2023 (10) TMI 1190 - AT - Income Tax

Additions were made on the ground that Inflated purchase made by showing sale of scrap machinery without corresponding sales or inventory - as per DR CIT(A) committed error in deleting the addition without their being any documentary evidence of sale of scrap machinery or auction documents as claimed at the time of assessment proceedings and relying on the assessment order and sought for reversal of orders - HELD THAT - CIT(A) after verifying the material on record observed that scrap machinery lying Noida Unit of the assessee was transferred to Kirti Nagar Unit, during the period 07/05/2010 to 09/11/2010 and in the books of Noida Unit, the said machinery has been excluded from the schedule of assets and was included as purchases in the Kirti Nagar Unit. During the year itself the machinery has been sold to one M/s Sh. Mahalaxmi Plywood Industries which has been corroborated with the sale invoices furnished in the paper books before the CIT(A).CIT(A) has also found that the ledger of scrap machinery account for the month of March 2011 which in the format of MM-DD-YYYY, wrongly interpreted as 03/05/2011 instead of 05/03/2011 . Considering the fact that sale proceedings are duly accounted for in the books of account and fixed deposits have been made out of the sale proceeding, the finding of the A.O. that the sales are made in the next financial year has been rightly negated by the CIT(A). No error or infirmity in the order of the CIT(A) in deleting the addition, accordingly, we dismiss the Ground No. 1 of the Revenue. Suppression of sales - Addition being margin sales out of books on the basis of consumption of electricity and powder consumed during the year in the manufacturing process - A.O. observed that no raw material (Powder) was issued in the month of February and March 2011, whereas consumption of electrical unit is shown in the respective month and no production of cabinets was shown - CIT(A) deleted the addition - HELD THAT - As per the record, the assessee had production 4083 unit of cabinets for which no material could have been issued as the materials/powder was supplied by the customer for manufacture of cabinet on job work. The assessee had also furnished detailed reconciliation statement wherein the difference in terms of unit of electricity consumed as recorded by the A.O. was duly reconciled. CIT(A) also found that the main reason for variance is that in the preceding year there was large order of 14 inch TV Cabinets, whereas the production carried out during the relevant year was of 29 inch cabinets. Since 29 inch cabinets were manufactured on larger machines, the electricity consumption is on the higher side. It is also noticed that the report of the Excise Audit for the year does not indicate any material discrepancy in the goods manufactured or any instance of sales outside the books. It is well settled law that the Assessing Officer solely on the basis of variance in power/electricity, additions cannot be made on the allegation of unrecorded sales - No error or infirmity in the order of the CIT(A) in deleting the addition. Revenue appeal dismissed.

Summary

Issues involved:
The appeal filed by the Revenue against the order of the Learned Commissioner of Income Tax (Appeals)-7, New Delhi for the Assessment Year 2011-12.

Issue 1 - Deletion of addition of Rs. 34,60,000/-:
The Revenue challenged the deletion of the addition made on account of inflated purchase by showing scrap machinery without corresponding sales or inventory. The CIT(A) deleted the addition after finding that the scrap machinery was transferred between units and sold during the year, with proper accounting.

The Departmental Representative argued that there was no documentary evidence of the sale of scrap machinery, but the Assessee's Representative provided details showing the machinery transfer and sale. The CIT(A) correctly deleted the addition based on the evidence presented.

The Tribunal upheld the CIT(A)'s decision, noting that the machinery was properly accounted for in the books, and the addition was unjustified.

Issue 2 - Deletion of addition of Rs. 3,49,08,598/-:
The Revenue contested the deletion of the addition made on the basis of alleged suppression of sales, related to margins on sales out of books. The CIT(A) deleted the addition after considering the consumption of electricity and powder in the manufacturing process.

The Departmental Representative argued that the deletion was erroneous as the electricity consumption was not directly correlated with the production of cabinets. The Assessee's Representative provided a detailed reconciliation statement and explanations for the variations in electricity consumption.

The Tribunal agreed with the CIT(A)'s decision, finding that the reasons for the addition by the A.O. were adequately addressed by the Assessee, and there was no evidence of unrecorded sales. The addition was rightly deleted by the CIT(A).

In conclusion, the Tribunal dismissed the appeal filed by the Revenue, upholding the decisions of the CIT(A) regarding the deletion of additions related to inflated purchases and alleged suppression of sales for the Assessment Year 2011-12.