2022 (7) TMI 556 - AT - Income Tax

Addition of capital gain - AO inferred the assessee to have sold his share of land - HELD THAT - The property in question belonged to Adlers Bio Energy Ltd., which was purchased by it during the F.Y. 2007-08. A change in ownership of Adlers took place with the transfer of shares. On perusal of the Agreement, it can be seen that there was outstanding liability of Adlers amounting to Rs.1.67 crore to M/s. Terranuova Integrated Industries Pvt. Ltd. (TIPL). The buyer of Adlers undertook the liability due to TIPL. It was the obligation of Adlers worth Rs.1.67 crore, which was taken over by the buyer. Nowhere is there any reference to sale consideration of Rs.1.67 crore having been received by the assessee and another person, as has been inferred by the AO. The ld. DR could not controvert such factual position recorded by the ld. CIT(A) in the impugned order, which amply demonstrates that there was no transaction of sale of property worth of Rs.1.67 crore. In that view of the matter, there cannot be any question of capital gain becoming chargeable to tax in the hands of the assessee. We, therefore, affirm the impugned order on this score. This ground is not allowed. Bogus purchases - In absence of the assessee filing truck numbers, transportation and delivery challans with toll tax receipt etc., the AO held that the purchases were bogus - CIT(A) restricted the addition to 15% of the purchase price as profit element in the bogus purchases - HELD THAT - Admittedly, no appeal has been preferred by the assessee before the Tribunal against the impugned order. When certain goods are recorded in the books of account as purchased, then these would either get consumed in the manufacturing process or appear in the closing stock. There cannot be a situation in which the purchase of raw material is recorded and the same does not get reflected either in the manufacturing or in the closing stock. As the assessee could not establish the genuineness of purchases recorded in the books of account, what follows, as a corollary, is that steel was actually purchased from some other parties at lower rates but recorded at higher purchase price in the books of account through bogus bills. In such circumstances, only the additional profit, which the assessee suppressed by recording bogus purchases at higher value instead of actual purchases at lower value, can be subjected to tax and not the whole amount of purchases as was done by the AO - we are satisfied that the ld. CIT(A) was justified in computing such extra profit embedded in bogus purchase value at 15% and sustaining the addition pro tanto . We, therefore, uphold the impugned order on this issue. This ground fails. Addition on account of steel consumption - Taking the actual quantity of steel shown to have been purchased and consumed by the assessee, the AO computed excess consumption of steel at 51500 kgs. and held the same as unrecorded - Applying the average rate of Rs.34.01 per kg., he made an addition - CIT(A) deleted the addition - HELD THAT - As it is seen that the entire addition is based on the AO s premise that the assessee manufactured two varieties of 3 MT and 3.5 bullock carts with the consumption at 200 kgs. and 250 kgs. respectively. The assessee successfully demonstrated before the ld. CIT(A), with the help of sale invoices, that all the bullock carts sold by it were only of 3 MT and there was no bullock cart of 3.5 MT, as was inferred by the AO. Nothing has been placed on record to show that this finding of the ld. CIT(A) is erroneous. In that view of the matter, the entire edifice of the addition erected on such misunderstanding, falls flat. We, therefore, countenance the impugned order on this score and dismiss this ground of appeal. Disallowance of Labour payments - HELD THAT - AO found difference in signatures of 6 persons only. Without quantifying the amount of wages pertaining to such 6 persons, an ad hoc disallowance was made - CIT(A) took note of the fact that there was 62 percent increase in the turnover of the assessee over the preceding year. By giving 80% increase in the labour cost, he restricted the disallowance to Rs.19.49 lakh. In our considered opinion, the verdict given by the ld. CIT(A), in the instant facts and circumstances of the case, is appropriate as against the ad hoc disallowance made by the AO. We, therefore, uphold the impugned order on this issue. This ground is not allowed. Addition on account of Vehicle expenses - On a specific requisition, the assessee could not produce log books of the cars etc - CIT(A) deleted the addition - HELD THAT - We find it is an admitted position that the assessee did not maintain log book for the vehicles. In that view of the matter, personal use of vehicles cannot be ruled out. Considering the entirety of facts and circumstances of the case, we are satisfied that it would be just and fair if the disallowance on account of Vehicle expenses, vehicle insurance, interest over vehicle and depreciation is restricted for personal use to 10% of the expenses - Decided partly in favour of assessee. Addition of Travelling and Repair and maintenance expenses - Since the expenses were in cash and claimed on the basis of self-made vouchers, the AO disallowed 20% thereof - CIT(A) deleted the addition - HELD THAT - We find that the assessee claimed deduction on the basis of self-made vouchers. Considering the entirety of the facts and circumstances of the case, we are of the considered opinion that it would be just and fair if the disallowance of 10% of total expenses, namely, Rs.22,105/- is sustained. We order accordingly. This ground is partly allowed. Addition on account of other items consumption - AO made all the above additions on the ground that the consumption of tyres, tubes, axel wheels and axel was shown on lower side - CIT(A) deleted the addition except sustaining addition in tyres due to actual excess 18 pieces of tyres - HELD THAT - Quantity of tyres as worked out by the AO has been properly reconciled by the assessee before the ld. CIT(A) except 18 tyres, for which the addition has been restricted in the first appeal. The ld. DR could not point out any infirmity in the figures recorded in the impugned order on this score. Similar is the position regarding tubes, axle wheels and axles for which the assessee properly explained the difference as calculated by the AO with necessary evidence. In view of the above discussion, we are satisfied that no exception can be taken to the view canvassed by the ld. CIT(A). This ground is not allowed. Addition towards depreciation on JCB Machine - AO held that there was no use of JCB machine in the assessee s business and hence made disallowance, which came to be deleted in the first appeal - HELD THAT - As it is evident that the reason for the AO to make the disallowance is that there was no use of JCB machine in the assessee s business. On the contrary, the assessee proved before the ld. CIT(A) that the JCB machine was utilized in the course of its business because each bullock cart with axle wheels, tyres, tubes and axle weighed around 400 kgs. JCB machine was used for manual loading and unloading of the finished goods, which otherwise would have required huge manpower. Since the JCB machine was used for loading and unloading of material and finished products, we see no reason to interfere in the impugned order overturning the assessment order on the ground that there was no use of JCB machines in the assessee s business. This ground is not allowed. Addition from agricultural income - CIT(A) held that expenses of crop of sugarcane be taken at 50% of yield and of other crops at 35% of the yield - HELD THAT - As admitted position that the assessee furnished purchase receipts of some parties who had purchased agricultural crop from the assessee. AO disputed the correctness of only 4 parties out of total 44 in total. Even though letters were not served to three parties and the fourth party was paralysed, the fact remains that there was no denial by any party. At the same time, it is equally true there is some inconsistency in the Bill Numbers and Dates of M/s. Dayaram Ramadhan Bharadiya. It is also true that the assessee took agricultural loan of Rs.93.50 lakh from bank which shows that the agricultural activity was carried on by the assessee. Existence of the agricultural land is not disputed because the assessee furnished 7/12 extracts also. Considering the entirety of the facts and circumstances of the case, we are of the considered opinion that the ld. CIT(A) was justified in restricting the addition to the above level. Assessee appeal is partly allowed.

