2015 (3) TMI 1020 - AT - Income Tax

Addition on undisclosed profit - Held that - A.O. has based his findings on the basis of surmises and conjectures and that too without commenting upon the explanations of assessee. Moreover, in the present year, we find that assessee has not earned any income from lease which fact is verifiable from paper book page 8 where a copy of P & L account is placed and where there is nil other income as compared to earlier year income of ₹ 10,02,511/-. Therefore, facts in the present year are distinguishable as in the present year the assessee had filed documentary evidences with respect to gold rates and in this year there is no lease income. The addition sustained by Ld. CIT(A) is not based upon facts. - Decided in favour of assessee. Addition on account of undisclosed stock - CIT(A) deleted the addition - Held that - As during appellate proceedings before Ld. CIT(A), the assessee had filed necessary and relevant documents to demonstrate that Jewellery sold to M/s. Swarn Gems P. Ltd. consisted out of opening stock and jewellery received on approval basis from Mehrasons Jewellers (P) Ltd.. The assessee had field copy of stock ledger as well as sale tax assessment order for the year under consideration. We find that findings of Ld. CIT(A) are based upon verification of facts and evidences and, therefore, he had rightly deleted the addition.- Decided in favour of assessee.

Issues Involved:
1. Deletion of addition on account of undisclosed stock by CIT(A).
2. Addition of undisclosed profit by AO.
3. Verification of transactions with related parties and market rates.
4. Application of GP rate and rejection of trading results by AO.

Issue-wise Detailed Analysis:

1. Deletion of Addition on Account of Undisclosed Stock by CIT(A):

The Revenue appealed against the deletion of Rs. 19,99,840/- made on account of undisclosed stock. The AO concluded that the assessee did not have sufficient stock to support the sales declared and thus added the amount as undisclosed stock. The CIT(A), however, found that the assessee had provided sufficient documentation and explanations to support the stock and transactions. The assessee submitted vouchers, stock ledgers, and sales tax documents demonstrating that the stock sold was accounted for and received on approval from related parties. The CIT(A) noted that the AO's addition was based on misapplication of facts and without appreciating the documents on record. Thus, the addition was deleted by the CIT(A) based on verified facts and evidences.

2. Addition of Undisclosed Profit by AO:

The assessee appealed against the addition of Rs. 4,57,340/- made by the AO, who applied a GP rate of 15% and rejected the trading results. The AO alleged that the assessee had inflated purchases from related parties in previous years and continued the practice in the current year. However, the assessee argued that the facts of the current year were distinguishable as no rental income was earned, and the purchases were at market rates. The Tribunal found that the AO's findings were based on surmises and conjectures without commenting on the assessee's explanations. The Tribunal noted that the assessee had provided documentary evidence of market rates and purchase rates, showing no discrepancy. Consequently, the addition was not justified, and the appeal by the assessee was allowed.

3. Verification of Transactions with Related Parties and Market Rates:

The Tribunal had previously remanded the issue of verification of transactions with related parties to the CIT(A) for earlier years. In the current year, the assessee had filed details comparing purchase rates from related parties with market rates, which were verified and found consistent. The Tribunal noted that the rule of res judicata does not apply to income tax proceedings, and each year must be considered separately. The Tribunal found that the AO had arbitrarily relied on earlier years without finding any discrepancy in the current year's transactions. Thus, the Tribunal concluded that the issue need not be sent back to the CIT(A) again.

4. Application of GP Rate and Rejection of Trading Results by AO:

The AO applied a GP rate of 15% and rejected the trading results, alleging that the assessee had a history of entering into transactions with related parties at inflated prices. The assessee argued that the purchases were at market rates and provided evidence to support this claim. The Tribunal found that the AO's rejection of trading results was based on assumptions without considering the assessee's explanations and documentary evidence. The Tribunal noted that the assessee had not earned any lease income in the current year, distinguishing it from previous years. Therefore, the Tribunal concluded that the AO's addition based on the GP rate was not justified.

Conclusion:

The Tribunal allowed the appeal filed by the assessee and dismissed the appeal filed by the Revenue. The Tribunal found that the CIT(A) had rightly deleted the addition of Rs. 19,99,840/- on account of undisclosed stock based on verified facts and evidences. The Tribunal also concluded that the AO's addition of Rs. 4,57,340/- as undisclosed profit was not justified as it was based on surmises and conjectures without considering the assessee's explanations and documentary evidence. The Tribunal emphasized the need to consider each year separately in income tax proceedings and found that the current year's transactions were consistent with market rates.

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