2014 (11) TMI 140 - AT - Income Tax

Tribunal Upholds CIT(A)'s Decisions for Assessee, Dismisses Revenue's Appeals

DCIT Central Circle-1(2), Ahmedabad Versus Vimal Oil & Food Ltd.

The Tribunal upheld the CIT(A)'s decisions in favor of the assessee, dismissing the Revenue's appeals for the assessment years 2003-04, 2004-05, and ... Deletion u/s 14A – GP estimated – Held that:- CIT(A) rightly held that the AO has ignored the claim that difference is due to shortages and in handling of material, such type of shortages are bound to incur - total shortages found for wash cotton during the year is 44119 kgs which is just 0.18% of total purchases of wash cotton and same is very negligible - the addition made by AO treating the difference in quantity as per stock movement register and books of account as inflated purchases for ₹ 17,06,797 is deleted and consequential addition of gross profit of ₹ 1,00,000 is also deleted – Decided against revenue. Calculation of deduction u/s 80IA and u/s 80HHC - Income from insurance commission and power generation to be included or not – Reduction of deduction u/s 80IA/80AB - Held that:- As decided in assessee’s own case for the earlier assessment year, the decision in Dy.CIT vs. Blue Bell Polymers (P.) Ltd. [2008 (6) TMI 346 - GUJRAT HIGH COURT] relied upon wherein it has been held that the deduction can be granted for both u/s 80HHA and 80I of the Act simultaneously without reducing the relief available u/s 80I of the Act by the amount of deduction granted u/s 80HHA – Decided against revenue. Computation of deduction u/s 80HHC - 90% of gross interest receipt to be included from eligible profit under clause (baa) of the Explanation or not – Held that:- The contention of the assessee is required to be verified by the AO – thus, the matter is remitted back to the AO for verification and adjudication – Decided in favour of assessee. Deletion of amount of sale of oil tins out of books – Held that:- CIT(A) rightly was of the view that the AO has made addition purely on assumption and without bringing any corroborative evidence to establish that in case of appellant, inflated purchases have been recorded in the books of account - AO has ignored the claim of appellant that difference is due to shortages and in handling of material, such type of shortages are bound to incur - Even in case of assessee, such shortages are 0.10% to 1% of total purchase made during the year - the addition made by AO treating the negligible difference in quantity as per stock movement register and books of account as inflated purchases for ₹ 13,91,547 is deleted and consequential addition of gross profit of ₹ 1,00,000 is also deleted – Decided against revenue. Foreign traveling expenditure disallowed – Held that:- CIT(A) has confirmed the addition by rightly observing that the expenditure has been debited in the books of account which have been approved by Board of directors however as assessee has not submitted any proof regarding foreign travelling expenditure claimed in profit and loss account - the assessee has not placed any supporting evidence on record – thus, the order of the CIT(A) is upheld – Decided against assessee. Validity of addition based on the documents found and seized at the time of search – Held that:- CIT(A) rightly recorded that seized papers have been found from the premises of Vimal House where various companies are operating and number of staff is working. Loose paper found from such house on the basis of which AO has made addition does not bear the name of appellant company - The AO has not issued any notice during the course of assessment proceedings for making any explanation of appellant company but same was asked to Gujarat Spices & Oil Seed Growers Co-op. Union Ltd. - AO has not brought any other evidence to support his plea that such transactions belong to appellant company and addition has been made on presumption/assumption - the loose-papers seized from the premises of the Vimal House, where various companies are operating and number of staff are working - the name of the appellant-company is not mentioned – the order of the CIT(A) is upheld – Decided against revenue. Issues Involved:1. Deletion of addition under Section 14A of the Income Tax Act.2. Deduction under Section 80IA and 80HHC of the Income Tax Act.3. Unexplained investment and inflated purchases.4. Sale of oil tins out of books.5. Disallowance of foreign travel expenditure.6. Netting of interest for deduction under Section 80HHC.7. Unaccounted income from sale of shares.Detailed Analysis:1. Deletion of Addition under Section 14A:The CIT(A) deleted the disallowance of Rs. 17,06,797/- made by the AO under Section 14A of the Act. The AO had made the addition based on the difference in the quantity of washed cotton purchases as per the stock movement register and the books of account, treating it as inflated purchases. However, the CIT(A) found that the AO had not doubted the genuineness of any purchases recorded in the books of account, and the payments were made through banking channels. The AO made the addition purely on assumption without corroborative evidence. The Tribunal upheld the CIT(A)'s order, noting that the Revenue did not controvert the CIT(A)'s findings.2. Deduction under Section 80IA and 80HHC:The CIT(A) allowed the income from insurance commission and power generation for calculating deduction under Section 80IA, which the AO had disallowed. The Tribunal found that the issue was covered by the decision of the Coordinate Bench in the assessee's own case for earlier years, which relied on the judgment of the Hon'ble Gujarat High Court. Thus, the Tribunal upheld the CIT(A)'s order.3. Unexplained Investment and Inflated Purchases:For AY 2003-04, the AO made an addition of Rs. 19,01,012/- on account of unexplained investment and inflated purchases. The CIT(A) deleted these additions, finding that the AO had made the additions based on assumptions without any corroborative evidence. The Tribunal upheld the CIT(A)'s order, noting that the Revenue did not provide any material to controvert the CIT(A)'s findings.4. Sale of Oil Tins Out of Books:For AY 2004-05, the AO made an addition of Rs. 10,37,291/- based on the difference in sales of oil tins. The CIT(A) deleted the addition, noting that the AO had not established that the empty tins were used for unaccounted sales and that the difference was negligible. The Tribunal upheld the CIT(A)'s order, agreeing with the practical aspects considered by the CIT(A).5. Disallowance of Foreign Travel Expenditure:For AY 2004-05, the AO disallowed Rs. 2,00,000/- of foreign travel expenditure due to lack of documentary evidence. The CIT(A) confirmed the disallowance, and the Tribunal upheld the CIT(A)'s order, noting that the assessee did not provide any supporting evidence.6. Netting of Interest for Deduction under Section 80HHC:The issue of netting of interest for computing deduction under Section 80HHC was remitted back to the AO for verification and adjudication. The Tribunal followed its decision in the assessee's own case for AY 2003-04, remitting the issue back to the AO.7. Unaccounted Income from Sale of Shares:For AY 2005-06, the AO made an addition of Rs. 2,42,857/- based on seized documents showing purchase and sale of shares. The CIT(A) deleted the addition, noting that the seized papers did not bear the name of the appellant company and were found in a premises shared by multiple companies. The Tribunal upheld the CIT(A)'s order, as the Revenue did not provide any material to controvert the CIT(A)'s findings.Conclusion:- Revenue's appeals for AYs 2003-04, 2004-05, and 2005-06 were dismissed.- Assessee's cross objections for AYs 2003-04 and 2004-05 were partly allowed for statistical purposes.- Assessee's cross objection for AY 2005-06 was dismissed.