2015 (1) TMI 774 - AT - Income Tax

Suppression of sales - CIT(A) deleted the addition - Held that - production in the month of February was lesser as compared to the month of July and so was the consumption of electricity. Assessing Officer failed to appreciate the very basic that production could not be consistent in all months. In principle, Assessing Officer accepted the variation to reach the conclusion that monthly variation could not be in excess of 20-30%, her action of reducing the total production figure by 30% to arrive at suppressed sales is devoid of logic. In view of this, CIT(A) was justified in deleting the addition made by Assessing Officer after rejecting the books account. This reasoned factual finding of CIT(A) needs no interference. - Decided against Revenue. Understated agricultural expenses - CIT(A) restricted the addition to ₹ 13,714 out of Rs, 78,000/- - Held that - Total expenses inclusive of expenses of ₹ 8,50,305/- incurred by assessee and his brothers were worked out to ₹ 11,32,229/- resulting in net agricultural income in the hands of land owners of ₹ 19,03,972/-. The total expenditure of ₹ 11,32,229/- represented 37.29% of gross agricultural receipt of ₹ 30,26,200/-. CIT(A) held that reasonable expenses incurred on any agricultural activity would constitute 40% of total agricultural receipt. In case of assessee, the percentage was 37.29 which meant that there was still a gap of 2.71%. i.e. assessee had understated the expenditure to the extent of ₹ 82,281/-. Assessee s l/6th share worked out to ₹ 13,714/-. Accordingly, addition was limited to that extent. - Decided against Revenue. Unexplained investment u/s. 69B - CIT(A) deleted the addition - Held that - Reasoned factual finding of CIT(A) needs no interference from our side. We uphold the same because the said provision of Section 50C of the Act was not applicable at relevant point of time and provides that valuation made by Stamp Valuation Authority is to be deemed as consideration received by seller. Accordingly, order of CIT(A) on the issue is uphold. - Decided against Revenue. Unexplained cash credit - CIT(A) deleted the addition - Held that - Assessee had furnished all relevant details including confirmation letters showing complete addresses of the creditors. Instead of conducting any inquiry of his own by issuing summons etc, Assessing Officer simply chose to add the cash deposits in the bank account of creditors in the hands of the assessee. He completely ignored the fact that loans had been repaid during the year by cheques and this was evidenced by bank statements/pass books of the creditors. In other words, they no longer appeared as outstanding unexplained in the hands of assessee. In such circumstances, additions were not justified and they were rightly deleted by CIT(A). - Decided against Revenue.

Issues Involved:
1. Addition on account of suppression of sales for A.Y. 2006-07 and A.Y. 2007-08.
2. Addition on account of understated agricultural expenses for A.Y. 2006-07.
3. Addition on account of unexplained investment under Section 69B for A.Y. 2006-07.
4. Addition on account of unexplained cash credit under Section 68 for A.Y. 2007-08.

Issue-wise Detailed Analysis:

1. Addition on Account of Suppression of Sales:

For A.Y. 2006-07, the Assessing Officer (AO) observed discrepancies in the production figures of the assessee, which led to a conclusion that the book results were not reliable. The AO noted significant variations in the production per unit of electricity across different months, which were not justified by the assessee. Consequently, the AO rejected the book results under Section 145(3) of the Act and estimated the suppression of sales at Rs. 1,08,99,405/- based on the highest production month, July. The CIT(A) found the AO's approach arbitrary and logically inaccurate, noting that production could vary month-to-month. The CIT(A) deleted the addition, and this decision was upheld by the Tribunal, finding no interference needed with the reasoned factual finding of the CIT(A).

For A.Y. 2007-08, a similar issue arose where the AO added Rs. 2,88,43,616/- on account of estimated suppressed sales. The CIT(A) deleted the addition, and the Tribunal, following the reasoning applied for A.Y. 2006-07, upheld the CIT(A)'s decision.

2. Addition on Account of Understated Agricultural Expenses:

The AO made an addition of Rs. 78,000/- for A.Y. 2006-07, estimating agricultural expenses at 40% of the total agricultural receipt, whereas the assessee had shown expenses of only 19.54%. The CIT(A) found that the total expenditure represented 37.29% of the gross agricultural receipt, which was close to the 40% benchmark. The CIT(A) limited the addition to Rs. 13,714/-, corresponding to the understated expenditure. The Tribunal upheld the CIT(A)'s reasoned factual finding, noting that it was consistent with the decision in the case of Shri Dhirubhai L Narola.

3. Addition on Account of Unexplained Investment Under Section 69B:

The AO noted a difference between the sale price of bungalows purchased by the assessee and the valuation by the Stamp Valuation Authority (SVA), amounting to Rs. 2,87,570/-. The AO treated this difference as unexplained investment. The CIT(A) deleted the addition, following the decision in Bharat N Patel vs. ACIT, where it was held that Section 50C of the Act, which deems the valuation by the SVA as the consideration received by the seller, does not apply to the purchaser. The Tribunal upheld the CIT(A)'s decision, noting that the provision was not applicable at the relevant time.

4. Addition on Account of Unexplained Cash Credit Under Section 68:

For A.Y. 2007-08, the AO added Rs. 4,85,000/- as unexplained cash credits from nine creditors, focusing on cash deposits in their bank accounts. The CIT(A) deleted the addition, noting that the AO had selectively picked cash deposits while ignoring other transactions and cheques deposits. The Tribunal upheld the CIT(A)'s decision, finding that the AO did not conduct any inquiry and that the loans had been repaid by cheques during the year, making the additions unjustified.

Conclusion:

The Tribunal dismissed both appeals filed by the Revenue for A.Y. 2006-07 and A.Y. 2007-08, upholding the CIT(A)'s decisions on all issues. The judgments were pronounced in the open Court on December 31, 2014.

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