2017 (5) TMI 989 - HC - Income Tax

Unaccounted investments - investment in the stock relating to undisclosed sales - Held that - Yearly production reveals that on an average 68 MT of production is being made by the appellant daily. If we translate the quantity of undisclosed sales of 1570 tons, it gives an average of 23 days of production cycle/stock. The undisclosed sales of ₹ 6.11 crore is for a period of 91 days (January to March 2008). Accordingly, the investment in the stock relating to undisclosed sales comes to ₹ 1,54,51,743/(Rs.6.11 crore x 23 days/91 days). Therefore, the addition of ₹ 2 crore made by the AO is restricted to ₹ 1,54,51,743/-. Thus, the appellant gets a relief of ₹ 45,48,257/- by CIT-A When the matter travelled up to the ITAT it decided to give further relief to the Assessee beyond what was given by the CIT (A). The production cycle was reduced from 23 days to an average of 15 days resulting in more relief being granted to the Assessee. The Court is certainly not inclined to grant any further relief to the Assessee as the basis on which the CIT (A) proceeded to arrive at the conclusion, as extracted hereinbefore, was rational and could not be said to be based on surmises and conjectures. No substantial question of law arises from the impugned order of the ITAT.

Summary

Issues:
- Appeal against ITAT order on unaccounted investments made by AO
- Calculation of investment in unaccounted purchases based on production cycle
- CIT (A) and ITAT's decisions on relief for Assessee
- Assessment of reasonableness of CIT (A)'s estimate
- Further relief granted by ITAT beyond CIT (A)'s decision
- Consideration of substantial question of law

Analysis:
1. The appeal in this case revolves around challenging the order of the Income Tax Appellate Tribunal (ITAT) regarding additions made by the Assessing Officer (AO) on account of unaccounted investments. The Assessee contests the decisions made at various stages of the proceedings, alleging conjectures and surmises in granting relief.

2. The primary issue concerns the calculation of the investment in unaccounted purchases, specifically focusing on the production cycle. The Assessee argues that the AO's presumptions lacked a proper basis, especially considering the continuous manufacturing process and the time required to restore production if interrupted.

3. The Assessee's case emphasizes the discrepancy in the calculation of stock investment by the CIT (A), which was based on past production figures for three assessment years. While the Assessee's counsel criticized the CIT (A) for proceeding on an estimate, the Court found the estimate reasonable and grounded in the Assessee's historical production data.

4. Notably, the ITAT provided additional relief to the Assessee by further reducing the production cycle days from 23 to 15, leading to a more favorable outcome for the Assessee. However, the Court, upon review, declined to grant any further relief, affirming the rationality of the CIT (A)'s decision-making process.

5. The Court ultimately dismissed the appeal, stating that no substantial question of law arose from the ITAT's order. The judgment underscores the importance of a reasoned and substantiated approach in assessing tax-related matters, emphasizing the significance of historical data and reasonable estimates in decision-making processes within the realm of income tax assessments.