2017 (10) TMI 1501 - HC - Income Tax

Accrual of income - Addition on account of suppression of scrap sales - HELD THAT - In the present case, no real income accrued to the appellant or was received by it during the year under reference4 simple because it did not recover or realize the same. As evident from the examination of the vendor M/s Noble Industries by the AO during remand proceedings, it had not returned the scrap to the appellant. On the contract undertaken as sub-contracted to sub vendors and there was no evidence on the record to suggest that these sub-vendors had ever returned the scrap to the alleged vendor or the appellant itself. The appellant had provided complete names addresses of these sub-vendors along with their PANs to the AO. Accordingly no adverse inference could have drawn against the appellant merely on surmises. There was no real income which could be brought to tax in the hands of the appellant on accrual basis or receipt basis. In view of above facts, direct the AO to delete the addition - Decided in favour of assessee.

Summary

Issues Involved:
1. Justification of ITAT's decision in confirming the CIT(A)'s order deleting additions on account of suppression of scrap sales.
2. Justification of ITAT's decision in deleting additions on account of concealed sales without sufficient evidence.
3. Justification of ITAT's decision in deleting trading additions made by the Assessing Officer after rejection of books of accounts.
4. Justification of ITAT's decision in deleting additions on account of excise duty paid on un-returnable scrap.

Detailed Analysis:

Issue 1: Suppression of Scrap Sales
The appellant challenged the Tribunal's decision confirming the CIT(A)'s order, which deleted the additions made by the Assessing Officer (AO) for suppression of scrap sales amounting to ?1,10,49,086. The AO had assessed this income based on the excise duty paid on scrap, which was not reflected in the return. The AO argued that it was improbable for the assessee to allow vendors to keep the scrap on which excise duty was paid. However, the CIT(A) observed that the scrap was not returnable by the vendors, and the excise duty was paid on a notional value. The CIT(A) also noted that there was no evidence of the scrap being sold outside the books of account, and thus, the addition was unwarranted. The Tribunal upheld this view, and the High Court found no perversity in these findings, answering the issue in favor of the assessee.

Issue 2: Concealed Sales
The appellant contended that the Tribunal erred in deleting the addition of ?2,33,96,017 on account of concealed sales. The AO had made this addition based on discrepancies in the excise return (ER-1) and the sales figures. The CIT(A) found that the AO had made double additions by including the same amount under different heads. The CIT(A) also accepted the assessee's reconciliation statement and supporting documents, which explained the rate differences and short receipts. The Tribunal confirmed the CIT(A)'s findings, and the High Court agreed, noting that the AO's rejection of the assessee's claims was not substantiated by evidence. Thus, this issue was also resolved in favor of the assessee.

Issue 3: Trading Additions After Rejection of Books of Accounts
The appellant questioned the Tribunal's decision to delete the trading addition of ?93,94,856 made by the AO after rejecting the books of accounts under Section 143(3). The AO had rejected the books based on discrepancies in the scrap sales and excise duty payments. However, the CIT(A) found that the AO's conclusions were based on presumptions without concrete evidence. The CIT(A) noted that the scrap was not returned by the vendors, and the excise duty was paid on a notional value. The Tribunal upheld the CIT(A)'s decision, and the High Court found no legal error in these findings, thus siding with the assessee on this issue.

Issue 4: Excise Duty on Un-returnable Scrap
The appellant argued that the Tribunal wrongly deleted the addition of ?63,82,690 made by the AO on account of excise duty paid on un-returnable scrap. The AO had added this amount, presuming that the scrap should have been returned and sold by the assessee. The CIT(A) clarified that the excise duty was paid on a notional value and that there was no evidence of the scrap being sold outside the books. The Tribunal agreed with the CIT(A), and the High Court found no perversity in this conclusion, thereby ruling in favor of the assessee on this issue as well.

Conclusion:
The High Court, after considering the observations made by both the CIT(A) and the Tribunal, concluded that the issues were resolved in favor of the assessee and against the department. Consequently, all the appeals were dismissed.