2014 (7) TMI 1248 - HC - Income Tax

Addition on unexplained sales - Held that - The Tribunal while adjudicating the issue against the assessee had noticed in its order dated 30.8.2013, Annexure A.3 that the dispute was relating to three sales bills amounting to ₹ 37,30,300/- under which alleged cash sales were made. There was no mention of any quantity sold. The name of the parties to whom the goods were sold was also missing. There was totalling errors in each bill and the mode of transportation of those goods also could not be explained by the assessee. On consideration of entire material on record, it was concluded that the genuineness of the transaction could not be established. The Tribunal was, thus, justified in sustaining the addition of ₹ 37,30,300/- as unexplained sales. Disallowance of expenditure under Section 40(a)(ia) of the Act and part disallowance out of car expenses, car depreciation and telephone expenses - Held that - Where the respondent is aggrieved against any disallowance or addition sustained by the CIT(A) which is not under challenge at the behest of the appellant, the only remedy available with the respondent is to either file separate appeal or agitate the issue by way of cross objections in the appeal filed by the appellant impugning the disallowance or the addition sustained. Thus, no error could be pointed out by learned counsel for the respondent-assessee in the approach of the Tribunal which may warrant interference by this Court under Section 260A of the Act. The Tribunal had rightly not allowed the assessee to urge relating to disallowance of expenditure under Section 40(a)(ia) of the Act and part disallowance out of car expenses, car depreciation and telephone expenses. No substantial question of law arises. - Decided against assessee.

Issues Involved:
1. Addition of Rs. 37,30,300/- as unexplained sales.
2. Applicability of Rule 27 of the ITAT Rules, 1963.

Issue-Wise Detailed Analysis:

1. Addition of Rs. 37,30,300/- as Unexplained Sales:

The appellant-assessee, a partnership firm engaged in the manufacturing and sale of knitted cloth, filed its return of income for the assessment year 2005-06 declaring a loss of Rs. 22,06,350/-. The premises were subjected to search and seizure by the Income Tax department, leading to certain additions by the Assessing Officer (AO) after rejecting the books of account under Section 145(3) of the Act. Among these additions was Rs. 37,30,300/-, attributed to cash sales made in lots per three sale bills to unidentifiable parties. The AO concluded that these transactions could not be verified due to the absence of details such as the quantity sold, the names of the parties, and the mode of transportation. The CIT(A) deleted this addition, accepting the assessee's contention that deteriorated stocks were sold in lots to realize blocked funds. However, the Tribunal reversed this decision, sustaining the addition as unexplained sales. The Tribunal noted discrepancies in the sales bills, errors in totaling, and lack of evidence for transportation of goods, concluding that the genuineness of the transactions could not be established. The Tribunal observed:

"The Assessing Officer had also sought information from the State Excise and Taxation department and as per the said information, the assessee had declared sales of Rs. 1,96,07,007/-. The said information received by the AO was prior to the filing of the return of income by the assessee. AO noted that in the trading account accompanying thereto, the assessee had declared sales of Rs. 2.78 crores though in the sales tax return, total sales declared were Rs. 1.96 crores. The explanation of the assessee to the show cause notice was that the difference in sales was attributable to the sales made in lots vide 14 lot Sale Bill Nos.1 - Lot Sale to 14 - Lot Sale in April 2004, amounting to Rs. 1,01,26,294/-, majority of which were not declared in the original sales tax return through oversight."

The Tribunal's detailed scrutiny revealed inconsistencies and lack of supporting evidence, leading to the conclusion that the addition of Rs. 37,30,300/- as unexplained sales was justified.

2. Applicability of Rule 27 of the ITAT Rules, 1963:

The appellant-assessee invoked Rule 27 of the ITAT Rules to challenge the disallowance of expenditure amounting to Rs. 6,90,462/- under Section 40(a)(ia) and part disallowance out of car expenses, car depreciation, and telephone expenses. Rule 27 allows a respondent to support the order appealed against on any grounds decided against them. However, the Tribunal held that Rule 27 cannot be used to claim fresh relief denied by the CIT(A) and not part of the grounds raised by the appellant. The Tribunal stated:

"The respondent by way of the said Rule 27 is empowered to support the order appealed against any of the ground decided against him. Rule 27 of the Income Tax Appellate Tribunal Rules lays down that where no appeal has been filed by any respondent he may support the order appealed against i.e. the order of the CIT(Appeals) on any of the grounds decided against him. The proposition proposed under Rule 27 of the Income Tax Appellate Tribunal Rules is that the respondent can raise defense against the appeal filed by the appellant on any of the grounds which have been decided against him but under the said provisions of the Act, it is not open to the respondent to claim any fresh relief which was denied to him by the CIT (Appeals) and which is not part of the ground so raised by the Revenue."

The Tribunal's interpretation of Rule 27 was upheld, emphasizing that the respondent cannot claim new reliefs not part of the original grounds of appeal. The Tribunal's decision to dismiss the application under Rule 27 was found to be in accordance with the legal provisions, and no substantial question of law arose from this issue.

Conclusion:

The appeal was dismissed, affirming the Tribunal's decision to sustain the addition of Rs. 37,30,300/- as unexplained sales and its interpretation of Rule 27 of the ITAT Rules, 1963. The Tribunal's findings were based on detailed scrutiny and consistent with legal provisions, warranting no interference by the High Court under Section 260A of the Income Tax Act.

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