2015 (10) TMI 1885 - AT - Income Tax

Unaccounted sale - undisclosed income as calculated by applying GP rate - Held that - FAA was right in holding that the amount of ₹ 25,08,740 deserves to be treated as unaccounted receipt on account of sale on which GP rate of 29.01% was applied to work out undisclosed income of ₹ 7,27,534. Ld. CIT(A) also noted that the amount of shortage in stock of physical verification of ₹ 21,958 was also included in the said amount of undisclosed income as calculated by applying GP rate. - Decided against revenue Unaccounted investment in plant and machinery - Held that - CIT(A) rightly concluded that the assessee purchased machinery from M/s Dellantechica Ltd. and the payments were made through banking channel besides being partly financed by SBI. In absence of supporting documents as regards bank loan, hypothecation etc., the CIT(A) confirmed addition of ₹ 4,86,000 made by the AO in this regard. We further note that the CIT(A) allowed telescoping of the other investment in the fixed assets/capital and concluded that no further and separate addition is required to be made on this count since the assessee purchased this machine on 2.8.2006 in the fifth month of financial period, therefore, it can easily be inferred that sufficient amount of profit was earned by the assessee from unaccounted turnover to make investment in the aforesaid fixed asset viz. Plant and machinery, therefore, the CIT(A) was right in granting telescoping of this unaccounted investment. - Decided against revenue.

Summary

Issues:
1. Whether the CIT(A) erred in considering only the gross profit on unaccounted turnover without adding a fixed percentage of turnover as unaccounted investment in stock.
2. Whether the CIT(A) was justified in permitting telescopic view on the investment in fixed assets out of unaccounted profits without requiring further substantiation from the assessee.

Issue 1:
The Revenue contended that the CIT(A) erred in not adding a fixed percentage of turnover as unaccounted investment in stock, considering the unaccounted turnover. The AO added Rs. 29,94,740 due to unaccounted entries in seized documents. The Revenue argued that the CIT(A) should have made such an addition. The CIT(A) restricted the addition to Rs. 25,08,740, applying a GP rate of 29.01%. The CIT(A) noted that the unaccounted entries were decoded from rough pads and treated as unaccounted receipts. The CIT(A) upheld the addition for the investment in fixed assets at Rs. 4,86,000, confirming the AO's decision. The CIT(A) allowed telescoping of this investment, considering the profits earned from unaccounted turnover. The Tribunal upheld the CIT(A)'s decision, dismissing the Revenue's grounds.

Issue 2:
The second issue revolved around the telescopic view permitted by the CIT(A) on the investment in fixed assets out of unaccounted profits. The assessee argued that sufficient income was earned from unaccounted turnover to justify the investment in fixed assets. The CIT(A) agreed, allowing the telescopic view and not requiring further addition. The Tribunal concurred with the CIT(A), noting that the investment in fixed assets was adequately supported by the profits from unaccounted turnover. The Tribunal upheld the CIT(A)'s decision on this issue as well.

In conclusion, the Tribunal upheld the CIT(A)'s order, dismissing the Revenue's appeal and the assessee's cross-objection. The CIT(A)'s decision to restrict the addition and permit telescopic view on the investment in fixed assets was found to be reasonable and justified based on the facts and circumstances of the case.