2017 (6) TMI 408 - HC - Income Tax

Rejection of books of accounts - Addition of unaccounted sales - Held that - We notice that neither CIT (A) nor the Tribunal have solely relied on the confessional statement of Mahesh Biyani, brother of the assessee, in sustaining the addition made by the Assessing Officer. In fact, the order of CIT (A) which is elaborate, refers to other materials collected during the course of survey such as gross profit rate in the line of business done by the assessee. It was noticed that the gross profit declared by the assessee was much lesser than the profit in the trade. CIT (A) also noted that during the survey as well as after the survey, assessee failed to submit the stock reconciliation. He had in fact conveyed that no stock was maintained. The assessee had failed to provide stock register despite several opportunities. Inter alia on such grounds, the CIT (A) had confirmed the addition. It is true that the Tribunal has discussed the issue somewhat briefly. Nevertheless, the Tribunal has observed that the information given by Mahesh Biyani cannot be brushed aside nor has the assessee brought on record any material to show that the same was incorrect or unreasonable. More importantly, the Tribunal noted that the material found during the survey proceedings showed that the books of accounts were not correctly maintained and that therefore, there was no error in rejection of the assessee s books of accounts.

Summary

Issues:
1. Addition of unaccounted sales upheld by the Tribunal.
2. Addition based on retracted statement of the brother of the Appellant.
3. Treatment of sales as income instead of net profit.

Analysis:
1. The assessee challenged the addition of unaccounted sales of ?59,40,000/-, previously deleted by CIT (A), but reinstated by the Tribunal. The Tribunal remanded the issue back to CIT (A) for fresh consideration due to procedural irregularities. In the subsequent round, CIT (A) confirmed the addition, leading to the dismissal of the appeal by the Tribunal. The appellant argued that the original addition should not have been reinstated as the first order reducing it was not challenged by the Revenue. However, the Court held that CIT (A) was free to decide the appeal afresh in the absence of specific limitations set by the Tribunal. The nature of additions and the evidence considered by CIT (A) and the Tribunal, including the lack of stock reconciliation and maintenance, supported the decision to uphold the addition.

2. The addition based on the retracted statement of the appellant's brother during a survey operation was a crucial factor in determining the unaccounted income. Despite the retraction, the Court found that other evidence and discrepancies in the books of accounts supported the addition. The Tribunal emphasized the importance of the materials found during the survey, indicating inaccuracies in the accounts maintained by the assessee. The rejection of the books of accounts was justified based on the evidence presented during the proceedings.

3. The issue of treating the sales amount as income instead of net profit raised questions regarding the method adopted by CIT (A) and the Tribunal. The appellant contended that the addition should have been based on gross profit rate and higher turnovers rather than unaccounted sales. However, the Court found the decision to confirm the addition as income valid based on the evidence of discrepancies in the declared profits and failure to maintain proper stock records. The factual nature of the issue led the Court to conclude that no question of law arose, resulting in the dismissal of the tax appeal.

In conclusion, the Court upheld the addition of unaccounted sales as income, considering the evidence and procedural history of the case, leading to the dismissal of the tax appeal based on the factual nature of the issues involved.