Summary

Issues Involved:
1. Deletion of addition on account of capital gain.
2. Issue of bogus purchases.
3. Deletion of addition on account of steel consumption.
4. Deletion of disallowance of labour payments.
5. Deletion of addition on account of vehicle expenses.
6. Deletion of addition on account of traveling and repair expenses.
7. Deletion of addition on account of other items consumption.
8. Deletion of addition on account of depreciation on JCB machine.
9. Restriction of addition from agricultural income.

Detailed Analysis:

1. Deletion of Addition on Account of Capital Gain:
The AO added Rs.1,46,94,904/- to the assessee's income, presuming the sale of 25 acres of land for Rs.1.54 crore. The property belonged to Adlers Bio Energy Ltd., and the liability of Rs.1.67 crore was taken over by the buyer. The Tribunal found no transaction of sale of property worth Rs.1.67 crore, affirming the CIT(A)'s deletion of the addition, stating no capital gain chargeable to tax.

2. Issue of Bogus Purchases:
The AO added Rs.75,50,210/- for bogus purchases from M/s Manish Steel Centre due to lack of supporting evidence. The CIT(A) restricted the addition to 15% of the purchase price as profit element. The Tribunal upheld this, stating the assessee likely purchased steel from other parties at lower rates and recorded higher prices through bogus bills, justifying the 15% profit element addition.

3. Deletion of Addition on Account of Steel Consumption:
The AO presumed excess steel consumption and added Rs.17,51,515/-. The CIT(A) found the assessee sold only 3 MT bullock carts, not 3.5 MT as inferred by the AO. The Tribunal upheld the deletion, noting the AO's misunderstanding and the lack of evidence to contradict the CIT(A)'s findings.

4. Deletion of Disallowance of Labour Payments:
The AO disallowed Rs.50 lakh out of Rs.87.95 lakh due to discrepancies in signatures. The CIT(A) reduced the disallowance to Rs.19.49 lakh, considering a 62% increase in turnover. The Tribunal upheld this, finding the CIT(A)'s approach more appropriate than the AO's ad hoc disallowance.

5. Deletion of Addition on Account of Vehicle Expenses:
The AO disallowed Rs.20,27,068/- for lack of log books. The CIT(A) deleted the addition. The Tribunal found personal use of vehicles likely and restricted the disallowance to 10%, amounting to Rs.2,02,706/-.

6. Deletion of Addition on Account of Traveling and Repair Expenses:
The AO disallowed 20% of Rs.2,21,054/- claimed on self-made vouchers. The CIT(A) deleted the addition. The Tribunal sustained a 10% disallowance, amounting to Rs.22,105/-, considering the nature of the evidence.

7. Deletion of Addition on Account of Other Items Consumption:
The AO added Rs.32,38,592/- for excess consumption of tyres, tubes, axle wheels, and axles. The CIT(A) deleted most of the addition, sustaining Rs.64,314/- for 18 excess tyres. The Tribunal upheld this, noting the assessee's reconciliation and the lack of evidence to contradict the CIT(A)'s findings.

8. Deletion of Addition on Account of Depreciation on JCB Machine:
The AO disallowed Rs.1,95,075/- for depreciation, claiming no use of the JCB machine. The CIT(A) found the machine used for loading and unloading, justifying the depreciation claim. The Tribunal upheld this, finding no reason to interfere with the CIT(A)'s findings.

9. Restriction of Addition from Agricultural Income:
The AO treated the entire agricultural income as unexplained cash credit, adding Rs.98,25,210/-. The CIT(A) restricted the addition, noting the assessee's evidence of agricultural activity and expenses. The Tribunal upheld this, finding the CIT(A)'s approach justified given the evidence and circumstances.

Conclusion:
The Tribunal partly allowed the appeal, affirming the CIT(A)'s decisions on most issues while making minor adjustments, such as restricting disallowances for personal use of vehicles and self-made vouchers. The judgment highlights the importance of proper documentation and evidence in substantiating claims and deductions in tax assessments.