ITAT hled AO's method in making addition incorrect, and deleted addition

1. The assessee was engaged in trading of grocery items (Kiryana) like 'sugar', 'gur' etc. A survey u/s 133A (of Income Tax Act, 1961) was conducted. The assessee filed return of income declaring income of Rs. 6,16,793/-. The case of the assessee was selected for scrutiny and notice u/s 143(2) (of Income Tax Act, 1961) was issued and served within statutory period. Based on the impounded books of accounts and other documents, the Assessing Officer made additions on account of cash payments against purchase; cash found found short in survey; shortage of stock of Gud – Shakkar; loss in sugar sale after survey; and disallowance of telephone expenses.

2. CIT(A) deleted addition on telephone expenses.

3. On appeal, the ITAT held as under:

"As no further evidence in respect of the above claim was filed by the assessee, the Assessing Officer made disallowance in terms of Section 40A(3) (of Income Tax Act, 1961). Before the CIT(A), also the assessee reiterated the same submission. It is evident that it was noted in the diary impounded from the possession of the assessee having two entries of cash payment each Rs. 20,000/- on 29.01.2011 and the diary was maintained in regular course of business, the case of the assessee is squarely covered by section 40A(3) (of Income Tax Act, 1961). Further, the assessee did not submit any evidence that cash payment was at the insistence of the seller and therefore the ratio in the case of the Luxmi Satya Narayan Oil Mills vs. CIT (supra) cited by the assessee is not applicable to the facts of the assessee and we, therefore uphold the finding of the Ld. CIT(A) on the issue. The ground of the assessee is accordingly dismissed.

Notwithstanding above explanation, we find that the shortage of such small amount of cash can be considered as temporary withdrawal by the proprietor and deposited back and for which no addition is warranted in the case of the assessee. In our considered view no addition on account of shortage of cash can be made. The ld. DR could not bring out any authority in support of the proposition that shortage of cash can be treated as income of the assessee. In view of the above facts and circumstances, we delete the addition sustained by the CIT(A) and ground no. 3 of the appeal is thus allowed.

Since in the case of the assessee the physical quantity of goods is found less than the quantity of goods as per books, which means the purchases are already debited and thus in our view, the AO has rightly made addition for entire amount of unaccounted sales. Accordingly, the ground no. 4 is thus dismissed.

We agree with the submission of the ld. AR that without rejecting books of accounts, the AO was not allowed to make addition applying the gross profit rate for the period before the survey, on the sales for the post survey period. The AO has not pointed out any mistake in inventory register of the goods relevant to the issue in dispute. In our considered view, no addition could be made in the facts of the assessee on the issue in dispute. Accordingly, we delete the addition sustained by the ld. CIT(A) in impugned order thus, ground no. 5 of the appeal of the assessee is allowed.

4. In the result appeal of the assessee is partly allowed.”

Case Reference - Gaja Nand Garg Vs. ACIT

IN THE INCOME TAX APPELLATE TRIBUNAL DELHI BENCH: 'SMC-I': NEW DELHI

BEFORE SMT. DIVA SINGH, JUDICIAL MEMBER AND

SHRI O.P. KANT, ACCOUNTANT MEMBER

ITA No. 6866/Del/2015

( Assessment Year: 2011-12)