2012 (3) TMI 340 - AT - Income Tax

Unexplained sales - addition made by the Assessing Officer with reference to unaccounted production and sale of 624 mts of steel ingots - Decided in favour of assessee

Summary

Issues Involved:
1. Deletion of addition on account of unexplained sales.
2. Deletion of addition on account of unexplained purchases.

Detailed Analysis:

Issue 1: Deletion of Addition on Account of Unexplained Sales
The Revenue contested the deletion of an addition amounting to Rs. 91,89,357 made on account of unexplained sales. The facts of the case reveal that the assessee, engaged in manufacturing steel ingots and castings, was inspected by Central excise authorities on March 25, 2004. The inspection led to the discovery of suppressed sales, with raw materials and finished goods not accounted for in the regular books. For the assessment year 2008-09, the assessee filed a return declaring taxable income at Rs. 4,92,190, which was processed under section 143(1) of the Income-tax Act, 1961. The Assessing Officer (AO) made an addition of Rs. 91,89,357 based on the so-called unexplained sales.

Upon appeal, the Commissioner of Income-tax (Appeals) deleted the addition, citing that the AO's basis for estimating unaccounted production was flawed. The AO had relied on a confessional statement by the managing director of the assessee-company before the Central excise authority, which had already been dismissed by the Income-tax Appellate Tribunal (ITAT) in previous assessment years. The ITAT held that the statement alone could not form the basis for additions without other supporting evidence.

Furthermore, the AO's additional basis of excessive electricity consumption was also dismissed. The Supreme Court in CCE, Meerut v. R. A Casting P. Ltd. ruled that electricity consumption alone could not determine production levels due to various influencing factors. Hence, the ITAT upheld the deletion of the addition, finding no reliable basis for the AO's estimation of unaccounted production.

Issue 2: Deletion of Addition on Account of Unexplained Purchases
The Revenue also contested the deletion of an addition amounting to Rs. 25,70,931 made on account of unexplained purchases. The AO had made this addition under section 69 of the Act, alleging investment in raw materials outside the books of account.

On appeal, the Commissioner of Income-tax (Appeals) deleted the addition, referencing the detailed judgment related to unexplained sales. The ITAT found that the issue of unexplained purchases was intrinsically linked to the issue of unexplained sales. Since the addition for unaccounted production and sales was deleted, the corresponding addition for unexplained purchases could not be sustained.

The ITAT referred to its previous decision in the assessee's case for the assessment year 2004-05, where similar issues were resolved in favor of the assessee. The Tribunal noted that the AO had made the additions solely based on the statement of the managing director, without corroborative evidence. The Tribunal emphasized that an admission must be clear, unequivocal, and corroborated by independent materials to be decisive.

In conclusion, the ITAT dismissed the Revenue's appeal, upholding the Commissioner of Income-tax (Appeals)'s decision to delete both additions. The Tribunal reiterated that the AO's reliance on the statement of the managing director and the basis of electricity consumption were insufficient to justify the additions. The order was pronounced in the open court on March 1, 2012.