2023 (3) TMI 771 - AT - Income Tax

Gross Profit addition - unaccounted sales - AO has applied Gross Profit on unaccounted sales at 3.36% - CIT-A deleted the addition - HELD THAT - The Excise Authority had not concluded their proceeding pointing out the alleged unaccounted sales. It was just an investigation process, and out of which material was supplied to the Income Tax Authorities. What is the final outcome to such a material was not traced out by the ld. Assessing Officer. Even during the course of hearing before us, it was submitted by assessee that Excise Authorities have not made any addition. The assessee before the ld. 1st Appellate Authority put reliance upon the judgment of the Hon ble Gujarat High Court in the case of Principal CIT vs. Ganga Glazed Tiles Pvt. Limited 2019 (7) TMI 547 - GUJARAT HIGH COURT as upheld the order of the ITAT, wherein additions have been deleted under identical circumstances. Thus a perusal of finding of the ld. 1st Appellate Authority extracted supra, we are satisfied that the ld. 1st Appellate Authority had made analysis in right perspective and there was no material possessed by the Revenue, which can demonstrate unaccounted sales made by the assessee in both the years. The additions have been rightly deleted by the ld. 1st Appellate Authority and we do not find any merit in these appeals, these are dismissed.

Summary

Issues Involved:

1. Deletion of Gross Profit addition by CIT(A).
2. Reopening of assessment.
3. Validity of evidence and statements used for addition.

Summary:

1. Deletion of Gross Profit addition by CIT(A):

The Revenue's appeals centered on the deletion of Gross Profit additions of Rs.3,79,19,183/- and Rs.39,42,318/- for A.Ys. 2008-09 and 2009-10, respectively. The assessee, engaged in manufacturing Re-rolled M.S. Bars, was accused of suppressing sales to avoid excise duty, leading to the reopening of assessments. The Assessing Officer (AO) based his additions on alleged unaccounted sales derived from seized materials and statements from employees. However, the CIT(A) found these additions unsubstantiated, noting discrepancies in the AO's reasoning, such as the improbability of production exceeding installed capacity and insufficient electricity consumption to support such production levels. The CIT(A) emphasized the lack of corroborative evidence beyond the employees' statements, which were later retracted under claims of coercion. Consequently, the CIT(A) deleted the additions, a decision upheld by the Tribunal, which found no coherence in the AO's inferences and agreed with the CIT(A)'s detailed analysis.

2. Reopening of assessment:

The assessee challenged the reopening of the assessment for A.Y. 2008-09 but not for A.Y. 2009-10. The CIT(A) upheld the reopening, and since no Cross Objection was filed by the assessee before the Tribunal, this aspect attained finality.

3. Validity of evidence and statements used for addition:

The Tribunal noted that the AO relied heavily on the statements of two employees and seized materials without independent corroboration. The CIT(A) highlighted that the statements were obtained under duress and later retracted. The Tribunal agreed with the CIT(A) that the AO failed to provide concrete evidence of unaccounted production or sales, such as proof of sale, transportation records, or buyer confirmations. The Tribunal also noted that the Excise Authorities had not concluded their investigation with any findings of unaccounted sales, further weakening the AO's case.

Conclusion:

The Tribunal dismissed the Revenue's appeals, affirming the CIT(A)'s deletion of Gross Profit additions due to lack of substantive evidence and improper reliance on coerced statements. The reopening of the assessment for A.Y. 2008-09 was upheld, but the additions were deemed unjustified.