2015 (7) TMI 290 - AT - Income Tax

Bogus expenditure - commodity transactions in grey market - CIT(A) deleted the addition - Held that - CIT(A) has rightly observed that the assessee had declared a sum of ₹ 5 crores for the year under consideration. The said disclosure was on account of various discrepancies/deficiencies that may be noted in relation to claim of additions to the fixed assets in the case of M/s. Nitin Cylinders Ltd. and also to take care of other issues. So far the contention of the department that the assessee had stated the same as unaccounted income in relation to commodity transactions in grey market is concerned, it may be observed that neither any evidence in this regard was found during the course of search action nor in the investigations during assessment proceedings. The AO had made no enquiries in this respect. He has just relied upon the statement of the assessee made during search action, that in these type of transactions, no evidence generally is available. When there was no evidence found or detected nor there is any contention of the revenue that any evidence in this respect has been concealed by the assessee, then under such circumstances, it has not been explained by the Department as to what prompted the assessee to make such a declaration in respect of income from commodity transactions. It has also not been explained as to even why the AO had not made any enquiries in this respect during the assessment proceedings. The facts on the file clearly reveal that the declaration was made by the assessee in relation to discrepancies found during the search action in the case of Nitin Cylinders Ltd. The naming the disclosure as from commodity trading in the grey market was made as was then advised to the assessee. It is evident on the file that disclosure of ₹ 5.36 crores as per the return of income was to cover ₹ 3.51 crores capitalized in M/s Nitin Cylinders considered as bogus purchase and further the sum of ₹ 1.82 Crores for covering various issues as explained by the assessee in his letter dated 22.12.2009. The assessee has also claimed that the disclosure be also considered for difference in purchase of steel in M/s Nitin Cylinders Ltd. The Ld. CIT(A) though has held that the sum totally accounted for was at ₹ 4,97,00,000/-, however he has not allowed the claim of the remaining amount towards difference in purchase of steel. He has confirmed the addition of ₹ 2,66,03,042/- in relation to difference in purchase of steel as unaccounted income of the assessee. The assessee has however, not preferred any appeal in this respect. We therefore do not find any infirmity in the order of the Ld. CIT(A) in deleting the further additions made by the AO on account of bogus purchases capitalized in the account of Nitin Cylinders as the same have already been covered in the income declared of ₹ 5 crore by the assessee for the year under consideration - Decided against revenue.

Summary

Issues Involved:
1. Deletion of the addition of Rs. 3,13,38,798/- made by the AO as amount encashed by the assessee shown as bogus expenditure.
2. Whether the amount was covered by the overall disclosure of Rs. 5.36 Crores made by the assessee.
3. Determination of whether the amount should be taxed as income earned from commodity trading or as bogus expenditure.

Issue-Wise Detailed Analysis:

1. Deletion of the addition of Rs. 3,13,38,798/- made by the AO as amount encashed by the assessee shown as bogus expenditure:
The Revenue was aggrieved by the CIT(A)'s decision to delete the addition of Rs. 3,13,38,798/- from the total addition of Rs. 5,81,07,680/- made by the AO. The AO had added this amount to the income of the assessee, who was the Managing Director of Nitin Cylinders Ltd., on the grounds that the cheques issued for capital expenses were encashed by the Directors and not used for the construction of the plant. The CIT(A) deleted this addition, considering the overall disclosure made by the assessee and the fact that the amount was already included in the voluntary disclosure of Rs. 5 Crores for AY 2008-09.

2. Whether the amount was covered by the overall disclosure of Rs. 5.36 Crores made by the assessee:
During the search operation, it was discovered that certain capital expenses debited in the accounts of Nitin Cylinders Ltd. were bogus. The assessee had declared an income of Rs. 5.36 Crores, which included Rs. 3.13 Crores towards encashment of cheques by Nitin Cylinders Ltd. The CIT(A) observed that the disclosure was made to cover discrepancies in the purchase of materials and other issues within the group companies. The CIT(A) noted that the sum of Rs. 1.82 Crores was for covering various issues such as discrepancies in purchase of steel in Nitin Cylinders Ltd. and other sundry discrepancies.

3. Determination of whether the amount should be taxed as income earned from commodity trading or as bogus expenditure:
The AO contended that the amount should be taxed as income from commodity trading in the grey market, based on the statement recorded during the search. However, the CIT(A) and the Tribunal found no evidence of commodity trading in the grey market during the investigation or assessment proceedings. The Tribunal upheld the CIT(A)'s observation that the declaration of Rs. 5.36 Crores was to cover discrepancies in the purchase of fixed assets and other issues in the group companies, and not specifically from commodity trading.

Conclusion:
The Tribunal agreed with the CIT(A) that the addition of Rs. 3,13,38,798/- was covered under the voluntary disclosure of Rs. 5.36 Crores made by the assessee. The Tribunal found no merit in the Revenue's appeal and dismissed it, confirming that the declaration was made to cover discrepancies in the accounts of Nitin Cylinders Ltd. and other group companies, and not from commodity trading in the grey market. The order pronounced in the open court on 30.06.2015 dismissed the Revenue's appeal.