2017 (2) TMI 918 - AT - Income Tax

Tribunal allows appeals, directs deletion of additions for A.Y. 2006-07 & 2007-08; emphasizes independent assessment

Tejus Rohitkumar Kapadia Prop. M/s. Tejus Versus ACIT, Circle-3, Surat And Vice-Versa

Tejus Rohitkumar Kapadia Prop. M/s. Tejus Versus ACIT, Circle-3, Surat And Vice-Versa - TMI Issues Involved:1. Addition on account of G.P. (Gross Profit) addition.2. Addition on account of alleged peak of unaccounted investment made in purchases.3. Deletion of addition on account of bogus purchases.4. Deletion of addition on account of estimation of oil gain.Issue-wise Detailed Analysis:1. Addition on account of G.P. addition:The assessee, engaged in the business of manufacturing and trading of yarn and grey cloth, faced an addition of Rs. 8,18,683/- based on the G.P. rate applied by the A.O. This was derived from an alleged undervaluation of imports, as indicated by a DRI report. The A.O. used invoices and notings on the reverse side of invoices to justify the addition. The assessee argued that the variation in purchase prices was due to differences in yarn quality. Despite detailed explanations, the A.O. remained unconvinced, leading to the addition. The tribunal found that the A.O.'s reliance on DRI's findings without independent evidence was misplaced. The tribunal referred to judicial precedents emphasizing the need for independent assessment by the A.O. and directed the deletion of the addition.2. Addition on account of alleged peak of unaccounted investment made in purchases:An additional amount of Rs. 5,68,610/- was added based on the peak of unaccounted investment in purchases, calculated from specific invoices. The tribunal noted that the A.O.'s findings were heavily influenced by DRI's assumptions without substantive evidence of actual payment of the differential amount. The tribunal highlighted the lack of documentary evidence supporting the A.O.'s conclusions and directed the deletion of this addition as well.3. Deletion of addition on account of bogus purchases:The revenue appealed against the deletion of Rs. 5,19,86,585/- added for bogus purchases. The A.O. based this addition on a report linking the assessee to transactions with M/s. Raj Impex, deemed bogus. The assessee provided confirmations, PAN details, I.T. returns, and bank statements supporting the legitimacy of these transactions. The CIT(A) found no basis for treating the purchases as bogus, noting that the payments were made by account payee cheques, and the sales were accepted by the A.O. The tribunal upheld the CIT(A)'s findings, emphasizing the lack of evidence to prove that the purchase consideration returned to the assessee in cash.4. Deletion of addition on account of estimation of oil gain:The revenue also contested the deletion of Rs. 5,00,000/- added for estimated oil gain. The A.O. based this on findings from a previous year (2004-05), where an oil gain was observed. The assessee clarified that the production process had changed, and no oil gain occurred during the relevant year. The CIT(A) agreed, noting the absence of evidence for the year under consideration. The tribunal upheld this decision, citing the lack of corroborative evidence to support the A.O.'s addition.Conclusion:The tribunal allowed the appeals filed by the assessee for A.Y. 2006-07 and 2007-08, directing the deletion of additions related to G.P. and unaccounted investment. The tribunal dismissed the revenue's appeal for A.Y. 2007-08, upholding the CIT(A)'s deletion of additions for bogus purchases and oil gain estimation. The judgment emphasized the necessity of independent and evidence-based assessment by the A.O., rejecting reliance solely on third-party reports and assumptions.