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TMI Blog2023 (7) TMI 1087X X X X Extracts X X X X X X X X Extracts X X X X ..... pellant and the same have been duly audited as per law. 3. Under the fact and circumstance of the case, the ld. First Appellate Authority were grossly erred in making addition of Rs. 54,10,504/- by applying GP ratio on gross receipts, which is unwarranted, against the facts & bad at law. Tax effect related to above mentioned ground of appeal is Rs 16,44,793/- 4. The ld. Assessing officer has grossly erred in disallowing a sum of Rs 3,60,000/- being accounting charges alleging that the same have been paid without deduction of tax, which is against the facts and bad at law. Tax effect related to above mentioned ground of appeal is Rs 1,09,440/- 5. The appellant prays for leave to add, amend, alter or withdraw any grounds of appeal. Total Tax Effect relating to all the above mentioned grounds of appeal is Rs 17,70,805/-." 2. At the time of hearing, Ld. Counsel for the assessee submitted that she does not wish to press Ground No.4, the same is hereby, dismissed as not pressed. 3. Ground No.5 raised by the assessee is general in nature, needs no separate adjudication hence, dismissed. 4. Ground Nos. 1 to 2 raised by the assessee are against the addition of INR 54,514/- ma ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 6. Aggrieved by the aforesaid orders, the assessee Company filed appeal before the Ld. First Appellate Authority wherein the Hon'ble CIT(A) allowed partial relief to the assessee. The Ld. CIT(A) however upheld additions amounting to Rs. 54,64,918/- made by the Ld. A.O. vide orders dated 22.08.2019 on the basis of fall in GP rate and discrepancy in form 15CA and tax audit report. Copy of the said orders are enclosed on page no. 01 to 36 of this paperbook for your ready reference. 7. The additions upheld by the Ld. CIT(A) against which the assessee Company is in appeal before this Hon. Court are tabulated as under: S. No. Addition Under Section Amount of Addition upheld 1. Addition amounting to Rs. 54,10,404/- rejecting the books of the assessee and considering GP at the rate of 22.47% on the basis of average GP rates of the preceding years. 145(3) 54,10,404/- 2. Addition amounting to Rs. 54,514/- on account of difference in Form 15CA and Tax Audit report. 69C 54,514/- Total 54,64,918/- 8. The brief contentions of the assessee are enumerated hereinafter: 9. The additions amounting to Rs. 1,08,04,598/- were made by the Ld. Assessing ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... opinion formed by him by grossly misinterpretation of the details which were filed before him during the Assessment Proceedings. There were no defects in the books of accounts which was not explained before Hon'ble CIT(A) and Ld. A.O. and which would result in the rejection of books of accounts of the company under Section 145(3) of the Income Tax Act, 1961 and to apply the GP ratio of the earlier years. 11. During the First Appellate proceedings the assessee duly explained that the difference of Rs. 1,08,04,598/- is due to double addition of the amounts by the Ld. A.O. which was subsequently deleted by the Ld. CIT(A). Nonetheless, Ld. CIT(A) sustained the addition of Rs. 54,10,504/- on account of fall in GP rate without understanding the submissions and nature of business of the assessee. 12. The reconciliation of gross receipts of a professional with the information contained in form 26AS is always problematic and difficult. The reason being the recognition of the expense by the principal in one year and deduction of TDS on the same on due basis. On the contrary the recipient of Income in the case of professional is generally on cash basis whereas in the case of contract ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... been created and a lesser payment is made but the TDS return filed for the previous year is not revised resulting in mismatch with Form 26AS. 13. In short any difference in Form 26AS in comparison to receipts in P&L Account arises because there are instances when the other party has not booked the expense in the current year and has recorded the same in next year, but the assessee company has shown such amount as Income in its P&L Account for the current year. Thus, the same cannot be termed as an intention to invade taxes as the same is only a matter of reconciliation and general business norm of the assessee company. 14. It is a settled principle of law that every year of assessment is a separate year and has its own specific and peculiar transactions. While making assessment in particular year assessing officer cannot resort to make additions on account of fall in GP without having any basis of the same situation having been prevailed in the other Assessment Year. Therefore, addition by taking average GP of two preceding years cannot be made on the basis of merely fall in GP ratio in one year. The assessee places reliance on the following rulings:- a) Ruling of Hon'bl ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ation of Ld. A.O. and the Ld. A.O. allowed the same after verification. - 1,26,36,713/- 17. As is evident from the above table, the Hon'ble CIT(A) directed Ld. A.O. in his orders to verify the expenses in relation to the accounting charges amounting to Rs. 3,60,000/-. The Ld. A.O. subsequently verified all the bills and has allowed the deduction to the assessee. In other words, both Ld. A.O. as well as Hon'ble CIT(A) have allowed the expenses of the assessee after verification of the bills but has rejected the books on mere discrepancies in accounting which were eventually explained by the assessee which is highly injudicious, unwarranted and bad at law. 18. Without prejudice to the aforesaid, the assessee Company has duly maintained its books of account and has all the books as well as supporting evidence such as invoices of expenses, agreements for the services provided and bank statement from which transactions have been made which are duly placed on record. 19. In order to have better understanding, the assessee hereby submits a brief note on nature of business of the assessee Company. The assessee Company is in business ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 514/-. 