2021 (5) TMI 535 - AT - Income Tax

Bogus purchases u/s 69C - Search action u/s 132 at the premises of assessee and certain incriminating material indicating the bogus purchases shown by the assessee was recovered - AO solely relied upon the alleged incriminating material i.e. order of Excise Department Authority withdrawing the Excise Duty Rebate availed by the assessee - HELD THAT - The books of accounts of assessee was not rejected. AO is not identified the ratio of alleged bogus purchases qua the overall purchases of grey material consumed in the production of new material. The previous or subsequent years Gross Profit was not compared by AO. No adverse material was brought by the AO on record except relying upon the orders of Excise Department. We have noted that the ld. CIT(A) on the submission of assessee called the remand report of the AO. AO furnished the remand report - CIT(A) after considering the remand report held that the Excise Department not allowed the rebate, because there was some alert circular issued by Excise Department. The circular issued by Excise Department is not binding on Income Tax Department. The seized material is only for the purpose of calculating rebate and there is no such evidence regarding fake purchases for the purpose of Income Tax. CIT(A) has passed a detailed and reasoned order after considering the entire facts of the case. No contrary facts or law is brought to our notice to take other view. Thus, we affirm the order passed by Ld. CIT(A). Ground No.1 raised by the Revenue is dismissed. Disallowance u/s 80HHC - assessee submits that the addition under section 80HHC of the Act is not based on incriminating material found during the search carried out under section 132 - HELD THAT - Perusal of the report of AO, it is clear that addition under 80HHC of the Act has no relevance with the seized material. CIT(A) while deleting the addition also held that AO exceeded his jurisdiction while sitting over the finding of the Tribunal. No addition can be made in the completed assessment in absence of incrementing material found during the search, hence, we uphold the order of ld. CIT(A). No contrary facts or law is brought to our notice to take other view. Accordingly, the Ground No.2 of the Revenue is also dismissed.

Summary

Issues Involved:
1. Deletion of addition on account of bogus purchases.
2. Direction to allow deduction under section 80HHC of the Income Tax Act.

Issue-wise Detailed Analysis:

1. Deletion of Addition on Account of Bogus Purchases:

The Revenue contested the deletion of an addition of ?91,91,937/- made by the Assessing Officer (AO) on account of bogus purchases. The AO's decision was based on incriminating material found during a search under section 132 of the Income Tax Act at the assessee's premises, which included an order from the Excise Department regarding the withdrawal of Excise Duty rebate. The AO concluded that the purchases were from non-existent parties and treated them as bogus, adding the amount to the assessee's income.

The Commissioner of Income Tax (Appeals) [CIT(A)] deleted the addition, stating that the Excise Department's circulars and orders were not binding on the Income Tax Department. The CIT(A) noted that the seized material was only for calculating Excise Duty rebate and not for proving fake purchases for income tax purposes. The CIT(A) also highlighted that the lapse of time between the transactions and the assessment made it unreasonable to produce the parties for verification. Payments were made through account payee cheques, and goods were received, thus the purchases could not be treated as bogus.

The Tribunal upheld the CIT(A)'s decision, noting that the AO did not conduct an independent investigation and solely relied on the Excise Department's order. The AO did not reject the assessee's books of accounts or compare the gross profit ratios of previous or subsequent years. The Tribunal affirmed that the CIT(A) provided a detailed and reasoned order, and no contrary facts or law were presented to warrant a different view.

2. Direction to Allow Deduction under Section 80HHC:

The Revenue also contested the CIT(A)'s direction to allow a deduction under section 80HHC of ?58,11,629/- instead of ?1,14,048/- as allowed by the AO. The AO had revised the deduction computation during the assessment, but this was not based on any incriminating material found during the search.

The CIT(A) held that the AO exceeded his jurisdiction by not adhering to the Tribunal's earlier direction to recompute the deduction in accordance with the amendment effective from 01.04.1998. The CIT(A) relied on the decision of the Hon'ble Madras High Court in Seshasayee Paper and Board Ltd. vs. IAC, which emphasized that departmental circulars are not binding on the Income Tax Department.

The Tribunal upheld the CIT(A)'s decision, noting that the AO's action was not based on any seized material and that the AO exceeded his jurisdiction. The Tribunal affirmed that no addition could be made in a completed assessment without incriminating material found during the search.

Conclusion:

The Tribunal dismissed the Revenue's appeal, upholding the CIT(A)'s decisions on both issues. The Tribunal found that the CIT(A) provided detailed and reasoned orders, and no contrary facts or legal arguments were presented to warrant a different conclusion. The Tribunal's decision was pronounced on 23rd February 2021.