2004 (12) TMI 291 - AT - Income Tax

Summary

Issues Involved:

1. Legality of the addition of Rs. 12,07,56,480 based on assumptions and presumptions.
2. Rejection of books of accounts under Section 145 of the Income Tax Act.
3. Determination of undisclosed income for the Delhi branch and other branches.
4. Legality of the surcharge levied under Section 113 of the Income Tax Act.

Issue-wise Detailed Analysis:

1. Legality of the Addition of Rs. 12,07,56,480 Based on Assumptions and Presumptions:

The appellant contended that the CIT(A) erred in confirming the addition of Rs. 12,07,56,480 made by the AO based on assumptions and presumptions. The appellant argued that the well-recognized business of Angadia was not appreciated in the right perspective. The CIT(A) sustained the addition to the extent of Rs. 12,07,56,480, modifying the AO's finding. The CIT(A) observed that the detection of unaccounted commission was clearly established through seized material and the manager's statement. The AO assumed the turnover based on unaccounted transactions detected at the Delhi branch, applying a commission rate of Rs. 2 per thousand. The appellant's explanations were considered theoretical, and the AO's methodology was deemed justified but modified to halve the addition.

2. Rejection of Books of Accounts Under Section 145 of the Income Tax Act:

The AO rejected the books of account on the grounds that unaccounted transactions were found in the seized papers. The appellant argued that the AO failed to consider the materials on record, including seized materials, and did not point out any specific defects in the books of account. The CIT(A) upheld the AO's decision, noting that the appellant did not provide evidence regarding unrecorded commission and the AO was justified in applying the ratio based on the material gathered during the search.

3. Determination of Undisclosed Income for the Delhi Branch and Other Branches:

The AO calculated the undisclosed income for the Delhi branch based on unaccounted transactions recorded in Annex. A-49, estimating the turnover for 7.67 months and applying a commission rate of Rs. 2 per thousand. The AO then applied a ratio of 64:1 to estimate the undisclosed income for other branches, resulting in a total addition of Rs. 24,15,12,960. The CIT(A) modified this addition to Rs. 12,07,56,480, noting that the appellant's contention regarding the recorded commission income was not acceptable. The appellant argued that the AO's calculations were based on wrong assumptions and irrelevant materials, and the CIT(A) ignored relevant facts and materials.

4. Legality of the Surcharge Levied Under Section 113 of the Income Tax Act:

The Revenue contended that the CIT(A) erred in deleting the surcharge levied under Section 113, holding that surcharge is not leviable for searches conducted before 1st June 2002. The CIT(A) noted that the proviso to Section 113 provides for surcharge in searches initiated on or after 1st April 1999.

Conclusion:

The Tribunal found that the lower authorities did not record complete facts regarding the disclosure of Rs. 41 lakhs and the statements of the manager. The AO made additions based on material found at the Delhi branch for all branches without examining the partners of the assessee-firm and considering the books of account of other branches. The Tribunal concluded that the case required a detailed examination of facts and sent the matter back to the AO to decide the issue afresh, providing a reasonable opportunity of hearing to the assessee. The appeal was allowed for statistical purposes.