26. The aforesaid orders passed by the Hon'ble First Appellate Authority suffers from various infirmities the appellant has accordingly taken following grounds of appeal against same:- i. Under the facts and circumstances of the case, the Ld. First Appellate Authority as well as Ld. A.O. have grossly erred in making an addition of Rs 54,514/- as unexplained expenditure u/s 69C of the Income Tax Act, 1961. ii. Under the facts and circumstances of the case, the Ld. First Appellate Authority has grossly erred in rejecting the books of accounts of the assessee without appreciating the fact that the appellant has maintained complete & correct accounts of the business carried by the appellant and the same have been duly audited as per law. iii. Under the fact and circumstance of the case, the Ld. First Appellate Authority were grossly erred in making addition of Rs. 54,10,504/- by applying GP ratio on gross receipts, which is unwarranted, against the facts & bad at law. iv. The Ld. Assessing officer has grossly erred in disallowing a sum of Rs. 3,60,000/- being accounting charges alleging that the same have been paid without deduction of tax, which is against the fac ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ng on the same project. The Ld. Assessing Officer made the total of that particular list by including the project receipts multiple times and thereby rejected the books of accounts of the assessee and made grossly unwarranted additions in the case of the assessee. Needless to say, that the Ld. Assessing Officer grossly misunderstood the details and made unwarranted additions on the basis of gross misunderstanding of the facts of the case. The rejection of books of accounts as well as resorting to addition on the basis of GP ratio was also a result of grossly non application of mind and misinterpretation of the details which were filed before the Ld. Assessing Officer. The Ld. Assessing Officer got carried away on the basis of this misunderstanding of the fact and went ahead with rejecting the books of accounts of the assessee as well as resorting to additions based on GP ratios of the previous years. In other words the entire Assessment Order passed by the Ld. Assessing Officer was on the basis of the biased opinion formed by him by grossly misinterpretation of the details which were filed before him during the Assessment Proceedings. There were no defects in the books of accounts ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ey do not cooperate with each other. As a result there can be some small differences in 26AS and the revenue which has been recognized by a contractor but the same cannot be a basis for out rightly rejecting the books of accounts of the contractor or for making unwarranted additions on the basis of differences. This factual situation applies across the board to all the assessee where the income recognition is not in accordance with the deduction of tax provided under the Income Tax Act, 1961. For most of the TDS provisions the Income Tax Act provides for deduction and payment of tax on payment or on credit to the recipient whichever is earlier. An example in this regard is the audit fees which is generally provided at the end of the year by the company on provisional basis. But the same is recorded by the auditor in the subsequent year on receipt basis resulting in mismatch of details of TDS contained in Form 26AS. A number of times at the time of payment, the company renegotiate the provision which has been created and a lesser payment is made but the TDS return filed for the previous year is not revised resulting in mismatch with Form 26AS. 35. In short any difference in Form 2 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... in the case of Century Tiles Ltd. vs. Joint Commissioner of Income- tax, [2014] 51 taxmann.com 515 (Ahmedabad - Trib.) wherein it was held as under: "23. In the instant case, we find that the Assessing Officer could not bring any material on record to show that any bogus expenditure or non-verifiable expenses were debited under any head of expenses. In the above circumstances, in our considered view, the wholesale rejection of book result in the instant case was not warranted. The reasons given by the lower authorities in the instant case for rejecting the book results was inability of the assessee to properly explain the reason for decline in gross profit for disproportionate increase in expenses in three heads. In our opinion, the above reason could at best present a case where the Assessing Officer ought to have verified the books with caution and make due inquiries but does not empower the Assessing Officer to reject the book results" Copy of the said ruling is enclosed on page no. 53 to 65 of this paperbook for your kind perusal. c. Ruling of Hon'ble ITAT Jaipur Bench (Third Member) in the case of Deputy Commissioner of Income-tax, Circle-2, Alwar vs. British Health ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e Ld. CIT(A) has grossly erred in invoking the provisions of Section 69C and treating the aforesaid sum of Rs. 54,514/- as unexplained expenditure which is grossly injudicious, unwarranted and bad at law. 44. In the present case, the Ld. A.O. on his surmise and conjecture has alleged that the said payment has been made in cash and invoked section 69C of the Act. The Ld. A.O. failed to appreciate the fact that the payment was being made to Thailand and Singapore and the same was made through banking channels and could not be done in Cash. Therefore, the allegation upon the assessee that unexplained expenditure is made is grossly injudicious, unwarranted and bad at law. Arguments of the appellant in favour of Ground of Appeal No. 4 45. The Ld. Assessing officer has grossly erred in disallowing a sum of Rs. 3,60,000/- being accounting charges alleging that the same have been paid without deduction of Tax, which is against the facts and bad at law. 46. The Hon'ble CIT(A) directed Ld. A.O. in his orders to verify the expenses in relation to the accounting charges amounting to Rs. 3,60,000/-. The Ld. A.O. subsequently has verified all the bills and has allowed the deduction t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ross profits without pointing out any specific discrepancy in accounts that resulted into suppression of true figure of gross profit. The findings should not be pure guess works, it should have certain foundation. In the case in hand, Lower authorities have failed to advert to the contentions of the assessee that difference between the figures reported in Form 26AS and actually recorded in the books of assessee was due to business model of assessee. The other party did not book expenditure in a particular year for that the assessee cannot be held responsible for them before. This fact ought to have been verified by the lower authorities before proceeding to reject books of accounts. Law is well-settled that the AO while resorting to estimation should consider all aspects surrounding the transactions. Merely because there is a fall in gross profit rate would not ipso facto be the reason for rejection of book results. Therefore, considering the material placed on record, the impugned order is hereby, set aside and the issue is restored to the file of AO for deciding it afresh. The AO is hereby, directed to verify the correctness of the claim of the assessee regarding mismatch of figu ..... X X X X Extracts X X X X X X X X Extracts X X X X
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