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2018 (8) TMI 670 - AT - Income TaxAdditions on account of expenses for low recovery of chromium - AO observed that, an arrangement was made with the assessee company to reduce its taxable income - Held that - The Assessing Officer has doubted the deduction claimed on the ground that the assessee is a sister concern of Tata Steel Limited and according to him, the agreement entered into with the assessee company was a ploy to reduce the income of the assessee. It is trite law that suspicion howsoever grave cannot takes place of proof. The Hon ble Supreme Court in 1954 (10) TMI 12 - SUPREME COURT has held that As regards the second contention, we are in entire agreement with the learned Solicitor-General when he says that the Income Tax Officer is not fettered by technical rules of evidence and pleadings, and that he is entitled to act on material which may not be accepted as evidence in a Court of law, but there the agreement ends; because it is equally clear that in making the assessment under sub-section (3) of section 23 of the Act, the Income Tax Officer is not entitled to make a pure guess and make an assessment without reference to any evidence or any material at all. There must be something more than bare suspicion to support the assessment under section 23(3). The rule of law on this subject has, in our opinion, been fairly and rightly stated by the Lahore High Court in the case of Seth Gurmukh Singh vs. CIT There is no material brought on record by the revenue to show that the agreement between the assessee and M/s. Tata Steel Limited for manufacture of high carbon ferro chrome is sham. - No disallowance can be made - Decided in favor of assessee.
Issues Involved:
1. Justification of CIT(A) in deleting the addition of ?4,06,06,511/- for AY 2012-13 and ?3,46,16,358/- for AY 2013-14 on account of expenses for low recovery of chromium. 2. Validity of the agreement between the assessee and Tata Steel Limited regarding conversion charges and deduction for low recovery of chromium. 3. Examination of whether the transactions between the assessee and Tata Steel Limited were at arm's length and genuine. Issue 1: Justification of CIT(A) in Deleting the Addition The revenue appealed against the CIT(A)'s decision to delete the additions made by the Assessing Officer (AO) for the assessment years 2012-13 and 2013-14. The AO had added ?4,06,06,511/- and ?3,46,16,358/- respectively, citing low recovery of chromium as the reason. The AO suspected that the agreement between Tata Steel Limited and the assessee, a sister concern, was a ploy to reduce taxable income. The CIT(A) vacated the disallowance, noting that the AO had not provided any material evidence to prove that the deductions were not genuine or that the transactions were not at arm's length. The CIT(A) emphasized that suspicion alone cannot justify disallowance, and the deductions were real as per the agreements and industry practices. Issue 2: Validity of the Agreement Between the Assessee and Tata Steel Limited The AO questioned the agreement between the assessee and Tata Steel Limited, suspecting it was designed to reduce the assessee's taxable income. The AO listed several reasons for doubting the agreement, including the inability of the assessee to establish manufacturing loss, explain chromium level variations, and the continuous offering of contracts by Tata Steel despite these issues. The CIT(A) and the Tribunal found that similar agreements existed between Tata Steel and other companies, such as Nava Bharat Ventures Limited, which were not group companies. This indicated that the agreement terms were standard industry practice and not a deliberate arrangement to reduce tax liability. Issue 3: Examination of Whether the Transactions Were at Arm's Length and Genuine The AO suspected that the transactions were not genuine and were designed to benefit both Tata Steel Limited and the assessee. However, the CIT(A) and the Tribunal found no evidence to support this suspicion. The Tribunal noted that the AO had not brought any material on record to prove that the transactions were not real or that the agreement was a sham. The Tribunal reiterated that suspicion, however grave, cannot replace proof. The CIT(A) and the Tribunal concluded that the transactions were genuine and at arm's length, as similar agreements existed with other companies in the industry. Conclusion: The Tribunal upheld the CIT(A)'s decision to delete the additions made by the AO, finding no material evidence to support the AO's suspicion that the agreement between Tata Steel Limited and the assessee was a ploy to reduce taxable income. The Tribunal emphasized that suspicion alone cannot justify disallowance and that the transactions were genuine and in line with industry practices. The appeals filed by the revenue were dismissed.
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