2010 (7) TMI 125 - HC - Income Tax

Inflated purchase price - Assessing Officer made an addition of Rs. 1,80,48,856/- on account of inflation of purchases. However, on a remand order passed by the ITAT, Assessing Officer calculated the excess consumption of steel at Rs. 1,07,67,750/-. But Commissioner of Income Tax (Appeals) partly allowed assessee s appeal and held the value of excess consumption at Rs. 95,03,697/-. On an appeal being filed, ITAT allowed the assessee s appeal and deleted the disallowance of Rs.95,03,697/-. Held that - . The assessee claimed that it is maintaining RG register and excise department did not find any defects in its record. The AO ought to have called for the information from the excise department if any grievance was there. The alleged information collected from the Hindustan Petroleum Corporation Ltd. vide letter dated 4th January, 2005 in our opinion ought not to be preferred over the actual agreement taken place the assessee and the three oil companies unless specific defect in those agreements are pointed out. If assessee is pleading that it has manufactured cylinders having 16.7 KG of weight specified in drawings attached with agreement then the AO has to bring cogent evidence on record for dispelling the averments of assessee. This letter only specifies that average weight is approximately 15.8 KG. This evidence is not sufficient, for making the addition. Thus in our opinion no case is made out for addition on account of inflation in the purchase price

Summary

Issues:
Challenge to ITAT order on disallowance of inflation in purchase price.

Analysis:
The appeal was filed challenging the ITAT order on disallowance of Rs. 95,03,697/- on account of inflation in the purchase of raw material. The Assessing Officer had made an addition of Rs. 1,80,48,856/- initially, which was later revised to Rs. 1,07,67,750/- on a remand order by ITAT. The Commissioner of Income Tax (Appeals) further reduced it to Rs. 95,03,697/-. However, ITAT allowed the assessee's appeal and deleted the disallowance. The Revenue contended that ITAT erred in law by not appreciating the evidence on record.

ITAT analyzed the evidence presented by both parties. The AO relied on a letter from Hindustan Petroleum Corporation Ltd. stating the average weight of an empty cylinder as 15.8 KG, and disputed the assessee's claim of 32.5% wastage. The assessee provided evidence such as purchase orders specifying weights, terms and conditions of the purchase order, and opinions from experts. ITAT found the evidence in favor of the assessee, emphasizing that the cumulative effect of all facts must be considered. It noted that the scrap generation shown by the assessee was lower than a comparative case, and the Revenue authorities failed to point out specific defects in the assessee's accounts.

The High Court held that the issue was a question of fact and did not raise any substantial question of law. ITAT provided sound reasoning for its decision, which was not found to be perverse or contrary to the record. Consequently, the appeal was dismissed as devoid of merit, with no order as to costs.

Overall, the judgment centered on the interpretation and analysis of evidence regarding the inflation in the purchase price of raw material. The decision highlighted the importance of considering all relevant facts and circumstances in reaching a conclusion, ultimately upholding the ITAT's decision to delete the disallowance.