2012 (6) TMI 646 - HC - Income Tax

Unexplained investment during the course of survey an unexplained cash and unexplained stock have been discovered - appellant-assessee failed to submit cogent explanation Held that - ingredients of sections 69, 69A, 69B and 69C were satisfied in the present case because in all these provisions what is provided is that if an assessee is found to be the owner of any money, jewellery or any other valuable articles not recorded in the books of account and fails to offer any explanation about the nature and source thereof or in case any such explanation, if offered, is not satisfactory in the opinion of the Assessing Officer, then this may be deemed to be the income of the assessee for such financial year In favor of Revenue

Summary

Issues Involved:
1. Justification of invoking sections 69 and 69A of the Income-tax Act.
2. Justification of disallowing a part of the interest paid and claimed as an expense.

Issue-wise Detailed Analysis:

1. Justification of Invoking Sections 69 and 69A:

The appellant-assessee challenged the judgment of the Income-tax Appellate Tribunal (ITAT) which upheld the decisions of the Commissioner of Income-tax (Appeals) and the Assessing Officer. The factual matrix involved a survey conducted on May 6, 2002, revealing that the books of account were written only up to April 26, 2002. The appellant filed its return of income on December 2, 2003, declaring income of Rs. 6,69,050. The case was selected for compulsory scrutiny, and an assessment order was passed on March 22, 2006, computing the income at Rs. 7,94,420, citing unexplained cash and stock, and disallowing interest under section 36(1)(iii).

The appellant contended that the cash book entries were incomplete due to the accountant's leave and that the stock recorded in the books was verified by the Assessing Officer. However, the authorities below rejected these explanations, invoking section 145(3) and rejecting the books of account. The ITAT upheld this decision, noting discrepancies in cash and stock, and the presence of unrecorded sales transactions in loose papers.

The court found that the authorities had concurrently decided against the appellant, noting discrepancies in cash and stock and unrecorded transactions. The appellant's failure to provide satisfactory explanations justified the invocation of sections 69 and 69A. The court emphasized that the satisfaction of the Assessing Officer regarding the correctness of the books of account is crucial for invoking these sections.

2. Justification of Disallowing Part of the Interest Paid:

The appellant argued against the disallowance of Rs. 26,833 from the interest claimed, contending that funds lent to its sister concern were received back within the same financial year. The Assessing Officer noted that the appellant had given an interest-free advance of Rs. 2,50,000 to its sister concern while paying interest on unsecured loans and bank loans. This led to the disallowance of interest on the grounds of non-business purpose.

The court upheld the disallowance, noting that the appellant failed to provide a satisfactory explanation for the interest-free advance. The authorities below had concurrently recorded findings against the appellant, and these findings were based on facts, not open to interference.

Conclusion:

The court found no infirmity in the ITAT's judgment, affirming the decisions of the lower authorities. The appeal was dismissed, confirming the invocation of sections 69 and 69A, and the disallowance of interest. The court emphasized the importance of the Assessing Officer's satisfaction regarding the correctness of the books of account and the explanations provided by the assessee.