2016 (5) TMI 363 - AT - Income Tax

Addition on account of difference in the sales price of sugar between the assessee and of another entity located in the same area - adoption of average rate of sugar sold by that entity for determining the sale value of sugar sold by the assessee - Held that - We are of the considered view that yield of any crop of one farmer cannot be compared with the yield of another farmer though adjoining to each other because it may depend on numerous factors like quality of seeds pesticides and manures used day-to day look after of the crop etc. Tax authorities are not entitled to make addition merely on ground of low yield shown by the assessee on the basis of guesswork particularly when the entire transactions as to sale purchase and crushing of sugarcane has been recorded in the books of accounts in the ordinary course of business which have been duly audited and have not been disputed by the AO. So the addition on account of yield comparability made by the AO is not sustainable in the eyes of law and CIT (A) has rightly deleted the same. Hon ble Supreme Court in judgment cited as Commissioner of Income-tax West Bengal vs. Calcutta Discount Company Ltd. reported in (1973 (4) TMI 6 - SUPREME Court ) decided the identical issue to the effect that where a trader transfers his goods to another trader at a price less than the market price and the transaction is a bona fide one the taxing authority cannot take into account the market price of those goods ignoring the real price fetched to ascertain the profit from the transaction. An assessee can so arrange his affairs as to minimize his tax burden - Decided against revenue Addition on account of interest accrued and due but not paid - AO invoked the provisions contained u/s 43B(d) - Held that - Shakkar Vishesh Nidhi State Govt. Loan and UP Cooperative Sugar Factories Federation Ltd. do not fall under the definition of financial institution so as to attract the provisions contained u/s 43B(d) by any stretch of imagination - Decided against revenue Addition on account of old creditors - Held that - Even in the remand report the AO himself admitted that he has not obtained any confirmation of the creditors from the assessee. On the face of the admitted fact that the books of account of the assessee has never been disputed by the AO and the assessee is an Uttar Pradesh Government Undertaking and all the purchases are being made against the bills making addition on the basis of surmises and conjectures is not sustainable. So finding no illegality or infirmity in the findings returned by the ld. CIT (A) deleting the addition - Decided against revenue

Summary

Issues Involved:
1. Addition of difference in sales price of sugar
2. Addition of low yield of sugar
3. Addition of interest accrued and due on loans
4. Addition of outstanding old sundry creditors

Analysis:

Issue 1 - Addition of Difference in Sales Price of Sugar:
The Assessing Officer (AO) made an addition of Rs. 2,24,90,645 on account of the difference in the sales price of sugar between the assessee and another entity. However, the Tribunal found that the AO did not consider that the average selling rate of the two entities showed only a minor variation. The Tribunal noted that the assessee's average sugar rate was slightly lower but valid reasons such as market strategy or meeting liabilities could justify this difference. The Tribunal upheld the Commissioner of Income Tax (Appeals) decision to delete this addition.

Issue 2 - Addition of Low Yield of Sugar:
The AO added Rs. 2,11,04,197 due to low yield of sugar, comparing the yield of the assessee with another entity. The Tribunal found this addition to be arbitrary, as factors affecting yield can vary significantly between farms. The Tribunal emphasized that tax authorities cannot make additions based on assumptions when the books of accounts are maintained correctly and audited. The Tribunal supported the CIT (A) in deleting this addition.

Issue 3 - Addition of Interest Accrued and Due on Loans:
The AO added Rs. 8,50,94,998 on interest accrued but not paid, invoking section 43B(d) of the Act. However, the Tribunal ruled in favor of the assessee, stating that the lenders did not fall under the definition of public financial institutions. Citing precedent cases, the Tribunal found no legal basis for the addition and upheld the CIT (A)'s decision to delete it.

Issue 4 - Addition of Outstanding Old Sundry Creditors:
The AO added Rs. 14,39,583 on outstanding old creditors, alleging non-existence of these creditors. The Tribunal criticized the AO for not conducting a proper investigation or providing the assessee with an opportunity to explain. Without confirmation letters or thorough examination, the AO's decision was deemed unjustified. The Tribunal supported the CIT (A)'s decision to delete this addition.

In conclusion, the Tribunal dismissed the revenue's appeal, upholding the CIT (A)'s decisions on all grounds. The judgment emphasized the importance of proper assessment based on factual evidence and adherence to legal provisions.