2021 (8) TMI 149 - AT - Income Tax

Addition of High material consumption declared by the assessee - HELD THAT - As per reasoning contained in his order, the Ld. CIT(Appeals) deleted the addition made by the Assessing Officer. However, we observe the submission of the assessee of the Assessing Officer s order wherein the assessee itself has stated that there was an error in making excess provision and the subsequent justification given by the assessee thereof, this issue requires factual verification - further from the observation of the Ld. CIT(Appeal), he has also raised doubts regarding the claim of the assessee and that they were not properly explained before the AO - We have observed in the open Court before the parties that the matter needs to be verified by conducting detailed enquiry and examination on facts. We set aside the order of the Ld. CIT(Appeals) and restore the matter to the file of Assessing Officer to re-adjudicate the issue while complying with the principles of natural justice as indicated hereinabove. Appeal of the Revenue is allowed for statistical purposes.

Summary

Issues:
Appeal by Revenue against deletion of addition for high material consumption.

Analysis:
The appeal by the Revenue challenged the deletion of an addition of ?2,80,80,875 made by the Assessing Officer for high material consumption declared by the assessee. The assessee company, engaged in manufacturing forged parts, claimed a gross loss of ?1,36,58,220, with a material consumption ratio of 97%. The Assessing Officer noted a significant disparity in the manufacturing expenses to sales ratio between two assessment years. The assessee submitted explanations, including an error in excess provision of ?53,15,000. The Assessing Officer reduced the material cost to 46% due to lack of corroborative evidence, resulting in an addition to the total income. The Ld. CIT(Appeals) did not provide specific findings on the Assessing Officer's observations and deleted the addition based on questionable justifications. However, the Ld. CIT(Appeals) raised doubts on the assessee's claims and lack of proper explanation. The Tribunal set aside the Ld. CIT(Appeals) order, directing a detailed factual verification by the Assessing Officer while ensuring compliance with natural justice principles. The appeal of the Revenue was allowed for statistical purposes, emphasizing the need for a thorough re-examination of the issue.