INCOME TAX OFFICER Vs. ARUN KUMAR JAIN
INCOME TAX APPELLATE TRIBUNAL
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(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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