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Income Tax Appellate Tribunal, DELHI BENCH ‘E’, NEW DELHI
Before: SHRI J. SUDHAKAR REDDY & SH. SUDHANSHU SRIVASTAVA
PER SUDHANSHU SRIVASTAVA, JUDICIAL MEMBER
This is an appeal filed by the assessee directed against the order dated 23.01.2013 of Ld. CIT(A)-IX, New Delhi for Assessment Year 2003-04.
Briefly stated, the facts of the case are that the assessee is a Joint Venture Company of Dongwon Metal Industries Co. Ltd., Korea (38%), Daewoo Motors India Ltd. (30%) and Megawood Estates Ltd. (32%). It was engaged in the manufacture, assembly and sale of automotive exhaust systems and accessories. Its main supplies were originally to Daewoo Motors India Ltd., who had introduced Cielo, Naxia and Matiz in India. It had also been supplying exhaust systems to General Motors (Opel Astra and 1 I.T.A. 2509/Del/2013 Assessment Year: 2003-04 Corsa) and Hindustan Motors Ltd. It was submitted that the business of Daewoo Motors suffered heavy losses and supplies to Daewoo Motors were closed during the financial year 2002-03.
The business with Hindustan Motors and General Motors also declined due to decline in the sale of Contessa and Opel Astra/Corsa cars.
We were also informed that presently, the business of the assessee is closed.
The assessment was originally completed at a loss of Rs.85,14,331/- vide order dated 30.12.2005. Subsequently, after completion of the assessment, a query was raised by the Dy.
Commissioner of Income-tax, Circle 6(1), New Delhi regarding variation in the raw-material and stores consumed as per Profit & Loss A/c and details of raw material consumed as per Notes to Accounts.
In response to the said query, the assessee on 7.9.2006 furnished revised details of consumption of raw material duly corrected and verified by the Auditors. It was submitted that there was an error in the Notes to Accounts. The assessee, however, received a notice u/s 148 of the Income-tax Act, 1961 dated 11.10.2010 on the ground that consumption has been I.T.A. 2509/Del/2013 Assessment Year: 2003-04 debited at Rs.45,92,797.68 to the Profit and Loss A/c whereas as
per Schedule 16-B(6), the consumption of raw material and stores has been shown at Rs.38,06,000; Thus, there has been an excess claim of expenditure to the tune of Rs.7,86,797/-. Subsequently, the assessment was completed at a loss of Rs.77,25,534/- after making an addition of Rs. 7,86,797/- on account of unexplained cash credit.
On appeal, the Ld. CIT (A) confirmed the addition and now the assessee is in appeal before us.
It was submitted that the AO has incorrectly made an addition on account of unexplained cash credit of Rs.7,86,797/-.
It was submitted that it was only a factual mistake in the Schedule of the raw-material consumed and, therefore, the addition as unexplained cash credit was uncalled for. The Ld. AR submitted that at the most, the Assessing Officer could have increased the value of closing stock by Rs.7,86,797/-, as his conclusion was that the raw-material consumed was Rs.38,06,000/- and not Rs.45,92,797/-, as reflected in the Profit & Loss A/c., which would mean that there was more closing stock of raw material to that extent, in the absence of any other evidence to make out a case of unexplained cash credit. Our I.T.A. 2509/Del/2013 Assessment Year: 2003-04 attention was also drawn to the copy of statement of taxable income for assessment year 2003-04, which shows losses and depreciation (unabsorbed), which till date could not be absorbed and most of the losses could not be set off, being barred by time.
In light of the financial statements and the income tax computation statement, the Ld. AR reiterated that the raw- material consumed shown as consumed in the Schedule at Rs.38,06,000/- as against Rs.45,92,797/- was, in fact, a factual error, and the assessee did not gain any material tax benefit on account of any factual mistake in the figures. It was also submitted that the mistake had occurred due to a typographical error in the Notes to accounts and the correct details of consumption, duly certified by the auditors, was also submitted before the AO . A copy of the same is placed at pages 4 and 5 of the Paper Book. He, accordingly, prayed for the deletion of the addition.
The Ld. DR submitted that the assessee has been changing its stand regarding the discrepancy before the different authorities and as such the explanations cannot be accepted on its face value. He submitted that the addition has been rightly made and that the order of the Ld. CIT (A) should be confirmed.
I.T.A. 2509/Del/2013 Assessment Year: 2003-04 9. We have heard the rival contentions and have perused the records. It is seen that the AO had disallowed the expenditure on raw material consumption to the tune of Rs. 7,86,797/- but has added it back under unexplained cash credits. The Ld. CIT (A) while upholding the addition has rejected the explanations offered by the assessee in a summary manner by merely mentioning that the same is baseless. The assessee’s objection to making the addition under unexplained cash credits was also brushed aside by the Ld. CIT (A) by a simple remark that the reference to cash credits may be deleted. However, both the authorities have not dealt the issue at hand i.e. the adjudication on the aspect of mistake due to typographical error. We are of the opinion that the AO was not justified in ignoring the evidences and explanations with regard to the typing mistake in the audit report. The Assessing Officer's invoking provisions of section 69 is also not in accordance with law. It is also seen that the entire addition is based on a typographical error that crept into while typing out the consumption figures to which the assessee has offered an explanation and which is duly supported by a certificate from the auditors. Apart from this, the AO had no other evidence before him which could justify the addition. It is clear that this case I.T.A. 2509/Del/2013 Assessment Year: 2003-04 gives a strong indication that the error committed by the assessee’s Chartered Accountants was genuine and bona fide.
The assessee's income was already in a loss even without claiming excess consumption of raw material. Therefore, making an excess claim was not at all advantageous to the assessee and as such the excess claim was not a device, rather it was an inadvertent error. In the light of these facts and circumstances, we set aside the order of the Ld. CIT(A) and delete the addition.
In the result, the assessee’s appeal is allowed Order pronounced in the Open Court on 14th March, 2016.