2018 (5) TMI 1382 - AT - Income Tax

Computation of income - rejection of books of accounts - estimation of NP - Held that - Department in its circular have emphasized time to time that the Income Tax Authorities should not try to extract the admission of the assessee and should bring some concrete material on record for the purpose of estimating the undisclosed income of the assessee. In these circumstances, particularly when contradictory order has been passed by the A.O. without reference to the books of account of the assessee and other material, we are of the view that the matter should go back to the A.O. for reconsideration of the entire matter. We, accordingly, set aside the orders of the authorities below on the issue of addition of ₹ 4.52 crores and restore to A.O. for fresh determination. Addition on confirmation called for in the case of Graphite India Ltd. -entry reversed in books of accounts - Held that - Referring to reconciliation statement of Graphite India Ltd., with their ledger account in which it was explained that damaged goods of the amount in question have been reversed in the books of account which is supported by PB-64 which is a bill of the same amount of the goods so returned. Assessee, therefore, explained the discrepancy in the account of M/s. Graphite India Ltd. The addition is, therefore, not justified. We, accordingly, set aside the orders of the authorities below and delete the addition Addition u/s 41 - Held that - Since the amount payable to the sundry creditors was not credited to the assessee s P&L A/c. for the year and as the amount was still shown as outstanding at the end of the relevant year, the provisions of section 41(1) could not be attracted. Addition of bogus purchases - Held that - It is well settled that though admission is a good evidence against the maker, but assessee is entitled to disprove the same through explanation and evidence on record. The above facts clearly show that the amount in question does not pertains to assessment year under appeal. Therefore, no addition could be made in assessment year under appeal. We, accordingly, set aside the orders of the authorities below and delete the addition.

Issues Involved:
1. Addition of ?4.52 crores based on surrendered amount during survey.
2. Addition of ?1,08,003 due to unexplained difference with Graphite India Ltd.
3. Addition of ?27,21,430 under section 41(1) for creditors in Vichitra Constructions Pvt. Ltd.
4. Addition of ?37,90,000 for bogus purchases from M/s. S.R. Industrial Corporation.
5. Addition of ?5,24,534 for bogus creditors under section 41(1) in Vichitra Prestressed Concrete Udyog Pvt. Ltd.

Issue-wise Detailed Analysis:

1. Addition of ?4.52 crores based on surrendered amount during survey:
The assessee, engaged in manufacturing and government contracting, was subjected to a survey under section 133A, revealing unaccounted advances of ?4.52 crores. The Assessing Officer (A.O.) added this amount to the returned income, despite the assessee retracting the surrender and claiming no unaccounted income. The A.O. rejected the books of account under section 145(3) and relied on the seized diary and statements made during the survey. The ITAT found contradictions in the A.O.'s approach, noting the need for a fresh determination based on concrete material and books of account. The matter was remanded back to the A.O. for reconsideration, emphasizing the need for a clear computation of income based on seized material and proper reconciliation of accounts.

2. Addition of ?1,08,003 due to unexplained difference with Graphite India Ltd.:
The A.O. added ?1,08,003 due to a discrepancy with Graphite India Ltd., which the assessee failed to explain. However, the assessee provided a reconciliation statement and evidence of goods returned, justifying the reversal of the amount. The ITAT accepted this explanation and deleted the addition, finding the discrepancy satisfactorily explained.

3. Addition of ?27,21,430 under section 41(1) for creditors in Vichitra Constructions Pvt. Ltd.:
The A.O. added ?27,21,430 under section 41(1) for various creditors, based on the assessee's surrender during the survey. The ITAT referred to a previous decision in the assessee's favor, where similar additions were deleted. The Tribunal noted that the revenue failed to prove the cessation or remission of liability during the assessment year. The addition was deleted, following the precedent and finding no basis for applying section 41(1).

4. Addition of ?37,90,000 for bogus purchases from M/s. S.R. Industrial Corporation:
The A.O. disallowed ?37,90,000 for purchases from M/s. S.R. Industrial Corporation, based on the assessee's admission during the survey. However, the ITAT found that the transactions pertained to A.Y. 2006-2007, not the relevant assessment year 2008-2009. The Tribunal acknowledged the assessee's retraction and evidence showing the transactions in the earlier year, thus deleting the addition for the current assessment year.

5. Addition of ?5,24,534 for bogus creditors under section 41(1) in Vichitra Prestressed Concrete Udyog Pvt. Ltd.:
The A.O. added ?5,24,534 under section 41(1) for two creditors, following the pattern in group cases. The ITAT, referring to its earlier decisions, found the addition unjustified as the revenue did not prove the cessation of liability. The Tribunal deleted the addition, aligning with the consistent approach in similar cases.

Conclusion:
The ITAT's judgment addressed multiple additions made by the A.O., emphasizing the need for concrete evidence and proper reconciliation of accounts. The Tribunal remanded the major addition of ?4.52 crores for fresh determination, deleted the addition of ?1,08,003 due to satisfactory explanation, and consistently applied legal principles to delete other additions under section 41(1) and for bogus purchases. The judgment highlights the importance of clear findings and adherence to procedural fairness in tax assessments.

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