2011 (12) TMI 42 - HC - Income Tax

Block assessment - Additions on account of undisclosed investment - rate of gross profit - held that - The Assessing Officer had made addition of Rs.7,53,953/- on account of investment made in purchase of undisclosed stock. For the assessment year 1996-97 the Assessing Officer observed that the assessee had purchased undisclosed stock of more than Rs.2.75 crores but the addition as noticed above was of Rs.7,53,953/- only. For the same year the assessee as per regular books of accounts had made purchase of Rs.30,83,342/- but the Assessing Officer had taken undisclosed investment for making regularly recorded purchases at Rs.5,16,460/-. The difference is apparent. This discrepancy in the order of Assessing Officer cannot be explained. Further the Assessing Officer has accepted the stand of the respondent that the cassettes were supplied on credit and sales were made in cash, to reduce the element of investment. - With regard to the GP rate, the Assessing Officer in the assessment order had recorded that comparable GP in the similar trades was Rs.2.5%. It is noticeable that no details or particular other dealer were, stated. How the Assessing Officer got this figure is difficult to fathom. It is quite clear that respondent was not in a position to make heavy investments as the GP rate was very low. - Deletion of addition of Rs.2,46,047/- justified.

Issues:
1. Block assessment order challenged under Section 260A of the Income Tax Act, 1961.
2. Undisclosed income surrendered for release of seized goods.
3. Assessment details of undisclosed income declared by the respondent.
4. Specific additions made by the Assessing Officer.
5. CIT (A) and Tribunal's decisions on the additions.
6. Substantial question of law regarding the Tribunal's order.
7. Consideration of surrendered undisclosed income.
8. Calculation of undisclosed investment and additions made.
9. Assessment of undisclosed stock and GP rate.
10. Tribunal's decision on closing stock addition.

Detailed Analysis:

1. The appeal challenged the order passed by the Income Tax Appellate Tribunal (ITAT) regarding the Block Assessment period from 01.04.1988 to 24.09.1998 under Section 260A of the Income Tax Act, 1961.

2. The respondent, a partnership firm, surrendered undisclosed income of Rs.10 Lakhs after a search under Section 132 of the Act, claiming it was to release seized goods.

3. The respondent filed a block assessment return declaring undisclosed income of Rs.13,26,380, including details of undisclosed sales and gross profit percentages for assessment years.

4. The Assessing Officer made specific additions for undisclosed investments, GP rate adjustments, and undisclosed stock found during the search.

5. The CIT (A) modified some additions, reducing certain amounts, while upholding others. The Tribunal dismissed the appeal on various contentions.

6. A substantial question of law was framed regarding the Tribunal's order being considered perverse and contrary to the evidence on record.

7. The respondent's surrendered undisclosed income was a crucial factor in the assessment, with specific additions being sustained by the Tribunal.

8. The Assessing Officer's computation of undisclosed investments and subsequent additions were analyzed, especially in relation to quick turnovers in the wholesale market.

9. Assessment of undisclosed stock and GP rate adjustments were scrutinized, highlighting discrepancies in the Assessing Officer's approach and lack of supporting details.

10. The Tribunal's decision on the closing stock addition was based on previous adjustments made, leading to the conclusion that no further addition was necessary.

In conclusion, the Tribunal's order was upheld, with adequate additions made based on the assessment details and cooperation of the respondent. The substantial question of law was answered, and the appeal was dismissed without costs.

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