2014 (6) TMI 891 - AT - Income Tax

Addition under section 69A - verification during the course of survey under section 133A - CIT(A) deleted the addition - Held that - In the case of the assessee during the course of survey operations certain shortages were noticed pertained to cash in hand gold ornaments diamond items and silver items. Since shortages have been noticed as compared to books it cannot be said that any undisclosed investment/money was made by the assessee. Thus we agree with the learned Commissioner of Income-tax (Appeals) that no addition can be made as undisclosed investment made by the assessee. In such circumstances addition under section 69A of the Income-tax Act is not warranted. As regards cash shortages shortage has been found as compared to books. The cash might have been used for making unaccounted purchases or other purposes for which no cogent material is available. In such circumstances merely on conjectures or surmises addition under section 69A of the Act cannot be made. As regards shortage in gold ornaments 22 carat and the gold ornament that is said to have given to sister concerns addition to the extent of 17, 27, 945 and 5, 13, 112 respectively had been made. In this regard we note that the shortage in the above gold ornaments cannot be treated as undisclosed investment and the shortage can at best be treated as undisclosed sales. In such circumstances only the profit element arising out of the said sale can be added in the hands of the assessee and not the entire undisclosed sales. In this regard the assessee has offered an addition of 14 lakhs. The learned Commissioner of Income-tax (Appeals) has accepted the same as sufficient. We find ourselves in agreement with the finding of the learned Commissioner of Income-tax (Appeals) that the offer made by the assessee in this regard suffice the ends of justice. Addition for shortage in case Gold ornaments-18 carat-addition made for shortage- 2, 78, 493 Diamond items-additions made 1, 993 and Silver items-additions made 95, 267. We find that the above shortages can at best be treated as undisclosed sales. In such circumstances the entire amount cannot be added. In our considered opinion an estimated addition of 10 percent. profit on the above sales would be sufficient and would serve the ends of justice. Accordingly we confirm the order of the learned Commissioner of Income- tax (Appeals) with only modification that 10 per cent profit may be added for the items mentioned above. - Decided partly in favour of revenue.

Summary

Issues:
1. Addition under section 69A based on discrepancies noticed during a survey under section 133A of the Income-tax Act.

Analysis:
The appeal filed by the Revenue challenged the deletion of an addition of Rs. 62,20,986 under section 69A by the learned Commissioner of Income-tax (Appeals) for the assessment year 2005-06. The discrepancies noticed during a survey operation included deficits in cash, stocks, gold ornaments, diamond items, and silver items. The assessee admitted additional income under the income from other sources while filing the return. The Assessing Officer made additions corresponding to the discrepancies noticed, treating them as unexplained investments or income. The assessee provided explanations for the discrepancies, attributing them to reasons such as lack of proper maintenance of books of account and non-entry of stock registers. The Assessing Officer, unsatisfied with the explanations, made additions based on the discrepancies noted.

The learned Commissioner of Income-tax (Appeals) considered the submissions made by the assessee and deleted the addition under section 69A. The Commissioner observed that the discrepancies did not necessarily indicate undisclosed investments or income but could be attributed to unaccounted sales. The Commissioner noted that the assessee had admitted additional income during the survey operations, which was duly recorded in the books and return of income. The Commissioner found the additions made by the Assessing Officer to be irrational and unjustified, directing the deletion of various additions under different heads.

Upon appeal, the Appellate Tribunal agreed with the Commissioner's findings. The Tribunal held that shortages noticed during the survey did not imply undisclosed investments by the assessee. It was noted that shortages in cash and various ornaments could be treated as undisclosed sales rather than investments. The Tribunal agreed with the Commissioner's decision to accept the assessee's offer of additional income of Rs. 14 lakhs to cover the discrepancies. For the shortages in gold ornaments, diamond items, and silver items, the Tribunal opined that only a 10 percent profit on the undisclosed sales should be added, confirming the Commissioner's order with this modification.

In conclusion, the Tribunal partly allowed the Revenue's appeal, upholding the deletion of the addition under section 69A while modifying the profit addition for certain items.