2012 (9) TMI 833 - AT - Income Tax

Block-assessment - search and seizure - addition made on account of undisclosed investment based on the entries found on the seized documents - Held that - From records it is observed that there was justification for AO for coming to the conclusion that the figures were coded and CIT(A) was not justified in concluding that AO had acted on presumptions. In case, there is material to show that the figures are coded, the computation of income from the transactions has to be done on the basis of real figures and not coded figures. We are therefore, unable to sustain the order of CIT(A) in allowing relief to the assessee and same is therefore, set aside and addition is upheld. Addition as unaccounted sales - whether the entire sales should be added to the total income or only GP on the sales - Held that - Once certain sales are found as unaccounted in the books, the assessee has to explain the investment in the corresponding purchases. In case the purchases are accounted, the entire sales had to be added to the trading account and in case sales as well as corresponding purchases both are unaccounted then, in addition to GP, the corresponding investment i.e. purchase value is also required to be added. Thus, in either case the total sales will have to be treated as undisclosed income. CIT(A) has not given any basis as to why only GP should be added. Order of CIT(A) set aside and addition made by the AO is confirmed. Addition on account of undisclosed stock - assessee had explained the stock as belonging to M/s. P Corporation - AO did not accept the explanation as figures were not matching - CIT(A) while deleting addition observed that discrepancy found represented the stock position of different dates - Held that - In case no date is mentioned the document has to be taken as of the current date unless the assessee explains with evidence that the same related to earlier period. Therefore, the transactions had to be treated as part of the block period. The assessee had not produced any evidence to show that the said stock was part of the common business and had already been declared in the common accounts. addition made by AO is confirmed - Decided in favor of Revenue

Summary

Issues Involved:
1. Relief of Rs.6,51,38,695 allowed by CIT(A) in relation to addition of Rs.7,14,38,500/- on account of undisclosed investment.
2. Addition of Rs.39,92,333/- made by the AO as unaccounted sales.
3. Addition of Rs.1,52,16,793/- on account of undisclosed stock.

Issue-wise Detailed Analysis:

1. Relief of Rs.6,51,38,695 allowed by CIT(A) in relation to addition of Rs.7,14,38,500/- on account of undisclosed investment:
The AO noted several entries of transactions in a seized notebook (Annexure A-3) which the assessee claimed were related to a family settlement dated 16.3.1996. However, the AO did not accept this explanation and assessed the income relating to these entries within the block period. The AO added appropriate zeros to the coded figures in the document, resulting in a total undisclosed investment of Rs.7,14,38,500/-. CIT(A) observed that there was no sufficient material to support the decoding by the AO and upheld the addition only to the extent of Rs.62,99,805/-. The Tribunal, however, found that the AO had justified the decoding in the show cause notice and concluded that CIT(A) was not justified in concluding that the AO acted on presumptions. Therefore, the Tribunal set aside the CIT(A)'s order and upheld the addition made by the AO.

2. Addition of Rs.39,92,333/- made by the AO as unaccounted sales:
The AO noted unaccounted sales entries in the seized documents (Annexure A-3) totaling Rs.39,92,333/-. The assessee argued that no addition could be made based on entries in notebooks not part of regular books of accounts and alternatively suggested that only the gross profit (GP) should be taxed. CIT(A) accepted the alternative claim and directed the AO to add only the GP. The Tribunal, however, noted that if the purchases were accounted, the entire sales should be added, and if both sales and purchases were unaccounted, the total sales should be treated as undisclosed income. Thus, the Tribunal set aside the CIT(A)'s order and confirmed the addition made by the AO.

3. Addition of Rs.1,52,16,793/- on account of undisclosed stock:
The AO added Rs.56,59,593/- based on the excess stock found on 30.6.1996 and Rs.95,57,000/- based on entries in Annexure-1, totaling Rs.1,52,16,793/-. The assessee explained that the stock belonged to M/s. Palreja Metal Corporation, but the AO did not accept this explanation. CIT(A) concluded that the stock position on 30.6.1996 was part of a joint business and no excess stock was found during the search, thus deleting the addition. The Tribunal, however, noted that the document had to be explained by the assessee under section 292C, and in the absence of satisfactory explanation, the AO could determine the undisclosed income. The Tribunal found that CIT(A) did not provide sufficient basis for deleting the addition and thus set aside the CIT(A)'s order, confirming the addition made by the AO.

Conclusion:
In the result, the appeal of the revenue is allowed, and the additions made by the AO on account of undisclosed investment, unaccounted sales, and undisclosed stock are upheld.