2014 (7) TMI 380 - AT - Income Tax

Addition of stock Held that - The total stock found was of ₹ 1,80,517 - When the assessee is carrying on the business, some stock is bound to be there - AO has estimated the income at ₹ 4 lakhs - the stock of ₹ 1,80,517/- cannot be said to be excessive or unreasonable even if the assessee has not maintained any details of such stock in the books of account thus, the addition of ₹ 1,80,517/- as unexplained stock is to be set aside. Unexplained cash Held that - The AO has recorded the finding that during the course of survey, cash of ₹ 1,12,957/- was found as against the cash in hand in the books of account at ₹ 23,417 - there was an excess cash found amounting to ₹ 89,540 - in principle, the addition for the same is justified the AO has estimated the income of the current year at ₹ 4 lakhs as against the income at ₹ 2,00,740/- in AY 2005-06 - the estimate of income at ₹ 4 lakhs is excessive, so it is to be reduced to ₹ 3 lakhs - the total income of the assessee is determined at ₹ 3,89,540/- as against ₹ 6,70,060/- assessed by the AO Decided partly in favour of Assessee.

Summary

Issues:
1. Assessment framed u/s 144 without adequate opportunity to the assessee.
2. Confirmation of estimated business income at Rs. 4,00,000 without concrete evidence.
3. Addition of Rs. 89,540 on account of unexplained cash.
4. Addition of Rs. 1,80,517 on account of unexplained stock.

Analysis:

Issue 1:
The appellant challenged the assessment framed under section 144, alleging a lack of reasonable opportunity. The appellant argued that the assessment was flawed due to inadequate opportunity. During the hearing, the appellant's counsel highlighted the small scale of the business, emphasizing the minimal stock and cash found during a survey. The appellant contended that the income estimate of Rs. 4 lakhs was excessive and urged for deletions from the estimated income and the additions for unexplained cash and stock. The Tribunal considered the arguments and found merit in the appellant's contentions.

Issue 2:
Regarding the confirmation of the estimated business income at Rs. 4,00,000, the Tribunal noted the appellant's submission on the small scale of the business and the Assessing Officer's estimation. The Tribunal observed that the stock found was relatively low compared to the estimated income. Consequently, the Tribunal decided to delete the addition of Rs. 1,80,517 made on account of unexplained stock, as it was deemed reasonable given the business scale.

Issue 3:
The addition of Rs. 89,540 on account of unexplained cash was also contested. The Assessing Officer had found an excess cash amount during a survey, justifying the addition. However, the Tribunal deemed the income estimate of Rs. 4 lakhs to be excessive. Therefore, the Tribunal reduced the estimated income to Rs. 3 lakhs, resulting in the determination of the total income at Rs. 3,89,540, lower than the initial assessment of Rs. 6,70,060.

Final Decision:
In conclusion, the Tribunal partially allowed the appeal, considering the arguments presented by the appellant regarding the excessive income estimate and the additions made on account of unexplained cash and stock. The Tribunal adjusted the estimated income and determined the total income at Rs. 3,89,540. The decision was pronounced on 13th June 2014.