M/S. S.B. INDUSTRIES,MUZAFFARNAGAR vs. ITO, MUZAFFARNAGAR

The first issue in this appeal is against the confirmation of addition of Rs.18 lakh made by estimating profit.

Succinctly, the facts of the case are that the assessee derives income from manufacture of agricultural implements, ITA 1056/Del/2015 A.Y. 2010-11 S.B.Industries, Muzaffarnagar such as, Tasla, Fawra etc. The raw material used for manufacturing these implements is scrap. Against the sales for the current year amounting to Rs.1.67 crores, which also included the scrap sales of Rs.8.15 lakhs, the assessee showed gross profit at the rate of 3.33%. On the perusal of details, the Assessing Officer (A.O.) observed that out of total purchases of raw material (scrap) amounting to Rs.1.42 crore, the assessee could produce bills worth Rs.37.26 lac and the remaining purchases of Rs.1.05 crore were not verifiable. Similarly, it was found that direct expenses amounting to Rs.22.32 lakh under various heads, such as, Labour charges, Manufacturing expenses and Wages etc., were not properly vouched. In the like manner, certain other deficiencies were also found qua the incurring of expenses. The A.O. noted that the assessee also failed to produce sale bills in relation to sales shown at Rs.1.67 crore. In the above factual background, he estimated sales at Rs.1.80 crores. By applying an estimated net profit rate of 10%, he computed income from business at Rs.18 lakhs. The Ld. CIT(A) sustained the addition, against which the assessee has come up in appeal before the tribunal. 4. After considering rival submissions and perusing relevant material on record, it is observed that there are certain contradictions in recording of the factual position by the AO and the assertions made on behalf of the assessee. Whereas the A.O. has recorded that the assessee produced purchase bills only for Rs.37.26 lakhs out of total of Rs. 1.42 crores, the Ld. A.R. has placed on record copies of all the invoices and submitted that these were available before the A.O. as well. Similarly there are ITA 1056/Del/2015 A.Y. 2010-11 S.B.Industries, Muzaffarnagar contradictions qua the support for expenses. It is also found that the A.O. has not given any basis for estimating sales at Rs.1.80 crore and further the application of profit rate at 10%. As the assessee now claims to have the entire material available with it enabling the A.O. to complete assessment on the basis of declared results, I consider it expedient to set aside the impugned order and remit the matter to the file of the A.O. for determining income as per law on the basis of evidence now available with the assessee. I order accordingly.

The last ground of this appeal is against the confirmation of addition of Rs.10 lakh. The assessee had shown two creditors, namely, M/s Shree Krishna with a balance of Rs.7,28,708/- and M/s Gupta Sales with a balance of Rs.2,71,292/-. On being called upon to establish the genuineness of these creditors, the assessee filed photocopies of the bills. The A.O. observed that the invoices were not checked up by any trade tax authority. The assessee submitted that the outstanding balance of Rs.10 lakh to these two parties was paid by cheques in the following year. Since the assessee could not produce the relevant bank account, the A.O. opined that the assessee paid the said amounts in cash from its undisclosed sources during the year itself. This led to the making of an addition of Rs.10 lakh. The ld. CIT(A) sustained the same.

After hearing rival submissions and perusing material on record, it is observed that the balance of Rs.10 lakh appearing in the accounts of these two parties does not appear in the balance sheet of the assessee for the succeeding year, a copy of which is ITA 1056/Del/2015 A.Y. 2010-11 S.B.Industries, Muzaffarnagar available on record. This shows that the outstanding balances at the end of the current year were duly discharged by the assessee in the succeeding year. The observation of the A.O. that the invoices were not checked by any trade tax authority is again incorrect as is apparent from the copies of the bills. It can be seen that these bills apparently contain all the relevant particulars, some of which are duly checked. Be that as it may, these amounts totalling Rs.10 lakh represent trade creditors. When the A.O. rejected the books of accounts and proceeded to estimate the income by applying a percentage of profit on the estimated trade sales, it was no more open to him to again revert to the books of accounts and make separate additions from the transactions concerning purchases and sales. In view of the foregoing discussion, I am of the considered opinion that the Ld. CIT(A) was not justified in sustaining the addition of Rs.10 lakh, which is hereby deleted. This ground is allowed.

In the result the appeal is partly allowed. The order pronounced in the open court on 16.09.2016.