2012 (9) TMI 958 - AT - Income Tax

Additional income as deemed income u/s 69 & 69A - income from business and surrendered against the cash and excess stock found at the time of survey - rejection of the trading account

Issues Involved:

1. Treatment of surrendered amount of Rs. 4,00,000/- as additional income under sections 69 & 69A of the Income-tax Act.
2. Rejection of the trading account and addition of Rs. 1,07,278/-.
3. Non-telescoping of the two additions of Rs. 1,07,278/- and Rs. 4,00,000/-.
4. Disallowance of interest amounting to Rs. 19,630/- and reasonableness of interest rate.
5. Reliance on the judgment of Abhishek Industries.

Issue-wise Detailed Analysis:

1. Treatment of Surrendered Amount:

The primary issue was whether the surrendered amount of Rs. 4,00,000/- during the survey should be treated as business income or deemed income under sections 69 & 69A of the Income-tax Act. The assessee argued that the amount should be considered as income from regular business, while the Assessing Officer (AO) treated it as deemed income due to unexplained cash/stock and investment. The Tribunal upheld the AO's decision, relying on the Gujarat High Court's judgment in Fakir Mohd. Hazi Hassan v. CIT. The Tribunal noted that the assessee failed to provide a satisfactory explanation for the source of the additional income, leading to its classification as deemed income under sections 69, 69A, and 69B. Consequently, the corresponding deductions applicable to business income were not allowed.

2. Rejection of Trading Account and Addition:

The assessee contested the rejection of the trading account and the addition of Rs. 1,07,278/-. The AO had rejected the books of account due to discrepancies in stock, invoking Section 145(3) of the Act. The Tribunal noted a declining trend in the Gross Profit (GP) and Net Profit (NP) rates over the years, supporting the AO's decision. The Tribunal upheld the findings of the CIT(A), agreeing that the discrepancies in stock constituted a specific defect, justifying the rejection of the books of account and the addition made by the AO.

3. Non-Telescoping of Additions:

The assessee argued for the telescoping of the two additions of Rs. 1,07,278/- and Rs. 4,00,000/-. The Tribunal dismissed this argument, reiterating that the additional income of Rs. 4,00,000/- was rightly treated as deemed income arising from sources other than business income. Therefore, the trading addition due to low GP could not be adjusted against the additional income declared during the survey.

4. Disallowance of Interest:

The assessee challenged the disallowance of interest amounting to Rs. 19,630/-, arguing that interest at 15% was reasonable. The Tribunal examined the interest rates paid to both related and non-related parties, noting that the assessee paid interest at both 12% and 15% without discrimination. Consequently, the Tribunal concluded that there was no definitive evidence that the assessee paid a higher rate to relatives. Therefore, the Tribunal reversed the CIT(A)'s findings and allowed the assessee's appeal on this ground.

5. Reliance on Abhishek Industries Judgment:

The assessee contended that the CIT(A) wrongly relied on the judgment of Abhishek Industries. However, this issue was not separately adjudicated as it was considered general in nature and not requiring specific analysis.

Conclusion:

The Tribunal partly allowed the assessee's appeal, upholding the AO's and CIT(A)'s decisions on the treatment of surrendered income and the rejection of the trading account while reversing the disallowance of interest paid to relatives. The appeal was dismissed on other grounds considered general in nature. The order was pronounced in open court on 25th September 2012.

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