INCOME TAX OFFICER Vs. ARUN KUMAR JAIN
LAWS(IT)-2014-5-78
INCOME TAX APPELLATE TRIBUNAL
Decided on May 23,2014

Appellant
VERSUS
Respondents

JUDGEMENT

N.S.SAINI,AM. - (1.) THIS is an appeal filed by the Revenue against the order of Commissioner of Income Tax (Appeals) -IV, Surat dated 28.09.2010.
(2.) GROUND no. 1 of the appeal is directed against the order of Commissioner of Income Tax (Appeals) deleting the addition of Rs 10,81,573/ - on account of unexplained expenditure u/s. 69C of the Act.
(3.) THE brief facts of the case are that the Assessing Officer observed from the quantitative details that the assessee had shown excess yield. He observed that the assessee has claimed benefit of longevity at two stages: one, at the stage of processing of cloth and two, during sales. According to him, this was in contrast to the shrinkages observed on processing of cloth. The total longevity claimed was 28,045.25 metres. The assessee explained that he dealt in Nylon fabrics which have a tendency of elongation on processing. It was submitted that this is proved by the Gate Passes received from mills. It was further claimed that the fabric at the time of sale was measured tight and this results in about 2% excess yield. It was also submitted that the assessee had honestly shown his excess yield in its books of account and through sales have been recorded increasing its profits. The Assessing Officer disbelieved this explanation of the assessee on the ground that this would amount to cheating customers and against business ethics and enquiries with M/s. Pioneer Syntex Private Limited, through whom 80% processing of the assessee was done, revealed that there was actual shrinkage of 1.31% on processing. The Assessing Officer, therefore, concluded that the assessee made sales out of unaccounted purchases. He considered the average sale price and book gross profit to determine the investment in unaccounted purchases which worked out at Rs 10,81,573/ - and the same was added to the total income of the assessee as unexplained expenditure u/s. 69C of the Act. On appeal filed by the assessee against this order of the Assessing Officer, the Commissioner of Income Tax (Appeals) observed that the assessee has been able to show on the basis of evidence that there was longevity yield on processing of Nylon cloth and that the analysis made by the Assessing Officer on information obtained from M/s. Pioneer Syntex Private Limited was not correct as it did not consider opening and closing stock with the said concern. The Commissioner of Income Tax (Appeals) further observed that even otherwise the addition made by the Assessing Officer on account of unaccounted purchases was not correct. The conclusion of the Assessing Officer is that because there was excess sale it had to be out of unrecorded purchases. The sales, however, are fully recorded in the books. The assessee, therefore, on its own has offered the full value of sales as income and not claimed purchases against them in the books. Such a situation would normally not exist, but if it is assumed to be true, then the addition on account of purchases is unwarranted as the assessee has already shown excess profit to the extent of corresponding purchases not recorded. The Commissioner of Income Tax (Appeals) held that whether we look at the evidences given by the assessee to show that there was longevity yield or the conclusion of the Assessing Officer, the addition made on account of out of book purchases is not tenable. Therefore, the Commissioner of Income Tax (Appeals) deleted the addition.;


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