2011 (12) TMI 675 - AT - Income Tax

Summary

Issues Involved:
1. Sustaining the action of survey under section 133A and search under section 132(1) of the IT Act.
2. Addition on account of unexplained investment in Gold Jewellery.
3. Addition on account of unexplained investment in excess stock found during the course of search.
4. Application of GP rate for trading additions.
5. Disallowance of unverifiable purchases.
6. Interest accrued on KVP and FDR.
7. Disallowance of certain expenses.
8. Cost of construction determined by the departmental valuer.

Issue-Wise Detailed Analysis:

1. Sustaining the action of survey under section 133A and search under section 132(1) of the IT Act:
The assessee did not press this ground; hence, it was dismissed as not pressed.

2. Addition on account of unexplained investment in Gold Jewellery:
The AO added Rs. 9,59,960 as unexplained investment in gold jewellery. The CIT(A) found that the assessee was eligible for relief of Rs. 6,83,760 and sustained an addition of Rs. 2,76,200. Both the assessee and the department appealed. The Tribunal found no infirmity in the findings of the CIT(A), confirming the order and dismissing the grounds of both parties.

3. Addition on account of unexplained investment in excess stock found during the course of search:
The AO valued the stock found during the search at Rs. 18,64,44,294 and after giving credit of 11% GP, added Rs. 7,38,42,467 as unexplained investment. The CIT(A) modified the addition by applying a GP rate of 30%, resulting in an addition of Rs. 3,50,12,643. The Tribunal noted discrepancies in the valuation by the departmental valuer and found that the items and weights recorded in the books were almost the same as those found during the search. Therefore, the Tribunal deleted the entire addition on the basis of excess valuation, accepting the assessee's valuation.

4. Application of GP rate for trading additions:
The AO applied a GP rate of 30% based on past assessments, resulting in various trading additions. The CIT(A) upheld the application of section 145(3) and sustained the trading additions. The Tribunal directed the AO to apply a GP rate of 18% instead of 30%, considering the facts and past history of the case.

5. Disallowance of unverifiable purchases:
The AO disallowed certain cash purchases and purchases from unverifiable registered dealers. The CIT(A) upheld the disallowance in part. The Tribunal, following its consistent approach, held that the addition should be based on past history and not on a fixed percentage of unverifiable purchases. The Tribunal allowed the assessee's appeal on this ground.

6. Interest accrued on KVP and FDR:
The AO added interest accrued on KVP and FDR taken in the name of the assessee's mother. The CIT(A) upheld the addition. The Tribunal set aside the issue to the AO for fresh examination, directing to verify if the interest was already shown in the respective hands.

7. Disallowance of certain expenses:
The AO disallowed 20% of certain expenses, which the CIT(A) reduced to 10%. The Tribunal upheld the CIT(A)'s order, finding the disallowance reasonable.

8. Cost of construction determined by the departmental valuer:
The AO made an addition based on the DVO's report, which determined the cost of construction higher than what was declared by the assessee. The CIT(A) allowed partial relief by reducing the addition. The Tribunal found that the purchase price and expenses were recorded in the books of account and deleted the entire addition, holding that the AO and CIT(A) were not justified in making and sustaining the addition.

Conclusion:
The Tribunal provided a detailed analysis of each issue, addressing the discrepancies in valuation, application of GP rates, and disallowance of unverifiable purchases. The Tribunal's findings were based on the consistency of the assessee's records and past history, ultimately providing relief to the assessee on most grounds while upholding the CIT(A)'s findings on certain expenses and the application of section 145(3).