2014 (8) TMI 874 - AT - Income Tax

Addition of bogus purchases - bills and delivery challans conclusively not proved the transactions Held that - CIT(A) has given a finding that the shortage has been worked out by the AO on the basis of various assumptions - on one hand AO has taxed additional income on account of excess stock as per Assessee s working and on the other hand held the stock found physically on the date of survey to be short in comparison to stock as per books which according to him are contradictory to each other - CIT(A) by a well-reasoned and detailed order has confirmed the purchases from Minakshi Enterprises to be bogus but the other addition made from two other parties were deleted for the reason that the 2 parties in their statement recorded u/s. 131 had confirmed the dispatch of goods as per the billing dates - Revenue has been brought any material to controvert the findings of CIT(A) the order of the CIT(A) is upheld Decided against Revenue. Addition of unexplained entry Held that - CIT(A) has noted that Assessee s claim of calculation in sales or closing stock was not backed by any evidence and the claim that the raw material worth ₹ 11,65,591/- which represents value of investment in unaccounted raw material found at the time of survey was in quantity terms included in the sale or closing stock was also not substantiated by Assessee assessee has submitted that the letter filed by the Chartered Accountant on 27.12.2003 clarifying the issue has not been considered by the AO - the matter needs to be re-examined at the end of AO the matter is to be remitted back to the AO for fresh adjudication Decided in favour of Assessee. Payments made of interest and payment to contractors TDS deposited after the prescribed due date u/s. 194 A and 194C or not - Held that - Assessee had deducted tax u/s. 194C from the payment made to Gujarat Perfect Engineers Ltd. and Varia Engineering Works and the TDS was deposited on 07.06.2005 and the return of income was filed by Assessee on 3.10.2005 and thus TDS was deposited before the filing of return - CIT vs. Praful Kantilal Shah 2014 (8) TMI 808 - GUJARAT HIGH COURT - the amendment to Section 40(a)(ia) of the Income Tax Act brought out by Finance Act, 2010 with effect from 01.04.2010 was having retrospective effect - no disallowance u/s 40(a)(ia) is called for when the Assessee had deposited TDS before filing of return of income Decided in favour of Assessee. Bogus purchases - bills procured on payment of commission Held that - CIT(A) has noted that in response to summons, M/s. Paresh Steel and Shree Bhagyalaxmi Steel had confirmed the dispatch of goods as per the billing dates - CIT(A) has noted that AO has held part of the purchases to be genuine and part of the purchases to be bogus which according to him is quite unusual - CIT(A) rightly held the purchases from Minaxi Enterprises to be bogus but the addition on account of purchases made from two other parties - the Revenue has not brought any material to controvert the findings of CIT(A) Decided against Revenue. Addition of unexplained entry Held that - CIT(A) has noted that Assessee s claim of calculation in sales or closing stock was not backed by any evidence and the claim that the raw material which represents value of investment in unaccounted raw material found at the time of survey was in quantity terms included in the sale or closing stock was also not substantiated by Assessee - assessee submitted that the letter filed by the Chartered Accountant on 27.12.2003 clarifying the issue has not been considered by the AO thus, the matter is to be remitted back to the AO for fresh consideration Decided in favour of Assessee. Value of 12 LT panels Held that - Assessee contended that the LT panels were manufactured for Sikkim Government and since they were defective it was considered as scrap and not included in stock - assessee could not produce any correspondence entered by it with Sikkim Government to demonstrate that the LT panels were scrapped on the basis of the letter from Sikkim Government - CIT(A) has also, while upholding the addition has noted that there were several inconsistencies in the Assessee s explanation and further Assessee had not produced any documentary evidence to support its contention the order of the CIT(A) is upheld Decided against Assessee.

Summary

Issues Involved:
1. Bogus Purchases
2. Unexplained Entry
3. Disallowance under Section 40(a)(ia)
4. Discrepancy in Valuation of Stock
5. Unaccounted Sale of LT Panels

Issue-wise Detailed Analysis:

1. Bogus Purchases:
The Revenue challenged the reduction of additions related to bogus purchases. The Assessee was accused of inflating purchases from three suppliers: Minaxi Enterprises, Paresh Steel, and Shree Bhagyalaxmi Steel. The Assessing Officer (A.O.) found discrepancies in the stock and consumption of raw materials, leading to the conclusion that the purchases were not genuine. The CIT(A) partially upheld the A.O.'s findings, confirming the bogus purchases from Minaxi Enterprises but deleting the additions related to the other two suppliers. The Tribunal upheld the CIT(A)'s decision, noting that the A.O.'s conclusions were based on assumptions and contradictory scenarios regarding stock discrepancies.

2. Unexplained Entry:
The A.O. added an entry of Rs. 11,65,951/- as income, which was shown as a discrepancy in the valuation of stock in the audit report. The CIT(A) upheld this addition, stating that the Assessee failed to substantiate its claim that the entry was balanced by sales or closing stock. The Tribunal remitted the matter back to the A.O. for reconsideration, allowing the Assessee to provide additional evidence and clarifications.

3. Disallowance under Section 40(a)(ia):
The A.O. disallowed payments amounting to Rs. 26,36,539/- under Section 40(a)(ia) due to late deposit of TDS. The CIT(A) granted substantial relief, reducing the disallowance to Rs. 1,50,226/-. The Tribunal further allowed the Assessee's appeal, citing the Gujarat High Court's decision that the amendment to Section 40(a)(ia) was retrospective, thereby negating the disallowance as the TDS was deposited before the filing of the return.

4. Discrepancy in Valuation of Stock:
The A.O. added Rs. 5,69,856/- as income, citing a discrepancy in the stock valuation. The CIT(A) confirmed this addition, noting that the Assessee failed to provide evidence that the discrepancy was accounted for in sales or closing stock. The Tribunal remitted the issue back to the A.O. for fresh examination, allowing the Assessee to present additional evidence.

5. Unaccounted Sale of LT Panels:
The A.O. added Rs. 27,73,962/- as unaccounted sales of LT panels. The Assessee claimed that the panels were defective and thus not included in the closing stock. The CIT(A) found inconsistencies in the Assessee's explanation and upheld the addition, albeit on different grounds, by disallowing the purchase claim from Bharat Machinery & Profile Co. The Tribunal upheld the CIT(A)'s decision, finding no reason to interfere with the well-reasoned order.

Conclusion:
The Tribunal dismissed the Revenue's appeals and partly allowed the Assessee's appeals. The issues of bogus purchases and unexplained entries were remitted back to the A.O. for fresh consideration, while the disallowance under Section 40(a)(ia) and the discrepancy in stock valuation were decided in favor of the Assessee. The addition related to unaccounted sales of LT panels was upheld.