2008 (8) TMI 918 - HC - Income Tax

Undisclosed investment u/s 69 - enhanced GP rate - excess stock found during survey - rejection of books of account u/s 145 - deduction u/s 80IA - additions made in the income from the undisclosed sources - considered as income of the business - eligibility for deduction u/s. 80IA? HELD THAT - From Persual of provisions of s. 69, it is clear that the basic condition, for attracting the provisions of s. 69 is, that the investments made in the financial year concerned, should not be recorded in the books of account, maintained by the assessee, for any source of income, and secondly, the assessee should have not offered any explanation, about the nature and sources of investments, or the explanation offered should not be satisfactory, in the opinion of the AO. In the present case, the relevant financial year is 1999-2000, and in the books of accounts of that year, this stock has been duly accounted for, and after so accounting for the same, the figure of sales has been accepted by the Department, and enhanced GP rate has been applied thereto. In that view of the matter, it cannot be said, that an investment has been made, which was not recorded in the books of account. Thus, in our view, the provisions of s. 69 cannot be said to be attracted to the price of stock in question. Though, not necessary, but still it may be considered and observed, that during the relevant year, the entire income of the assessee was exempted u/s 80-IA, and thus there was, possibly no reason, for the assessee to conceal the stock-in-trade, as thereby, the assessee was not to gain anything. The net result is that, we do not find any force in the appeal, and the same is therefore, dismissed.

Summary

Issues:
1. Appeal against judgment allowing deductions under s. 80-IA of the IT Act as business income.
2. Question of law regarding additions made in the income of the assessee as income from undisclosed sources.
3. Rejection of books of account under s. 145(3) by the AO.
4. Application of GP rate and addition of amount based on total sales figures.
5. Eligibility of deductions under s. 80-IA for the assessee.
6. Interpretation of provisions of s. 69 of the IT Act regarding undisclosed investments.
7. Assessment of whether the stock in question could be added as income from undisclosed sources.
8. Compliance with the conditions of s. 69 for attracting its provisions.

Analysis:
The appeal before the High Court stemmed from a dispute over deductions allowed under s. 80-IA of the IT Act, treated as business income by the CIT(A) and confirmed by the Tribunal. The primary issue revolved around the addition made by the AO under s. 69 of the IT Act, treating the excess stock found during a survey as income from undisclosed sources. The AO rejected the books of account under s. 145(3) and applied a higher GP rate, resulting in an addition to the total sales figure. The CIT(A) noted that the profits declared by the assessee were eligible for deduction under s. 80-IA, and the Tribunal upheld this view, emphasizing the eligibility of the assessee for deduction under s. 80-IA(4) for ten consecutive assessment years.

The High Court analyzed the provisions of s. 69, emphasizing the conditions required for its application. It was observed that for s. 69 to be attracted, investments made should not be recorded in the books of account, and the assessee must not offer a satisfactory explanation about the nature and source of the investments. In this case, the stock in question had been duly accounted for in the books of account for the relevant financial year, and the sales figure was accepted by the Department. Therefore, the Court concluded that the provisions of s. 69 were not applicable to the excess stock amount.

The Court further highlighted that since the entire income of the assessee was exempted under s. 80-IA during the relevant year, there was no apparent reason for the assessee to conceal the stock-in-trade. Ultimately, the Court dismissed the appeal, finding no merit in the arguments presented. This comprehensive analysis elucidates the intricate legal issues surrounding the judgment, providing a detailed understanding of the case and the Court's reasoning behind the decision.