2011 (10) TMI 521 - AT - Income Tax

Summary

Issues Involved:
1. Addition of Rs. 35,39,200 in respect of excess stock discovered during survey proceedings.
2. Addition of Rs. 4,59,392 in respect of labour charges expenses.
3. Estimated ad hoc disallowance of Rs. 11,00,000 out of sales promotion expenses.
4. Estimated ad hoc disallowance of Rs. 3,50,000 out of stationery expenses.
5. Addition of Rs. 15,408 in respect of excess cash alleged to be worked out during the survey proceedings.

Issue-wise Detailed Analysis:

1. Addition of Rs. 35,39,200 in respect of excess stock discovered during survey proceedings:
The appellant, a Hindu undivided family engaged in the business of manufacturing and trading gold and silver ornaments, was subjected to a survey on January 19, 2007, revealing discrepancies in the stock of gold and diamond ornaments. A statement by Shri Nirav J. Soni, son of the karta, acknowledged the excess stock and agreed to pay taxes on the additional unaccounted income of Rs. 40 lakhs, which was later retracted. The appellant filed a return declaring an income of Rs. 38,57,100 and retracted the earlier disclosure through an affidavit, claiming the stock had been reconciled. The Assessing Officer noted discrepancies in stock registers and deemed the excess stock as unexplained investment under section 69B of the Income-tax Act. The Commissioner of Income-tax (Appeals) affirmed the Assessing Officer's action, questioning the delay in retraction and the failure to produce customers for cross-examination. The Tribunal remanded the issue back to the Assessing Officer for de novo consideration, directing verification of the stock of diamond ornaments and the reconciliation of stock discrepancies.

2. Addition of Rs. 4,59,392 in respect of labour charges expenses:
This issue is connected to the first ground, where the Assessing Officer taxed the labour charges separately, considering them part of the excess stock. The Commissioner of Income-tax (Appeals) confirmed this addition. Since the excess stock issue was remanded for fresh consideration, this ground was also allowed for statistical purposes, to be decided afresh in consequence.

3. Estimated ad hoc disallowance of Rs. 11,00,000 out of sales promotion expenses:
The assessee claimed Rs. 24,28,780 towards sales promotion, significantly higher than the previous year's Rs. 11,44,972. The Assessing Officer disallowed Rs. 11,00,000, doubting the reliability of the books of account. The Commissioner of Income-tax (Appeals) upheld this disallowance. The Tribunal, however, found that the expenditure was business-related and fully vouched, reversing the findings of the authorities below and allowing the expenditure.

4. Estimated ad hoc disallowance of Rs. 3,50,000 out of stationery expenses:
The Assessing Officer made an ad hoc disallowance of Rs. 3,50,000 out of Rs. 4.40 lakhs claimed for stationery expenses, noting a significant increase from the previous year's Rs. 42,078. The Commissioner of Income-tax (Appeals) affirmed this disallowance. The Tribunal found that the assessee maintained proper accounts and supporting bills, directing the deletion of the ad hoc disallowance.

5. Addition of Rs. 15,408 in respect of excess cash alleged to be worked out during the survey proceedings:
This ground was not seriously pressed by the appellant and was dismissed.

Conclusion:
The Tribunal allowed the appeal partly, remanding the issues of excess stock and labour charges for fresh consideration, while allowing the claims for sales promotion and stationery expenses. The addition of excess cash was dismissed as not pressed. The order was signed, dated, and pronounced on October 14, 2011.