2016 (12) TMI 1856 - AT - Income Tax

Interest on FDs - as per DR definitely it is an income earned by the assessee but it has not disclosed it in its return - HELD THAT - It is clear from the above that as per TDS certificates , the assessee has earned an interest income of ₹ 1,01,72,545/-but it has admitted ₹ 87.78 lakh only as interest income in its Return. Thus, this issue requires verification reconciliation and hence we set aside this issue to the AO . The AO after giving adequate opportunity to the assessee would decide this matter in accordance with law. Negative cash balance - CIT(A) after considering normal trading pattern of the assessee prior and subsequent to March, the remand report and the purchase statement obtained from PEC Ltd etc held that if purchases and sales were entered as and when they took place, the negative cash balance would not have arisen - HELD THAT - It is clear from the above that the CIT (A) has examined this issue and drawn due conclusion. The Revenue has not brought any material to assail such conclusion and hence we confirm the decision of the CIT (A). Undisclosed turnover - CIT (A) has examined the issue and found that the turnover made by M/s Spectra Investments on behalf of the assessee exceeded the cash turn over of the assessee at ₹ 7.06 crore as against ₹ 8.03 crore adopted by AO. He found the % of GP in this line of business .He has held that what to be taxed in such situation is only the profit element and not the entire turnover as the deduction for the cost of goods has necessarily to be allowed - HELD THAT - CIT(A) has not properly appreciated the facts stated by the AO in his remand report dt 28.9.2010. Since this issue this issue requires verification reconciliation we set aside this issue to the AO . The AO after giving adequate opportunity to the assessee would decide this matter in accordance with law. Addition on account of exchange fluctuation earned by the assessee - CIT (A) held that the assessee had incurred a net loss on account of exchange difference and deleted the entire addition - HELD THAT - CIT (A) has not properly appreciated the facts stated by the AO in his remand report dt 01.03.2011. Since this issue this issue requires verification reconciliation we set aside this issue to the AO . The AO after giving adequate opportunity to the assessee would decide this matter in accordance with law. Addition on short accounted interest income - CIT(A) called for a remand report and after examining it held that the ledger extract of the account copy of the assessee in the books of PEC Ltd is to be considered to arrive out the correct amount of income earned by the assesseee on the FDs from PEC Ltd and on such basis found that the assessee earned interest income but admitted in its books at ₹ 5,45,45,971/- only and hence confirmed the addition at ₹ 29,45,468/-only. - HELD THAT - Since the Revenue has not brought any material to assail the conclusion of the CIT (A), we confirm the decision of the CIT(A). Unaccounted investment in purchase and sale of 85 Kgs of gold u/s 69 - Whether CIT(A) is not justified in deleting the addition and it is therefore prayed that AO's action may be upheld? - HELD THAT - CIT (A) examined the materials furnished during remand proceedings and arrived the above conclusion. This being so, the Revenue has not brought any material to assail the above findings and hence we confirm the decision of the CIT (A). Addition u/s 69A - Cash found in search - HELD THAT - Before the CIT (A), the assesseee pleaded that it had cash on hand as per its books as on 28.01.2005 at ₹ 2,62,65,903.77/-and therefore it cannot be said that the appellant is in possession of unexplained cash. The CIT (A) called for a remand report and the AO was silent on this issue. He held that the fact remains that the very cash book with which the AO relied upon to conclude the assessments show a cash balance of ₹ 2,62,65,903.77/- as on the date of search and this fact has not been denied or controverted by the AO and hence the CIT (A) deleted the addition. Thus, the Revenue has not brought any material to assail the conclusion of the CIT (A), we confirm the decision of the CIT (A).

Summary

Issues Involved:

1. Addition of undisclosed interest income.
2. Addition due to negative cash balance.
3. Addition of unaccounted sales.
4. Addition due to unaccounted purchase of 1000 TT bars.
5. Addition on account of exchange fluctuation.
6. Addition of unaccounted interest income for AY 2005-06.
7. Addition of unaccounted investment in gold for AY 2005-06.
8. Addition of unexplained cash seized for AY 2005-06.

