2013 (8) TMI 104 - AT - Income Tax

Addition on account of sale, purchase and manufacture of silver ornaments etc. out side the books - as per AO assessee could not establish the job work during the course of assessment proceedings - CIT(A) deleted the addition - search u/s 132 - Held that - CIT(A) after a detailed discussion in his order found that the assessee is engaged in job work business and not in purchase and sale of silver ornaments & was able to show that the contents of the documents seized as per Annexure-7 related to job work undertaken by the assessee for various constituents whose name along with quantity of alloy received on different dates and subsequent return of processed goods after job work to them is written. A.O. was not able to place on record or identify any bills either found in the course of search proceedings or in the course of assessment proceedings to support the stand that the assessee has made alleged purchases of silver weighing 2441 kgs. and effected sales of Rs.60,00,000/- each in Assessment Year 2002-03 and for the part period in 2003-04. CIT(A) found that there is no material on record to suggest that the details of job work noted against the names of the persons in any way could be presumed or inferred as purchase and sale business of the assessee as held by the A.O. on mere presumption. The CIT(A) further noticed that even at the time of search under section 132 in the course of recoding of his statement under section 132(4) the assessee has categorically stated that the papers relate to business of job work done in his individual capacity. The A.O. has converted the job work into purchase and sale on the basis of presumption. Thus no infirmity in the order of CIT(A) - appeal of the Revenue dismissed.

Summary

Issues:
- Appeal against order deleting addition on account of sale, purchase, and manufacture of silver ornaments outside books during block period.
- Determination of undisclosed income based on seized papers and presumption of purchase and sale business.
- CIT(A) finding that assessee was engaged in job work business and not in purchase and sale of silver ornaments.
- Estimation of income by AO without supporting material and CIT(A) directing deletion of addition.

Analysis:

Issue 1: Appeal against addition on account of sale, purchase, and manufacture of silver ornaments
The Revenue filed an appeal against the order deleting the addition of Rs.24,50,000 made by the Assessing Officer (AO) on account of sale, purchase, and manufacture of silver ornaments outside the books. The AO presumed that the assessee was engaged in sale and purchase, including manufacturing of silver ornaments, based on seized papers. The assessee contended that they were only involved in job work. The CIT(A) held that the seized papers related to job work and not purchase and sale business, allowing the appeal raised by the appellant.

Issue 2: Determination of undisclosed income based on seized papers
The AO estimated undisclosed income for different assessment years based on a presumption of investment in purchase of silver outside books. The CIT(A) noted that the AO made estimations without supporting material and referred to various judgments emphasizing computation based on seized documents rather than conjectures. The CIT(A) directed the AO to delete the addition as the estimation was not permissible without concrete evidence.

Issue 3: CIT(A) finding on nature of business
The CIT(A) found that the assessee was engaged in job work business and not in purchase and sale of silver ornaments. The CIT(A) highlighted that the seized documents related to job work and commission income, not purchase and sale transactions. The CIT(A) emphasized that the AO's presumption of purchase and sale was unfounded, confirming that the assessee was involved in job work business.

Issue 4: Estimation of income without supporting material
The CIT(A) criticized the AO for estimating income without concrete evidence and solely based on presumption. The CIT(A) emphasized the importance of computation based on seized documents and rejected the AO's estimation method. The CIT(A) directed the AO to delete the addition and accept the income as returned by the assessee.

In conclusion, the appeal of the Revenue was dismissed, affirming the CIT(A)'s order that the assessee was engaged in job work business and not in the purchase and sale of silver ornaments. The CIT(A) directed the deletion of the addition made by the AO, emphasizing the necessity of computation based on seized documents rather than unfounded presumptions.