2012 (11) TMI 473 - AT - Income Tax

Tribunal upholds CIT(A) decision on gross profit addition, emphasizing lack of evidence

The Tribunal upheld the CIT (A)'s decision to delete the addition made by the A.O. regarding the gross profit on the sale of stock for the assessment year ... Gross profit on sale of stock - additional income deleted by CIT(A) - Held that:- The assessee had transferred the stock of old stock of cloth at book value to its sister concern which according to the A.O. should have been transferred at cost plus profit. The assessee’s submission is that the stock was old and non-moveable stock which it had been carrying forward from earlier years has not been disputed by the Revenue by bringing any material to the contrary on record. Further, it is a settled law that Revenue cannot claim to put itself in the armchair of the businessman and assume the role to decide as to how to run the business. A businessman cannot be compelled to maximise its profits. CIT (A) has also given a finding that the case of the Revenue is that it is of a sale to sister concern at a price which is less than its market value. The Revenue has not brought any specific material on record to show a particular sale price. No deeming provision of the nature of section 40A(2)(b) for sales transaction. The Revenue has also not been able to controvert the findings of the CIT (A) or rebut his observations. Thus no reason to interfere in the order of CIT (A) - in favour of assessee. Issues: Revenue's appeal against deletion of addition made on account of gross profit on sale of stock for the assessment year 2007-08.Analysis:1. The Revenue challenged the deletion of an addition made by the Assessing Officer (A.O.) regarding the gross profit on the sale of stock by the company engaged in the trading of cloth for the assessment year 2007-08. The A.O. observed that the company transferred closing stock to its sister concern at book value, which he believed should have been transferred at cost plus profit margin. The A.O. calculated a gross profit of Rs.21,89,935/- on the stock transfer and added it to the company's income.2. The company contended that the stock transferred was old and unsaleable, which was not accepted by the A.O. The Commissioner of Income Tax (Appeals) [CIT (A)] deleted the addition made by the A.O. after considering the company's submissions and the A.O.'s observations. The CIT (A) noted that a portion of the transferred stock had been sold by the sister concern, indicating that the stock was not entirely unsaleable. The CIT (A) concluded that the transfer was not undervaluation but a sale to a sister concern, where no addition could be made without specific material showing a particular sale price.3. The Revenue appealed against the CIT (A)'s decision, arguing that the stock should have been sold at cost plus profit margin. The Revenue relied on the A.O.'s order, while the company's representative stated that the transferred stock was old and non-movable, justifying the transfer at cost. The company provided quantitative details of production and sales to support its position.4. The Appellate Tribunal noted that the Revenue failed to dispute the company's claim that the transferred stock was old and non-moveable. The Tribunal emphasized that the Revenue cannot dictate how a business should be run or force a businessman to maximize profits. Additionally, the Tribunal highlighted that the Revenue did not provide any specific material to establish a particular sale price or invoke relevant provisions for sales transactions.5. In conclusion, the Tribunal upheld the CIT (A)'s decision to delete the addition made by the A.O., dismissing the Revenue's appeal. The Tribunal found no reason to interfere with the CIT (A)'s order based on the facts presented and the lack of evidence provided by the Revenue.