2009 (3) TMI 654 - AT - Income Tax

Summary

Issues:
- Addition of Rs. 1,25,840 on account of alleged excess stock of Khal Sarson
- Upholding of the addition by the CIT(A)
- Violation of principles of natural justice by the Assessing Officer

Analysis:

Issue 1: Addition of Rs. 1,25,840 on account of alleged excess stock of Khal Sarson
The appeal was against the addition of Rs. 1,25,840 made by the Assessing Officer due to an excess stock of Khal Sarson found during a survey. The partner had surrendered additional income, including the value of excess stock, but the assessee did not offer this income in the return, claiming ignorance on the part of the partner. The Assessing Officer accepted part of the explanation regarding 25 quintals of Khal produced on the survey date but disallowed the claim for 256 quintals belonging to another party. The addition was made based on valuing the excess stock at a specific rate per quintal.

Issue 2: Upholding of the addition by the CIT(A)
During the appellate proceedings, the assessee argued that the stock sold to another party was not part of the excess stock, providing evidence of the sale transaction. However, the CIT(A) upheld the Assessing Officer's decision, considering the facts and circumstances of the case. The CIT(A) concluded that the explanation provided by the assessee was not acceptable, leading to the affirmation of the addition of Rs. 1,25,840.

Issue 3: Violation of principles of natural justice by the Assessing Officer
The Tribunal found that the Assessing Officer's reliance on material gathered without providing an opportunity for the assessee to explain or cross-examine was a violation of natural justice. The enquiry conducted by another authority regarding the sale transaction was not disclosed to the assessee, leading to an unfair assessment process. The Tribunal held that the assessment order, upheld by the CIT(A), was not legally sustainable due to this violation of principles of natural justice. Consequently, the addition of Rs. 1,25,840 was directed to be deleted, and the appeal of the assessee was allowed.