Tribunal rules in favor of assessees, rejecting AO's additions. Acquittal supports transaction genuineness.

Megatic Intermediates (P) Limited. & others Versus Income-Tax Officer.

Megatic Intermediates (P) Limited. & others Versus Income-Tax Officer. - [2009] 310 ITR 237, ITD 124, 159, TTJ 121, 193, Issues Involved:
1. Addition of Rs. 25,51,768 for alleged excess consumption of acetic anhydride.
2. Addition of Rs. 2,82,267 for alleged unaccounted sale of material.
3. Addition of Rs. 2,21,065 for alleged unaccounted sale of stock found in deficit.
4. Addition of Rs. 80,64,032 for alleged excess consumption of acetic anhydride.
5. Addition of Rs. 56,000 for alleged bogus purchase.

Detailed Analysis:

1. Addition of Rs. 25,51,768 for Alleged Excess Consumption of Acetic Anhydride (AA):
The AO made an addition of Rs. 25,51,768 by applying a rate of Rs. 800 per kg for 3,938.33 kgs of AA, alleging it was sold illicitly. The assessees maintained regular books of accounts, audited under s. 44AB, and complied with statutory requirements under the NDPS Act, 1993. The CNB and NCB conducted searches but found no discrepancies in the stock of AA. The AO relied on statements from customers who initially denied purchasing goods from the assessees but later retracted their statements, claiming they were made under duress. The CIT(A) upheld the AO's addition, but the Tribunal found that the Sessions Court acquitted the assessees of criminal charges, confirming the transactions were genuine. Consequently, the Tribunal deleted the addition.

2. Addition of Rs. 2,82,267 for Alleged Unaccounted Sale of Material:
The AO added Rs. 2,82,267, alleging the material was not used in manufacturing MG-7 and was sold unaccountedly. The assessees provided detailed records, including stock registers, issue slips, and RG-1 register entries, supporting the utilization of materials in manufacturing MG-7. The Tribunal, considering the acquittal by the Sessions Court and the lack of evidence of illegal diversion, upheld the utilization of AA in manufacturing MG-7 and deleted the addition.

3. Addition of Rs. 2,21,065 for Alleged Unaccounted Sale of Stock Found in Deficit:
The AO added Rs. 2,21,065 for an alleged unaccounted sale of stock found in deficit during a search by NCB. The assessees argued that the stock discrepancy was due to the factory being closed for three days before the search, and the material received on 18th Dec. 2000 was not entered in the stock register. The Sessions Court found the prosecution failed to prove any unaccounted sale or purchase of finished goods or raw materials. The Tribunal, considering the acquittal and lack of evidence, deleted the addition.

4. Addition of Rs. 80,64,032 for Alleged Excess Consumption of Acetic Anhydride (AA):
The AO added Rs. 80,64,032 by applying a rate of Rs. 800 per kg for 10,080 kgs of AA, alleging it was sold illicitly. The assessees provided extensive documentation, including sales invoices, payment receipts, and transport confirmations, supporting the genuine sale of MG-7. The Sessions Court acquitted the assessees, confirming the transactions were genuine. The Tribunal, considering the acquittal and the lack of evidence of illegal diversion, deleted the addition.

5. Addition of Rs. 56,000 for Alleged Bogus Purchase:
The AO added Rs. 56,000 for an alleged bogus purchase. The assessees provided documentation, including purchase invoices and payment receipts, supporting the genuineness of the transactions. The Tribunal, considering the overall evidence and the acquittal by the Sessions Court, deleted the addition.

Conclusion:
The Tribunal found that the assessees provided sufficient evidence to support the genuineness of their transactions and the utilization of AA in manufacturing MG-7. The Sessions Court's acquittal of the assessees from criminal charges played a significant role in the Tribunal's decision. All additions made by the AO were deleted, and the appeals of the assessees were allowed.