2016 (9) TMI 261 - AT - Income Tax

Additions towards inflation of purchases - A.O. was of the opinion that the assessee has inflated purchases by recording higher value in the books of accounts - Held that - We find force in the arguments of the assessee for the reason that though there is a difference between value recorded in the books of accounts and provisional invoices, the assessee has explained the differences with final invoices which is matching with the amount recorded in the books of accounts. It is also an admitted fact that the assessee has made the payment for the amount recorded in the books of accounts by way of account payee cheques or electronic transfers. The assessee also issued C form for the value shown in the books of accounts. Therefore, we are of the view that the A.O. was not correct in holding that there is a difference in value recorded in the books of accounts when compared to the invoices. The CIT(A) after considering the relevant records directed the A.O. to delete the additions made towards inflation of purchases. We do not see any error or infirmity in the order passed by the Ld. CIT(A). Hence, we inclined to uphold the CIT(A) order and reject the ground raised by the revenue. Addition towards low yield of rice bran oil - A.O. made additions on the sole ground that there is a difference in percentage of yield of rice bran oil - Held that - No merits in the findings of the A.O. for the reason that before estimation of suppressed turnover, the A.O. has not pointed out any irregularities or mistakes in the books of accounts. The assessee has maintained proper manufacturing and stock registers which was produced before the A.O., however, the A.O. neither pointed out any mistakes in the books of accounts nor noticed any suppression of turnover. The A.O. without going into the quantity of 3 varieties of rice bran purchased for the current year compared the average yield of rice bran oil which is not correct. We further noticed that during the year under consideration, the assessee has purchased 3 varieties of rice bran which is containing different percentage of rice bran oil content. We further observed that purchase of rough rice bran has been doubled when compared to the last financial year because of which there is a reduction in yield of rice bran oil. But, the other final products of rice bran oil extraction is increased because of low yield of rice bran oil. Therefore, the A.O. was not correct in holding that the assessee has suppressed sales turnover by manipulating yield of rice bran oil and rice bran extraction. The CIT(A) after considering the relevant information rightly deleted the additions made by the A.O. There is no error or infirmity in the order passed by the Ld. CIT(A). Hence, we inclined to uphold the order of CIT(A) and reject the ground raised by the revenue. Aaddition towards unexplained credits u/s 68 - AO made additions solely on the ground that the trade creditors are not confirmed the transactions - Held that - No additions can be made u/s 68 of the Act, towards trade creditors when genuineness of the purchases are not doubted. In the present case on hand, the A.O. has not doubted the genuineness of the purchases. The A.O. made additions toward trade creditors for the simple reason that the creditors have not confirmed the transactions with the assessee. Therefore, we are of the view that the A.O. was not correct in making additions towards trade creditor s u/s 68 of the Act for non furnishing confirmation of balances by the creditors. The CIT(A) after considering relevant details filed by the assessee rightly deleted the additions. We do not see any reason to interfere with the order based by the CIT(A). Hence, we inclined to uphold the CIT(A) order and reject the ground raised by the revenue.

Summary

Issues Involved:
1. Addition towards inflation of purchases.
2. Addition towards suppression of sales turnover on account of low yield.
3. Addition towards unexplained credits under Section 68 of the Income Tax Act.

Detailed Analysis:

1. Addition towards Inflation of Purchases:
The Assessing Officer (A.O.) identified discrepancies between the purchase values recorded in the books and the purchase invoices, suspecting inflated purchases. The assessee argued that the differences arose due to provisional invoices issued for the movement of goods, which were later adjusted with final invoices after quality checks. Payments were made via account payee cheques or electronic transfers, and 'C' forms were issued for the values recorded in the books. The CIT(A) accepted the assessee's explanation, noting that the final invoices matched the book values, and payments were made through verified banking channels. The tribunal upheld the CIT(A)'s decision, finding no errors or infirmities in the deletion of the addition.

2. Addition towards Suppression of Sales Turnover on Account of Low Yield:
The A.O. observed a decline in the yield of rice bran oil compared to previous years and suspected suppression of sales turnover. The assessee explained that the lower yield was due to the purchase of more rough rice bran, which has a lower oil content but was cost-effective. Despite the lower yield of rice bran oil, the overall yield of final products remained consistent with previous years. The CIT(A) found the assessee's explanation satisfactory, noting no discrepancies in the manufacturing or stock registers. The tribunal agreed, stating that the A.O. had not identified any errors in the books of accounts and had incorrectly based the addition on an average yield comparison without considering the quality of raw materials used.

3. Addition towards Unexplained Credits under Section 68:
The A.O. added ?2,97,62,203 towards trade creditors, citing a lack of confirmation from the creditors and returned letters. The assessee contended that the trade creditors arose from genuine purchase transactions, with payments made in subsequent financial years. The A.O. had not doubted the genuineness of the purchases. The tribunal referenced several case laws, including decisions from the Allahabad High Court and ITAT Visakhapatnam, which held that additions under Section 68 cannot be made for trade creditors if the purchases are accepted as genuine. The CIT(A) deleted the addition, and the tribunal upheld this decision, emphasizing that the A.O. had erred in making the addition without any evidence of bogus liabilities.

Conclusion:
The tribunal dismissed the revenue's appeal, upholding the CIT(A)'s order to delete the additions towards inflated purchases, suppressed sales turnover, and unexplained credits under Section 68. The decisions were based on the assessee's satisfactory explanations, proper documentation, and established legal precedents.