2016 (8) TMI 1432 - AT - Income Tax

Addition on account of bogus creditors - non-production of books of account at the time of assessment proceedings - HELD THAT - The assessee has discharged its onus in respect of credit and the Assessing Officer has not raised any doubt in respect of the purchase from the said creditor. The identity of the said party has also been verified. The assessee has submitted the explanation for the inconsistency appearing in the ledger accounts of the parties in their respective books of account. If the Assessing Officer was not satisfied, he should have carried out further enquiries from M/s. Triveni Engineering and Industries Ltd. or from M/s. Bindal Papers Ltd., which he did not. According to us, the assessee cannot not be allowed to suffer because of no action taken on the part of the Assessing Officer for verification. In our view, the assessee has submitted evidences necessary to shift the onus to the Revenue and, therefore, no addition is warranted in the case of the assessee for unexplained credit. In view of above, we hold that the learned Commissioner of Income Tax (Appeals) has passed a reasoned order on the issue in dispute and there is no infirmity in his findings on the issue in dispute. Accordingly, this ground of appeal is dismissed. Addition of increase in chemical expenses - HELD THAT - Assessing Officer has neither been able to point out any discrepancy in the bills vouchers etc maintained by the assessee in respect of the expense as also not been able to find out any discrepancy in the records of consumption of the chemicals maintained as per the Central excise rules. The assessee has duly explained the reason for increase in consumption alongwith evidences of increase in cost of chemicals, changed method of production etc. In such circumstances, in our opinion, the ad hoc disallowances cannot be sustained. In view of the above discussion, we hold that order of the Ld. Commissioner of Income-tax (Appeals) on the issue in dispute is well reasoned and no further interference is required from our side, accordingly we confirm the finding of the learned Commissioner of Income-tax (Appeals) on the issue in dispute. The ground of the appeal is dismissed. Estimating the sale of scraps - AO estimated the sale of the scrap at the rate of 2% on the consumption of stores and spares - HELD THAT - We find that the addition in reference was made without pointing out any discrepancy in bills and vouchers and consumption of stores and spares. Further, the Revenue has not been able to substantiate before us with the annual results of M/s. Ganga Kisan Sahakari Chini Mills Ltd. for assessment year 2008-09 that its result are comparable with the result of the assessee and in absence of which, the rate of scrap estimated in that case, cannot be applied over the case of the assessee. In our view, the estimate of sale of scrap upheld by the Commissioner of Income-tax (Appeals) is reasonable and no further interference on our part is required. Accordingly we uphold the finding of the Commissioner of Income-tax (Appeals) on the issue in dispute. The ground of the appeal is dismissed.

Summary

Issues Involved:
1. Deletion of addition on account of bogus creditors.
2. Deletion of disallowance on account of increase in chemical expenses.
3. Relief granted in estimating the sale of scrap.

Issue-wise Detailed Analysis:

1. Deletion of Addition on Account of Bogus Creditors:
The Revenue challenged the deletion of an addition of ?95,65,382/- made for bogus credits. The Assessing Officer (AO) had added this amount due to discrepancies between the assessee's books and the creditor's (M/s. Triveni Engineering and Industries Ltd.) books. The AO noted a nil balance in the creditor's books against a credit balance in the assessee's books. The assessee explained that the discrepancy arose because the creditor adjusted an advance from a sister concern, M/s. Bindal Papers Ltd., and later received payment from the assessee, which was confirmed by an email from the creditor. The Commissioner of Income Tax (Appeals) [CIT(A)] accepted the explanation and deleted the addition, noting that the AO did not pursue further verification. The Tribunal upheld the CIT(A)'s decision, stating that the assessee had discharged its onus and the AO's inaction could not penalize the assessee.

2. Deletion of Disallowance on Account of Increase in Chemical Expenses:
The Revenue contested the deletion of a disallowance of ?53,49,958/- made due to an increase in chemical expenses. The AO disallowed 10% of the total chemical expenses, citing that the increase was disproportionate to the production increase. The assessee argued that the books were with its bankers during the assessment, but later provided detailed explanations and evidence, including audited books, excise records, and invoices, to the CIT(A). The CIT(A) found no discrepancies in the records and accepted the assessee's explanation for the increased expenses due to higher production and chemical costs. The Tribunal confirmed the CIT(A)'s decision, noting that the AO had not found any discrepancies and the disallowance was arbitrary.

3. Relief Granted in Estimating the Sale of Scrap:
The Revenue appealed against the CIT(A)'s decision to reduce the estimated sale of scrap from 2% to 1% of the consumption of stores and spares. The AO had estimated the sale of scrap at 2%, resulting in an addition of ?3,12,457/-. The CIT(A) reduced this estimate to 1%, citing lack of evidence or comparable cases to support the AO's estimate. The Tribunal upheld the CIT(A)'s decision, noting that the Revenue failed to provide comparable data from another case (M/s. Ganga Kisan Sahakari Chini Mills Ltd.) to justify the 2% estimate. The Tribunal found the 1% estimate reasonable and dismissed the Revenue's appeal.

Conclusion:
The Tribunal dismissed the Revenue's appeal, upholding the CIT(A)'s decisions on all three issues. The Tribunal found that the assessee had provided sufficient evidence and explanations, and the AO's additions and disallowances were not justified. The decision was pronounced in open court on 16th August, 2016.