2001 (5) TMI 156 - AT - Income Tax

Summary

Issues Involved:

1. Addition of Rs. 2,89,700 on account of unexplained investment in stock.
2. Addition of Rs. 1,98,600 on account of estimated profit on alleged undisclosed sale.
3. Addition of Rs. 45,000 on account of unproved cash credits.
4. Addition of Rs. 12,308 and Rs. 3,980 on account of unexplained entries in the bank account.
5. Addition of Rs. 9,000 on account of alleged unexplained payment.
6. Addition of Rs. 40,000 on account of alleged unexplained deposit in the bank account.
7. Disallowance of Rs. 41,950 out of salary paid to brothers of the partners.

Issue-wise Detailed Analysis:

1. Addition of Rs. 2,89,700 on account of unexplained investment in stock:

The assessee, engaged in the sale of footwear, declared an income of Rs. 1,04,437 for the assessment year 1992-93. During scrutiny, the AO found discrepancies between the stock declared to the bank and the stock recorded in the books. The AO noted a peak difference of Rs. 2,89,700 in January 1992 and added this amount as unexplained investment under section 69B. The assessee contended that the stock figures declared to the bank were inflated for availing maximum cash credit and were not real. The Tribunal observed that inflating stock figures to banks is a recognized commercial practice. Since the stock was hypothecated, not pledged, the bank had no physical control over it. The Tribunal held that the AO did not provide sufficient evidence to prove the unexplained investment and directed the AO to delete the addition.

2. Addition of Rs. 1,98,600 on account of estimated profit on alleged undisclosed sale:

This addition was consequential to the first issue. The AO assumed that the excess stock must have been sold unaccounted, leading to unaccounted purchases and sales. Since the Tribunal deleted the addition of unexplained investment in stock, this consequential addition was also deleted. The Tribunal also noted that the AO did not reject the book results or invoke section 145(2).

3. Addition of Rs. 45,000 on account of unproved cash credits:

The AO found cash deposits in the names of five persons which were not ledgerized and repayments were also shown in cash without corresponding ledger entries. The assessee failed to produce these persons or provide their details. The Tribunal upheld the addition, noting that sufficient opportunity was given to the assessee to explain the entries, and even confirmation letters were not produced.

4. Addition of Rs. 12,308 and Rs. 3,980 on account of unexplained entries in the bank account:

The AO found wrong postings in the bank account, leading to an addition of Rs. 12,308. The Tribunal found that these were merely posting mistakes and directed the AO to delete this addition. For the other three entries totaling Rs. 3,980, the Tribunal sustained the addition of Rs. 2,150 as the assessee failed to provide details or explanation for these entries.

5. Addition of Rs. 9,000 on account of alleged unexplained payment:

The AO found that a payment of Rs. 9,000 was recorded late in the cash book, and the cash balance was below Rs. 9,000 on certain occasions. The Tribunal upheld the addition but allowed it to be set off against the unexplained cash credits.

6. Addition of Rs. 40,000 on account of alleged unexplained deposit in the bank account:

The AO found a discrepancy in the date of a cash deposit entry and presumed it was from undisclosed sources. The Tribunal found the AO's presumption baseless and directed the deletion of this addition.

7. Disallowance of Rs. 41,950 out of salary paid to brothers of the partners:

The AO disallowed the salary and bonus paid to certain persons related to the partners, noting discrepancies in the ledger and the nature of payments. The Tribunal upheld the disallowance, agreeing with the AO's findings that the salary was claimed to inflate expenses.

Conclusion:

The appeal was allowed in part, with certain additions being deleted and others upheld based on the evidence and explanations provided. The Tribunal provided a detailed analysis of each issue, considering the commercial practices, the nature of evidence, and the explanations offered by the assessee.