2022 (5) TMI 778 - AT - Income Tax

Addition u/s 69C - addition on account of custom duty and on account of peak amount - difference between the invoice value in rupees and assessable value for customs - CIT (A) has deleted the addition stating that the addition could not have been made once the corresponding sales have not been disputed - HELD THAT - In this case, there is no material available with the learned CIT (A) to state so. Such a direction can only be valid when there is an import of goods, which has resulted into purchase debited in the profit and loss account, the quantity of the purchases have entered into the stock details quantitative details and from such quantitative details, the sales have been made of the similar quantity during the year, then only the addition could have been restricted to G P . Otherwise, without that examination probably addition could not have been deleted. There is no material available with the CIT (A) to hold so. We also failed to understand that in such circumstances how the peak amount can be worked out and addition can be restricted to that extent. In view of this the order of the learned CIT (A) is not sustainable in law. In view of the above findings, we set aside the whole issue back to the file of the learned Assessing Officer with a direction to the assessee to reconcile the purchases with the invoices value stated by customs authority from the books of account of the assessee. The relevance to the assessable value is not the reason to make an addition as it is value only for the purposes of levy of customs duty. Assessee is directed to produce all the invoices mentioned in the information received from customs authority and also the respective custom duty paid against each of the invoices. AO is directed to examine the same and if still a different arises, the assessee may be given opportunity of hearing to explain the same and thereafter the issue may be decided on the merits of the case. Thus we allow the Grounds raised by the ld AO accordingly.

Summary

Issues Involved:

1. Deletion of addition of ?2,78,98,766/- made by the AO due to discrepancies in import purchases.
2. Justification of peak amount calculation of ?11,95,963/- for import purchases.
3. Admission by the assessee regarding inability to reconcile discrepancies and offering the amount as undisclosed turnover.
4. Confirmation of gross profit addition of ?31,34,731/-.
5. Addition of unexplained expenditure under section 69C of the Act.

Issue-wise Detailed Analysis:

1. Deletion of Addition of ?2,78,98,766/-:
The Assessing Officer (AO) found a discrepancy between the custom duty payments recorded in the books and the details provided by the Customs Authority. The AO noted that the assessee had imported goods worth ?10,71,83,467/- but recorded only ?7,92,84,701/- in the books, resulting in a discrepancy of ?2,78,98,766/-. The AO made an addition of ?31,34,731/- for undisclosed sales and ?3,18,73,218/- under section 69C for unexplained expenditure. The Commissioner of Income-tax (Appeals) [CIT(A)] deleted the addition under section 69C, stating that unaccounted purchases could not be added once the corresponding sales were not disputed. However, the ITAT found that the CIT(A) did not have sufficient material to make this conclusion and set aside the issue back to the AO for a detailed examination and reconciliation of purchases with the invoices.

2. Justification of Peak Amount Calculation of ?11,95,963/-:
The CIT(A) considered the peak amount of ?11,95,963/- for addition under section 69C. The ITAT noted that the CIT(A) did not have adequate material to justify this calculation. The ITAT directed the AO to re-examine the invoices and custom duty payments to determine if any discrepancies exist and to provide the assessee an opportunity to explain any differences.

3. Admission by the Assessee Regarding Inability to Reconcile Discrepancies:
The assessee admitted the inability to reconcile the discrepancies in import purchases and offered the amount of ?3,18,73,218/- as undisclosed turnover, suggesting a gross profit rate of 9.836% for addition. The AO accepted this explanation and made the addition accordingly. However, the ITAT found that the AO did not thoroughly examine the bank accounts and other relevant details to verify the assessee's claim and directed a re-examination.

4. Confirmation of Gross Profit Addition of ?31,34,731/-:
The CIT(A) confirmed the addition of ?31,34,731/- as gross profit on unrecorded transactions. The ITAT noted that the CIT(A) justified this addition based on the fact that the AO had estimated the gross profit at 9.835% on ?3,18,73,218/-. The ITAT upheld this part of the CIT(A)'s order, agreeing that the gross profit addition was appropriate given the circumstances.

5. Addition of Unexplained Expenditure Under Section 69C:
The CIT(A) added ?39,74,452/- as unexplained expenditure under section 69C for custom duty paid on unrecorded purchases. The ITAT found that the CIT(A)'s approach lacked sufficient examination of the relevant details and directed the AO to re-evaluate the custom duty payments and reconcile them with the assessee's records. The ITAT emphasized that the mere difference between invoice value and assessable value for customs purposes should not automatically result in an addition without proper verification.

Conclusion:
The ITAT set aside the entire issue back to the AO for a thorough re-examination and reconciliation of the import purchases, custom duty payments, and corresponding sales. The AO was directed to provide the assessee an opportunity to explain any discrepancies and to decide the issue based on the merits of the case. Both the appeal of the AO and the cross-objection of the assessee were allowed with these directions.