2014 (11) TMI 1092 - HC - Income Tax

Unexplained purchases - Held that - As during the course of assessment, the assessee produced before AO all the details of opening stock, purchase and sales made by it etc. and the same were neither disputed nor any discrepancy was found, therein. Apart from that the AO did not produce any material to show that the assessee had made purchases out of undisclosed income. It is not the case of the revenue or for that matter AO that the Bank had physically verified the stock lying with the assessee. On the contrary, from a perusal of the assessment order, it transpires that the assessee had shown more stock in books than in the statement submitted to the Bank. We are, therefore, of the opinion that the CIT(A) as well as the Tribunal committed no error in passing the impugned order.

Issues:
- Discrepancy in stock shown in books of accounts and stock submitted to the bank
- Addition of unexplained purchases
- Deletion of addition made on account of estimation of profit on suppressed sales

Discrepancy in stock shown in books of accounts and stock submitted to the bank:
The case involved a firm engaged in the business of export of silk. The appellant-revenue challenged the Tribunal's order that dismissed their appeal. The appellant raised questions regarding the discrepancy in stock shown in the books of accounts and the stock submitted to the bank. The appellant contended that the Tribunal failed to appreciate this material discrepancy, indicating purchases from an unaccounted source. However, the Court referred to a previous decision where it was held that additions to income were not justified solely based on differences in stock values. The Court found that the CIT(A) and the Tribunal had not erred in their decision based on the lack of evidence showing purchases from undisclosed income sources.

Addition of unexplained purchases:
The appellant argued that the CIT(A) and the Tribunal failed to consider the material on record, leading to an erroneous decision. The appellant claimed that the stock statement submitted to the bank contained less stock than shown in the books, suggesting unexplained purchases. However, the Court found that during scrutiny, the assessee provided details of opening stock, purchases, and sales, which were not disputed or found to have discrepancies. The AO did not present any evidence to prove purchases from undisclosed income sources. The Court concluded that the CIT(A) and the Tribunal had not erred in deleting the addition of unexplained purchases.

Deletion of addition made on account of estimation of profit on suppressed sales:
The appellant contested the deletion of the addition made on account of estimation of profit on suppressed sales. The appellant argued that the sales were not recorded in the books of account even after the stock was sold out. However, the Court noted that the assessee had produced details of opening stock, purchases, and sales during assessment, which were not disputed. The Court found no evidence to support the claim that the assessee had undisclosed income or that the Bank physically verified the stock. Consequently, the Court upheld the decision of the CIT(A) and the Tribunal in deleting the addition made on account of estimation of profit on suppressed sales.

In conclusion, the Court dismissed the appeal, ruling in favor of the assessee and against the revenue, as there was no merit in the appeal.

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