2021 (5) TMI 913 - AT - Income Tax

Unexplained income - Addition of opening stock of assessee undisclosed - HELD THAT - The clinching issue which goes in favour of the assessee is that the sales made by assessee out of the alleged undisclosed opening stock on by the assessee has been accepted by the learned AO. The resultant trading profit has also been accepted. Further on the opening stock allegedly not existing according to the AO amounting to ₹ 51,051,565/ , assessee has shown sales of ₹ 52,851,660/ and has disclosed a gross profit of ₹ 1,800,095 only. From the above gross profit assessee has incurred expenditure of almost ₹ 10 lakh and has shown meager net profit of ₹ 875,491/ . Therefore, it is apparent that assessee has only got capitalization of ₹ 875,491 where the AO has alleged that the opening stock of ₹ 51,051,565/ is nonexistent and bogus. On the factual metrics itself, the allegation of the learned assessing officer seems to be unsustainable because why a person would show and on accounted opening stock of the magnitude of ₹ 51,000,000 just to on a meager net profit of ₹ 875,000/ No infirmity in the order of the learned CIT A in deleting the addition made by the learned assessing officer holding that the opening stock of the assessee was an unexplained income of the assessee as such stock in trade was not in existence. In the result, the solitary ground of appeal of the learned AO is dismissed.

Issues Involved:
1. Whether the CIT (A) erred in deleting the addition of ?51,051,656 made by the Assessing Officer by treating the opening stock as unexplained income.

Detailed Analysis:
Background:
The appeal was filed by the Assistant Commissioner of Income Tax, Circle-34(1), New Delhi, against the order passed by the Commissioner of Income Tax (Appeals)-12, New Delhi, for the assessment year 2013-14. The sole issue in this appeal was whether the CIT (A) erred in deleting the addition of ?51,051,656 made by the Assessing Officer by treating the opening stock as unexplained income.

Facts of the Case:
The assessee, an individual engaged in the business of trading in fabric and also a professional advocate, declared a gross profit of ?2,734,495 on sales of ?54,141,660, leading to a gross profit rate of 5.05%. The return of income was filed declaring an income of ?4,656,960. During scrutiny, the Assessing Officer noted discrepancies in the opening stock and capital account and questioned the existence and source of the opening stock.

Assessing Officer’s Findings:
The Assessing Officer questioned the assessee about the source of the opening stock and capital. The assessee provided explanations and documents, including past assessment orders and affidavits from various individuals, to substantiate the existence of the opening stock. However, the Assessing Officer conducted an inspection and found no evidence of the business premises or the stock. Consequently, the Assessing Officer treated the opening stock of ?51,051,565 as unexplained income and added it back as income from other sources.

CIT (A)’s Decision:
The CIT (A) deleted the addition made by the Assessing Officer, holding that the closing stock of the previous year must be the opening stock of the succeeding year, as per various judicial precedents. The CIT (A) noted that the Assessing Officer had not disputed the gross profit but only the opening stock, which was illogical. The CIT (A) also considered various documents and affidavits submitted by the assessee to support the genuineness of the opening stock and business activities.

Tribunal’s Analysis:
The Tribunal carefully considered the rival contentions and the orders of the lower authorities. It also reviewed the written submissions and decisions cited by the assessee. The Tribunal found that the issue was squarely covered by a decision of the Delhi High Court on similar facts, where the addition was deleted.

Key Points from the Tribunal’s Analysis:
1. The Tribunal noted that the sales made by the assessee out of the alleged undisclosed opening stock were accepted by the Assessing Officer, along with the resultant trading profit.
2. The Tribunal questioned the logic behind showing an unaccounted opening stock of ?51,000,000 to earn a meager net profit of ?875,000.
3. The Tribunal found no distinction between the present case and the one decided by the Delhi High Court, which had similar factual metrics.
4. The Tribunal emphasized the principle of consistency, noting that the opening stock, purchases, sales, and trading activities had been accepted by the department in earlier years, including scrutiny assessments.
5. The Tribunal concluded that the Assessing Officer’s addition of ?51,051,656 as unexplained income was unsustainable on factual metrics and legal precedents.

Conclusion:
The Tribunal upheld the CIT (A)’s order deleting the addition of ?51,051,656 made by the Assessing Officer. The appeal filed by the Assessing Officer was dismissed, and the Tribunal pronounced the order in the open court on 27/05/2021.

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