INCOME TAX ACT, 1961

Section 145

Accounting method - Rejection - Alleged bogus sale - No evidences furnished by revenue to prove sales diverted to petrol pumps/non-individual use

Assessee in the present case was a limited company and engaged in the business of manufacturing of various petrochemical products like Naptha, spring oil, Ink oil, ginning oil, solvent, etc. The items in which the assessee was dealing were governed and controlled by the PREVENTION OF BLACK MARKETING OF ESSENTIAL COMMODITIES ACT. The assessee was purchasing such products from various companies such as IOCL, HPCL, BPCL, IPCL, Reliance Industries, etc. The assessee claimed that it had sold such products after carrying out manufacturing process to various companies for the industrial purposes. AO was of the view that the assessee was selling the products at a price higher than the price recorded in the books in order to achieve high profit margin. As such the impugned products used to be mixed with the petrol by the petrol pump owners. AO made the addition of the amount stated above in the different assessment years to the total income of the assessee. There was a search and seizure operation carried out by the sales-tax deparment at the premises of the assessee dated 16-2-2000. Subsequently, there was an inspection by the district supplies team at the premises of the assessee dated 18-2-2000. The district supply team held that the assessee was diverting the products to the petrol pump owners/in the black market which was an offence under the law. CIT(A) restricted the addition made by the AO with respect to the sale of the product solvent as diversion of sale to the petrol pump owners and not all products. Held: This Tribunal deemed it fit to decide the issue on merit based on the materials available on record and without waiting or the outcome of the competent court where the matter was pending. In the absence of any contrary information, Tribunal conclude that the assessee was engaged only in diverting the solvent products. If the sales had not been made to the concerned parties, then the onus shifts on the revenue to prove based on cogent materials that the sales was made to the petrol pump owners/other industries. There was no mention of any petrol pump owner/other industry. There was no infirmity in the finding of the CIT(A). Therefore, it was clear that the matter for the diversion of sales of solvent was restricted only to parties mention in the order of the District Magistrate and CIT(A). There was no enquiry conducted by the AO from the petrol pump owners which was very necessary to hold that the assessee had diverted its products to the petrol pump owners. There was no inquiry by the revenue from such petrol pump owners despite the having some information about the petrol pump owners. AO on one hand was estimating the income which was not recorded in the books of accounts but on the other hand denied to allow the corresponding expenses on the ground that these expenses were not recorded in the books of accounts. There was a possibility that the parties to whom the assessee had sold the goods might have diverted the products to the petrol pump owners/other industries. If that be so, the assessee cannot be penalized for the act done by the other parties. However, the revenue had not brought anything on record contrary to the arguments of the assessee. It cannot be concluded that the assessee was engaged in the diversion of its product as discussed above. The revenue had not brought necessary tangible materials in support of his claim. the addition made by the authorities below was therefore not sustainable in the absence of sufficient documentary evidence.

Relied:Nokia Solutions and Networks Italia Spa v. Dy. Director of Income Tax W.P.(C) No. 2477/2019 : 2019 TaxPub(DT) 6036 (Del-HC) and CIT v. MK Brothers (1987) 163 ITR 249 (Guj) : 1987 TaxPub(DT) 359 (Guj-HC).

REFERRED :

FAVOUR : In assessee's favour.

A.Y. : 1998-99 to 2000-01

INCOME TAX ACT, 1961

Section 143 Section 68 Section 67

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