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2016 (5) TMI 247 - ITAT CHENNAI

2016 (5) TMI 247 - ITAT CHENNAI - TMI - Addition due to negative balance in the books of account - whether the assessee has introduced any unaccounted money for purchases? - Held that:- In the case before us, the assessee appears to have purchased turmeric through Agricultural Market Committee. The turmeric being an agricultural produce, the assessee has to necessarily make payment in cash to the agriculturists. It is not the case of the Revenue that purchases and sales were not recorded in the .....

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n to interfere with the order of the lower authority and accordingly, the same is confirmed.

Unexplained creditors and purchases - Held that:- Admittedly, the assessee has not furnished all the addresses of the persons from whom the purchases were made. The assessee, however, clarified before the Assessing Officer that the purchases were made from Government regulated market committee. The fact that the turmeric was purchased through regulated markets is not in dispute. When the regul .....

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mine the genuineness of the transactions. In those circumstances, disallowing the claim of the assessee as non-genuine is not justified. Therefore, the CIT(Appeals) has rightly deleted the addition made by the Assessing Officer.

Allowance of publicity expenses - Held that:- It is not in dispute that the assessee is manufacturing and selling turmeric powder in the brand name of Aachi. Aachi group is marketing the turmeric powder manufactured by the assessee in their own brand name alon .....

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ncrease the turnover in the market. Consequently, the profit of the assessee would go up. Therefore, the expenditure incurred by the assessee is only for the business purpose. Merely because the Aachi group gets incidental benefit that cannot be a reason to disallow the claim of the assessee. Therefore, this Tribunal do not find any reason to interfere with the order of the lower authority and accordingly, the same is confirmed.

Enhancement of turnover and estimating profit of the ass .....

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f 37,90,500 Kgs actually represents the finished product manufactured by the assessee during the financial year 2008-09. To arrive at the probable sales effected during the year, the net increase in the closing stock is to be reduced from the goods manufactured during the year. In view of the above, this Tribunal is of the considered opinion that in the absence of any material on record that the assessee has inflated the purchases or sales, the estimation of probable sales on the basis of the pa .....

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the order of the CIT(Appeals) and accordingly the same is confirmed.

Addition of unaccounted purchases - Held that:- As rightly submitted by the Ld. counsel for the assessee, the enhanced addition of purchase was deleted by the CIT(Appeals), which was confirmed by this Tribunal in the earlier part of this order. Once the enhanced purchase was deleted, the enhanced estimation on sales would also automatically get deleted. Therefore, this Tribunal is of the considered opinion that the C .....

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ver estimated by the Assessing Officer.

Revenue appeal dismissed. - ITA No.885/Mds/2013 - Dated:- 24-3-2016 - SHRI N.R.S. GANESAN, JUDICIAL MEMBER AND SHRI A. MOHAN ALANKAMONY, ACCOUNTANT MEMBER For The Appellant : Sh. Pathlavath Peerya, CIT For The Respondent : Shri S. Sridhar, Advocate ORDER PER N.R.S. GANESAN, JUDICIAL MEMBER: This appeal of the Revenue is directed against the order of the Commissioner of Income Tax (Appeals)-IV, Chennai, dated 27.12.2012 and pertains to assessment .....

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e unaccounted purchases made by the assessee. Referring to Annexure-1 to the assessment order, the Ld. D.R. submitted that as on 17.12.2008, the credit was only ₹ 200/-. However, the assessee debited ₹ 25,000/-. Similarly, on 18.12.2008, the credit was ₹ 285/- and the assessee again debited ₹ 25,000/-. Because of the negative balances in the account, the Assessing Officer found that there was unaccounted purchases. 4. On the contrary, Shri S. Sridhar, the Ld.counsel for t .....

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arately shown as paid on 11.03.2009. The Assessing Officer has verified this. Since there are no mistakes in accounting the purchases, sales and expenses, the Assessing Officer is not justified in rejecting the books of account. Referring to page 6 of the order of the CIT(Appeals), the Ld.counsel submitted that the negative balance by adopting peak credit comes to only ₹ 1,29,716/-. Therefore, the CIT(Appeals) has rightly restricted the same to ₹ 1,29,716/-. 5. We have considered the .....

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ls) has also found that introduction of unaccounted cash in the books of account or the negative cash balance have no impact on the profit of the business. No doubt, the profit of the business is calculated on the sales, purchases and other expenses incurred during the year under consideration. The question arises for consideration is whether the assessee has introduced any unaccounted money for purchases? If the assessee introduced unaccounted cash for purchases or the sales were not recorded i .....

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ce was withdrawal of funds from the bank and payments were made to agriculturists in cash in a later date. Therefore, rejection of books of account is not justified at all. In such circumstances, adopting peak credit is the only method to find out the cash balance. Therefore, the CIT(Appeals) has rightly restricted the negative balance to ₹ 1,29,716/-. Therefore, this Tribunal do not find any reason to interfere with the order of the lower authority and accordingly, the same is confirmed. .....

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ssee, found that all the 76 closed creditors to whom cash was given, the assessee has not furnished the address of the creditors and the confirmation of the creditors was also not furnished. The assessee has not proved the genuineness of the transactions of purchase. Therefore, the Assessing Officer treated the transactions of purchase to the extent of ₹ 35,06,923/- as non-genuine purchases and ₹ 33,04,179/- claimed in respect of credit purchases was not confirmed. Therefore, the Ass .....

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er has rightly made the addition. 8. On the contrary, Shri S. Sridhar, the Ld.counsel for the assessee, submitted that all the purchases were made by Government regulated markets at Salem and Erode. The bills which are in possession of the Revenue disclosed the same. Since the entire purchases and transactions had to be made only through Agricultural Market Committee, the Assessing Officer cannot claim that the purchases were outside the books of account. According to the Ld. counsel, the purcha .....

