2018 (8) TMI 1318 - HC - Income Tax

Estimation of income - determination of gross profit rate (GP rate) - ITAT reduced the rate from 15% to 12% - enhanced addition made by ld. CIT(A) towards unaccounted stock - difference between the statement submitted by assessee to State Bank of Indore and the actual stock found - during investigation it was revealed that the assessee company and its sister concern had obtained bogus purchase bills from various entry providers who provided bogus sales bills without supplying the goods mentioned in the bills. Held that - In our considered opinion, the tribunal while considering the matter has rightly observed that either the bills are mainpulated so as to increase stock or the sales has been reduced. - In that view of the matter, the view taken by the authorities is just and proper. Therefore, no substantial question of law arises. Appeals dismissed.

Issues Involved:
1. Justification for enhanced addition of ?14,14,80,498/- by ITAT.
2. Basis of enhanced addition on account of unaccounted stocks.
3. Comparison of stock statement with actual stock found and rejection of books of accounts.
4. Justification for addition of ?4,23,56,186/- by ITAT.
5. Comparison of business nature with M/s. Clarity Gold.
6. Validity of search and seizure operation and subsequent findings.

Issue-wise Detailed Analysis:

1. Justification for Enhanced Addition of ?14,14,80,498/- by ITAT:
The appellants challenged the ITAT's decision confirming the enhanced addition of ?14,14,80,498/-. The tribunal upheld the addition based on discrepancies found during a search and seizure operation. The tribunal noted that the assessee failed to reconcile the stock differences and provided no credible evidence to counter the findings. The tribunal's decision was based on the substantial discrepancy between the stock reported to the bank and the actual stock found during the search.

2. Basis of Enhanced Addition on Account of Unaccounted Stocks:
The tribunal sustained the enhanced addition made by CIT(A) based on the suspicion of unaccounted stocks. The tribunal observed that the assessee's books of accounts were not complete, and the stock valuation done by experts during the search was not contested by the assessee's employees at the time. The tribunal found that the stock statements were inflated by showing bogus purchases, debtors, and turnover, corroborating the statements made by key persons during the search.

3. Comparison of Stock Statement with Actual Stock Found and Rejection of Books of Accounts:
The tribunal compared the stock statement submitted to the State Bank of Indore with the actual stock found during the search. The stock statement as of 30.04.2009 showed ?29,55,67,819, while the actual stock found was ?14,52,24,834/-. The tribunal noted that the assessee failed to explain this discrepancy. The tribunal upheld the rejection of the books of accounts under section 145(3) of the IT Act, citing the substantial difference as evidence of incorrectness in the books.

4. Justification for Addition of ?4,23,56,186/- by ITAT:
The appellants also contested the ITAT's decision to confirm the addition of ?4,23,56,186/-. The tribunal found that the assessee had not satisfactorily explained the discrepancies in the stock valuation and had failed to produce the concerned parties from whom bogus sales and purchases were made. The tribunal held that the addition was justified based on the evidence of unaccounted transactions.

5. Comparison of Business Nature with M/s. Clarity Gold:
The appellants argued that the ITAT erred in comparing their business with M/s. Clarity Gold, which deals in gold and not in cutting and polishing raw materials. The tribunal, however, used this comparison to highlight the nature of bogus transactions and inflated stock statements, which were common practices in both businesses. The tribunal found that the nature of the business did not alter the fact that the assessee engaged in similar practices of inflating turnover and stock.

6. Validity of Search and Seizure Operation and Subsequent Findings:
The appellants challenged the validity of the search and seizure operation and the findings derived from it. They argued that the statements recorded during the search were under duress and should not be considered. The tribunal, however, found that the statements were corroborated by documentary evidence and the substantial discrepancies in the stock valuation. The tribunal upheld the findings of the search operation, noting that the assessee had multiple opportunities to contest the valuation but failed to provide credible evidence.

Conclusion:
The Rajasthan High Court dismissed the appeals, affirming the tribunal's decision. The court found no substantial question of law and held that the tribunal had rightly upheld the enhanced additions based on the discrepancies in stock valuation, unaccounted transactions, and the rejection of books of accounts. The court noted that the assessee failed to provide satisfactory explanations or credible evidence to counter the findings of the search and seizure operation.

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