2010 (1) TMI 124 - HC - Income Tax

Undisclosed income discrepancy of stock - The discrepancy in the stock was on the basis of a visit by the anti-evasion Wing of the Central Excise Department of the respondent s factory premises CESTAT has returned a finding that there was no discrepancy in the stocks. Apart from the evidence produced by the Central Excise Department with regard to the discrepancy in stocks there is no evidence on record which has been placed by the Income-tax Department to establish any discrepancy in the stocks held that - appellant/Revenue has not been able to point out any independent evidence with regard to the discrepancy in stocks no addition could be made on account of alleged discrepancy of stock decided in favor of assessee

Summary

Issues:
1. Appeal against order passed by Income Tax Appellate Tribunal regarding discrepancy of stock representing undisclosed income.
2. Confirmation of addition by Commissioner of Income Tax (Appeals) but deletion by ITAT.
3. Whether there was independent evidence to establish the discrepancy in stocks.

Analysis:
1. The appeal was directed against the ITAT order regarding a discrepancy of stock amounting to undisclosed income. The Assessing Officer found a stock discrepancy of Rs18,80,710 during a visit by the anti-evasion Wing of the Central Excise Department to the factory premises. The CIT (Appeals) confirmed the addition, but the ITAT set it aside based on lack of independent verification, referencing a decision by the Hon'ble High Court of Madras.

2. The ITAT decision highlighted the lack of independent inquiry or verification by the authorities, solely relying on the Excise Department's proceedings. The ITAT referred to the CESAT's decision favoring the assessee, emphasizing that no justification existed to sustain the addition. Citing the Madras High Court's decision, the ITAT deleted the addition, along with an additional amount, in favor of the assessee.

3. During the appeal, the appellant/Revenue failed to present any independent evidence supporting the discrepancy in stocks beyond the Central Excise Department's findings. The High Court, therefore, upheld the ITAT's decision, concluding that no substantial question of law warranted consideration and dismissing the appeal on January 14, 2010.

This judgment underscores the importance of independent verification in tax assessments and the significance of valid evidence to support additions in determining undisclosed income. The decision by the ITAT, supported by the High Court, showcases the requirement for concrete evidence to establish discrepancies, ensuring fair and just tax assessments.