2015 (5) TMI 76 - HC - Income Tax

Addition under Section 41(1) - CIT(A) restricted the addition also confirmed by ITAT - Held that - What is apparent is that the AO based its conclusion on the basis of a narrow premise i.e. lack of response by the three parties i.e. M/s A.L. Metal & Methods Pvt. Ltd., M/s Laxmi Enterprises and M/s Komal Forging. The CIT (Appeals) noticed the inherent contradiction in the AO s action - on the one hand, accepting the higher GP Rate, which in turn was based upon the total turnover of the assessee, while on the other disallowed the entire amount of purchases from the three parties and not only with respect to the amount outstanding. Thus the CIT (Appeals) was justified restricting the addition to ₹ 28,87,305/- in the facts of the case, since that was the amount indicated as outstanding as on 31.03.2003. No substantial question of law arises. - Decided against revenue.

Summary

Issues:
Revenue's appeal against ITAT's order restricting addition under Section 41(1) of the Income Tax Act, 1961 for AY 2003-04.

Analysis:
1. The Revenue challenged the ITAT's decision confirming the Appellate Commissioner's order limiting the addition under Section 41(1) of the Income Tax Act, 1961 to a specific amount for the AY 2003-04.
2. The assessee was involved in manufacturing and selling engineering goods to government agencies like Indian Railways. The Assessing Officer (AO) conducted inquiries regarding purchases made by the assessee from three parties who did not respond. The AO disallowed a substantial amount as unverifiable due to lack of response from these parties.
3. On appeal, the CIT(Appeals) granted partial relief to the assessee, considering the higher GP Rate declared by the assessee and the lack of response from the three parties. The addition under Section 41(1) was restricted to a specific amount based on outstanding liabilities to the three parties.
4. The ITAT upheld the CIT(Appeals) decision.
5. The Revenue contended that since the suppliers did not confirm the purchases despite notices, the assessee failed to establish their identity, justifying the disallowance of the entire amount.
6. The High Court observed that the AO's conclusion was based solely on the lack of response from the three parties. The CIT(Appeals) rightly restricted the addition based on the outstanding amount as of a specific date, considering the higher GP Rate accepted by the AO.
7. The High Court found no fault in the CIT(Appeals) and ITAT's interpretation of the law. It concluded that no substantial question of law arose, leading to the dismissal of the appeal.

This detailed analysis highlights the key arguments, decisions, and reasoning behind the judgment, addressing the issues raised in the Revenue's appeal regarding the addition under Section 41(1) of the Income Tax Act for the relevant assessment year.