9911796707
|
Home
Forgot password New User/ Regiser ⇒ Register to get Live Demo
2019 (12) TMI 1249 - AT - Income TaxBogus sale - allegations based on sales tax search / investigation proceedings - Sale price higher than the price recorded in the books on account - unaccounted sale to the petrol pump owners/other industries - rejection of books of accounts - CIT (A) restricted the addition made by the AO with respect to the sale of the product solvent as diversion of sale to the patrol pump owners - Whether the assessee was engaged in the activity of diverting the sale of its products to the patrol pump owners/ for non-industrial use in the garb of supplying the products to the parties ? - HELD THAT - Assessee is involved in only solvent product for diverting the same to the petrol pump owner/ non-industrial use. The Ld. DR at the time of hearing has not controverted the finding of the Ld.CIT (A). Therefore we are of the view that the dispute revolves to the extent of the sale of the product namely solvent. AO if the was to involve all the parties to whom the assessee has made sales, then he has to bring sufficient evidences justifying the diversion of the sale to the petrol pump owners. Indeed, the notices remained un-served but that cannot be conclusive evidence in the given facts and circumstances that the sales have been diverted. As such, if the sales had not been made to the concerned parties, then the onus shifts on the Revenue to prove based on cogent materials that the sales was made to the petrol pump owners/other industries. We also find that there was no mention of any petrol pump owner/other industry to which the sale was made. Even, there was not issued any notice to the petrol pump owners. There was no information available from the authorities below that the assessee or its directors have made some unaccounted investments or has incurred some expenditure outside the books of accounts. The income of the assessee can be determined based on assets or the expenditure. There is no information about any undisclosed investments or unexplained expenditure. Thus, even if the real income theory test is applied in the case on hand, we note that the revenue has not brought anything on record about the investment made by the assessee/its directors or there was incurred any expenses by the assessee/its directors. We note that there was no exercise carried out by the revenue to arrive at the conclusion that the assessee has diverted its product to the petrol pump owners/other industries despite having the information in hand. As such the entire addition was based on the investigation carried out by the district supply team/crime branch etc. There was a search by the sales tax department dated 16 February 2000 wherein it was alleged that the assessee is making sales within the state of Gujarat in actuality but it was showing in the books of accounts as interstate sale in order to avoid the tax liability. As such the rate of tax for the interstate sale under CST Act is 2% on furnishing of form C by the party to the assessee whereas the rate of sales tax on local sale i.e. within the estate was ranging from 12 to 14% of the sale value. As such, we note that there was no allegation about the sale price charged by the assessee from the parties. Thus, the sale price declared by the assessee was accepted by the sales tax department except the ad hoc addition by the sales tax department for the assessment year 2000-01. Indeed, such ad hoc addition represents the enhanced value of sale price, but it was never compared with the price of the patrol. It was the question of fact before the revenue to find out that the assessee has diverted the sales to the petrol pump owners/other industries which is possible to decide on the basis of documentary evidence. But the revenue has not brought necessary tangible materials in support of his claim. Thus in our considered view, the addition made by the authorities below is not sustainable in the absence of sufficient documentary evidence We note that there is no iota of evidence available with the revenue that the assessee has charged any amount over and above the invoice value. Thus we decide the issue in favour of the assessee and against the revenue. Hence the ground of appeal of the assessee is allowed whereas the ground of appeal of the revenue is dismissed. Addition on account of mismatch in the account of the parties (creditors) - difference in the amount of purchases shown by the assessee viz a viz the sales shown by the parties namely HPCL - HELD THAT - In the absence of documentary evidence, we are of the view that the amount of gross profit will only be subject matter of addition with respect to such unaccounted transaction. It is undoubtedly a business transaction. Hon ble Gujarat High Court in the case of CIT vs. President Industries . 1999 (4) TMI 8 - GUJARAT HIGH COURT has directed to make the addition only to the extent of gross profit. Addition of the gross profit to the total income of the assessee on account of such purchases will meet the end of justice. However, in the case on hand, we note that the assessee has already been alleged by the district supply department to have made sales at a higher price by diverting to the petrol pump owners/for non-industrial use as discussed in the ground No. 1. The matter is still pending before the competent court of law. Therefore we are of the view that, it will be difficult to find out the exact amount/date of gross profit embedded in such transaction of unaccounted purchase. However, to put a full stop on the ongoing dispute, we feel that an addition to the extent of 25% of such unaccounted purchases will meet the end of justice. In view of the above, we direct the AO to make the addition of the amount being 25% of such unaccounted purchases Addition on account of preoperative expenses u/s 35D - HELD THAT - A plain reading of the above order shows that the AO as already allowed the claim of the assessee on account of preoperative expenses by amortizing over a period of 10 years. Thus, the amount to the extent of ₹ 3,64,917/- is arising from the earlier