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2017 (2) TMI 909 - AT - Income TaxAddition on account of purchases of machinery alleged to be not genuine by invoking provisions of Section 69C - AO has disallowed the purchase of machinery only on the basis of statement of Proprietor of Siddhivinayak Steel which was made before the Sales Tax Department - Held that - CIT(A) has recorded a categoric finding to the effect that since assessee has not claimed any expenditure in respect of investments made in Rolling Mill and he has fully explained the source of payment which was made from the cash credit account of Karnataka Bank, there is no reason to disallow the same. The CIT(A) also observed that neither AO has recorded the statement of Siddhi Vinayak Steel u/s.131 nor has allowed the cross examination to the assessee. With regard to genuineness of Rolling mill so purchased, the CIT(A) has also recorded a finding to the effect that said Rolling mill was set up and fully operational on which excise duty were also paid on production. Therefore the purchase of the Rolling Mill cannot be doubted and the additions cannot be made merely on the basis of the statement of Shri. Pramod Kumar Singh, the proprietor of M/s. Siddhivinayak Steel which too was made before the sales Tax Department. After giving detailed finding from para 6.3.2 to 5.3.11, the CIT(A) has deleted the addition. The finding so recorded by CIT(A) are as per material on record. Learned DR has not controverted the finding so recorded by CIT(A). Accordingly, we do not find any reason to interfere in the order of CIT(A) for deleting the disallowance / addition made u/s.69C of the IT Act. Addition by treating the sale of scrap as unaccounted sales - Held that - CIT(A) has recorded the categorical finding to the effect that generation of scrap was @4.88% equivalent to 234.84 M/Ts. The said quantity was developed as scrap and sold at ₹ 33,93,42/- which was reflected in sales. Therefore, the question of any addition did not arise. However, the AO has wrongly taken the sale price of scrap at the rate of finished goods which was ₹ 52,939/- M/T. The CIT(A) had also recorded a finding to the effect that similar type of scrap was developed in earlier years and the sale value have been accepted by the department. However, AO has not given any reason for taking the value of scrap and sale at the rate on which finished goods were sold. We also found that during the year scrap generated was as per norms prescribed by Director General of Foreign Trade, standard input / output norms as per survey No.C-692 has notified by DGFT in the handbook (Volume-2) 2002-07. According to this notification scrap sale is allowed at 5%, however, scrap of the assessee was 4.88% which is within the limit as mentioned in the above notification. The CIT(A) has also recorded a finding to the effect that sale of scrap has been recorded in RG-1 which has also been verified by the excise department. Detailed finding so recorded by CIT(A) at para 5.3 have not been controverted by learned DR by bringing any positive material on record. Accordingly, we do not find any reason to interfere in the finding so recorded by CIT(A) which is as per material on record. Accordingly ground taken by Revenue is dismissed. Disallowance u/s 14A - Held that - During the year under reference the totaI interest paid on borrowed funds of ₹ 1,30,10,812/- while disallowing the expenses u/s 14A the Assessing Officer under Rule 8D(2) has considered disallowances of ₹ 3,25,224/- under Sub rule (ii) and ₹ 24,200/- under sub rule (iii). We found that no expenses were incurred on the Investments made in shares. Therefore no expenses is disallowable particularly the interest payment on borrowed fund have no link with investments made. At para 7.3 CIT(A) has given detailed finding and restricted the disallowance of other expenditure to the extent of ₹ 24,200/-. The detailed finding so given at para 7.3 by the CIT(A) has not been controverted by learned DR by bringing any positive material on record, accordingly, we do not find any reason to interfere in the order of CIT(A) for restricting the disallowance u/s.14A to the extent of ₹ 24,200/-.
