2011 (3) TMI 1791 - AT - Income Tax

Summary

Issues Involved:
1. Recasting of Profit & Loss account and adoption of GP rate.
2. Addition under Section 69 of the IT Act for unexplained investment in excess stock.
3. Addition under Section 69C of the IT Act for discrepancy in closing balance with Unicorn Corporation.

Issue-Wise Detailed Analysis:

1. Recasting of Profit & Loss Account and Adoption of GP Rate:
The assessee contended that the CIT(A) erred in confirming the AO's order to recast the Profit & Loss account for the post-survey period by adopting a GP rate of 8.67%. The AO observed that the assessee had shown a GP rate of 73.45% before the survey and a loss of Rs. 6,02,012/- (negative GP rate of 48.06%) after the survey. The AO rejected the book results due to the absence of a stock register and discrepancies in the books of accounts. The CIT(A) upheld the rejection of the book results and directed the AO to adopt a GP rate of 8.67% for the post-survey period, considering the drastic fall in GP ratio as unexplained.

2. Addition Under Section 69 of the IT Act for Unexplained Investment in Excess Stock:
During a survey, the physical stock was found to be valued at Rs. 25,08,860/-, while the books reflected only Rs. 4,99,032/-. The assessee admitted the difference as unaccounted income and paid tax thereon. The AO added Rs. 21,71,063/- as unexplained investment under Section 69 of the IT Act. The CIT(A) upheld this addition, noting that the assessee did not maintain stock records and failed to provide a satisfactory explanation for the excess stock. The Tribunal found no infirmity in the CIT(A)'s decision, emphasizing the evidentiary value of the assessee's admission and subsequent payment of tax on the unaccounted income.

3. Addition Under Section 69C of the IT Act for Discrepancy in Closing Balance with Unicorn Corporation:
The AO noticed a discrepancy in the closing balance with Unicorn Corporation, where the assessee's books showed Rs. 20,144/- while Unicorn Corporation's books showed Rs. 3,500/-. The assessee explained that the difference was due to a disputed deposit with Bhutan Boards Products Ltd., but failed to provide documentary evidence. The CIT(A) upheld the addition of Rs. 23,614/- under Section 69C of the IT Act. The Tribunal admitted additional evidence (a credit note dated 4.8.1999) and remanded the matter to the CIT(A) for reconsideration in light of the new evidence.

Conclusion:
The Tribunal upheld the CIT(A)'s decisions on the recasting of the Profit & Loss account and the addition under Section 69 for unexplained investment in excess stock. However, it remanded the issue of the addition under Section 69C for discrepancy in closing balance with Unicorn Corporation to the CIT(A) for fresh consideration with the additional evidence provided by the assessee. The appeal was partly allowed for statistical purposes.