2014 (7) TMI 1273 - AT - Income Tax

Unexplained investment in stock - Search proceedings - under recording the purchase value of the goods as well as sale value of the goods - whether separate additions can be made for such unrecorded purchases and sales? - Held that - Almost 50% purchases have been made outside the books of account because in the books of account only purchases of Rs. 34, 26, 938/- have been made whereas the purchases outside the books are Rs. 16, 35, 009/-. This in turn means that assessee would require some investment to hold such stock and also some sundry debtors wherever credit sales have been made. Since the amount of Rs. 16, 35, 009/- pertains to full year in our opinion an addition of Rs. 3 lakhs would meet the ends of justice because that would mean inventory for almost two months plus some credit sales. Addition on account of alleged profit earned on alleged unaccounted sales - Held that - As discussed in detail the aspect relating to unrecorded purchases and sales and practically deleted whole of that addition except for the sum of Rs. 3 lakhs which was required as investment in the form of inventory. It was also observed that at best only profit could be estimated on such undisclosed sales. The undisclosed sales was clearly admitted during the survey/search operation by the assessee himself and therefore the same cannot be denied now. At least profits on all such transactions have to be assessed to tax. The Assessing Officer has been more then reasonable to assess the profit at the GP rate declared by the assessee in various years and the same has been confirmed by Ld. CIT(A) therefore we find nothing wrong with the order of Ld. CIT(A) and confirm the same. Addition on account of alleged capital gains short disclosed - Held that - The year a sum of Rs. 1, 60, 000/- has been shown towards construction and further a sum of Rs. 44, 333/- is shown for transfer charges and Rs. 28, 550/- for purchase of wood etc. Therefore it can be said that assessee has incurred some expenditure for cost of improvement. However at the same time no documentary evidence has been placed and since admittedly the assessee is holding many properties therefore it cannot be said that all the expenses have been incurred for improvement of this property. In these circumstances in the interest of justice we are of the opinion that if a sum of Rs. 1 lakhs is estimated towards cost of improvement then the same would meet the ends of justice. Unexplained investment in stocks under section 69B - Held that - The assessee is regularly carrying on the business of sanitary and hardware items and therefore must be carrying on some stock . Before CIT(A) list of inventory was furnished showing stock of Rs. 18, 47, 600/-. Though inventory list was not furnished before Assessing Officer but this can be said to have be accepted by the Revenue because investment in undisclosed sale was calculated on the basis of these details. Further we have already held while adjudicating the issue regarding undisclosed stock i.e sum of Rs. 3 lakhs should be added towards inventory and sundry debtors. Considering this fact and the fact that some of the items have been valued at retail price we are of the opinion that addition of Rs. 5 lakhs towards cost would meet the ends of justice. Unaccounted cash found at the time of search - Held that - A married women coming to her parents house may bring cash and considering the overall circumstances we are of the opinion that a credit for Rs. 1 lakh can be given for cash belonging to Smt. Jyoti Khajuria. As far as cash belonging to Shri Vijay Kishan Sharma is concerned no credit can be given firstly a father-in-law normally would not keep his cash in the house of son-in-law. Secondly there was no such occasion to keep the cash with the son-in-law. In any case this cash was withdrawn from Vijay Bank on 19.8.2010 and why that cash was withdrawn and kept at son-in-law s house has not been explained. Therefore we decline to give any credit for the cash to Shri Vijay Kishan Sharma. To sum up a credit for Rs. 1, 60, 000/- (i.e. Rs. 1 lakh for cash belonging to Smt. Jyoti Khajuria and Rs. 60, 000/- belonging to the business should be given and balance addition is confirmed). Therefore we set aside the order of the CIT(A) and allow this ground partly. Addition on account of alleged investment in jewellery substantive in the case of assessee appellant - Held that - Atleast benefit of the instructions issued by CBDT in Instruction No. F.286/63/93-IT(inv)-11 dated 11.5.1994 should be allowed for jewellery. As per these instructions jewellery to the extent of 500 gms in case of a married lady and 100 gms in case of a married male should be accepted therefore out of jewellery of 735.20 gms jewellery of 600 gms should be accepted. Similarly diamond items had been valued at Rs. 65150/- and silver items had been valued at Rs. 21780/-. These are small amounts and considering the overall status of the family in our opinion these amounts should be accepted as explained. Therefore we set aside the order of the CIT(A) and direct the Assessing Officer to make addition of jewellery for 135.20 gms. Addition on account of alleged undisclosed capital gains - cost of improvement - Held that - No force in the submissions because no evidence has been filed for the source of the cash for so called improvement. Therefore we set aside the order of the CIT(A) and confirm AO order.

