2021 (4) TMI 308 - AT - Income Tax

Addition on account of bogus creditors - no cognizance of genuineness of 21 parties as those parties has not given any confirmation or not appeared before the Assessing Officer - CIT- A deleted the addition - HELD THAT - In the present case the assessee disclosed the bank account numbers, name of the bank of the parties vide letter dated 07.02.2013 and 20.02.2013. During the Assessment Proceedings, the assessee also furnished the confirmations of outstanding balance obtained from the said parties, but those parties could not be produced for the reason that a prolonged litigation was going on and the parties were absconding. The assessee furnished the details of their bank account wherein the payment made by the assessee in subsequent year was credited. In fact, the Assessing Officer accepted the purchases made from these parties in whose names, balances were outstanding but only doubted the genuineness. When the purchases from the parties were accepted and the sales made out of those purchases were not doubted, the payments outstanding in the name of those parties were accepted in the subsequent year, then there was no reason to doubt the genuineness of the outstanding balance. These findings given by the CIT(A) are correct as per the records. Merely, non-producing the parties in person despite knowing that these parties are identified parties, cannot determine the non-genuineness of the transaction. Thus, the CIT(A) rightly deleted the addition. Addition relating to job work charge - CIT-A deleted the addition - as per assessee the job work was related to the sister concern and, therefore, the CIT(A) has rightly deleted this addition - HELD THAT - CIT(A) has given a categorical finding that the Assessing Officer has not brought any comparable cases in respect of increase in job work charges as there is increase in labour and electricity cost which was categorically proved by the assessee before the CIT(A). Ground No. 4 5 are dismissed. Disallowance relating to deduction u/s 80IC - proof of manufacturing activity as undertaken by assessee - HELD THAT - It is pertinent to note that TMT bars made from MS Ingots suffer from a deficiency in tensile properties, and there arises inconsistency in tensile strength and elongation. But TMT bars produced from continuous casting MS Billets show a remarkable consistency of properties because of the high tensile strength and elongation. - AR submitted that it is a manufacturing activity itself and thus, the assessee has rightly claimed the deduction under Section 80IC which is also accepted in subsequent years by the Revenue. As per the CIT(A) and the Assessing Officer the assessee has not provided all the requisites in respect of claiming deduction under Section 80IC of the Act. Therefore, we are remanding back this issue to the file of the AO for verifying whether the assessee is carrying out any manufacturing activity or not as envisaged under Section 80IC for claiming deduction and if the revenue has allowed the deduction in subsequent years, why the same should not be allowed in this year. Hence, the issue relating to deduction under Section 80IC in the present assessment year is restored to the file of the Assessing Officer. Needless to say, the assessee be given opportunity of hearing by following principles of natural justice. Ground of assessee is allowed for statistical purpose.

Summary

Issues:
1. Addition of bogus Sundry creditors
2. Restriction of deduction under Section 80-IC
3. Eligibility for Section 80-IC deduction in respect of sale of TMT bars

Issue 1: Addition of Bogus Sundry Creditors:
The appeal concerned the addition of ?2,22,89,648 on account of bogus Sundry Creditors for the assessment year 2011-12. The Revenue contended that the CIT(A) erred in deleting the addition as the genuineness of the creditors was not proven since 21 parties did not appear or provide confirmation. However, the assessee argued that all relevant documents were submitted, including responses from creditors and bank statements showing payments made. The CIT(A) found that non-appearance of parties did not determine non-genuineness of the transactions, leading to deletion of the addition. The Tribunal upheld the CIT(A)'s decision, emphasizing that purchases from these parties were accepted, and there was no reason to doubt the outstanding balances' genuineness. Therefore, Grounds 1 to 3 of the Revenue's appeal were dismissed.

Issue 2: Restriction of Deduction under Section 80-IC:
The dispute revolved around the AO restricting the deduction under Section 80-IC to ?6,96,627 instead of the claimed ?13,72,033. The CIT(A) confirmed this action, leading to the appeal. The assessee argued that the TMT bars were produced from billets manufactured by them, making them eligible for the deduction. The Tribunal remanded the issue to the AO to verify if the assessee was engaged in manufacturing activity as required for Section 80-IC deduction. The AO was directed to consider why the deduction was allowed in subsequent years if manufacturing activity was present. The Cross-Objection filed by the assessee was allowed for statistical purposes.

Issue 3: Eligibility for Section 80-IC Deduction in Respect of Sale of TMT Bars:
The assessee, engaged in manufacturing MS Billets, claimed Section 80-IC deduction for the sale of TMT bars. The dispute arose over the deduction disallowed by the AO, which the CIT(A) upheld. The Tribunal noted that TMT bars produced from billets exhibited consistent properties compared to those from ingots, supporting the manufacturing activity claim. The issue was remanded to the AO for further examination, considering the allowance of deduction in subsequent years. The Cross-Objection filed by the assessee was allowed for statistical purposes.

In conclusion, the Tribunal dismissed the Revenue's appeal regarding the addition of bogus Sundry Creditors and remanded the issues related to the Section 80-IC deduction back to the AO for further verification. The Cross-Objection filed by the assessee was allowed for statistical purposes.