2015 (12) TMI 1417 - AT - Income Tax

Addition on account of suppression of stock and difference in books of accounts and in not allowing the deduction u/s 10A - Held that - The assessee disclosed the gold recovered from the wastage in its books of accounts after the survey and the same was sold which was also entered in the stock register. The department had accepted the books of accounts maintained by the assessee in its regular course of business. The assessee disclosed the sale of the gold weighing 12kg which was recovered from the wastage. When the assessee itself disclosed the sale of the gold obtained on recopying the wastage and disclosed the profit on the said sale in the books of accounts which had been accepted by the department. In our opinion, the value of 12kg gold recovered by the assessee from its customer in regular course of business was its income but the assessee was eligible for deduction u/s 10A of the Act on the said income of ₹ 1,20,00,000/-. In the present case, the deduction u/s 10A of the Act has not been denied by the AO. Therefore, the addition of ₹ 1,20,00,000/- made by the AO and sustained by the ld. CIT(A) was justified but the assessee is entitled for deduction u/s 10A of the Act on the said addition because the said income was directly related to the export business of the assessee. As regards to the another addition of ₹ 11 lakhs is concerned, the said amount was disclosed by the assessee itself to cover up the various discrepancies found during the course of survey but that discloser was also related to the regular business of the assessee and it was not from the sources other than the business. On the said income of ₹ 11 lakhs disclosed by the assessee, the exemption u/s 10A of the Act was available In the present case, the assessee agreed during the course of survey for the addition only when discrepancies in the loose papers were found. The assessee surrendered ₹ 11 lakhs to cover up the irregularities of the business and short coming found during the course of survey. The said surrender was related to the regular business of the assessee and it is not brought on record that the assessee earned the said income from any other source. Therefore, the deduction u/s 10A of the Act was allowable to the assessee being 100% Export Oriented Unit established in SEZ on this income also. We order accordingly. In view of the above we uphold the addition made by the AO and sustained by the ld. CIT(A), however, the AO is directed to allow the deduction u/s 10A of the Act. - Decided partly in favour of assessee

Summary

Issues Involved:
1. Addition of Rs. 1,31,00,000/- on account of suppression of stock and difference in books of accounts.
2. Denial of deduction under Section 10A on the amount of Rs. 1,20,00,000/- related to excess stock found during the survey.
3. Addition of Rs. 11,00,000/- without any incriminating document found during the survey.
4. Validity of the survey conducted without a jewelry appraiser or expert.
5. Export of excess stock and its coverage under Section 10A.
6. Observations and findings of the CIT(A) being unwarranted and baseless.
7. Legality and justification of the additions made.
8. Proper consideration and judicial interpretation of the evidence and material on record.
9. Absence of discrepancies in the books of account or impounded material.
10. Incorrect assessment of income at Rs. 1,31,00,000/- against Nil income returned by the appellant.

Detailed Analysis:

1. Addition of Rs. 1,31,00,000/- on account of suppression of stock and difference in books of accounts:
The assessee, a partnership firm involved in manufacturing and exporting gold jewelry, filed a return declaring Nil income, claiming exemption under Section 10A. During a survey under Section 133A, a discrepancy of 12kg of gold was found, leading to a surrender of Rs. 1,31,00,000/-. The assessee later claimed this was an accounting error and that the excess gold was due to wastage recovery not recorded in the books. The AO did not accept this explanation, stating that the recovery was regular but not accounted for, and made the addition of Rs. 1,31,00,000/-.

2. Denial of deduction under Section 10A on the amount of Rs. 1,20,00,000/- related to excess stock found during the survey:
The assessee argued that the excess gold was from wastage recovery and should be exempt under Section 10A as it was part of their export income. The AO contended that the gold was not shown in the stock books and thus considered it unaccounted. The CIT(A) upheld the addition but did not deny the Section 10A exemption.

3. Addition of Rs. 11,00,000/- without any incriminating document found during the survey:
The assessee surrendered Rs. 11,00,000/- to cover discrepancies noted during the survey. The AO added this amount, which the CIT(A) upheld, stating that the surrender was due to incomplete/defective books and not related to export income. The assessee argued that the surrender was under pressure and related to regular business.

4. Validity of the survey conducted without a jewelry appraiser or expert:
The assessee claimed the survey was invalid as it was conducted without a jewelry appraiser. However, the AO and CIT(A) did not find this argument sufficient to negate the findings of the survey.

5. Export of excess stock and its coverage under Section 10A:
The assessee contended that the excess stock was exported and thus covered under Section 10A. The AO acknowledged the export but maintained the addition due to the unaccounted nature of the stock.

6. Observations and findings of the CIT(A) being unwarranted and baseless:
The CIT(A) observed that the retraction of the surrender was planned and delayed, indicating a strategy to claim the exempt income. The CIT(A) found no evidence of coercion during the survey and upheld the addition.

7. Legality and justification of the additions made:
The CIT(A) found the additions justified due to the discrepancies and unaccounted stock. The assessee's explanations were deemed insufficient to negate the additions.

8. Proper consideration and judicial interpretation of the evidence and material on record:
The CIT(A) considered the evidence and material on record, concluding that the surrender was valid and the additions were warranted.

9. Absence of discrepancies in the books of account or impounded material:
The assessee argued that no discrepancies were found in the books or impounded material. The AO and CIT(A) disagreed, citing the unaccounted stock and incomplete records.

10. Incorrect assessment of income at Rs. 1,31,00,000/- against Nil income returned by the appellant:
The assessee's income was assessed at Rs. 1,31,00,000/- due to the additions. The CIT(A) upheld the assessment but allowed the exemption under Section 10A on the added income.

Conclusion:
The Tribunal upheld the addition of Rs. 1,31,00,000/- but directed the AO to allow the deduction under Section 10A on the said income, considering it was related to the export business. The appeal was partly allowed, granting the assessee the benefit of the exemption while maintaining the additions.