2006 (7) TMI 725 - AT - Income Tax

Summary

Issues Involved:
1. Validity of the assessment order due to limitation under section 158BE.
2. Addition on account of variation in the value of stock.
3. Addition on account of peak amount of deposits in the bank.
4. Addition on account of estimated profit on alleged suppressed sales.
5. Addition on account of difference in disclosed income under section 132(4).
6. Addition on account of penalty levied by Karnataka Sales Tax authorities.
7. Protective addition on account of deposits in the bank.
8. Addition on account of excess stock pertaining to a sister concern.
9. Levy of surcharge.

Detailed Analysis:

1. Validity of the Assessment Order Due to Limitation under Section 158BE:
The assessee argued that the assessment order was void as it was passed after the two-year limitation period prescribed under section 158BE. The search was concluded on 5-8-2000, and subsequent visits by unauthorized officers did not extend the search period. The CIT(A) disagreed, stating the last panchnama was on 20-9-2000, making the assessment within the two-year limit. The Tribunal, however, found that the search concluded on 5-8-2000, and subsequent visits were merely for lifting the prohibitory order. Thus, the assessment completed on 27-9-2002 was barred by limitation and quashed.

2. Addition on Account of Variation in the Value of Stock:
The Assessing Officer added Rs. 11,05,364 due to a discrepancy between the stock value disclosed during the search and in the return. The assessee argued the difference was due to stock from M/s. Acryplast Pvt. Ltd. The Tribunal found the reconciliation provided by the assessee satisfactory and deleted the addition.

3. Addition on Account of Peak Amount of Deposits in the Bank:
The Assessing Officer added Rs. 9,56,295 as the peak amount in a bank account, considering it hawala transactions. The CIT(A) reduced this to Rs. 6,73,922. The Tribunal accepted the assessee's argument that these were sales transactions and should be taxed based on gross profit rates. The addition was deleted.

4. Addition on Account of Estimated Profit on Alleged Suppressed Sales:
The Assessing Officer estimated suppressed sales based on sales tax assessments and added Rs. 35,00,000. The CIT(A) reduced this by applying an 8% GP rate. The Tribunal found no material evidence of suppressed sales during the search and deleted the addition.

5. Addition on Account of Difference in Disclosed Income under Section 132(4):
The Assessing Officer added Rs. 27,31,908 due to a difference between the income disclosed under section 132(4) and in the block return. The CIT(A) found this amount was already accounted for in other additions and deleted it. The Tribunal upheld this decision.

6. Addition on Account of Penalty Levied by Karnataka Sales Tax Authorities:
The Assessing Officer added Rs. 5,13,953 based on a show-cause notice found during the search. The CIT(A) deleted the addition, noting no evidence that the assessee paid this penalty. The Tribunal confirmed this deletion.

7. Protective Addition on Account of Deposits in the Bank:
The Assessing Officer made a protective addition of Rs. 8,14,978 for deposits in Ms. Manisha Jain's account. The CIT(A) deleted this, stating no protective addition can be made under Chapter XIV-B. The Tribunal agreed and confirmed the deletion.

8. Addition on Account of Excess Stock Pertaining to a Sister Concern:
The Tribunal allowed this ground in favor of the department, confirming the addition of Rs. 86,15,370 in the hands of the assessee.

9. Levy of Surcharge:
The CIT(A) directed not to levy surcharge, which the Tribunal upheld, referencing the Special Bench decision in Merit Enterprises v. Dy. CIT.

Conclusion:
Both the assessee's and the department's appeals were allowed in part, with significant deletions of additions made by the Assessing Officer based on the Tribunal's detailed analysis of the facts and applicable legal principles.