Detailed Analysis:

1. Addition of Undisclosed Interest Income:

During the assessment for AY 2003-04, the AO found discrepancies in the interest income reported by the assessee from Fixed Deposits (FDs) held as security for gold purchases. The AO discovered an interest income difference of ?1,11,97,808/- which was not disclosed by the assessee. The CIT(A) deleted this addition, stating it was based on the DDIT (Inv)'s report without sufficient evidence. The Tribunal remanded the issue back to the AO for verification and reconciliation, directing the AO to decide the matter in accordance with the law after giving adequate opportunity to the assessee.

2. Addition Due to Negative Cash Balance:

The AO observed a negative cash balance of ?5,57,19,892/- in the assessee's books and concluded it represented unaccounted cash. The CIT(A) deleted this addition, relying on the trading pattern and the principle of human probabilities, suggesting that the negative balance arose due to consolidated entries on 31/3/2003. The Tribunal upheld the CIT(A)'s decision, noting that the Revenue did not provide material to challenge the CIT(A)'s findings.

3. Addition of Unaccounted Sales:

The AO added ?8,03,22,560/- as unaccounted sales based on cash bills found during the search, which were not entered in the cash book. The CIT(A) reduced this addition, calculating a gross profit (GP) of ?1,05,913/- and an initial investment of ?12,10,000/-, totaling ?13,15,913/-. The Tribunal confirmed the CIT(A)'s decision, as the Revenue did not provide material to dispute the findings.

4. Addition Due to Unaccounted Purchase of 1000 TT Bars:

The AO added ?7,82,95,007/- for unaccounted purchase of 1000 TT bars, stating the assessee did not record these in the closing stock. The CIT(A) deleted this addition, noting that the bars were delivered in April 2003 and accounted for in the subsequent financial year. The Tribunal remanded this issue to the AO for verification and reconciliation, directing the AO to decide the matter in accordance with the law after giving adequate opportunity to the assessee.

5. Addition on Account of Exchange Fluctuation:

The AO added ?80,24,028/- as exchange fluctuation income. The CIT(A) deleted this addition, stating that the assessee incurred a net loss on exchange differences based on ledger extracts from M/s PEC Ltd. The Tribunal remanded this issue to the AO for verification and reconciliation, directing the AO to decide the matter in accordance with the law after giving adequate opportunity to the assessee.

6. Addition of Unaccounted Interest Income for AY 2005-06:

The AO added ?6,00,13,928/- for short-accounted interest income. The CIT(A) confirmed an addition of ?29,45,468/- after examining ledger extracts from M/s PEC Ltd. The Tribunal upheld the CIT(A)'s decision as the Revenue did not provide material to dispute the findings.

7. Addition of Unaccounted Investment in Gold for AY 2005-06:

The AO added ?5,02,20,000/- for unaccounted investment in 85 bars of gold. The CIT(A) deleted this addition, stating that 33 bars were purchased and sold on 27/1/2005, and 85 bars were held as closing stock by M/s PEC Ltd. The Tribunal upheld the CIT(A)'s decision as the Revenue did not provide material to dispute the findings.

8. Addition of Unexplained Cash Seized for AY 2005-06:

The AO added ?27,00,000/- as unexplained cash seized during the search. The CIT(A) deleted this addition, noting that the assessee had a cash balance of ?2.62 crore as per its books on 28/1/2005. The Tribunal upheld the CIT(A)'s decision as the Revenue did not provide material to dispute the findings.

Conclusion:

The Tribunal's decisions resulted in partly allowing the appeal for AY 2003-04 and dismissing the appeal for AY 2005-06. The Tribunal remanded several issues back to the AO for further verification and reconciliation, ensuring that the AO decides these matters in accordance with the law after providing adequate opportunity to the assessee.