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Facts
This is the second round of litigation for AY 2010-11, where the Tribunal had previously directed the AO to estimate income using a GP rate of 18.82%. The AO made an addition of ₹43,28,864/- based on this GP rate on a turnover of ₹2,30,01,402/- without allowing expenses, which the CIT(A) affirmed. Further additions included ₹15,82,148/- as unexplained cash credit, ₹8,40,000/- for unexplained loans/advances, and ₹1,87,488/- for interest on deposits.
Held
The Tribunal held that income could not be estimated solely on the GP rate without allowing business expenses, and directed the AO to allow such deductions. It also ruled that additions for unexplained cash credit and undisclosed loans/advances were not sustainable when income was already estimated using a GP rate, directing their deletion. However, the Tribunal upheld the addition of interest accrued on FDR with UCO Bank, dismissing the assessee's ground on this issue.
Key Issues
The key issues were the validity of income estimation based solely on GP rate without allowing expenses, the sustainability of additions for unexplained cash credit and undisclosed loans/advances when income is already estimated, and the addition of interest accrued on FDR.
Sections Cited
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Income Tax Appellate Tribunal, “C” BENCH, KOLKATA
Before: SHRI RAJESH KUMAR, AM & SHRI PRADIP KUMAR CHOUBEY, JM
This is an appeal preferred by the assessee against the order of the National Faceless Appeal Centre, Delhi (hereinafter referred to as the “Ld. CIT(A)”] dated 03.01.2024 for the AY 2018-19.
The issue raised in ground no. 1 to 3 are general in nature and do not require any specific adjudication.
The issue raised in ground no.4,5 and 6 is against the order of ld. CIT (A) confirming the addition of ₹43,28,864/- as made by the ld. AO by estimating the income by applying the GP rate 18.82% of the total turnover i.e. 2,30,01,402/-.
The ld. CIT (A) simply affirmed the said addition by upholding the order of ld. AO when the assessee did not make any submission before the ld. CIT (A).
After hearing the rival contentions and perusing the materials available on record, we find from the perusal of the trading and Profit and Loss account for the year ended 31.03.2010, that the expenses incurred by the assessee have not been allowed from the gross profit computed by the AO as per direction of the Tribunal. The total expenses were ₹66,07,286/- and after taking the credit of service tax in the profit and loss account of ₹28,62,240/-, the net profit worked out to 3,26,859/-. In our opinion, the credit has to be allowed for the expenses incurred by the assessee from the gross profit determined by the AO as per tribunal direction. For ready reference the profit and loss account is extracted below:-
CLIFFORD FACILITY SERVICES Prof:- Col. Ashok Sharma (Retd). PAN No. AKJPS0470K Recusted as per direction order dt. 03.05.2019 Trading Account for the year ended 31.03.2010
Profit & Loss Account for the year ended 31.03.2010 Printing & Stationary 328820.00 Gross Profit 4071905.00 Staff Welafare 121154.00 Service Tax 2862240.00 General Expenses 223426.00 Office Rent 144000.00 Mess Charges 903664.00 Travelling Expenses 373449.00 Bank Charges 73302.00 Rates & Taxes 370.00 Professional Charges 60000.00 Serve Tax 2862240.00 Audit Fees 2000.00 Telephone Charges 87865.00 Motor Car & Repair 409334.00 Repair & Maintenance 350816.00 Professional Fees 8000.00 Misc Expenses 207008.00 Legal Charge 50500.00 Advertisement 54310.00 Subscription & Donation 6374.00 Office Expenses 75260.00 Professional Tax 33520.00 NHAI Interest 180536.00 Depreciation 51338.00 Net Profit Transfer ToCapital A/c 326859.00 6934145.00 6934145.00 07. On perusal of the above Profit and Loss account it is had revealed that the expenses incurred by the assessee are to be allowed and the income cannot be estimated on the basis of GP rate alone. Accordingly, we set aside the order of the ld. CIT (A) and direct the ld. AO to allow the deduction of expenses to the assessee as per the above Profit and Loss account. The appeal of the assessee on this issue is allowed.
The facts in brief are that the assessee has made a huge deposits into and withdrawals from the bank account which according to the ld. AO were not reconciled and he accordingly added Rs.15,82,148/- to the income of the assessee as unexplained cash credit. However, on the other hands, we note that the assessee has deposited and withdrawn the money from the same bank account and these were repeated transactions done by the assessee and all are reported in the books of accounts maintained by the assessee for the business purposes. Moreover, the addition made by the ld. AO on account of deposits and withdrawals of money and any discrepancy therein cannot be made where the income has been estimated by apply the GP rate. Therefore, we set aside the order of the ld. CIT (A) and direct the ld. AO to delete the addition. The ground raised by the assessee is allowed.
Similarly, in ground no.8, the ld. CIT (A) confirmed the addition of ₹8,40,000/- as made by the ld. AO on account of loan and advances treating the same as income from undisclosed sources. Since, we have decided ground no.7, where the income has been estimated by applying the GP rate no additions was called for. Accordingly, we set aside the order of ld. CIT (A) and direct the ld. AO to delete the addition. The ground is accordingly allowed.
The issue in ground no.9 is addition of ₹1,87,488/- on account of interest deposit.
Ground no.10,11,12,13, are general in nature and do not require any adjudication.
In the result, the appeal of the assessee is partly allowed.
Order pronounced in the open court on 01.04.2025.