Issues Involved:
1. Deletion of addition of ?40,19,776/- under Section 69C for alleged bogus purchases. 2. Deletion of addition of ?90,38,769/- for unaccounted sales of scrap. 3. Deletion of addition of ?3,49,424/- under Section 14A for disallowance of expenditure related to exempt income. 4. Reliance on judicial precedents by CIT(A) and their applicability to the case. 5. Non-appreciation of fact regarding returned notices and failure to produce parties. 6. Assessee's failure to rebut findings of sales tax department regarding bogus purchases. 7. Misleading submissions by the assessee about non-availability of information from the sales tax department. 8. Assessing Officer's findings on non-genuine purchase transactions. Detailed Analysis: 1. Deletion of Addition of ?40,19,776/- under Section 69C: The Assessing Officer (AO) made an addition of ?40,19,776/- under Section 69C, treating the purchase of machinery as non-genuine based on a statement made by the proprietor of Siddhivinayak Steel before the Sales Tax Department. The CIT(A) deleted this addition after considering various judicial precedents, including the Gujarat High Court's decision in CIT vs. M.K. Brothers, which emphasized that general statements without specific evidence against the assessee cannot justify additions. The CIT(A) noted that the assessee provided sufficient evidence, such as installation records, production records, and payment details, proving the genuineness of the purchase. The Tribunal upheld the CIT(A)'s decision, noting that the AO failed to provide the assessee an opportunity for cross-examination and did not establish that the funds given for the purchase were returned to the assessee. 2. Deletion of Addition of ?90,38,769/- for Unaccounted Sales of Scrap: The AO added ?90,38,769/- by treating the sale of scrap as unaccounted sales, assuming the scrap was sold at the price of finished goods. The CIT(A) deleted this addition, noting that the assessee had accounted for the scrap sales at ?33,93,426/-, which was consistent with the norms prescribed by the Director General of Foreign Trade. The CIT(A) found no justification for valuing the scrap at the price of finished goods and emphasized that the scrap sales were recorded and verified by the Excise Department. The Tribunal upheld this decision, noting that the AO's valuation was arbitrary and unsupported by evidence. 3. Deletion of Addition of ?3,49,424/- under Section 14A: The AO disallowed ?3,49,424/- under Section 14A, considering interest payments in the calculation. The CIT(A) deleted the interest-related disallowance, noting that the investments in shares were made from the assessee's own capital and accumulated profits, not borrowed funds. The CIT(A) confirmed a disallowance of ?24,200/- for other expenses. The Tribunal upheld this decision, noting that the AO did not establish a link between borrowed funds and the investments, and the disallowance was not justified. 4. Reliance on Judicial Precedents by CIT(A): The CIT(A) relied on several judicial precedents, including decisions from the Gujarat High Court, Bombay High Court, and various ITAT benches, to support the deletion of additions. These precedents emphasized the need for specific evidence against the assessee and the importance of providing an opportunity for cross-examination. The Tribunal found the reliance on these precedents appropriate and upheld the CIT(A)'s decisions. 5. Non-Appreciation of Fact Regarding Returned Notices and Failure to Produce Parties: The AO noted that notices issued to parties from whom bills were received were returned undelivered, and the assessee failed to produce these parties. The CIT(A) and Tribunal found that the mere non-delivery of notices and failure to produce parties did not justify additions, especially when the assessee provided sufficient evidence of genuine transactions. 6. Assessee's Failure to Rebut Findings of Sales Tax Department: The AO relied on findings from the Sales Tax Department regarding bogus purchases. The CIT(A) and Tribunal noted that the AO did not provide the assessee an opportunity to rebut these findings through cross-examination, making the reliance on these findings unjustified. 7. Misleading Submissions by the Assessee: The AO claimed that the assessee made misleading submissions about the non-availability of information from the Sales Tax Department. The CIT(A) and Tribunal found that the assessee provided sufficient evidence to support the genuineness of transactions, and the AO's claim was not substantiated. 8. Assessing Officer's Findings on Non-Genuine Purchase Transactions: The AO's findings on non-genuine purchase transactions were based on general statements and assumptions without specific evidence against the assessee. The CIT(A) and Tribunal found these findings insufficient to justify additions, emphasizing the need for concrete evidence and proper procedural compliance. Conclusion: The Tribunal upheld the CIT(A)'s deletion of additions made by the AO under Sections 69C and 14A, and for unaccounted sales of scrap. The decisions were based on detailed analysis, reliance on judicial precedents, and the assessee's provision of sufficient evidence to support the genuineness of transactions. The appeal of the Revenue was dismissed.
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