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Facts
Due to the assessee's non-compliance, the AO made an ex-parte assessment, adding significant amounts, including a large increase in inventory (₹26,60,32,067/-) treated as unexplained investment and various expenses based on ITS details (₹4,91,906/-). The CIT(A) subsequently deleted these additions. The Revenue appealed against the CIT(A)'s order.
Held
The Tribunal upheld the CIT(A)'s deletion of the inventory addition, noting the AO's failure to provide reasons and applying the theory of telescoping from unexplained liabilities to assets. It also confirmed the deletion of additions for expenses and TDS, as they were based solely on the assessee's non-compliance, and the CIT(A) correctly granted the benefit of doubt.
Key Issues
Whether the CIT(A) was justified in deleting additions for unexplained increase in inventory and income based on ITS details, which were made by the AO due to the assessee's non-compliance.
Sections Cited
144, 69C, 68, 271(1)(c)
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Income Tax Appellate Tribunal, “B” BENCH, KOLKATA
O R D E R Per Rajesh Kumar, AM:
This is an appeal preferred by the Revenue against the order of the National Faceless Appeal Centre, Delhi (hereinafter referred to as the “Ld. CIT(A)”] dated 17.11.2023 for the AY 2009-10.
At the outset, we note that there is a delay in filing the appeal by the Revenue by 126 days for which the Revenue has filed condonation petitions. In the condonation petitions, the Revenue has stated that the delay in filing the appeal was on account of time taken in taking administrative approvals and therefore, may be condoned. After considering the contentions of the revenue and the reasons stated in the condonation petition, we find that the delay in filing the appeals is for genuine and bonafide reasons and accordingly, the same is condoned by admitting the appeals for adjudication.
“1. Whether in the facts and circumstances of the case, the CIT (A) was justified in deleting the addition of ₹26,60,32,067/- made on account of increase in inventory, without appreciating the fact that the assessee did not furnish any explanation for such increase in the value of the inventory.
2. Whether in the facts and circumstances of the case, the CIT (A) was justified in deleting the addition of ₹4,91,906/- being the amount of income made on the basis of ITS details, without assigning any valid reason.”
The issue raised in ground no.1 is against the deletion of addition of ₹26,60,32,067/- by the ld. CIT (A) made by the ld. AO on account of increase in inventory for the reason that the assessee did not furnish any explanation for such increase.
The assessee filed the return of income on 30.09.2009, declaring total income t ₹1,76,19,160/-. The case of the assessee was selected for scrutiny under Computer Assisted Scrutiny Selection (CASS) and statutory notices were duly issued and served upon the assessee, however, there was no compliance to the said notices. Finally a show cause notice was issued on 14.11.2011, as to why the assessment should not be framed u/s 144 of the Act. But the same was also returned unserved along with summons issued by the ld. Assessing Officer. Thereafter, the ld. AO on the basis of information available in the balance sheet made an addition in respect of share application money, increase in loan funds, increase in sundry creditors and sundry increase in advance from customers aggregating to ₹44,00,02,044/- and added the same to the income of the assessee. Besides, the ld. AO also made an addition of ₹26,60,32,067/- on account of increase in inventories of ₹26,60,32,067/-, addition to fixed assets amounting to ₹20,82,58,144/- and addition of Miscellaneous Expenses of ₹19,29,968/-, ₹3,46,96,171/- on account of manufacturing expense,
In the appellate proceedings, the ld. CIT (A) deleted the addition in respect of increase in inventories and addition of income on the basis of ITS by observing and holding as under:-
“4.0 Assessee in its grounds of appeal no. 4 has challenged the addition of Rs.26,60,32,067/- on account of inventory of stock. He has labelled this addition as arbitrary. In the statement of facts, the appellant has stated that the A.O. had not only added the credit entries but has also added the debit entries. The Assessing Officer at para 4 pf his order has given his comment in this regard as under:- As per inventory in schedule G there is an increase of by Rs.26,60,32,067/-. In the absence of any explanation the assessee is taken as unexplained investment u/s 69C of the I.T. Act 1961. Penalty proceedings u/s 271(1) (c) is separately initiated. 4.1 It appears that the Assessing Officer has not given any factual reason for making the addition. A query was asked from the assessing officer in the remand report about this addition. The query is as under:-
3. There have been addition of items debited in the Balance Sheet like inventories and fixed assets. If addition of Rs.44,00,00,000/- on account of credit entries were already made how and why the addition of these items were made. Can these be not treated as double /duplicate addition. 4.2 The Assessing Officer in his remand report dated 03.11.2023 has responded to the query as under: - 3.1 In this regard, it may be stated that, the assessment order has not brought anything or record as to why the theory of telescoping has not been applied in the assessment order. Accordingly, applying the theory of telescoping, additions made on account of unexplained liability can be presumed to be the source of the increase of assets to the extent of additions made on account of unexplained liability. 4.3 From perusal of para 4 of the Assessment Order it is found that addition has been made on account of absence of explanation (compliance by the assessee). This, in itself, cannot be a ground of addition when the source of funds have been added u/s 68. It is a fact that the company has brought money in the form of share application money, creditors, advance etc. Though these items have been treated as unexplained credit u/s 68 but there is no denying the fact that the money was there. If money was there, money must by lying in any from i.e. cash, bank, assets etc. The present Assessing Officer also in his remand report has not given any convincing reply in favour of the addition. He has suggested the theory of presumption that investment in inventory might have been made out of the money added u/s 68 on account of
In the Result, the appeal of the Revenue is dismissed.
Order pronounced in the open court on 28.03.2025.