2002 (6) TMI 180 - AT - Income Tax

Summary

Issues Involved:
1. Deletion of addition on account of gross profit in rice and kanki account.
2. Deletion of addition for low gross profit in tax-paid kanki.
3. Deletion of addition on account of value of excess stock found during the survey.
4. Deletion of addition on account of unexplained investment under section 69.

Issue-wise Detailed Analysis:

1. Deletion of Addition on Account of Gross Profit in Rice and Kanki Account:
The Revenue contested the deletion of Rs. 2,31,665 added by the AO due to low gross profit in the post-survey period for rice and kanki. The AO rejected the books of account citing discrepancies found during a survey under section 133A, which revealed excess stock and unrecorded investment. The AO applied different gross profit rates for pre and post-survey periods. The CIT(A) found the rejection of the books of account improper, noting that the higher pre-survey gross profit was due to undervaluation of transferred stock. The CIT(A) concluded that the AO's approach of splitting the trading accounts was unjustified. The Tribunal upheld the CIT(A)'s decision, agreeing that the reasons provided by the AO were insufficient to reject the books and affirmed that the books of account cannot be rejected for a part of the period only.

2. Deletion of Addition for Low Gross Profit in Tax-Paid Kanki:
The Revenue challenged the deletion of Rs. 34,339 added by the AO for low gross profit in tax-paid kanki. The AO applied a higher gross profit rate for the post-survey period. The CIT(A) found that the sale price of kanki was low during the post-survey period and no defects were pointed out in the books of account. The Tribunal agreed with the CIT(A) that the AO's reasons were insufficient to reject the books and affirmed the deletion of the addition.

3. Deletion of Addition on Account of Value of Excess Stock Found During the Survey:
The Revenue appealed against the deletion of Rs. 4,82,814 added by the AO for excess stock of paddy, rice, kanki, etc., found during the survey. The AO rejected the reconciliation statement provided by the assessee, deeming it an afterthought. The CIT(A) accepted the assessee's explanation, supported by documentary evidence, including sales memos and Mandi Committee receipts. The Tribunal upheld the CIT(A)'s decision, noting that the documentary evidence was credible and the AO erred in rejecting the explanation based solely on the absence of B-1 register entries.

4. Deletion of Addition on Account of Unexplained Investment Under Section 69:
The Revenue contested the deletion of Rs. 53,996 added by the AO as unexplained investment for unrecorded sale of paddy. The AO considered the unrecorded sale as an investment not reflected in the books. The CIT(A) found that this quantity of paddy was already considered in the excess stock position during the survey. The Tribunal agreed with the CIT(A) that the excess stock had been explained and accepted, and thus, there was no basis for a separate addition under section 69.

Conclusion:
The Tribunal dismissed the Revenue's appeal, affirming the CIT(A)'s deletions of the additions made by the AO on all grounds. The Tribunal found the AO's reasons for rejecting the books of account and making the additions to be insufficient and unsupported by evidence.