2021 (11) TMI 708 - AT - Income Tax

Assessment u/s 153A - Addition u/s 68 - HELD THAT - As the amount so received for proposed share subscription from the group co. i.e. EFPL was also repaid in the subsequent assessment years and thus amount kept in custody temporarily in a fiduciary capacity could not have been added in the hands of assessee by resorting to Section 68 - A reference was made to the judicial precedents namely CIT vs. Karaj Singh 2011 (3) TMI 951 - PUNJAB AND HARYANA HIGH COURT ); Smt. Panna Devi Chowdhary 1994 (3) TMI 80 - BOMBAY HIGH COURT many more decisions for the proposition that the factum of repayment transgresses all other considerations and the question of bonafides of receipts of share application money fades into insignificance where the amount so received stands repaid and returned. The facts in the instance are speaking for itself. We are fully convinced with the process of reasoning and the objective analysis by the CIT(A) and conclusion derived therefrom. We do not intend to repeat each and every observations. The action of CIT(A) is in consonance with the binding precedents of Jurisdictional High Court. Hence we see no reason to depart from the rationale of the decision of the CIT(A) on reversal of additions under s.68 of the Act pertaining to A.Y. 2012-13 in question. Addition on account of low yield declared - HELD THAT - AO has made discussions on mathematical calculations pertaining rolling material division the additions have been made towards low yield in SMS Division. CIT(A) observed that assessee has furnished explanation on all the documents seized during the course of search and the explanation of the assessee were test checked with reference to seized material books of accounts bills/invoices and other evidences and found to be satisfactory. It was further noted that the AO has not pointed out any infirmity in the explanation of the Assessee. CIT(A) in our mind has analysed the factual matrix threadbare. Without repeating all the observations of the CIT(A) we find ourselves in complete agreement with the conclusion drawn by the CIT(A) - CIT(A) has objectively analyzed the factual situation and found complete absence of any adverse material against the assessee which can support the allegation of the AO towards unaccounted production presumed on the basis of alleged low yield declared by the assessee. On facts the CIT(A) has found that the yield declared by the assessee is neither low nor the book results could be impeached by some tangible material to indulge in rejection of books of accounts. We see no discernible error whatsoever in the process of reasoning adopted by the CIT(A) while reversing the totally untenable action of the AO based on extraneous considerations. It is also pertinent here to note that identical issue cropped in the case of a group co. ( Mahamaya Steel Industries Ltd.) in the same search and engaged in the same business. The standard yield of 89% adopted in that case was set aside by the CIT(A) and book results were accepted in the identical factual matrix. The Revenue challenged the reversal of additions on account of lower yield. Co-ordinate bench in DCIT vs. Mahamaya Steel Industries Ltd. 2019 (11) TMI 922 - ITAT RAIPUR in strikingly similar factual matrix involving same issue and arising from same search endorsed the order of CIT(A) in relation to AY 2009-10-2013 and struck down the additions made by AO. Hence the issue in any case is not res integra any more in the light of decision of the co-ordinate bench. Whatever way we see case of the revenue has little merit and thus unsustainable. We thus decline to interfere with the order of the CIT(A) on this score. Additions on account of excess stock of finished goods/ raw material stated to be discovered during the search - HELD THAT - CIT(A) took cognizance of certificate from registered valuer furnished by the assessee to support its stance. We notice that the CIT(A) has adjudicated the issue in favour of the assessee after recording tell-tale facts such as DRV having admitted that no scientific or mechanical equipment was used by him for the purposes of valuation; no physical verification was carried out at all etc.. The whole quantification is made on a wrong foundation of length of channels etc. After having analyzed the facts and circumstances of the case the CIT(A) has objectively concluded that addition to the total income on account of unexplained investment towards excess stock on account of structures and channels is without any sound basis is patently unjustified. We find that the CIT(A) has arrived at his findings with very logical analysis in sync with factual matrix. Such finding of fact does not call for any interference for any reason. With reference to excess stock on account of billets and slab cuttings and sponge iron the CIT(A) has observed that the dispute revolves around the rate adopted by the AO and there is no dispute regarding the total quantity. It was noticed by the CIT(A) that the assessee has offered the income for taxation based on average rate for billets / slab cutting/ sponge iron as against uniform rate adopted by AO. The basis of rate adopted by AO was not assigned. Thus having regard to the declarations already made by the assessee and in the absence of any definite basis in the action of AO no further additions were found sustainable in the absence of any evidence of adversial nature. In summation we see no error in the process of reasoning adopted by the CIT(A) and conclusion thereon. The revenue could not rebut the factual findings of the CIT(A). The order of the CIT(A) is self-explanatory and does not require any reiteration. We thus decline to interfere.

