2004 (8) TMI 345 - AT - Income Tax

Computation Of Undisclosed Income - estimation of sales on seized documents - interest charged u/s 158BFA(1) - HELD THAT - The dispute is only with regard to the estimation of sales for the years 1989-90 to 1996-97 for which no document or information regarding unaccounted sales even for part of the year was found and seized. We agree with the view of the learned CIT(A) that the sales are to be taken on the basis of the seized documents and the sales are to be estimated only for the year for which the information or document had been found and seized for a part period of the accounting period. No sales can be estimated where no information at all had been obtained during the course of search and no information is available on the basis of the seized record that the assessee had indulged in out of the books transaction for a part of the year. For these years the sales cannot be estimated. Thus we find no infirmity in the order of the learned CIT(A) in both the cases. Undisclosed Income - It is clear from the perusal of the reply of the assessee that this is the case of credit purchases and the payment for the credit purchases was made after effecting the sales. No investment was required. Secondly the learned Authorised Representative has rightly placed reliance on the case of Laduram Tarachand vs. Dy. CIT. In this judgment this Bench of the Tribunal has held that unexplained investment in the purchase can be worked out in the ratio of capital to purchases on the basis of recorded purchases and the capital. We find that on the basis of this judgment the assessee has already declared unexplained investment for the relevant year. Therefore the learned CIT(A) has rightly held that no addition for unexplained investment can be made in both the cases. Therefore we decline to interfere with the order of the learned CIT(A) in both the cases. Interest charged - We are of the opinion that no interest should be charged u/s 158BFA(1) upto the date of supply of Photostat copies of the seized documents as this delay is not attributable to the assessee. This ground is restored to the AO for determination of interest payable if any after verification from the records. In the result both the appeals filed by the Revenue are partly allowed.

Summary

Issues Involved:
The judgment involves issues related to deletion of addition on account of undisclosed excess stock, reduction of addition made on unaccounted sales and undisclosed investment, estimation of sales based on seized documents, application of GP rate, and estimation of investment in unrecorded purchases.

Deletion of Addition on Excess Stock:
The AO made an addition of Rs. 9,82,741 for excess stock found during a search operation. The CIT(A) deleted this addition after considering evidence of additional purchases and supporting documents provided by the assessee. The Tribunal upheld the CIT(A)'s decision, noting that the AO had not justified ignoring the additional purchases and that the deletion was appropriate.

Unaccounted Sales and Undisclosed Investment:
The dispute involved reducing additions made on unaccounted sales and undisclosed investment. The Tribunal agreed with the CIT(A) that sales should be estimated based on seized documents only for relevant years. It was held that sales cannot be estimated for years where no incriminating documents were found. The Tribunal also upheld the CIT(A)'s decision to apply a GP rate of 5.5% instead of 10% as determined by the AO.

Estimation of Investment in Unrecorded Purchases:
The Tribunal considered the estimation of investment in unrecorded purchases for unaccounted sales. The CIT(A) correctly held that income should be estimated only for years where information was found based on seized documents. The Tribunal agreed with the CIT(A) that no addition for unexplained investment was warranted based on the evidence provided by the assessee.

Interest Charges under Section 158BFA(1):
Regarding interest charges under section 158BFA(1), the Tribunal directed that no interest should be charged up to the date of supply of seized document copies, as the delay was not attributable to the assessee. The matter was remanded to the AO for verification and determination of any interest payable.

In conclusion, the Tribunal partly allowed the appeals filed by the Revenue, upholding the decisions of the CIT(A) on various issues related to excess stock, unaccounted sales, undisclosed investment, GP rate application, and interest charges.