2017 (7) TMI 31 - AT - Income Tax

Addition u/s 68 - addition under Section 153C - Held that - For the purpose of making addition under Section 153C especially when the assessee filed the return of income before the date of search operation, the Assessing Officer has to place his reliance on the material found during the course of search operation. In case, no material was found during the search operation, in respect of credit found in the Books of Accounts which is produced during the course of proceedings, this Tribunal is of the considered opinion that there cannot be any addition under Section 153C of the Act. In this case, admittedly no material was found during the course of search operation in respect of the addition made by the Assessing Officer to the extent under Section 68 of the Act. Therefore the addition made by the Assessing Officer cannot be sustained. Accordingly, the same is deleted. Comparison of average profit - Estimation of net income - Held that - CIT (Appeals) compared the profit ratio of the assessee right from the assessment years 2001-02 to 2006-07 and found that there was a marginal difference between the profit ratio disclosed in the earlier assessment year and for the assessment year 2006-07. Accordingly, the Assessing Officer estimated the profit at 1.19% being the average for the assessment year 2005-06. AO has taken the profit at 1.18% which was confirmed by the CIT (Appeals). This Tribunal has also confirmed the order of the CIT (Appeals). Therefore for the sake of consistency the order of the lower authorities is modified and the Assessing Officer is directed to estimate the profit at 1.18% instead of 1.19%. Suppression of net profit - Held that - The last three years average comes to 1.11%. This is also not in dispute. The assessee has disclosed only 0.71%. The Assessing Officer has computed the suppression of income by taking the difference of average income of earlier years and the income disclosed during the year under consideration. This Tribunal is of the considered opinion that the Assessing Officer computed the average income of the assessee by comparing the profit ratio disclosed by the assessee himself. Therefore there cannot be any reason to interfere with the order of the lower authorities, especially when the assessee has not maintained the books of income. Therefore this Tribunal sustains the order of the lower authorities. Addition of cash balance as on 31.09.1999 - Held that - Assessee was not carrying any unaccounted business. There is a prima facie evidence to indicate that the assessee is carrying on some activity for the period 02.12.1997 to 21.07.1998. What actually was done by the assessee was to be examined by the Assessing Officer after giving opportunity to the assessee. Accordingly the orders of the lower authorities are set aside and the issue is remitted back to the file of the Assessing Officer for re-examination in the light of the material available on record and thereafter decide in accordance with law after giving reasonable opportunity to the assessee. Addition u/s 68 - Held that - As seen from the assessment order, it appears that the credit was made by cash. Even though, the assessee claims that it was a transfer from M/s. Sri Durga Textiles, there was no debit entry in the Books of Accounts of M/s.Sri Durga Textiles. The assessee appears to have proposed an arithmetical tally inside the account by relying on journal entries. When the capital account disclosed the investment by cash, this Tribunal is of the considerable opinion that the claim made by the assessee that it was transferred from M/s. Sri Durga Textiles is an afterthought. Therefore the CIT (Appeals) has rightly confirmed the addition made by the Assessing Officer. Addition towards excess stock - Held that - During the course of search operation, the physical stock of the assessee was quantified and it was found that there was excess stock. It is not in dispute that the excess stock was computed after considering the opening balance, purchases and overhead expenditure furnished by the assessee. Therefore the claim of the assessee that the aggregate closing stock of all the 4 concerns were put together, there may not be any difference is misconstrued. Since, the Assessing Officer has taken the opening stock, purchases, overhead expenditure for all the 4 concerns, this Tribunal is of the considered opinion that the excess stock of ₹ 31,91,834 was rightly taken as business income of the assessee.

Summary

Issues Involved:
1. Addition under Section 68 of the Income Tax Act, 1961.
2. Disallowance of expenses.
3. Suppression of net profit.
4. Addition under Section 28(i)(iv) of the Income Tax Act, 1961.
5. Estimation of suppression of income.
6. Addition towards excess stock.

Detailed Analysis:

1. Addition under Section 68 of the Income Tax Act, 1961:
Assessment Year 2002-03:
- The issue involved the addition of ?1,50,000/- under Section 68.
- The assessee argued that the amount was transferred from her capital account in the proprietary concern, but the Assessing Officer (AO) found no such transfer.
- The Tribunal held that no material was found during the search operation to justify the addition under Section 153C, thus the addition was deleted.

Assessment Year 2003-04:
- The issue involved the addition of ?3,50,000/- under Section 68.
- The assessee claimed the credits were gifts from parents and transfers from her capital account, but the AO found no satisfactory evidence.
- The Tribunal deleted the addition, citing the absence of material found during the search operation.

2. Disallowance of Expenses:
Assessment Year 2003-04:
- The AO disallowed ?1,00,000/- for understating gross profit.
- The Tribunal found no material from the search operation to justify the addition and deleted it.

Assessment Year 2004-05:
- The AO disallowed ?50,000/- towards expenses.
- The Tribunal deleted the addition, reiterating the absence of material found during the search operation.

Assessment Year 2005-06:
- The AO disallowed ?1,00,000/- for understating gross profit.
- The Tribunal deleted the addition due to lack of material from the search operation.

3. Suppression of Net Profit:
Assessment Year 2006-07:
- The AO added ?1,25,000/- for suppression of net profit on an estimation basis.
- The Tribunal held that in the absence of material found during the search, the addition could not be sustained and deleted it.

4. Addition under Section 28(i)(iv) of the Income Tax Act, 1961:
Assessment Year 2001-02:
- The AO added ?16,92,483/- based on the assessee’s statement during the search operation about receiving ?20,00,000/- on retirement from a partnership firm.
- The Tribunal found the statement made under Section 132(4) had evidentiary value and restored the AO’s addition, setting aside the CIT (Appeals) order.

5. Estimation of Suppression of Income:
Assessment Year 2005-06 (M/s. Anburaj Exports):
- The AO estimated suppression of income at ?76,804/- based on the average profit for the assessment year 2006-07, as the assessee did not file the return.
- The Tribunal confirmed the AO’s addition, noting the comparison with earlier years’ average profit.

Assessment Year 2006-07 (M/s. Anburaj Exports):
- The AO estimated suppression of income at ?76,800/- based on the average profit ratio.
- The Tribunal modified the order, directing the AO to estimate the profit at 1.18% instead of 1.19%.

6. Addition towards Excess Stock:
Assessment Year 2006-07:
- The AO added ?31,91,834/- for excess stock found during the search operation.
- The Tribunal upheld the AO’s addition, noting that the computation of excess stock considered opening balance, purchases, and overhead expenditure.

Summary:
- The Tribunal allowed the appeals in ITA Nos. 2174 to 2178 of 2013, dismissed ITA Nos. 2172 & 2173 of 2013, partly allowed ITA No. 2179 of 2013, and allowed the Revenue’s appeal in ITA No. 2183 of 2013.
- The judgments emphasized the importance of material found during search operations for additions under Section 153C and upheld the evidentiary value of statements made under Section 132(4).