1998 (12) TMI 105 - AT - Income Tax

Summary

Issues Involved:
1. Addition of Rs. 23,08,219 based on loose papers found during the search.
2. Addition of Rs. 4,78,389 on account of valuation of stock.
3. Addition of Rs. 1.90 crores based on seized documents including Dharam Kanta receipts.
4. Estimation of undisclosed sales at Rs. 2,33,81,737 and income therefrom at Rs. 43,81,662.
5. Addition of Rs. 38 lacs under Section 40A(3).
6. Addition of Rs. 2,62,214 based on seized documents.

Issue-wise Detailed Analysis:

1. Addition of Rs. 23,08,219:
The AO added Rs. 23,08,219 based on loose papers (Annexure LP-3, LP-4, and LP-13) found during the search, which were customers' order slips. The AO concluded that gold weighing 4,662 gms. given to Karigars, valued at Rs. 23,97,219, was not accounted for. The assessee denied giving gold to Karigars in advance. The Tribunal found that the Department did not make necessary inquiries to corroborate the AO's findings. The Tribunal held that the addition was based on surmises and conjectures, not on positive evidence, and directed the deletion of the addition.

2. Addition of Rs. 4,78,389:
The AO added Rs. 4,78,389 for making charges on gold ornaments found during the search, assuming the valuer did not include making charges. The Tribunal noted that the valuer's rate already considered the market practice, and the AO's assumption lacked basis. The Tribunal found no material evidence supporting the AO's addition and directed its deletion.

3. Addition of Rs. 1.90 crores:
The AO added Rs. 1.90 crores based on a seized document (Annexure LP-2/18) and Dharam Kanta receipts, interpreting the entries as unaccounted purchases of gold. The Tribunal analyzed the document and found inconsistencies in the AO's interpretation. The Tribunal held that the entries did not conclusively prove unaccounted purchases and that the AO's decoding of figures was speculative. The Tribunal directed the deletion of the addition, except for confirming an undisclosed income of Rs. 3,65,200 based on actual sales of gold ornaments.

4. Estimation of Undisclosed Sales:
The AO estimated undisclosed sales at Rs. 2,33,81,737 and income at Rs. 43,81,662 based on the supposed unaccounted purchases of Rs. 1.90 crores. The Tribunal, having rejected the basis of the Rs. 1.90 crores addition, found no material evidence supporting the estimated sales and income. The Tribunal directed the deletion of the addition.

5. Addition of Rs. 38 lacs under Section 40A(3):
The AO added Rs. 38 lacs by applying Section 40A(3) on the supposed cash payment for unaccounted purchases. The Tribunal, having found no evidence of such purchases or payments, held the addition as misconceived and directed its deletion.

6. Addition of Rs. 2,62,214:
The AO noted purchases and sales out of books based on seized documents (LP-1, LP-2, LP-4, LP-10) and computed a profit of Rs. 2,62,214. However, no separate addition was made as it was covered in the income disclosed on account of excess gold ornaments. The Tribunal found the ground academic and requiring no separate discussion.

Conclusion:
The Tribunal allowed the appeal partly, directing the deletion of most additions made by the AO, except for confirming an undisclosed income of Rs. 3,65,200 based on actual sales of gold ornaments.