2023 (10) TMI 838 - AT - Income Tax

Assessment u/s 153A - bogus purchases - group has routed its own unaccounted money in the books through bogus profits shown in the unit at Jammu and claimed 100% deduction on such profits u/s 80-IB - whether during the search any incriminating material was seized and which has been relied at the time of assessment but which has been wrongly left out of consideration by CIT(Appeals)? Whether the AO was able to establish that there was no manufacturing activity in the units of the assessee companies? - HELD THAT - It comes up from the order of AO that primarily he relied on the Central Excise Department s Investigation and findings, which were made basis to conclude that assessee companies were involved in booking bogus purchases through various persons/parties which were found to be non-existing. However, what is material is that the order of learned AO is dated 31.03.2016 and on 5.12.2018 the CESTAT in its order has accepted the claim of the assessee companies that they were engaged into genuine purchases and manufacturing activities by holding that the allegations are based only on assumptions and presumptions and it cannot be held that appellants had not manufactured the goods during the impugned period. There is no force in the contention of learned DR that the subsequent inquiries made during assessment proceedings can be considered falling in category of seized or incriminating material found during search, so as to validate the assessment u/s 153A . The subsequent proceedings are only of corroborative nature and may be considered relevant to be one for the purpose of ascertaining the extent of evasion. However, the preliminary piece of evidence would be the one allegedly found during the search which in the case of the appellants was only the statement of Manoj Jain and Sanjiv Jain, which too stood retracted. The Bench is of the considered view that the subsequent finding of the CESTAT were fatal to the case made by Ld. AO. The order of ld. CIT(A) requires no interference. Decided against Revenue.

Summary

Issues Involved:
The judgment involves issues related to bogus purchases, disallowance of deduction under section 80-IB of the Income-tax Act, rejection of books of account, and the presence of incriminating material during a search operation.

Bogus Purchases and Manufacturing Activities:
The appellants, entities part of a group, were alleged to have engaged in bogus purchases to claim benefits under the Income-tax Act. The main allegation was that the group availed credit of excise duty and 100% deduction of profits by showing false transactions. The AO concluded that the purchases were bogus, leading to protective additions due to lack of manufacturing activity and disallowance of manufacturing expenses. However, the CIT(A) allowed the appeal, stating that the purchases were genuine and that there was sufficient evidence to support this claim.

Appeal by Revenue and Grounds Raised:
The Revenue appealed the CIT(A)'s decision, raising various grounds including errors in appreciating the factual matrix of the case, reliance on previous judgments, deletion of additions on account of bogus purchases, disallowance of deduction under section 80-IB, rejection of books of account, and overall errors in the order. The arguments from both sides were presented, with the AR emphasizing the lack of incriminating evidence and reliance on previous judgments, while the DR stressed the findings based on statements recorded during the assessment.

Presence of Incriminating Material and Manufacturing Activity:
The Bench considered whether any incriminating material was seized during the search and if manufacturing activity was established in the units of the assessee companies. It was noted that the AO primarily relied on statements and findings from the Central Excise Department, but subsequent CESTAT findings supported the genuineness of purchases and manufacturing activities. The Bench concluded that no incriminating material was found during the search, and the subsequent inquiries did not validate the assessments made by the AO. Therefore, the order of the CIT(A) was upheld, and all grounds raised by the Revenue were dismissed.

Conclusion:
The judgment addressed the issues of bogus purchases, disallowance of deductions, rejection of books of account, and the presence of incriminating material during a search operation. The decision favored the appellants, emphasizing the genuineness of purchases and manufacturing activities based on subsequent findings, leading to the dismissal of the Revenue's appeals.