2016 (9) TMI 640 - AT - Income Tax

Sale of gold and silver ornaments - G.P. determination - Held that - The appellant has not taken any grounds before us relating to rejection of books of accounts under section 145(3) and hence, the contention of the ld AR regarding invalid application of section 145 cannot be accepted. Regarding estimation of sales at ₹ 8 lacs as against declared sales of ₹ 7.73 lacs by the assessee in its return of income, no basis or justification has been given by the AO. Further, the basis of estimation of G.P @ 20% as against declared G.P of 13.11% is also not clear from the assessment order. Inspite of the fact that the books of accounts have been rejected, the estimation of sales and G.P need to necessarily have some rational and reasonable basis which is absent in the instant case. Hence, the trading addition of ₹ 56,223 is deleted and the ground of the assessee is allowed. Addition on account of outstanding debtors - Held that - Additions made by the AO flow from the same set of documents namely the Katuria note book as well as Annex. A -12 to A-17 found during the course of survey. Given that the AO has verified the entries and worked out the outstanding debtors for the year under consideration as well as for the previous years, we do not see a basis to hold that the surrender made by the assessee of ₹ 3,06,080/- is in addition to ₹ 5,52,740/- worked out by the AO. In light of that, we agree with the contentions of the ld. AR that there is double addition which has happened to the extent of ₹ 3,06,080/- hence we restrict the subject addition on account of outstanding debtors to the extent of Rs., 2,46,060/-. Addition towards outstanding debtors of ₹ 2,46,060 shall be covered by the unexplained assets surrendered and disclosed by the assessee amounting to ₹ 36,16,140/-. Hence, the same has to be telescoped and cannot be brought to tax separately. In light of that, we delete the whole of additions towards the outstanding trade debtors - Decided in favour of assessee. Addition of shop expenses - Held that - The addition confirmed by the ld, CIT(A) is purely on adhoc basis hence the same is deleted. Undisclosed income in the shape of outstanding debts - Held that - The surrender of ₹ 36,13,140 during AY 2002-2003 relates to stock accumulated out of income earned from sale/purchase of gold and job work charges of ₹ 26,50,000, cash found during survey of ₹ 63,140, investment in house of ₹ 5,00,000, trade debtors outstanding of ₹ 3,00,000 and loan and interest of ₹ 1,00,000. In the statement of Shri Suresh Soni, son of the assessee and which is subsequently confirmed by the assessee in his own statement, it has been mentioned that investments made in stock, cash found during survey, etc are out of the same business receipts and trade debtors. Nothing has been brought on record by the Revenue in terms of any tangible evidence to prove otherwise. The surrender of ₹ 36,13,140 and additions of trade debtors over all these years amounting to ₹ 9,19,191 have their origin in terms of statements recorded of Shri Suresh Soni, the assessee as well as same set of documents in terms of katuria note book and loose papers found during the course of survey which have to be read and considered in entirety and which prove that the quality of trade debtors in all these years and surrender of stock and cash and even investment in house is not different. In the entirety of facts and circumstances of the case, where the realisation from sales for the year and previous years have been invested in the stock of gold and house property and which have already been brought to tax as surrendered income, the same trade debtors cannot be brought to tax again in the hands of the assessee.

Issues Involved:
1. Trading addition of ?56,201 for AY 2002-03.
2. Trading addition of ?5,52,740 on account of undisclosed income in the form of undisclosed debtors for AY 2002-03.
3. Disallowance of expenses amounting to ?5,000 for AY 2002-03.
4. Addition of undisclosed income in the shape of outstanding debts for AY 1998-99 to AY 2001-02.

Detailed Analysis:

Issue 1: Trading Addition of ?56,201 for AY 2002-03
The Assessing Officer (AO) observed discrepancies in the assessee's books, specifically in the sale of gold and silver ornaments, leading to an addition of ?56,201. The AO rejected the books under Section 145(3) and estimated the sales at ?8 lakhs with a Gross Profit (GP) rate of 20%. The CIT(A) confirmed this addition, citing discrepancies in stock, debtors, sales, and unverifiable purchases from villagers.

The assessee argued that the AO's rejection of books under Section 145 was invalid as the books were properly maintained and vouched. The Tribunal found that the AO did not provide a clear basis for estimating the sales and GP rate, and thus, deleted the trading addition of ?56,201, allowing the assessee's ground.

Issue 2: Trading Addition of ?5,52,740 on Account of Undisclosed Income in the Form of Undisclosed Debtors for AY 2002-03
During a survey, a notebook and loose papers were found showing outstanding balances totaling ?5,52,740. The AO added this amount as undisclosed income, in addition to ?3,06,080 declared by the assessee. The CIT(A) deleted the notional interest but confirmed the addition of ?5,52,740.

The assessee contended that this addition resulted in double taxation, as the surrender of ?3,06,080 included the outstanding debtors. The Tribunal agreed, noting the lack of a clear basis for the AO's addition and the overlap with the surrendered amount. The Tribunal restricted the addition to ?2,46,060 and further allowed it to be set off against the already disclosed unexplained assets of ?36,16,140, effectively deleting the addition.

Issue 3: Disallowance of Expenses Amounting to ?5,000 for AY 2002-03
The AO disallowed ?5,000 out of shop expenses of ?30,630, considering them personal in nature. The CIT(A) reduced this disallowance to ?3,000. The assessee argued that the disallowance was made on an ad hoc basis without specific evidence.

The Tribunal found the disallowance to be arbitrary and deleted the addition of ?2,000 confirmed by the CIT(A).

Issue 4: Addition of Undisclosed Income in the Shape of Outstanding Debts for AY 1998-99 to AY 2001-02
The AO made additions for undisclosed income based on outstanding debtors for the years AY 1998-99 to AY 2001-02, totaling ?9,19,191. The assessee argued that these additions were covered by the surrendered amount of ?36,13,140 in AY 2002-03, which included undisclosed investments from recoveries of outstanding debtors.

The Tribunal noted that the statements and documents from the survey indicated that the undisclosed income from previous years was invested in assets already surrendered and taxed. The Tribunal relied on the Supreme Court's decision in Anantharam Veerasinghaiah & Co. and the Rajasthan High Court's decision in Tyaryamal Bal Chand, which support the concept of telescoping. Consequently, the Tribunal deleted the additions for all the years under consideration, totaling ?9,19,191.

Conclusion:
The Tribunal allowed all the appeals filed by the assessee, deleting the additions made by the AO and confirming that the surrendered amount in AY 2002-03 covered the disputed additions for previous years. The order was pronounced in the open court on 04/08/2016.

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