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Income Tax Appellate Tribunal, “A” BENCH, CHENNAI
Before: SHRI N.R.S. GANESAN & SHRI S. JAYARAMAN
आदेश /O R D E R
PER S. JAYARAMAN, ACCOUNTANT MEMBER:
Assessee filed this appeal against the order of the Commissioner of Income Tax (Appeals)-1, Coimbatore in dated 27.01.2017 for assessment year 2012-13.
:-2-: ITA No. 963/Mds/2017
M/s. Span Office Solutions India Pvt. Ltd., the assessee, is in the business of wholesale and retail trading in computers and furniture items and also in interior decoration and other construction works. In the assessment made for the assessment year 2012-13, the AO found that the assessee had pending stock of computer of Rs. 22,22,989/- and had sold them for Rs. 56,68,559/- to a related Section 25 Company. The AO required the assessee to explain how can it can sell such items for Rs. 56,68,559/- to the related Section 25 Company and after considering the assessee’s reply out of profit of Rs. 34,45,570/-, the AO considered 10% can be considered as maximum GP that a person can make on computer and accessories and the balance of Rs. 31,01,013/- is treated as unaccounted purchases and accordingly made an addition of Rs. 31,01,013/- under the head unaccounted purchases of computers.
3. The next issue is that the AO noticed that the assessee has purchased construction material for Rs. 59,97,262/- and found that there were sale of materials for Rs. 34,61,224/- which resulted in a GP loss of Rs. 25,36,038/-.
So, the AO required the assessee to explain what has happened to the construction materials. After considering assessee’s reply, the AO held that the assessee could not explain for Rs. 28,24,405/- and hence treated this as unaccounted sale of materials and accordingly, added Rs. 28,24,405/- under the head unaccounted sale of materials. Further, the AO has noticed that the :-3-: ITA No. 963/Mds/2017 assessee has cash credit in the cash book from M/s. Cbay System Pvt. Ltd., to the tune of Rs. 17,06,561/- for which the assessee could not furnish any satisfactory explanations and the assessee had negative cash balance of Rs. 7 lakhs from December on wards in its cash book. Since, the addition of Rs. 28,24,405/- was made on account of unaccounted sale of materials, she has not made any specific addition on the above two issues. Aggrieved, the assessee filed an appeal before the CIT(A).
4. Before the CIT(A) in respect of profit of sale of computers, the assessee submitted, inter alia, that the appellant had already made a profit of Rs. 34,45,570/- and offered it as income and the Assessing Officer failed to appreciate that the assessee had included the profit of Rs. 31,01,013/- while filing the return. The Assessing Officer’s action amounts to double addition which is impermissible in law. The CIT(A) has accepted such explanations and deleted this addition. With regard to the addition on unaccounted sale of material at Rs. 22,28,405/-, the assessee submitted, inter alia, that it purchased materials for Rs. 59,97,262/- and sold for Rs. 34,61,224/- which resulted in a GP loss of Rs. 25,36,038/-. It made the sale only to a company registered u/s. 25 of the Companies Act, doing the charitable activities in the field of education. The sale of items to such institutions at a lesser price which was not appreciated by the AO. It also submitted that the sale to sister concern at a lesser rate is without any intention to reduce the profit of :-4-: ITA No. 963/Mds/2017 the company but only for the purpose of enabling the recipient institution to get the benefit of material at a cheaper rate. This fact was not appreciated by the learned Assessing Officer. In view of the above, it is submitted that the action of the Assessing Officer in holding that the appellant had made unaccounted sale to sister concern (i.e., outside books) is not appropriate on the facts and circumstances of the case. The CIT(A) accepted the submission of the assessee stating, inter alia, that the Assessing Officer has made the addition on the presumption that “there is no need for the company to resort to a distress sale of material, as they can very well use it subsequently also by the group.” The Assessing Officer cannot step into the shoes of the assessee in deciding how to use the materials. The Assessing Officer was not able to prove her conclusions with evidence. Therefore, the CIT(A) deleted this addition. However, the CIT(A) observed that the cash receipts of Rs. 17,06,561/- appeared in cash book and the negative balance of Rs. 7 lakhs has not been explained satisfactorily by the assessee and the Assessing Officer has not added them for the reason that Rs. 28,24,405/- has already been added on behalf of the unaccounted sale of materials. Since, the addition of Rs. 28,24,405/- is now deleted, the cash receipts and negative cash balance will have to be considered separately. Since, the assessee could not explain the source of Rs. 17,06,561/- and the reason for negative cash balance of Rs. 7 lakhs even during the course of appellate proceedings, the CIT(A) held that the unexplained cash receipts and negative cash balance of :-5-: ITA No. 963/Mds/2017 Rs. 24,06,561/- (Rs. 17,06,561/- + Rs. 7,00,000/-) is added to the income of the assessee.
Aggrieved the assessee filed an appeal before this tribunal with the following grounds:
“2. The learned Assessing Officer erred in making addition of Rs. 24,06,561/- towards unexplained cash receipts and negative cash balance without appreciating the facts and circumstances of the case properly.
The learned Assessing Officer has failed to take note of the explanation given by the assessee at the time of original assessment hearing with regards to the source for receipts and reasons for showing the negative cash balance in the books.
The learned Assessing Officer failed to give additional hearing on this subject and further clarifications were not sought on this matter and it was solely decided on the background of the surmises arrived at the time of original assessment.
5. The learned Assessing Officer erred in not considering the clarification given at the time of original assessment with regards to the source of cash receipts and cash negative balance in the cash book of the assessee.”
With regard to the cash receipts at Rs. 17,06,561/- appeared in cash book and the negative balance of Rs. 7 lakhs, the AR submitted that the CIT(A) has not given an opportunity to the assessee to explain the impugned issues. Per contra, the DR supported the order of the CIT(A) stating that since the AO telescoped these issues in to the unaccounted sales, the CIT(A) having deleting the addition of unaccounted sales has rightly sustained them.
:-6-: ITA No. 963/Mds/2017
We heard the rival contentions and gone through the orders of the AO and the CIT(A). The Revenue is not on appeal on any of the issues.
However, the assessee pleads that the CIT(A) has not given any opportunity to it in respect of the additions on account of cash credit and cash shortage.
In view of that the additions made under the heads cash credits and cash shortages are remitted back to the AO for a fresh examination. The AO after affording due opportunity to the assessee shall pass a speaking order.
In the result, the assessee’s appeal is treated as allowed.
Order pronounced on Monday, the 20th day of November, 2017 at Chennai.