2014 (11) TMI 1050 - AT - Income Tax

Unexplained investment - CIT(A) partly deleted the addition - Held that - merit in making addition by A.O. or partly being confirmed by Ld. CIT(A). First of all the stock taken was done in the middle of the year and assessee has every right to reconcile the stocks but no such opportunity was given. Further when assessee explained in the statement that accounting in the books of accounts is about net non-defective area the officers of survey could have examined this contention and establish whether statement of assessee is correct or not given in the course of survey. Nothing was done except quantifying the stock. As seen from the order Ld. CIT(A) accepts that there could be adjustments for the defective pieces/slabs. However in his wisdom he restricted the allowance to 10% without any basis. Considering that books of accounts were not rejected and special auditor in his report also has not pointed out any defects we are of the opinion that the balance of the amount also should be deleted. In fact excess area arrived at in the stock inventory is about 15% of the stock actually recorded by assessee in the books of accounts and as submitted there could be variation to the extent of 15% to 18%. In view of this we delete the balance of the amount also. - Decided in favour of assessee

Summary

Issues:
Appeal against order of Ld. CIT(A)-VI, Hyderabad involving addition made by A.O. as unexplained investment of Rs. 16,00,060, partially deleted by Ld. CIT(A).

Analysis:

Issue 1: Addition of unexplained investment
The appeal was against the addition made by the Assessing Officer (A.O.) as unexplained investment of Rs. 16,00,060, which was partly deleted by the Ld. CIT(A). The excess stock of granite found during a search operation was the basis for this addition. The A.O. valued the excess stock at Rs. 580 per sq. metre. The Ld. CIT(A) partially allowed relief, considering the appellant's submissions regarding the nature of the stock and the possibility of defects in rough granite slabs.

Issue 2: Special audit and survey proceedings
The appellant contended that their books of accounts were referred to special audit, where no mistakes were found. They argued that the A.O. should not have made additional additions after the special audit. The appellant also raised the timing of the survey conducted in the middle of the accounting year, preventing the A.O. from making additions, especially when the books were accepted at year-end. They further argued for an allowance of 15% to 18% on the stock taken by the department due to defects in the granite slabs.

Issue 3: Judicial decision and reasoning
The appellant relied on a Coordinate Bench decision and a similar case in Bangalore where additions were deleted due to lack of credible evidence. The Departmental Representative (D.R.) supported the Ld. CIT(A)'s order. The Tribunal analyzed the contentions and factual position, finding no merit in the A.O.'s addition or the partial confirmation by the Ld. CIT(A). They noted the lack of examination of the appellant's explanation during the survey and the arbitrary restriction of allowance by the Ld. CIT(A). Considering the lack of rejection of books of accounts and the absence of defects pointed out by the special auditor, the Tribunal decided to delete the remaining balance of the amount added by the A.O.

Conclusion
The Tribunal allowed the appeal of the assessee, emphasizing the importance of proper examination of explanations during survey proceedings and the need for justifications in making additions based on stock valuations. The decision highlighted the significance of credible evidence and proper assessment procedures in such cases, ultimately providing relief to the appellant against the addition of unexplained investment.