2015 (6) TMI 2 - AT - Income Tax

Undisclosed investment in stock - CIT(A) restricting the addition - Held that - From the working submitted by assessee it appears, assessee has arrived at the actual physical stock on the basis of the purchase invoices. However, since the said working was not furnished before AO and was for the first time furnished before ld. CIT(A), for affording fair opportunity to the department, we are inclined to remit the matter back to the file of AO to verify assessee s claim of actual cost price of physical stock available on the date of search on the basis of these workings vis- -vis the purchase invoices, which are part of the seized material and thereafter make addition, if any, on account of excess stock. As far as adoption of GP rate is concerned, we are of the view that if in the impugned AY assessee has shown a GP of 30%, then, the same has to be applied for working out the value of stock. With the aforesaid observations, the matter is remitted back to the file of the AO for necessary verification and deciding the issue after due opportunity of being heard to assessee. - Decided in favour of revenue for statistical purposes. Unexplained cash found at the time of search - CIT(A) deleted the addition - Held that - As seen from the facts on record, neither at the time of search operation nor during the assessment proceeding, assessee has offered any reasonable explanation with regard to the source of cash found at the time of search. However, before the ld. CIT(A), assessee pleaded that cash found represents sales effected till the date of search. When assessee does not maintain any cash book, onus is on assessee to establish link between the cash found and receipts from sales by producing corroborative evidence. Thus remit the matter back to the file of AO for deciding afresh - Decided in favour of revenue for statistical purposes.

Summary

Issues Involved:
1. Restriction of addition on account of undisclosed investment in stock.
2. Deletion of addition of unexplained cash found during search.

Detailed Analysis:

1. Restriction of Addition on Account of Undisclosed Investment in Stock:

The department challenged the decision of the CIT(A) in restricting the addition made on account of undisclosed investment in stock to Rs. 6,49,486 as against the addition of Rs. 3,23,07,009 made by the AO. The facts reveal that during a search and seizure operation, excess stock worth Rs. 3,23,07,009 was detected. One of the partners admitted an additional income of Rs. 2 crores but later declared only Rs. 1,41,630 in the return. The AO, after verifying the purchase bills and applying an average cost price of 15.97%, computed the cost price of the excess stock at Rs. 3,23,07,009 and added this to the income of the assessee.

Before the CIT(A), the assessee argued that the inventory of physical stock was taken at MRP and the actual cost price was only 7.5% of MRP. The CIT(A) accepted the assessee's working based on purchase invoices and computed the excess stock as Rs. 6,49,486. The department contended that the CIT(A) accepted the assessee's claim without giving the AO an opportunity to verify the working of the physical stock.

The tribunal observed that the AO should have computed physical stock based on purchase invoices rather than on a presumptive basis. It was decided to remit the matter back to the AO to verify the assessee's claim of actual cost price of physical stock based on purchase invoices and to make an addition, if any, on account of excess stock. The tribunal also noted that the GP rate of 30% declared by the assessee for the impugned assessment year should be applied for working out the value of stock.

2. Deletion of Addition of Unexplained Cash Found During Search:

The department also contested the deletion of Rs. 37,70,150 being unexplained cash found at the time of search. The AO added this amount to the income of the assessee as the partner could not explain the source of the cash found, and there was no regular cash book maintained. The CIT(A) deleted the addition, accepting the assessee's claim that the cash represented receipts from sales.

The tribunal noted that the assessee did not provide any reasonable explanation or corroborative evidence either at the time of search or during the assessment proceeding. It was held that the CIT(A) deleted the addition without proper analysis. The matter was remitted back to the AO for fresh consideration, allowing the assessee to establish the source of the cash with corroborative evidence.

Conclusion:

The tribunal allowed the department's appeal for statistical purposes, remitting both issues back to the AO for necessary verification and decision after due opportunity of being heard to the assessee. The judgment emphasized the need for proper verification and corroborative evidence in both the computation of excess stock and the explanation of cash found during the search.