Summary

Issues Involved:
1. Additions under Section 68 of the Income Tax Act (ITA) for unexplained share application money.
2. Additions on account of suppression of yield and unaccounted production/sales.
3. Additions due to excess stock of finished goods/raw material.
4. Adjustment of cash seized during the search as prepaid tax.

Detailed Analysis:

1. Additions under Section 68 of the ITA for Unexplained Share Application Money:
The Revenue challenged the relief granted by the CIT(A) concerning additions made under Section 68 for unexplained share application money for AY 2006-07, 2009-10, and 2012-13. The CIT(A) found that the additions were made without any reference to incriminating material detected during the search. The CIT(A) noted that the assessee had provided sufficient evidence, including PAN, address, name, certificate of incorporation, audited financial statements, income tax returns, bank statements, share application forms, and payment details through banking channels. The CIT(A) also observed that the same AO had accepted the creditworthiness of the investor company in another group concern. The Tribunal upheld the CIT(A)'s findings, emphasizing that the Revenue failed to provide any incriminating material to support the additions. The Tribunal also noted that the assessee had discharged its primary onus under Section 68 by providing extensive documentation and that the AO's adverse inference was based on suspicion and conjecture. The Tribunal dismissed the Revenue's appeals and allowed the assessee's cross objections on the legal point of lack of jurisdiction under Section 153A for AY 2006-07 to 2009-10.

2. Additions on Account of Suppression of Yield and Unaccounted Production/Sales:
The AO made additions for various assessment years based on alleged low yield in the SMS division. The CIT(A) found that the AO had failed to establish a nexus between mathematical calculations and the yield of 89% assumed by the AO. The CIT(A) compared the yield declared by the assessee with other companies in the same industry and found that the assessee's yield was either higher or comparable. The CIT(A) also noted that the AO had not provided any basis for adopting the yield of 89% and had not found any tangible evidence of unaccounted production or sales. The Tribunal upheld the CIT(A)'s findings, emphasizing that the AO's additions were based on suspicion and conjecture without any supporting evidence. The Tribunal dismissed the Revenue's appeals on this issue for AY 2006-07 to 2012-13.

3. Additions Due to Excess Stock of Finished Goods/Raw Material:
The AO made additions for AY 2012-13 based on the quantity assessment report of the Departmental Registered Valuer (DRV). The CIT(A) found that the DRV's report had deficiencies and discrepancies, and the DRV was not competent to carry out the valuation of movable items like sponge iron and billets. The CIT(A) also noted that the DRV had made errors in quantifying the stock due to incorrect assumptions about the length of the finished products. The Tribunal upheld the CIT(A)'s findings, emphasizing that the AO had not provided any sound basis for the additions and had relied on a flawed valuation report. The Tribunal dismissed the Revenue's appeal on this issue for AY 2012-13.

4. Adjustment of Cash Seized During the Search as Prepaid Tax:
The CIT(A) directed the AO to allow the adjustment of cash seized during the search against the tax liability, following the decision of the Tribunal in Vipul D. Doshi vs. CIT. The Tribunal upheld the CIT(A)'s directions, finding no infirmity in the decision. The Tribunal dismissed the Revenue's appeal on this issue for AY 2012-13.

Conclusion:
The Tribunal dismissed all the Revenue's appeals and allowed the assessee's cross objections. The Tribunal found that the additions made by the AO were not supported by any incriminating material found during the search and were based on suspicion and conjecture. The Tribunal upheld the CIT(A)'s findings, emphasizing the lack of evidence to support the AO's additions.