2008 (10) TMI 64 - HC - Income Tax

Survey - unaccounted stock business income estimated by CIT (A) & affirmed by ITAT was based on available materials thus, tribunal was justified in upholding the estimation of Rs. 50,000 under the head Business income - held that addition was made on the basis of material found in the course of survey and it cannot be said to be on mere suspicion, surmises and conjectures but tribunal was not justified in upholding interest u/s 234B on the les advance tax, in absence of any order by AO

Summary

Issues:
1. Estimation of business income without proper material.
2. Addition under section 69 based on unexplained investment.
3. Justification of interest under section 234B in the absence of an order by the Assessing Officer.

Issue 1 - Estimation of Business Income:
The case involved M/s. Vimla Stores, a firm with three partners, which filed a return for the assessment year 1996-97. During a survey, unaccounted stock was found, leading to an assessment of business income at Rs. 3,74,200 by the Assessing Officer. The Commissioner of Income-tax (Appeals) reduced it to Rs. 50,000. The Tribunal upheld this estimation, stating that it was based on available materials like sales and stock details. The Tribunal found the Commissioner's estimation reasonable, considering the partners' statement and sales data. The court held that the estimation of Rs. 50,000 was justified based on available material, rejecting the argument that it was arbitrary. The decision favored the Revenue.

Issue 2 - Addition under Section 69:
Regarding the unexplained investment, the Tribunal reduced it from Rs. 5,00,000 to Rs. 3,00,000. The appellant argued that the inventory lacked credibility due to errors in its preparation. The court rejected this argument, stating that the inventory was not illegal and found only marginal errors. The court held that the inventory's marginal error did not render it incredible for rejecting outright. The court distinguished a previous case where the inventory was prepared in a slipshod manner. The addition under section 69 was upheld based on the material found during the survey, ruling out mere suspicion, surmises, and conjectures. The decision favored the Revenue.

Issue 3 - Justification of Interest:
The appellant contested the interest under section 234B, arguing that no specific order was passed by the Assessing Officer. The court, citing a Full Bench judgment, agreed with the appellant. The Full Bench ruling stated that in the absence of a specific order by the assessing authority, interest could not be charged and recovered from the assessee. Therefore, the court held that the Tribunal was not justified in upholding the interest in the absence of an order by the Assessing Officer. This issue favored the assessee.

In conclusion, the appeal was partly allowed, with the estimation of business income and addition under section 69 being upheld in favor of the Revenue, while the justification of interest under section 234B was ruled in favor of the assessee due to the absence of an order by the Assessing Officer.