2022 (11) TMI 1299 - AT - Income Tax

Undisclosed sales - AO found difference between Tax Audit Report Audited Accounts in local sales - CIT-A deleted the addition - HELD THAT - CIT(A) considered the submissions of the assessee including the tax audit report and other details/particulars and based on the same deleted the addition stating that AO acted in an erroneous manner by comparing the particulars of sales to AEs reported u/s 40A(2)(b) with the sales figure reported in the Profit Loss Account - also find merit in the appellant's case that the sales made was in the nature of deemed exports since the aforesaid body corporate is located in an SEZ and hence it was rightly reported by way of export sales. It is noted that once the sales made to M/s Pacific Jute Ltd is excluded, the sales to related entities within the territory of India (excluding deemed exports) which was lower than the overall local sales - In the circumstances impugned addition made by way of unrecorded local sales was untenable on the given facts of the case - Decided in favour of assessee. Addition u/s 68 - unexplained increase in short term borrowings under the head advance received from the parties and increase in liability under the had trade payables for goods - CIT(A) considered the submissions of the assessee including the tax audit report and other details/particulars, deleted the addition - HELD THAT - AO did not consider aspect while making additions of sundry creditor under Section 68 of the Income Tax Act there was no case for disallowance for corresponding purchase, no addition could be made under Section 68 inasmuch as it is not in dispute that the creditors outstanding related to purchases and the trading results were accepted by the AO. We are, therefore, of the opinion that no substantial question of law arises for consideration in this case - AO was unjustified in adding the net increase in current liabilities invoking Section 68 of the Act. The Ld. AO is accordingly directed to delete the impugned addition in full. - Decided in favour of assessee.

Summary

Issues:
1. Treatment of sales to related parties as local sales.
2. Addition of undisclosed sales and unexplained cash credit.

Analysis:

Issue 1: Treatment of sales to related parties as local sales
The case involved the appellant, a limited company engaged in jute manufacturing and sales. The Assessing Officer (AO) found discrepancies in the reported sales figures, treating sales to related parties as local sales. The AO added the difference to the total income as undisclosed sales. The appellant appealed to the CIT(A) who ruled in favor of the appellant. The Tribunal examined the submissions and evidence. The Tribunal agreed with the appellant, noting that sales to a specific party were deemed exports and not local sales. The Tribunal found the AO's comparison erroneous and directed the deletion of the addition of undisclosed local sales.

Issue 2: Addition of undisclosed sales and unexplained cash credit
The second issue pertained to the addition of unexplained cash credit by the AO. The AO treated an increase in short-term borrowings and trade payables as unexplained income under Section 68 of the Act. The CIT(A) reviewed the submissions and relevant details, concluding that the AO's approach was unjustified. The CIT(A) referenced a decision by the Delhi High Court to support the appellant's claim. The Tribunal upheld the CIT(A)'s decision, ruling that the AO was incorrect in adding the net increase in current liabilities as unexplained income. The Tribunal directed the deletion of the addition in full.

In conclusion, the Tribunal dismissed the revenue's appeal, upholding the CIT(A)'s decisions on both issues. The Tribunal found no infirmity in the CIT(A)'s findings and ruled in favor of the appellant on both grounds, leading to the dismissal of the revenue's appeal.