2022 (3) TMI 171 - AT - Income Tax

Unauthenticated loose documents seized from the premises of some other party - Addition based on unauthenticated documents - HELD THAT - Search conducted in the case of M/s. Kartika Gold Enterprises, the documents and details of purchase entered by M/s. Kartika Gold Enterprises have been found and seized. Based on the details of purchases, the Revenue authorities have added the entire quantum of the value of the sale of gold made by the assessee - addition of the entire amount cannot be held to be valid and there is no dispute that the sale to M/s. Kartika Gold Enterprises could not have been made without purchase of gold by the assessee. Hence, the cost of gold has to be deducted from the sale price and the profit earned by the assessee through the sale should be rightly brought to tax. The appropriate way to determine the profit earned by the assessee is to be based on the gross profit earned in the regular course of business. We find that the gross profit earned by the assessee as per the return was 1.42 per cent. as sustained by CIT (Appeals) with regard to the other transactions entered into by the assessee. Since, there is no dispute about the gross profit, keeping in view the other expenses which have already been debited in the regular books of account, we hereby hold that an amount of 1.9 per cent. of the total transaction would be the correct income evaded by the assessee. Appeal of the assessee is allowed for statistical purpose.

Summary

Issues Involved:
Appeal against CIT(A) order - Addition of income - Authentication of seized documents - Treatment of cash receipts as advance - Addition based on unauthenticated documents - Consideration of submissions - Addition based on seized documents from third party - Determination of profit on sale of gold.

Analysis:
1. The appeal was filed against the CIT(A) order dated March 23, 2017, where the assessee contested the addition of income amounting to ?2,06,03,900. The CIT(A) granted partial relief of ?59,87,250, but confirmed other additions, leading to the appeal.

2. The primary contention of the assessee was the authenticity of the documents seized from a third party, "M/s. Kartika Gold Enterprises," which were used to make additions in the assessee's hands. The assessee argued that these unauthenticated documents lacked the confirmation or signatures of the assessee and should not be considered as conclusive evidence.

3. The assessee further argued against the addition of ?64,12,500, contending that the amount allegedly paid in cash by M/s. KGE should be treated as an advance and not income. Additionally, the assessee challenged the addition of ?46,03,600, stating that it was based on unauthenticated documents and lacked merit.

4. During the proceedings, the authorized representative highlighted that the seized documents did not bear the assessee's signatures, emphasizing that the rough tabulations found were not part of the regular books of accounts. The representative argued that the additions were unjustified as they were based on loose documents from a third party.

5. The Tribunal analyzed the seized documents from M/s. Kartika Gold Enterprises and the statements recorded during post-search inquiries. It was observed that the additions made by the Revenue authorities were not entirely valid. The Tribunal held that the profit earned by the assessee should be determined based on the gross profit earned in the regular course of business, leading to a revised income calculation of ?2,80,042.

6. Ultimately, the Tribunal allowed the appeal for statistical purposes, emphasizing the need to deduct the cost of gold from the sale price to determine the actual profit earned by the assessee. The decision was based on a comprehensive evaluation of the facts and circumstances surrounding the case, ensuring a fair and just outcome for the assessee.