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2016 (9) TMI 1144 - AT - Income TaxDeduction u/s 80IC - allegation that sales have been inflated in order to claim deduction u/s 80IC of the Act - Held that - A.O held that the assessee has not been able to explain the source of cash deposits in his bank account of ₹ 7,77,86,000/- and he added the same u/s 68 of the Act as unexplained and consequently, he dismissed claim of deduction u/ 80IC of the Act on this amount i.e. ₹ 7,77,86,000/-. Since by the earlier part of the order we have held that the rejection of books of accounts was not in accordance with the provisions of section 145(3) of the Act, thus the impugned cash sales cannot be treated as income from other sources and deduction u/s 80IC of the Act cannot be denied on the amount of such cash sales. However, we cannot ignore that the A.O had no occasion to examine the details and documents filed by the assessee. Consequently, the action of the A.O in rejecting the books of accounts and treating cash sales as income from other sources and denying deduction u/s 80IC of the Act is set aside and the A.O is directed to examine and verify the claim of the assessee regarding cash sales, for deduction u/s 80IC of the Act. We also direct the A.O to verify and examine the cash sales in the light of commercial tax payment, raw material consumed and stock register verification, if any, after considering the submissions of the assessee and after providing due opportunity of hearing for the assessee. - Decided in favour of assessee for statistical purposes. Addition u/s 68 in respect of cash sales proceeds deposited in the bank account - Held that - We observe that the authorities below categorically noted that the assessee did not submit copy of bank statement with HDFC Bank with which the impugned proceeds of cash sales was deposited. Per contra, it is contended by the ld. Counsel of the assessee that the assessee submitted all relevant documents including copy of the bank statement with HDFC bank during assessment proceedings. Further move the impugned cash sales can be verified from the respective purchasers and other related offices including the commercial tax deptt. The disallowance of cash sales and not treating the amount 2% of total sales as income from eligible unit have been made without considering the entire relevant evidence and explanation of the assessee and the issue of cash sales detailed verification and examination of all related documentary and circumstantial evidence. The AO shall also consider the percentage of the consumption of fuel and raw materials in proposition to finished goods and will also take into consideration the percentage of gross profit ratio of other similar unit, if any, in the similar factual conditions. We may point out that without considering the relevant evidence, details and explanation alongwith earlier and subsequent year financial results and GP ratio of the assessee and similar unit in similar location the Aon cannot make disallowance and addition and it is also on the assessee to justify and explain the situations wherein huge cash sales was made and cash was deposited to bank account which is 40 KM away from the office of the assessee. The assessee may also submit all other relevant details pertaining to transportation, commercial tax payment and purchasers to establish its claim of cash sales. With there observations issue restored to the file of the AO for de novo adjudication. No disallowance u/s 14A of the Act read with Rule 8D of the Income Tax Rules, 1962 can be made for A.Y 2008-09 and addition made by the AO in this regard is not sustainable and consequently we dismiss the same
Issues Involved:
1. Legality and jurisdiction of assessment and additions/disallowances made by the Assessing Officer (AO). 2. Rejection of books of accounts by AO. 3. Treatment of cash sales as income from other sources and denial of deduction under Section 80IC. 4. Addition under Section 68 in respect of cash sales proceeds deposited in the bank account. 5. Directions to verify sales in earlier assessment years. 6. Disallowance under Section 14A read with Rule 8D. Issue-wise Detailed Analysis: 1. Legality and Jurisdiction of Assessment and Additions/Disallowances: The assessee contended that the assessment made under Section 143(3) and subsequent additions/disallowances by the AO were illegal, bad in law, and without jurisdiction. The CIT(A) upheld the AO's action, which the assessee argued was against CBDT instructions and beyond the AO's jurisdiction. The Tribunal noted that the AO made additions based on incorrect facts and without proper legal basis, thus setting aside the conclusions of the authorities below and remanding the issue back to the AO for fresh adjudication after allowing the assessee an opportunity to be heard. 2. Rejection of Books of Accounts by AO: The AO rejected the books of accounts without issuing a show cause notice or pointing out specific errors, which the assessee argued was illegal. The Tribunal observed that the AO did not follow the due procedure mandated by Section 145(3) of the Income-tax Act and did not provide the assessee an opportunity to explain. Consequently, the Tribunal set aside the rejection of books of accounts and remanded the issue to the AO for fresh adjudication. 3. Treatment of Cash Sales as Income from Other Sources and Denial of Deduction under Section 80IC: The AO treated cash sales as income from other sources and denied deduction under Section 80IC, alleging that sales were inflated to claim the deduction. The Tribunal noted that cash sales were a regular practice of the assessee and accepted in earlier and subsequent years. The Tribunal held that the disallowance based on incorrect facts was unsustainable and remanded the issue to the AO for fresh consideration, directing the AO to verify the cash sales in light of commercial tax payments, raw material consumption, and stock registers. 4. Addition under Section 68 in Respect of Cash Sales Proceeds Deposited in the Bank Account: The AO added ?7,77,86,000 under Section 68, treating cash sales proceeds deposited in the bank as unexplained. The Tribunal found that the AO did not properly examine the bank statement and other relevant documents. The Tribunal remanded the issue to the AO for de novo adjudication, directing the AO to verify the cash sales and related evidence. 5. Directions to Verify Sales in Earlier Assessment Years: The CIT(A) directed the AO to verify the genuineness of sales made in earlier assessment years, which the assessee argued was beyond jurisdiction. The Tribunal did not specifically address this issue separately but implied that all related issues should be reconsidered by the AO in light of the fresh adjudication. 6. Disallowance under Section 14A Read with Rule 8D: The AO disallowed ?6,08,143 under Section 14A read with Rule 8D, which the assessee contested, arguing that no exempt income was earned during the relevant period. The Tribunal referred to the Delhi High Court's decision in Cheminvest Ltd. v. CIT-IV, which held that Section 14A does not apply if no exempt income is received or receivable during the relevant year. The Tribunal concluded that the disallowance was not sustainable and allowed the assessee's grounds on this issue. Conclusion: The Tribunal partly allowed the appeal, remanding several issues back to the AO for fresh adjudication and allowing the assessee's grounds related to disallowance under Section 14A. The Tribunal emphasized the need for proper verification and examination of evidence by the AO, ensuring due opportunity of hearing for the assessee.
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