2017 (4) TMI 166 - AT - Income Tax

Addition on account of undisclosed stocks - survey operation was conducted at the business premises of the assessee - Held that - A reading of the material shows that the purchase bills and transport receipts as well as form D-VIII are drawn on the name of the contractors and we find any amount of force in the submission the learned authorised representative that these bills and the other bills cannot be taken as fabricated. All these bills are dated before March 29, 2010 before a close proximity of time to the date of survey, lending support to the contention of the authorised representative for the manufacturer kept these materials in the possession of the assessee in view of the arrangement between the assessee, manufacturer and the contractors. There is nothing improbable in this proposition put forth before us and merely because some suspicion occurred to the mind of the Assessing Officer such suspicion cannot prevail over broad probabilities. Source and destination of the payments are verifiable and the ledger book, which are not in the custody and control of either assessee or contractor but in the custody and the maintenance of the manufacturers are available on record for verification. In these circumstances the authorities below should have noticed that all the bills are excisable bills. There is no finding that these bills are fabricated. Suspicion, however grave it is, cannot take the place of legal evidence or proof and in the absence of any tangible evidence in the possession of the authorities below and without giving a finding that the document produced by the assessee or the contractors or the manufacturer are false and fabricated once, in addition made on suspicion cannot be sustained. In respect of sprinklers the bills issued by the manufacturer the assessee produced the material to show that one Satyam Enterprises is the owner thereof t is submitted before us that the owner of Satyam Enterprises is the own brothers of the assessee and conducting the business in the same premises of old house in which the assessee is conducting the business as such it is natural that the stock to the business of Satyam Enterprises could also be found in the same premises. There is nothing unusual in this submission and the documents that are produced by way of paper books on pages 87 to 94, which shall include the purchase bills and transportation receipts, established the fact that the ownership of such property is vested in Satyam Enterprises but not in the assessee. The value of this stock cannot be included in the stock of the assessee as undisclosed stock and no additions could be made on this account. - Decided in favour of assessee

Summary

Issues:
Assessment of undisclosed stocks leading to addition in income tax return.

Detailed Analysis:
The judgment involves a case where the assessee, a proprietor of a trading company, was involved in a dispute regarding the assessment of undisclosed stocks leading to an addition in the income tax return for the assessment year 2010-11. A survey operation conducted at the business premises of the assessee resulted in an addition of ? 36,96,697 on account of undisclosed stocks by the Assessing Officer. Challenging this, the assessee appealed before the Commissioner of Income-tax (Appeals) who partially allowed the appeal, reducing the addition to ? 25,98,065. The reduced amount was claimed by the assessee to be on account of stock belonging to contractors, the brother of the assessee, and an adjustment in the value of stock based on gross profit rate.

The authorized representative argued that the stock worth ? 22,77,420 belonged to contractors who were clients of the assessee and were allowed to keep stock in the premises as part of a business arrangement. The bills and vouchers were subsequently produced to support this claim. Similarly, the stock worth ? 3,50,000 was claimed to belong to the brother of the assessee, supported by necessary confirmations and documentation. The paper book produced by the assessee included purchase bills, transport receipts, and ledger accounts, further substantiating the ownership and arrangement regarding the stocks.

The Tribunal analyzed the evidence presented, including statements of contractors and the confirmation of ownership of the stock worth ? 3,50,000 by Satyam Enterprises, owned by the brother of the assessee. The Tribunal found no grounds to support the Assessing Officer's suspicion and held that the undisclosed stocks were not belonging to the assessee. Consequently, the additions made on this account were deemed unsustainable, and all grounds of the appeal were allowed. The Tribunal ruled in favor of the assessee, allowing the appeal and pronouncing the order on November 29, 2016.

In conclusion, the judgment addressed the issue of undisclosed stocks in the income tax assessment of the assessee, highlighting the importance of substantiating ownership and business arrangements to refute additions made by the Assessing Officer. The Tribunal emphasized the need for tangible evidence over mere suspicion, leading to the allowance of the appeal and the deletion of the additions in the income tax return.