2020 (11) TMI 807 - AT - Income Tax

Disallowing excess purchase price - Whether effect of such excess pricing had already been neutralized in the Profit Loss A/c by way of enhancing the closing stock value of almost same value as observed in the assessment order also? - CIT-A deleted the addition - HELD THAT - Fact which should not be lost sight of is that the quantity of purchases was tallying with the parties accounts vis- -vis the appellant's books in this regard. The appellant made high sea purchases of raw cashews from Kerala Port and as per the Departmental of Commercial taxes, Kerala under the Kerala VAT Rules the price was of such import was fixed at ₹ 70/- per kg. This was also mentioned in the Circular No.28/11 dated 3.12.2011 issued by the Departmental of Commercial taxes, Kerala. The appellant irrespective of the prices of actual purchases as per the high seas agreement valued the raw cashews at 70/- per kg. under the State Rules, VAT and the Income Tax Rules and laws. It is in this manner that the appellant reflected the value of purchases of raw cashews in the audited accounts which resulted in excess value to the extent and the said fact has been properly appreciated by ld CIT(A). That being so, we decline to interfere with the order of ld. C.I T.(A) in deleting the aforesaid additions. Addition on account of two outstanding creditors as on the last day of financial year - HELD THAT - In view of the fact that the purchases is not disturbed and tallying and the amount is receivable by the appellant from the party which the party has passed a journal entry and nullified the same in their books would not justify additions in the books of the appellant and therefore, the AO is directed to delete the additions on account of difference of sundry creditor balance - As carefully gone through the submission put forth on behalf of the assessee along with the documents furnished and the case laws relied upon, and perused the fact of the case including the findings of the ld CIT(A) and other materials brought on record. We have heard and gone through the above noted findings of ld CIT(A). We did not find any infirmity in the order of ld CIT(A). That being so, we decline to interfere with the order of Id. C.I T.(A) in deleting the aforesaid addition. Income being the peak balance with HDFC Bank - undisclosed closing bank balance - HELD THAT - We note that ld CIT(A) has confirmed the addition made by assessing officer, which is in favour of Revenue. The Department should not have raised this ground. It seems to us that ground No.6 raised by the Revenue is wrong and therefore does not require adjudication.

Summary

Issues Involved:

1. Violation of CBDT Instructions by the Assessing Officer.
2. Disallowance of excess purchase price amounting ?1,75,07,965.
3. Shortfall in claim of purchase of ?12,65,464 and addition of gross profit on fictitious sales.
4. Addition of ?4,16,469 on account of outstanding creditors.
5. Addition of ?18,937 as income from undisclosed HDFC bank account.

Detailed Analysis:

1. Violation of CBDT Instructions by the Assessing Officer:

The Revenue's first ground claimed that the Assessing Officer (AO) violated CBDT Instructions by expanding the scope of scrutiny beyond the issues specified under CASS. The Tribunal noted that this ground was general in nature and did not require adjudication.

2. Disallowance of Excess Purchase Price Amounting ?1,75,07,965:

The AO disallowed an excess purchase price of ?1,75,07,965, citing discrepancies in the purchase values recorded by the assessee and the creditors. The assessee justified the higher purchase values by explaining that the values were inflated to comply with Kerala VAT rules, which required declaring a higher value for smooth transportation of goods. The Commissioner of Income Tax (Appeals) [CIT(A)] accepted this explanation, noting that the inflated purchase values were neutralized by an equivalent increase in the closing stock value, resulting in no revenue impact. The Tribunal upheld the CIT(A)'s decision, agreeing that the assessee's actions were in line with state regulations and did not affect the net profit.

3. Shortfall in Claim of Purchase of ?12,65,464 and Addition of Gross Profit on Fictitious Sales:

The AO noted a shortfall in the purchase claim from M/s Ijas Cashew Company and added ?1,09,336 as gross profit on fictitious sales. The CIT(A) found that the assessee had understated purchases to facilitate business operations without any adverse revenue impact, as the profits were overstated correspondingly. The CIT(A) adjusted the overstated purchase quantity and reduced the addition to ?26,418, giving relief of ?82,918 to the assessee. The Tribunal upheld this partial deletion, finding no infirmity in the CIT(A)'s decision.

4. Addition of ?4,16,469 on Account of Outstanding Creditors:

The AO added ?4,16,469 based on differences in the outstanding balances with M/s Olam Agro India Limited and M/s Anchuvilla Cashew. The CIT(A) deleted these additions, noting that the differences were due to journal entries made by the creditors, which did not justify additions in the assessee's books. The Tribunal upheld the CIT(A)'s decision, agreeing that the purchases were not disturbed and the differences were properly accounted for.

5. Addition of ?18,937 as Income from Undisclosed HDFC Bank Account:

The AO added ?18,937 as income from an undisclosed HDFC bank account, treating it as unshown income. The CIT(A) confirmed this addition, rejecting the assessee's justification that the account had a nil balance at year-end. The Tribunal noted that the CIT(A) had confirmed the addition in favor of the Revenue and found that the ground raised by the Revenue was incorrect, thus it did not require adjudication.

Conclusion:

The Tribunal dismissed the grounds of appeal raised by the Revenue, upholding the CIT(A)'s decisions on all issues. The order was pronounced after considering the lockdown period due to the Covid-19 pandemic. The appeal was allowed to the extent indicated, with no interference in the CIT(A)'s findings.