2010 (6) TMI 396 - HC - Income Tax

Income from undisclosed source Discrepancies found in accounts during Income Tax survey Additions based on material on record Justified

Summary

Issues:
1. Addition of unrecorded purchases.
2. Deletion of addition made by the Assessing Officer.
3. Justification of the Income-tax Appellate Tribunal's decision.
4. Admissibility of fresh evidence.
5. Compliance with rule 46A of the Income-tax Rules.

Analysis:

Issue 1: Addition of unrecorded purchases
The case involved an appeal by the Department against the order of the Income-tax Appellate Tribunal regarding unrecorded purchases by an assessee engaged in manufacturing incense sticks. The Assessing Officer had added an amount as unrecorded purchases, which was reduced by the Commissioner of Income-tax (Appeals) to a lesser sum. The Tribunal allowed the assessee's appeal, deleting the entire addition. The Department contended that certain bills were not found during the survey, and new material submitted should have led to a remittal to the Assessing Officer. The respondent argued that though sales were unrecorded, vouchers were later submitted, justifying the Tribunal's decision.

Issue 2: Deletion of addition made by the Assessing Officer
The Commissioner of Income-tax (Appeals) had deleted an amount added by the Assessing Officer based on available bills at the time of survey, which were signed by an Inspector. The Commissioner found the purchases genuine and directed the Assessing Officer to delete the addition. The High Court agreed that the addition was rightly made by the Assessing Officer, as the bills were available and entered in the purchase register. The deletion of the amount by the Commissioner was found to be based on cogent reasons.

Issue 3: Justification of the Income-tax Appellate Tribunal's decision
The Tribunal had deleted the addition of unrecorded purchases, and the High Court found this decision unjustified. While the purchases were found genuine and entered in the books, the unrecorded sale of a specific amount lacked supporting bills during the survey. The Tribunal did not provide reasons to disagree with the finding of the Commissioner of Income-tax (Appeals), leading to the restoration of the Commissioner's order.

Issue 4: Admissibility of fresh evidence
The second substantial question of law raised the issue of confirming the Commissioner's order based on fresh evidence, potentially contravening rule 46A of the Income-tax Rules. The High Court found that the bills were signed by the Inspector, and considering them did not cause prejudice to the Revenue, leading to the allowance of the appeal.

In conclusion, the High Court upheld the addition of certain unrecorded purchases, disagreed with the deletion made by the Tribunal, and restored the Commissioner's order regarding the unrecorded sale. The decision was based on the availability of bills and proper appreciation of the facts, ensuring compliance with the Income-tax Rules.