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Issues involved: Addition of unexplained investment in closing stock and justification of surrender amount for addition.
Issue 1 - Addition of unexplained investment in closing stock: The assessee sought the court's opinion on whether the Tribunal was justified in upholding the addition of Rs. 3,07,221 for alleged unexplained investment in closing stock. The Tribunal found discrepancies between physical stock and excise records, with the assessee admitting to a difference of Rs. 3 lakhs and offering to disclose it as undisclosed income. The Tribunal noted that the surrender was not retracted and was a calculated attempt to divert attention. Despite this, the income was not disclosed in the return. The Court held that based on section 132(4), the addition was rightly made, as the assessee's actions indicated acceptance of the discrepancy. Therefore, the question was answered against the assessee. Issue 2 - Justification of surrender amount for addition: The second question focused on whether the addition of Rs. 3,07,221 was valid based on the amount surrendered by the assessee during the search. The Court emphasized the importance of whether the surrender amount could form the basis for such an addition. The Tribunal's order indicated that the excess stock was found during the search, and the assessee admitted to the difference and readiness to disclose it as undisclosed income. The Court highlighted that the surrender was not retracted and was a deliberate attempt to divert the investigation. As per section 132(4), the Court concluded that the addition was rightly made. Consequently, the question was answered in favor of the revenue. Conclusion: The Court, after considering the arguments from both parties, upheld the addition of Rs. 3,07,221 in the closing stock as unexplained investment and justified the use of the surrender amount for the addition. The reference was answered accordingly.
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