2012 (11) TMI 412 - AT - Income Tax

Profit earned from undisclosed trading turnover - CIT(A) confirmed the addition - Held that - CIT(A) has sustained an addition by merely observing that the annexures are recorded in the books of account cannot be accepted since the AO has given such finding after examination of the books of account and seized document which are in the custody of the I.T. department, but this approach of the CIT(A) is not sustainable as the assessee in its written submission filed before the CIT(A) has elaborately cited the figure of the turnover as per the seized material, recorded in its sale register and page number of the sale register along with date, amount and full narration has been detailed therein. Also not considered the submissions that the GP rate as per the I.T. records comes to 14.07% and the NP therein is about 8% only. The CIT(A) has not even rejected the same and has not considered the submissions - as per the pleading of the assessee itself there were some arithmetical inaccuracies in the calculations of the unaccounted turnover of the assessee and petty lapses in the recording of the turnover in the sales register could not be ruled out, thus ends of justice shall be met if the addition on account of profit earned by the assessee not accounted is restricted to Rs.8 lakhs out of the addition of Rs.67.22 lakhs confirmed by the CIT(A) - partly in favour of assessee. On money receipt on sale of timber - Held that - CIT(A) has dismissed the ground of the appeal of the assessee in a summary manner. The Revenue could not justify with evidence to prove its case regarding receipt of on money in respect of sale of premium timber - in favour of assessee. Difference in stock - search - Held that - As assessee could not establish the nexus between the shortfall in stock found at the time of search and addition made by the AO on account of profit earned from undisclosed trading of timber. Accordingly, the GP element at the rate of 14% on shortfall of timber of Rs.1.14 lakhs which comes to Rs.16,000/- be sustained as addition out of the addition of Rs.1.14 lakhs sustained by the CIT(A) and the balance addition is deleted - partly in favour of assessee. Unexplained expenditure - Held that - CIT(A) has sustained the addition by observing that the AO appears to have verified the material, and accordingly worked out the amount of expenditure. These observations of the CIT(A) is not sustainable considering the submissions of the assessee and to cover up the possible petty lapses and expenditure which could not have been accounted for by the assessee the ends of justice shall be met if the addition of Rs.7 lakhs is confirmed out of addition of Rs.64.59 lakhs sustained by the CIT(A) and the balance addition is deleted - partly in favour of assessee. Set off of unaccounted profit - Held that - CIT(A) has observed that further addition equal to 15% of the seized items contained in Annexure BS-43 is made, which works out to Rs.1,81,694/- with the remarks that the same will be set off against the above income on account of unaccounted turnover. We find that separate addition on account of undisclosed turnover was made by the Revenue, and therefore the CIT(A) was wholly justified in allowing the set off of this amount of Rs.1,81,694/- against the income from undisclosed turnover of the assessee - in favour of assessee. Unaccounted initial investment - Held that - the assessee s timber business is very old, and therefore there is no justification for addition on account of initial investment in block period, and accordingly the order of the CIT(A) on this issue is confirmed - in favour of assessee. Unaccounted profit on stock found short - GP rate of 15% OR 20% - Held that - GP rate of the assessee as per the income-tax records comes to 14.07% which could not be controverted on behalf of the Revenue. Thus there is no mistake in the order of the CIT(A) in applying the GP rate of 15% instead of 20% - in favour of assessee. Unexplained cash - Held that - As at the time of search cash amounting to Rs.1,17,000/- was found at the premises of the assessee, and the AO has recorded that the assessee has admitted it to be unexplained. The assessee later on tried to explain the cash as belonging to the father, mother, brother personal etc. which is to held as an after thought - against assessee. Unexplained cash of Rs.1,17,000/- is covered with the addition sustained above accordingly the assessee is entitled to telescopic benefit, and the issue is decided in favour of the assessee.

Summary

Issues Involved:
1. Additions based on seized material and satisfaction of AO
2. Additions without natural justice and proper show cause notice
3. Validity of section 158BC notice
4. Addition on account of profit from undisclosed trading turnover
5. Addition on account of "on money" receipt on sale of timber
6. Addition on account of discrepancy in stock on the date of search
7. Addition on account of unexplained expenditure
8. Addition on account of unexplained cash
9. Application of gross profit rate
10. Unaccounted initial investment
11. Telescopic benefit for unexplained cash

Detailed Analysis:

1. Additions based on seized material and satisfaction of AO:
The assessee raised additional grounds challenging the additions made based on material seized from a third party, arguing the necessary satisfaction of the AO was not met as per Supreme Court guidelines. These grounds were not pressed and were dismissed in limine.

2. Additions without natural justice and proper show cause notice:
The assessee contended that all additions were made without adhering to natural justice principles or proper show cause notice. This ground was not pressed and dismissed.

3. Validity of section 158BC notice:
The assessee argued the assessment order was invalid due to the vagueness of the section 158BC notice. This ground was not pressed and dismissed.

4. Addition on account of profit from undisclosed trading turnover:
The CIT(A) confirmed an addition of Rs.67,22,526/-. The Tribunal found that the CIT(A) did not adequately consider the assessee's submissions and noted arithmetical inaccuracies. It held that an addition of Rs.8 lakhs would suffice to cover petty discrepancies, reducing the addition significantly.

5. Addition on account of "on money" receipt on sale of timber:
The CIT(A) confirmed an addition of Rs.2,12,138/-. The Tribunal found no evidence supporting the Revenue's claim of "on money" receipts and deleted the addition.

6. Addition on account of discrepancy in stock on the date of search:
The CIT(A) confirmed an addition of Rs.1,14,000/-. The Tribunal found no nexus between the stock shortfall and undisclosed trading profits but sustained a minor addition of Rs.16,000/- for GP on the shortfall.

7. Addition on account of unexplained expenditure:
The CIT(A) confirmed an addition of Rs.64,59,436/-. The Tribunal found the CIT(A) did not consider the assessee's detailed submissions about the expenditure belonging to other persons. It reduced the addition to Rs.7 lakhs.

8. Addition on account of unexplained cash:
The CIT(A) confirmed an addition of Rs.1,17,000/-. The Tribunal upheld this addition, finding the assessee's explanation as an afterthought and unsupported by evidence.

9. Application of gross profit rate:
The CIT(A) applied a GP rate of 15% instead of 20% on unaccounted turnover and stock shortfall. The Tribunal upheld the CIT(A)'s application of a 15% GP rate, noting it aligned with the assessee's historical GP rate of 14.07%.

10. Unaccounted initial investment:
The CIT(A) deleted an addition of Rs.1,62,010/- for initial investment, citing the assessee's long-running timber business. The Tribunal agreed, finding no justification for an addition in the block period.

11. Telescopic benefit for unexplained cash:
The Tribunal allowed the assessee's additional ground for telescopic benefit, directing that the unexplained cash of Rs.1,17,000/- be set off against the sustained addition for undisclosed trading profits.

Separate Judgments:
The Tribunal's consolidated order addressed both the assessee's and the Revenue's appeals, providing detailed rulings on each issue. The Tribunal partly allowed the assessee's appeals and dismissed the Revenue's appeals, ensuring a thorough examination of each contested addition and the application of appropriate legal standards.