Summary

Issues Involved:
1. Under-recording of purchases and sales.
2. Addition of unexplained investment in stock under Section 69.
3. Addition of profit on unaccounted sales.
4. Addition of unexplained cash found during the search.
5. Addition of unexplained investment in jewelry.
6. Addition of undisclosed capital gains.

Issue-wise Detailed Analysis:

1. Under-recording of Purchases and Sales:
The case involved a survey and search at the premises of New Shimla Hardware and Welding Works, revealing that the assessee was under-recording the purchase and sale values of goods. The assessee admitted to booking purchases and sales outside the books to avoid VAT payments. The Assessing Officer concluded that the assessee deflated its purchases by 32.30%, leading to under-recording in various years. The tribunal agreed that the assessee had under-recorded certain purchases and sales but emphasized that the same capital was rotated for purchases and sales, thus only a net profit on such unrecorded sales should be added to the income. Consequently, an initial addition of Rs. 3 lakhs was deemed sufficient to cover the inventory and sundry debtors for unrecorded purchases, with no further additions required for subsequent years.

2. Addition of Unexplained Investment in Stock under Section 69:
During the survey, the inventory was found to be valued at Rs. 24,32,554/-. The assessee failed to reconcile this with the books of account. The Assessing Officer added Rs. 24,21,754/- after allowing a minor relief. On appeal, the tribunal found the Assessing Officer's approach incorrect, as the assessee was carrying on the business for many years and must have had some stock. The tribunal directed to make an addition of Rs. 5 lakhs towards undisclosed stock, considering the method of valuation at MRP and the regular business operations.

3. Addition of Profit on Unaccounted Sales:
The Assessing Officer determined the profit on unrecorded sales and added amounts ranging from Rs. 90,808/- to Rs. 1,91,540/- for various years. The tribunal upheld this addition, noting that the undisclosed sales were admitted by the assessee during the survey, and profits on such transactions must be assessed to tax. The tribunal found the Assessing Officer's method of using the gross profit rate reasonable and confirmed the additions.

4. Addition of Unexplained Cash Found During the Search:
Cash amounting to Rs. 21,46,150/- was found during the search. The assessee explained part of the cash as belonging to various family members and business cash. The Assessing Officer added Rs. 8,00,503/- as unexplained cash. The tribunal allowed partial relief, giving credit for Rs. 1,60,000/- (Rs. 1 lakh for cash belonging to the assessee's sister and Rs. 60,000/- for business cash) and confirmed the balance addition.

5. Addition of Unexplained Investment in Jewelry:
Jewelry valued at Rs. 10,85,530/- was found, and the assessee claimed it belonged to his wife. The Assessing Officer added the entire amount as unexplained. The tribunal allowed partial relief, following CBDT instructions, and accepted jewelry of 600 grams for a married lady and small amounts of diamond and silver items, directing the addition of jewelry for 135.20 grams.

6. Addition of Undisclosed Capital Gains:
The assessee sold a flat and claimed capital gains after deducting cost of improvement. The Assessing Officer did not allow the cost of improvement due to lack of evidence and added Rs. 3,50,000/-. The tribunal confirmed this addition, noting the absence of documentary evidence for the claimed improvement expenses.

Conclusion:
The tribunal's decisions resulted in partial relief for the assessee on several issues, while confirming the additions where the assessee failed to provide sufficient evidence. The appeals of the revenue were partly allowed, and the cross-objections and appeals of the assessee were partly allowed or dismissed based on the merits of each issue.