evidence.

Conclusion:
The Tribunal dismissed the appeal of the Revenue, upholding the CIT(A)’s decisions on all grounds. The order was pronounced on 4th April 2019.