2019 (1) TMI 101 - AT - Income Tax

Additions on account of gold and cash found during the course of search proceeding - rejecting books of accounts, holding that assessee is engaged in unaccounted sales and purchases of bullions - making addition by estimating gross profit ratio @ 1% on alleged business of unaccounted trading of bullion without any cogent basis, therefore we thought it fit to dispose of the same by this common order - Held that - The material found from an unconnected person cannot be added in the assessee s hands when even the said person had not admitted that it relates to the assessee. Thus, no addition can be made on account of entries found from the premises of Gajmangal, merely on the basis of surmises and conjectures. Hence the additions made by AO and confirmed by CIT(A) are not sustainable and thus are ordered to be deleted. Resultantly, these grounds raised by the assessee stands allowed.

Issues Involved:
1. Rejection of books of accounts under Section 145(3) of the Income Tax Act, 1961.
2. Addition of ?1,28,56,000/- on account of gold bullions found during search proceedings.
3. Addition of ?1,50,50,011/- on account of cash found during search proceedings.
4. Allegation of unaccounted sales and purchases of bullion.
5. Addition of ?29,10,560/- by estimating Gross Profit Ratio at 1% on alleged unaccounted trading of bullion.

Issue-wise Detailed Analysis:

1. Rejection of Books of Accounts under Section 145(3):
The Commissioner of Income Tax (Appeals) [CIT(A)] rejected the books of accounts under Section 145(3) of the Income Tax Act, 1961, asserting that the books were fabricated to accommodate the unaccounted stock and cash. The CIT(A) observed extraordinary cash sales prior to the search, suggesting that the books were an afterthought. However, the Tribunal found that the assessee had submitted the books of accounts, purchase and sale registers, stock register, and cash book within four days of the original statement, which were not countered by the revenue. The Tribunal held that the CIT(A) could not step into the shoes of a businessman to decide stock placement and found no discrepancies in the books, deeming the rejection unjustified.

2. Addition of ?1,28,56,000/- on Account of Gold Bullions:
The Assessing Officer (AO) added ?1,28,56,000/- for unexplained gold bullions found in the locker. The assessee claimed the gold was duly accounted for in the books of accounts. The Tribunal noted that the assessee had provided supporting documents and an affidavit immediately after the search, asserting that the gold was part of the regular stock. The Tribunal found the AO's reliance on the initial statement, which the assessee claimed was not understood, to be incorrect without considering the subsequent evidence. The Tribunal concluded that the gold was accounted for and deleted the addition.

3. Addition of ?1,50,50,011/- on Account of Cash:
The AO made an addition of ?1,50,50,011/- for unexplained cash found in the locker. The Tribunal observed that the assessee had submitted detailed records and an affidavit explaining the source of the cash. The Tribunal found no discrepancies in the books of accounts and noted that the purchases were not doubted by the revenue. The Tribunal held that the cash was duly accounted for and deleted the addition.

4. Allegation of Unaccounted Sales and Purchases of Bullion:
The AO alleged that the assessee was engaged in unaccounted sales and purchases of bullion through hawala operators. The Tribunal found no evidence linking the assessee to the notings found in the papers of the alleged hawala operator. The Tribunal noted that the notings did not match the cash found in the locker and that no corroborative evidence was provided by the revenue. The Tribunal concluded that the allegations were based on surmises and conjectures and were not sustainable.

5. Addition of ?29,10,560/- by Estimating Gross Profit Ratio:
The AO estimated a gross profit ratio of 1% on the alleged unaccounted turnover of ?29,10,55,970/- and added ?29,10,560/-. The Tribunal found that the notings used to estimate the turnover were not linked to the assessee and that there was no evidence of unaccounted transactions. The Tribunal held that the addition was not justified and ordered its deletion.

Conclusion:
The Tribunal allowed the appeal filed by the assessee, deleting all the additions made by the AO and confirmed by the CIT(A). The Tribunal found that the assessee had duly accounted for the gold and cash found during the search and that the allegations of unaccounted transactions were not substantiated by evidence. The rejection of the books of accounts was deemed unjustified, and the additions based on surmises and conjectures were deleted. The appeal was allowed with no order as to cost.

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