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2022 (8) TMI 898 - AT - Income TaxBogus purchases - gain of MT of FAT SNF respectively in the Trading account for the assessee - AO noted that the total quantities of opening stocks and procurement of milk during the year is reflected by the assessee as 36707.30 M.T. where as the milk procurement for contract manufacturing is only 1594.33 M.T. which is very about 4.34% of the total milk shown in the trading account - HELD THAT - What is established before CIT(A) is that the gain on account of reduction in process loss due to modern facilities is used for manufacturing of Ghee/Butter/SMP/DW/Other products, which is part parcel of closing stock factored in trading account (part of MMPOreport)/audited annual accounts. Therefore, the same is attributable to the contract work for Mother Dairies Ltd. The Bench is of considered opinion that assessment order under the Act has to be passed on cogent evidence and sound reasoning which is on the basis of verifiable events. The reasons may be subjective, however the reasons inducing the said belief must always be objective. The objective reasons should lead to the formation of the subjective belief that, income is liable for assessment. In the case in hand the Ld. AO has relied his belief that ideally the quantum of FAT / SNF received from Mother Dairy should tally with the FAT SNF sent back on completion of processing work. However, he failed to appreciate that every business activity has some inherent peculiarities which bring some incidental profits to the businessman than may actually appear to a prudent mind. When raised before Revenue, same need to be appreciated without much emphasis on evidence of every thing being incorporated in agreements. In present case, even the assumptions on which, the Ld. AO proceeded, in absence of evidence, have been factually corrected by Ld. CIT(A) on basis of additional evidence and no interference in the same is called for. The grounds no 1 and 2 raised by the revenue have no substance. The same are determined against the Revenue.
Issues:
1. Unexplained gains of FAT & SNF in the trading account 2. Addition made by the Assessing Officer based on unexplained purchases 3. Deletion of addition by the Commissioner of Income Tax (Appeals) 4. Admission of additional evidence by the Commissioner of Income Tax (Appeals) 5. Allowance of unabsorbed depreciation to be set off against income 6. Appeal by the Revenue against the decision of the Commissioner of Income Tax (Appeals) Issue 1: Unexplained gains of FAT & SNF in the trading account The case involved the assessment of unexplained gains of FAT & SNF in the trading account of the assessee, who was engaged in the business of manufacturing and sales of dairy products. The Assessing Officer (AO) raised concerns regarding the unexplained gains of FAT & SNF, leading to additions in the total income of the assessee. The AO based the addition on discrepancies in the procurement and processing of milk, questioning the verifiability of the gains. The Commissioner of Income Tax (Appeals) (CIT(A)) considered the nature of the business module and additional evidence, concluding that the gains were attributable to the contract work for Mother Dairy. The CIT(A) highlighted discrepancies in the AO's assumptions and factual corrections based on additional evidence, ultimately deleting the addition. Issue 2: Addition made by the Assessing Officer based on unexplained purchases The AO made additions to the total income of the assessee, attributing unexplained gains of FAT & SNF in the trading account to unexplained/unaccounted purchases. The AO calculated the value of unexplained purchases related to FAT & SNF gains, leading to a significant addition to the total income. However, the CIT(A) reviewed the agreement, remand report, and additional evidence to determine that the gains were linked to the contract work for Mother Dairy. The CIT(A) emphasized that no deduction for purchases was claimed by the assessee, questioning the basis for the AO's addition. The CIT(A) found that the gains were not unexplained purchases but verifiable gains, leading to the deletion of the addition. Issue 3: Deletion of addition by the Commissioner of Income Tax (Appeals) The CIT(A) analyzed the agreement, remand report, and additional evidence to conclude that the gains in FAT & SNF were attributable to the contract work for Mother Dairy. The CIT(A) highlighted discrepancies in the AO's assumptions and factual corrections based on additional evidence, leading to the deletion of the addition. The CIT(A) emphasized that no deduction for purchases was claimed by the assessee, questioning the basis for the AO's addition. The CIT(A) found that the gains were not unexplained purchases but verifiable gains, ultimately resulting in the deletion of the addition. Issue 4: Admission of additional evidence by the Commissioner of Income Tax (Appeals) The CIT(A) admitted additional evidence, including a certificate from Mother Dairy, to ascertain the quantity of milk procured for contract manufacturing. The additional evidence played a crucial role in establishing the correct figures related to milk procurement, leading to factual corrections and supporting the assessee's position. The CIT(A) relied on the additional evidence to counter the AO's assumptions and factual inaccuracies, ultimately influencing the decision to delete the addition made by the AO. Issue 5: Allowance of unabsorbed depreciation to be set off against income The CIT(A) allowed unabsorbed depreciation of a specific amount to be set off against the income for the assessment year, relying on a decision of the jurisdictional High Court. The Revenue raised concerns regarding the allowance of unabsorbed depreciation, highlighting a disagreement with the decision cited by the CIT(A). However, the Revenue failed to provide a proposition of law to distinguish or challenge the CIT(A)'s decision, resulting in the dismissal of this issue against the Revenue. Issue 6: Appeal by the Revenue against the decision of the Commissioner of Income Tax (Appeals) The Revenue appealed against the decision of the CIT(A), challenging the deletion of the addition related to unexplained gains of FAT & SNF in the trading account. The Revenue raised multiple grounds questioning the CIT(A)'s decision, including the admission of additional evidence and the allowance of unabsorbed depreciation. However, the Tribunal dismissed the Revenue's appeal, upholding the CIT(A)'s decision based on factual corrections, verifiable evidence, and reasoned analysis presented during the proceedings. This detailed analysis covers the key issues involved in the legal judgment delivered by the Appellate Tribunal ITAT DELHI.
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