2014 (2) TMI 1373 - HC - Income Tax

Bogus purchases u/s 69C - HELD THAT - In the present case, though it may appear that the purchases have been shown to have been made through M/s. Vishal Traders but supplied by some other agency, in absence of other additional facts noted by this Court in case of Sanjay Oilcake Industries 2008 (3) TMI 323 - GUJARAT HIGH COURT gross ad hoc addition of 25% may not be justified. In the present case, the assessee could produce before the authorities the precise rate at which the purchases were made from M/s. Vishal Traders and other suppliers to demonstrate that the purchases made on the same day carried the same price. This would substantially eliminate the angle of the purchase price being artificially inflated. Additionally, the Tribunal also noted other parameters such as higher net and gross profit rates of the present year compared to the earlier years of the recent past - no question of law arises Purchases from an unregistered dealer M/s. Amber Trading Company - A.O of the firm M/s. Amber Trading Company treated the URD purchases of M/s. Amber Trading Company as genuine. Once, the URD purchases of M/s. Amber Trading Company is accepted as genuine by the A.O of that party, the disallowance made by the A.O in this regard cannot be sustained because it has no legs to stand. Accordingly, we decide this aspect of the matter in favour of the assessee. Treating the loss suffered by the assessee as speculation loss - HELD THAT - Tribunal concurrently, on the basis of evidence on record, held that it was a case of hedging transaction and not one of speculation loss. Such being pure question of fact and the Tribunal's decision not being shown to be per verse, such question is also not required to be considered. Appeal admitted for consideration - Whether the Appellate Tribunal has substantially erred in upholding the order of the CIT(A) in deleting addition made by the Assessing Officer on account of unutilized CENVAT/MODVAT credit?

Summary

Issues Involved:
1. Addition of purchases made by the assessee from M/s. Vishal Traders.
2. Disallowance of purchases made by the assessee through M/s. Amber Trading Company.
3. Treatment of speculation loss by the Assessing Officer.
4. Deletion of addition on account of unutilized CENVAT/MODVAT credit.

Issue 1 - Addition of Purchases from M/s. Vishal Traders:
The Assessing Officer added the entire amount of purchases made from M/s. Vishal Traders to the total income of the assessee, suspecting the purchases to be bogus. The CIT(A) partially upheld the addition by taxing 25% of the amount. However, the Tribunal reduced the addition to 5% after considering various factors such as the GP rate, profit rate, and contradictions in statements. The High Court upheld the Tribunal's decision, emphasizing that the purchases were supported by evidence, and the 5% addition was justified based on the material presented.

Issue 2 - Disallowance of Purchases from M/s. Amber Trading Company:
The Assessing Officer disallowed purchases made through M/s. Amber Trading Company due to its dealings with an unregistered dealer. However, both the CIT(A) and the Tribunal found the purchases genuine as the Assessing Officer of M/s. Amber Trading Company accepted the transactions as legitimate. The High Court upheld the Tribunal's decision, stating that once the purchases were deemed genuine by the supplier's Assessing Officer, the disallowance by the assessee's Assessing Officer had no basis.

Issue 3 - Treatment of Speculation Loss:
The Assessing Officer treated a loss as speculation loss, but both the CIT(A) and the Tribunal concluded it was a hedging transaction based on the evidence. The High Court found no perversity in the Tribunal's decision and deemed it a factual matter not necessitating further consideration.

Issue 4 - Unutilized CENVAT/MODVAT Credit:
The Assessing Officer made an addition for unutilized CENVAT/MODVAT credit, which was deleted by the CIT(A) and upheld by the Tribunal. The High Court admitted this issue for consideration as it was being examined in other tax appeals, indicating a need for further review.

In conclusion, the High Court dismissed the Tax Appeal on most issues, upholding the Tribunal's decisions on the genuineness of purchases and the treatment of losses. However, the issue concerning unutilized CENVAT/MODVAT credit was admitted for further examination due to its relevance in other appeals.