2015 (12) TMI 364 - AT - Income Tax

Tax Tribunal rules in favor of assessee, dismissing Revenue's appeals. Penalties deleted, assessments lacking evidence not upheld.

ACIT, Cen. Circle-4, Surat and Others Versus M/s. Sarna Chemicals Pvt. Ltd. and Others

The Tribunal dismissed the Revenue's appeals and allowed the assessee's appeals in a tax case. It held that additions based on loose papers found at a ... Assessment u/s 153A - CIT(A) deleted the addition - Held that:- We find that the ld.CIT(A) has given a finding that papers were found in the premises of Shri H.S.Sarna and not in the company’s premises or in Shri S.S.Sarna, Director of the company. Further, the papers were not related to the assessee-company as these were related to Shri H.S.Sarna, hence no addition is called for in the assessee’s hands. Undisputedly, the impugned addition has been made on the basis of the statement of Shri S.S.Sarna. The ld.CIT(A) has also given a finding that this disclosure was not related to the assessee-company. Since the finding is not controverted by the Revenue by placing any contrary material on record, therefore, we do not see any reason to interfere with the order of the ld.CIT(A), same is hereby upheld. - Decided in favour of assessee. Penalty u/s.271(1)(c) - CIT(A) confirmed the addition on the basis that the Director of the assessee-company has made voluntary disclosure of ₹ 44.40 lacs during the course of survey which includes stock discrepancy - Held that:- The contention of the ld.counsel for the assessee is that the entire addition is based upon the statement of Shri S.S.Sarna. The Revenue has not brought any corroborative material on recorded. Admittedly, the auditors have not recorded any adverse remarks. Under these facts, the penalty ought not to have been levied. We find merit into the contention of the ld.counsel for the assessee as the addition is solely based upon the statement of Shri S.S.Sarna and there is no corroborative material available on record demonstrating that the assessee has deliberately not furnished the material before the Revenue Authorities. Undisputedly, the AO made addition by estimating gross profit @ 15.89% on which penalty has been sustained. Therefore, under these facts, in our view, the AO was not justified in imposing the penalty.- Decided in favour of assessee. Excess stock of raw material - Held that:- The appellant’s submission in respect of excess stock of raw material that these are in the form of liquid and the exact measurement is not possible as they are lying in the tanks is acceptable. The explanation that they are liquid and exact measurement is not possible, was accepted by the Assessing Officer in respect of oleum and diesel wherein the deficit stock was found but the appellant’s explanation for minor difference in stock due to being liquid was accepted. Accordingly, the appellant is allowed relief for ₹ 2,73,811/-.- Decided against revenue. Issues Involved:1. Validity of additions based on loose papers found at a third party's premises.2. Justification of assessment based solely on statements without corroborative evidence.3. Confirmation of penalty under Section 271(1)(c) of the Income Tax Act.4. Discrepancies in stock and their impact on income assessment.Detailed Analysis:1. Validity of Additions Based on Loose Papers Found at a Third Party's Premises:The Revenue's appeal in ITA No.915/Ahd/2010 focused on whether the loose papers found at H.S. Sarna's premises could be used to make additions to the income of M/s. Sarna Chemicals P. Ltd. The CIT(A) held that these papers were not related to the assessee company but to H.S. Sarna, and thus, no addition should be made in the assessee's hands. The Tribunal upheld this view, noting that the Revenue did not provide contrary evidence to challenge the CIT(A)'s findings. Consequently, the Revenue's appeal was dismissed.2. Justification of Assessment Based Solely on Statements Without Corroborative Evidence:In both appeals (ITA No.915/Ahd/2010 and ITA No.916/Ahd/2010), the Revenue argued that assessments based on the voluntary statements made during the search should be upheld. However, the CIT(A) and the Tribunal found that without corroborative evidence, such as physical records or documents directly linking the statements to the assessee's income, the additions were not justified. The Tribunal emphasized that the statements made by S.S. Sarna were not sufficient to warrant additions without supporting material evidence. Therefore, the appeals based on this ground were dismissed.3. Confirmation of Penalty Under Section 271(1)(c) of the Income Tax Act:The assessee's appeals (ITA No.2830/Ahd/2012 and ITA No.2832/Ahd/2012) contested the penalties levied under Section 271(1)(c). The Tribunal considered whether the penalties were justified given that the additions were based on estimated gross profit and statements without corroborative evidence. The Tribunal found merit in the assessee's contention that penalties should not be imposed when additions are based on estimates or uncorroborated statements. Consequently, the penalties were deleted, and the assessee's appeals were allowed.4. Discrepancies in Stock and Their Impact on Income Assessment:In ITA No.916/Ahd/2010, the Revenue challenged the CIT(A)'s decision to restrict the addition for stock discrepancies. The CIT(A) had accepted the assessee's explanation that differences in stock were due to factors like moisture content and measurement inaccuracies, which were verifiable from stock registers and excise records. The Tribunal upheld the CIT(A)'s findings, noting that the Revenue did not present any contrary evidence. Thus, the Revenue's appeal was dismissed.Conclusion:The Tribunal dismissed the Revenue's appeals and allowed the assessee's appeals, emphasizing the need for corroborative evidence to support additions and penalties. The Tribunal upheld the CIT(A)'s findings that discrepancies in stock and voluntary statements without supporting evidence were insufficient grounds for additions or penalties. The orders pronounced were as follows:1. Revenue's appeal in ITA No.915/Ahd/2010: Dismissed.2. Assessee's appeal in ITA No.2830/Ahd/2012: Allowed.3. Revenue's appeal in ITA No.916/Ahd/2010: Dismissed.4. Assessee's appeal in ITA No.2832/Ahd/2012: Allowed.