Total Integrated Design (India) Pvt. Ltd. Vs ITO (ITAT Delhi)
ITAT Delhi held that addition on the basis of fall in gross profits without pointing out any specific discrepancy in accounts that resulted into suppression of true figure of gross profit is unsustainable in law.
Facts- The appellant has preferred the present appeal contesting that CIT(A) has grossly erred in making an addition towards unexplained expenditure u/s 69C of the Income Tax Act. Notably, the addition was on account of difference between Form 15CA and Tax Audit Report. Further, addition was also made on account of fall in GP rate.
Conclusion- We are unable to sustain the findings of Ld. CIT(A) for sustaining the addition partly on the basis of fall in gross 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.
FULL TEXT OF THE ORDER OF ITAT DELHI
The present appeal filed by the assessee for the assessment year 201112 is directed against the order of Ld. CIT(A)-16, New Delhi dated 22.08.2019. The assessee has raised following grounds of appeal:-
1. “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.
Tax effect related to above mentioned ground of appeal is Rs 16,572/-
2. 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.
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 Rs17,70,805/-.”
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/- made u/s 69C of the Income Tax Act, 1961 (“the Act”) as unexplained expenditure.
5. Ground No.3 raised by the assessee is related to addition made by applying gross profit ratio on gross receipts amounting to INR 54,514/-.
6. Apropos to these grounds of appeal, Ld. Counsel for the assessee reiterated the submissions as made in the written submissions. For the sake of clarity, the relevant contents of the written submissions are reproduced as under:-
1. “The assessee Company is in appeal before this Hon. Court against the order passed u/s 250(6) of the Act dt. 22.08.2019 for Assessment Year 2011-12 by the Ld. First Appellate Authority on the following additions made by the Ld. A.O.
a) 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 due to following reasons.
i. Difference amounting to Rs. 54,514/- in Form 15CA and Tax Audit report.
ii. Fall in the GP ratio of the assessee company of the A.Y. 2011-12 as compared to the GP of preceding two years.
iii. Discrepancies on account of Income reflecting in Profit and Loss Account and 26AS of the assessee Company.
iv. Increase in expense pertaining to professional charges as compared to preceding year.
The assessee hereby submits its detailed point wise submissions in Annexure 1 enclosed in this paperbook.
b) Addition amounting to Rs. 54,514/- on account of difference in Form 15CA and Tax Audit report.
2. Brief undisputed facts of the case are enumerated hereinafter:
3. The assessee Company is a Private Limited Company, engaged in the business of interior decorators, architects, furnishers and surveyors wherein the assessee undertakes and executes turnkey projects and contracts and renders consultancy and advisory services.
4. The assessee Company filed its Return of Income for the year under consideration i.e., A.Y. 2011-12 on 29.09.2011 declaring total income of Rs. 2,74,552/-. Thereafter, the case of appellant was selected for Scrutiny through CASS.
5. The Ld. A.O. vide orders dated 28.03.2014 passed u/s 143(3) of the Act and assessed the Income of the assessee Company at Rs. Page | 3 1,29,11,270/- by making additions under various heads amounting to Rs. 1,26,36,713/-. A copy of said orders is being enclosed herewith on page no. 37 to 43 of this paper book for your ready reference.
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 paper book 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:
