2017 (7) TMI 39 - HC - Income Tax

Undisclosed business income - valuation of goods - Held that - Invoice and delivery challans were in fact proforma invoices. In view of the plea raised by the assessee, the Assessing Officer ought to have examined the suppliers to find out the truth or otherwise of the claim. As such the Tribunal directed 5% of the value of goods, under the delivery challan bearing acknowledgement of receipt, to be added to the gross profit and the additions of the other three purchases, deleted. The Revenue could not dispute that there was no attempt to adduce corroborative evidence to support the AO s rejection of the claim of the assessee. We find that the view taken by the Tribunal is a plausible view. Stock verification - Held that - The stock statement given to the bank is dated 29th February, 2008. The survey was conducted soon thereafter on 10th March, 2008. It was undisputed before the Tribunal that at the time of survey physical verification of stock was made and it tallied as per books of account maintained by the assessee. On these facts, we are unable to accept the argument on behalf of the Revenue that the bank having had verified the stock, stated to be there with the assessee, such should be accepted for the purpose of the addition being sustained. The judgments relied upon by the assessee lend credence to our accepting the Tribunal s finding on fact. When the Revenue itself could not detect a discrepancy in the stock, relying upon a verification made by a person not concerned with the assessment cannot be relevant evidence to lawfully presume undisclosed income. The correctness of the verification made by the bank was not determined. That is not a matter for consideration or adjudication in this appeal. No substantial question of law

Summary

Issues:
1. Undisclosed business income based on unrecorded purchases and stock valuation discrepancies.

Analysis:
The judgment pertains to an appeal by the Revenue against the Income Tax Appellate Tribunal's order concerning the assessment year 2008-09. The case involves the assessment of an individual engaged in the wholesale business of grocery items. The Revenue had added the aggregate value of goods from four invoices as undisclosed business income, along with additional income based on a stock statement submitted to a bank showing a higher value than disclosed to the tax department. The CIT(A) upheld the additions, but the Tribunal deleted most of them.

First Issue - Unrecorded Purchases:
The Revenue contended that undisclosed purchases were made, citing authorization letters to truck drivers as evidence. The Assessing Officer added the value of these purchases as undisclosed business income. The Tribunal, however, found the invoices to be proforma and directed only 5% of the value of goods with acknowledgment of receipt to be added to the gross profit, deleting the additions for the other purchases. The Tribunal's view was deemed reasonable as no corroborative evidence supported the Assessing Officer's rejection of the assessee's claim.

Second Issue - Stock Valuation Discrepancies:
Regarding discrepancies in stock valuation, the Tribunal found that physical verification during a survey matched the books of account. The Revenue argued that the stock verified by the bank should be accepted, but the court disagreed. The judgments relied upon supported the Tribunal's factual findings. Relying on a bank's verification, not involved in the assessment, to presume undisclosed income was deemed irrelevant. The correctness of the bank's verification was not a matter for consideration in the appeal.

In conclusion, the court dismissed the appeal, stating that no substantial question of law was involved in the case. The judgment highlights the importance of factual findings and corroborative evidence in determining undisclosed income and stock valuation for tax assessment purposes.