2018 (10) TMI 237 - AT - Income Tax

Tribunal Confirms CIT(A) Decisions for AYs 2002-03/03-04, Grants Partial Relief

The tribunal upheld the CIT(A)'s decisions on all issues for AYs 2002-03 and 2003-04, dismissing appeals from both the assessee and revenue. The tribunal ... Addition of loss claimed on account of under valuation of sales returns received from various dealers - sales returns claimed by the assessee is not substantiated with necessary evidences - Held that:- The fact remains unchanged. The revenue failed to bring on record any further evidence to controvert the findings of facts recorded by the CIT(A) in the light of remand report furnished by the AO. Therefore, we are of the considered view that there is no error or infirmity in the findings of CIT(A) and hence, we are inclined to uphold findings of the CIT(A) and reject grounds taken by the assessee as well as the revenue. Disallowance of losses claimed on account of slow moving stocks - addition towards loss claimed on slow moving stocks for the reason that there was no mention of outward entry No. on the stamps affixed on the delivery challans - Held that:- CIT(A), after considering relevant facts and also taking into account the remand report deleted addition made by the AO, except to the extent of ₹ 8,42,020 in respect of 3 parties from whom no information has been received. Facts remains unchanged. The revenue failed to bring on any evidence to controvert the findings of fact recorded by the Ld.CIT(A) in the light of remand report issued by the AO. When the parties, who appeared before the AO confirmed the transactions, merely for the reason that few parties did not appear before the AO, there is no reason to suspect total transactions made by the assessee in respect of slow moving stocks. We further notice that the assessee has filed necessary evidences including fact finding report of sales team manager and also the quotations received from prospective buyers of the goods which prove the real valuation of slow moving items. There is no error or infirmity in the findings given by the AO and accordingly we confirm the findings of Ld.CIT(A) and reject ground taken by the revenue as well as the assessee. Addition towards transportation charges paid by the assessee which is consequential to the loss on sales returns claimed for the year - AO has disallowed transportation charges incurred by the assessee for the same reasons, on which he has disallowed loss claimed on sales returns - Held that:- AO has given categorical finding in respect of transportation charges paid by the assessee where he has admitted that the parties, who have appeared before him have accepted the fact that they transported goods and also received payments. The fact that certain parties have not appeared before the AO may not be a solid reason for disbelieving total transactions. CIT(A), after considering relevant facts and also taking into account remand report of the AO allowed relief towards addition made by the AO, except to the extent of ₹ 6,09,917 in respect of two parties from whom no information has been received. Facts remain unchanged. The revenue fails to bring on record any evidence to controvert the findings of fact recorded by the CIT(A). Hence, we are inclined to uphold findings of CIT(A) and reject ground taken by the assessee as well as the revenue. Addition made by the AO towards alleged unproved purchases - Held that:- AO has examined the issue by calling for various details for which the parties have appeared before the AO and admitted of having done transactions with the assessee. Although, certain parties have not appeared before the AO, but those who appeared before the AO has admitted that the observations made by the AO in his assessment order is incorrect and the transaction with the assessee is genuine for which they have furnished necessary evidence. CIT(A) has considered all these facts and came to the conclusion that the loss claimed by the assessee on account of sale of sale of returned goods is genuine in nature and accordingly, deleted addition made by the AO, except to the extent of ₹ 9,85,76,986 in respect of 3 parties. Disallowance of depreciation claimed on texturised unit - unit has not functioned during the year and such finding is based on the fact that there was no sale / income from this unit - Held that:-Hon’ble Delhi High Court in the case of CIT vs Oswal Agro Mills Ltd [2010 (12) TMI 947 - DELHI HIGH COURT] where it was held that depreciation is allowed on block of asset and the revenue cannot segregate a particular asset therefrom on the ground that it was not put to use. In this case, on perusal of facts it is clear that the texturised unit is part of the textile plant of the assessee and the unit was functioning in the earlier years. Once a particular machinery has been put to use for the purpose of business, it is immaterial whether such plant & machinery has been used in the year under consideration and any revenue has been generated from such unit. The expression used “for the purpose of business” includes user of assets in the earlier years. Once, the machinery was available for use, though not actually used, falls within the expression used “for the purpose of business of the assessee” and claim the benefit of depreciation. The lower authorities without appreciating the fact, disallowed depreciation claimed on texturised unit, hence, we direct the AO to delete addition made towards depreciation claimed on texturised unit. Issues Involved:1. Addition towards sales returns and related transactions.2. Disallowance of depreciation on plant & machinery.3. Disallowance of loss claimed on slow-moving stocks.4. Disallowance of transportation charges.5. Validity of assessment order and rejection of books of account.6. Addition towards alleged unproved purchases.Issue-wise Detailed Analysis:1. Addition towards sales returns and related transactions:The assessee challenged the partial confirmation of additions made by the AO towards sales returns and related transactions. The AO disallowed the loss claimed on sales returns citing lack of proper documentation and discrepancies in the movement of goods. Despite various opportunities, the assessee failed to provide satisfactory evidence, leading to the AO's conclusion that the sales returns were not genuine. The CIT(A) admitted additional evidence and remitted the case back to the AO, who, in the remand report, accepted the genuineness of transactions with several parties. However, the CIT(A) sustained the addition of Rs. 3,41,53,476 for 13 parties due to the assessee's failure to produce necessary evidence. The tribunal upheld the CIT(A)'s decision, rejecting both the assessee's and revenue's appeals on this issue.2. Disallowance of depreciation on plant & machinery:The AO disallowed depreciation on the texturised unit, asserting that the unit was not operational during the year. The tribunal noted that once an asset is put to use, depreciation is allowable even if the asset is not used in the subsequent year. The tribunal directed the AO to delete the addition made towards depreciation claimed on the texturised unit, thus ruling in favor of the assessee.3. Disallowance of loss claimed on slow-moving stocks:The AO disallowed the loss claimed on slow-moving stocks, citing lack of proper documentation and non-compliance by third parties. The CIT(A), relying on the remand report, allowed relief for most of the claimed loss, except for Rs. 8,42,020 related to three parties. The tribunal upheld the CIT(A)'s decision, noting that the assessee provided sufficient evidence, including quotations and fact-finding reports, to substantiate the claim.4. Disallowance of transportation charges:The AO disallowed transportation charges due to insufficient evidence. The CIT(A), considering the remand report, allowed relief for most of the transportation charges except for Rs. 6,09,917 related to two parties. The tribunal upheld the CIT(A)'s decision, rejecting the revenue's appeal on this issue.5. Validity of assessment order and rejection of books of account:The assessee challenged the validity of the assessment order on the grounds of limitation and rejection of books of account. The CIT(A) observed that the AO followed due procedure for special audit and rejected the books of account due to significant discrepancies and lack of proper maintenance. The tribunal upheld the CIT(A)'s decision, dismissing the assessee's appeal on this ground.6. Addition towards alleged unproved purchases:For AY 2003-04, the AO made additions towards sales of downward-valued returned goods, considering them sham transactions. The CIT(A), based on the remand report, allowed relief except for Rs. 9,85,76,986 related to three parties. The tribunal upheld the CIT(A)'s decision, noting that the assessee provided sufficient evidence to prove the genuineness of the transactions.Conclusion:The tribunal dismissed the appeals filed by both the assessee and the revenue for AYs 2002-03 and 2003-04, upholding the CIT(A)'s decisions on all issues. The tribunal confirmed the partial relief granted by the CIT(A) on sales returns, slow-moving stocks, and transportation charges, and directed the AO to allow depreciation on the texturised unit.