2008 (12) TMI 287 - AT - Income Tax

Method Of Accounting - difference in the valuation as per the survey team and as per the books of account - rejection of books of account of the assessee u/s 145(3) - difference of opinion between the ld Members - Third Member Decision Whether the ld. CIT(A) is justified to set aside the decision to reject accounts u/s 145(3) and thereby deleting the addition made by the AO for difference of profit on sales estimated by him - Trading addition - HELD THAT - The assessee has shown better profit percentage as could be seen from the chart the assessee has furnished before the AO. Unless the department has some material to show that there was sale outside the books of account it was not correct to reject the books of account maintained by the assessee. Mere fall in the sales does not justify the rejection of the books of account without any other cogent material. Again I may explain that the computation of the stock during the course of survey was based on certain estimations interpolations and extrapolations. That by itself does not mean that the books of account maintained by the assessee duly supported by purchase and sale bills which were produced before the AO deserve rejection. The blank bills found in the course of survey in the name of persons doing job work painting etc. does not in any way lead that the sale figure disclosed by the assessee requires to be rejected. In my view the rejection of the books of account by invoking provisions of section 145(3) is totally unwarranted and cannot be supported in the eyes of law. Having accepted this the addition based on certain estimation of sales is correctly deleted by the CIT(A) as well as by the ld. JM. I agree with the findings of the ld. JM on this point. Addition made on the basis of entry recorded on certain loose papers - HELD THAT - Now looking at the paper it has some numerical figures but does not in any way show that it has some relationship with some business transactions of the assessee. The paper that was taken as a material for making the addition does not conclusively establish that it pertains to the business transaction of the firm. Now the department is making the addition as a part of unexplained investment. What sort of investment the department has found is also not clear from the assessment order. The addition in sum and substance made by the department is clearly not supported by any material which can point out to unexplained investment outside the books of the assessee. According to me the addition has been correctly deleted by the CIT(A) in the light of the principle laid down by the Supreme Court in the case of Pullangode Rubber Produce Co. Ltd. 1971 (9) TMI 64 - SUPREME COURT . The ld. JM. has correctly affirmed the finding of the CIT(A) and in my view there was no need for the matter again being set aside to the CIT(A) for reconciliation of entries contained in the document inventorised as 64/107 of Annexure A-9 of the survey material. I agree with the findings of the ld. Judicial Member on the second issued. There was a difference of opinion between the Members constituting the original Bench. The ld JM had dismissed the appeal by the revenue whereas the ld. AM had restored the case to the file of ld. CIT(A). The ld Third Member has agreed with the view taken by the ld JM. Thus in the light of the majority view the appeal of the revenue stands dismissed. In the result the appeal of the revenue is dismissed.

Summary

Issues Involved:
1. Deletion of addition of Rs. 96,181 on account of stock difference.
2. Deletion of addition of Rs. 79,069 on account of suppressed sales.
3. Deletion of addition of Rs. 7,62,485 based on loose papers found during the survey.

Detailed Analysis:

1. Deletion of Addition of Rs. 96,181 on Account of Stock Difference:
The revenue challenged the deletion of Rs. 96,181 added by the Assessing Officer (AO) as unexplained investment in stock. The AO had observed a difference between the stock valued by the survey team and the stock as per the assessee's trading account. The assessee had surrendered Rs. 3,00,000 to cover the difference in stock value. However, the AO added Rs. 96,181 as unexplained investment, arguing that the difference in stock was Rs. 3,96,181. The CIT(A) deleted this addition, noting that the survey team's valuation was based on hypothetical figures and contained an arithmetical error of Rs. 46,460. The CIT(A) found that the actual difference was only 0.61% and that the surrendered amount of Rs. 3,00,000 was sufficient to cover any discrepancy. The ITAT upheld the CIT(A)'s decision, emphasizing that the revenue did not address the arithmetical error or the method of valuation based on approximation.

2. Deletion of Addition of Rs. 79,069 on Account of Suppressed Sales:
The AO rejected the books of account under section 145(3) due to a decline in sales, finding of blank bills, and stock differences. The AO estimated sales at Rs. 4,30,00,000 against Rs. 4,25,50,982 shown by the assessee, applying a GP rate of 17.99%, leading to an addition of Rs. 79,069. The CIT(A) deleted this addition, stating that the decline in sales alone was not sufficient to reject the books and that the GP rate had actually increased. The CIT(A) also noted that the blank bills related to contractors working for the assessee. The ITAT upheld the CIT(A)'s decision, agreeing that the reasons for rejecting the books were not justified and that the AO's estimation was without concrete basis.

3. Deletion of Addition of Rs. 7,62,485 Based on Loose Papers Found During the Survey:
The AO added Rs. 7,62,485 based on loose papers found during the survey, which contained numerical entries but no narration or identification. The partner of the assessee-firm had initially surrendered Rs. 8,00,000 based on these papers but later retracted, claiming the statement was made under pressure. The CIT(A) deleted the addition, noting that the paper did not conclusively show any concealed investment or income, and the entries were not linked to any specific transaction. The CIT(A) also observed that the AO did not make any further inquiries to substantiate the addition. The ITAT upheld the CIT(A)'s decision, agreeing that the addition was not supported by sufficient evidence and that the retraction of the statement was valid.

Conclusion:
The ITAT upheld the CIT(A)'s decisions on all three issues, finding that the additions made by the AO were not justified based on the evidence and explanations provided by the assessee. The appeal by the revenue was dismissed.