2015 (9) TMI 498 - HC - Income Tax

Trading addition - assessee failed to justify the adoption of sale price at less than opening stock price with documentary evidence - ITAT restricted the addition to ₹ 2,00,000/- as against ₹ 41,24,000/- made by AO - Held that - The Assessing Officer made an addition of ₹ 41,24,000/- on the ground that the assessee failed to justify the adoption of sale price at less than opening stock price with documentary evidence. Further, the Assessing Officer held the said addition was the only income which the assessee got out of books of account and had not declared in his returned income. On appeal by the assessee, the CIT(A) upheld the order of the Assessing Officer and dismissed the appeal. On further appeal by the assessee, the Tribunal held that the Assessing Officer could not have estimated the sale price on the basis of rates of closing stock or some other notional basis without pointing out any defect in the sale price. The Tribunal while partly allowing the appeal of the assessee had sustained the addition of ₹ 2,00,000/- in the trading account. A perusal of para 8 of the order of the Tribunal shows that no legally justified reasons have been recorded for arriving at the said conclusion. In view of the above, the matter requires to be remanded. The matter is remitted to the Tribunal to decide the same afresh on merits in accordance with law. - Decided in favour of revenue for statistical purposes.

Summary

Issues:
1. Delay in filing and refiling cross-objections condoned.
2. Appeal by revenue under Section 260A of the Income Tax Act, 1961.
3. Substantial questions of law raised regarding additions made by Assessing Officer.
4. Tribunal's decision on the appeal and cross-objections.
5. Justification of addition of Rs. 2,00,000 in trading account.

Analysis:
1. The High Court addressed the issue of condoning the delay in filing and refiling cross-objections. The delay was allowed, and the Court proceeded to analyze the appeal by the revenue under Section 260A of the Income Tax Act, 1961. The revenue challenged the Tribunal's order dated 26.9.2013, which directed the Assessing Officer to make an addition of Rs. 2,00,000 in the trading account for the assessment year 2009-10. The Court examined substantial questions of law raised by the revenue regarding the additions made by the Assessing Officer.

2. The facts of the case involved the assessee filing a return of income for the assessment year 2009-10, declaring an income of Rs. 3,79,160. The Assessing Officer completed the assessment at an income of Rs. 45,03,160, making an addition of Rs. 41,24,000 on account of differences in opening stock price and sale price. The CIT(A) dismissed the appeal, leading to the assessee appealing to the Tribunal. The Tribunal partly allowed the appeal, directing an addition of Rs. 2,00,000 in the trading account, which was challenged by both the revenue and the assessee through cross-objections.

3. During the proceedings, the revenue argued that the Tribunal's direction to add Rs. 2,00,000 lacked a basis, especially compared to the Rs. 41,24,000 addition made by the Assessing Officer. They contended that the Assessing Officer was justified in making the original addition and could not have assessed the sale price lower than the closing or opening stock price. Conversely, the assessee challenged the Tribunal's decision on the addition of Rs. 2,00,000, emphasizing the impact of the closing stock on the opening stock of the subsequent year.

4. The Assessing Officer's initial addition of Rs. 41,24,000 was based on the assessee's failure to justify the sale price being lower than the opening stock price with documentary evidence. The CIT(A) upheld this addition, stating it was the only income not declared in the return. However, the Tribunal disagreed, highlighting that the sale price estimation should not be based on closing stock rates without pointing out any defects. The Tribunal partially allowed the appeal, sustaining the addition of Rs. 2,00,000 in the trading account but failed to provide legally justified reasons for this conclusion.

5. Consequently, the High Court remanded the matter, setting aside the Tribunal's order and instructing a fresh decision based on merits and in accordance with the law. Both the appeal and cross-objections were disposed of, emphasizing the need for a more detailed consideration of the issues involved in the case.