2011 (9) TMI 82 - HC - Income Tax

Unexplained investment made towards working capital - GP rate of 10.35% - The Assessing Officer has made addition of Rs. 71,07,100/- on account of working capital required for attaining sale of Rs.1,11,99,427/- by taking into consideration the secured loan, unsecured loans and capital of the partners - Held that - The Tribunal has reduced the addition of Rs.71,07,100/- to Rs.20,00,000/- keeping in view the sales made outside the books of accounts - The extension of such benefit does not raise any substantial question of law as such benefit has been extended in the facts of the case - Still further, the Revenue s appeal against such addition stands dismissed and the assessee has chosen to file the present appeal after the decision in appeal of revenue. - It is not a bona-fide appeal as well. - Appeal dismissed.

Summary

Issues:
1. Interpretation of additions on account of profits on extrapolated sales.
2. Legality of directing the addition of unexplained investment made towards working capital.

Interpretation of additions on account of profits on extrapolated sales:
The case involved an appeal under Section 260A of the Income Tax Act, 1961, arising from an order passed by the Income Tax Appellate Tribunal. The Assessing Officer had found that the assessee concealed income on account of investment from undisclosed sources, extrapolated sales, and working capital requirements. The Commissioner confirmed the addition on extrapolated sales and working capital but set aside the addition in the capital account. The Tribunal rejected the assessee's contention regarding sales made outside the books of accounts but limited the unrecorded sales to a specific amount, reducing the working capital addition. The High Court noted that no substantial question of law arose regarding the sales bills as the Tribunal had made factual findings. The Tribunal's modification of the findings on working capital and the reduction of the addition were deemed appropriate, with no legal issue raised.

Legality of directing the addition of unexplained investment made towards working capital:
The Assessing Officer had added a significant amount for working capital, which was upheld by the Commissioner due to unaccounted sales. However, the Tribunal modified the findings and reduced the addition, considering the sales made outside the books of accounts. The High Court found that the Tribunal's decision to limit the working capital addition to Rs. 20 lakhs was justified based on the reduced unrecorded sales. The Court dismissed the Revenue's appeal against this addition, noting that the assessee's subsequent appeal lacked merit and was not bona fide. Consequently, the High Court upheld the Tribunal's decision regarding the working capital addition and dismissed the appeal.

Overall, the High Court found no substantial legal questions arising from the Tribunal's decisions on the extrapolated sales and working capital additions. The Court upheld the Tribunal's modifications and reductions, dismissing both the Revenue's appeal and the subsequent appeal by the assessee.