2006 (12) TMI 186 - AT - Income Tax

Issues Involved:

1. Addition on account of suppressed sales.
2. Addition on account of purchase of FDRs.
3. Addition on account of Pooja expenses.
4. Addition on account of loose paper found during the search.
5. Addition on account of unrecorded household expenses.
6. Levy of surcharge under s. 113.

Detailed Analysis:

1. Addition on Account of Suppressed Sales:

The Revenue's appeal contested the addition due to suppressed sales. A search on April 10, 2002, revealed incomplete books of account. Statements from employees indicated unrecorded sales and wages. The AO rejected the books under s. 145 and estimated sales based on found cash memos and statements from employees and family members. The AO calculated unrecorded sales for the financial year 2001-02 at Rs. 60 lakhs, applying a net profit rate of 25%. The CIT(A) revised the sales estimates to Rs. 43,80,000 and applied a net profit rate of 20%. The Tribunal upheld the rejection of books but adjusted the sales estimates to Rs. 45,00,000 and maintained the net profit rate at 20%, resulting in an undisclosed income of Rs. 20,45,677, sustaining an addition of Rs. 4,45,677.

2. Addition on Account of Purchase of FDRs:

During the search, FDRs totaling Rs. 3,50,000 were found. The AO accepted explanations for Rs. 1,50,000 but added Rs. 2,00,000 as undisclosed income, questioning the sources. The CIT(A) allowed telescoping benefits against the undisclosed business income. The Tribunal found the AO's rejection of explanations without proper inquiry unjustified and deleted the Rs. 2,00,000 addition.

3. Addition on Account of Pooja Expenses:

A seized diary indicated expenses of Rs. 2,51,069 for a religious event. The AO attributed the expenses to the assessee, despite affidavits claiming they were borne by devotees. The CIT(A) confirmed the addition. The Tribunal noted the diary's mention of contributions from 124 devotees and found no evidence solely attributing the expenses to the assessee, reducing the addition to Rs. 10,000, which was set off against undisclosed income.

4. Addition on Account of Loose Paper Found During the Search:

A loose paper with "7,00,000" written on it was found. The AO added Rs. 7,00,000 as undisclosed income. The CIT(A) deleted the addition. The Tribunal upheld the deletion, finding no basis to treat the figure as undisclosed income due to lack of detail or context.

5. Addition on Account of Unrecorded Household Expenses:

The AO added Rs. 1,67,420 for unrecorded household expenses based on estimates. The CIT(A) deleted the addition. The Tribunal agreed, noting the absence of material evidence to support the AO's estimate beyond the amounts declared by the assessee.

6. Levy of Surcharge under s. 113:

The AO's levy of surcharge under s. 113 was contested. The CIT(A) deleted it, and the Tribunal upheld the deletion, citing the surcharge's prospective application from June 1, 2002, while the search occurred on April 10, 2002.

Conclusion:

Both appeals were partly allowed, with adjustments primarily favoring the assessee, ensuring a fair assessment of undisclosed income and expenses.

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