2018 (5) TMI 798 - AT - Income Tax

Unaccounted stock - Gross turnover computation - rejection of books results - N.P. determination - Held that - As in the case of gold bar weighing 1 kg, which was not found during the survey operation, which has been also made a basis for estimating the grows turnover. There is no clear cut finding that it was not a part of the valuation made by the valuer at the time of survey. The other issue considered for rejection of books of account and estimating the gross turnover and gross profit is sale of gold bar of 507.610 gms. The payment claimed to have been made by cheque but the sale was not entered into the books of account. Considering all we are of the view that the assessee has already disclosed substantial unaccounted stock in its return of income which takes care of the various discrepancies noted in the books of account. Considering the totality of facts and circumstances, we are of the view that at least the addition to the tune of ₹ 10.00 lacs need to be sustained and gross turnover is estimated at ₹ 10,42,62,598/- This addition is sustained as addition to net profit and after considering the fact that all expenses related to such income have been debited in P&L account and allowed. Accordingly, the ground of assessee s appeal is partly allowed and ground of revenue s appeal is dismissed. Addition on account of value of excess stock - Held that - CIT(A) has granted relief by passing a speaking order. The stock was valued by registered valuer. AO has not accepted the same without any basis. The assessee has separately shown labour income(Gadhai/Majduri) from both the premises. The difference of gadhai/majduri have been debited in P&L account. Thus, no separate addition is required to be made for such income. Similarly the A.O. has invoked the concept of hallmark jewellery without any basis. There is no contrary material on record against the order of the ld. CIT(A), therefore, the same is hereby upheld.

Issues Involved:

1. Deletion of addition on account of remuneration to partners.
2. Restriction of trading addition.
3. Deletion of addition on account of value of excess stock.
4. Restriction of addition on account of excess stock of diamond.
5. Deletion of addition under Section 69B for excess stock.
6. Deletion of addition on account of negative cash balance.
7. Deletion of addition on account of disclosure on miscellaneous loose papers.
8. Sustaining the provisions of Section 145(3) of the Income Tax Act, 1961.

Issue-wise Detailed Analysis:

1. Deletion of Addition on Account of Remuneration to Partners:
The CIT(A) deleted the addition of ?1,20,000/- made on account of remuneration to the partners. The CIT(A) held that the surrendered undisclosed income is in the form of business stock and should be considered business income, thus allowing the claim of salary/remuneration to partners under Section 40(b) of the Income Tax Act, 1961. The Tribunal upheld this finding, dismissing the revenue’s appeal on this ground.

2. Restriction of Trading Addition:
The Assessing Officer (AO) made a trading addition of ?1,21,68,595/- by estimating sales at ?12,00,00,000/- and applying a G.P. rate of 14.77%. The CIT(A) restricted this addition to ?89,57,095/- after considering the explanations and reconciliations provided by the assessee. The Tribunal further reduced the addition to ?10,00,000/- and estimated the gross turnover at ?10,42,62,598/-, taking into account the substantial unaccounted stock disclosed by the assessee.

3. Deletion of Addition on Account of Value of Excess Stock:
The CIT(A) deleted the addition of ?1,41,93,277/- made on account of excess stock, stating that the stock was valued by a registered valuer and the AO had no basis to reject this valuation. The Tribunal upheld this decision, noting that the labour charges were separately shown in the P&L account and the concept of ‘hallmark jewellery’ was invoked without any basis.

4. Restriction of Addition on Account of Excess Stock of Diamond:
The CIT(A) restricted the addition on account of excess stock of diamond from ?4,11,908/- to ?6,490/- after analyzing the loose papers and final reconciliation of the diamond stock. The Tribunal upheld this decision, finding no merit in the revenue’s appeal on this ground.

5. Deletion of Addition under Section 69B for Excess Stock:
The CIT(A) deleted the addition of ?9,41,831/- made under Section 69B, stating that the assessee was charging labour charges separately, which were shown in the P&L account. The Tribunal upheld this decision, finding no contrary material on record against the order of the CIT(A).

6. Deletion of Addition on Account of Negative Cash Balance:
The CIT(A) deleted the addition of ?10,09,273/- made on account of negative cash balance after considering the reconciliation provided by the assessee. The Tribunal upheld this decision, finding the reconciliation satisfactory.

7. Deletion of Addition on Account of Disclosure on Miscellaneous Loose Papers:
The CIT(A) deleted the addition of ?6,00,000/- made on account of disclosure on miscellaneous loose papers, stating that the transactions recorded on these papers were already included in the books and the excess amount had been surrendered. The Tribunal upheld this decision, finding no contrary material on record.

8. Sustaining the Provisions of Section 145(3) of the Income Tax Act, 1961:
The CIT(A) upheld the AO’s decision to invoke the provisions of Section 145(3) due to discrepancies and excess stock found during the survey. However, the CIT(A) and the Tribunal both found that the estimation of sales and G.P. rate by the AO was arbitrary and reduced the additions accordingly.

Conclusion:
The Tribunal dismissed the revenue’s appeal and partly allowed the assessee’s appeal, providing a detailed analysis and justification for each issue. The Tribunal’s decisions were based on the merits of the case, reconciliations provided by the assessee, and the CIT(A)’s findings.

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