2014 (5) TMI 935 - AT - Income Tax

Income offered for taxation during survey u/s 133A - Deletion being the difference between income disclosed - Unaccounted income out of unaccounted investment Held that - In a situation when few letters were written by CIT(A) to the AO to submit the remand report but no compliance was made although a final date was given - there was reference of additional evidence but in fact in true sense there was no additional evidence placed before the CIT(A) - The assessee s submission was that the correct rate of valuation ought to have been adopted by the AO - there was no infringement of the provisions of Rule 46A of IT Act - The AO s action to adopt the market value appears to be incorrect being in contrast to the consistent method adopted by the assessee, i.e., weighted average cost method - when the valuation of the gold is required a weighted average cost is being taken because of the reason that the rate of the gold keeps on fluctuating frequently - the difference in the weight as found at the time of survey was concerned the same has not been disputed by the assessee - The excess weight was found at 9935.264 gms on which the value adopted by the AO at Rs.7780/- which was found by CIT(A) as excessive and in contradiction of the average cost method consistently adopted by the assessee the order of the CIT(A) is upheld Decided against Revenue. Deletion of bogus purchases Held that - A chart has been placed according to which the physical stock of gold was found at the time of survey weighing 11481.390 gms - as against that the weight of the gold as per books was only 1540.126 gms, there was a difference of 9941.264 gms - to cover up the difference in weight the assessee has tried to procure the purchase bills from those parties - that attempt had failed because after survey it was detected that those purchase bills were bogus bills and there was no actual delivery of gold ornaments - the assessee had thought proper to reverse the entry in the trading account and simultaneously offered the value of the weight difference in the income tax return - Once, the assessee has accepted the mistake and paid the tax on the difference amount then it is not reasonable on the part of the Revenue to tax the assessee - CIT(A) has rightly held that the amount was not required to be taxed in the hands of the assessee once the corresponding contra entry has been passed in the books of account of the assessee Decided against Revenue.

Summary

Issues:
1. Addition of undisclosed income after survey
2. Deletion of addition on account of bogus purchases

Analysis:

Issue 1: Addition of undisclosed income after survey
The appeal by the Revenue challenged the deletion of an addition of Rs.21,97,326 representing the difference between income disclosed during a survey under section 133A and the income offered for taxation in the return filed post-survey. The Revenue contended that the assessee admitted to earning unaccounted income during the survey, which should be accepted as sufficient evidence. However, the CIT(A) found discrepancies in the valuation of gold and silver ornaments by the Assessing Officer, noting that the AO's valuation method was inconsistent with the assessee's regular records. The CIT(A) allowed the ground based on the valuation discrepancies and held that the addition should be deleted. The Tribunal upheld the CIT(A)'s decision, emphasizing that the AO's adoption of market value was incorrect, and the assessee's consistent use of the weighted average cost method was appropriate. The Tribunal dismissed the Revenue's appeal on this issue.

Issue 2: Deletion of addition on account of bogus purchases
The second issue involved the deletion of an addition of Rs.72,01,360 on account of alleged bogus purchases. The AO found discrepancies in the purchase bills submitted by the assessee and conducted a survey on the parties involved, revealing no actual sales or delivery of gold/silver ornaments. The AO concluded that the purchases were bogus and added the amount to the assessee's income. However, the CIT(A) considered the contra entries in the assessee's books, where the purchase and purchase return entries nullified each other, resulting in no impact on the trading account. The CIT(A) deleted the addition based on this reasoning. The Tribunal agreed with the CIT(A), stating that once the contra entry was passed in the books, the amount did not need to be taxed. The Tribunal dismissed the Revenue's appeal on this issue as well.

In conclusion, the Tribunal upheld the CIT(A)'s decisions to delete the additions of undisclosed income and bogus purchases, emphasizing the valuation method and contra entries in the assessee's books as key factors in reaching its decision. The Revenue's appeal was dismissed in its entirety.