2012 (10) TMI 613 - HC - Income Tax

Addition made on account of difference in Gross Profit - unexplained investment - ITAT deleted the addition - Held that - The assessee offered an explanation that some of the sarees in the stock had gone out of fashion and that discounts were given to the customers at about 10-15%. The Tribunal accepted the explanation and reduced the gross profit rate from 16.87%, which the A.O. had worked out after rejecting the account at 15.7%. The addition on account of dis-allowance of the salary was maintained. Thus the questions raised by the revenue are essentially questions of fact based on the discretion of the income tax authorities and the Tribunal after books of accounts are rejected and best judgment assessment is resorted for framing the assessment. No substantial questions of law to be decided by the Court - against revenue.

Summary

Issues:
1. Deletion of addition on account of difference in Gross Profit.
2. Deletion of addition on account of unexplained investment in shop, godown, furniture, etc.

Analysis:

Deletion of addition on account of difference in Gross Profit:
The appeal under Section 260A of the Income Tax Act, 1961 was filed against the order of the Income Tax Appellate Tribunal for the assessment year 2003-04. The Tribunal had deleted the addition of Rs.13,64,441 made on account of the difference in Gross Profit by recasting the trading account in accordance with Section 145 of the Act. The High Court noted that after survey and physical verification, excess stock of Rs.6,65,700 was found. The assessee explained that some sarees had become unsalable and discounts were given to customers. The Tribunal accepted this explanation and reduced the gross profit rate. The Court held that the questions raised by the revenue were factual and based on the discretion of the income tax authorities and the Tribunal after the rejection of accounts for best judgment assessment. The addition on account of disallowance of salary was maintained, and the Court concluded that no substantial questions of law were raised in this appeal, leading to its dismissal.

Deletion of addition on account of unexplained investment in shop, godown, furniture, etc.:
The second issue in the appeal was the deletion of the addition of Rs.5,84,300 made on account of unexplained investment in shop, godown, furniture, etc., which was surrendered by the assessee during a survey under section 133A of the Act. The Court observed that the Tribunal had accepted the explanation provided by the assessee regarding the unsalable stock and discounts offered to customers, which influenced the decision to delete this addition as well. The Court reiterated that the questions raised were factual and within the discretion of the income tax authorities and the Tribunal. Ultimately, the Court found no substantial questions of law to be decided and dismissed the appeal.

In conclusion, the High Court upheld the Tribunal's decision to delete the additions on both issues, emphasizing that these were factual matters falling within the purview of the income tax authorities and the Tribunal's discretion. The Court found no substantial legal questions warranting its intervention, leading to the dismissal of the appeal.