2011 (8) TMI 1335 - AT - Income Tax

Summary

Issues Involved:
1. Deletion of Gross Profit addition on unaccounted sales turnover.
2. Reliance on materials gathered during the search by the Central Excise Department.
3. Direction to adopt turnover as per the de novo order of the Central Excise Department.
4. Deletion of addition made under Section 40A(3) of the Income Tax Act.

Detailed Analysis:

1. Deletion of Gross Profit Addition on Unaccounted Sales Turnover:
The Revenue contested the deletion of Gross Profit addition of Rs. 1,69,22,954/- on unaccounted sales turnover by the Commissioner of Income Tax (Appeals) [CIT(A)]. The CIT(A) relied on the de novo order passed by the Central Excise Department in compliance with the directions of the Central Excise Appellate Tribunal (CESTAT). The Tribunal noted that the CIT(A) correctly relied on the de novo order, which found the evidence from the Central Excise Department unreliable. The Tribunal affirmed that the Assessing Officer (AO) did not conduct independent inquiries and solely relied on the show cause notice, which was not sufficient for making the addition.

2. Reliance on Materials Gathered During the Search by the Central Excise Department:
The Revenue argued that the CIT(A) erred by disregarding the evidentiary value of the materials gathered during the search by the Central Excise Department. The Tribunal observed that the CESTAT had already found the evidence unreliable, and the AO did not conduct any independent verification. The Tribunal emphasized that findings from another department cannot be incorporated without independent inquiry, as per the Madras High Court's decision in CIT vs. Vignesh Kumar Jewellers (222 CTR 79).

3. Direction to Adopt Turnover as per the De Novo Order of the Central Excise Department:
The CIT(A) directed the AO to adopt the turnover as per the de novo order of the Central Excise Department. The Tribunal upheld this direction, noting that the turnover determined by the Central Excise Department should be treated as unaccounted turnover for the respective years. The Tribunal affirmed the CIT(A)'s approach of determining the Gross Profit on this turnover and adding it to the returned income, deducting power and labor charges accordingly.

4. Deletion of Addition Made Under Section 40A(3) of the Income Tax Act:
The Revenue challenged the deletion of the addition made under Section 40A(3) for estimated unaccounted purchases. The Tribunal noted that the quantum of purchases was based on the unreliable show cause notice. Citing the Madras High Court's decision in CIT vs. Mohammed Dhurabudeen (4 DTR 218), the Tribunal held that when income is computed by applying the Gross Profit rate, there is no need to scrutinize the purchases separately under Section 40A(3). Consequently, the Tribunal affirmed the CIT(A)'s deletion of the disallowance under Section 40A(3).

Conclusion:
The Tribunal dismissed all four appeals of the Revenue, affirming the CIT(A)'s findings. The Tribunal concluded that the additions made by the AO, based on unreliable evidence from the Central Excise Department, could not be sustained. The Tribunal upheld the CIT(A)'s reliance on the de novo order and the deletion of additions under Section 40A(3). The Tribunal emphasized the necessity of independent inquiries by the AO and the inadmissibility of relying solely on findings from another department without corroborative evidence.