year as discussed above. Therefore, we grant the relief to the assessee to the extent of ₹ 3,64,917/- being the amount brought forward from the earlier year. Accordingly, we reject the claim of the assessee for the balance amount of ₹ 6,11,284/- only. Hence the ground of appeal of the assessee is allowed in part. Addition on account of foreign travelling expenses - HELD THAT - As assessee conceded that the impugned issue can be decided against the assessee. Therefore, we reject the ground of appeal of the assessee Disallowance of personal expenses - HELD THAT - There is ambiguity to the fact that the onus lies on the assessee for claiming the deduction of any expense under section 37(1) of the Act. However, the assessee failed to furnish the supporting evidence for the expenses incurred by it. Therefore we decline to interfere in the finding of the authorities below. Hence the ground of appeal of the assessee is dismissed. Non-inclusion of excise duty in the closing stock of finished goods - HELD THAT - provision of section 145A of the Act requires the assessee to include the amount of excise duty while valuing the closing stock of the finished goods as on 31st March 1998. However, the deduction for the same is allowed if such excise duty was paid by the assessee on or before filing the income tax return before the due date as specified under section 139(1) of the Act. The Ld. CIT(A) has given very clear finding that the amount of excise duty was paid on or before the due date of filing the income tax return. Thus in other words even the amount of excise duty not included in the value of closing stock, then also the assessee was entitled for the deduction of such payment of excise duty under the provisions of section 43B of the Act. Accordingly there was no impact on the taxable income of the assessee. Accordingly we do not find any reason to interfere in the order of the Ld. CIT (A). Hence the ground of appeal of the Revenue is dismissed. Disallowance on account of prior period expenses - assessee submitted that some of the expenses are allowable as deduction under section 43B - HELD THAT - The impugned issue is covered in favour of the assessee by the order of Bombay High Court in the case of CIT v. Nagri Mills Co. Ltd. 1957 (9) TMI 30 - BOMBAY HIGH COURT - there is no ambiguity that such expenses were incurred for the purpose of the business. Therefore in our considered view, applying the principles of Bombay High Court as discussed above, we set aside the order of the Ld. CIT(A) and direct the AO to delete the addition made by him
Issues Involved:
1. Rejection of books of accounts and addition of income based on alleged unaccounted sales. 2. Discrepancies between the accounts of the assessee and suppliers. 3. Disallowance of preoperative expenses. 4. Disallowance of foreign travel expenses. 5. Disallowance of Diwali, office, and staff welfare expenses. 6. Charging of interest under sections 234B and 234C. 7. Inclusion of excise duty in the closing stock. Issue-wise Detailed Analysis: 1. Rejection of Books of Accounts and Addition of Income Based on Alleged Unaccounted Sales: The assessee's books were rejected under section 145(2) due to alleged unaccounted sales of solvent products to petrol pump owners. The AO based this on investigations by various authorities, including district supply teams and sales tax departments, which suggested that the assessee sold products at higher prices than recorded in the books. The CIT(A) partially upheld the AO's additions but reduced the estimated sale price. The Tribunal found that the evidence was insufficient to conclusively prove that the assessee sold products at higher prices, noting the lack of direct evidence and cross-examination opportunities. The Tribunal decided in favor of the assessee, stating that the circumstantial evidence alone could not justify the additions. 2. Discrepancies Between the Accounts of the Assessee and Suppliers: The AO found discrepancies in the accounts of the assessee and suppliers like Reliance Industries and HPCL, leading to an addition of ?1,56,67,920/-. The CIT(A) reduced this to ?23,68,584/- after partial reconciliation. The Tribunal further reduced the addition, directing the AO to add only 25% of the unaccounted purchases as income, recognizing the lack of concrete evidence for the full amount. 3. Disallowance of Preoperative Expenses: The AO disallowed preoperative expenses claimed under section 35D, allowing only ?1,10,671/- as per an earlier assessment. The CIT(A) upheld this, but the Tribunal allowed the assessee's claim for amortization of preoperative expenses over ten years, granting relief for ?3,64,917/-. 4. Disallowance of Foreign Travel Expenses: The AO disallowed ?1,67,606/- claimed for the Managing Director's foreign travel expenses, which the CIT(A) upheld. The Tribunal dismissed the assessee's appeal on this issue, as the assessee conceded the disallowance. 5. Disallowance of Diwali, Office, and Staff Welfare Expenses: The AO disallowed 1/10th of the expenses claimed for Diwali, office, and staff welfare, totaling ?18,376/-, due to lack of supporting evidence. The CIT(A) upheld this, and the Tribunal agreed, noting the absence of documentary evidence. 6. Charging of Interest Under Sections 234B and 234C: The Tribunal did not provide specific details on this issue in the summary provided, implying that the interest charges under sections 234B and 234C were upheld as per the AO's and CIT(A)'s orders. 7. Inclusion of Excise Duty in the Closing Stock: The AO added ?91,416/- to the closing stock for non-inclusion of excise duty. The CIT(A) deleted this addition, noting that the excise duty was paid before filing the return, thus allowable under section 43B. The Tribunal upheld the CIT(A)'s decision, confirming that the excise duty payment timing negated any impact on taxable income. Combined Result: - Assessee’s appeals bearing ITA Nos. 1003/Ahd/2004 and 1004 & 1005/Ahd/2004 are partly allowed and allowed respectively. - Revenue’s appeals bearing ITA Nos. 1065/Ahd/2004 is partly allowed and bearing ITA Nos. 1066 & 1067/Ahd/2004 are dismissed.
|
