2015 (2) TMI 896 - AT - Income Tax

Addition on lower Gross Profit rate - assessee has made purchase of raw material and sold finished goods to specified persons covered u/s 40A(2)(b) - CIT(A) deleted addition admitting additional evidence - Held that - The Assessing Officer has made disallowance after rejecting the books of account only on two counts - one is with regard to the payment towards electricity charges and the other with regard to the alleged inflated purchases made from the sister concern and on both these counts, the ld. CIT(A) has categorically held that the disallowances were made by the Assessing Officer having ignored the available documents, materials and the books of account produced before him. The ld. CIT(A) accordingly deleted the addition. During the course of hearing, the ld. D.R. could not point out any specific defect in the order of the ld. CIT(A). We, however, have examined the material on record and we find that the documents available on record were properly appreciated by the ld. CIT(A) and we find no infirmity in his order on these issues. Accordingly, we confirm the same - Decided in favour of assessee. Unexplained cash credit under section 68 - CIT(A) deleted the addition - Held that - As before the Assessing Officer, the assessee has furnished complete details in support of its contention that the amounts were received by M/s Hans Castings Pvt. Ltd. on account of business transaction and the same amount was debited to the account of M/s Hans Castings Pvt. Ltd. and credited to these parties. It was also contended that in the subsequent assessment year, the sales were effected, but the Assessing Officer did not appreciate these facts and made addition under section 68 of the Act, having treated the credit entry as unexplained; whereas the ld. CIT(A) has appreciated all the evidence filed before the lower authorities and was of the view that the said credits have been in the nature of purchase advances through banking channels, therefore, no addition under section 68 of the Act is called for. - Decided in favour of assessee. Non genuine transaction - assessee was unable to file copy of contract note, purchase and sales bills issued by the broker and to prove genuineness of the transaction - Held that - The basis for addition of ₹ 40,97,700/- was on account of nonavailability of details of 10,000 shares held by the assessee. This mistake was pointed out before the ld. CIT(A) and the ld. CIT(A) has re-examined the details furnished before the lower authorities and having noted that the Assessing Officer has missed one entry of 10,000 shares on 20.2.2004, he rectified the mistake and deleted the addition. The assessee has also filed the details of purchase and sale of shares at pages 74 to 101 of the compilation of the assessee. During the course of hearing, the ld. D.R. could not point out any specific defect in the order of the ld. CIT(A) with regard to the availability of 10,000 shares with the assessee; whereas the ld. CIT(A) has categorically adjudicated the issue of discrepancy of 10,000 shares, which has resulted into an addition of ₹ 40,97,700/-, thus find no reason and no rational for addition of ₹ 40,97,700/- made by AO - Decided in favour of assessee. Addition u/s 41(1) - the assessee was unable to file confirmation of accounts and to prove the genuineness of the transactions before the A.O. - CIT(A) deleted the addition - Held that - In the instant case, these are commercial transactions and it cannot be treated to be cessation of liability under section 41(1) of the Act for making an addition. We, therefore, find no merit in the addition made by the Assessing Officer. On carefully examining the order of the ld. CIT(A) it is find that the ld. CIT(A) has properly examined the issue in the light of the relevant evidence. Moreover, the evidence filed before the Assessing Officer are sufficient to hold that provisions of section 41(1) of the Act cannot be invoked, as these purchases were made in the month of March, 2004 and the liabilities were liquidated in the succeeding year. Accordingly, we find no merit in the ground of the Revenue and the order of the ld. CIT(A) on this issue is confirmed. - Decided in favour of assessee.

Summary

Issues Involved:
1. Deletion of addition made on account of lower Gross Profit rate.
2. Deletion of addition made under section 68 for unexplained cash credits.
3. Deletion of addition made due to non-genuine transactions in shares.
4. Deletion of addition made under section 41(1) for cessation of liabilities.
5. Validity of the order of the Commissioner of Income Tax (Appeals).

Issue-wise Detailed Analysis:

1. Deletion of Addition on Account of Lower Gross Profit Rate:

The Assessing Officer (AO) identified discrepancies in the maintenance of books of account and made a disallowance of Rs. 2 crores due to inflated purchases from the assessee's sister concern and payments to the Electricity Department. The AO treated the payment to the Electricity Department as a penalty and disallowed it. The CIT(A) examined the details provided by the assessee, including a certificate from the Electricity Department clarifying that the payment was for regular charges, not a penalty. The CIT(A) also analyzed the comparative rates of purchases from the sister concern and other parties and found that the purchases were not inflated. The Tribunal upheld the CIT(A)'s decision, stating that the AO's disallowance was made by ignoring the available documents and books of account.

2. Deletion of Addition Made Under Section 68 for Unexplained Cash Credits:

The AO added Rs. 1.05 crores under section 68, citing unexplained cash credits from Shri. Ashok Kumar and Shri. Har Kishore Gupta. The assessee contended that these were advances for purchases received through the sister concern, M/s Hans Castings Pvt. Ltd., and provided supporting documents. The CIT(A) re-examined the evidence and concluded that the amounts were purchase advances received through banking channels, thus no addition under section 68 was warranted. The Tribunal confirmed the CIT(A)'s order, noting that the AO did not appreciate the nature of the transactions and the evidence provided.

3. Deletion of Addition Made Due to Non-Genuine Transactions in Shares:

The AO questioned the genuineness of the assessee's share transactions, leading to an addition of Rs. 40,97,700/-. The CIT(A) found that the AO had made a calculation mistake by missing an entry of 10,000 shares, which led to the incorrect conclusion. The CIT(A) examined the complete set of vouchers, bills, and contract notes and deleted the addition. The Tribunal upheld the CIT(A)'s decision, noting that the AO's addition was based on a calculation error and the evidence provided by the assessee was sufficient to substantiate the transactions.

4. Deletion of Addition Made Under Section 41(1) for Cessation of Liabilities:

The AO added Rs. 42,35,231/- under section 41(1), claiming that the liabilities ceased to exist. The assessee argued that the liabilities were for purchases made in March 2004 and were liquidated in the next financial year. The CIT(A) noted that for an addition under section 41(1), it must be proven that the liabilities ceased to exist, which was not the case here. The Tribunal confirmed the CIT(A)'s decision, stating that the liabilities were genuine and were settled in the subsequent year, thus section 41(1) was not applicable.

5. Validity of the Order of the Commissioner of Income Tax (Appeals):

The Revenue contended that the CIT(A) admitted additional evidence in violation of Rule 46A. However, the Tribunal found that no new evidence was filed before the CIT(A); rather, the CIT(A) re-appreciated the existing evidence that was already available to the AO. The Tribunal concluded that there was no violation of Rule 46A and upheld the CIT(A)'s order.

Conclusion:

The Tribunal dismissed the Revenue's appeal, confirming the CIT(A)'s deletion of the additions made on various grounds. The Tribunal found that the AO's disallowances were not substantiated by the available evidence and that the CIT(A) had properly appreciated and re-examined the evidence before making the deletions. The Tribunal's decision was pronounced in the open court.