2005 (1) TMI 311 - AT - Income Tax

Summary

Issues Involved:
1. Addition of Rs. 23,50,760 on account of stock.
2. Addition of Rs. 2,38,831 towards silver articles and the benefit of telescoping.
3. Deduction under sections 80HH, 80-I, and 80-IA.

Detailed Analysis:

1. Addition of Rs. 23,50,760 on account of stock:

The assessee, proprietor of M/s Kwality Steel Suppliers, was involved in the business of ship breaking. During a search under section 132 on 20th Sept. 1995, and subsequent actions under section 133A, various valuables and incriminating documents were seized, leading to a total disclosure of Rs. 1,76,09,437. The Assessing Officer (AO) noted discrepancies in stock valuation and added Rs. 23,50,760 to the assessee's income. The AO's observations included the acceptance of stock valuation by the assessee, the lack of immediate retraction of disclosure, and the absence of stock records.

The assessee argued that the stock was part of the ship being broken and thus accounted for, and that the stock valuation was an estimate. The assessee retracted the disclosure, citing mental pressure and confusion. The Tribunal noted that the stock estimation was marginally different (about 1%) and that the assessee's purchases were accounted for. The Tribunal concluded that the addition was not warranted due to the arbitrary nature of the stock estimation and the lack of corroborative evidence. Thus, the addition of Rs. 23,50,760 was deleted.

2. Addition of Rs. 2,38,831 towards silver articles and the benefit of telescoping:

During the search, 34.5 kgs of silver articles were found at Bhavnagar and additional silver articles worth Rs. 73,730 at Ahmedabad. The AO added Rs. 2,38,831 to the assessee's income after giving credit for explained silver. The assessee argued for the benefit of telescoping against the disclosure of Rs. 5 lakhs for household expenses. However, the Tribunal found no evidence that the silver articles were included in the household expenses disclosure. Consequently, the addition of Rs. 2,38,831 was confirmed.

3. Deduction under sections 80HH, 80-I, and 80-IA:

The Tribunal referenced the judgment of the Hon'ble Gujarat High Court in CIT vs. Vijay Ship Breaking Corporation, which was applicable to the case. Based on this precedent, the Tribunal upheld the AO's decision to disallow the claims for deductions under sections 80HH, 80-I, and 80-IA.

Conclusion:

The appeal was partly allowed. The addition of Rs. 23,50,760 on account of stock was deleted, while the addition of Rs. 2,38,831 towards silver articles was confirmed. The disallowance of deductions under sections 80HH, 80-I, and 80-IA was upheld.