2016 (9) TMI 1390 - HC - Income Tax

Calculation of undisclosed income - profit estimation - Addition on account of loose soap bricks found unrecorded during the course of search - Held that - Held that - The view taken by the Tribunal is just and proper and no interference is called for as held that no credibility in the report of Shri S.C. Singhal. Further, the publication of Rajasthan Chamber of Commerce giving information about soap manufacturing is also distinguishable for the reasons that the quality of soap covered by the publication is different from the quality of soap manufactured by the assessee. This is evident not only from the comparative sales prices between the component mix of the two. In so far as the report of Rajasthan Consultancy Organisation Ltd. Is concerned, we find that the organisation is sponsored by several Financial Institutions/Banks and all are public sector undertakings. Thus, this report is more credible/reliable. Moreover, the report is based on inspection of assessee s place and actual physical verification of process and production. We do not accept the contention of the Id. D/R that this report should not be believed. However, considering the facts and said report, we hold that it would be fair and reasonable if the weight gain is adopted at 7.5% in the case of appellant. The AO has prepared the calculation of undisclosed income at page 19 of assessment order in a table taking the weight gain at 15%. We hereby direct the AO to recalculate the undisclosed income by adopting 7.5% in place of 15% in the said table - Decided in favour of the assessee

Summary

Issues:
Challenging Tribunal's order, estimation of undisclosed income, weight gain in soap manufacturing process, interest income addition, accounting basis for interest calculation.

Estimation of Undisclosed Income:
The Department challenged the Tribunal's order dismissing their appeals and allowing the assessee's appeals against the CIT (A) order. The Assessing Officer estimated the assessee's income for block assessment years, considering undisclosed income on interest income from advances. The CIT (A) partly allowed the assessee's appeal, leading to further appeals. The Tribunal directed the AO to recalculate the undisclosed income by adopting 7.5% weight gain instead of 15%, based on credible reports and physical verifications.

Weight Gain in Soap Manufacturing Process:
The Department contended that the Tribunal erred in reducing the weight gain in soap manufacturing from 15% to 7.5% without proper basis. The Tribunal, after considering various reports and evidence, found the AO's calculation based on 15% weight gain not credible. They directed the AO to recalculate the undisclosed income using 7.5% weight gain, as it was fair and reasonable in the appellant's case.

Interest Income Addition:
The Department also questioned the Tribunal's decision to set aside the addition of interest income, arguing that the interest income was undisclosed even if not received. The Tribunal found the factual position not in dispute but considered whether the interest should be taxed on accrual or receipt basis. The Tribunal's decision was based on the limited dispute regarding the basis of taxation and the maintenance of books on a mercantile basis.

Accounting Basis for Interest Calculation:
The Tribunal's decision was upheld by the High Court, stating that the view taken by the Tribunal was just and proper, requiring no interference. The Court found the substantial questions raised by the Department to be related to the appreciation of evidence and law based on the record. Consequently, all issues were resolved in favor of the assessee against the Department, leading to the dismissal of the Department's appeals and the disposal of cross-objections accordingly.