2014 (2) TMI 1238 - HC - Income Tax

Tax Appeal is admitted for consideration of following substantial question of law Whether the Appellate Tribunal has substantially erred in upholding the order of the CIT A in deleting addition made by the Assessing Officer on account of unutilized CENVAT/MODVAT credit of ₹ 33,25,541/ ?

Issues Involved:
1. Restriction of addition made by the Assessing Officer to 5% of total bogus purchases.
2. Applicability of Section 40A(3) to cash purchases.
3. Genuineness of purchases from Amber Trading Company.
4. Deletion of addition treating purchases from Amber Trading Company as bogus.
5. Deletion of addition on account of disallowance of speculation loss.
6. Deletion of addition on account of unutilized CENVAT/MODVAT credit.
7. Application of Supreme Court's decision in Indo Nippon Chemicals Company Limited post amendment to Section 145A.

Issue-wise Detailed Analysis:

1. Restriction of Addition to 5% of Total Bogus Purchases:
The Tribunal restricted the addition made by the Assessing Officer to 5% of the total bogus purchases of Rs. 36,28,531 from M/s. Vishal Traders. The Assessing Officer had doubted the genuineness of these purchases, noting that payments were made through cheques which were subsequently withdrawn in cash. The CIT (A) partially accepted the purchases as genuine but taxed 25% of the amount. The Tribunal further reduced this to 5%, citing better GP and net profit rates compared to the previous year, proper maintenance of stock registers, and internal contradictions in the statements from M/s. Vishal Traders.

2. Applicability of Section 40A(3) to Cash Purchases:
The Tribunal held that the provisions of Section 40A(3) of the Income Tax Act were not attracted to the cash purchases of Rs. 36,28,531 claimed to have been made from other parties. This decision was based on the evidence provided by the assessee, including payment details and documentation of goods received.

3. Genuineness of Purchases from Amber Trading Company:
The Assessing Officer disallowed purchases from Amber Trading Company, suspecting them to be bogus due to the supplier's unregistered dealer (URD) status. However, the CIT (A) and the Tribunal noted that the Assessing Officer of Amber Trading Company had treated the URD purchases as genuine. Consequently, the Tribunal upheld the genuineness of the purchases made by the assessee from Amber Trading Company.

4. Deletion of Addition Treating Purchases from Amber Trading Company as Bogus:
The Tribunal upheld the CIT (A)'s decision to delete the addition of Rs. 31,37,41,680 made by the Assessing Officer, treating the purchases from Amber Trading Company as bogus. The Tribunal reasoned that since the URD purchases of Amber Trading Company were accepted as genuine by its Assessing Officer, the disallowance made by the Assessing Officer of the assessee could not be sustained.

5. Deletion of Addition on Account of Disallowance of Speculation Loss:
The Tribunal upheld the CIT (A)'s decision to delete the addition of Rs. 2,01,82,782 made on account of disallowance of speculation loss. The Tribunal found that the transactions were hedging transactions and not speculative in nature. This decision was based on the evidence on record and was not shown to be perverse, thus not requiring further consideration.

6. Deletion of Addition on Account of Unutilized CENVAT/MODVAT Credit:
The Tribunal upheld the CIT (A)'s decision to delete the addition made by the Assessing Officer on account of unutilized CENVAT/MODVAT credit of Rs. 33,25,541. The High Court admitted this question for further consideration, indicating that similar questions were being considered in various Tax Appeals.

7. Application of Supreme Court's Decision in Indo Nippon Chemicals Company Limited:
The Tribunal applied the ratio of the Supreme Court's decision in Indo Nippon Chemicals Company Limited even after the amendment to Section 145A by the Finance (No.2) Act, 1998. The High Court did not entertain this question separately as it was deemed an element of the question regarding unutilized CENVAT/MODVAT credit.

Conclusion:
The High Court dismissed the Revenue's appeal on most issues, upholding the Tribunal's decisions. The only issue admitted for further consideration was the deletion of the addition on account of unutilized CENVAT/MODVAT credit. The High Court's detailed analysis confirmed the Tribunal's findings on the genuineness of purchases, the non-applicability of Section 40A(3), and the nature of transactions as hedging rather than speculative.

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