2022 (10) TMI 1034 - AT - Income Tax

Unexplained expenditure u/s. 69C - addition on account of variation in the valuation made by the customs authorities in the assessable value of goods imported - HELD THAT - As in the case of the assessee there is no evidence on record to suggest that assessee has paid any amount over and above the purchase consideration shown in the purchase bills. It may also be noted that the excise duty payable on each bill on the difference in valuation made by the customs authorities @ 16% works out to be in a few hundreds and there is a force in the contention of the assessee that the cost of filing of further appeal is higher than additional custom duty paid and it was not economical to contest the variations. Moreover if an assessee opts to contest the variations it delays the clearance of the goods and result into higher cost. Therefore only on the fact that the assessee had paid custom duty on the enhancement made by the custom authorities cannot be regarded has a valid basis to suggest that there was unaccounted purchases made by the assessee. CIT(A) held that the AO was not justified in assuming that the assessee had made unaccounted purchases solitary on the basis that the customs authorities had enhanced the value of goods imported for the purpose of payment of custom duty. In the absence of any evidence/material on record that the assessee has paid anything extra over and above the transaction value shown in import invoices no addition on account of unexplained expenditure on purchases can be made and deleted the addition of Rs. 31, 07, 529/- made by the AO. As gone through the entire factum and without any hesitation we hold that the Assessing Officer has made addition on a deeming fiction and the CIT(A) has succinctly analyzed every aspect of the business and transactions and gave a surefire decision. Hence we decline to interfere with the order of the Ld. CIT(A) on this issue. Addition in gross profit - AO has rejected the books of account holding that the purchases as well as sales have not been fully accounted for - The books cannot be rejected on the solitary basis that sales were shown to be made in cash specially when there is no difference in the rate charged on sale of same product booked either in cash or on credit. Therefore we are of the opinion that there was no material in possession of the AO to conclude that books of account for the A.Y. 2003-04 maintained by the assessee were either incorrect or incomplete. Since there is no basis of rejection of books of account provisions of section 145 cannot be attracted and no addition in the gross profit can be made on estimated basis when the assessee has cogently explained the reasons for fall in the gross profit rate being on account of change in the pattern of business and increase in the total turnover. Hence addition made on account of gross profit has been fittingly deleted by the Ld. CIT(A). The appeal of the revenue on this ground is dismissed.

Summary

Issues Involved:
1. Deletion of addition on account of unexplained expenditure under Section 69C.
2. Deletion of addition after rejecting the books of account under Section 145.

Issue-wise Detailed Analysis:

1. Deletion of Addition on Account of Unexplained Expenditure under Section 69C:

The Revenue appealed against the deletion of an addition of Rs. 31,07,529/- made by the Assessing Officer (AO) under Section 69C for unexplained expenditure. During a search and seizure operation, several loose papers and bills of entries were found, indicating that the value of goods imported by the assessee was enhanced by customs authorities. The AO concluded that the enhancement was due to undervaluation and that the assessee had accepted and paid the additional customs duty without appealing.

The assessee argued that the customs department's valuation was based on their own conversion rates and that appealing against these variations was not economical. The AO, however, insisted that the assessee did not fully account for purchases in the books and made sales without proper records.

The Commissioner of Income Tax (Appeals) [CIT(A)] found that the customs authorities' valuation was challenged and set aside in three cases due to a lack of evidence proving the transaction value was incorrect. The CIT(A) noted that no evidence suggested the assessee paid more than the amounts shown in the purchase bills. The CIT(A) emphasized that paying customs duty on enhanced values alone did not justify the assumption of unaccounted purchases. Consequently, the CIT(A) deleted the addition, and the Tribunal upheld this decision, dismissing the Revenue's appeal on this ground.

2. Deletion of Addition After Rejecting the Books of Account under Section 145:

The AO rejected the books of account under Section 145, alleging that both purchases and sales were not fully accounted for. The AO based this conclusion on documents found during the search, primarily relating to the period relevant to the assessment year 2005-06. However, the CIT(A) noted that no evidence suggested unaccounted purchases or sales for the assessment year 2003-04.

The assessee argued that the AO incorrectly adopted the gross profit (GP) rate from the assessment year 2001-02, ignoring changes in the business nature and increased sales volume. The CIT(A) found that the AO's findings were based on materials from a subsequent assessment year, which could not be used to infer discrepancies in earlier years. The CIT(A) held that the books of account for 2003-04 were neither incorrect nor incomplete, and the provisions of Section 145 could not be invoked. The addition of Rs. 1,38,17,091/- on account of gross profit was thus deleted, and the Tribunal upheld this decision, dismissing the Revenue's appeal on this ground.

Conclusion:

The Tribunal, after thorough examination, upheld the CIT(A)'s decision to delete the additions made by the AO on both grounds. The appeal of the Revenue was dismissed in its entirety, affirming that the AO's additions were based on assumptions without substantial evidence. The judgment emphasized the importance of concrete evidence and proper accounting practices in tax assessments.