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g Officer that the purchases were made from Government regulated market committee. The fact that the turmeric was purchased through regulated markets is not in dispute. When the regulated market committee was monitoring the transactions and purchases of turmeric, this Tribunal is of the considered opinion that the Assessing Officer could have very well examined the actual purchases made by the assessee and the details of the agriculturists. Inspite of the fact that the assessee has disclosed the .....

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and accordingly, the same is confirmed. 10. The next ground of appeal is with regard to publicity expenses of ₹ 33,15,000/-. 11. Sh. Pathlavath Peerya, the Ld. Departmental Representative, submitted that the assessee has claimed publicity expenses of ₹ 33,15,000/-. According to the Ld. D.R., the assessee is manufacturing turmeric powder and supplying the same to his own related concern, namely, Aachi group. Therefore, there is no need for the assessee to incur any publicity expenses. .....

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ents are basically for the Aachi products. According to the Ld. counsel, if the brand name Aachi spreads into the market, the product manufactured by the assessee, namely, turmeric would also penetrate the market and resultantly the assessee would be benefited by increasing its turnover. The advertisement for Aachi products would definitely benefit the assessee for sale of his own product. The fact is that the assessee s product was sold in the market in the brand name of Aachi. Therefore, incur .....

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oup is marketing the turmeric powder manufactured by the assessee in their own brand name along with other products manufactured by them. The claim of the assessee is that advertisement made by the assessee to promote the brand name Aachi would directly benefit the assessee in increasing the turnover. This Tribunal is of the considered opinion that when the assessee is manufacturing turmeric powder and marketing the same in the brand name of Aachi through Aachi group, promoting the brand name Aa .....

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e same is confirmed. 14. The next ground of appeal is with regard to enhancement of turnover and estimating profit of the assessee. 15. Sh. Pathlavath Peerya, the Ld. Departmental Representative, submitted that the Assessing Officer by comparing the packing material consumed by the assessee vis-à-vis the actual quantity of turmeric powder sold, estimated the gross profit. The assessee claimed that 19,75,167.60 Kgs of turmeric powder was sold in the market. However, the Assessing Officer c .....

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After allowing the overhead expenses, the Assessing Officer determined the net profit at ₹ 2,57,81,465/- as against ₹ 11,82,054/- declared by the assessee. According to the Ld. D.R., since the assessee has consumed large quantity of packing material, the Assessing Officer has rightly computed the gross profit by increasing the total turnover on the basis of packing material consumed. Therefore, according to the Ld. D.R., the CIT(Appeals) is not correct in deleting the addition made .....

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in fact, arrived the sales at 37,90,500 Kgs. The Assessing Officer, vide his remand report dated 09.12.2012 confirmed that there was an error in the probable sales calculated in the assessment order. In fact, the total quantity of the sales is 1,25,500 Kgs. However, the Assessing Officer added one more 0 and treated the same as 12,55,000 Kgs. This was accepted by the Assessing Officer in the remand report dated 09.12.2012. Therefore, the calculation of the Assessing Officer was inflated by 11,29 .....

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stries and M/s Micro Polypack. Without understanding the basic difference between the secondary packing material and primary packing material, the Assessing Officer committed mistake in estimating the probable sales. Therefore, the CIT(Appeals), after analysing all the material facts, found that no prudent businessman will add more weight to the packing material when the contents are of less value. The CIT(Appeals) found that the purchase cost of packing material ranged from ₹ 72/- to S .....

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he purchase price remained the same. Therefore, according to the Ld. counsel, the CIT(Appeals) has rightly found that the estimation of turnover was not scientific. Hence it cannot be taken into consideration for the purpose of determination of actual sales for the year under consideration. The estimation and enhancement of turnover, according to the Ld. counsel, is imaginary. Therefore, the CIT(Appeals) has rightly deleted the addition. 17. We have considered the rival submissions on either sid .....

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Appeals) came to a conclusion that no prudent businessman would add weight to packing material when the contents are of lesser value. The CIT(Appeals) further found that there is an arithmetical error in computing the packing material. The Assessing Officer has committed mistake by himself adding one more 0 . In fact, the actual sale of turmeric powder was 1,25,500 Kgs. However, the Assessing Officer has taken the same as 12,55,000 Kgs. The Assessing Officer confirmed the arithmetic mistake made .....

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ar was actually used for turmeric powder manufactured and packed and was lying in the closing stock. The volume of such closing stock as on 31.03.2009 was 1,15,345 Kgs. The opening stock as on 01.04.2008 was 6,856 Kgs. Therefore, the net closing stock of 1,08,489 Kgs should also be considered as the resultant of the packing material consumed during the year under consideration. Therefore, the Assessing Officer s calculation of 37,90,500 Kgs actually represents the finished product manufactured b .....

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is of the considered opinion that the estimation of total sales without considering the actual purchases would inflate the sale, therefore, the CIT(Appeals) has rightly found that the total turnover was 19,75,167.60 Kgs as against 37,90,500 Kgs estimated by the Assessing Officer. Therefore, the CIT(Appeals) has rightly deleted the addition made by the Assessing Officer. This Tribunal do not find any reason to interfere with the order of the CIT(Appeals) and accordingly the same is confirmed. 18 .....

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ssessing Officer on the ground that there was no unaccounted sales. According to the Ld. D.R., the addition was made on the basis of assessee s own reconciliation. Therefore, the CIT(Appeals) is not justified in deleting the addition. 19. On the contrary, Shri S. Sridhar, the Ld. counsel for the assessee, submitted that the Assessing Officer has not considered the purchases declared by the assessee to the extent of ₹ 11,85,30,525/-. According to the Ld. counsel , in the financial year 2008 .....

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