Tribunal ruling: CIT(A) decision upheld on unverifiable purchases, re-computation of expenses allowed

The Tribunal upheld the CIT(A)'s decision on unverifiable purchases in Unit-1, dismissed the addition for the higher GP rate in Unit-II, and directed a re-computation of disallowed indirect expenses, resulting in a partial allowance of the assessee's appeal.

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Issues Involved:

1. Sustenance of additions of Rs. 1,92,926/- for unverifiable purchases in Unit-1 (Non-SEZ).
2. Sustenance of additions of Rs. 4,26,419/- by estimating a higher GP rate in Unit-II (SEZ).
3. Disallowance of Rs. 1,00,000/- out of indirect expenditure by apportioning expenses between non-SEZ and SEZ units.

Detailed Analysis:

Issue 1: Sustenance of Additions of Rs. 1,92,926/- for Unverifiable Purchases in Unit-1 (Non-SEZ)

The assessee contended that the alleged unverifiable purchases of Rs. 7,71,704/- from M/s. Rose Impex were a negligible 0.8% of the total purchases of Rs. 9,72,65,328/- for Unit-1, which had an export turnover of Rs. 14,27,85,791/-. The assessee argued that all purchases were supported by sale invoices, recorded in stock registers, and payments were made through proper banking channels, with goods directly exported. The AO did not provide any specific instances of irregularities or fund layering. However, the Tribunal upheld the CIT(A)'s decision, noting that the effective current year G.P would be 3.60%, closer to the average gross profit rate of past years (3.72%). Thus, the ground was dismissed.

Issue 2: Sustenance of Additions of Rs. 4,26,419/- by Estimating a Higher GP Rate in Unit-II (SEZ)

The assessee challenged the addition of Rs. 4,26,419/- sustained by the CIT(A), arguing that the GP rate of 28.85% declared was higher than the average GP rate of past years (28.80%). The CIT(A) had estimated a GP rate of 29.25%, resulting in the addition. The Tribunal found that since the assessee disclosed a better GP rate than past years and the past results were reliable, the declared GP rate should be accepted. Thus, the addition of Rs. 4,26,419/- was set aside, and the ground was allowed.

Issue 3: Disallowance of Rs. 1,00,000/- Out of Indirect Expenditure by Apportioning Expenses Between Non-SEZ and SEZ Units

The assessee contended that all expenses were related to business activities and supported by evidence. The AO had apportioned total indirect expenses between the units based on turnover, suspecting diversion of expenses to avoid tax liabilities. The CIT(A) restricted the disallowance to Rs. 1,00,000/- due to the lack of specific instances of inter-unit expenditure. The Tribunal agreed with the turnover-based apportionment but directed the AO to exclude Rs. 5,71,727/- of expenses exclusively incurred by the SEZ unit from the common indirect expenditure. The ground was allowed for statistical purposes.

Conclusion:

The Tribunal upheld the CIT(A)'s decision on unverifiable purchases in Unit-1, set aside the addition for the higher GP rate in Unit-II, and directed a re-computation of disallowed indirect expenses, leading to a partial allowance of the assessee's appeal.

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