2017 (4) TMI 914 - AT - Income Tax

Unaccounted production and scrap out of alleged undisclosed imports - Held that - The actual imports, as verified from the bills of entry produced by the assessee were reproduced in the impugned order in the tabulation form. Therefore, it was found that the actual shortage out of tin imported on the basis of licenses issued for 8118.706 MT works out to only 2.754 MT, which is undoubtedly negligible. The difference of 59.025 MT earlier arrived at is mainly relatable to the import of 20.620 MT on license no. 3079530, and of 36.847 MT on 11.09.1991 on license No. 2240176. After considering the import in 1991-92 of 57.467 MT, the figure of total import between Assessment Year 1984-85 and 1989-90 comes to 8058.283 MT, which is marginally less than the quantity of 8059.975 MT recorded in the appellant s books of accounts. The combined import of a total quantity of 8115.772 MT on the basis of licenses issued between 16.07.1984 and 17.12.1987, is supported by the bills of entry, as well as the order of the Addl. DG of Foreign Trade dated 20.10.1994. Therefore, the addition made of unaccounted production and scrap out of alleged undisclosed imports, entirely on the basis of the seized Form A, was accordingly found to be without basis, and was rightly deleted by the Ld. CIT(A), which does not need any interference on our part, hence, we uphold the order of the Ld. CIT(A) on the issues in dispute and accordingly, we dismiss the ground nos. (i) & (ii) raised by the Revenue. Addition on account of interest relatable to interest free advance - Held that - the asssessee has shown that as against the interest free advance of ₹ 7,05,000/- to Shri Ravi Goyal, the balance sheet shows a credit balance of ₹ 3,00,000/- in the name of Shri Ravi Goyal. Hence, the interest free advance is only ₹ 4,05,000/-, which is out of capital of ₹ 6,53,883/- as well as internal accrual. The balance sheet indicates that the assessee had sufficient funds from which the interest free advance could have been advanced. The Assessing Officer has not proven the utilization of the interest bearing funds in making the interest free advances. In the body of the order, the disallowance of interest is stated to be as discussed in Assessment Year 1993-94 at page No. 14 to 15. Hence, the observation of the Assessing Officer cannot be said to be based on facts or on verification of the utilization of borrowed funds. No disallowance of interest paid to the bank is justified without rebuttal of the assessee s contention that the advances had been given from his own capital and internally generated funds. Hence, the addition made of ₹ 84,600/- on this account was rightly deleted, which does not need any interference on our part, hence, we uphold the order of the Ld. CIT(A) - Decided against revenue

Summary

Issues Involved:
1. Deletion of addition on account of Gross Profit (GP) rate applied on suppressed production.
2. Deletion of addition on account of scrap value.
3. Deletion of addition on account of interest related to interest-free advance.

Detailed Analysis:

1. Deletion of Addition on Account of GP Rate Applied on Suppressed Production:
The Revenue challenged the deletion of an addition of ?1,24,42,758/- based on a GP rate of 22.92% applied to suppressed production of ?5,63,22,462/- as per seized Form A. The Assessing Officer (AO) had estimated the suppressed production value from imported tin sheets consumed, using details from Form A submitted to the Jt. Chief Controller of Imports and Exports, seized during a search by the Central Excise Department. The CIT(A) found that the assessment was based solely on figures in Form A, unsupported by any other evidence of higher import, purchase, or production than recorded in the books. The DGFT verified the actual import quantity, which was significantly lower than the figures in Form A. The ITAT upheld the CIT(A)’s decision, noting that no evidence of unrecorded purchases or production was found during subsequent searches, and the figures in Form A were inflated to obtain higher import licenses. Thus, the addition was deemed without basis and deleted.

2. Deletion of Addition on Account of Scrap Value:
The AO had made a separate addition of ?11,00,064/- for the value of scrap at 8% of the total consumption of raw material as per the seized Form A. The CIT(A) and ITAT found that the addition was based on the same unsupported figures in Form A. The actual import quantities verified from DGFT records and the appellant’s books did not substantiate the alleged excess production and scrap. The ITAT upheld the CIT(A)’s deletion of the addition, finding no material evidence to support the AO’s claim.

3. Deletion of Addition on Account of Interest Related to Interest-Free Advance:
The AO had added ?84,600/- on account of deemed interest on advances given to an individual, arguing that the borrowed funds from the Bank of Maharashtra were used for non-interest bearing advances. The CIT(A) found that the interest-free advance was financed from the appellant’s capital and internal accruals, not borrowed funds. The balance sheet showed sufficient funds to cover the advance, and the AO could not prove the utilization of interest-bearing funds for the advance. The ITAT upheld the CIT(A)’s decision, referencing similar findings in previous assessment years and noting that no disallowance of interest was justified without rebutting the appellant’s contention.

Conclusion:
The ITAT dismissed all five appeals filed by the Revenue, upholding the CIT(A)’s decisions to delete the additions on account of GP rate applied on suppressed production, scrap value, and interest related to interest-free advance. The tribunal found that the AO’s assessments were based on unsupported figures in Form A, without material evidence of higher import, purchase, or production than recorded in the books. The decisions were consistent with findings in previous assessment years and supported by verified import quantities from DGFT records.