Tax Appeals: Deletions of Undisclosed Income, Verification of Depreciation Claim, Remand for Clear Decision

The Tribunal allowed the appeals for AYs 2009-10 to 2013-14 for both Rathi Special Steels Ltd. and Rathi Bars Ltd., directing the deletion of additions made on account of undisclosed income from sales to M/s. Hari Iron India Ltd. For AY 2014-15, the Tribunal directed the AO to verify the claim of brought forward depreciation. For AY 2015-16, the Tribunal remanded the issue of Rs. 17,67,071/- back to the CIT(A) for a clear decision.

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Issues Involved:
1. Addition on account of undisclosed income on sales made to M/s. Hari Iron India Ltd.
2. Addition based on third-party statements.
3. Addition on account of difference in stock found during the search.
4. Addition based on information from the Excise Department.
5. Claim of brought forward depreciation.

Issue-wise Detailed Analysis:

1. Addition on Account of Undisclosed Income on Sales Made to M/s. Hari Iron India Ltd.
The primary issue revolves around additions made due to alleged undisclosed income from sales to M/s. Hari Iron India Ltd. The Assessing Officer (AO) based the additions on a statement from Amit Gupta, Chief Operating Officer of M/s. Hari Iron India Ltd., who admitted that 30% of sales were made without bills. The AO inferred that the assessee companies, Rathi Bars Ltd. and Rathi Special Steels Ltd., had also made unaccounted sales. The AO estimated the undisclosed income by applying a 30% ratio of sales outside the books and calculated the profit accordingly. However, the Tribunal found that no incriminating material was discovered during the search on the assessee's premises to support these additions. The Tribunal held that the additions for AYs 2009-10 to 2013-14 were beyond the scope of assessment under section 153A and directed their deletion.

2. Addition Based on Third-Party Statements
The Tribunal observed that the entire addition was based on the statement of Amit Gupta, recorded during a search on M/s. Hari Iron India Ltd., a third party. The Tribunal emphasized that such statements cannot be considered incriminating material against the assessee unless corroborated by evidence found during the search on the assessee. The Tribunal noted that the assessee maintained statutory records under sales-tax and excise laws, and no discrepancies were found in these records. Therefore, the Tribunal concluded that the statement of a third party alone could not justify the additions and directed their deletion.

3. Addition on Account of Difference in Stock Found During the Search
In the case of Rathi Bars Ltd. for AY 2015-16, the AO made an addition based on discrepancies in stock found during the search. The AO added Rs. 58,40,136/- for excess stock of raw material and suppressed sales. The CIT(A) accepted the assessee's reconciliation for the stock and deleted the addition of Rs. 40,73,065/- but did not clearly address the addition of Rs. 17,67,071/- for suppressed sales. The Tribunal remanded the issue of Rs. 17,67,071/- back to the CIT(A) for a clear decision.

4. Addition Based on Information from the Excise Department
For AY 2012-13, the AO made an addition of Rs. 9,39,813/- based on information from the Excise Department regarding sales made out of books. The Tribunal noted that this assessment year was not abated, and the addition was not based on any incriminating material found during the search. Therefore, the Tribunal directed the deletion of this addition as it was beyond the scope of section 153A.

5. Claim of Brought Forward Depreciation
For AY 2014-15, the assessee claimed brought forward depreciation of Rs. 59,38,469/-, which the AO did not allow. The Tribunal directed the AO to verify the claim and allow the brought forward depreciation in accordance with the law after giving the assessee an opportunity to substantiate the figures.

Conclusion:
The Tribunal allowed the appeals for AYs 2009-10 to 2013-14 for both Rathi Special Steels Ltd. and Rathi Bars Ltd., directing the deletion of additions made on account of undisclosed income from sales to M/s. Hari Iron India Ltd. For AY 2014-15, the Tribunal allowed the appeal for statistical purposes, directing the AO to verify the claim of brought forward depreciation. For AY 2015-16, the Tribunal partly allowed the appeal for statistical purposes, remanding the issue of Rs. 17,67,071/- back to the CIT(A) for a clear decision. The order was pronounced in open court on February 28, 2022.

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