2023 (1) TMI 33 - AT - Income Tax

Inflated purchases - excess stock found during survey - addition solely on the basis of statement recorded of the partner of the assessee firm who had surrendered the same in his statement so recorded during survey - HELD THAT - As pointed out by assessee, CIT(A) found the contention of the assessee in this regard to be correct. At para 4.2 of his order, page 11, while dealing with the issue of inflated purchases, the Ld.CIT(A) categorically states that the assessee had explained all purchases upto the date of survey with the above evidences . Again while dealing with the AO s contention of low profitability of the assessee CIT(A) reiterates his above findings vis- -vis correctness of Books of accounts, at page 27 of his order. Sustaining any addition thereafter either on account of inflated purchases or excess stock is contradictory to his specific findings relating to correctness of the Books of the assessee and the GP/NP being justified. CIT(A) it seems is blowing hot and cold at the same time. Even otherwise we find that the Ld.CIT(A) dismissing the assesses explanation for excess stock for the reason that the katta chitthi of purchases of raw material, allegedly remaining to be considered, appeared to be fabricated is not justified particularly when he categorically noted all purchases as stated by the assessee to be correctly recorded and explained and justified by GP / NP ratio also. Addition on account of inflated purchases is also not justified, as held by the Ld.CIT(A), since it is based merely on the statement of the partner of the assessee firm which was subsequently retracted and the retraction justified by the assessee also by his above explanation . Also the Ld.CIT(A) has rightly found the addition on account of inflated purchases to be overlapping with that on account of excess stock found. The addition, therefore, on account of the excess stock and inflated purchases we hold, not sustainable and is directed to be deleted. Appeal of the assessee on this issue is allowed Unexplained cash deposits - Addition deleted by the Ld.CIT(A) and as a consequence raised by the Revenue as Ground No.1 in its appeal, we have gone through the order of the ld.CIT(A) and we have noted that he has deleted the same noting that the assessee had offered the said amount as its income, credited it to its profit loss account, and had also shown the same as cash in hand. He therefore held that in the light of these facts that the assessee having already surrendered these cash deposits as its income, addition of the cash deposits again would only tantamount to double addition. DR unable to controvert this finding of fact by the ld.CIT(A) - no reason to interfere in the order of the ld.CIT(A) deleting the addition of Rs.1,01,19,284/- on account of unexplained cash deposits. Ground of appeal No. 1 raised by the Revenue is dismissed.

Summary

Issues Involved:
1. Excess stock found during survey.
2. Addition on account of inflated purchases.
3. Addition on account of unexplained cash deposits.

Issue-wise Detailed Analysis:

1. Excess Stock Found During Survey:
The core issue was the difference between the physical stock found during the survey and the stock recorded in the books. The assessee argued that the discrepancy was due to certain raw cotton purchases not being considered by the survey team. This discrepancy impacted the calculation of cotton bales, cotton seed oil, and 'khol' derived from raw cotton. The assessee provided evidence such as kanta chitthi (weighing slips) to substantiate the purchases. The CIT(A) initially accepted the explanation regarding the purchases but later contradicted this by sustaining part of the addition. The Tribunal found this contradictory and unjustified, stating that the CIT(A) should not dismiss the assessee's explanation when the books of accounts were found correct, and the profitability was justified. The addition on account of excess stock was thus directed to be deleted.

2. Addition on Account of Inflated Purchases:
The addition of Rs. 40,75,528/- was based solely on the statement of the partner recorded during the survey, which was later retracted. The CIT(A) found that the addition was overlapping with the excess stock addition and was based on a mere statement without corroborative evidence. The Tribunal agreed with the CIT(A) that the addition was not justified since the books of accounts were found correct, and the statement was retracted with a reasonable explanation. The addition on account of inflated purchases was therefore directed to be deleted.

3. Addition on Account of Unexplained Cash Deposits:
The CIT(A) deleted the addition of Rs. 1,01,19,284/- on the grounds that the assessee had already offered this amount as income in its profit & loss account and shown it as cash in hand. The CIT(A) held that adding this amount again would result in double addition. The Tribunal found no reason to interfere with this finding, as the Revenue could not controvert the CIT(A)'s factual findings. The addition on account of unexplained cash deposits was thus upheld to be deleted.

Conclusion:
The Tribunal allowed the appeal of the assessee, deleting the additions on account of excess stock and inflated purchases, and upheld the CIT(A)'s deletion of the addition on account of unexplained cash deposits. The appeal of the Revenue was dismissed.