2021 (11) TMI 322 - AT - Income Tax

Assessment u/s 153A - Addition on account of alleged suppressed profit at Unit-1, Vapi and alleged exaggerated profits at Unit-11, Baddi - HELD THAT - The figures for the three years as submitted by the production manager match with the figures submitted by the assessee independently. The department has curiously alleged suppression of sales, just on the basis of change of Units (without assigning any basis) of the figures supplied by the assessee. CIT(A) observed that all these data has been submitted to AO during assessment proceedings. These have been reproduced in the assessment order. The same difference in Units (strips vs. numbers of capsules/tablets) exists for the other four years also vis-a-vis the sale record. If the numbers of capsules/tablets in lakhs as given by the assessee are compared with strips in the sale data for other years also; same absurd and erroneous additions could have been made for these years too. Therefore, ld CIT(A) held that this demonstrates the arbitrariness and travesty of the approach of the AO. Not an iota of evidence of any excess raw material purchase, out of books expenses, labour and other manufacturing expenses or receipt of unaccounted sales proceeds, has been found or brought on record even after a detailed search. The additions for alleged suppression have been made purely on selective misinterpretation, without dealing with the explanations/clarification of the production manager and the assessee, completely ignoring the record including audits/inspection by third party and in absence of any incriminating evidence.That being so, we decline to interfere with the order of Id. CIT(A) in deleting the aforesaid additions. His order on this addition is, therefore, upheld and the grounds of appeal of the Revenue are dismissed.

Issues Involved:
1. Addition on account of suppressed profit at Unit-I, Vapi and exaggerated profit at Unit-II, Baddi.
2. No incriminating material/documents were found during the course of search.
3. Suppressed receipts from job work.
4. Addition based on unaccounted production at Unit-I, Vapi.

Issue-wise Detailed Analysis:

1. Addition on account of suppressed profit at Unit-I, Vapi and exaggerated profit at Unit-II, Baddi:
The Revenue's appeals for AYs 2008-09 to 2012-13 focused on the alleged suppression of profit at Unit-I, Vapi, and exaggeration of profit at Unit-II, Baddi. The Assessing Officer (AO) observed a mismatch in production figures and expenses between the units, suggesting inter-unit profit transfer to reduce tax liability. The AO relied on provisions of Section 80IC r.w.s 80IA(10) of the Income Tax Act. During the search, unaudited accounts for AY 2013-14 indicated discrepancies in raw material consumption percentages between the years. The AO issued a show cause notice, and after examining the assessee's reply, rejected their contention, making additions for suppressed profits.

The CIT(A) deleted the additions, noting that they were based on mere financial comparisons without incriminating evidence. The CIT(A) emphasized that different products were manufactured at the two units, and the AO failed to substantiate allegations of profit shifting with evidence. The CIT(A) also noted that scrutiny assessments for earlier years were completed, and no new incriminating evidence was found during the search. The Tribunal upheld the CIT(A)'s order, dismissing the Revenue's ground.

2. No incriminating material/documents were found during the course of search:
The Revenue contended that incriminating material was found during the search, justifying the additions. However, the Tribunal noted that no such material was found, and the assessments for earlier years were completed under Section 143(3). The Tribunal relied on the judgment of the Hon'ble Delhi High Court in CIT vs. Kabul Chawla, which held that completed assessments can only be interfered with based on incriminating material found during the search. The Tribunal dismissed the Revenue's ground, emphasizing that the additions were based on financial comparisons without any incriminating evidence.

3. Suppressed receipts from job work:
The AO made additions for suppressed receipts from job work based on documents found during the search, which indicated job work at the Baddi unit. The AO quantified the suppressed receipts and issued a show cause notice. The assessee contended that the figures represented the assessable value of goods removed, not the job work charges. The CIT(A) found merit in the assessee's argument, noting that the assessable value does not reflect the actual job work charges. The CIT(A) also observed that the job work for Zydus Cadila was disputed and settled in a later year, with revenue booked accordingly. The Tribunal upheld the CIT(A)'s order, allowing the assessee's appeal.

4. Addition based on unaccounted production at Unit-I, Vapi:
The AO made additions for unaccounted production at Unit-I, Vapi, based on discrepancies between production data provided by the production manager and sales data from the Tally ERP system. The AO issued a show cause notice and, after rejecting the assessee's reply, made additions for unaccounted production. The CIT(A) deleted the additions, noting that the AO had mistakenly compared production figures in tablets/capsules with sales figures in strips, resulting in absurd differences. The CIT(A) emphasized that no evidence of excess raw material purchase or unaccounted sales proceeds was found. The Tribunal upheld the CIT(A)'s order, dismissing the Revenue's ground.

Conclusion:
The Tribunal dismissed the Revenue's appeals for AYs 2008-09 to 2013-14, upholding the CIT(A)'s orders. The Tribunal emphasized the lack of incriminating evidence and the AO's reliance on financial comparisons without substantiating allegations. The Tribunal confirmed that the additions were based on conjecture and surmises, and the CIT(A)'s findings were correct and required no interference.

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